HP Reports Fourth Quarter 2009 Results

Material Limitations Associated with Use of Non-GAAP Financial Measures

These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HP’s results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are:

-- Items such as amortization of purchased intangible assets, 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 and non-GAAP diluted earnings per share and therefore does not reflect the full economic effect of the loss in value of those intangible assets.

  • Items such as restructuring charges that are excluded from non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share can have a material impact on cash flows and earnings per share.
  • HP may not be able to liquidate immediately the long-term investments included in gross cash, which may limit the usefulness of gross cash as a liquidity measure.
  • Other companies may calculate non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash differently than HP does, limiting the usefulness of those measures for comparative purposes.

Compensation for Limitations Associated with Use of Non-GAAP Financial Measures

HP compensates for the limitations on its use of non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this press release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations.

Usefulness of Non-GAAP Financial Measures to Investors

HP believes that providing non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share and gross cash to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by HP’s management in its financial and operational decision-making and allows investors to see HP’s results “through the eyes” of management. HP further believes that providing this information better enables HP’s investors to understand HP’s operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of HP’s operating performance with the performance of other companies in HP’s industry that supplement their GAAP results with non-GAAP financial measures that are calculated in a similar manner.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)
 
    Three months ended  
    October 31,
2009(c)
  July 31,
2009(c)
  October 31,
2008
 
               
Net revenue   $ 30,777     $ 27,585     $ 33,603    
               
Costs and expenses(a):              
Cost of sales     23,475       21,031       25,853   (d)
Research and development     704       667       842    
Selling, general and administrative     2,966       2,874       3,506   (d)
Amortization of purchased intangible assets     400       379       337    
In-process research and development charges     1       -       32    
Restructuring charges     38       362       251    
Acquisition-related charges     60       59       41    
Total costs and expenses     27,644       25,372       30,862    
               
Earnings from operations     3,133       2,213       2,741    
               
Interest and other, net     (132 )     (177 )     (98 )  
               
Earnings before taxes     3,001       2,036       2,643    
               
Provision for taxes (b)     589       365       531    
               
Net earnings   $ 2,412     $ 1,671     $ 2,112    
               
Net earnings per share:              
Basic   $ 1.02     $ 0.70     $ 0.87    
Diluted   $ 0.99     $ 0.69     $ 0.84    
               
Cash dividends declared per share   $ -     $ 0.16     $ -    
               
Weighted-average shares used to compute net earnings per share:  
Basic     2,366       2,382       2,440    
Diluted     2,433       2,436       2,516    
               
(a) Stock-based compensation expense included under SFAS 123(R) was as follows:  
Cost of sales   $ 37     $ 41     $ 46    
Research and development     10       12       17    
Selling, general and administrative     86       94       94    
Acquisition-related charges     1       3       -    
Total costs and expenses   $ 134     $ 150     $ 157    
               
(b) Tax benefit from stock-based compensation   $ (41 )   $ (51 )   $ (37 )  
               
(c) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." As a result, fiscal 2009 net revenues and net earnings were higher by $255 million and $55 million, respectively. Fourth quarter fiscal 2009 net revenues and net earnings were higher by $82 million and $19 million, respectively. HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly results have been restated to reflect the impact of adoption.  
   
(d) For the prior year reporting period presented, certain pursuit-related costs previously reported as Cost of sales have been realigned retroactively to Selling, general and administrative expenses due to organizational realignments.  
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In millions except per share amounts)
 
    Twelve months ended
October 31,
 
   

2009 (c)

  2008  
    (unaudited)      
           
Net revenue   $ 114,552     $ 118,364    
           
Costs and expenses (a) :          
Cost of sales     87,524       89,699   (d)
Research and development     2,819       3,543    
Selling, general and administrative     11,613       13,326   (d)
Amortization of purchased intangible assets     1,571       967    
In-process research and development charges     7       45    
Restructuring charges     640       270    
Acquisition-related charges     242       41    
Total costs and expenses     104,416       107,891    
           
Earnings from operations     10,136       10,473    
           
Interest and other, net     (721 )     -    
           
Earnings before taxes     9,415       10,473    
           
Provision for taxes (b)     1,755       2,144    
           
Net earnings   $ 7,660     $ 8,329    
           
Net earnings per share:          
Basic   $ 3.21     $ 3.35    
Diluted   $ 3.14     $ 3.25    
           
