HP Reports Fourth Quarter and Fiscal 2013 Results

Marketwired

PALO ALTO, CA--(Marketwired - Nov 26, 2013) -  HP (NYSE: HPQ)

  • Fourth quarter non-GAAP diluted net earnings per share of $1.01, down 13% from the prior-year period
  • Fourth quarter GAAP diluted net earnings per share of $0.73, up from GAAP diluted net loss per share of $3.49 in the prior-year period
  • Fourth quarter net revenue of $29.1 billion, down 3% from the prior-year period and down 1% when adjusted for the effects of currency
  • Fourth quarter cash flow from operations of $2.8 billion, down 31% from the prior-year period
  • Returned $763 million to shareholders in the form of dividends and share repurchases in the fourth quarter
  • Improved operating company net debt position by $1.3 billion to an operating company net cash position in the fourth quarter, the seventh consecutive quarterly improvement of over $1 billion
  • Fiscal 2013 non-GAAP diluted net earnings per share of $3.56, within the previously provided outlook of $3.53 to $3.57
  • Fiscal 2013 GAAP diluted net earnings per share of $2.62, below the previously provided outlook of $2.67 to $2.71
  • Fiscal 2013 net revenue of $112.3 billion, down 7% from the prior year and down 5% when adjusted for the effects of currency

HP fourth quarter and fiscal 2013 financial performance

                                     
    Q4 FY13     Q4 FY12     Y/Y     FY13     FY12     Y/Y  
GAAP net revenue ($B)   $ 29.1     $ 30.0     (3 %)   $ 112.3     $ 120.4     (7 %)
GAAP operating margin     6.6 %     (21.7 %)   28.3 pts.       6.4 %     (9.2 %)   15.6 pts.  
GAAP net earnings (loss) ($B)   $ 1.4     $ (6.9 )         $ 5.1     $ (12.7 )      
GAAP diluted net earnings (loss) per share   $ 0.73     $ (3.49 )         $ 2.62     $ (6.41 )      
Non-GAAP operating margin     9.0 %     10.4 %   (1.4 pts. )     8.5 %     9.3 %   (0.8 pts. )
Non-GAAP net earnings ($B)   $ 2.0     $ 2.3     (14 %)   $ 6.9     $ 8.0     (14 %)
Non-GAAP diluted net earnings per share   $ 1.01     $ 1.16     (13 %)   $ 3.56     $ 4.05     (12 %)
Cash flow from operations ($B)   $ 2.8     $ 4.1     (31 %)   $ 11.6     $ 10.6     10 %
                                             
                                             

Information about HP's use of non-GAAP financial information is provided under "Use of Non-GAAP Financial Information" below.

HP today announced financial results for its fiscal fourth quarter and fiscal year ended Oct. 31, 2013. 

Fourth quarter GAAP diluted net earnings per share (EPS) was $0.73, up from a GAAP diluted net loss per share of $3.49 in the prior-year period. Fourth quarter non-GAAP diluted net EPS was $1.01, down from $1.16 in the prior-year period. Fourth quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $545 million and $0.28 per diluted share, respectively, related to restructuring charges, the amortization of intangible assets and acquisition-related charges.

Fourth quarter net revenue of $29.1 billion was down 3% from the prior-year period and down 1% when adjusted for the effects of currency.

Fiscal 2013 GAAP diluted net EPS was $2.62, up from a GAAP diluted net loss per share of $6.41 in the prior-year period and below the previously provided outlook of $2.67 to $2.71 per share. Fiscal 2013 non-GAAP diluted net EPS was $3.56, down from $4.05 in the prior-year period and within the previously provided outlook of $3.53 to $3.57 per share. Fiscal 2013 non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $1.8 billion and $0.94 per diluted share, respectively, related to the amortization of intangible assets, restructuring charges and acquisition-related charges.

Fiscal 2013 net revenue of $112.3 billion was down 7% from the prior year and down 5% when adjusted for the effects of currency.

"Through improved execution, strong cost management, and with the support of our customers and partners, HP ended fiscal 2013 on a high note," said Meg Whitman, HP president and chief executive officer. "Our Q4 results demonstrate that HP's turnaround remains on track heading into fiscal 2014. While we still have much more work to do, our business units and their core assets are delivering on HP's strategy to help customers thrive by providing solutions for the New Style of IT."

Outlook
For the first quarter of fiscal 2014, HP estimates non-GAAP diluted net EPS to be in the range of $0.82 to $0.86 and GAAP diluted net EPS to be in the range of $0.60 to $0.64. First quarter fiscal 2014 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.22 per share, related primarily to the amortization of intangible assets and restructuring charges.

For fiscal 2014, HP estimates non-GAAP diluted net EPS to be in the range of $3.55 to $3.75 and GAAP diluted net EPS to be in the range of $2.85 to $3.05, in line with the outlook HP previously communicated at its Oct. 9 Securities Analyst Meeting. Fiscal 2014 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.70 per share, related primarily to the amortization of intangible assets and restructuring charges.

Asset management
HP generated $2.8 billion in cash flow from operations in the fourth quarter, down 31% from the prior-year period. Inventory ended the quarter at $6.0 billion, down 1 day year over year to 24 days. Accounts receivable ended the quarter at $15.9 billion, flat year over year at 49 days. Accounts payable ended the quarter at $14.0 billion, up 3 days year over year to 56 days. HP's dividend payment of $0.1452 per share in the fourth quarter resulted in cash usage of $284 million. HP also utilized $479 million of cash during the quarter to repurchase approximately 21.5 million shares of common stock in the open market. HP exited the quarter with $12.5 billion in gross cash.

