- Second quarter non-GAAP diluted net earnings per share of $0.88, up 1% from the prior-year period, versus the previously provided outlook of $0.85 to $0.89 per share
- Second quarter GAAP diluted net earnings per share of $0.66, up 20% from the prior-year period, versus the previously provided outlook of $0.62 to $0.66 per share
- Second quarter net revenue of $27.3 billion, down 1% from the prior-year period and flat on a constant currency basis
- Second quarter cash flow from operations of $3.0 billion
- Returned $1.1 billion to shareholders in the form of dividends and share repurchases in the second quarter
- Improved operating company net cash by $1.0 billion, the ninth consecutive quarterly improvement of approximately $1 billion or more
HP fiscal 2014 second quarter financial performance
Q2 FY14 Q2 FY13 Y/Y
GAAP net revenue ($B) $ 27.3 $ 27.6 (1%)
GAAP operating margin 6.7% 5.8% 0.9 pts.
GAAP net earnings ($B) $ 1.3 $ 1.1 18%
GAAP diluted net earnings per share $ 0.66 $ 0.55 20%
Non-GAAP operating margin 8.6% 8.6% 0.0 pts.
Non-GAAP net earnings ($B) $ 1.7 $ 1.7 0%
Non-GAAP diluted net earnings per
share $ 0.88 $ 0.87 1%
Cash flow from operations ($B) $ 3.0 $ 3.6 (16%)
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 2014 second quarter ended April 30, 2014.
Second quarter GAAP diluted net earnings per share (EPS) was $0.66, up from $0.55 in the prior-year period and within its previously provided outlook of $0.62 to $0.66. Second quarter non-GAAP diluted net EPS was $0.88, up from $0.87 in the prior-year period and within its previously provided outlook of $0.85 to $0.89. Second quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $418 million and $0.22 per diluted share, respectively, related to the amortization of intangible assets, restructuring charges and acquisition-related charges.
Second quarter net revenue of $27.3 billion was down 1% from the prior-year period and flat on a constant currency basis.
"With the first half of our fiscal year completed, I'm pleased to report that HP's turnaround remains on track," said Meg Whitman, president and chief executive officer, HP. "With each passing quarter, HP is improving its systems, structures and core go-to-market capabilities. We're gradually shaping HP into a more nimble, lower-cost, more customer- and partner-centric company that can successfully compete across a rapidly changing IT landscape."
In May 2012, HP adopted a multi-year restructuring plan designed to simplify business processes, accelerate innovation, lower costs and deliver better results. HP previously estimated that 34,000 positions would be eliminated in connection with the plan. As HP continues to reengineer the workforce to be more competitive and meet its objectives, the previously estimated number of eliminated positions will increase by between 11,000 to 16,000.
Outlook
For the fiscal 2014 third quarter, HP estimates non-GAAP diluted net EPS to be in the range of $0.86 to $0.90 and GAAP diluted net EPS to be in the range of $0.59 to $0.63. Fiscal 2014 third quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.27 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 $3.63 to $3.75 and GAAP diluted net EPS to be in the range of $2.68 to $2.80. Fiscal 2014 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.95 per share, related primarily to the amortization of intangible assets and restructuring charges.
Asset management
HP generated $3.0 billion in cash flow from operations in the second quarter, down 16% from the prior-year period. Inventory ended the quarter at $5.8 billion, down 1 day year over year to 25 days. Accounts receivable ended the quarter at $14.3 billion, down 1 day year over year at 47 days. Accounts payable ended the quarter at $13.5 billion, up 6 days year over year to 59 days. HP's dividend payment of $0.1452 per share in the second quarter resulted in cash usage of $298 million. HP also utilized $831 million of cash during the quarter to repurchase approximately 26.7 million shares of common stock in the open market. HP exited the quarter with $15.4 billion in gross cash.
Fiscal 2014 second quarter segment results
- Personal Systems revenue was up 7% year over year with a 3.5% operating margin. Commercial revenue increased 12% and Consumer revenue declined 2%. Total units were up 10% with Desktops units up 6% and Notebooks units up 6%.
