HP Reports Second Quarter 2009 Results

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


	Three months ended
	April 30, 2009				January 31, 2009				April 30, 2008

Net revenue		$	27,351			$	28,800			$	28,262

Costs and expenses^(a):
Cost of sales			20,919				22,069				21,205	^(c)
Research and development			716				732				908
Selling, general and administrative			2,880				2,893				3,331	^(c)
Amortization of purchased intangible assets			380				412				211
In-process research and development charges			-				6				13
Restructuring charges			94				146				4
Acquisition-related charges			75				48				-
Total costs and expenses			25,064				26,306				25,672

Earnings from operations			2,287				2,494				2,590

Interest and other, net			(180	)			(232	)			3

Earnings before taxes			2,107				2,262				2,593

Provision for taxes ^(b)			391				408				536

Net earnings		$	1,716			$	1,854			$	2,057

Net earnings per share:
Basic		$	0.72			$	0.77			$	0.83
Diluted		$	0.70			$	0.75			$	0.80


Cash dividends declared per share		$	-			$	0.16			$	-

Weighted-average shares used to compute net earnings per share:
Basic			2,394				2,410				2,473
Diluted			2,438				2,464				2,557

(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales		$	48			$	52			$	36
Research and development			18				17				19
Selling, general and administrative			109				85				97
Acquisition-related charges			16				6				-
Total costs and expenses		$	191			$	160			$	152

(b) Tax benefit from stock-based compensation		$	(59	)		$	(48	)		$	(45	)

(c) Certain pursuit-related costs previously reported as Cost of sales have been realigned retroactively to Selling, general and administrative expenses due to the organizational realignments occurring within HP’s service offerings portfolio.

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



	Six months ended
	April 30, 2009				April 30, 2008

Net revenue		$	56,151			$	56,729

Costs and expenses ^(a) :
Cost of sales			42,988				42,649	^(c)
Research and development			1,448				1,806
Selling, general and administrative			5,773				6,627	^(c)
Amortization of purchased intangible assets			792				417
In-process research and development charges			6				13
Restructuring charges			240				14
Acquisition-related charges			123				-
Total costs and expenses			51,370				51,526

Earnings from operations			4,781				5,203

Interest and other, net			(412	)			75

Earnings before taxes			4,369				5,278

Provision for taxes ^(b)			799				1,088

Net earnings		$	3,570			$	4,190

Net earnings per share:
Basic		$	1.49			$	1.67
Diluted		$	1.46			$	1.61


Cash dividends declared per share		$	0.16			$	0.16

Weighted-average shares used to compute net earnings per share:
Basic			2,402				2,516
Diluted			2,448				2,603

(a) Stock-based compensation expense included under SFAS 123(R) was as follows:
Cost of sales		$	100			$	72
Research and development			35				39
Selling, general and administrative			194				198
Acquisition-related charges			22				-
Total costs and expenses		$	351			$	309

(b) Tax benefit from stock-based compensation		$	(107	)		$	(92	)

(c) Certain pursuit-related costs previously reported as Cost of sales have been realigned retroactively to Selling, general and administrative expenses due to the organizational realignments occurring within HP’s service offerings portfolio.

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, 2009				Diluted earnings per share				Three months ended January 31, 2009				Diluted earnings per share				Three months ended April 30, 2008				Diluted earnings per share

GAAP net earnings		$	1,716			$	0.70			$	1,854			$	0.75			$	2,057			$	0.80

Non-GAAP adjustments:
Amortization of purchased intangible assets			380				0.16				412				0.17				211				0.08
In-process research and development charges			-				-				6				-				13				0.01
Restructuring charges			94				0.04				146				0.06				4				-
Acquisition-related charges			75				0.03				48				0.02				-				-
Adjustments for taxes			(167	)			(0.07	)			(181	)			(0.07	)			(56	)			(0.02	)

Non-GAAP net earnings		$	2,098			$	0.86			$	2,285			$	0.93			$	2,229			$	0.87


GAAP earnings from operations		$	2,287							$	2,494							$	2,590

Non-GAAP adjustments:
Amortization of purchased intangible assets			380								412								211
In-process research and development charges			-								6								13
Restructuring charges			94								146								4
Acquisition-related charges			75								48								-
Non-GAAP earnings from operations		$	2,836							$	3,106							$	2,818

GAAP operating margin			8	%							9	%							9	%
Non-GAAP adjustments			2	%							2	%							1	%