Fourth quarter fiscal 2013 segment results

  • Personal Systems revenue was down 2% year over year with a 3.0% operating margin. Commercial revenue increased 4% and Consumer revenue declined 10%. Total units were up 2% with Desktops units down 5% and Notebooks units up 3%.
  • Printing revenue was down 1% year over year with a 17.7% operating margin. Total hardware units were up 6% with Commercial hardware units up 9% and Consumer hardware units up 4%. Supplies revenue was down 4%.
  • Enterprise Group revenue was up 2% year over year with a 14.5% operating margin. Networking revenue was up 3%, Industry Standard Servers revenue was up 10%, Business Critical Systems revenue was down 17%, Storage revenue was up 1% and Technology Services revenue was down 6%.
  • Enterprise Services revenue declined 9% year over year with a 4.4% operating margin. Application and Business Services revenue was down 10%, and Infrastructure Technology Outsourcing revenue declined 9%.
  • Software revenue was down 9% year over year with a 30.8% operating margin. Support revenue was up 4%, license revenue was down 24%, professional services revenue was down 13% and software-as-a-service ("SaaS") revenue was up 15%.
  • HP Financial Services revenue was down 6% year over year with a 5% decrease in net portfolio assets and a 3% decrease in financing volume. The business delivered an operating margin of 11.2%.

More information on HP's earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations website at www.hp.com/investor/home.

HP's Q4 FY13 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2013Q4earnings.

About HP
HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. With the broadest technology portfolio spanning printing, personal systems, software, services and IT infrastructure, HP delivers solutions for customers' most complex challenges in every region of the world. 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 generally accepted accounting principles (GAAP) basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net debt, net cash, operating company net debt and operating company net cash. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and full year and prior periods is included in the tables below or elsewhere in the materials accompanying this news release. In addition, an explanation of the ways in which HP's management uses these non-GAAP measures to evaluate its business, the substance behind HP's 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's management compensates for those limitations, and the substantive reasons why HP's 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 net earnings per share, cash and cash equivalents, cash flow from operations or total company debt 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, HP's effective tax rate, earnings, earnings per share, cash flows, benefit plan funding, share repurchases, currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring charges; any statements of the plans, strategies and objectives of management for future operations, including the execution of restructuring plans and any resulting cost savings or revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the need to address the many challenges facing HP's businesses; the competitive pressures faced by HP's businesses; risks associated with executing HP's strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of HP's products and services effectively; the protection of HP's intellectual property assets, including intellectual property licensed from third parties; risks associated with HP's international operations; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers and partners; the hiring and retention of key employees; integration and other risks associated with business combination and investment transactions; the execution, timing and results of restructuring plans, including estimates and assumptions related to the cost and the anticipated benefits of implementing those plans; the resolution of pending investigations, claims and disputes; and other risks that are described in HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2012 and HP's other filings with the Securities and Exchange Commission, including HP's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2013. 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 Annual Report on Form 10-K for the fiscal year ended October 31, 2013. In particular, determining HP's actual tax balances and provisions as of October 31, 2013 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 Annual Report on Form 10-K. HP assumes no obligation and does not intend to update these forward-looking statements.

   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS  
(Unaudited)  
(In millions except per share amounts)  
                   
    Three months ended  
    Oct 31,
2013
    July 31,
2013
    Oct 31,
2012
 
                         
Net revenue   $ 29,131     $ 27,226     $ 29,959  
                         
Costs and expenses:                        
  Cost of sales     22,437       20,859       22,711  
  Research and development     729       797       909  
  Selling, general and administrative     3,351       3,274       3,227  
  Amortization of intangible assets     317       356       372  
  Impairment of goodwill and intangible assets     -       -       8,847  
  Restructuring charges     371       81       378  
  Acquisition-related charges     3       4       3  
    Total costs and expenses     27,208       25,371       36,447  
                         
Earnings (loss) from operations     1,923       1,855       (6,488 )
                         
Interest and other, net     (103 )     (146 )     (188 )
                         
Earnings (loss) before taxes     1,820       1,709       (6,676 )
                         
Provision for taxes     (406 )     (319 )     (178 )
                         
Net earnings (loss)   $ 1,414     $ 1,390     $ (6,854 )
                         
Net earnings (loss) per share:                        
  Basic   $ 0.74     $ 0.72     $ (3.49 )
  Diluted   $ 0.73     $ 0.71     $ (3.49 )
                         
Cash dividends declared per share   $ -     $ 0.29     $ -  
                         
                         
Weighted-average shares used to compute net earnings (loss) per share:                        
  Basic     1,918       1,929       1,964  
  Diluted     1,940       1,948       1,964  
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In millions except per share amounts)
             
    Twelve months ended  
    Oct 31,  
    2013     2012  
    (Unaudited)        
                 
Net revenue   $ 112,298     $ 120,357  
                 
Costs and expenses:                
  Cost of sales     86,380       92,385  
  Research and development     3,135       3,399  
  Selling, general and administrative     13,267       13,500  
  Amortization of intangible assets     1,373       1,784  
  Impairment of goodwill and intangible assets     -       18,035  
  Restructuring charges     990       2,266  
  Acquisition-related charges     22       45  
    Total costs and expenses     105,167       131,414  
                 
Earnings (loss) from operations     7,131       (11,057 )
                 
Interest and other, net     (621 )     (876 )
                 
Earnings (loss) before taxes     6,510       (11,933 )
                 
Provision for taxes     (1,397 )     (717 )
                 
Net earnings (loss)   $ 5,113     $ (12,650 )
                 
Net earnings (loss) per share:                
  Basic   $ 2.64     $ (6.41 )
  Diluted   $ 2.62     $ (6.41 )
                 
Cash dividends declared per share   $ 0.55     $ 0.50  
                 
                 
Weighted-average shares used to compute net earnings (loss) per share:                
  Basic     1,934       1,974  
  Diluted     1,950       1,974  
   
   
   
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
Oct 31,
2013
  Diluted earnings per share   Three months ended
July 31,
2013
  Diluted earnings per share   Three months ended
Oct 31,
2012
  Diluted earnings per share  
                                         
