HP Reports Third Quarter 2009 Results

EDS acquisition

HP completed its acquisition of Electronic Data Systems Corporation on August 26, 2008. Results of, and comparisons to, the three and nine months ended July 31, 2008 do not include the results of operations of EDS for those prior periods.

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 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 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, including HP’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2009. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2009. In particular, determining HP’s actual tax balances and provisions as of July 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.

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© 2009 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.

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

July 31,
2009

 

April 30,
2009

 

July 31,
2008

 
             
Net revenue $ 27,451     $ 27,351     $ 28,032    
             
Costs and expenses(a):            
Cost of sales   20,936       20,919       21,197   (c)
Research and development   667       716       895    
Selling, general and administrative   2,874       2,880       3,193   (c)
Amortization of purchased intangible assets   379       380       213    
Restructuring charges   362       94       5    
Acquisition-related charges   59       75       -    
Total costs and expenses   25,277       25,064       25,503    
             
Earnings from operations   2,174       2,287       2,529    
             
Interest and other, net   (177 )     (180 )     23    
             
Earnings before taxes   1,997       2,107       2,552    
             
Provision for taxes (b)   355       391       525    
             
Net earnings $ 1,642     $

1,716

    $ 2,027    
             
Net earnings per share:            
Basic $ 0.69     $ 0.72     $ 0.82    
Diluted $ 0.67     $ 0.70     $ 0.80    
             
             
Cash dividends declared per share $ 0.16     $ -     $ 0.16    
             
Weighted-average shares used to compute net earnings per share:
Basic   2,382       2,394       2,459    
Diluted   2,436       2,438       2,533    
             
(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales $ 41     $ 48     $ 34    
Research and development   12       18       16    
Selling, general and administrative   94       109       90    
Acquisition-related charges   3       16       -    
Total costs and expenses $ 150     $ 191     $ 140    
             
(b) Tax benefit from stock-based compensation $ (51 )   $ (59 )   $ (38 )  
             
(c) For the prior year reporting periods presented, certain pursuit-related costs previously reported as Cost of sales have been realigned retroactively to Selling, general and administrative expenses due to organizational realignments.  
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)
         
         
         
  Nine months ended  
 

July 31,
2009

 

July 31,
2008

 
         
Net revenue $ 83,602     $ 84,761    
         
Costs and expenses (a) :        
Cost of sales   63,924       63,846   (c)
Research and development   2,115       2,701    
Selling, general and administrative   8,647       9,820   (c)
Amortization of purchased intangible assets   1,171       630    
In-process research and development charges   6       13    
Restructuring charges   602       19    
Acquisition-related charges   182       -    
Total costs and expenses   76,647       77,029    
         
Earnings from operations   6,955       7,732    
         
Interest and other, net   (589 )     98    
         
Earnings before taxes   6,366       7,830    
         
Provision for taxes (b)   1,154       1,613    
         
Net earnings $ 5,212     $ 6,217    
         
Net earnings per share:        
Basic $ 2.18     $ 2.49    
Diluted $ 2.13     $ 2.41    
         
         
Cash dividends declared per share $ 0.32     $ 0.32    
         
Weighted-average shares used to compute net earnings per share:
Basic   2,395       2,497    
Diluted   2,442       2,577    
         
(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales $ 141     $ 106    
Research and development   47       55    
Selling, general and administrative   288       288    
Acquisition-related charges   25       -    
Total costs and expenses $ 501     $ 449    
         
(b) Tax benefit from stock-based compensation $ (158 )   $ (130 )  
         
(c) For the prior year reporting periods presented, certain pursuit-related costs previously reported as Cost of sales have been realigned retroactively to Selling, general and administrative expenses due to organizational realignments.  
 
