HP Beats Street In Q4; Cautious Outlook For 2012
HP reported its fiscal fourth-quarter and full-year earnings on Monday, noting net revenue of $32.3 billion for the quarter, down 3% year-over-year. HP's diluted earnings per share of $1.17 in the fourth quarter was also down 12% year-over-year. Fiscal 2011 GAAP net revenue was $127.2 billion, up 1% from the $126 billion HP reported in 2010. Despite beating analyst expectations of $32.05 billion in net revenue and earnings of $1.13 per share, the company said it is cautious as it looks into 2012. Read on for more.
"We need to get back to the business fundamentals in fiscal 2012, including making prudent investments in the business and driving more consistent execution," CEO Meg Whitman said in a statement. Chief financial officer and HP executive vice president Cathie Lesjak added, "We're remaining cautious heading into FY12 but are focused on delivering our earnings outlook and driving shareholder value."
HP's services group reported revenue of $9.3 billion, up 2% year-over-year. Its Enterprise Servers, Storage and Networking group reported a 4% decline in revenue. The software group reported a 28% increase in revenue year-over-year driven by growth in both its licenses and services divisions. HP's personal systems group (PSG) reported a 2% decline in revenue compared to last year, the financial services sector grew 18% year-over-year and HP's imaging and printing group reported a 10% drop off. The full press release from HP follows below.
HP Reports Fourth Quarter and Full Year 2011 ResultsPALO ALTO, CA, Nov 21, 2011– Fiscal 2011 non-GAAP net revenue of $127.4 billion, non-GAAP diluted earnings per share of $4.88 and free cash flow of $9.1 billion grew 1%, 7% and 8%, respectively, over the prior year– Fiscal 2011 GAAP net revenue of $127.2 billion, GAAP diluted earnings per share of $3.32 and cash flow from operations of $12.6 billion– Fourth quarter non-GAAP net revenue of $32.3 billion, non-GAAP diluted earnings per share of $1.17 and free cash flow of $1.2 billion were down 3%, 12% and 43%, respectively, from the prior-year quarter– Fourth quarter GAAP net revenue of $32.1 billion, GAAP diluted earnings per share of $0.12 and cash flow from operations of $2.4 billionHP today announced financial results for its fourth quarter and full fiscal year ended Oct. 31, 2011."HP has a great opportunity to build on our strong hardware, software, and services franchises with leading market positions, customer relationships, and intellectual property," said Meg Whitman, HP president and chief executive officer. "We need to get back to the business fundamentals in fiscal 2012, including making prudent investments in the business and driving more consistent execution.""While FY11 proved to be a challenging year, we grew non-GAAP EPS 7% and generated $12.6 billion in cash flow from operations," said Cathie Lesjak, HP executive vice president and chief financial officer. "We're remaining cautious heading into FY12 but are focused on delivering our earnings outlook and driving shareholder value."Earnings highlights
------------------ ------------------------------ -------------------------- Q4 FY11 Q4 FY10 Y/Y FY11 FY10 Y/Y------------------ ------------------------------ --------------------------GAAP net revenue ($B) $ 32.1 $ 33.3 (3%) $127.2 $126.0 1%------------------ ------------------------------ --------------------------GAAP operating margin 2.5% 9.9% (7.4 pts) 7.6% 9.1% (1.5 pts)------------------ ------------------------------ --------------------------GAAP net earnings ($B) $ 0.2 $ 2.5 (91%) $ 7.1 $ 8.8 (19%)------------------ ------------------------------ --------------------------GAAP diluted EPS $ 0.12 $ 1.10 (89%) $ 3.32 $ 3.69 (10%)------------------ ------------------------------ --------------------------Non-GAAP net revenue ($) $ 32.3 $ 33.3 (3%) $127.4 $126.0 1%------------------ ------------------------------ --------------------------Non-GAAP operating margin 9.7% 12.0% (2.3 pts) 10.8% 11.4% (0.6 pts)------------------ ------------------------------ --------------------------Non-GAAP net earnings ($B) $ 2.4 $ 3.1 (23%) $ 10.4 $ 10.9 (4%)------------------ ------------------------------ --------------------------Non-GAAP diluted EPS $ 1.17 $ 1.33 (12%) $ 4.88 $ 4.58 7%------------------ ------------------------------ --------------------------Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below. Unless otherwise specified, all revenue amounts below are calculated on a GAAP basis.Full year fiscal 2011 GAAP net revenue for the full fiscal year 2011 was $127.2 billion, up 1% compared with the prior year or down 1% when adjusted for the effects of currency. GAAP operating profit was $9.7 billion, and GAAP diluted earnings per share (EPS) was $3.32, down 10% from the prior year.Non-GAAP net revenue for the full fiscal year 2011 was $127.4 billion, up 1% compared with the prior year or down 1% when adjusted for the effects of currency. Non-GAAP operating profit was $13.8 billion, and non-GAAP diluted EPS was $4.88, up 7% from the prior year.Fiscal 