Non-GAAP operating margin			10	%							11	%							10	%

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, 2009				Diluted earnings per share				Six months ended April 30, 2008				Diluted earnings per share

GAAP net earnings		$	3,570			$	1.46			$	4,190			$	1.61

Non-GAAP adjustments:
Amortization of purchased intangible assets			792				0.32				417				0.16
In-process research and development charges			6				-				13				-
Restructuring charges			240				0.10				14				0.01
Acquisition-related charges			123				0.05				-				-
Adjustments for taxes			(348	)			(0.14	)			(114	)			(0.04	)

Non-GAAP net earnings		$	4,383			$	1.79			$	4,520			$	1.74


GAAP earnings from operations		$	4,781							$	5,203

Non-GAAP adjustments:
Amortization of purchased intangible assets			792								417
In-process research and development charges			6								13
Restructuring charges			240								14
Acquisition-related charges			123								-
Non-GAAP earnings from operations		$	5,942							$	5,647

GAAP operating margin			9	%							9	%
Non-GAAP adjustments			2	%							1	%

Non-GAAP operating margin			11	%							10	%

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


	April 30, 2009			October 31, 2008
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents		$	12,851		$	10,153
Short-term investments			65			93
Accounts receivable			14,666			16,928
Financing receivables			2,352			2,314
Inventory			5,746			7,879
Other current assets			11,506			14,361

Total current assets			47,186			51,728

Property, plant and equipment			10,807			10,838

Long-term financing receivables and other assets			10,410			10,468

Goodwill and purchased intangible assets			40,112			40,297

Total assets		$	108,515		$	113,331


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable and short-term borrowings		$	5,702		$	10,176
Accounts payable			11,421			14,917	^(a)
Employee compensation and benefits			3,233			4,159
Taxes on earnings			546			869
Deferred revenue			6,342			6,287
Other accrued liabilities			14,339			16,531	^(a)

Total current liabilities			41,583			52,939

Long-term debt			12,978			7,676
Other liabilities			13,412			13,774

Stockholders' equity			40,542			38,942

Total liabilities and stockholders' equity		$	108,515		$	113,331


(a) In the second quarter of fiscal 2009, HP reclassified certain activity from Other accrued liabilities to Accounts payable as this better represents the nature of the activity. All prior periods have been revised to conform to current presentation.

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

	Three months ended April 30, 2009				Six months ended April 30, 2009

Cash flows from operating activities:
Net earnings		$	1,716			$	3,570
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			1,153				2,367
Stock-based compensation expense			191				351	^(a)
Provision for bad debt and inventory			180				348
In-process research and development charges			-				6
Restructuring charges			94				240
Deferred taxes on earnings			115				52
Excess tax benefit from stock-based compensation			(15	)			(28	)
Other, net			14				(3	)

Changes in assets and liabilities:
Accounts and financing receivables			(4	)			1,776
Inventory			1,831				1,987
Accounts payable			(417	)			(3,506	) ^(a)
Taxes on earnings			680				980
Restructuring			(339	)			(548	)
Other assets and liabilities			(235	)			(1,502	) ^(a)
Net cash provided by operating activities			4,964				6,090

Cash flows from investing activities:
Investment in property, plant and equipment			(842	)			(1,658	) ^(a)
Proceeds from sale of property, plant and equipment			98				250
Purchases of available-for-sale securities and other investments			(55	)			(55	)
Maturities and sales of available-for-sale securities and other investments			57				103
Payments made in connection with business acquisitions, net			(3	)			(348	)
Net cash used in investing activities			(745	)			(1,708	)

Cash flows from financing activities:
Repayment of commercial paper and notes payable, net			(4,506	)			(4,449	)
Issuance of debt			2,774				4,778	^(a)
Payment of debt			(41	)			(110	)
Issuance of common stock under employee stock plans			194				493
Repurchase of common stock			(801	)			(2,039	)
Excess tax benefit from stock-based compensation			15				28
Dividends			(192	)			(385	)
Net cash used in financing activities			(2,557	)			(1,684	)

Increase in cash and cash equivalents			1,662				2,698
Cash and cash equivalents at beginning of period			11,189				10,153
Cash and cash equivalents at end of period		$	12,851			$	12,851

(a) Certain adjustments have been made to prior quarter amounts in order to conform to the current quarter presentation.