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
July 31,
2009
  Diluted earnings per share   Three months ended
April 30,
2009
  Diluted earnings per share   Three months ended
July 31,
2008
  Diluted earnings per share
                       
GAAP net earnings $ 1,642     $ 0.67     $ 1,716     $ 0.70     $ 2,027     $ 0.80  
                       
Non-GAAP adjustments:                      

Amortization of purchased intangible assets

  379       0.16       380       0.16       213       0.08  
Restructuring charges   362       0.15       94       0.04       5       -  
Acquisition-related charges   59       0.03       75       0.03       -       -  
Adjustments for taxes   (232 )     (0.10 )     (167 )     (0.07 )     (57 )     (0.02 )
                       
Non-GAAP net earnings $ 2,210     $ 0.91     $ 2,098     $ 0.86     $ 2,188     $ 0.86  
                       
                       
GAAP earnings from operations $ 2,174         $ 2,287         $ 2,529      
                       
Non-GAAP adjustments:                      

Amortization of purchased intangible assets

  379           380           213      
Restructuring charges   362           94           5      
Acquisition-related charges   59           75           -      
Non-GAAP earnings                      
from operations $ 2,974         $ 2,836         $ 2,747      
                       
GAAP operating margin   8 %         8 %         9 %    
Non-GAAP adjustments  

3

%         2 %         1 %    
                       
Non-GAAP operating margin   11 %         10 %         10 %    
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
               
               
  Nine months ended
July 31,
2009
  Diluted earnings per share   Nine months ended
July 31,
2008
  Diluted earnings per share
               
GAAP net earnings $ 5,212     $ 2.13     $ 6,217     $ 2.41  
               
Non-GAAP adjustments:              

Amortization of purchased intangible assets

  1,171       0.48       630       0.24  

In-process research and development charges

  6       -       13       0.01  
Restructuring charges   602       0.25       19       0.01  
Acquisition-related charges   182       0.08       -       -  
Adjustments for taxes   (580 )     (0.24 )     (171 )     (0.07 )
               
Non-GAAP net earnings $ 6,593     $ 2.70     $ 6,708     $ 2.60  
               
               
GAAP earnings from operations $ 6,955         $ 7,732      
               
Non-GAAP adjustments:              

Amortization of purchased intangible assets

  1,171           630      

In-process research and development charges

  6           13      
Restructuring charges   602           19      
Acquisition-related charges   182           -      

Non-GAAP earnings from operations

$ 8,916         $ 8,394      
               
GAAP operating margin   8 %         9 %    
Non-GAAP adjustments   3 %         1 %    
               
Non-GAAP operating margin   11 %         10 %    
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
       
       
  July 31,
2009
  October 31,
2008
  (unaudited)    
ASSETS      
       
Current assets:      
Cash and cash equivalents $ 13,521   $ 10,153
Short-term investments   66     93
Accounts receivable   14,735     16,928
Financing receivables   2,532     2,314
Inventory   5,850     7,879
Other current assets   12,138     14,361
       
Total current assets   48,842     51,728
       
Property, plant and equipment   11,194     10,838
       
Long-term financing receivables and other assets   10,857     10,468
       
Goodwill and purchased intangible assets   40,179     40,297
       
Total assets $ 111,072   $ 113,331
       
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
       
Current liabilities:      
Notes payable and short-term borrowings $ 3,288   $ 10,176

Accounts payable

  12,778     14,917
Employee compensation and benefits   3,596     4,159
Taxes on earnings   786     869
Deferred revenue   6,458     6,287
Other accrued liabilities   14,904     16,531
       
Total current liabilities   41,810     52,939
       
Long-term debt   13,892     7,676
Other liabilities   13,835     13,774
       
Stockholders' equity   41,535     38,942
       
Total liabilities and stockholders' equity $ 111,072   $ 113,331
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
       
 
  Three months ended
July 31,
2009
  Nine months ended
July 31,
2009
       
Cash flows from operating activities:      
Net earnings $ 1,642     $ 5,212  

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

     
Depreciation and amortization   1,179       3,546  
Stock-based compensation expense   150       501  
Provision for bad debt and inventory   114       462  
In-process research and development charges   -       6  
Restructuring charges   362       602  
Deferred taxes on earnings   220       272  

Excess tax benefit from stock-based compensation

  (39 )     (67 )
Other, net   2       (1 )
       