2011 non-GAAP net revenue includes an additional $0.2 billion of revenue resulting from the exclusion of contra revenue associated with sales incentive programs implemented in the fourth quarter in connection with the wind down of HP's webOS device business, net of fourth quarter webOS device revenue. Non-GAAP earnings and operating profit information excludes after-tax costs of $3.3 billion, or $1.56 per diluted share, related to the wind down of HP's webOS device business, impairment of goodwill and purchased intangible assets, amortization of purchased intangible assets, restructuring charges and acquisition-related charges.Fourth fiscal quarter 2011 For the quarter, GAAP net revenue of $32.1 billion was down 3% from the prior-year period. Non-GAAP net revenue of $32.3 billion was down 3% from the prior-year period as reported and down 6% when adjusted for the effects of currency.GAAP diluted EPS was $0.12, down 89% from the prior-year period. Non-GAAP diluted EPS was $1.17, down 12% from the prior-year period.Fourth quarter non-GAAP net revenue includes an additional $0.2 billion of revenue resulting from the exclusion of contra revenue associated with sales incentive programs implemented in connection with the wind down of HP's webOS device business, net of webOS device revenue for the period. Fourth quarter non-GAAP earnings information excludes after-tax costs of $2.1 billion, or $1.05 per diluted share, related to the wind down of HP's webOS device business, impairment of goodwill and purchased intangible assets, amortization of purchased intangible assets, restructuring charges and acquisition-related charges.Fourth fiscal quarter 2011 trends and regional performance In the Americas, fourth quarter GAAP net revenue was $14.5 billion, down 4% year over year and down 5% when adjusted for the effects of currency. Non-GAAP net revenue in the Americas was $14.6 billion, down 3% year over year and down 4% when adjusted for the effects of currency.Europe, the Middle East and Africa GAAP revenue of $11.7 billion was down 6% year over year and down 10% when adjusted for the effects of currency. GAAP revenue in Asia Pacific was $6.0 billion, representing a 3% increase year over year, and down 4% when adjusted for the effects of currency.GAAP revenue from outside of the United States in the fourth quarter accounted for 65% of total HP revenue. BRIC countries (Brazil, Russia, India and China) generated revenue of $3.8 billion, up 9% over the year-ago period, for 12% of total HP revenue.Revenue in HP's commercial businesses declined 2% year over year. Revenue in HP's consumer businesses, within PSG and IPG, was collectively down 9% year over year.Fourth fiscal quarter 2011 business group results– Services revenue of $9.3 billion grew 2% year over year with a 12.8% operating margin. Technology Services and Application Services revenue grew 3% and 2%, respectively, while IT Outsourcing revenue grew 1% and Business Process Outsourcing revenue declined 2%.– Enterprise Servers, Storage and Networking (ESSN) revenue declined 4% year over year with a 13.0% operating margin. Networking revenue was up 5%, Industry Standard Servers revenue was down 4%, Business Critical Systems revenue was down 23%, and Storage revenue was up 4%.– HP Software revenue grew 28% year over year with a 27.7% operating margin. HP Software revenue was driven by revenue growth in licenses and services of 33% and 36%, respectively.– Personal Systems Group (PSG) revenue declined 2% year over year with a 5.7% operating margin. Commercial client revenue grew 5%, and Consumer client revenue declined 9%. Total units were up 2% with 5% growth in desktop units and 1% growth in notebook units.– Imaging and Printing Group (IPG) revenue declined 10% year over year with a 12.8% operating margin. Commercial revenue was up 4% year over year with commercial printer hardware units up 5%. Consumer printer hardware revenue was down 8% year over year with an 8% decline in units.– Financial Services revenue grew 18% year over year driven by double-digit growth in both lease volume and portfolio assets. The business delivered a 10.3% operating margin.Asset management HP generated $2.4 billion in cash flow from operations in the fourth quarter. Inventory ended the quarter at $7.5 billion, with days of inventory up 4 days year over year to 27 days. Accounts receivable of $18.2 billion was up 1 day year over year to 51 days. Accounts payable ended the quarter at $14.8 billion, flat from the prior-year period at 52 days. HP's dividend payment of $0.12 per share in the fourth quarter resulted in cash usage of $239 million. HP also utilized $500 million of cash during the quarter to repurchase approximately 17 million shares of common stock in the open market. HP exited the quarter with $8.1 billion in gross cash.Outlook For the first quarter of fiscal 2012, HP estimates non-GAAP diluted EPS in the range of $0.83 to $0.86, and GAAP diluted EPS in the range of $0.61 to $0.64.First quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.22 per share, related primarily to the amortization and impairment of purchased intangibles, restructuring charges and acquisition-related charges.HP expects full year fiscal 2012 non-GAAP diluted EPS of at least $4.00 and GAAP diluted EPS of approximately $3.20.Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.80 per share, related primarily to the amortization and impairment of purchased intangibles, restructuring charges and acquisition-related charges.In order to more effectively manage HP as one company and align its guidance policy with its long-term objective of delivering profitable growth, HP will only be providing a quarterly and annual earnings per share outlook. The company believes that earnings per share is a better indicator of successful execution across its various business levers. HP remains committed to high levels of disclosure and transparency, including general commentary on its expectations relating to future revenue and business segment performance, and will continue to provide detailed segment-level financial performance data for completed fiscal periods.More information on HP's quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations website at www.hp.com/investor/home.HP's Q4 FY11 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2011q4webcast.About HP HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. The world's largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and IT infrastructure to solve customer problems. More information about HP is available at http://www.hp.com.Use of non-GAAP financial information To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its business, the substance behind HP management's decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which HP management compensates for those limitations, and the substantive reasons why HP management believes that these non-GAAP measures provide useful information to investors is included under "Use of Non-GAAP Financial Measures" after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for revenue, operating profit, operating margin, net earnings, diluted earnings per share, cash and cash equivalents or cash flow from operations prepared in accordance with GAAP.Forward-looking statements This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, earnings, tax provisions, cash flows, benefit obligations, share repurchases, currency exchange rates, the impact of acquisitions or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of cost reduction programs and restructuring and integration plans; any statements concerning the expected development, performance or market share relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the impact of macroeconomic and geopolitical trends and events; the competitive pressures faced by HP's businesses; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers and partners; the protection of HP's intellectual property assets, including intellectual property licensed from third parties; integration and other risks associated with business combination and investment transactions; the hiring and retention of key employees; assumptions related to pension and other post-retirement costs; expectations and assumptions relating to the execution and timing of restructuring and integration plans; the possibility that the expected benefits of business combination transactions may not materialize as expected; 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, 2010 and HP's other filings with the Securities and Exchange Commission, including HP's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2011. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP's Form 10-K for the fiscal year ended October 31, 2011. In particular, determining HP's actual tax balances and provisions as of October 31, 2011 requires extensive internal and external review of tax data (including consolidating and reviewing the tax provisions of numerous domestic and foreign entities), which is being completed in the ordinary course of preparing HP's Form 10-K. HP assumes no obligation and does not intend to update these forward-looking statements.Copyright 2011 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited) (In millions except per share amounts) Three months ended ---------------------------------------- October 31, July 31, October 31, 2011 2011 2010 ------------ ------------ ------------Net revenue $ 32,122 $ 31,189 $ 33,278Costs and Expenses:(a) Cost of sales 25,332 23,929 24,995 Research and development 829 812 814 Selling, general and administrative 3,577 3,402 3,464 Amortization of purchased intangible assets 411 358 424 Restructuring charges 179 150 235 Acquisition-related charges 114 18 51 Impairment of goodwill and purchased intangible assets 885 - - ------------ ------------ ------------ Total costs and expenses 31,327 28,669 29,983 ------------ ------------ ------------Earnings from operations 795 2,520 3,295Interest and other, net (401) (121) (81) ------------ ------------ ------------Earnings before taxes 394 2,399 3,214Provision for taxes 155 473 676 ------------ ------------ ------------Net