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| HP Reports Fourth Quarter 2006 Results |
-- Net revenue of $24.6 billion, up 7% year-over-year, or 6% when
adjusted for the effects of currency
-- Non-GAAP operating profit of $2.2 billion, or $0.68 earnings
per share, up from $0.51 in the prior year period
-- Cash flow from operations of $3.2 billion, up $1.4 billion
year-over-year
Business Editors/High-Tech Editors
PALO ALTO, Calif.--(BUSINESS WIRE)--Nov. 16, 2006--HP (NYSE:HPQ) (Nasdaq:HPQ) today announced financial results for its fourth fiscal quarter ended Oct. 31, 2006, with net revenue of $24.6 billion, representing growth of 7% year-over-year, or 6% when adjusted for the effects of currency. GAAP operating profit was $1.9 billion and GAAP diluted earnings per share (EPS) was $0.60 per share, up from $0.14 in the prior year period. Non-GAAP operating profit was $2.2 billion, with non-GAAP diluted EPS of $0.68, up from $0.51 in the prior year period. Non-GAAP financial information excludes $208 million of adjustments on an after-tax basis, or $0.07 per diluted share, related primarily to restructuring-related costs and amortization of purchased intangibles. GAAP and non-GAAP financial information include stock-based compensation expense in the current financial period only. "We closed a strong year with solid revenue growth, margin expansion across our key businesses and excellent cash flow from operations," said Mark Hurd, HP chairman and chief executive officer. "We are well on our way to building a more competitive HP that creates further value for our shareholders."
Q4 FY06 Q4 FY05 Y/Y FY06 FY05 Y/Y
Net revenue ($B) $ 24.6 $ 22.9 7% $ 91.7 $ 86.7 6%
GAAP operating margin 7.7% 1.0% 6.7 pts 7.2% 4.0% 3.2 pts
GAAP net income ($B) $ 1.7 $ 0.4 308% $ 6.2 $ 2.4 158%
GAAP diluted EPS $ 0.60 $ 0.14 329% $ 2.18 $ 0.82 166%
Non-GAAP operating
margin 9.0% 7.6% 1.4 pts 8.0% 6.4% 1.6 pts
Non-GAAP net income
($B) $ 1.9 $ 1.5 27% $ 6.8 $ 4.7 44%
Non-GAAP diluted EPS $ 0.68 $ 0.51 33% $ 2.38 $ 1.62 47%
Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below. During the quarter, on a year-over-year basis, revenue in the Americas grew 8% to $10.8 billion, revenue in Europe, the Middle East and Africa grew 7% to $9.7 billion, and revenue in Asia Pacific grew 6% to $4.0 billion. When adjusted for the effects of currency, revenue in the Americas grew 7%, revenue in Europe, the Middle East and Africa grew 3%, and revenue in Asia Pacific grew 7%. Personal Systems Group Personal Systems Group (PSG) revenue grew 10% year-over-year to $7.8 billion, with unit shipments up 16%. On a year-over-year basis, notebook revenue grew 24% while desktop revenue was flat. Commercial client revenue grew 4% year-over-year, while Consumer client revenue increased 19%. Operating profit was $336 million, or 4.3% of revenue, up from a profit of $200 million, or 2.8% of revenue, in the prior year period. Imaging and Printing Group Imaging and Printing Group (IPG) revenue grew 7% year-over-year to $7.3 billion. On a year-over-year basis, supplies revenue grew 9%, commercial hardware revenue grew 8% and consumer hardware revenue grew 2%. Printer unit shipments increased 17% year-over-year, with consumer printer hardware units up 16% and commercial printer hardware units up 20%. Momentum in key growth initiatives continued, with all-in-one unit shipments up 22% year-over-year, appliance photo printers up 70%, color laser printer shipments up 40% and printer-based MFP shipments up 160%. HP Indigo Press printed page volume grew 41% over the prior year period. Operating profit was $1.1 billion, or 14.8% of revenue, up from a profit of $896 million, or 13.2% of revenue, in the prior year period. Enterprise Storage and Servers Enterprise Storage and Servers (ESS) reported revenue of $4.7 billion, up 4% over the prior year period. On a year-over-year basis, industry-standard server revenue increased 9%, with blade revenue growth of 38%. Networked storage revenue grew 1%, with revenue growth of 11% in the midrange EVA line offset by declines in the high-end array and tape businesses. Business critical systems revenue declined 4%, as Integrity systems growth of 77% was offset by declines in PA-RISC and Alpha. Operating profit was $502 million, or 10.7% of revenue, up from a profit of $404 million, or 9.0% of revenue, in the prior year period. HP Services HP Services (HPS) revenue increased 5% year-over-year to $4.1 billion. Revenue in Technology Services was flat over the prior year period, with Consulting and Integration revenue up 7% and Managed Services revenue up 16%. Operating profit was $505 million, or 12.4% of revenue, up from a profit of $322 million, or 8.3% of revenue, in the prior year period. Software Software revenue was $349 million, an increase of 14% year-over-year, with revenue in HP OpenView up 28% and