HP Reports First Quarter 2009 Results

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 Q1 FY09 earnings conference call is accessible via an audio webcast at www.hp.com/investor/q12009webcast.

About HP

HP, the world’s largest technology company, provides printing and personal computing products and IT services, software and solutions that simplify the technology experience for consumers and businesses. More information about HP is available at http://www.hp.com/.

Use of non-GAAP financial information

To supplement HP’s consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its business, the substance behind HP management’s decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which HP management compensates for those limitations, and the substantive reasons why HP management believes that these non-GAAP measures provide useful information to investors is included under “Use of Non-GAAP Financial Measures” after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for operating profit, operating margin, net earnings, diluted earnings per share, or cash and cash equivalents prepared in accordance with GAAP.

Forward-looking statements

This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, earnings, tax provisions, cash flows, benefit obligations, share repurchases, acquisition synergies, currency exchange rates or other financial items; any statements of the plans, strategies, and objectives of management for future operations, including execution of cost reduction programs and restructuring and integration plans; any statements concerning the expected development, performance or market share relating to products or services; any statements regarding 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 macroeconomic and geopolitical trends and events; execution and performance of contracts by HP and its suppliers, customers and partners; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions related to pension and other post-retirement costs; expectations and assumptions relating to the execution and timing of cost reduction programs and restructuring and integration plans; the possibility that the expected benefits of 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, 2008 and HP’s other filings with the Securities and Exchange Commission. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2009. In particular, determining HP’s actual tax balances and provisions as of January 31, 2009 requires extensive internal and external review of tax data (including consolidating and reviewing the tax provisions of numerous domestic and foreign entities), which is being completed in the ordinary course of preparing HP’s Form 10-Q. HP assumes no obligation and does not intend to update these forward-looking statements.

Note to editors: More news from HP, including links to RSS feeds, is available at http://www.hp.com/hpinfo/newsroom/.

© 2008 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)
     
 
 
Three months ended

January 31, 2009

October 31, 2008 (c)

January 31, 2008 (c)

 
Net revenue $ 28,800 $ 33,603 $ 28,467
 
Costs and expenses (a) :
Cost of sales 22,069 25,853 21,444
Research and development 732 842 898
Selling, general and administrative 2,893 3,506 3,296
Amortization of purchased intangible assets 412 337 206
In-process research and development charges 6 32 -
Restructuring charges 146 251 10
Acquisition-related charges   48     41     -  
Total costs and expenses   26,306     30,862     25,854  
 
Earnings from operations 2,494 2,741 2,613
 
Interest and other, net   (232 )   (98 )   72  
 
Earnings before taxes 2,262 2,643 2,685
 
Provision for taxes (b)   408     531     552  
 
Net earnings $ 1,854   $ 2,112   $ 2,133  
 
Net earnings per share:
Basic $ 0.77 $ 0.87 $ 0.83
Diluted $ 0.75 $ 0.84 $ 0.80
 
 
Cash dividends declared per share $ 0.16 $ - $ 0.16
 
Weighted-average shares used to compute net earnings per share:
Basic 2,410 2,440 2,560
Diluted 2,464 2,516 2,655
 
(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales $ 52 $ 46 $ 36
Research and development 17 17 20
Selling, general and administrative 85 94 101
Acquisition-related charges   6     -     -  
Total costs and expenses $ 160 $ 157 $ 157
 
(b) Tax benefit from stock-based compensation

$

(48

)

$

(37

)

$

(47

)

 
(c) Certain pursuit-related costs previously reported as Cost of sales have been realigned retroactively to Selling, general and administrative expenses due to the organizational realignments occurring within HP’s service offerings portfolio.
 
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 January 31, 2009

 

Diluted earnings per share

Three months ended October 31, 2008

 

Diluted earnings per share

Three months ended January 31, 2008

 

Diluted earnings per share

 
GAAP net earnings $ 1,854 $ 0.75 $ 2,112 $ 0.84 $ 2,133 $ 0.80
 
Non-GAAP adjustments:

Amortization of purchased intangible assets

412 0.17 337 0.13 206 0.08

In-process research and development charges

6

-

32 0.01 - -
Restructuring charges 146 0.06 251 0.10 10 -
Acquisition-related charges 48 0.02 41 0.02 - -
Adjustments for taxes   (181 )   (0.07 )   (179 )   (0.07 )   (58 )   (0.02 )
 
Non-GAAP net earnings $ 2,285   $ 0.93   $ 2,594   $ 1.03   $ 2,291   $ 0.86  
 
 
GAAP earnings from operations $ 2,494 $ 2,741 $ 2,613
 
Non-GAAP adjustments:

Amortization of purchased intangible assets

412 337 206

In-process research and development charges

6 32 -
Restructuring charges 146 251 10
Acquisition-related charges   48     41     -  