Cash dividends declared per share   $ 0.32     $ 0.32    
           
Weighted-average shares used to compute net earnings per share:  
Basic     2,388       2,483    
Diluted     2,437       2,567    
           
(a) Stock-based compensation expense included under SFAS 123(R) was as follows:  
Cost of sales   $ 178     $ 152    
Research and development     57       72    
Selling, general and administrative     374       382    
Acquisition-related charges     26       -    
Total costs and expenses   $ 635     $ 606    
           
(b) Tax benefit from stock-based compensation   $ (199 )   $ (167 )  
           
(c) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." As a result, fiscal 2009 net revenues and net earnings were higher by $255 million and $55 million, respectively. Fourth quarter fiscal 2009 net revenues and net earnings were higher by $82 million and $19 million, respectively. HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly results have been restated to reflect the impact of adoption.  
           
(d) For the prior year reporting period presented, certain pursuit-related costs previously reported as Cost of sales have been realigned retroactively to Selling, general and administrative expenses due to organizational realignments.  
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
                         
   

Three
months
ended
October 31,
2009 (a)

 

Diluted
earnings
per share

 

Three
months
ended
July 31,
2009 (a)

 

Diluted
earnings
per share

 

Three
months
ended
October 31,
2008

 

Diluted
earnings
per share

                         
GAAP net earnings   $ 2,412     $ 0.99     $ 1,671     $ 0.69     $ 2,112     $ 0.84  
                         
Non-GAAP adjustments:                        

Amortization of purchased intangible assets

    400       0.16       379       0.16       337       0.13  

In-process research and development charges

    1       -       -       -       32       0.01  
Restructuring charges     38       0.02       362       0.15       251       0.10  
Acquisition-related charges     60       0.03       59       0.02       41       0.02  
Adjustments for taxes     (147 )     (0.06 )     (232 )     (0.10 )     (179 )     (0.07 )
                         
Non-GAAP net earnings   $ 2,764     $ 1.14     $ 2,239     $ 0.92     $ 2,594     $ 1.03  
                         
                         
GAAP earnings from operations   $ 3,133         $ 2,213         $ 2,741      
                         
Non-GAAP adjustments:                        

Amortization of purchased intangible assets

    400           379           337      

In-process research and development charges

    1           -           32      
Restructuring charges     38           362           251      
Acquisition-related charges     60           59           41      
                         
Non-GAAP earnings from operations   $ 3,632         $ 3,013         $ 3,402      
                         
GAAP operating margin     10 %         8 %         8 %    
Non-GAAP adjustments    

2

%

       

3

%

       

2

%

   
                         
Non-GAAP operating margin    

12

%

       

11

%

       

10

%

   
                         
(a) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." As a result, fiscal 2009 net revenues and GAAP net earnings were higher by $255 million and $55 million, respectively. Fourth quarter fiscal 2009 net revenues and GAAP net earnings were higher by $82 million and $19 million, respectively. HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly results have been restated to reflect the impact of adoption.
 
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,
2009 (a)

 

Diluted
earnings
per share

 

Twelve months
ended
October 31,
2008

 

Diluted
earnings
per share

                 
GAAP net earnings   $ 7,660     $ 3.14     $ 8,329     $ 3.25  
                 
Non-GAAP adjustments:                

Amortization of purchased intangible assets

    1,571       0.65       967       0.38  

In-process research and development charges

    7       -       45       0.02  
Restructuring charges     640       0.26       270       0.10  
Acquisition-related charges     242       0.10       41       0.01  
Adjustments for taxes     (727 )     (0.30 )     (350 )     (0.14 )
                 
Non-GAAP net earnings   $ 9,393     $ 3.85     $ 9,302     $ 3.62  
                 
                 
GAAP earnings from operations   $ 10,136         $ 10,473      
                 
Non-GAAP adjustments:                

Amortization of purchased intangible assets

    1,571           967      

In-process research and development charges

    7           45      
Restructuring charges     640           270      
Acquisition-related charges     242           41      
                 