GAAP net earnings (loss)   $ 1,414   $ 0.73   $ 1,390   $ 0.71   $ (6,854 ) $ (3.49 )
                                         
Non-GAAP adjustments:                                      
  Amortization of intangible assets     317     0.16     356     0.19     372     0.19  
  Impairment of goodwill and intangible assets(a)     -     -     -     -     8,847     4.51  
  Restructuring charges     371     0.19     81     0.04     378     0.19  
  Acquisition-related charges     3     -     4     -     3     -  
  Adjustments for taxes(b)     (146 )   (0.07 )   (155 )   (0.08 )   (465 )   (0.24 )
Non-GAAP net earnings   $ 1,959   $ 1.01   $ 1,676   $ 0.86   $ 2,281   $ 1.16  
                                         
                                         
GAAP earnings (loss) from operations   $ 1,923         $ 1,855         $ (6,488 )      
                                         
Non-GAAP adjustments:                                      
  Amortization of intangible assets     317           356           372        
  Impairment of goodwill and intangible assets(a)     -           -           8,847        
  Restructuring charges     371           81           378        
  Acquisition-related charges     3           4           3        
Non-GAAP earnings from operations   $ 2,614         $ 2,296         $ 3,112        
                                         
GAAP operating margin     7 %         7 %         (22 %)      
Non-GAAP adjustments     2 %         1 %         32 %      
Non-GAAP operating margin     9 %         8 %         10 %      
   
(a) For the period ended October 31, 2012, represents a goodwill and intangible asset impairment charge of $8.8 billion associated with the Autonomy reporting unit within the Software segment.
   
(b) For the period ended October 31, 2012, adjustments for taxes is net of a valuation allowance of $0.5 billion provided for certain deferred tax assets.
   
   
   
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)  
                         
    Twelve months ended
October 31,
2013
    Diluted earnings per share     Twelve months ended
October 31,
2012
    Diluted earnings per share  
                                 
GAAP net earnings (loss)   $ 5,113     $ 2.62     $ (12,650 )   $ (6.41 )
                                 
Non-GAAP adjustments:                                
  Amortization of intangible assets     1,373       0.70       1,784       0.90  
  Impairment of goodwill and intangible assets(a)     -       -       18,035       9.14  
  Restructuring charges     990       0.51       2,266       1.15  
  Acquisition-related charges     22       0.01       45       0.02  
  Wind down of non-strategic businesses(b)     -       -       72       0.03  
  Adjustments for taxes(c)     (560 )     (0.28 )     (1,517 )     (0.78 )
Non-GAAP net earnings   $ 6,938     $ 3.56     $ 8,035     $ 4.05  
                                 
                                 
GAAP earnings (loss) from operations   $ 7,131             $ (11,057 )        
                                 
Non-GAAP adjustments:                                
  Amortization of intangible assets     1,373               1,784          
  Impairment of goodwill and intangible assets(a)     -               18,035          
  Restructuring charges     990               2,266          
  Acquisition-related charges     22               45          
  Wind down of non-strategic businesses(b)     -               72          
Non-GAAP earnings from operations   $ 9,516             $ 11,145          
                                 
GAAP operating margin     6 %             (9 %)        
Non-GAAP adjustments     2 %             18 %        
Non-GAAP operating margin     8 %             9 %        
   
(a) For the period ended October 31, 2012, represents a goodwill and intangible asset impairment charge of $8.8 billion associated with the Autonomy reporting unit within the Software segment, a goodwill impairment charge of $8.0 billion associated with the Enterprise Services segment and an intangible asset impairment charge of $1.2 billion associated with the "Compaq" trade name within the Personal Systems segment.
   
(b) For the period ended October 31, 2012, represents primarily contract-related charges, including inventory write-downs, related to winding down certain retail publishing business activities within the Printing segment, net of adjustments to expenses for supplier-related obligations related to winding down the webOS device business.
   
(c) For the period ended October 31, 2012, adjustments for taxes is net of valuation allowances of $1.3 billion provided for certain deferred tax assets.
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
         
    October 31,
2013
  October 31,
2012
    (Unaudited)    
ASSETS            
             
Current assets:            
  Cash and cash equivalents   $ 12,163   $ 11,301
  Accounts receivable     15,876     16,407
  Financing receivables     3,144     3,252
  Inventory     6,046     6,317
  Other current assets     13,135     13,360
             
    Total current assets     50,364     50,637
             
Property, plant and equipment     11,463     11,954
             
Long-term financing receivables and other assets     9,556     10,593
             
Goodwill and intangible assets     34,293     35,584
             
Total assets   $ 105,676   $ 108,768
             
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
Current liabilities:            
  Notes payable and short-term borrowings   $ 5,979   $ 6,647
  Accounts payable     14,019     13,350
  Employee compensation and benefits     4,436     4,058
  Taxes on earnings     1,203     846
  Deferred revenue     6,477     7,494
  Other accrued liabilities     13,407     14,271
             
    Total current liabilities     45,521     46,666
             
Long-term debt     16,608     21,789
             
Other liabilities     15,891     17,480
             
Stockholders' equity:            
  HP stockholders' equity     27,269     22,436
  Non-controlling interests     387     397
             
    Total stockholders' equity     27,656     22,833
             
Total liabilities and stockholders' equity   $ 105,676   $ 108,768
   
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
(In millions)  
   
    Three months ended
October 31,
2013
    Twelve months ended
October 31,
2013
 
                 
Cash flows from operating activities:                
  Net earnings   $ 1,414     $ 5,113  
  Adjustments to reconcile net earnings to net cash provided by operating activities:                
    Depreciation and amortization     1,120       4,611  
    Stock-based compensation expense     102       500  
    Provision for doubtful accounts and inventory     71       336  
    Restructuring charges     371       990  
    Deferred taxes on earnings     (952 )     (410 )
    Excess tax benefit from stock-based compensation     (1 )     (2 )
    Other, net     100       443  
                 