Non-GAAP earnings from operations

$ 3,106   $ 3,402   $ 2,829  
 
GAAP operating margin 9 % 8 % 9 %
Non-GAAP adjustments   2 %   2 %   1 %
 
Non-GAAP operating margin   11 %   10 %   10 %
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
 
 

January 31, 2009

October 31, 2008

(unaudited)
 
ASSETS
 
Current assets:
Cash and cash equivalents $ 11,189 $ 10,153
Short-term investments 66 93
Accounts receivable 14,769 16,928
Financing receivables 2,316 2,314
Inventory 7,629 7,879
Other current assets   12,912   14,361
 
Total current assets   48,881   51,728
 
Property, plant and equipment 10,774 10,838
 
Long-term financing receivables and other assets 10,111 10,468
 
Goodwill and purchased intangible assets   39,868   40,297
 
Total assets $ 109,634 $ 113,331
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
Notes payable and short-term borrowings $ 10,199 $ 10,176
Accounts payable 11,231 14,138
Employee compensation and benefits 2,951 4,159
Taxes on earnings 699 869
Deferred revenue 6,591 6,287
Other accrued liabilities   15,316   17,310
 
Total current liabilities   46,987   52,939
 
Long-term debt 10,259 7,676
Other liabilities 12,801 13,774
 
Stockholders' equity   39,587   38,942
 
Total liabilities and stockholders' equity $ 109,634 $ 113,331
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 
Three months ended

January 31, 2009

 

January 31, 2008

 
Cash flows from operating activities:
Net earnings $ 1,854 $ 2,133

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization 1,214 749
Stock-based compensation expense 154 157
Provision for bad debt and inventory 168 78
In-process research and development charges 6 -
Restructuring charges 146 10
Acquisition-related charges 48 -
Deferred taxes on earnings (63 ) 361
Excess tax benefit from stock-based compensation (13 ) (88 )
Other, net (17 ) 6
 
Changes in assets and liabilities:
Accounts and financing receivables 1,780 1,007
Inventory 156 54
Accounts payable (2,889 ) (659 )
Taxes on earnings 300 (92 )
Restructuring (209 ) (31 )
Other assets and liabilities   (1,509 )   (498 )
Net cash provided by operating activities   1,126     3,187  
 
Cash flows from investing activities:
Investment in property, plant and equipment (828 ) (611 )
Proceeds from sale of property, plant and equipment 152 88

Purchases of available-for-sale securities and other investments

- (20 )

Maturities and sales of available-for-sale securities and other investments

46 106

Payments made in connection with business acquisitions, net

  (345 )   (264 )
Net cash used in investing activities   (975 )   (701 )
 
Cash flows from financing activities:

Issuance (repayment) of commercial paper and notes payable, net

57 (899 )
Issuance of debt 2,016 16
Payment of debt (69 ) (105 )
Issuance of common stock under employee stock plans 299 554
Repurchase of common stock (1,238 ) (3,324 )
Excess tax benefit from stock-based compensation 13 88
Dividends   (193 )   (206 )
Net cash provided by (used in)financing activities   885     (3,876 )
 
Increase (decrease) in cash and cash equivalents 1,036 (1,390 )
Cash and cash equivalents at beginning of period   10,153     11,293  
Cash and cash equivalents at end of period $ 11,189   $ 9,903  
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
       
Three months ended

January 31, 2009

October 31, 2008 (a)

January 31, 2008 (a)

 
Net revenue:
 
Enterprise Storage and Servers $ 3,948 $ 5,059 $ 4,820
Services 8,746 8,277 4,052
HP Software   878     1,148     947  
Technology Solutions Group   13,572     14,484     9,819  
Personal Systems Group 8,787 11,179 10,791
Imaging and Printing Group 5,981 7,572 7,357
HP Financial Services 636 691 642
Corporate Investments   196     246     218  
Total Segments 29,172 34,172 28,827

Eliminations of intersegment net revenue and other

  (372 )   (569 )   (360 )
 
Total HP Consolidated $ 28,800   $ 33,603   $ 28,467  
 
Earnings from operations:
 
Enterprise Storage and Servers $ 405 $ 705 $ 673
Services 1,123 945 499
HP Software   140     211     49  
Technology Solutions Group   1,668     1,861     1,221  
Personal Systems Group 435 616 628
Imaging and Printing Group 1,105 1,155 1,142
HP Financial Services 41 51 43
Corporate Investments   (19 )   9     8  
Total Segments 3,230 3,692 3,042
 

Corporate and unallocated costs and eliminations

24 (153 ) (89 )

Unallocated costs related to stock-based compensation expense

(148 ) (137 ) (124 )

Amortization of purchased intangible assets

(412 ) (337 ) (206 )

In-process research and development charges

(6 ) (32 ) -
Restructuring charges (146 ) (251 ) (10 )
Acquisition-related charges (48 ) (41 ) -
Interest and other, net   (232 )   (98 )   72  
 
Total HP Consolidated Earnings Before Taxes $ 2,262   $ 2,643   $ 2,685  
 
 

(a) Certain fiscal 2009 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2008, the reclassifications resulted in the transfer of revenue and operating profit among the Services, HP Software and Imaging and Printing Group financial reporting segments. In addition, certain previously allocated costs were reclassified to unallocated costs related to stock-based compensation expense. There was no impact on the previously reported financial results for the Enterprise Storage and Servers, Personal Systems Group, HP Financial Services and Corporate Investments segments.