Non-GAAP earnings from operations   $ 12,596         $ 11,796      
                 
GAAP operating margin     9 %         9 %    
Non-GAAP adjustments    

2

%

       

1

%

   
                 
Non-GAAP operating margin    

11

%

       

10

%

   
                 
(a) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." As a result, fiscal 2009 net revenues and GAAP net earnings were higher by $255 million and $55 million, respectively. Fourth quarter fiscal 2009 net revenues and GAAP net earnings were higher by $82 million and $19 million, respectively. HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly results have been restated to reflect the impact of adoption.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
         
    October 31,
2009
  October 31,
2008
    (unaudited)    
         
ASSETS        
         
Current assets:        
Cash and cash equivalents   $ 13,279   $ 10,153
Short-term investments     55     93
Accounts receivable     16,537     16,928
Financing receivables     2,675     2,314
Inventory     6,128     7,879
Other current assets     13,865     14,361
         
Total current assets     52,539     51,728
         
Property, plant and equipment     11,262     10,838
         
Long-term financing receivables and other assets     11,289     10,468
         
Goodwill and purchased intangible assets     39,709     40,297
         
Total assets   $ 114,799   $ 113,331
         
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
Current liabilities:        
Notes payable and short-term borrowings   $ 1,850   $ 10,176
Accounts payable     14,809     14,917
Employee compensation and benefits     4,071     4,159
Taxes on earnings     910     869
Deferred revenue     6,182     6,287
Other accrued liabilities     15,181     16,531
         
Total current liabilities     43,003     52,939
         
Long-term debt     13,980     7,676
Other liabilities     17,299     13,774
         
Stockholders' equity     40,517     38,942
         
Total liabilities and stockholders' equity   $ 114,799   $ 113,331
             
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
         
   

Three months
ended
October 31,
2009

 

Twelve months
ended
October 31,
2009

         
Cash flows from operating activities:        
Net earnings (a)   $ 2,412     $ 7,660  

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

       
Depreciation and amortization     1,227       4,773  
Stock-based compensation expense     134       635  
Provision for bad debt and inventory     104       566  
In-process research and development charges     1       7  
Restructuring charges     38       640  
Deferred taxes on earnings     107       379  
Excess tax benefit from stock-based compensation     (95 )     (162 )
Other, net     (19 )     (20 )
         
Changes in assets and liabilities:        
Accounts and financing receivables     (2,184 )     (549 )
Inventory     (311 )     1,532  
Accounts payable     2,075       (153 )
Taxes on earnings     (146 )     557  
Restructuring     (393 )     (1,237 )
Other assets and liabilities     483       (1,249 )
Net cash provided by operating activities     3,433       13,379  
         
Cash flows from investing activities:        
Investment in property, plant and equipment     (946 )     (3,695 )
Proceeds from sale of property, plant and equipment     94       495  

Purchases of available-for-sale securities and other investments

    (55 )     (160 )

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

    68       171  

Payments made in connection with business acquisitions, net

    (43 )     (391 )
Net cash used in investing activities     (882 )     (3,580 )
         
Cash flows from financing activities:        
Issuance (repayment) of commercial paper and notes payable, net     10       (6,856 )
Issuance of debt     22       6,800  
Payment of debt     (1,529 )     (2,710 )
Issuance of common stock under employee stock plans     901       1,837  
Repurchase of common stock     (2,102 )     (5,140 )
Excess tax benefit from stock-based compensation     95       162  
Dividends     (190 )     (766 )
Net cash used in financing activities     (2,793 )     (6,673 )
         
(Decrease) increase in cash and cash equivalents     (242 )     3,126  
Cash and cash equivalents at beginning of period     13,521       10,153  
Cash and cash equivalents at end of period   $ 13,279     $ 13,279  
         
(a) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." As a result, fiscal 2009 net earnings were higher by $55 million. Fourth quarter fiscal 2009 net earnings were higher by $19 million. HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly results have been restated to reflect the impact of adoption.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
    Three months ended
    October 31,
2009 (b)
  July 31,
2009 (b)
  October 31,
2008 (c)
             
Net revenue:            
             