    Changes in operating assets and liabilities:                
      Accounts receivables     (1,542 )     530  
      Financing receivables     (84 )     484  
      Inventory     441       (4 )
      Accounts payable     611       541  
      Taxes on earnings     937       417  
      Restructuring     (260 )     (904 )
      Other assets and liabilities     488       (1,037 )
        Net cash provided by operating activities     2,816       11,608  
                 
Cash flows from investing activities:                
    Investment in property, plant and equipment     (919 )     (3,199 )
    Proceeds from sale of property, plant and equipment     146       653  
    Purchases of available-for-sale securities and other investments     (450 )     (1,243 )
    Maturities and sales of available-for-sale securities and other investments     279       1,153  
    Payments made in connection with business acquisitions, net of cash acquired     -       (167 )
        Net cash used in investing activities     (944 )     (2,803 )
                 
Cash flows from financing activities:                
    Issuance (repayment) of commercial paper and notes payable, net     16       (154 )
    Issuance of debt     25       279  
    Payment of debt     (2,248 )     (5,721 )
    Issuance of common stock under employee stock plans     9       288  
    Repurchase of common stock     (479 )     (1,532 )
    Excess tax benefit from stock-based compensation     1       2  
    Cash dividends paid     (284 )     (1,105 )
        Net cash used in financing activities     (2,960 )     (7,943 )
                 
(Decrease) increase in cash and cash equivalents     (1,088 )     862  
Cash and cash equivalents at beginning of period     13,251       11,301  
Cash and cash equivalents at end of period   $ 12,163     $ 12,163  
...
   
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT INFORMATION  
(Unaudited)  
(In millions)  
                   
    Three months ended  
    October 31,
2013
    July 31,
2013
    October 31,
2012
 
Net revenue:(a)                        
                         
  Personal Systems   $ 8,579     $ 7,704     $ 8,727  
  Printing     6,044      5,803       6,080  
    Total Printing and Personal Systems Group(b)     14,623       13,507       14,807  
  Enterprise Group     7,594       6,786       7,459  
  Enterprise Services     5,759       5,843       6,352  
  Software     1,064       982       1,171  
  HP Financial Services     912       879       966  
  Corporate Investments     5       5       10  
    Total segments     29,957       28,002       30,765  
  Elimination of intersegment net revenue and other     (826 )     (776 )     (806 )
                         
    Total HP consolidated net revenue   $ 29,131     $ 27,226     $ 29,959  
                         
Earnings before taxes:(a)                        
                         
  Personal Systems   $ 259     $ 228     $ 309  
  Printing     1,071       908       1,067  
    Total Printing and Personal Systems Group(b)     1,330       1,136       1,376  
  Enterprise Group     1,102       1,033       1,229  
  Enterprise Services     255       192       423  
  Software     328       201       318  
  HP Financial Services     102       99       104  
  Corporate Investments     (57 )     (58 )     (78 )
    Total segment earnings from operations     3,060       2,603       3,372  
                         
  Corporate and unallocated costs and eliminations     (344 )     (200 )     (119 )
  Unallocated costs related to stock-based compensation expense     (102 )     (107 )     (141 )
  Amortization of intangible assets     (317 )     (356 )     (372 )
  Impairment of goodwill and intangible assets     -       -       (8,847 )
  Restructuring charges     (371 )     (81 )     (378 )
  Acquisition-related charges     (3 )     (4 )     (3 )
  Interest and other, net     (103 )     (146 )     (188 )
                         
    Total HP consolidated earnings (loss) before taxes   $ 1,820     $ 1,709     $ (6,676 )
   
(a) HP has implemented certain organizational realignments in the first quarter of fiscal 2013. As a result of these realignments, HP has re-evaluated its segment financial reporting structure and, effective in the first quarter of fiscal 2013, created two new financial reporting segments, the Enterprise Group segment and the Enterprise Services segment, and eliminated two other financial reporting segments, the Enterprise Servers, Storage and Networking ("ESSN") segment and the Services segment. The Enterprise Group segment consists of the business units within the former ESSN segment and most of the services offerings of the Technology Services ("TS") business unit, which was previously a part of the former Services segment. The Enterprise Services segment consists of the Applications and Business Services ("ABS") and Infrastructure Technology Outsourcing ("ITO") business units from the former Services segment, along with the end-user workplace support services business that was previously a part of the TS business unit. Taking into account these changes, HP has the following seven financial reporting segments: Personal Systems, Printing, the Enterprise Group, Enterprise Services, Software, HP Financial Services and Corporate Investments.
   
  Also as a result of these realignments, the financial results of the Personal Systems commercial products support business, which were previously reported as part of the TS business unit, will now be reported as part of the Other business unit within the Personal Systems segment, and the financial results of the portion of the business intelligence services business that had continued to be reported as part of the Corporate Investments segment following the implementation of prior realignment actions will now be reported as part of the ABS business unit. In addition, the end-user workplace support services business, which, as noted above, was previously a part of the TS business unit and will now become a part of the Enterprise Services segment, will be reported as part of the ITO business unit within that segment.
   