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

	Three months ended
	April 30, 2009				January 31, 2009				April 30, 2008 ^(a)

Net revenue:

Services		$	8,488			$	8,746			$	4,262
Enterprise Storage and Servers			3,456				3,948				4,780
HP Software			880				878				1,039
Technology Solutions Group			12,824				13,572				10,081
Personal Systems Group			8,191				8,787				10,071
Imaging and Printing Group			5,916				5,981				7,644
HP Financial Services			641				636				685
Corporate Investments			188				196				230
Total Segments			27,760				29,172				28,711
Eliminations of intersegment net revenue and other			(409	)			(372	)			(449	)

Total HP Consolidated		$	27,351			$	28,800			$	28,262

Earnings from operations:

Services		$	1,172			$	1,123			$	507
Enterprise Storage and Servers			250				405				655
HP Software			157				140				104
Technology Solutions Group			1,579				1,668				1,266
Personal Systems Group			374				435				544
Imaging and Printing Group			1,074				1,105				1,220
HP Financial Services			46				41				47
Corporate Investments			(19	)			(19	)			6
Total Segments			3,054				3,230				3,083

Corporate and unallocated costs and eliminations			(62	)			24				(134	)
Unallocated costs related to stock-based compensation expense			(156	)			(148	)			(131	)
Amortization of purchased intangible assets			(380	)			(412	)			(211	)
In-process research and development charges			-				(6	)			(13	)
Restructuring charges			(94	)			(146	)			(4	)
Acquisition-related charges			(75	)			(48	)			-
Interest and other, net			(180	)			(232	)			3

Total HP Consolidated Earnings Before Taxes		$	2,107			$	2,262			$	2,593


(a) 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)

	Six months ended
	April 30, 2009				April 30, 2008 ^(a)

Net revenue:

Services		$	17,234			$	8,314
Enterprise Storage and Servers			7,404				9,600
HP Software			1,758				1,986
Technology Solutions Group			26,396				19,900
Personal Systems Group			16,978				20,862
Imaging and Printing Group			11,897				15,001
HP Financial Services			1,277				1,327
Corporate Investments			384				448
Total Segments			56,932				57,538
Eliminations of intersegment net revenue and other			(781	)			(809	)

Total HP Consolidated		$	56,151			$	56,729

Earnings from operations:

Services		$	2,295			$	1,006
Enterprise Storage and Servers			655				1,328
HP Software			297				153
Technology Solutions Group			3,247				2,487
Personal Systems Group			809				1,172
Imaging and Printing Group			2,179				2,362
HP Financial Services			87				90
Corporate Investments			(38	)			14
Total Segments			6,284				6,125

Corporate and unallocated costs and eliminations			(38	)			(223	)
Unallocated costs related to stock-based compensation expense			(304	)			(255	)
Amortization of purchased intangible assets			(792	)			(417	)
In-process research and development charges			(6	)			(13	)
Restructuring charges			(240	)			(14	)
Acquisition-related charges			(123	)			-
Interest and other, net			(412	)			75

Total HP Consolidated Earnings Before Taxes		$	4,369			$	5,278


(a) 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
	April 30, 2009				January 31, 2009				April 30, 2008 ^(a)

Net revenue:

Infrastructure technology outsourcing		$	3,836			$	3,960			$	1,312
Technology services			2,441				2,451				2,568
Application services			1,502				1,592				342
Business process outsourcing			709				743				40
Services ^(b)			8,488				8,746				4,262
Industry standard servers			1,988				2,322				2,818
Storage			818				913				1,043
Business critical systems			650				713				919
Enterprise Storage and Servers			3,456				3,948				4,780
Business technology optimization			568				594				670
Other			312				284				369
HP Software			880				878				1,039
Technology Solutions Group			12,824				13,572				10,081
Notebooks			4,697				4,907				5,373
Desktops			2,967				3,303				3,925
Workstations			287				333				490
Handhelds			47				57				102
Other			193				187				181
Personal Systems Group			8,191				8,787				10,071
Supplies			4,103				4,050				4,768
Commercial hardware			1,193				1,239				1,975
Consumer hardware			620				692				901
Imaging and Printing Group			5,916				5,981				7,644
HP Financial Services			641				636				685
Corporate Investments			188				196				230
Total Segments			27,760				29,172				28,711

Eliminations of intersegment net revenue and other			(409	)			(372	)			(449	)

Total HP Consolidated		$	27,351			$	28,800			$	28,262


(a) 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.

(b) Infrastructure technology outsourcing, Application services, Business process outsourcing and Other business units were added to the Services business segment. In addition, Outsourcing services, Consulting and integration and EDS business units within Services were disintegrated in fiscal 2009.