Services (a)   $ 8,926     $ 8,520     $ 8,277  
Enterprise Storage and Servers     4,218       3,735       5,059  
HP Software     967       847       1,148  
Technology Solutions Group     14,111       13,102       14,484  
Personal Systems Group     9,862       8,441       11,179  
Imaging and Printing Group     6,454       5,660       7,572  
HP Financial Services     726       670       691  
Corporate Investments     191       193       246  
Total Segments     31,344       28,066       34,172  
Eliminations of intersegment net revenue and other     (567 )     (481 )     (569 )
             
Total HP Consolidated   $ 30,777     $ 27,585     $ 33,603  
             
Earnings (Loss) from operations:            
             
Services (a)   $ 1,444     $ 1,302     $ 945  
Enterprise Storage and Servers     481       381       705  
HP Software     234       153       211  
Technology Solutions Group     2,159       1,836       1,861  
Personal Systems Group     460       387       616  
Imaging and Printing Group     1,171       960       1,155  
HP Financial Services     66       53       51  
Corporate Investments     (8 )     (10 )     9  
Total Segments     3,848       3,226       3,692  
             
Corporate and unallocated costs and eliminations     (100 )     (81 )     (153 )

Unallocated costs related to stock-based compensation expense

    (116 )     (132 )     (137 )
Amortization of purchased intangible assets     (400 )     (379 )     (337 )
In-process research and development charges     (1 )     -       (32 )
Restructuring charges     (38 )     (362 )     (251 )
Acquisition-related charges     (60 )     (59 )     (41 )
Interest and other, net     (132 )     (177 )     (98 )
             
Total HP Consolidated Earnings Before Taxes   $ 3,001     $ 2,036     $ 2,643  
             
(a) Includes the results of EDS which was acquired on August 26, 2008.
             
(b) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly segment results have been restated to reflect the impact of adoption. The adoption primarily impacted the Services and Enterprise Storage and Servers financial reporting segments.
             
(c) Certain fiscal 2009 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2008, the reclassifications resulted in the transfer of revenue and operating profit among the Services, HP Software and Imaging and Printing Group financial reporting segments. In addition, certain previously allocated costs were reclassified to unallocated costs related to stock-based compensation expense. There was no impact on the previously reported financial results for the Enterprise Storage and Servers, Personal Systems Group, HP Financial Services and Corporate Investments segments.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
    Twelve months ended
October 31,
   

2009 (b)

 

2008 (c)

Net revenue:        
         
Services (a)   $ 34,693     $ 20,977  
Enterprise Storage and Servers     15,359       19,400  
HP Software     3,572       4,220  
Technology Solutions Group     53,624       44,597  
Personal Systems Group     35,305       42,295  
Imaging and Printing Group     24,011       29,614  
HP Financial Services     2,673       2,698  
Corporate Investments     768       965  
Total Segments     116,381       120,169  
Eliminations of intersegment net revenue and other     (1,829 )     (1,805 )
         
Total HP Consolidated   $ 114,552     $ 118,364  
         
Earnings (Loss) from operations:        
         
Services (a)   $ 5,044     $ 2,518  
Enterprise Storage and Servers     1,518       2,577  
HP Software     684       499  
Technology Solutions Group     7,246       5,594  
Personal Systems Group     1,661       2,375  
Imaging and Printing Group     4,310       4,559  
HP Financial Services     206       192  
Corporate Investments     (56 )     49  
Total Segments     13,367       12,769  
         
Corporate and unallocated costs and eliminations     (219 )     (461 )

Unallocated costs related to stock-based compensation expense

    (552 )     (512 )
Amortization of purchased intangible assets     (1,571 )     (967 )
In-process research and development charges     (7 )     (45 )
Restructuring charges     (640 )     (270 )
Acquisition-related charges     (242 )     (41 )
Interest and other, net     (721 )     -  
         
Total HP Consolidated Earnings Before Taxes   $ 9,415     $ 10,473  
         
(a) Includes the results of EDS which was acquired on August 26, 2008.
         
(b) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly segment results have been restated to reflect the impact of adoption. The adoption primarily impacted the Services and Enterprise Storage and Servers financial reporting segments.
 