revenue in HP OpenCall down 11%. Operating profit was $60 million, or 17.2% of revenue, up from a profit of $28 million, or 9.2% of revenue, in the prior year period. On Nov. 7, HP announced that it had closed the purchase of Mercury. The deal integrates Mercury's leading application management and delivery and IT governance capabilities with HP's broad portfolio of management solutions to create a new HP Software organization that will lead the industry in business technology optimization. Financial Services HP Financial Services (HPFS) reported revenue of $545 million, an increase of 6% year-over-year. Financing volume increased 1% over the prior year period, and net portfolio assets grew 4%. Operating profit was $35 million, or 6.4% of revenue, down from a profit of $52 million, or 10.1% of revenue, in the prior year period. Asset management Inventory ended the quarter at $7.8 billion, up $286 million sequentially and $873 million year-over-year. Accounts receivable grew $1.2 billion sequentially and increased $970 million over the prior year period to $10.9 billion. HP's dividend payment of $0.08 per share in the fourth quarter resulted in cash usage of $219 million. HP utilized $1.0 billion of cash during the fourth quarter to repurchase approximately 30 million shares of common stock. In addition, HP received approximately 13 million shares of common stock under the company's prepaid variable share purchase program. HP exited the quarter with $16.4 billion in gross cash, which includes cash and cash equivalents of $16.4 billion, short-term investments of $22 million, and certain long-term investments of $20 million. Full year fiscal 2006 Net revenue for the full fiscal year 2006 was $91.7 billion, representing growth of 6% over the prior year period, or 7% when adjusted for the effects of currency. GAAP operating profit was $6.6 billion and GAAP diluted earnings per share (EPS) was $2.18 per share, up from $0.82 in the prior year period. Non-GAAP operating profit was $7.4 billion, with non-GAAP diluted EPS of $2.38, up from $1.62 in the prior year period. Non-GAAP financial information excludes $579 million of adjustments on an after-tax basis, or $0.20 per diluted share, related primarily to restructuring-related costs and amortization of purchased intangibles. GAAP and non-GAAP financial information include stock-based compensation expense in the current financial period only. Cash flow from operations for the full fiscal year 2006 was $11.4 billion, up from $8.1 billion in the prior year period. Outlook HP estimates Q1 FY07 revenue will be approximately $24.1 billion to $24.3 billion. First quarter FY07 GAAP diluted EPS is expected to be in the range of $0.55 to $0.57, and non-GAAP diluted EPS is expected to be in the range of $0.60 to $0.62. Non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.05 per share, related primarily to the amortization of purchased intangible assets. First quarter FY07 GAAP and non-GAAP diluted EPS estimates include approximately $0.04 of stock-based compensation expense. HP estimates full year FY07 revenue will be approximately $97.0 billion. FY07 GAAP diluted EPS expected to be in the range of $2.28 to $2.33, and FY07 non-GAAP diluted EPS is expected to be in the range of $2.48 to $2.53. FY07 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.20 per share, related primarily to the amortization of purchased intangible assets. Full year FY07 non-GAAP and GAAP diluted EPS estimates include approximately $0.14 of stock-based compensation expense. 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/hpinfo/investor/. HP's Q4 FY06 earnings conference call is accessible via an audio webcast at www.hp.com/hpinfo/investor/financials/quarters/2006/q4webcast.html. About HP HP is a technology solutions provider to consumers, businesses and institutions globally. The company's offerings span IT infrastructure, global services, business and home computing, and imaging and printing. For the four fiscal quarters ended Oct. 31, 2006, HP revenue totaled $91.7 billion. More information about HP is available at 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 income, 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, fiscal year-to-date, 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 income, 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, charges, earnings or other financial items; any statements of the plans, strategies, and objectives of management for future operations, including execution of any restructuring plans; any statements concerning the expected development, performance or market share relating to products or services; 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 suppliers, customers and partners; employee management issues; 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; and other risks that are described from time to time in HP's Securities and Exchange Commission reports, including but not limited to the risks described in HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2005, HP's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2006 and other reports filed after that report. As in prior years, 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, 2006. In particular, determining HP's actual tax balances and provisions as of October 31, 2006 and for the fiscal year then ended 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. Note to editors: HP news releases are available via RSS feed at www.hp.com/hpinfo/rss.html. (C) 2006 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,