earnings $ 239 $ 1,926 $ 2,538 ============ ============ ============Net earnings per share: Basic $ 0.12 $ 0.94 $ 1.13 Diluted $ 0.12 $ 0.93 $ 1.10Cash dividends declared per share $ - $ 0.24 $ -Weighted-average shares used to compute net earnings per share: Basic 1,989 2,054 2,249 Diluted 2,005 2,080 2,297(a) In connection with organizational realignments implemented in the first quarter of fiscal 2011, certain costs previously reported as Cost of Sales have been reclassified as Selling, General and Administrative expenses to better align those costs with the functional areas that benefit from those expenditures.HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (In millions except per share amounts) Twelve months ended October 31, -------------------------- 2011 2010 ------------ ------------ (Unaudited)Net revenue $ 127,245 $ 126,033Costs and expenses:(a) Cost of sales 97,529 95,956 Research and development 3,254 2,959 Selling, general and administrative 13,466 12,718 Amortization of purchased intangible assets 1,607 1,484 Restructuring charges 645 1,144 Acquisition-related charges 182 293 Impairment of goodwill and purchased intangible assets 885 - ------------ ------------ Total costs and expenses 117,568 114,554 ------------ ------------Earnings from operations 9,677 11,479Interest and other, net (695) (505) ------------ ------------Earnings before taxes 8,982 10,974Provision for taxes 1,908 2,213 ------------ ------------Net earnings $ 7,074 $ 8,761 ============ ============Net earnings per share: Basic $ 3.38 $ 3.78 Diluted $ 3.32 $ 3.69Cash dividends declared per share $ 0.40 $ 0.32Weighted-average shares used to compute net earnings per share: Basic 2,094 2,319 Diluted 2,128 2,372(a) In connection with organizational realignments implemented in the first quarter of fiscal 2011, certain costs previously reported as Cost of Sales have been reclassified as Selling, General and Administrative expenses to better align those costs with the functional areas that benefit from those expenditures.HEWLETT-PACKARD COMPANY AND SUBSIDIARIES ADJUSTMENTS TO GAAP NET REVENUE, NET EARNINGS, EARNINGS FROM OPERATIONS, OPERATING MARGIN AND EARNINGS PER SHARE (Unaudited) (In millions except per share amounts) Three Three Three months months months ended ended ended October Diluted July Diluted October Diluted 31, earnings 31, earnings 31, earnings 2011 per share 2011 per share 2010 per share ------- --------- ------- --------- ------- ---------GAAP net revenue $32,122 $31,189 $33,278Non GAAP adjustment: WebOS device contra revenue, net(a) 142 - - ------- ------- -------Non GAAP net revenue $32,264 $31,189 $33,278 ======= ======= =======GAAP net earnings $ 239 $ 0.12 $ 1,926 $ 0.93 $ 2,538 $ 1.10Non-GAAP adjustments: Amortization of purchased intangible assets 411 0.20 358 0.17 424 0.19 Restructuring charges 179 0.09 150 0.07 235 0.10 Acquisition- related charges in earnings from operations 114 0.06 18 0.01 51 0.02 Impairment of goodwill and purchased intangible assets(b) 885 0.44 - - - - Wind down of the WebOS device business(c) 755 0.38 - - - - Acquisition- related charges in interest and other, net(d) 276 0.14 - - - - Adjustments for taxes (509) (0.26) (170) (0.08) (184) (0.08) ------- --------- ------- --------- ------- ---------Non-GAAP net earnings $ 2,350 $ 1.17 $ 2,282 $ 1.10 $ 3,064 $ 1.33 ======= ========= ======= ========= ======= =========GAAP earnings from operations $ 795 $ 2,520 $ 3,295Non-GAAP adjustments: Amortization of purchased intangible assets 411 358 424 Restructuring charges 179 150 235 Acquisition- related charges in earnings from operations 114 18 51 Impairment of goodwill and purchased intangible assets(b) 885 - - Wind down of the WebOS device business(c) 755 - - ------- ------- -------Non-GAAP earnings from operations $ 3,139 $ 3,046 $ 4,005 ======= ======= =======GAAP operating margin 2% 8% 10%Non-GAAP adjustments 8% 2% 2% ------- ------- -------Non-GAAP operating margin 10% 10% 12% ======= ======= =======(a) Includes contra revenue primarily associated with sales incentive programs to wind down the webOS device business, net of current quarter webOS device revenue.(b) Includes impairment charges to goodwill and purchased intangible assets associated with the acquisition of Palm Inc. on July 1,2010 recorded as a result of the decision announced on August 18,2011 to wind down the webOS device business.(c) Includes primarily expenses for supplier-related obligations and contra revenue associated with sales incentive programs related to winding down the webOS device business.