  To provide improved visibility and comparability, HP has reflected these changes to its reporting structure in prior financial reporting periods on an as-if basis, which has resulted in the transfer of revenue and operating profit among the Personal Systems, the Enterprise Group, Enterprise Services and Corporate Investments segments. These changes had no impact on the previously reported financial results for the Printing, Software or HP Financial Services segments. In addition, none of these changes impacted HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) The Personal Systems segment and the Printing segment are structured beneath a broader Printing and Personal Systems Group ("PPS"). While PPS is not a financial reporting segment, HP provides financial data aggregating the segments within it in order to provide a supplementary view of its business.
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(In millions)
             
    Twelve months ended  
    October 31,  
    2013     2012  
    (Unaudited)        
Net revenue:(a)                
                 
  Personal Systems   $ 32,071     $ 35,725  
  Printing     23,854       24,487  
    Total Printing and Personal Systems Group(b)     55,925       60,212  
  Enterprise Group     28,183       29,779  
  Enterprise Services     23,520       25,609  
  Software     3,913       4,060  
  HP Financial Services     3,629       3,819  
  Corporate Investments     24       58  
    Total Segments     115,194       123,537  
  Elimination of intersegment net revenue and other     (2,896 )     (3,180 )
                 
    Total HP consolidated net revenue   $ 112,298     $ 120,357  
                 
Earnings before taxes:(a)                
                 
  Personal Systems   $ 949     $ 1,689  
  Printing     3,890       3,585  
    Total Printing and Personal Systems Group(b)     4,839       5,274  
  Enterprise Group     4,301       5,194  
  Enterprise Services     679       1,045  
  Software     866       827  
  HP Financial Services     399       388  
  Corporate Investments     (236 )     (233 )
    Total segment earnings from operations     10,848       12,495  
                 
  Corporate and unallocated costs and eliminations     (832 )     (787 )
  Unallocated costs related to stock-based compensation expense     (500 )     (635 )
  Amortization of intangible assets     (1,373 )     (1,784 )
  Impairment of goodwill and intangible assets     -       (18,035 )
  Restructuring charges     (990 )     (2,266 )
  Acquisition-related charges     (22 )     (45 )
  Interest and other, net     (621 )     (876 )
                 
    Total HP consolidated earnings (loss) before taxes   $ 6,510     $ (11,933 )
   
(a) HP has implemented certain organizational realignments in the first quarter of fiscal 2013. As a result of these realignments, HP has re-evaluated its segment financial reporting structure and, effective in the first quarter of fiscal 2013, created two new financial reporting segments, the Enterprise Group segment and the Enterprise Services segment, and eliminated two other financial reporting segments, the Enterprise Servers, Storage and Networking ("ESSN") segment and the Services segment. The Enterprise Group segment consists of the business units within the former ESSN segment and most of the services offerings of the Technology Services ("TS") business unit, which was previously a part of the former Services segment. The Enterprise Services segment consists of the Applications and Business Services ("ABS") and Infrastructure Technology Outsourcing ("ITO") business units from the former Services segment, along with the end-user workplace support services business that was previously a part of the TS business unit. Taking into account these changes, HP has the following seven financial reporting segments: Personal Systems, Printing, the Enterprise Group, Enterprise Services, Software, HP Financial Services and Corporate Investments.
   
  Also as a result of these realignments, the financial results of the Personal Systems commercial products support business, which were previously reported as part of the TS business unit, will now be reported as part of the Other business unit within the Personal Systems segment, and the financial results of the portion of the business intelligence services business that had continued to be reported as part of the Corporate Investments segment following the implementation of prior realignment actions will now be reported as part of the ABS business unit. In addition, the end-user workplace support services business, which, as noted above, was previously a part of the TS business unit and will now become a part of the Enterprise Services segment, will be reported as part of the ITO business unit within that segment.
   
  To provide improved visibility and comparability, HP has reflected these changes to its reporting structure in prior financial reporting periods on an as-if basis, which has resulted in the transfer of revenue and operating profit among the Personal Systems, the Enterprise Group, Enterprise Services and Corporate Investments segments. These changes had no impact on the previously reported financial results for the Printing, Software or HP Financial Services segments. In addition, none of these changes impacted HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) The Personal Systems segment and the Printing segment are structured beneath a broader Printing and Personal Systems Group ("PPS"). While PPS is not a financial reporting segment, HP provides financial data aggregating the segments within it in order to provide a supplementary view of its business.
 
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT / BUSINESS UNIT INFORMATION  
(Unaudited)  
(In millions)  
                   
    Three months ended     Growth rate (%)  
    October 31,
2013
    July 31,
2013
    October 31,
2012
    Q/Q     Y/Y  
Net revenue:(a)                                    
                                     
  Printing and Personal Systems Group(b)                                    
    Personal Systems                                    
      Notebooks   $ 4,461     $ 3,722     $ 4,572     20 %   (2 %)
      Desktops     3,273       3,147       3,369     4 %   (3 %)
      Workstations     554       537       550     3 %   1 %
      Other     291       298       236     (2 %)   23 %
        Total Personal Systems     8,579       7,704       8,727     11 %   (2 %)
                                     
    Printing                                    
      Supplies     3,862       3,839       4,007     1 %   (4 %)
      Commercial Hardware     1,551       1,399       1,482     11 %   5 %
      Consumer Hardware     631       565       591     12 %   7 %
        Total Printing     6,044       5,803       6,080     4 %   (1 %)
          Total Printing and Personal Systems Group     14,623       13,507       14,807     8 %   (1 %)
                                     
    Enterprise Group                                    
      Industry Standard Servers     3,451       2,851       3,137     21 %   10 %
      Technology Services     2,201       2,174       2,340     1 %   (6 %)
      Storage     952       833       946     14 %   1 %
      Networking     656       644       635     2 %   3 %
      Business Critical Systems     334       284       401     18 %   (17 %)
        Total Enterprise Group     7,594       6,786       7,459     12 %   2 %
                                     
    Enterprise Services                                    
      Infrastructure Technology Outsourcing     3,563       3,662       3,924     (3 %)   (9 %)
      Application and Business Services     2,196       2,181       2,428     1 %   (10 %)
        Total Enterprise Services     5,759       5,843       6,352     (1 %)   (9 %)
                                     
    Software     1,064       982       1,171     8 %   (9 %)
                                     
    HP Financial Services     912       879       966     4 %   (6 %)
                                     