- Printing revenue was down 4% year over year with a 19.5% operating margin. Total hardware units were up 1% with Commercial hardware units up 3% and Consumer hardware units flat. Supplies revenue was down 6%.
- Enterprise Group revenue was down 2% year over year with a 14.4% operating margin. Industry Standard Servers revenue was up 1%, Storage revenue was down 6%, Business Critical Systems revenue was down 14%, Networking revenue was up 6% and Technology Services revenue was down 5%.
- Enterprise Services revenue was down 7% year over year with a 2.5% operating margin. Application and Business Services revenue was down 8%, and Infrastructure Technology Outsourcing revenue declined 7%.
- Software revenue was flat year over year with a 19.2% operating margin. License revenue was up 8%, support revenue was down 4%, professional services revenue was up 1% and software-as-a-service (SaaS) revenue was up 6%.
- HP Financial Services revenue was down 2% year over year with a 2% decrease in net portfolio assets and a 12% increase in financing volume. The business delivered an operating margin of 11.4%.
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 Q2 FY14 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2014Q2webcast.
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 revenue on a constant currency basis, 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 capital expenditures, 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. A reconciliation of the adjustments to GAAP results for this quarter 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 revenue, operating profit, operating margin, net earnings, diluted net earnings per share, cash and cash equivalents, cash flow from operations, capital expenditures, 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, net earnings, net 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, 2013, 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 January 31, 2014. 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 reasonable, these amounts could differ materially from actual reported amounts in HP's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2014. 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
-------------------------------------
April 30, January 31, April 30,
2014 2014 2013
----------- ----------- -----------
Net revenue $ 27,309 $ 28,154 $ 27,582
Costs and expenses:
Cost of sales 20,704 21,736 21,055
Research and development 873 811 815
Selling, general and administrative 3,391 3,210 3,342
Amortization of intangible assets 264 283 350
Restructuring charges 252 114 408
Acquisition-related charges 3 3 11
----------- ----------- -----------
Total costs and expenses 25,487 26,157 25,981
----------- ----------- -----------
Earnings from operations 1,822 1,997 1,601
Interest and other, net (174) (163) (193)
----------- ----------- -----------
Earnings before taxes 1,648 1,834 1,408
Provision for taxes (375) (409) (331)
----------- ----------- -----------
Net earnings $ 1,273 $ 1,425 $ 1,077
=========== =========== ===========
Net earnings per share:
Basic $ 0.67 $ 0.75 $ 0.56
Diluted $ 0.66 $ 0.74 $ 0.55
Cash dividends declared per share $ - $ 0.29 $ -
Weighted-average shares used to
compute net earnings per share:
Basic 1,890 1,907 1,935
Diluted 1,916 1,935 1,947
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)
Six months ended
April 30,
--------------------
2014 2013
--------- ---------
Net revenue $ 55,463 $ 55,941
Costs and expenses:
Cost of sales 42,440 43,084
Research and development 1,684 1,609
Selling, general and administrative 6,601 6,642
Amortization of intangible assets 547 700
Restructuring charges 366 538
Acquisition-related charges 6 15
--------- ---------
Total costs and expenses 51,644 52,588
--------- ---------
Earnings from operations 3,819 3,353
Interest and other, net (337) (372)
--------- ---------
Earnings before taxes 3,482 2,981
