HP Reports Q2 2008 Results

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



	Three months ended
	April 30, 2008			January 31, 2008			April 30, 2007

Net revenue	$	28,262		$	28,467		$	25,534

Costs and expenses ^(a) :
Cost of sales		21,261			21,499			19,283
Research and development		908			898			903
Selling, general and administrative		3,275			3,241			3,044
Amortization of purchased intangible assets		211			206			212
In-process research and development charges		13			-			19
Restructuring		4			10			453
Pension curtailments and pension settlements, net		-			-			(508	)
Total costs and expenses		25,672			25,854			23,406

Earnings from operations		2,590			2,613			2,128

Interest and other, net		3			72			100

Earnings before taxes		2,593			2,685			2,228

Provision for taxes ^(b)		536			552			453

Net earnings	$	2,057		$	2,133		$	1,775

Net earnings per share:
Basic	$	0.83		$	0.83		$	0.67
Diluted	$	0.80		$	0.80		$	0.65


Cash dividends declared per share	$	-		$	0.16		$	-

Weighted-average shares used to compute net earnings per share:
Basic		2,473			2,560			2,638
Diluted		2,557			2,655			2,731

(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales	$	36		$	36		$	42
Research and development		19			20			18
Selling, general and administrative		97			101			94
Total costs and expenses	$	152		$	157		$	154

(b) Tax benefit from stock-based compensation	$	(45	)	$	(47	)	$	(44	)

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



													Six months ended
													April 30, 2008			April 30, 2007

Net revenue													$	56,729		$	50,616

Costs and expenses ^(a) :
Cost of sales														42,760			38,419
Research and development														1,806			1,780
Selling, general and administrative														6,516			5,952
Amortization of purchased intangible assets														417			413
In-process research and development charges														13			186
Restructuring														14			412
Pension curtailments and pension settlements, net														-			(517	)
Total costs and expenses														51,526			46,645

Earnings from operations														5,203			3,971

Interest and other, net														75			221

Earnings before taxes														5,278			4,192

Provision for taxes ^(b)														1,088			870

Net earnings													$	4,190		$	3,322

Net earnings per share:
Basic													$	1.67		$	1.24
Diluted													$	1.61		$	1.20


Cash dividends declared per share													$	0.16		$	0.16

Weighted-average shares used to compute net earnings per share:
Basic														2,516			2,672
Diluted														2,603			2,763

(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales													$	72		$	87
Research and development														39			37
Selling, general and administrative														198			193
Total costs and expenses													$	309		$	317

(b) Tax benefit from stock-based compensation													$	(92	)	$	(92	)


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 April 30, 2008			Diluted earnings per share			Three months ended January 31, 2008			Diluted earnings per share			Three months ended April 30, 2007			Diluted earnings per share

GAAP net earnings	$	2,057		$	0.80		$	2,133		$	0.80		$	1,775		$	0.65

Non-GAAP adjustments:
Amortization of purchased intangible assets		211			0.08			206			0.08			212			0.08
In-process research and development charges		13			0.01			-			-			19			0.01
Restructuring		4			-			10			-			453			0.16
Pension curtailments and pension settlements, net		-			-			-			-			(508	)		(0.19	)
Adjustments for taxes		(56	)		(0.02	)		(58	)		(0.02	)		(31	)		(0.01	)

Non-GAAP net earnings	$	2,229		$	0.87		$	2,291		$	0.86		$	1,920		$	0.70


GAAP earnings from operations	$	2,590					$	2,613					$	2,128

Non-GAAP adjustments:
Amortization of purchased intangible assets		211						206						212
In-process research and development charges		13						-						19
Restructuring		4						10						453
Pension curtailments and pension settlements, net		-						-						(508	)

Non-GAAP earnings from operations	$	2,818					$	2,829					$	2,304

GAAP operating margin		9	%					9	%					8	%
Non-GAAP adjustments		1	%					1	%					1	%

Non-GAAP operating margin		10	%					10	%					9	%

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)

	Six months ended April 30, 2008			Diluted earnings per share			Six months ended April 30, 2007			Diluted earnings per share

GAAP net earnings	$	4,190		$	1.61		$	3,322		$	1.20

Non-GAAP adjustments:
Amortization of purchased intangible assets		417			0.16			413			0.15
In-process research and development charges		13			-			186			0.07
Restructuring		14			0.01			412			0.15
Pension curtailments and pension settlements, net		-			-			(517	)		(0.19	)
Adjustments for taxes		(114	)		(0.04	)		(70	)		(0.02	)

Non-GAAP net earnings	$	4,520		$	1.74		$	3,746		$	1.36


GAAP earnings from operations	$	5,203					$	3,971

Non-GAAP adjustments:
Amortization of purchased intangible assets		417						413
In-process research and development charges		13						186
Restructuring		14						412
Pension curtailments and pension settlements, net		-						(517	)