(d) Includes primarily the cost of the British pound options bought to limit foreign exchange rate risk in connection with the Autonomy acquisition.HEWLETT-PACKARD COMPANY AND SUBSIDIARIES ADJUSTMENTS TO GAAP NET REVENUE, NET EARNINGS, EARNINGS FROM OPERATIONS, OPERATING MARGIN AND EARNINGS PER SHARE (Unaudited) (In millions except per share amounts) Twelve Twelve months months ended Diluted ended Diluted October 31, earnings October 31, earnings 2011 per share 2010 per share ----------- ----------- ----------- -----------GAAP net revenue $ 127,245 $ 126,033Non GAAP adjustment: WebOS device contra revenue, net(a) 142 - ----------- -----------Non GAAP net revenue $ 127,387 $ 126,033 =========== ===========GAAP net earnings $ 7,074 $ 3.32 $ 8,761 $ 3.69Non-GAAP adjustments: Amortization of purchased intangible assets 1,607 0.75 1,484 0.63 Restructuring charges 645 0.30 1,144 0.48 Acquisition-related charges in earnings from operations 182 0.09 293 0.12 Impairment of goodwill and purchased intangible assets(b) 885 0.42 - - Wind down of the WebOS device business(c) 755 0.35 - - Acquisition-related charges in interest and other, net(d) 276 0.13 - - Adjustments for taxes (1,045) (0.48) (816) (0.34) ----------- ----------- ----------- -----------Non-GAAP net earnings $ 10,379 $ 4.88 $ 10,866 $ 4.58 =========== =========== =========== ===========GAAP earnings from operations $ 9,677 $ 11,479Non-GAAP adjustments: Amortization of purchased intangible assets 1,607 1,484 Restructuring charges 645 1,144 Acquisition-related charges in earnings from operations 182 293 Impairment of goodwill and purchased intangible assets(b) 885 - Wind down of the WebOS device business(c) 755 - ----------- -----------Non-GAAP earnings from operations $ 13,751 $ 14,400 =========== ===========GAAP operating margin 8% 9%Non-GAAP adjustments 3% 2% ----------- -----------Non-GAAP operating margin 11% 11% =========== ===========(a) Includes contra revenue primarily associated with sales incentive programs to wind down the webOS device business, net of current quarter webOS device revenue.(b) Includes impairment charges to goodwill and purchased intangible assets associated with the acquisition of Palm Inc. on July 1,2010 recorded as a result of the decision announced on August 18,2011 to wind down the webOS device business.(c) Includes primarily expenses for supplier-related obligations and contra revenue associated with sales incentive programs related to winding down the webOS device business.(d) Includes primarily the cost of the British pound options bought to limit foreign exchange rate risk in connection with the Autonomy acquisition.HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In millions) October 31, October 31, 2011 2010 ------------- ------------- (unaudited)ASSETSCurrent assets: Cash and cash equivalents $ 8,043 $ 10,929 Accounts receivable 18,224 18,481 Financing receivables 3,162 2,986 Inventory 7,490 6,466 Other current assets 14,102 15,322 ------------- ------------- Total current assets 51,021 54,184 ------------- -------------Property, plant and equipment 12,292 11,763Long-term financing receivables and other assets 10,755 12,225Goodwill and purchased intangible assets 55,449 46,331 ------------- -------------Total assets $ 129,517 $ 124,503 ============= =============LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Notes payable and short-term borrowings $ 8,083 $ 7,046 Accounts payable 14,750 14,365 Employee compensation and benefits 3,999 4,256 Taxes on earnings 1,048 802 Deferred revenue 7,449 6,727 Other accrued liabilities 15,113 16,207 ------------- ------------- Total current liabilities 50,442 49,403 ------------- -------------Long-term debt 22,551 15,258Other liabilities 17,520 19,061Stockholders' equity: HP stockholders' equity 38,625 40,449 Non-controlling interests 379 332 ------------- ------------- Total stockholders' equity 39,004 40,781 ------------- -------------Total liabilities and stockholders' equity $ 129,517 $ 124,503 ============= ============= HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Three months Twelve months ended ended October 31, October 31, 2011 2011 ------------- -------------Cash flows from operating activities: Net earnings $ 239 $ 7,074 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,262 4,984 Impairment of goodwill and purchased intangible assets 885 885 Stock-based compensation expense 210 685 Provision for bad debt and inventory 90 298 Restructuring charges 179 645 Deferred taxes on earnings (638) 166 Excess tax benefit from stock-based compensation (3) (163) Other, net 156 (46) Changes in assets and liabilities: Accounts and financing receivables (7) (227) Inventory (113) (1,252) Accounts payable 153 275 Taxes on earnings 359 610 Restructuring (252) (1,002) Other assets and liabilities (120) (293) ------------- ------------- Net cash provided by operating activities 2,400 12,639 ------------- -------------Cash flows from investing activities: Investment in property, plant and equipment (1,385) (4,539) Proceeds from sale of property, plant and equipment 217 999 Purchases of available-for-sale securities and other investments (96) (96) Maturities and sales of available-for-sale securities and other investments 9 68 Payments made in connection with business acquisitions, net of cash acquired (10,211) (10,480) Proceeds from business divestiture, net - 89 ------------- ------------- Net cash used in investing activities (11,466) (13,959) ------------- -------------Cash flows from financing activities: Issuance (repayment) of commercial paper and notes payable, net 