Provision for taxes (784) (672)
--------- ---------
Net earnings $ 2,698 $ 2,309
========= =========
Net earnings per share:
Basic $ 1.42 $ 1.19
Diluted $ 1.40 $ 1.18
Cash dividends declared per share $ 0.29 $ 0.26
Weighted-average shares used to compute net earnings
per share:
Basic 1,898 1,944
Diluted 1,922 1,952
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
Three Diluted Three Diluted Three Diluted
months net months net months net
ended earnings ended earnings ended earnings
April per January per April per
30, 2014 share 31, 2014 share 30, 2013 share
-------- -------- -------- -------- -------- --------
GAAP net
earnings $ 1,273 $ 0.66 $ 1,425 $ 0.74 $ 1,077 $ 0.55
Non-GAAP
adjustments:
Amortization
of intangible
assets 264 0.14 283 0.15 350 0.17
Restructuring
charges 252 0.13 114 0.06 408 0.21
Acquisition-
related
charges 3 - 3 - 11 0.01
Adjustments
for taxes (101) (0.05) (83) (0.05) (148) (0.07)
-------- -------- -------- -------- -------- --------
Non-GAAP net
earnings $ 1,691 $ 0.88 $ 1,742 $ 0.90 $ 1,698 $ 0.87
======== ======== ======== ======== ======== ========
GAAP earnings
from operations $ 1,822 $ 1,997 $ 1,601
Non-GAAP
adjustments:
Amortization
of intangible
assets 264 283 350
Restructuring
charges 252 114 408
Acquisition-
related
charges 3 3 11
-------- -------- --------
Non-GAAP
earnings from
operations $ 2,341 $ 2,397 $ 2,370
======== ======== ========
GAAP operating
margin 7% 7% 6%
Non-GAAP
adjustments 2% 2% 3%
-------- -------- --------
Non-GAAP
operating
margin 9% 9% 9%
======== ======== ========
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
Six Six
months Diluted months Diluted
ended net ended net
April 30, earnings April 30, earnings
2014 per share 2013 per share
--------- --------- --------- ---------
GAAP net earnings $ 2,698 $ 1.40 $ 2,309 $ 1.18
Non-GAAP adjustments:
Amortization of intangible
assets 547 0.28 700 0.35
Restructuring charges 366 0.19 538 0.28
Acquisition-related charges 6 - 15 0.01
Adjustments for taxes (184) (0.08) (259) (0.13)
--------- --------- --------- ---------
Non-GAAP net earnings $ 3,433 $ 1.79 $ 3,303 $ 1.69
========= ========= ========= =========
GAAP earnings from operations $ 3,819 $ 3,353
Non-GAAP adjustments:
Amortization of intangible
assets 547 700
Restructuring charges 366 538
Acquisition-related charges 6 15
--------- ---------
Non-GAAP earnings from
operations $ 4,738 $ 4,606
========= =========
GAAP operating margin 7% 6%
Non-GAAP adjustments 2% 2%
--------- ---------
Non-GAAP operating margin 9% 8%
========= =========
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
As of
-----------------------
April 30, October 31,
2014 2013
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 15,096 $ 12,163
Accounts receivable 14,288 15,876
Financing receivables 3,112 3,144
Inventory 5,840 6,046
Other current assets 11,547 13,135
----------- -----------
Total current assets 49,883 50,364
----------- -----------
Property, plant and equipment 11,350 11,463
Long-term financing receivables and other assets 9,043 9,556
Goodwill and intangible assets 33,696 34,293
----------- -----------
Total assets $ 103,972 $ 105,676
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings $ 5,396 $ 5,979
Accounts payable 13,521 14,019
Employee compensation and benefits 3,662 4,436
Taxes on earnings 1,263 1,203
Deferred revenue 6,416 6,477
Other accrued liabilities 13,022 13,407
----------- -----------
Total current liabilities 43,280 45,521
----------- -----------
Long-term debt 17,190 16,608
Other liabilities 14,920 15,891
Stockholders' equity:
HP stockholders' equity 28,185 27,269
Non-controlling interests 397 387
----------- -----------
Total stockholders' equity 28,582 27,656
----------- -----------
Total liabilities and stockholders' equity $ 103,972 $ 105,676
=========== ===========
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three months Six months