Non-GAAP earnings from operations	$	5,647					$	4,465

GAAP operating margin		9	%					8	%
Non-GAAP adjustments		1	%					1	%

Non-GAAP operating margin		10	%					9	%

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)


	April 30, 2008		October 31, 2007
	(unaudited)

ASSETS

Current assets:
Cash and cash equivalents	$	11,591	$	11,293
Short-term investments		56		152
Accounts receivable		13,558		13,420
Financing receivables		2,589		2,507
Inventory		7,678		8,033
Other current assets		11,577		11,997

Total current assets		47,049		47,402

Property, plant and equipment		7,906		7,798

Long-term financing receivables and other assets		10,318		7,647

Goodwill and purchased intangible assets		26,531		25,852

Total assets	$	91,804	$	88,699


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable and short-term borrowings	$	711	$	3,186
Accounts payable		12,425		11,787
Employee compensation and benefits		3,103		3,465
Taxes on earnings		798		1,891
Deferred revenue		5,446		5,025
Other accrued liabilities		14,663		13,906

Total current liabilities		37,146		39,260

Long-term debt		7,688		4,997
Other liabilities		8,817		5,916

Stockholders' equity		38,153		38,526

Total liabilities and stockholders' equity	$	91,804	$	88,699

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In millions)

	Three months ended April 30, 2008			Six months ended April 30, 2008

Cash flows from operating activities:
Net earnings	$	2,057		$	4,190
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		760			1,509
Stock-based compensation expense		152			309
Provision for bad debt and inventory		107			185
In-process research and development charges		13			13
Restructuring		4			14
Deferred taxes on earnings		625			986
Excess tax benefit from stock-based compensation		(75	)		(163	)
Other, net		(29	)		(23	)

Changes in assets and liabilities:
Accounts and financing receivables		(1,205	)		(198	)
Inventory		232			286
Accounts payable		1,217			558
Taxes on earnings		(278	)		(370	)
Restructuring		(24	)		(55	)
Other assets and liabilities		1,209			711
Net cash provided by operating activities		4,765			7,952

Cash flows from investing activities:
Investment in property, plant and equipment		(704	)		(1,315	)
Proceeds from sale of property, plant and equipment		105			193
Purchases of available-for-sale securities and other investments		(58	)		(78	)
Maturities and sales of available-for-sale securities and other investments		85			191
Payments made in connection with business acquisitions, net		(1,001	)		(1,265	)
Net cash used in investing activities		(1,573	)		(2,274	)

Cash flows from financing activities:
Issuance of commercial paper and notes payable, net		(999	)		(1,898	)
Issuance of debt		3,002			3,018
Payment of debt		(903	)		(1,008	)
Issuance of common stock under employee stock plans		363			917
Repurchase of common stock		(2,845	)		(6,169	)
Excess tax benefit from stock-based compensation		75			163
Dividends		(197	)		(403	)
Net cash used in financing activities		(1,504	)		(5,380	)

Increase in cash and cash equivalents		1,688			298
Cash and cash equivalents at beginning of period		9,903			11,293
Cash and cash equivalents at end of period	$	11,591		$	11,591

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)

		Three months ended
		April 30, 2008			January 31, 2008			April 30, 2007 ^(a)

Net revenue:

	Enterprise Storage and Servers	$	4,780		$	4,820		$	4,594
	HP Services		4,627			4,378			4,125
	HP Software		727			666			568
	Technology Solutions Group		10,134			9,864			9,287
	Personal Systems Group		10,071			10,791			8,663
	Imaging and Printing Group		7,591			7,312			7,161
	HP Financial Services		685			642			550
	Corporate Investments		230			218			175
	Total Segments		28,711			28,827			25,836
	Eliminations of intersegment net revenue and other		(449	)		(360	)		(302	)

Total HP Consolidated		$	28,262		$	28,467		$	25,534

Earnings (Loss) from operations:

	Enterprise Storage and Servers	$	655		$	673		$	452
	HP Services		508			489			449
	HP Software		93			51			7
	Technology Solutions Group		1,256			1,213			908
	Personal Systems Group		544			628			417
	Imaging and Printing Group		1,230			1,150			1,167
	HP Financial Services		47			43			36
	Corporate Investments		6			8			(18	)
	Total Segments		3,083			3,042			2,510

	Corporate and unallocated costs and eliminations		(134	)		(89	)		(75	)
	Unallocated costs related to stock-based compensation expense		(131	)		(124	)		(131	)
	Amortization of purchased intangible assets		(211	)		(206	)		(212	)
	In-process research and development charges		(13	)		-			(19	)
	Restructuring		(4	)		(10	)		(453	)
	Pension curtailments and pension settlements, net		-			-			508
	Interest and other, net		3			72			100