2006 2006 2005
----------- --------- -----------
Net revenue $ 24,555 $ 21,890 $ 22,913
Costs and expenses(a):
Cost of sales 18,593 16,472 17,532
Research and development 870 920 859
Selling, general and
administrative 2,886 2,830 2,786
Amortization of purchased
intangible assets 153 153 136
Restructuring charges 152 5 1,565
In-process research and
development charges - - 2
Pension curtailment gain - - (199)
----------- --------- -----------
Total costs and expenses 22,654 20,380 22,681
----------- --------- -----------
Earnings from operations 1,901 1,510 232
Interest and other, net 190 221 132
Gains on investments 14 7 14
Dispute settlement - - 3
----------- --------- -----------
Earnings before taxes 2,105 1,738 381
Provision for (benefit from)
taxes(b) 408 363 (35)
----------- --------- -----------
Net earnings $ 1,697 $ 1,375 $ 416
=========== ========= ===========
Net earnings per share:
Basic $ 0.62 $ 0.50 $ 0.15
Diluted $ 0.60 $ 0.48 $ 0.14
Cash dividends declared per share $ - $ 0.16 $ -
Weighted-average shares used to compute net earnings per share:
Basic 2,730 2,768 2,850
Diluted 2,816 2,839 2,908
(a) Stock-based compensation expense included under SFAS 123(R) was as
follows:
Cost of sales $ 37 $ 35 $ -
Research and development 20 17 -
Selling, general and
administrative 84 75 -
----------- --------- -----------
Total costs and expenses $ 141 $ 127 $ -
(b) Tax benefit from stock-based
compensation $ (40) $ (38) $ -
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In millions except per share amounts)
Twelve months ended
October 31,
---------------------
2006 2005
----------- ---------
(Unaudited)
Net revenue $ 91,658 $ 86,696
Costs and expenses(a):
Cost of sales 69,427 66,440
Research and development 3,591 3,490
Selling, general and administrative 11,266 11,184
Amortization of purchased intangible
assets 604 622
Restructuring charges 158 1,684
In-process research and development
charges 52 2
Pension curtailment gain - (199)
----------- ---------
Total costs and expenses 85,098 83,223
----------- ---------
Earnings from operations 6,560 3,473
Interest and other, net 606 189
Gains (losses) on investments 25 (13)
Dispute settlement - (106)
----------- ---------
Earnings before taxes 7,191 3,543
Provision for taxes(b) 993 1,145
----------- ---------
Net earnings $ 6,198 $ 2,398
=========== =========
Net earnings per share:
Basic $ 2.23 $ 0.83
Diluted $ 2.18 $ 0.82
Cash dividends declared per share $ 0.32 $ 0.32
Weighted-average shares used to compute net
earnings per share:
Basic 2,782 2,879
Diluted 2,852 2,909
(a) Stock-based compensation expense included under SFAS 123(R) was as
follows:
Cost of sales $ 144 $ -
Research and development 70 -
Selling, general and administrative 322 -
----------- ---------
Total costs and expenses $ 536 $ -
(b) Tax benefit from stock-based compensation $ (160) $ -
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET INCOME, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
Three Three Three
months months months
ended Diluted ended Diluted ended Diluted
October Earnings July Earnings October Earnings
31, Per 31, Per 31, Per
2006 Share 2006 Share 2005 Share
----------------- ---------------- -----------------
Net income per
GAAP $1,697 $0.60 $1,375 $0.48 $416 $0.14
Non-GAAP
adjustments:
Amortization of
purchased
intangible
assets 153 0.05 153 0.05 136 0.05
Restructuring
charges 152 0.05 5 - 1,565 0.53
In-process
research and
development
charges - - - - 2 -
Pension
curtailment
gain - - - - (199) (0.07)
Gains on
investments (14) - (7) - (14) -
Adjustments for
taxes (83) (0.02) (43) (0.01) (410) (0.14)
----------------- ---------------- -----------------
Non-GAAP net
income $1,905 $0.68 $1,483 $0.52 $1,496 $0.51
================= ================ =================
Earnings from
operations per
GAAP $1,901 $1,510 $232
Non-GAAP
adjustments:
Amortization of
purchased
intangible
assets 153 153 136
Restructuring
charges 152 5 1,565
In-process
research and
development
charges - - 2
Pension
curtailment
gain - - (199)
-------- ------- --------
Non-GAAP earnings
from operations $2,206 $1,668 $1,736
======== ======= ========
Operating margin