ended ended
April 30, 2014 April 30, 2014
--------------- ---------------
Cash flows from operating activities:
Net earnings $ 1,273 $ 2,698
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 1,087 2,204
Stock-based compensation expense 130 300
Provision for doubtful accounts and
inventory 55 112
Restructuring charges 252 366
Deferred taxes on earnings (99) (90)
Excess tax benefit from stock-based
compensation (6) (33)
Other, net 47 14
Changes in operating assets and
liabilities (net of acquisitions):
Accounts receivable (801) 1,590
Financing receivables (42) 254
Inventory 126 107
Accounts payable 765 (400)
Taxes on earnings (17) 153
Restructuring (300) (681)
Other assets and liabilities 525 (609)
--------------- ---------------
Net cash provided by operating
activities 2,995 5,985
--------------- ---------------
Cash flows from investing activities:
Investment in property, plant and
equipment (840) (1,837)
Proceeds from sale of property, plant
and equipment 120 570
Purchases of available-for-sale
securities and other investments (316) (451)
Proceeds from sale of available-for-
sale securities and other investments 79 544
Payments made in connection with
business acquisitions (20) (20)
--------------- ---------------
Net cash used in investing
activities (977) (1,194)
--------------- ---------------
Cash flows from financing activities:
Issuance of commercial paper and notes
payable, net 58 60
Issuance of debt - 2,005
Payment of debt (2,070) (2,115)
Issuance of common stock under
employee stock plans 48 131
Repurchase of common stock (831) (1,396)
Excess tax benefit from stock-based
compensation 6 33
Cash dividends paid (298) (576)
--------------- ---------------
Net cash used in financing
activities (3,087) (1,858)
--------------- ---------------
(Decrease) increase in cash and cash
equivalents (1,069) 2,933
Cash and cash equivalents at beginning of
period 16,165 12,163
--------------- ---------------
Cash and cash equivalents at end of period $ 15,096 $ 15,096
=============== ===============
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Three months ended
-------------------------------------
April 30, January 31, April 30,
2014 2014 2013
----------- ----------- -----------
Net revenue:(a)
Personal Systems $ 8,176 $ 8,530 $ 7,610
Printing 5,834 5,815 6,094
----------- ----------- -----------
Total Printing and Personal
Systems Group 14,010 14,345 13,704
Enterprise Group 6,657 6,993 6,794
Enterprise Services 5,702 5,595 6,133
Software 971 916 967
HP Financial Services 867 870 881
Corporate Investments 6 288 10
----------- ----------- -----------
Total segments 28,213 29,007 28,489
Elimination of intersegment net
revenue and other (904) (853) (907)
----------- ----------- -----------
Total HP consolidated net revenue $ 27,309 $ 28,154 $ 27,582
=========== =========== ===========
Earnings before taxes:(a)
Personal Systems $ 290 $ 279 $ 244
Printing 1,140 979 970
----------- ----------- -----------
Total Printing and Personal
Systems Group 1,430 1,258 1,214
Enterprise Group 961 1,006 1,074
Enterprise Services 144 57 156
Software 186 145 180
HP Financial Services 99 101 97
Corporate Investments (98) 121 (75)
----------- ----------- -----------
Total segment earnings from
operations 2,722 2,688 2,646
Corporate and unallocated costs and
eliminations (251) (121) (169)
Stock-based compensation expense (130) (170) (107)
Amortization of intangible assets (264) (283) (350)
Restructuring charges (252) (114) (408)
Acquisition-related charges (3) (3) (11)
Interest and other, net (174) (163) (193)
----------- ----------- -----------
Total HP consolidated earnings
before taxes $ 1,648 $ 1,834 $ 1,408
=========== =========== ===========
(a) Effective at the beginning of its first quarter of fiscal 2014, HP
implemented certain organizational changes to align its segment
financial reporting more closely with its current business structure.