(c) Certain fiscal 2009 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2008, the reclassifications resulted in the transfer of revenue and operating profit among the Services, HP Software and Imaging and Printing Group financial reporting segments. In addition, certain previously allocated costs were reclassified to unallocated costs related to stock-based compensation expense. There was no impact on the previously reported financial results for the Enterprise Storage and Servers, Personal Systems Group, HP Financial Services and Corporate Investments segments.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
   
    Three months ended
    October 31,
2009 (b)
  July 31,
2009 (b)
  October 31,
2008 (c)
             
Net revenue:            
             
Infrastructure technology outsourcing   $ 4,084     $ 3,967     $ 3,531  
Technology services     2,493       2,404       2,657  
Application services     1,538       1,399       1,427  
Business process outsourcing     778       711       604  
Other     33       39       58  
Services (a)     8,926       8,520       8,277  
Industry standard servers     2,669       2,316       2,977  
Storage     918       824       1,147  
Business critical systems     631       595       935  
Enterprise Storage and Servers     4,218       3,735       5,059  
Business technology optimization     660       563       786  
Other software     307       284       362  
HP Software     967       847       1,148  
Technology Solutions Group     14,111       13,102       14,484  
Notebooks     5,794       4,803       6,270  
Desktops     3,481       3,098       4,149  
Workstations     342       299       470  
Handhelds     36       32       79  
Other     209       209       211  
Personal Systems Group     9,862       8,441       11,179  
Supplies     4,430       3,949       4,808  
Commercial Hardware     1,261       1,085       1,846  
Consumer Hardware     763       626       918  
Imaging and Printing Group     6,454       5,660       7,572  
HP Financial Services     726       670       691  
Corporate Investments     191       193       246  
Total Segments     31,344       28,066       34,172  
             
Eliminations of intersegment net revenue and other     (567 )     (481 )     (569 )
             
Total HP Consolidated   $ 30,777     $ 27,585     $ 33,603  
             
             
(a) Includes the results of EDS, which was acquired on August 26, 2008. The businesses included in the former consulting and integration business unit were divided among the application services and technology services business units and the HP software segment. The businesses included in the former outsourcing services business unit were divided among the infrastructure technology outsourcing and business process outsourcing business units. The infrastructure technology outsourcing, application services and business process outsourcing business units were added with the technology services business unit, and these four business units now comprise the Services segment.
             
(b) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly segment results have been restated to reflect the impact of adoption. The adoption primarily impacted the Services and Enterprise Storage and Servers financial reporting segments.
             
(c) Certain fiscal 2009 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2008, the reclassifications resulted in the transfer of revenue among the Services, HP Software and Imaging and Printing Group financial reporting segments. In addition, revenue was transferred among the business units within the Services, HP Software, Imaging and Printing Group, and Personal Systems Group segments. There was no impact on the previously reported financial results for the Enterprise Storage and Servers, HP Financial Services and Corporate Investments segments.
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
         
    Twelve months ended
October 31,
   

2009 (b)

 

2008 (c)

         
Net revenue:        
         
Infrastructure technology outsourcing   $ 15,751     $ 7,488  
Technology services     9,789       10,297  
Application services     6,032       2,411  
Business process outsourcing     2,941       723  
Other     180       58  
Services (a)     34,693       20,977  
Industry standard servers     9,296       11,657  
Storage     3,473       4,205  
Business critical systems     2,590       3,538  
Enterprise Storage and Servers     15,359       19,400  
Business technology optimization     2,385       2,792  
Other software     1,187       1,428  
HP Software     3,572       4,220  
Technology Solutions Group     53,624       44,597  
Notebooks     20,210       22,657  
Desktops     12,864       16,643  
Workstations     1,261       1,885  
Handhelds     172       360  
Other     798       750  
Personal Systems Group     35,305       42,295  
Supplies     16,532       18,472  
Commercial Hardware     4,778       7,422  
Consumer Hardware     2,701       3,720  
Imaging and Printing Group     24,011       29,614  
HP Financial Services     2,673       2,698  
Corporate Investments     768       965  
Total Segments     116,381       120,169  
         
Eliminations of intersegment net revenue and other     (1,829 )     (1,805 )
         
Total HP Consolidated   $ 114,552     $ 118,364  
         
(a) Includes the results of EDS, which was acquired on August 26, 2008. The businesses included in the former consulting and integration business unit were divided among the application services and technology services business units and the HP software segment. The businesses included in the former outsourcing services business unit were divided among the infrastructure technology outsourcing and business process outsourcing business units. The infrastructure technology outsourcing, application services and business process outsourcing business units were added with the technology services business unit, and these four business units now comprise the Services segment.
         