Changes in assets and liabilities:      
Accounts and financing receivables   (141 )     1,635  
Inventory   (144 )     1,843  
Accounts payable   1,278       (2,228 )
Taxes on earnings   (289 )     691  
Restructuring   (296 )     (844 )
Other assets and liabilities   (182 )     (1,684 )

Net cash provided by operating activities

  3,856       9,946  
       
Cash flows from investing activities:      
Investment in property, plant and equipment   (1,091 )     (2,749 )

Proceeds from sale of property, plant and equipment

  151       401  

Purchases of available-for-sale securities and other investments

  (50 )     (105 )

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

  -       103  

Payments made in connection with business acquisitions, net

  -       (348 )

Net cash used in investing activities

  (990 )     (2,698 )
       
Cash flows from financing activities:      

Repayment of commercial paper and notes payable, net

  (2,417 )     (6,866 )
Issuance of debt   2,000       6,778  
Payment of debt   (1,071 )     (1,181 )

Issuance of common stock under employee stock plans

  443       936  
Repurchase of common stock   (999 )     (3,038 )

Excess tax benefit from stock-based compensation

  39       67  
Dividends   (191 )     (576 )

Net cash used in financing activities

  (2,196 )     (3,880 )
       
Increase in cash and cash equivalents   670       3,368  
Cash and cash equivalents at beginning of period   12,851       10,153  
Cash and cash equivalents at end of period $ 13,521     $ 13,521  
   
  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
  SEGMENT INFORMATION
  (Unaudited)
  (In millions)
               
      Three months ended
      July 31,
2009
  April 30,
2009
  July 31,
2008 (a)
               
Net revenue:            
               
  Services (b)   $ 8,470     $ 8,488     $ 4,386  
  Enterprise Storage and Servers     3,660       3,456       4,741  
  HP Software     847       880       1,086  
  Technology Solutions Group     12,977       12,824       10,213  
  Personal Systems Group     8,432       8,191       10,254  
  Imaging and Printing Group     5,660       5,916       7,041  
  HP Financial Services     670       641       680  
  Corporate Investments     193       188       271  
  Total Segments     27,932       27,760       28,459  
 

Eliminations of intersegment net revenue and other

    (481 )     (409 )     (427 )
               
  Total HP Consolidated   $ 27,451     $ 27,351     $ 28,032  
               
Earnings from operations:            
               
  Services (b)   $ 1,289     $ 1,172     $ 567  
  Enterprise Storage and Servers     356       250       544  
  HP Software     153       157       135  
  Technology Solutions Group     1,798       1,579       1,246  
  Personal Systems Group     386       374       587  
  Imaging and Printing Group     960       1,074       1,042  
  HP Financial Services     53       46       51  
  Corporate Investments     (10 )     (19 )     26  
  Total Segments     3,187       3,054       2,952  
               
 

Corporate and unallocated costs and eliminations

    (81 )     (62 )     (85 )
 

Unallocated costs related to stock-based compensation expense

    (132 )     (156 )     (120 )
 

Amortization of purchased intangible assets

    (379 )     (380 )     (213 )
  Restructuring charges     (362 )     (94 )     (5 )
  Acquisition-related charges     (59 )     (75 )     -  
  Interest and other, net     (177 )     (180 )     23  
               
Total HP Consolidated Earnings Before Taxes $ 1,997     $ 2,107     $ 2,552  
               
               
(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.
 
(b) Includes the results of EDS which was acquired on August 26, 2008.
   
  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
  SEGMENT INFORMATION
  (Unaudited)
  (In millions)
           
      Nine months ended
      July 31,
2009
  July 31,
2008 (a)
           
Net revenue:        
           
  Services (b)   $ 25,704     $ 12,700  
  Enterprise Storage and Servers     11,064       14,341  
  HP Software     2,605       3,072  
  Technology Solutions Group     39,373       30,113  
  Personal Systems Group     25,410       31,116  
  Imaging and Printing Group     17,557       22,042  
  HP Financial Services     1,947       2,007  
  Corporate Investments     577       719  
  Total Segments     84,864       85,997  
 