    Corporate Investments     5       5       10     0 %   (50 %)
      Total segments     29,957       28,002       30,765     7 %   (3 %)
                                     
    Elimination of intersegment net revenue and other     (826 )     (776 )     (806 )   6 %   2 %
                                     
    Total HP consolidated net revenue   $ 29,131     $ 27,226     $ 29,959     7 %   (3 %)
   
(a) HP has implemented certain organizational realignments in the first quarter of fiscal 2013. As a result of these realignments, HP has re-evaluated its segment financial reporting structure and, effective in the first quarter of fiscal 2013, created two new financial reporting segments, the Enterprise Group segment and the Enterprise Services segment, and eliminated two other financial reporting segments, the Enterprise Servers, Storage and Networking ("ESSN") segment and the Services segment. The Enterprise Group segment consists of the business units within the former ESSN segment and most of the services offerings of the Technology Services ("TS") business unit, which was previously a part of the former Services segment. The Enterprise Services segment consists of the Applications and Business Services ("ABS") and Infrastructure Technology Outsourcing ("ITO") business units from the former Services segment, along with the end-user workplace support services business that was previously a part of the TS business unit. Taking into account these changes, HP has the following seven financial reporting segments: Personal Systems, Printing, the Enterprise Group, Enterprise Services, Software, HP Financial Services and Corporate Investments.
   
  Also as a result of these realignments, the financial results of the Personal Systems commercial products support business, which were previously reported as part of the TS business unit, will now be reported as part of the Other business unit within the Personal Systems segment, and the financial results of the portion of the business intelligence services business that had continued to be reported as part of the Corporate Investments segment following the implementation of prior realignment actions will now be reported as part of the ABS business unit. In addition, the end-user workplace support services business, which, as noted above, was previously a part of the TS business unit and will now become a part of the Enterprise Services segment, will be reported as part of the ITO business unit within that segment.
   
  To provide improved visibility and comparability, HP has reflected these changes to its reporting structure in prior financial reporting periods on an as-if basis, which has resulted in the transfer of revenue and operating profit among the Personal Systems, the Enterprise Group, Enterprise Services and Corporate Investments segments. These changes had no impact on the previously reported financial results for the Printing, Software or HP Financial Services segments. In addition, none of these changes impacted HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) The Personal Systems segment and the Printing segment are structured beneath a broader Printing and Personal Systems Group ("PPS"). While PPS is not a financial reporting segment, HP provides financial data aggregating the segments within it in order to provide a supplementary view of its business.
   
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT / BUSINESS UNIT INFORMATION  
(In millions)  
       
    Twelve months ended  
    October 31,  
    2013     2012  
    (Unaudited)        
Net revenue:(a)                
                 
  Printing and Personal Systems Group(b)                
    Personal Systems                
      Notebooks   $ 16,029     $ 18,830  
      Desktops     12,844       13,888  
      Workstations     2,147       2,148  
      Other     1,051       859  
        Total Personal Systems     32,071       35,725  
                 
    Printing                
      Supplies     15,716       16,151  
      Commercial Hardware     5,702       5,895  
      Consumer Hardware     2,436       2,441  
        Total Printing     23,854       24,487  
          Total Printing and Personal Systems Group     55,925       60,212  
                 
    Enterprise Group                
      Industry Standard Servers     12,102       12,582  
      Technology Services     8,890       9,288  
      Storage     3,475       3,815  
      Networking     2,526       2,482  
      Business Critical Systems     1,190       1,612  
        Total Enterprise Group     28,183       29,779  
                 
    Enterprise Services                
      Infrastructure Technology Outsourcing     14,682       15,792  
      Application and Business Services     8,838       9,817  
        Total Enterprise Services     23,520       25,609  
                 
    Software     3,913       4,060  
                 
    HP Financial Services     3,629       3,819  
                 
    Corporate Investments     24       58  
        Total segments     115,194       123,537  
                 
  Elimination of intersegment net revenue and other     (2,896 )     (3,180 )
                 
    Total HP consolidated net revenue   $ 112,298     $ 120,357  
   
(a) HP has implemented certain organizational realignments in the first quarter of fiscal 2013. As a result of these realignments, HP has re-evaluated its segment financial reporting structure and, effective in the first quarter of fiscal 2013, created two new financial reporting segments, the Enterprise Group segment and the Enterprise Services segment, and eliminated two other financial reporting segments, the Enterprise Servers, Storage and Networking ("ESSN") segment and the Services segment. The Enterprise Group segment consists of the business units within the former ESSN segment and most of the services offerings of the Technology Services ("TS") business unit, which was previously a part of the former Services segment. The Enterprise Services segment consists of the Applications and Business Services ("ABS") and Infrastructure Technology Outsourcing ("ITO") business units from the former Services segment, along with the end-user workplace support services business that was previously a part of the TS business unit. Taking into account these changes, HP has the following seven financial reporting segments: Personal Systems, Printing, the Enterprise Group, Enterprise Services, Software, HP Financial Services and Corporate Investments.
   
  Also as a result of these realignments, the financial results of the Personal Systems commercial products support business, which were previously reported as part of the TS business unit, will now be reported as part of the Other business unit within the Personal Systems segment, and the financial results of the portion of the business intelligence services business that had continued to be reported as part of the Corporate Investments segment following the implementation of prior realignment actions will now be reported as part of the ABS business unit. In addition, the end-user workplace support services business, which, as noted above, was previously a part of the TS business unit and will now become a part of the Enterprise Services segment, will be reported as part of the ITO business unit within that segment.
   
  To provide improved visibility and comparability, HP has reflected these changes to its reporting structure in prior financial reporting periods on an as-if basis, which has resulted in the transfer of revenue and operating profit among the Personal Systems, the Enterprise Group, Enterprise Services and Corporate Investments segments. These changes had no impact on the previously reported financial results for the Printing, Software or HP Financial Services segments. In addition, none of these changes impacted HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) The Personal Systems segment and the Printing segment are structured beneath a broader Printing and Personal Systems Group ("PPS"). While PPS is not a financial reporting segment, HP provides financial data aggregating the segments within it in order to provide a supplementary view of its business.
   