(b) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly segment results have been restated to reflect the impact of adoption. The adoption primarily impacted the Services and Enterprise Storage and Servers financial reporting segments.
         
(c) Certain fiscal 2009 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2008, the reclassifications resulted in the transfer of revenue among the Services, HP Software and Imaging and Printing Group financial reporting segments. In addition, revenue was transferred among the business units within the Services, HP Software, Imaging and Printing Group, and Personal Systems Group segments. There was no impact on the previously reported financial results for the Enterprise Storage and Servers, HP Financial Services and Corporate Investments segments.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
             
    Three months ended
    October 31,
2009 (c)
  July 31,
2009 (c)
  October 31,
2008
             
Numerator:            
Net earnings   $ 2,412   $ 1,671   $ 2,112

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

    -     -     -
             
Net earnings, adjusted   $ 2,412   $ 1,671   $ 2,112
             
Denominator:            

Weighted-average shares used to compute basic EPS

    2,366     2,382     2,440
Effect of dilutive securities:            
Dilution from employee stock plans     67     54     76
Zero-coupon subordinated convertible notes     -     -     -
Dilutive potential common shares     67     54     76
             

Weighted-average shares used to compute diluted EPS

    2,433     2,436     2,516
             
Net earnings per share:            
Basic (a)   $ 1.02   $ 0.70   $ 0.87
Diluted (b)   $ 0.99   $ 0.69   $ 0.84
             
(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.
             
(b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options and vesting of restricted stock units, except when such issuances would be anti-dilutive.
             
(c) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." As a result, fiscal 2009 net revenues and net earnings were higher by $255 million and $55 million, respectively. Fourth quarter fiscal 2009 net revenues and net earnings were higher by $82 million and $19 million, respectively. HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly results have been restated to reflect the impact of adoption.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER SHARE
(In millions except per share amounts)
         
    Twelve months ended
October 31,
   

2009 (c)

  2008
    (unaudited)    
         
Numerator:        
Net earnings   $ 7,660     $ 8,329

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

    -       3
         
Net earnings, adjusted   $ 7,660     $ 8,332
         
Denominator:        

Weighted-average shares used to compute basic EPS

    2,388       2,483
Effect of dilutive securities:        
Dilution from employee stock plans     49       81
Zero-coupon subordinated convertible notes     -       3
Dilutive potential common shares     49       84
         

Weighted-average shares used to compute diluted EPS

    2,437       2,567
         
Net earnings per share:        
Basic (a)   $ 3.21     $ 3.35
Diluted (b)   $ 3.14     $ 3.25
         
(a) HP's basic earnings per share was calculated based on net earnings and the weighted-average number of shares outstanding during the reporting period.
         
(b) The diluted earnings per share included additional dilution from potential issuance of common stock, such as stock issuable pursuant to exercise of stock options, vesting of restricted stock units and conversion of debt, except when such issuances would be anti-dilutive.
         
(c) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." As a result, fiscal 2009 net revenues and net earnings were higher by $255 million and $55 million, respectively. Fourth quarter fiscal 2009 net revenues and net earnings were higher by $82 million and $19 million, respectively. HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly results have been restated to reflect the impact of adoption.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
             
    Three months ended
    October 31,
2009 (c)
  July 31,
2009 (c)
  October 31,
2008
             
Numerator:            
Non-GAAP net earnings   $ 2,764   $ 2,239   $ 2,594

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

    -     -     -
             
Non-GAAP net earnings, adjusted   $ 2,764   $ 2,239   $ 2,594
             
Denominator:            

Weighted-average shares used to compute basic EPS

    2,366     2,382     2,440
Effect of dilutive securities:            
Dilution from employee stock plans     67     54     76
Zero-coupon subordinated convertible notes     -     -     -
Dilutive potential common shares     67     54     76
             

Weighted-average shares used to compute diluted EPS

    2,433     2,436     2,516
             
Non-GAAP net earnings per share:            
Basic (a)   $ 1.17   $ 0.94   $ 1.06
Diluted (b)   $ 1.14   $ 0.92   $ 1.03
             
(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 vesting of restricted stock units, except when such issuances would be anti-dilutive.
             