Eliminations of intersegment net revenue and other

    (1,262 )     (1,236 )
           
  Total HP Consolidated   $ 83,602     $ 84,761  
           
Earnings from operations:        
           
  Services (b)   $ 3,584     $ 1,573  
  Enterprise Storage and Servers     1,011       1,872  
  HP Software     450       288  
  Technology Solutions Group     5,045       3,733  
  Personal Systems Group     1,195       1,759  
  Imaging and Printing Group     3,139       3,404  
  HP Financial Services     140       141  
  Corporate Investments     (48 )     40  
  Total Segments     9,471       9,077  
           
 

Corporate and unallocated costs and eliminations

    (119 )     (308 )
 

Unallocated costs related to stock-based compensation expense

    (436 )     (375 )
 

Amortization of purchased intangible assets

    (1,171 )     (630 )
 

In-process research and development charges

    (6 )     (13 )
  Restructuring charges     (602 )     (19 )
  Acquisition-related charges     (182 )     -  
  Interest and other, net     (589 )     98  
           
Total HP Consolidated Earnings Before Taxes $ 6,366     $ 7,830  
           
           
(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.
 
(b) Includes the results of EDS which was acquired on August 26, 2008.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
 
    Three months ended
    July 31,
2009
  April 30,
2009
  July 31,
2008 (a)
             
Net revenue:            
             
Infrastructure technology outsourcing   $ 3,932     $ 3,785     $ 1,393  
Technology services     2,404       2,441       2,614  
Application services     1,384       1,502       336  
Business process outsourcing     711       709       43  
Other     39       51       -  
Services (b)     8,470       8,488       4,386  
Industry standard servers     2,262       1,988       2,874  
Storage     820       818       1,038  
Business critical systems     578       650       829  
Enterprise Storage and Servers     3,660       3,456       4,741  
Business technology optimization     563       568       718  
Other     284       312       368  
HP Software     847       880       1,086  
Technology Solutions Group     12,977       12,824       10,213  
Notebooks     4,802       4,697       5,350  
Desktops     3,090       2,967       4,163  
Workstations     299       287       463  
Handhelds     32       47       90  
Other     209       193       188  
Personal Systems Group     8,432       8,191       10,254  
Supplies     3,949       4,103       4,527  
Commercial hardware     1,085       1,193       1,718  
Consumer hardware     626       620       796  
Imaging and Printing Group     5,660       5,916       7,041  
HP Financial Services     670       641       680  
Corporate Investments     193       188       271  
Total Segments     27,932       27,760       28,459  
             

Eliminations of intersegment net revenue and other

    (481 )     (409 )     (427 )
             
Total HP Consolidated   $ 27,451     $ 27,351     $ 28,032  
             
             
(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) Includes the results of EDS, which was acquired on August 26, 2008. The businesses included in the former consulting and integration business unit were divided among the application services and technology services business units and the HP software segment. The businesses included in the former outsourcing services business unit were divided among the infrastructure technology outsourcing and business process outsourcing business units. The infrastructure technology outsourcing, application services and business process outsourcing business units were added with the technology services business unit, and these four business units now comprise the Services segment.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
 
    Nine months ended
    July 31,
2009
  July 31,
2008 (a)
         
Net revenue:        
         
Infrastructure technology outsourcing   $ 11,620     $ 3,957  
Technology services     7,296       7,640  
Application services     4,478       984  
Business process outsourcing     2,163       119  
Other     147       -  
Services (b)     25,704       12,700  
Industry standard servers     6,572       8,680  
Storage     2,551       3,058  
Business critical systems     1,941       2,603  
Enterprise Storage and Servers     11,064       14,341  
Business technology optimization     1,725       2,006  
Other     880       1,066  
HP Software     2,605       3,072  
Technology Solutions Group     39,373       30,113  
Notebooks     14,406       16,387  
Desktops     9,360       12,494  
Workstations     919       1,415  
Handhelds     136       281  
Other     589       539  
Personal Systems Group     25,410       31,116  
Supplies     12,102       13,664  
Commercial hardware     3,517       5,576  
Consumer hardware     1,938       2,802  
Imaging and Printing Group     17,557       22,042  
HP Financial Services     1,947       2,007  
Corporate Investments     577       719  
Total Segments     84,864       85,997  
         