262 (1,270) Issuance of debt 4,644 11,942 Payment of debt (65) (2,336) Issuance of common stock under employee stock plans 51 896 Repurchase of common stock (500) (10,117) Excess tax benefit from stock-based compensation 3 163 Dividends (239) (844) ------------- ------------- Net cash provided by (used in) financing activities 4,156 (1,566) ------------- -------------Decrease in cash and cash equivalents (4,910) (2,886)Cash and cash equivalents at beginning of period 12,953 10,929 ------------- -------------Cash and cash equivalents at end of period $ 8,043 $ 8,043 ============= =============HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited) (In millions) Three months ended ---------------------------------------- October 31, July 31, October 31, 2011 2011 2010 ------------ ------------ ------------Net revenue:(a) Services $ 9,281 $ 9,089 $ 9,125 Enterprise Servers, Storage and Networking 5,655 5,396 5,888 HP Software 976 780 763 Personal Systems Group 10,118 9,592 10,283 Imaging and Printing Group 6,321 6,087 6,995 HP Financial Services 952 932 809 Corporate Investments (94) 266 135 ------------ ------------ ------------ Total Segments 33,209 32,142 33,998 Eliminations of intersegment net revenue and other (1,087) (953) (720) ------------ ------------ ------------ Total HP Consolidated Net Revenue $ 32,122 $ 31,189 $ 33,278 ============ ============ ============Earnings from operations:(a) Services $ 1,188 $ 1,225 $ 1,500 Enterprise Servers, Storage and Networking 733 699 888 HP Software 270 151 261 Personal Systems Group 578 567 568 Imaging and Printing Group 808 892 1,220 HP Financial Services 98 88 73 Corporate Investments (903) (332) (157) ------------ ------------ ------------ Total Segments 2,772 3,290 4,353 Corporate and unallocated costs and eliminations (196) (114) (239) Unallocated costs related to stock-based compensation expense (192) (130) (109) Amortization of purchased intangible assets (411) (358) (424) Restructuring charges (179) (150) (235) Acquisition-related charges (114) (18) (51) Impairment of goodwill and purchased intangible assets (885) - - Interest and other, net (401) (121) (81) ------------ ------------ ------------Total HP Consolidated Earnings Before Taxes $ 394 $ 2,399 $ 3,214 ============ ============ ============(a) Certain fiscal 2011 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2010, the reclassifications resulted in the transfer of revenue and operating profit among the Enterprise Servers, Storage and Networking, Services, HP Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of the networking business from Corporate Investments to Enterprise Servers, Storage and Networking, the transfer of the communications and media solutions business from HP Software to Services, and the transfer of the business intelligence business from HP Software to Corporate Investments. There was no impact on the previously reported financial results for the Personal Systems Group, HP Financial Services and Imaging and Printing Group segments.HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited) (In millions) Twelve months ended October 31, ------------------------ 2011 2010 ----------- -----------Net revenue:(a) Services $ 35,954 $ 35,529 Enterprise Servers, Storage and Networking 22,241 20,356 HP Software 3,217 2,729 Personal Systems Group 39,574 40,741 Imaging and Printing Group 25,783 25,764 HP Financial Services 3,596 3,047 Corporate Investments 322 346 ----------- ----------- Total Segments 130,687 128,512 Eliminations of intersegment net revenue and other (3,442) (2,479) ----------- ----------- Total HP Consolidated Net Revenue $ 127,245 $ 126,033 =========== ===========Earnings from operations:(a) Services $ 5,149 $ 5,661 Enterprise Servers, Storage and Networking 3,026 2,825 HP Software 698 782 Personal Systems Group 2,350 2,032 Imaging and Printing Group 3,973 4,412 HP Financial Services 348 281 Corporate Investments (1,616) (366) ----------- ----------- Total Segments 13,928 15,627 Corporate and unallocated costs and eliminations (314) (614) Unallocated costs related to stock-based compensation expense (618) (613) Amortization of purchased intangible assets (1,607) (1,484) Restructuring charges (645) (1,144) Acquisition-related charges (182) (293) Impairment of goodwill and purchased intangible assets (885) - Interest and other, net (695) (505) ----------- -----------Total HP Consolidated Earnings Before Taxes $ 8,982 $ 10,974 =========== ===========(a) Certain fiscal 2011 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2010, the reclassifications resulted in the transfer of revenue and operating profit among the Enterprise Servers, Storage and Networking, Services, HP Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of the networking business from Corporate Investments to Enterprise Servers, Storage and Networking, the transfer of the communications and media solutions business from HP Software to Services, and the transfer of the business intelligence business from HP Software to Corporate Investments. There was no impact on the previously reported