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

	Six months ended
	April 30, 2009				April 30, 2008 ^(a)

Net revenue:

Infrastructure technology outsourcing		$	7,796			$	2,564
Technology services			4,892				5,026
Application services			3,094				648
Business process outsourcing			1,452				76
Services ^(b)			17,234				8,314
Industry standard servers			4,310				5,806
Storage			1,731				2,020
Business critical systems			1,363				1,774
Enterprise Storage and Servers			7,404				9,600
Business technology optimization			1,162				1,288
Other			596				698
HP Software			1,758				1,986
Technology Solutions Group			26,396				19,900
Notebooks			9,604				11,037
Desktops			6,270				8,331
Workstations			620				952
Handhelds			104				191
Other			380				351
Personal Systems Group			16,978				20,862
Supplies			8,153				9,137
Commercial hardware			2,432				3,858
Consumer hardware			1,312				2,006
Imaging and Printing Group			11,897				15,001
HP Financial Services			1,277				1,327
Corporate Investments			384				448
Total Segments			56,932				57,538

Eliminations of intersegment net revenue and other			(781	)			(809	)

Total HP Consolidated		$	56,151			$	56,729


(a) 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.

(b) Infrastructure technology outsourcing, Application services, Business process outsourcing and Other business units were added to the Services business segment. In addition, Outsourcing services, Consulting and integration and EDS business units within Services were disintegrated in fiscal 2009.

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


	Three months ended
	April 30, 2009			January 31, 2009			April 30, 2008

Numerator:
Net earnings		$	1,716		$	1,854		$	2,057

Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes			-			-			1

Net earnings, adjusted		$	1,716		$	1,854		$	2,058

Denominator:
Weighted-average shares used to compute basic EPS			2,394			2,410			2,473
Effect of dilutive securities:
Dilution from employee stock plans			44			54			79
Zero-coupon subordinated convertible notes			-			-			5
Dilutive potential common shares			44			54			84

Weighted-average shares used to compute diluted EPS			2,438			2,464			2,557

Net earnings per share:
Basic ^(a)		$	0.72		$	0.77		$	0.83
Diluted ^(b)		$	0.70		$	0.75		$	0.80


(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.

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


	Six months ended
	April 30, 2009			April 30, 2008

Numerator:
Net earnings		$	3,570		$	4,190

Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes			-			3

Net earnings, adjusted		$	3,570		$	4,193

Denominator:
Weighted-average shares used to compute basic EPS			2,402			2,516
Effect of dilutive securities:
Dilution from employee stock plans			46			81
Zero-coupon subordinated convertible notes			-			6
Dilutive potential common shares			46			87

Weighted-average shares used to compute diluted EPS			2,448			2,603

Net earnings per share:
Basic ^(a)		$	1.49		$	1.67
Diluted ^(b)		$	1.46		$	1.61


(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.

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, 2009			January 31, 2009			April 30, 2008

Numerator:
Non-GAAP net earnings		$	2,098		$	2,285		$	2,229

Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes			-			-			1

Non-GAAP net earnings, adjusted		$	2,098		$	2,285		$	2,230

Denominator:
Weighted-average shares used to compute basic EPS			2,394			2,410			2,473
Effect of dilutive securities:
Dilution from employee stock plans			44			54			79
Zero-coupon subordinated convertible notes			-			-			5
Dilutive potential common shares			44			54			84

Weighted-average shares used to compute diluted EPS			2,438			2,464			2,557

Non-GAAP net earnings per share:
Basic ^(a)		$	0.88		$	0.95		$	0.90
Diluted ^(b)		$	0.86		$	0.93		$	0.87


(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.

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, 2009			April 30, 2008

Numerator:
Non-GAAP net earnings		$	4,383		$	4,520

Adjustment for interest expense on zero-coupon subordinated convertible notes, net of taxes			-			3

Non-GAAP net earnings, adjusted		$	4,383		$	4,523

Denominator:
Weighted-average shares used to compute basic EPS			2,402			2,516
Effect of dilutive securities:
Dilution from employee stock plans			46			81
Zero-coupon subordinated convertible notes			-			6
Dilutive potential common shares			46			87

Weighted-average shares used to compute diluted EPS			2,448			2,603

Non-GAAP net earnings per share:
Basic ^(a)		$	1.82		$	1.80
Diluted ^(b)		$	1.79		$	1.74


(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.

Use of Non-GAAP Financial Measures

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