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT NON-GAAP OPERATING MARGIN SUMMARY DATA  
(Unaudited)  
                   
    Three months ended     Change in Operating Margin (pts)  
    October 31,
2013
    Q/Q     Y/Y  
                   
Non-GAAP operating margin:(a)                  
  Personal Systems   3.0 %   -     (0.5 pts )
  Printing   17.7 %   2.1 pts     0.2 pts  
    Printing and Personal Systems Group(b)   9.1 %   0.7 pts     (0.2 pts )
                   
  Enterprise Group   14.5 %   (0.7 pts )   (2.0 pts )
  Enterprise Services   4.4 %   1.1 pts     (2.3 pts )
  Software   30.8 %   10.3 pts     3.6 pts  
  HP Financial Services   11.2 %   (0.1 pts )   0.4 pts  
  Corporate Investments   NM     NM     NM  
      Total segments   10.2 %   0.9 pts     (0.8 pts )
                   
      Total HP consolidated non-GAAP operating margin   9.0 %   0.6 pts     (1.4 pts )
   
(a) HP has implemented certain organizational realignments in the first quarter of fiscal 2013. As a result of these realignments, HP has re-evaluated its segment financial reporting structure and, effective in the first quarter of fiscal 2013, created two new financial reporting segments, the Enterprise Group segment and the Enterprise Services segment, and eliminated two other financial reporting segments, the Enterprise Servers, Storage and Networking ("ESSN") segment and the Services segment. The Enterprise Group segment consists of the business units within the former ESSN segment and most of the services offerings of the Technology Services ("TS") business unit, which was previously a part of the former Services segment. The Enterprise Services segment consists of the Applications and Business Services ("ABS") and Infrastructure Technology Outsourcing ("ITO") business units from the former Services segment, along with the end-user workplace support services business that was previously a part of the TS business unit. Taking into account these changes, HP has the following seven financial reporting segments: Personal Systems, Printing, the Enterprise Group, Enterprise Services, Software, HP Financial Services and Corporate Investments.
   
  Also as a result of these realignments, the financial results of the Personal Systems commercial products support business, which were previously reported as part of the TS business unit, will now be reported as part of the Other business unit within the Personal Systems segment, and the financial results of the portion of the business intelligence services business that had continued to be reported as part of the Corporate Investments segment following the implementation of prior realignment actions will now be reported as part of the ABS business unit. In addition, the end-user workplace support services business, which, as noted above, was previously a part of the TS business unit and will now become a part of the Enterprise Services segment, will be reported as part of the ITO business unit within that segment.
   
  To provide improved visibility and comparability, HP has reflected these changes to its reporting structure in prior financial reporting periods on an as-if basis, which has resulted in the transfer of revenue and operating profit among the Personal Systems, the Enterprise Group, Enterprise Services and Corporate Investments segments. These changes had no impact on the previously reported financial results for the Printing, Software or HP Financial Services segments. In addition, none of these changes impacted HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) The Personal Systems segment and the Printing segment are structured beneath a broader Printing and Personal Systems Group ("PPS"). While PPS is not a financial reporting segment, HP provides financial data aggregating the segments within it in order to provide a supplementary view of its business.
   
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
CALCULATION OF NET EARNINGS PER SHARE  
(Unaudited)  
(In millions except per share amounts)  
               
    Three months ended  
    October 31,
2013
  July 31,
2013
  October 31,
2012
 
                     
Numerator:                    
  GAAP net earnings (loss)   $ 1,414   $ 1,390   $ (6,854 )
  Non-GAAP net earnings   $ 1,959   $ 1,676   $ 2,281  
                     
Denominator:                    
  Weighted-average shares used to compute basic net earnings (loss) per share and diluted net (loss) per share     1,918     1,929     1,964  
  Dilutive effect of employee stock plans     22     19     3  
    Weighted-average shares used to compute diluted net earnings per share     1,940     1,948     1,967  
                     
GAAP net earnings (loss) per share:                    
  Basic   $ 0.74   $ 0.72   $ (3.49 )
  Diluted(a)   $ 0.73   $ 0.71   $ (3.49 )
                     
Non-GAAP net earnings per share:                    
  Basic   $ 1.02   $ 0.87   $ 1.16  
  Diluted(b)   $ 1.01   $ 0.86   $ 1.16  
   
(a) GAAP diluted net earnings per share reflects any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock, but that effect is excluded when calculating GAAP diluted net (loss) per share because it would be anti-dilutive.
   
(b) Non-GAAP diluted net earnings per share reflects any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock.
     
     
     
  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
  CALCULATION OF NET EARNINGS PER SHARE  
  (Unaudited)  
  (In millions except per share amounts)  
             
      Twelve months ended  
      October 31,  
     
2013
 
2012
 
                 
Numerator:              
  GAAP net earnings (loss)   $ 5,113   $ (12,650 )
  Non-GAAP net earnings   $ 6,938   $ 8,035  
                 
Denominator:              
  Weighted-average shares used to compute basic net earnings (loss) per share and diluted net (loss) per share    
1,934
   
1,974
 
 
  Dilutive effect of employee stock plans     16     10  
    Weighted-average shares used to compute diluted net earnings per share     1,950     1,984  
                 
GAAP net earnings (loss) per share:              
  Basic   $ 2.64   $ (6.41 )
  Diluted(a)   $ 2.62   $ (6.41 )
                 
Non-GAAP net earnings per share:              
  Basic   $ 3.59   $ 4.07  
  Diluted(b)   $ 3.56   $ 4.05  
   
   
(a) GAAP diluted net earnings per share reflects any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock, but that effect is excluded when calculating GAAP diluted net (loss) per share because it would be anti-dilutive.
   