per GAAP 8% 7% 1%
Non-GAAP
adjustments 1% 1% 7%
-------- ------- --------
Non-GAAP
operating margin 9% 8% 8%
======== ======= ========
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET INCOME, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
Twelve Twelve
months Diluted months Diluted
ended Earnings ended Earnings
October 31, Per October 31, Per
2006 Share 2005 Share
----------- --------- ----------- ----------
Net income per GAAP $ 6,198 $ 2.18 $ 2,398 $ 0.82
Non-GAAP adjustments:
Amortization of
purchased intangible
assets 604 0.21 622 0.22
Restructuring charges 158 0.06 1,684 0.58
In-process research and
development charges 52 0.02 2 -
Pension curtailment
gain - - (199) (0.07)
(Gains)losses on
investments (25) (0.01) 13 -
Adjustments for taxes (210) (0.08) (600) (0.20)
Non-recurring American
Jobs Creation Act
income tax expense - - 788 0.27
----------- --------- ----------- ----------
Non-GAAP net income $ 6,777 $ 2.38 $ 4,708 $ 1.62
=========== ========= =========== ==========
Earnings from operations
per GAAP $ 6,560 $ 3,473
Non-GAAP adjustments:
Amortization of
purchased intangible
assets 604 622
Restructuring charges 158 1,684
In-process research and
development charges 52 2
Pension curtailment
gain - (199)
----------- -----------
Non-GAAP earnings from
operations $ 7,374 $ 5,582
=========== ===========
Operating margin per GAAP 7% 4%
Non-GAAP adjustments 1% 2%
----------- -----------
Non-GAAP operating margin 8% 6%
=========== ===========
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
October 31, October 31,
2006 2005
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 16,400 $ 13,911
Short-term investments 22 18
Accounts receivable 10,873 9,903
Financing receivables 2,440 2,551
Inventory 7,750 6,877
Other current assets 10,681 10,074
----------- -----------
Total current assets 48,166 43,334
----------- -----------
Property, plant and equipment 6,863 6,451
Long-term financing receivables and other
assets 7,276 7,502
Goodwill and purchased intangible assets 20,205 20,030
----------- -----------
Total assets $ 82,510 $ 77,317
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings $ 2,705 $ 1,831
Accounts payable 12,102 10,223
Employee compensation and benefits 3,148 2,343
Taxes on earnings 1,630 2,367
Deferred revenue 4,309 3,815
Accrued restructuring 547 1,119
Other accrued liabilities 11,134 9,762
----------- -----------
Total current liabilities 35,575 31,460
----------- -----------
Long-term debt 2,490 3,392
Other liabilities 6,301 5,289
Stockholders' equity 38,144 37,176
----------- -----------
Total liabilities and stockholders' equity $ 82,510 $ 77,317
=========== ===========
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three Months Twelve Months
Ended Ended
October 31, October 31,
2006 2006
------------ -------------
Cash flows from operating activities:
Net earnings $ 1,697 $ 6,198
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 596 2,353
Stock-based compensation expense 141 536
Provision for bad debt and inventory 99 271
Gains on investments (14) (25)
In-process research and development
charges - 52
Restructuring charges 152 158
Deferred taxes on earnings 339 720
Excess tax benefit from stock-based
compensation (92) (251)
Other, net (11) 18
Changes in assets and liabilities:
Accounts and financing receivables (1,246) (882)
Inventory (381) (1,109)
Accounts payable 1,407 1,879
Taxes on earnings (61) (540)
Restructuring (324) (810)
Other assets and liabilities 942 2,785
------------ -------------
Net cash provided by operating
activities 3,244 11,353
------------ -------------
Cash flows from investing activities:
Investment in property, plant and
equipment (965) (2,536)
Proceeds from sale of property, plant
and equipment 97 556
Purchases of available-for-sale
securities and other investments (17) (46)
Maturities and sales of available-for-
sale securities and other investments 36 94
Payments made in connection with
business acquisitions, net (32) (855)
------------ -------------
Net cash used in investing
activities (881) (2,787)
------------ -------------
Cash flows from financing activities:
Repayment of commercial paper and
notes payable, net (1,611) (55)
Issuance of debt 27 1,121
Payment of debt (39) (1,259)
Issuance of common stock under employee
stock plans 848 2,538
Repurchase of common stock (1,042) (6,057)
Prepayment of common stock repurchases - (1,722)
Excess tax benefit from stock-based
compensation 92 251
Dividends (219) (894)
------------ -------------
Net cash used in financing
activities (1,944) (6,077)
------------ -------------
Increase in cash and cash equivalents 419 2,489
Cash and cash equivalents at beginning of
period 15,981 13,911
------------ -------------
Cash and cash equivalents at end of period $ 16,400 $ 16,400
============ =============
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Three months ended