financial results for the Personal Systems Group, HP Financial Services and Imaging and Printing Group segments.HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT / BUSINESS UNIT INFORMATION (Unaudited) (In millions) Growth rate Three months ended (%) ---------------------------- ------------- October October 31, July 31, 31, 2011 2011 2010 Q/Q Y/Y -------- -------- -------- ----- -----Net revenue:(a) Services Infrastructure Technology Outsourcing $ 3,886 $ 3,884 $ 3,851 0% 1% Technology Services 2,810 2,754 2,733 2% 3% Application Services 1,798 1,698 1,763 6% 2% Business Process Outsourcing 683 658 695 4% (2%) Other 104 95 83 9% 25% -------- -------- -------- Total Services 9,281 9,089 9,125 2% 2% -------- -------- -------- Enterprise Servers, Storage and Networking Industry Standard Servers 3,384 3,302 3,530 2% (4%) Storage 1,088 976 1,044 11% 4% Business Critical Systems 535 459 695 17% (23%) HP Networking(b) 648 659 619 (2%) 5% -------- -------- -------- Total Enterprise Servers, Storage and Networking 5,655 5,396 5,888 5% (4%) -------- -------- -------- HP Software(c) 976 780 763 25% 28% -------- -------- -------- Personal Systems Group(d) Notebooks 5,390 5,082 5,623 6% (4%) Desktops 3,946 3,777 3,928 4% 0% Workstations 593 547 529 8% 12% Other 189 186 203 2% (7%) -------- -------- -------- Total Personal Systems Group 10,118 9,592 10,283 5% (2%) -------- -------- -------- Imaging and Printing Group Supplies 4,041 4,143 4,707 (2%) (14%) Commercial Hardware 1,596 1,292 1,541 24% 4% Consumer Hardware 684 652 747 5% (8%) -------- -------- -------- Total Imaging and Printing Group 6,321 6,087 6,995 4% (10%) -------- -------- -------- HP Financial Services 952 932 809 2% 18% -------- -------- -------- Corporate Investments (94) 266 135 (135%) (170%) -------- -------- -------- Total Segments 33,209 32,142 33,998 3% (2%) -------- -------- --------Eliminations of intersegment net revenue and other (1,087) (953) (720) 14% 51% -------- -------- -------- Total HP Consolidated Net Revenue $ 32,122 $ 31,189 $ 33,278 3% (3%) ======== ======== ========(a) Certain fiscal 2011 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2010, the reclassifications resulted in the transfer of revenue among the Enterprise Servers, Storage and Networking, Services, HP Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of the networking business from Corporate Investments to Enterprise Servers, Storage and Networking, the transfer of the communications and media solutions business from HP Software to Services, and the transfer of the business intelligence business from HP Software to Corporate Investments. In addition, revenue was transferred among the business units within the Services and Personal Systems Group segments. There was no impact on the previously reported financial results for the HP Financial Services and Imaging and Printing Group segments or for the business units within the Imaging and Printing Group segment.(b) The networking business was added to the Enterprise Servers, Storage and Networking segment in fiscal 2011.(c) The Business Technology Optimization and Other Software business units were consolidated into a single business unit within the HP Software segment in fiscal 2011.(d) The Handhelds business unit, which includes devices that run on Windows Mobile software, was reclassified into the Other business unit within the Personal Systems Group in fiscal 2011.HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT / BUSINESS UNIT INFORMATION (Unaudited) (In millions) Twelve months ended October 31, ------------------------ 2011 2010 ----------- -----------Net revenue:(a) Services Infrastructure Technology Outsourcing $ 15,189 $ 14,942 Technology Services 10,879 10,627 Application Services 6,852 6,792 Business Process Outsourcing 2,672 2,872 Other 362 296 ----------- ----------- Total Services 35,954 35,529 ----------- ----------- Enterprise Servers, Storage and Networking Industry Standard Servers 13,521 12,574 Storage 4,056 3,785 Business Critical Systems 2,095 2,292 HP Networking(b) 2,569 1,705 ----------- ----------- Total Enterprise Servers, Storage and Networking 22,241 20,356 ----------- ----------- HP Software(c) 3,217 2,729 ----------- ----------- Personal Systems Group(d) Notebooks 21,319 22,602 Desktops 15,260 15,519 Workstations 2,216 1,786 Other 779 834 ----------- ----------- Total Personal Systems Group 39,574 40,741 ----------- ----------- Imaging and Printing Group Supplies 17,154 17,249 Commercial Hardware 5,790 5,569 Consumer Hardware 2,839 2,946 ----------- ----------- Total Imaging and Printing Group 25,783 25,764 ----------- ----------- HP Financial Services 3,596 3,047 ----------- ----------- Corporate Investments 322 346 ----------- ----------- Total Segments 130,687 128,512 ----------- ----------- Eliminations of intersegment net revenue and other (3,442) (2,479) ----------- ----------- Total HP Consolidated Net Revenue $ 127,245 $ 126,033 =========== ===========(a) Certain fiscal 2011 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2010, the reclassifications resulted