Total HP Consolidated Earnings Before Taxes		$	2,593		$	2,685		$	2,228


(a)	Certain fiscal 2008 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2007, the reclassifications resulted in the transfer of revenue and operating profit among the Enterprise Storage and Servers, HP Services and HP Software segments within the Technology Solutions Group. There was no impact on the previously reported financial results for the other segments.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)

		Six months ended April 30,
		2008			2007 ^(a)

Net revenue:

	Enterprise Storage and Servers	$	9,600		$	9,015
	HP Services		9,005			8,057
	HP Software		1,393			1,166
	Technology Solutions Group		19,998			18,238
	Personal Systems Group		20,862			17,382
	Imaging and Printing Group		14,903			14,160
	HP Financial Services		1,327			1,097
	Corporate Investments		448			332
	Total Segments		57,538			51,209
	Eliminations of intersegment net revenue and other		(809	)		(593	)

Total HP Consolidated		$	56,729		$	50,616

Earnings (Loss) from operations:

	Enterprise Storage and Servers	$	1,328		$	905
	HP Services		997			855
	HP Software		144			25
	Technology Solutions Group		2,469			1,785
	Personal Systems Group		1,172			831
	Imaging and Printing Group		2,380			2,240
	HP Financial Services		90			68
	Corporate Investments		14			(47	)
	Total Segments		6,125			4,877

	Corporate and unallocated costs and eliminations		(223	)		(141	)
	Unallocated costs related to stock-based compensation expense		(255	)		(271	)
	Amortization of purchased intangible assets		(417	)		(413	)
	In-process research and development charges		(13	)		(186	)
	Restructuring		(14	)		(412	)
	Pension curtailments and pension settlements, net		-			517
	Interest and other, net		75			221

Total HP Consolidated Earnings Before Taxes		$	5,278		$	4,192


(a)	Certain fiscal 2008 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2007, the reclassifications resulted in the transfer of revenue and operating profit among the Enterprise Storage and Servers, HP Services and HP Software segments within the Technology Solutions Group. There was no impact on the previously reported financial results for the other segments.

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

	Three months ended
	April 30, 2008			January 31, 2008			April 30, 2007 ^(a)

Net revenue:

Industry standard servers	$	2,818		$	2,988		$	2,818
Business critical systems		919			855			862
Storage		1,043			977			914
Enterprise Storage and Servers		4,780			4,820			4,594
Technology services		2,331			2,241			2,120
Outsourcing services		1,370			1,303			1,200
Consulting and integration		926			834			805
HP Services		4,627			4,378			4,125
Business technology optimization ^(b)		593			548			437
Other ^(b)		134			118			131
HP Software		727			666			568
Technology Solutions Group		10,134			9,864			9,287
Notebooks		5,373			5,664			4,086
Desktops		3,921			4,401			3,913
Workstations		494			467			402
Handhelds		102			89			116
Other		181			170			146
Personal Systems Group		10,071			10,791			8,663
Commercial Hardware		1,811			1,726			1,709
Consumer Hardware		974			1,180			1,008
Supplies		4,812			4,399			4,444
Other		(6	)		7			-
Imaging and Printing Group		7,591			7,312			7,161
HP Financial Services		685			642			550
Corporate Investments		230			218			175
Total Segments		28,711			28,827			25,836

Eliminations of intersegment net revenue and other		(449	)		(360	)		(302	)

Total HP Consolidated	$	28,262		$	28,467		$	25,534


(a) Certain fiscal 2008 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2007, the reclassifications resulted in the transfer of revenue among Enterprise Storage and Servers, HP Services and HP Software segments within the Technology Solutions Group. In addition, revenue was transferred among the business units within the Imaging and Printing Group and among the business units within the Personal Systems Group, but there was no change to the previously reported revenue for either segment as a whole. There was no impact on the previously reported financial results for the HP Financial Services and Corporate Investments segments.

(b) The OpenView business unit was renamed as “ Business Technology Optimization ” and the OpenCall and Other business unit was renamed as “ Other ” effective in fiscal 2008. The renamed "Other" business unit includes primarily the OpenCall and Business Information Optimization products.