These organizational changes include (i) transferring the HP Exstream
business from the Commercial Hardware business unit within the Printing
segment to the Software segment; (ii) transferring the Personal Systems
trade and warranty support business from the Technology Services
business unit within the Enterprise Group segment to the Other business
unit within the Personal Systems segment; (iii) transferring the spare
and replacement parts business supporting the Personal Systems and
Printing segments from the Technology Services business unit within the
Enterprise Group segment to the Other business unit within the Personal
Systems segment and the Commercial Hardware business unit within the
Printing segment, respectively; and (iv) transferring certain cloud-
related incubation activities previously reported in Corporate and
unallocated costs and eliminations and in the Enterprise Group segment
to the Corporate Investments segment. In addition, HP transferred
certain intrasegment eliminations from the Enterprise Services segment
and the Enterprise Group segment to corporate intersegment revenue
eliminations.
HP reflected these changes to its segment information in prior
reporting periods on an as-if basis, which resulted in the transfer of
revenue among the Personal Systems, Printing, the Enterprise Group,
Enterprise Services and Software segments. These changes also resulted
in the transfer of operating profit among the Personal Systems,
Printing, the Enterprise Group, Software and Corporate Investments
segments. These changes had no impact on HP's previously reported
consolidated net revenue, earnings from operations, net earnings or net
earnings per share.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Six months ended
April 30,
------------------------
2014 2013
----------- -----------
Net revenue:(a)
Personal Systems $ 16,706 $ 15,842
Printing 11,649 12,040
----------- -----------
Total Printing and Personal Systems Group 28,355 27,882
Enterprise Group 13,650 13,742
Enterprise Services 11,297 12,171
Software 1,887 1,918
HP Financial Services 1,737 1,838
Corporate Investments 294 14
----------- -----------
Total segments 57,220 57,565
Elimination of intersegment net revenue and
other (1,757) (1,624)
----------- -----------
Total HP consolidated net revenue $ 55,463 $ 55,941
=========== ===========
Earnings before taxes:(a)
Personal Systems $ 569 $ 477
Printing 2,119 1,937
----------- -----------
Total Printing and Personal Systems Group 2,688 2,414
Enterprise Group 1,967 2,144
Enterprise Services 201 232
Software 331 335
HP Financial Services 200 198
Corporate Investments 23 (148)
----------- -----------
Total segment earnings from operations 5,410 5,175
Corporate and unallocated costs and eliminations (372) (278)
Stock-based compensation expense (300) (291)
Amortization of intangible assets (547) (700)
Restructuring charges (366) (538)
Acquisition-related charges (6) (15)
Interest and other, net (337) (372)
----------- -----------
Total HP consolidated earnings before taxes $ 3,482 $ 2,981
=========== ===========
(a) Effective at the beginning of its first quarter of fiscal 2014, HP
implemented certain organizational changes to align its segment
financial reporting more closely with its current business structure.
These organizational changes include (i) transferring the HP Exstream
business from the Commercial Hardware business unit within the Printing
segment to the Software segment; (ii) transferring the Personal Systems
trade and warranty support business from the Technology Services
business unit within the Enterprise Group segment to the Other business
unit within the Personal Systems segment; (iii) transferring the spare
and replacement parts business supporting the Personal Systems and
Printing segments from the Technology Services business unit within the
Enterprise Group segment to the Other business unit within the Personal
Systems segment and the Commercial Hardware business unit within the
Printing segment, respectively; and (iv) transferring certain cloud-
related incubation activities previously reported in Corporate and
unallocated costs and eliminations and in the Enterprise Group segment
to the Corporate Investments segment. In addition, HP transferred
certain intrasegment eliminations from the Enterprise Services segment
and the Enterprise Group segment to corporate intersegment revenue
eliminations.