(b) Non-GAAP diluted net earnings per share reflects any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock.

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 earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net debt, net cash, operating company net debt and operating company net cash. HP also provides forecasts of non-GAAP diluted net 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 earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted net earnings per share is diluted net earnings per share. The GAAP measure most directly comparable to gross cash is cash and cash equivalents. The GAAP measure most directly comparable to free cash flow is cash flow from operations. The GAAP measure most directly comparable to net debt and operating company net debt is total company debt. The GAAP measure most directly comparable to net cash and operating company net cash is cash and cash equivalents. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above or elsewhere in the materials accompanying this news release.

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 impairment of goodwill and intangible assets, charges relating to the amortization of intangible assets, acquisition-related charges and charges related to the wind-down of HP businesses recorded during the relevant period. Non-GAAP net earnings and non-GAAP diluted net earnings per share consist of net earnings or diluted net earnings per share excluding those same charges. In addition, non-GAAP net earnings and non-GAAP diluted net 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's management to better understand HP's consolidated financial performance in relation to the operating results of HP's segments, as HP's management does not believe that the excluded items are reflective of ongoing operating results. More specifically, HP's management excludes each of those items mentioned above for the following reasons:

  • In the third quarter of fiscal 2012, HP decided to wind-down certain retail publishing business activities. Non-GAAP operating profit reported in the third quarter of fiscal 2012 reflects the elimination of certain contract-related charges, including inventory write-downs, in connection with the wind-down of that business. Because the winding down of HP businesses is inconsistent in amount and frequency, HP believes that eliminating these amounts for purposes of calculating non-GAAP operating profit facilitates a more meaningful evaluation of HP's current operating performance and comparisons to HP's operating performance in other periods.

  • Goodwill is the excess of the consideration paid for acquired companies over the estimated fair value of the tangible and intangible assets acquired, liabilities assumed and any noncontrolling interests in the acquiree. Intangible assets consist primarily of customer contracts, customer lists, distribution agreements, technology patents, and products, trademarks and trade names purchased in connection with acquisitions. In the fourth quarter of fiscal 2012, HP recorded a non-cash charge for the impairment of goodwill and intangible assets associated with the acquisition of Autonomy Corporation plc. In the third quarter of fiscal 2012, HP recorded an impairment charge for the goodwill associated with its Services segment following an impairment review. In addition, in that same quarter, HP recorded an impairment charge related to the intangible asset associated with the "Compaq" trade name acquired in 2002 in conjunction with a change in branding strategy. 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 operating performance in other periods.

  • HP incurs charges relating to the amortization of intangible assets, including acquired research and development projects. Those charges are included in HP's GAAP presentation of earnings from operations, operating margin, net earnings and diluted net earnings per share. Such charges are significantly impacted by the timing and magnitude of HP's acquisitions and any related impairment charges. 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 operating performance in other periods.

  • Restructuring charges are costs associated with a formal restructuring plan and are primarily related to (i) employee termination costs and benefits and (ii) costs to vacate duplicative facilities. HP excludes these restructuring costs (and any reversals of charges recorded in prior periods) for purposes of calculating these non-GAAP measures because it believes that these historical costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of HP's current operating performance or comparisons to HP's operating performance in other periods.

  • HP incurs costs related to its acquisitions. As acquisition-related expenses are inconsistent in amount and frequency and are significantly impacted by the timing and nature of HP's acquisitions, HP believes that eliminating these 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 operating performance in other periods.

Gross cash is a non-GAAP measure that is defined as cash and cash equivalents plus short-term investments and certain long-term investments that may be liquidated within 90 days pursuant to the terms of existing put options or similar rights. Free cash flow is defined as cash flow from operations less net capital expenditures. HP's management uses gross cash and free cash flow for the purpose of determining the amount of cash available for investment in HP's businesses, funding acquisitions, repurchasing stock and other purposes. HP's management also uses gross cash and free cash flow to evaluate HP's historical and prospective liquidity. 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. Because free cash flow includes the effect of capital expenditures that are not reflected in GAAP cash flow from operations, HP believes that free cash flow provides a more accurate and complete assessment of HP's liquidity and capital resources.

Operating company net debt is a non-GAAP measure that is defined as total company net debt less HP Financial Services (HPFS) net debt. Operating company net cash is a non-GAAP measure that is defined as total company net cash less HPFS cash less HPFS debt. Total company net debt consists of total debt (including the effects of hedging) less gross cash, which includes cash and cash equivalents, short-term investments, and certain liquid long-term investments. Total company net cash consists of gross cash less total debt. HPFS net debt consists of HPFS debt, which includes primarily intercompany equity that is treated as debt for segment reporting purposes, intercompany debt and borrowing and funding related activity associated with HPFS and its subsidiaries, less HPFS cash. Total company net debt and total company net cash provide useful information to HP's management about the state of HP's consolidated balance sheet. Operating company net debt and operating company net cash provide additional useful information to HP's management about the state of HP's consolidated condensed balance sheet by providing more transparency into the financial components of the operating company separate from HP's financing business, which has different capital structure requirements and requires much greater leverage to run effectively.

Material limitations associated with use of non-GAAP financial measures
These non-GAAP financial measures 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 intangible assets, though not directly affecting HP's cash position, represent the loss in value of intangible assets over time. The expense associated with this loss in value is not included in non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings or non-GAAP diluted net earnings per share, and therefore does not reflect the full economic effect of the loss in value of those intangible assets.

  • Items such as restructuring charges that are excluded from non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted net 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 earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net debt, net cash, operating company net debt and operating company net 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 its use of non-GAAP financial measures 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 earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net debt, net cash, operating company net debt and operating company net 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 HP's 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.

© 2013 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.

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