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

				Six months ended April 30,
				2008			2007 ^(a)

Net revenue:

Industry standard servers				$	5,806		$	5,507
Business critical systems					1,774			1,708
Storage					2,020			1,800
Enterprise Storage and Servers					9,600			9,015
Technology services					4,572			4,182
Outsourcing services					2,673			2,329
Consulting and integration					1,760			1,546
HP Services					9,005			8,057
Business technology optimization ^(b)					1,141			897
Other ^(b)					252			269
HP Software					1,393			1,166
Technology Solutions Group					19,998			18,238
Notebooks					11,037			8,232
Desktops					8,322			7,734
Workstations					961			807
Handhelds					191			307
Other					351			302
Personal Systems Group					20,862			17,382
Commercial Hardware					3,537			3,325
Consumer Hardware					2,154			2,249
Supplies					9,211			8,586
Other					1			-
Imaging and Printing Group					14,903			14,160
HP Financial Services					1,327			1,097
Corporate Investments					448			332
Total Segments					57,538			51,209

Eliminations of intersegment net revenue and other					(809	)		(593	)

Total HP Consolidated				$	56,729		$	50,616


(a) Certain fiscal 2008 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2007, the reclassifications resulted in the transfer of revenue among Enterprise Storage and Servers, HP Services and HP Software segments within the Technology Solutions Group. In addition, revenue was transferred among the business units within the Imaging and Printing Group and among the business units within the Personal Systems Group, but there was no change to the previously reported revenue for either segment as a whole. There was no impact on the previously reported financial results for the HP Financial Services and Corporate Investments segments.

(b) The OpenView business unit was renamed as “ Business Technology Optimization ” and the OpenCall and Other business unit was renamed as “ Other ” effective in fiscal 2008. The renamed "Other" business unit includes primarily the OpenCall and Business Information Optimization products.


HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)


	Three months ended
	April 30, 2008			January 31, 2008				April 30, 2007

Numerator:
Net earnings	$	2,057		$	2,133			$	1,775
Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes		1			2				2

Net earnings, adjusted	$	2,058		$	2,135			$	1,777

Denominator:
Weighted-average shares used to compute basic EPS		2,473			2,560				2,638
Effect of dilutive securities:
Dilution from employee stock plans		79			87				85
Zero-coupon subordinated convertible notes		5			8				8
Dilutive potential common shares		84			95				93

Weighted-average shares used to compute diluted EPS		2,557			2,655				2,731

Net earnings per share:
Basic ^(a)	$	0.83		$	0.83			$	0.67
Diluted ^(b)	$	0.80		$	0.80			$	0.65

(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.

(b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and conversion of debt, except when such issuances would be antidilutive.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)


	Six months ended April 30,
	2008		2007


Numerator:
Net earnings	$	4,190	$	3,322
Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes		3		4

Net earnings, adjusted	$	4,193	$	3,326

Denominator:
Weighted-average shares used to compute basic EPS		2,516		2,672
Effect of dilutive securities:
Dilution from employee stock plans		81		83
Zero-coupon subordinated convertible notes		6		8
Dilutive potential common shares		87		91

Weighted-average shares used to compute diluted EPS		2,603		2,763

Net earnings per share:
Basic ^(a)	$	1.67	$	1.24
Diluted ^(b)	$	1.61	$	1.20


(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period. (b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and conversion of debt, except when such issuances would be antidilutive.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)


	Three months ended
	April 30, 2008		January 31, 2008		April 30, 2007

Numerator:
Non-GAAP net earnings	$	2,229	$	2,291	$	1,920
Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes		1		2		2

Non-GAAP net earnings, adjusted	$	2,230	$	2,293	$	1,922

Denominator:
Weighted-average shares used to compute basic EPS		2,473		2,560		2,638
Effect of dilutive securities:
Dilution from employee stock plans		79		87		85
Zero-coupon subordinated convertible notes		5		8		8
Dilutive potential common shares		84		95		93

Weighted-average shares used to compute diluted EPS		2,557		2,655		2,731

Non-GAAP net earnings per share:
Basic ^(a)	$	0.90	$	0.89	$	0.73
Diluted ^(b)	$	0.87	$	0.86	$	0.70


(a) HP's basic non-GAAP earnings per share was calculated based on non-GAAP net earnings and the weighted-average number of shares outstanding during the reporting period. (b) HP ’ s diluted non-GAAP earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and conversion of debt, except when such issuances would be antidilutive.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)


	Six months ended April 30,
	2008		2007

Numerator:
Non-GAAP net earnings	$	4,520	$	3,746
Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes		3		4

Non-GAAP net earnings, adjusted	$	4,523	$	3,750

Denominator:
Weighted-average shares used to compute basic EPS		2,516		2,672
Effect of dilutive securities:
Dilution from employee stock plans		81		83
Zero-coupon subordinated convertible notes		6		8
Dilutive potential common shares		87		91

Weighted-average shares used to compute diluted EPS		2,603		2,763

Non-GAAP net earnings per share:
Basic ^(a)	$	1.80	$	1.40
Diluted ^(b)	$	1.74	$	1.36


(a) HP's basic non-GAAP earnings per share was calculated based on non-GAAP net earnings and the weighted-average number of shares outstanding during the reporting period. (b) HP ’ s diluted non-GAAP earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and conversion of debt, except when such issuances would be antidilutive.

Use of Non-GAAP Financial Measures

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