(c) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." As a result, fiscal 2009 net revenues and Non-GAAP net earnings were higher by $255 million and $55 million, respectively. Fourth quarter fiscal 2009 net revenues and Non-GAAP net earnings were higher by $82 million and $19 million, respectively. HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly results have been restated to reflect the impact of adoption.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF NON-GAAP NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
         
    Twelve months ended
October 31,
   

2009 (c)

  2008
         
Numerator:        
Non-GAAP net earnings   $ 9,393     $ 9,302

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

    -       3
         
Non-GAAP net earnings, adjusted   $ 9,393     $ 9,305
         
Denominator:        

Weighted-average shares used to compute basic EPS

    2,388       2,483
Effect of dilutive securities:        
Dilution from employee stock plans     49       81
Zero-coupon subordinated convertible notes     -       3
Dilutive potential common shares     49       84
         

Weighted-average shares used to compute diluted EPS

    2,437       2,567
         
Non-GAAP net earnings per share:        
Basic (a)   $ 3.93     $ 3.75
Diluted (b)   $ 3.85     $ 3.62
         
(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, vesting of restricted stock units and conversion of debt, except when such issuances would be anti-dilutive.
         
(c) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." As a result, fiscal 2009 net revenues and Non-GAAP net earnings were higher by $255 million and $55 million, respectively. Fourth quarter fiscal 2009 net revenues and Non-GAAP net earnings were higher by $82 million and $19 million, respectively. HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly results have been restated to reflect the impact of adoption.
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
RESTATED CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)
             
    Three months ended
    July 31,
2009 (a)
(Restated)
  April 30,
2009 (a)
(Restated)
  January 31,
2009 (a)
(Restated)
             
Net revenue   $ 27,585     $ 27,383     $ 28,807  
             
Costs and expenses:            
Cost of sales     21,031       20,945       22,073  
Research and development     667       716       732  
Selling, general and administrative     2,874       2,880       2,893  
Amortization of purchased intangible assets     379       380       412  
In-process research and development charges     -       -       6  
Restructuring charges     362       94       146  
Acquisition-related charges     59       75       48  
Total costs and expenses     25,372       25,090       26,310  
             
             
Earnings from operations     2,213       2,293       2,497  
             
Interest and other, net     (177 )     (180 )     (232 )
             
Earnings before taxes     2,036       2,113       2,265  
             
Provision for taxes     365       392       409  
             
Net earnings   $ 1,671     $ 1,721     $ 1,856  
             
Net earnings per share:            
Basic   $ 0.70     $ 0.72     $ 0.77  
Diluted   $ 0.69     $ 0.71     $ 0.75  
             
Cash dividends declared per share   $ 0.16     $ -     $ 0.16  
             

Weighted-average shares used to compute net earnings per share:

Basic     2,382       2,394       2,410  
Diluted     2,436       2,438       2,464  
             

Impact from adoption of ASU No. 2009-13 and ASU No. 2009-14 was as follows:

Net Revenue   $ 134     $ 32     $ 7  
Cost of Sales     95       26       4  
Earnings before taxes     39       6       3  
Net earnings  

$

29    

$

5    

$

2  
Net earnings per share  

$

0.02     $ 0.01     $ -  
             
(a) In the fourth quarter of fiscal 2009, HP early adopted Accounting Standards Update ("ASU") No. 2009-13, "Multiple-Deliverable Revenue Arrangements" and ASU No. 2009-14, "Certain Revenue Arrangements That Include Software Elements." As a result, fiscal 2009 net revenues and net earnings were higher by $255 million and $55 million, respectively. Fourth quarter fiscal 2009 net revenues and net earnings were higher by $82 million and $19 million, respectively. HP adopted these standards as of the beginning of fiscal 2009; therefore the previously reported quarterly results have been restated to reflect the impact of adoption.

Use of Non-GAAP Financial Measures

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