----------------------------------
October 31, July 31, October 31,
2006 2006 2005(a)
----------- --------- ------------
Net revenue:
Enterprise Storage and Servers $ 4,670 $ 4,133 $ 4,476
HP Services 4,080 3,888 3,900
Software 349 318 306
----------- --------- ------------
Technology Solutions Group 9,099 8,339 8,682
----------- --------- ------------
Personal Systems Group 7,823 6,917 7,113
Imaging and Printing Group 7,283 6,234 6,785
HP Financial Services 545 519 514
Corporate Investments 160 155 142
----------- --------- ------------
Total Segments 24,910 22,164 23,236
Eliminations of intersegment net
revenue and other (355) (274) (323)
----------- --------- ------------
Total HP Consolidated $ 24,555 $ 21,890 $ 22,913
=========== ========= ============
Earnings from operations:
Enterprise Storage and Servers $ 502 $ 296 $ 404
HP Services 505 364 322
Software 60 13 28
----------- --------- ------------
Technology Solutions Group 1,067 673 754
----------- --------- ------------
Personal Systems Group 336 275 200
Imaging and Printing Group 1,080 884 896
HP Financial Services 35 35 52
Corporate Investments (36) (33) (35)
----------- --------- ------------
Total Segments 2,482 1,834 1,867
Corporate and unallocated costs
and eliminations, excluding
stock-based compensation expense (156) (53) (131)
Unallocated costs related to
stock-based compensation expense (120) (113) -
Amortization of purchased
intangible assets (153) (153) (136)
Restructuring charges (152) (5) (1,565)
In-process research and
development charge - - (2)
Pension curtailment gain - - 199
Interest and other, net 190 221 132
Gains on investments 14 7 14
Dispute settlement - - 3
----------- --------- ------------
Total HP Consolidated Earnings
Before Taxes $ 2,105 $ 1,738 $ 381
=========== ========= ============
(a) Reflects certain fiscal 2006 organizational realignments
retroactively to provide improved visibility and comparability. For
each of the quarters in fiscal year 2005, the realignments resulted
primarily in revenue and operating profit movement of $5 million or
less between ESS and SW segments within TSG. There was no impact to
the remaining segments.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Twelve months ended
October 31,
-------------------
2006 2005(a)
--------- ---------
Net revenue:
Enterprise Storage and Servers $ 17,308 $ 16,717
HP Services 15,617 15,536
Software 1,301 1,061
--------- ---------
Technology Solutions Group 34,226 33,314
--------- ---------
Personal Systems Group 29,166 26,741
Imaging and Printing Group 26,786 25,155
HP Financial Services 2,078 2,102
Corporate Investments 566 523
--------- ---------
Total Segments 92,822 87,835
Eliminations of intersegment net revenue and
other (1,164) (1,139)
--------- ---------
Total HP Consolidated $ 91,658 $ 86,696
========= =========
Earnings from operations:
Enterprise Storage and Servers $ 1,446 $ 800
HP Services 1,507 1,151
Software 85 (49)
--------- ---------
Technology Solutions Group 3,038 1,902
--------- ---------
Personal Systems Group 1,152 657
Imaging and Printing Group 3,978 3,413
HP Financial Services 147 213
Corporate Investments (151) (174)
--------- ---------
Total Segments 8,164 6,011
Corporate and unallocated costs and
eliminations, excluding stock-based
compensation expense (331) (429)
Unallocated costs related to stock-based
compensation expense (459) -
Amortization of purchased intangible assets (604) (622)
Restructuring charges (158) (1,684)
In-process research and development charge (52) (2)
Pension curtailment gain - 199
Interest and other, net 606 189
Gains (losses) on investments 25 (13)
Dispute settlement - (106)
--------- ---------
Total HP Consolidated Earnings Before Taxes $ 7,191 $ 3,543
========= =========
(a) Reflects certain fiscal 2006 organizational realignments
retroactively to provide improved visibility and comparability. For
fiscal year 2005, the realignments resulted primarily in revenue and
operating profit movement of $16 million or less between ESS and SW
segments within TSG. There was no impact to the remaining segments.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
Three months ended
--------------------------------
October 31, July 31, October 31,
2006 2006 2005(a)
----------- -------- -----------
Net revenue:
Industry Standard Servers $ 2,731 $ 2,466 $ 2,507
Business Critical Systems 997 833 1,037
Storage 942 834 932
----------- -------- -----------
Enterprise Storage and Servers 4,670 4,133 4,476
----------- -------- -----------
Technology Services 2,430 2,362 2,418
Managed Services 872 818 753
Consulting and Integration 778 708 729
----------- -------- -----------
HP Services 4,080 3,888 3,900
----------- -------- -----------
OpenView 251 215 196
OpenCall and Other 98 103 110
----------- -------- -----------
Software 349 318 306
----------- -------- -----------