Eliminations of intersegment net revenue and other

    (1,262 )     (1,236 )
         
Total HP Consolidated   $ 83,602     $ 84,761  
         
         
(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) Includes the results of EDS, which was acquired on August 26, 2008. The businesses included in the former consulting and integration business unit were divided among the application services and technology services business units and the HP software segment. The businesses included in the former outsourcing services business unit were divided among the infrastructure technology outsourcing and business process outsourcing business units. The infrastructure technology outsourcing, application services and business process outsourcing business units were added with the technology services business unit, and these four business units now comprise the Services segment.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
             
             
    Three months ended
    July 31,
2009
  April 30,
2009
  July 31,
2008
             
Numerator:            
Net earnings   $ 1,642   $ 1,716   $ 2,027

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

    -     -     -
             
Net earnings, adjusted   $ 1,642   $ 1,716   $ 2,027
             
Denominator:            

Weighted-average shares used to compute basic EPS

    2,382     2,394     2,459
Effect of dilutive securities:            
Dilution from employee stock plans     54     44     74
Zero-coupon subordinated convertible notes     -     -     -
Dilutive potential common shares     54     44     74
             

Weighted-average shares used to compute diluted EPS

    2,436     2,438     2,533
             
Net earnings per share:            
Basic (a)   $ 0.69   $ 0.72   $ 0.82
Diluted (b)   $ 0.67   $ 0.70   $ 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 and vesting of restricted stock units, except when such issuances would be anti-dilutive.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
         
         
    Nine months ended
    July 31,
2009
  July 31,
2008
         
Numerator:        
Net earnings   $ 5,212   $ 6,217

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

    -     3
         
Net earnings, adjusted   $ 5,212   $ 6,220
         
Denominator:        

 

       

Weighted-average shares used to compute basic EPS

    2,395     2,497
Effect of dilutive securities:        
Dilution from employee stock plans     47     76
Zero-coupon subordinated convertible notes     -     4
Dilutive potential common shares     47     80
         

Weighted-average shares used to compute diluted EPS

    2,442     2,577
         
Net earnings per share:        
Basic (a)   $ 2.18   $ 2.49
Diluted (b)   $ 2.13   $ 2.41
         
         
(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
    July 31,
2009
  April 30,
2009
  July 31,
2008
             
Numerator:    
Non-GAAP net earnings   $ 2,210   $ 2,098   $ 2,188

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

    -     -     -
             
Non-GAAP net earnings, adjusted   $ 2,210   $ 2,098   $ 2,188
             
Denominator:            

Weighted-average shares used to compute basic EPS

    2,382     2,394     2,459
Effect of dilutive securities:            
Dilution from employee stock plans     54     44     74
Zero-coupon subordinated convertible notes   -     -     -
Dilutive potential common shares     54     44     74
             

Weighted-average shares used to compute diluted EPS

    2,436     2,438     2,533
             
Non-GAAP net earnings per share:            
Basic (a)   $ 0.93   $ 0.88   $ 0.89
Diluted (b)   $ 0.91   $ 0.86   $ 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 and vesting of restricted stock units, 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)
         
         
         
         
    Nine months ended
    July 31,
2009
  July 31,
2008
         
Numerator:
Non-GAAP net earnings   $ 6,593   $ 6,708

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

    -     3
         
Non-GAAP net earnings, adjusted   $ 6,593   $ 6,711
         
Denominator:        

Weighted-average shares used to compute basic EPS

    2,395     2,497
Effect of dilutive securities:        
Dilution from employee stock plans     47     76
Zero-coupon subordinated convertible notes   -     4
Dilutive potential common shares     47     80
         

Weighted-average shares used to compute diluted EPS

    2,442     2,577
         
Non-GAAP net earnings per share:        
Basic (a)   $ 2.75   $ 2.69
Diluted (b)   $ 2.70   $ 2.60
         
 
(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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