 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
 
  Three months ended

January 31, 2009

 

October 31, 2008 (a)

 

January 31, 2008 (a)

 
Net revenue:
 
Industry standard servers $ 2,322 $ 2,977 $ 2,988
Business critical systems 713 935 855
Storage   913     1,147     977  
Enterprise Storage and Servers   3,948     5,059     4,820  
Technology services 2,451 2,657 2,458
Infrastructure Technology Outsourcing 3,903 3,531 1,252
Application Services 1,592 1,427 306
Business Process Outsourcing 743 604 36
Other   57     58     -  
Services (b)   8,746     8,277     4,052  
Business technology optimization 594 786 618
Other   284     362     329  
HP Software   878     1,148     947  
Technology Solutions Group   13,572     14,484     9,819  
Notebooks 4,907 6,270 5,664
Desktops 3,303 4,149 4,406
Workstations 333 470 462
Handhelds 57 79 89
Other   187     211     170  
Personal Systems Group   8,787     11,179     10,791  
Commercial Hardware 1,239 1,846 1,883
Consumer Hardware 692 918 1,105
Supplies 4,047 4,808 4,362
Other   3     -     7  
Imaging and Printing Group   5,981     7,572     7,357  
HP Financial Services 636 691 642
Corporate Investments   196     246     218  
Total Segments   29,172     34,172     28,827  
 

Eliminations of intersegment net revenue and other

  (372 )   (569 )   (360 )
 
Total HP Consolidated $ 28,800   $ 33,603   $ 28,467  
 
 

(a) Certain fiscal 2009 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2008, the reclassifications resulted in the transfer of revenue among the Services, HP Software and Imaging and Printing Group financial reporting segments. In addition, revenue was transferred among the business units within the Services, HP Software, Imaging and Printing Group, and Personal Systems Group segments. There was no impact on the previously reported financial results for the Enterprise Storage and Servers, HP Financial Services and Corporate Investments segments.

 
(b) Infrastructure Technology Outsourcing, Application Services, Business Process Outsourcing and Other business units were added to the Services business segment. In addition, Outsourcing Services, Consulting and Integration and EDS business units within Services were disintegrated in fiscal 2009.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
     
 
Three months ended

January 31, 2009

October 31, 2008

January 31, 2008

 
Numerator:
Net earnings $ 1,854 $ 2,112 $ 2,133

Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes

  -   -   2
 
Net earnings, adjusted $ 1,854 $ 2,112 $ 2,135
 
Denominator:

Weighted-average shares used to compute basic EPS

2,410 2,440 2,560
Effect of dilutive securities:
Dilution from employee stock plans 54 76 87
Zero-coupon subordinated convertible notes   -   -   8
Dilutive potential common shares   54   76   95
 

Weighted-average shares used to compute diluted EPS

  2,464   2,516   2,655
 
Net earnings per share:
Basic (a) $ 0.77 $ 0.87 $ 0.83
Diluted (b) $ 0.75 $ 0.84 $ 0.80
 
 
(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.
 
(b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options, vesting of restricted stock units and conversion of debt, except when such issuances would be anti-dilutive.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
     
 
 
 
Three months ended

January 31, 2009

October 31, 2008

January 31, 2008

 
Numerator:
Non-GAAP net earnings $ 2,285 $ 2,594 $ 2,291

Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes

  -   -   2
 
Non-GAAP net earnings, adjusted $ 2,285 $ 2,594 $ 2,293
 
Denominator:

Weighted-average shares used to compute basic EPS

2,410 2,440 2,560
Effect of dilutive securities:
Dilution from employee stock plans 54 76 87
Zero-coupon subordinated convertible notes   -   -   8
Dilutive potential common shares   54   76   95
 

Weighted-average shares used to compute diluted EPS

  2,464   2,516   2,655
 
Non-GAAP net earnings per share:
Basic (a) $ 0.95 $ 1.06 $ 0.89
Diluted (b) $ 0.93 $ 1.03 $ 0.86
 
 
(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.
 
(b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options, vesting of restricted stock units and conversion of debt, except when such issuances would be anti-dilutive.

Use of Non-GAAP Financial Measures

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