HP reflected these changes to its segment information in prior
reporting periods on an as-if basis, which resulted in the transfer of
revenue among the Personal Systems, Printing, the Enterprise Group,
Enterprise Services and Software segments. These changes also resulted
in the transfer of operating profit among the Personal Systems,
Printing, the Enterprise Group, Software and Corporate Investments
segments. These changes had no impact on HP's previously reported
consolidated net revenue, earnings from operations, net earnings or net
earnings per share.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
Growth rate
Three months ended (%)
------------------------------------- -------------
April 30, January 31, April 30,
2014 2014 2013 Q/Q Y/Y
----------- ----------- ----------- ----- -----
Net revenue:(a)
Printing and
Personal Systems
Group
Personal Systems
Notebooks $ 3,977 $ 4,335 $ 3,718 (8%) 7%
Desktops 3,343 3,274 3,103 2% 8%
Workstations 548 533 521 3% 5%
Other 308 388 268 (21%) 15%
----------- ----------- -----------
Total
Personal
Systems 8,176 8,530 7,610 (4%) 7%
----------- ----------- -----------
Printing
Supplies 3,866 3,795 4,122 2% (6%)
Commercial
Hardware 1,402 1,347 1,411 4% (1%)
Consumer
Hardware 566 673 561 (16%) 1%
----------- ----------- -----------
Total
Printing 5,834 5,815 6,094 0% (4%)
----------- ----------- -----------
Total
Printing
and
Personal
Systems
Group 14,010 14,345 13,704 (2%) 2%
----------- ----------- -----------
Enterprise Group
Industry Standard
Servers 2,829 3,178 2,806 (11%) 1%
Technology
Services 2,132 2,123 2,247 0% (5%)
Storage 808 834 857 (3%) (6%)
Networking 658 630 618 4% 6%
Business Critical
Systems 230 228 266 1% (14%)
----------- ----------- -----------
Total
Enterprise
Group 6,657 6,993 6,794 (5%) (2%)
----------- ----------- -----------
Enterprise
Services
Infrastructure
Technology
Outsourcing 3,597 3,501 3,855 3% (7%)
Application and
Business
Services 2,105 2,094 2,278 1% (8%)
----------- ----------- -----------
Total
Enterprise
Services 5,702 5,595 6,133 2% (7%)
----------- ----------- -----------
Software 971 916 967 6% 0%
----------- ----------- -----------
HP Financial
Services 867 870 881 0% (2%)
----------- ----------- -----------
Corporate
Investments 6 288 10 (98%) (40%)
----------- ----------- -----------
Total
segments 28,213 29,007 28,489 (3%) (1%)
----------- ----------- -----------
Elimination of
intersegment net
revenue and
other (904) (853) (907) 6% 0%
----------- ----------- -----------
Total HP
consolidated net
revenue $ 27,309 $ 28,154 $ 27,582 (3%) (1%)
=========== =========== ===========
(a) Effective at the beginning of its first quarter of fiscal 2014, HP
implemented certain organizational changes to align its segment
financial reporting more closely with its current business structure.
These organizational changes include (i) transferring the HP Exstream
business from the Commercial Hardware business unit within the Printing
segment to the Software segment; (ii) transferring the Personal Systems
trade and warranty support business from the Technology Services
business unit within the Enterprise Group segment to the Other business
unit within the Personal Systems segment; (iii) transferring the spare
and replacement parts business supporting the Personal Systems and
Printing segments from the Technology Services business unit within the
Enterprise Group segment to the Other business unit within the Personal
Systems segment and the Commercial Hardware business unit within the
Printing segment, respectively; and (iv) transferring certain cloud-
related incubation activities previously reported in Corporate and
unallocated costs and eliminations and in the Enterprise Group segment
to the Corporate Investments segment. In addition, HP transferred
certain intrasegment eliminations from the Enterprise Services segment
and the Enterprise Group segment to corporate intersegment revenue
eliminations.