in the transfer of revenue among the Enterprise Servers, Storage and Networking, Services, HP Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of the networking business from Corporate Investments to Enterprise Servers, Storage and Networking, the transfer of the communications and media solutions business from HP Software to Services, and the transfer of the business intelligence business from HP Software to Corporate Investments. In addition, revenue was transferred among the business units within the Services and Personal Systems Group segments. There was no impact on the previously reported financial results for the HP Financial Services and Imaging and Printing Group segments or for the business units within the Imaging and Printing Group segment.(b) The networking business was added to the Enterprise Servers, Storage and Networking segment in fiscal 2011.(c) The Business Technology Optimization and Other Software business units were consolidated into a single business unit within the HP Software segment in fiscal 2011.(d) The Handhelds business unit, which includes devices that run on Windows Mobile software, was reclassified into the Other business unit within the Personal Systems Group in fiscal 2011.HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT NON-GAAP OPERATING MARGIN SUMMARY DATA (Unaudited) (In millions) Three months Change in Operating ended Margin (pts) ------------ ---------------------- October 31, 2011 Y/Y Q/Q ------------ ---------- ----------Non-GAAP Operating Margin:(a) Services 12.8% (3.6 pts) (0.7 pts) Enterprise Servers, Storage and Networking 13.0% (2.1 pts) 0.0 pts HP Software 27.7% (6.5 pts) 8.3 pts Personal Systems Group 5.7% 0.2 pts (0.2 pts) Imaging and Printing Group 12.8% (4.6 pts) (1.9 pts) HP Financial Services 10.3% 1.3 pts 0.9 pts Corporate Investments (308.3%) (192.0 pts) (183.5 pts) Total Segments 10.6% (2.2 pts) 0.4 pts Total HP Consolidated Non-GAAP Operating Margin 9.7% (2.3 pts) (0.1 pts)(a) Certain fiscal 2011 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2010, the reclassifications resulted in the transfer of revenue and operating profit among the Enterprise Servers, Storage and Networking, Services, HP Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of the networking business from Corporate Investments to Enterprise Servers, Storage and Networking, the transfer of the communications and media solutions business from HP Software to Services, and the transfer of the business intelligence business from HP Software to Corporate Investments. There was no impact on the previously reported financial results for the Personal Systems Group, HP Financial Services and Imaging and Printing Group segments.HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CALCULATION OF NET EARNINGS PER SHARE (Unaudited) (In millions except per share amounts) Three months ended ------------------------------------- October 31, July 31, October 31, 2011 2011 2010 ----------- ----------- -----------Numerator: GAAP net earnings $ 239 $ 1,926 $ 2,538 =========== =========== =========== Non-GAAP net earnings $ 2,350 $ 2,282 $ 3,064 =========== =========== ===========Denominator: Weighted-average shares used to compute basic EPS 1,989 2,054 2,249 Dilutive effect of employee stock plans 16 26 48 ----------- ----------- ----------- Weighted-average shares used to compute diluted EPS 2,005 2,080 2,297 =========== =========== ===========GAAP net earnings per share: Basic(a) $ 0.12 $ 0.94 $ 1.13 Diluted(c) $ 0.12 $ 0.93 $ 1.10Non-GAAP net earnings per share: Basic(b) $ 1.18 $ 1.11 $ 1.36 Diluted(c) $ 1.17 $ 1.10 $ 1.33(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.HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CALCULATION OF NET EARNINGS PER SHARE (Unaudited) (In millions except per share amounts) Twelve months ended October 31, ---------------------- 2011 2010 ---------- ----------Numerator: GAAP net earnings $ 7,074 $ 8,761 ========== ========== Non-GAAP net earnings $ 10,379 $ 10,866 ========== ==========Denominator: Weighted-average shares used to compute basic EPS 2,094 2,319 Dilutive effect of employee stock plans 34 53 ---------- ---------- Weighted-average shares used to compute diluted EPS 2,128 2,372 ========== ==========GAAP net earnings per share: Basic(a) $ 3.38 $ 3.78 Diluted(c) $ 3.32 $ 3.69Non-GAAP net earnings per share: Basic(b) $ 4.96 $ 4.69 Diluted(c) $ 4.88 $ 4.58(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.Use of Non-GAAP Financial MeasuresTo 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 HPNon-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 reflects the elimination of contra revenue associated with sales incentive programs implemented 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.– 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.Material Limitations Associated with Use of Non-GAAP Financial MeasuresThese 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 MeasuresHP 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 InvestorsHP 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.SOURCE: HP