Technology Solutions Group 9,099 8,339 8,682
----------- -------- -----------
Desktops 3,675 3,515 3,686
Notebooks 3,463 2,768 2,795
Workstations 362 339 329
Handhelds 139 136 186
Other 184 159 117
----------- -------- -----------
Personal Systems Group 7,823 6,917 7,113
----------- -------- -----------
Commercial Hardware 1,873 1,632 1,732
Consumer Hardware 1,296 893 1,267
Supplies 4,100 3,693 3,771
Other 14 16 15
----------- -------- -----------
Imaging and Printing Group 7,283 6,234 6,785
----------- -------- -----------
HP Financial Services 545 519 514
Corporate Investments 160 155 142
----------- -------- -----------
Total Segments 24,910 22,164 23,236
----------- -------- -----------
Eliminations of intersegment net
revenue and other (355) (274) (323)
----------- -------- -----------
Total HP Consolidated $24,555 $21,890 $22,913
=========== ======== ===========
(a) Reflects certain fiscal 2006 organizational realignments
retroactively to provide improved visibility and comparability. For
each of the quarters in fiscal year 2005, the realignments resulted
primarily in revenue movement of $5 million or less between ESS and
SW segments within TSG. In addition, IPG and PSG revenue was impacted
at the business unit level but the overall segment revenue remained
as previously reported. There was no impact to the remaining
segments.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
Twelve months ended
October 31,
-----------------------
2006 2005(a)
----------- -----------
Net revenue:
Industry Standard Servers $ 10,133 $ 9,530
Business Critical Systems 3,656 3,812
Storage 3,519 3,375
----------- -----------
Enterprise Storage and Servers 17,308 16,717
----------- -----------
Technology Services 9,506 9,665
Managed Services 3,224 3,031
Consulting and Integration 2,887 2,840
----------- -----------
HP Services 15,617 15,536
----------- -----------
OpenView 899 691
OpenCall and Other 402 370
----------- -----------
Software 1,301 1,061
----------- -----------
Technology Solutions Group 34,226 33,314
----------- -----------
Desktops 14,613 14,406
Notebooks 12,000 9,763
Workstations 1,368 1,195
Handhelds 620 836
Other 565 541
----------- -----------
Personal Systems Group 29,166 26,741
----------- -----------
Commercial Hardware 6,899 6,558
Consumer Hardware 4,427 4,497
Supplies 15,402 14,045
Other 58 55
----------- -----------
Imaging and Printing Group 26,786 25,155
----------- -----------
HP Financial Services 2,078 2,102
Corporate Investments 566 523
----------- -----------
Total Segments 92,822 87,835
----------- -----------
Eliminations of intersegment net revenue and
other (1,164) (1,139)
----------- -----------
Total HP Consolidated $ 91,658 $ 86,696
=========== ===========
(a) Reflects certain fiscal 2006 organizational realignments
retroactively to provide improved visibility and comparability. For
fiscal year 2005, the realignments resulted primarily in revenue
movement of $16 million or less between ESS and SW segments within
TSG. In addition, IPG and PSG revenue was impacted at the business
unit level but the overall segment revenue remained as previously
reported. There was no impact to the remaining segments.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
COMPARISON OF DILUTED NON-GAAP EARNINGS PER SHARE
(Including the Effect of Stock-Based Compensation Expense)
(Unaudited)
Q106 Q206 Q306 Q406 FY06
--------- -------- ------- -------- --------
Non-GAAP EPS as
reported(a) $0.48 $0.69 $0.52 $0.68 $2.38
Pro forma effect of SFAS
123 on EPS - - - - -
--------- -------- ------- -------- --------
Total diluted non-GAAP EPS
including the effect of
stock-based compensation
expense for all periods $0.48 $0.69 $0.52 $0.68 $2.38
========= ======== ======= ======== ========
Q105 Q205 Q305 Q405(c) FY05(c)
--------- -------- ------- -------- --------
Non-GAAP EPS as
reported(a) $0.37 $0.37 $0.36 $0.51 $1.62
Pro forma effect of SFAS
123 on EPS(b) (0.05) (0.04) (0.04) (0.04) (0.16)
--------- -------- ------- -------- --------
Total diluted non-GAAP EPS
including the effect of
stock-based compensation
expense for all periods $0.32 $0.33 $0.32 $0.47 $1.46
========= ======== ======= ======== ========
(a) For each of the quarters in fiscal 2005, non-GAAP EPS includes the
effect of compensation expense related to discounted options and
restricted stock recognized under APB 25. Fiscal 2006 EPS includes
the aforementioned expense plus the impact for stock-based
compensation recognized under SFAS 123(R).
(b) For each of the quarters in fiscal 2005, non-GAAP EPS as reported
excludes the effect of compensation expense related to employee stock
options and employee stock purchase plan under SFAS 123.
(c) In Q405, HP recorded $107 million of stock compensation before tax
expense or $0.03 per share on an after tax basis within restructuring
charges. This amount is excluded from the non-GAAP results shown
above.