HP reflected these changes to its segment information in prior
reporting periods on an as-if basis, which resulted in the transfer of
revenue among the Personal Systems, Printing, the Enterprise Group,
Enterprise Services and Software segments. These changes had no impact
on HP's previously reported consolidated net revenue, earnings from
operations, net earnings or net earnings per share.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
Six months ended
April 30,
------------------------
2014 2013
----------- -----------
Net revenue:(a)
Printing and Personal Systems Group
Personal Systems
Notebooks $ 8,312 $ 7,846
Desktops 6,617 6,424
Workstations 1,081 1,056
Other 696 516
----------- -----------
Total Personal Systems 16,706 15,842
----------- -----------
Printing
Supplies 7,661 8,015
Commercial Hardware 2,749 2,785
Consumer Hardware 1,239 1,240
----------- -----------
Total Printing 11,649 12,040
----------- -----------
Total Printing and Personal Systems Group 28,355 27,882
----------- -----------
Enterprise Group
Industry Standard Servers 6,007 5,800
Technology Services 4,255 4,454
Storage 1,642 1,690
Networking 1,288 1,226
Business Critical Systems 458 572
----------- -----------
Total Enterprise Group 13,650 13,742
----------- -----------
Enterprise Services
Infrastructure Technology Outsourcing 7,098 7,710
Application and Business Services 4,199 4,461
----------- -----------
Total Enterprise Services 11,297 12,171
----------- -----------
Software 1,887 1,918
----------- -----------
HP Financial Services 1,737 1,838
----------- -----------
Corporate Investments 294 14
----------- -----------
Total segments 57,220 57,565
----------- -----------
Elimination of intersegment net revenue and
other (1,757) (1,624)
----------- -----------
Total HP consolidated net revenue $ 55,463 $ 55,941
=========== ===========
(a) Effective at the beginning of its first quarter of fiscal 2014, HP
implemented certain organizational changes to align its segment
financial reporting more closely with its current business structure.
These organizational changes include (i) transferring the HP Exstream
business from the Commercial Hardware business unit within the Printing
segment to the Software segment; (ii) transferring the Personal Systems
trade and warranty support business from the Technology Services
business unit within the Enterprise Group segment to the Other business
unit within the Personal Systems segment; (iii) transferring the spare
and replacement parts business supporting the Personal Systems and
Printing segments from the Technology Services business unit within the
Enterprise Group segment to the Other usiness unit within the Personal
Systems segment and the Commercial Hardware business unit within the
Printing segment, respectively; and (iv) transferring certain cloud-
related incubation activities previously reported in Corporate and
unallocated costs and eliminations and in the Enterprise Group segment
to the Corporate Investments segment. In addition, HP transferred
certain intrasegment eliminations from the Enterprise Services segment
and the Enterprise Group segment to corporate intersegment revenue
eliminations.
HP reflected these changes to its segment information in prior
reporting periods on an as-if basis, which resulted in the transfer of
revenue among the Personal Systems, Printing, the Enterprise Group,
Enterprise Services and Software segments. These changes had no impact
on HP's previously reported consolidated net revenue, earnings from
operations, net earnings or net earnings per share.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT OPERATING MARGIN SUMMARY DATA
(Unaudited)
Change in
Three months Operating Margin
ended (pts)
------------ ------------------
April 30,
2014 Q/Q Y/Y
------------ -------- --------
Segment operating margin:(a)
Personal Systems 3.5% 0.2 pts 0.3 pts
Printing 19.5% 2.7 pts 3.6 pts
Printing and Personal Systems Group 10.2% 1.4 pts 1.3 pts
Enterprise Group 14.4% - (1.4 pts)
Enterprise Services 2.5% 1.5 pts -
Software 19.2% 3.4 pts 0.6 pts
HP Financial Services 11.4% (0.2 pts) 0.4 pts
Corporate Investments (b) NM NM NM
Total segments 9.6% 0.3 pts 0.3 pts
(a) Effective at the beginning of its first quarter of fiscal 2014, HP
implemented certain organizational changes to align its segment
financial reporting more closely with its current business structure.