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,
2006 2006 2005
----------- -------- -----------
Numerator:
Net earnings $ 1,697 $ 1,375 $ 416
Adjustment for interest expense on
zero coupon subordinated
convertible notes, net of taxes 2 1 -
----------- -------- -----------
Net earnings, adjusted $ 1,699 $ 1,376 $ 416
=========== ======== ===========
Denominator:
Weighted-average shares used to
compute Basic EPS 2,730 2,768 2,850
Effect of dilutive securities:
Dilution from employee stock
plans 78 63 58
Zero-coupon subordinated
convertible notes 8 8 -
----------- -------- -----------
Dilutive potential common shares 86 71 58
----------- -------- -----------
Weighted-average shares used to
compute diluted EPS 2,816 2,839 2,908
=========== ======== ===========
Net earnings per share:
Basic(a) $ 0.62 $ 0.50 $ 0.15
Diluted(b) $ 0.60 $ 0.48 $ 0.14
(a) HP's basic earnings per share (EPS) were 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 commonstock, such as stock issuable pursuant to
exercise of stock options and conversion of debt, except when such
issuances would be antidilutive.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(In millions except per share amounts)
Twelve months ended
October 31,
--------------------
2006 2005
----------- --------
(Unaudited)
Numerator:
Net earnings $ 6,198 $ 2,398
Adjustment for interest expense on zero coupon
subordinated convertible notes, net of taxes 7 -
----------- --------
Net earnings, adjusted $ 6,205 $ 2,398
=========== ========
Denominator:
Weighted-average shares used to compute basic
EPS 2,782 2,879
Effect of dilutive securities:
Dilution from employee stock plans 62 30
Zero-coupon subordinated convertible notes 8 -
----------- --------
Dilutive potential common shares 70 30
----------- --------
Weighted-average shares used to compute diluted
EPS 2,852 2,909
=========== ========
Net earnings per share:
Basic(a) $ 2.23 $ 0.83
Diluted(b) $ 2.18 $ 0.82
(a) HP's basic earnings per share were 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 conversion of debt, except when such
issuances would be antidilutive.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
Three months ended
--------------------------------
October 31, July 31, October 31,
2006 2006 2005
----------- -------- -----------
Numerator:
Non-GAAP net earnings $ 1,905 $1,483 $1,496
Adjustment for interest expense on
zero coupon subordinated
convertible notes, net of taxes 2 1 2
----------- -------- -----------
Non-GAAP net earnings, adjusted $ 1,907 $1,484 $1,498
=========== ======== ===========
Denominator:
Weighted-average shares used to
compute basic EPS 2,730 2,768 2,850
Effect of dilutive securities:
Dilution from employee stock
plans 78 63 58
Zero-coupon subordinated
convertible notes 8 8 7
----------- -------- -----------
Dilutive potential common shares 86 71 65
----------- -------- -----------
Weighted-average shares used to
compute diluted EPS 2,816 2,839 2,915
=========== ======== ===========
Non-GAAP net earnings per share:
Basic(a) $ 0.70 $ 0.54 $ 0.52
Diluted(b) $ 0.68 $ 0.52 $ 0.51
(a) HP's basic non-GAAP earnings per share were calculated based on
non-GAAP net earnings and the weighted-average number of shares
outstanding during the reporting period.
(b) HP's diluted non-GAAP EPS included additional dilution from
potential issuance of common stock, such as stock issuable pursuant
to exercise of stock options and conversion of debt, except when such
issuances would be antidilutive.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
Twelve months ended
October 31,
-------------------
2006 2005
--------- ---------
Numerator:
Non-GAAP net earnings $ 6,777 $ 4,708
Adjustment for interest expense on zero coupon
subordinated convertible notes, net of taxes 7 7
--------- ---------
Non-GAAP net earnings, adjusted $ 6,784 $ 4,715
========= =========
Denominator:
Weighted-average shares used to compute basic
EPS 2,782 2,879
Effect of dilutive securities:
Dilution from employee stock plans 62 30
Zero-coupon subordinated convertible notes 8 8
--------- ---------
Dilutive potential common shares 70 38
--------- ---------
Weighted-average shares used to compute diluted
EPS 2,852 2,917
========= =========
Non-GAAP net earnings per share:
Basic(a) $ 2.44 $ 1.64
Diluted(b) $ 2.38 $ 1.62
(a) HP's basic non-GAAP earnings per share were calculated based on
non-GAAP net earnings and the weighted-average number of shares
outstanding during the reporting period.
(b) HP's diluted non-GAAP EPS included additional dilution from
potential issuance of common stock, such as stock issuable pursuant
to exercise of stock options and conversion of debt, except when such
issuances would be antidilutive.
Use of Non-GAAP Financial Measures To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net income, non-GAAP diluted earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted earnings per share. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net income 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. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above. Use and Economic Substance of Non-GAAP Financial Measures Used by HP Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the amortization of purchased intangible assets, acquisition-related charges, pension curtailment gains and in-process research and development charges recorded during the relevant period. Non-GAAP net income and non-GAAP diluted earnings per share consist of net earnings or diluted net earnings per share excluding those same charges as well as any gains or losses on investments recorded during the relevant period. Non-GAAP net income and non-GAAP diluted earnings per share for HP's fiscal year ended October 31, 2005 also exclude the effects of a non-recurring tax expense associated with the repatriation of $14.5 billion under the provisions of the American Jobs Creation Act of 2004. In addition, non-GAAP net income 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:
-- Restructuring charges consist of costs primarily related to
severance and benefits for employees terminated pursuant to a
formal restructuring plan, including strategic reallocations
or workforce reductions. HP excludes these restructuring costs
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 operating performance.