These organizational changes include (i) transferring the HP Exstream
business from the Commercial Hardware business unit within the Printing
segment to the Software segment; (ii) transferring the Personal Systems
trade and warranty support business from the Technology Services
business unit within the Enterprise Group segment to the Other business
unit within the Personal Systems segment; (iii) transferring the spare
and replacement parts business supporting the Personal Systems and
Printing segments from the Technology Services business unit within the
Enterprise Group segment to the Other business unit within the Personal
Systems segment and the Commercial Hardware business unit within the
Printing segment, respectively; and (iv) transferring certain cloud-
related incubation activities previously reported in Corporate and
unallocated costs and eliminations and in the Enterprise Group segment
to the Corporate Investments segment. In addition, HP transferred
certain intrasegment eliminations from the Enterprise Services segment
and the Enterprise Group segment to corporate intersegment revenue
eliminations.
HP reflected these changes to its segment information in prior
reporting periods on an as-if basis, which resulted in the transfer of
revenue among the Personal Systems, Printing, the Enterprise Group,
Enterprise Services and Software segments. These changes also resulted
in the transfer of operating profit among the Personal Systems,
Printing, the Enterprise Group, Software and Corporate Investments
segments. These changes had no impact on HP's previously reported
consolidated net revenue, earnings from operations, net earnings or net
earnings per share.
(b) "NM" represents not meaningful.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
Three months ended
-----------------------------------
April 30, January 31, April 30,
2014 2014 2013
----------- ----------- -----------
Numerator:
GAAP net earnings $ 1,273 $ 1,425 $ 1,077
=========== =========== ===========
Non-GAAP net earnings $ 1,691 $ 1,742 $ 1,698
=========== =========== ===========
Denominator:
Weighted-average number of shares
outstanding during the reporting
period 1,890 1,907 1,935
Dilutive effect of employee stock
plans(a) 26 28 12
----------- ----------- -----------
Weighted-average number of shares
used to compute diluted net
earnings per share 1,916 1,935 1,947
=========== =========== ===========
GAAP diluted net earnings per share $ 0.66 $ 0.74 $ 0.55
=========== =========== ===========
Non-GAAP diluted net earnings per share $ 0.88 $ 0.90 $ 0.87
=========== =========== ===========
(a) Includes any dilutive effect of outstanding stock options, performance-
based restricted stock units, restricted stock units and restricted
stock.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
Six months ended
April 30,
-----------------------
2014 2013
----------- -----------
Numerator:
GAAP net earnings $ 2,698 $ 2,309
=========== ===========
Non-GAAP net earnings $ 3,433 $ 3,303
=========== ===========
Denominator:
Weighted-average number of shares outstanding
during the reporting period 1,898 1,944
Dilutive effect of employee stock plans(a) 24 8
----------- -----------
Weighted-average number of shares used to
compute diluted net earnings per share 1,922 1,952
=========== ===========
GAAP diluted net earnings per share $ 1.40 $ 1.18
=========== ===========
Non-GAAP diluted net earnings per share $ 1.79 $ 1.69
=========== ===========
(a) Includes any dilutive effect of outstanding stock options, performance-
based restricted stock 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 revenue on a constant currency basis, 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 capital expenditures, 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 computed in accordance with, or as an alternative to, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to revenue on a constant currency basis is revenue. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted 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 capital expenditures is capital expenditures. 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
Revenue on a constant currency basis assumes no change in the foreign exchange rate from the prior-year period. Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the impairment of goodwill and 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 the 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:
- 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. Net capital expenditures is defined as investments in property plant and equipment less proceeds from the sale of property, plant and equipment. 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 net capital expenditures includes proceeds from the sale of property, plant and equipment, HP believes that net capital expenditures provides a more accurate and complete assessment of HP's liquidity. Because free cash flow includes the effect of net 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.
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. HP Financial Services (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 condensed balance sheet. Operating company net debt is a non-GAAP measure that is defined as total company net debt less 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. 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 the equivalent GAAP earnings measure and cash flows.
- HP may not be able to liquidate immediately the short-term and long-term investments included in gross cash, which may limit the usefulness of gross cash as a liquidity measure.
- Other companies may calculate revenue on a constant currency basis, 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 capital expenditures, 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 news 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 revenue on a constant currency basis, 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 capital expenditures, 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 may be calculated in a similar manner.
© 2014 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.