-- 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. HP incurs charges relating to
the amortization of these intangibles, and those charges are
included in HP's GAAP presentation of earnings from
operations, operating margin, net earnings and net earnings
per share. Amortization charges for HP's purchased intangible
assets 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 operating
performance.
-- During its fourth fiscal quarter of 2005, HP ceased pension
accruals of its U.S. defined benefit plan for employees who
did not meet defined criteria based on age and years of
service. As a result, HP recognized a curtailment gain of $199
million during that quarter relating to the elimination of
future benefit accruals for the affected employee group.
HP has not incurred any additional curtailment gains in
connection with this one-time change to its employee benefit
program. As such, HP believes that eliminating these gains or
losses 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 operating
performance.
-- HP incurs costs related to acquisitions, some of which are
treated as non-capitalized expenses. These non-capitalized
expenses are inconsistent in amount and frequency and are
significantly impacted by the timing and nature of HP's
acquisitions. As such, HP believes that eliminating these
non-capitalized acquisition-related 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 operating performance.
-- In-process research and development charges relate to amounts
assigned to tangible and intangible assets to be used in
research and development projects that have no alternative
future use and therefore are charged to expense at the
acquisition date. Charges for in-process research and
development in connection with HP's acquisitions are reflected
in HP's GAAP presentation of earnings from operations,
operating margin, net earnings and net earnings per share.
In-process research and development expenses are not
indicative of HP's ongoing operating costs and are generally
unpredictable. Accordingly, HP believes that eliminating these
expenses for purposes of calculating these non-GAAP measures
contributes to a meaningful evaluation of HP's current
operating performance and comparisons to HP's past operating
performance.
-- HP's investments consist principally of time deposits, other
debt securities and equity securities of publicly traded and
privately held companies. HP sells investments or adjusts the
value of investments from time to time based on market
conditions and, in the case of investments in equity
securities, the strategic value of such investments. HP's
activities in this regard are included in its GAAP
presentation of net income and net earnings per share. Because
the amount and timing of these gains or losses and adjustments
are unpredictable, HP believes that eliminating these gains or
losses and adjustments for purposes of calculating non-GAAP
net income and non-GAAP diluted earnings per share facilitates
a more meaningful evaluation of HP's current operating
performance and comparisons to HP's past operating
performance.
-- The American Jobs Creation Act of 2004 provided for a
temporary 85% dividends received deduction on certain foreign
earnings repatriated during a one-year period. During its
third fiscal quarter ended July 31, 2005, HP decided to
repatriate $14.5 billion in its third and fourth fiscal
quarters of 2005 and recorded an associated tax expense of
approximately $788 million. Because the benefits provided for
under the Act were made available only during a one-year
period that has already expired, HP did not and will not incur
any additional tax expense associated with the repatriation of
funds under the Act in any subsequent or future fiscal
quarter. As such, HP believes that eliminating this one-time
tax expense for purposes of calculating non-GAAP net income
and non-GAAP diluted earnings per share facilitates a more
meaningful evaluation of HP's current operating performance
and comparisons to HP's past 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. HP's management uses gross cash 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 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. Material Limitations Associated with Use of Non-GAAP Financial Measures These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HP's results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are:
-- Items such as amortization of purchased intangible assets and
acquisition-related charges, 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 income 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 income and non-GAAP diluted earnings per share can have a
material impact on cash flows and earnings per share.
-- Items such as gains or losses on investments that are excluded
from non-GAAP net income and non-GAAP diluted earnings per
share can have a material impact on cash flows and earnings
per share.
-- HP may not be able to liquidate immediately the long-term
investments included in gross cash, which may limit the
usefulness of gross cash as a liquidity measure.
-- Other companies may calculate non-GAAP operating profit,
non-GAAP operating margin, non-GAAP net income, non-GAAP
diluted earnings per share and gross cash differently than HP
does, limiting the usefulness of those measures for
comparative purposes.
Compensation for Limitations Associated with Use of Non-GAAP Financial Measures HP compensates for the limitations on our use of non-GAAP operating profit, non-GAAP operating margin, non-GAAP net income, non-GAAP diluted earnings per share and gross cash by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this press release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations. Usefulness of Non-GAAP Financial Measures to Investors HP believes that providing non-GAAP operating profit, non-GAAP operating margin, non-GAAP net income, non-GAAP diluted earnings per share and gross cash 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.
CONTACT: HP SOURCE: HP |