SOURCE: HP

HP

August 21, 2013 16:05 ET

HP Reports Third Quarter 2013 Results

PALO ALTO, CA--(Marketwired - Aug 21, 2013) - HP (NYSE: HPQ)

  • Third quarter non-GAAP diluted earnings per share of $0.86, down 14% from the prior year, within previously provided outlook of $0.84 to $0.87 per share
  • Third quarter GAAP diluted earnings per share of $0.71, up from GAAP diluted loss per share of $4.49 in the prior year, above previously provided outlook of $0.56 to $0.59 per share
  • Third quarter net revenue of $27.2 billion, down 8% from the prior year and down 7% when adjusted for the effects of currency
  • Cash flow from operations of $2.7 billion, down 6% from the prior year
  • Returned $283 million to shareholders in the form of dividends and share repurchases
  • Improved operating company net debt position by $1.7 billion, the sixth consecutive quarterly reduction of over $1 billion

HP third quarter fiscal 2013 financial performance

   
  Q3 FY13     Q3 FY12     Y/Y  
GAAP net revenue ($B) $ 27.2     $ 29.7     (8 %)
GAAP operating margin   6.8 %     (29.7 %)   36.5 pts.  
GAAP net earnings (loss) ($B) $ 1.4     $ (8.9 )      
GAAP diluted earnings (loss) per share $ 0.71     $ (4.49 )      
Non-GAAP operating margin   8.4 %     9.2 %   (0.8 pts. )
Non-GAAP net earnings ($B) $ 1.7     $ 2.0     (15 %)
Non-GAAP diluted earnings per share $ 0.86     $ 1.00     (14 %)
Cash flow from operations ($B) $ 2.7     $ 2.8     (6 %)
   

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 third fiscal quarter ended July 31, 2013. Third quarter GAAP diluted earnings per share (EPS) was $0.71, up from a GAAP diluted loss per share of $4.49 in the prior-year period and above its previously provided outlook of $0.56 to $0.59 per share. Third quarter non-GAAP diluted EPS was $0.86, down from $1.00 in the prior-year period and within its previously provided outlook of $0.84 to $0.87 per share. Third quarter non-GAAP earnings information excludes after-tax costs of $286 million, or $0.15 per diluted share, related to amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

For the third quarter, net revenue of $27.2 billion was down 8% year over year and down 7% when adjusted for the effects of currency.

"We once again achieved the financial performance we said we would, delivering $0.86 in non-GAAP diluted earnings per share, within our previously provided outlook of $0.84 to $0.87," said Meg Whitman, HP president and chief executive officer. "I remain confident that we are making progress in our turnaround. We are already seeing significant improvement in our operations, we are successfully rebuilding our balance sheet, our cost structure is more closely aligned with our revenue and we have reignited innovation at HP, with a focus on the customer."

Outlook
For the full year fiscal 2013, HP estimates non-GAAP diluted EPS to be in the range of $3.53 to $3.57 and GAAP diluted EPS to be in the range of $2.67 to $2.71, in line with HP's previously communicated outlook. Full year fiscal 2013 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.86 per share, related to the amortization of purchased intangible assets, restructuring charges and acquisition-related charges.

Asset management
HP generated $2.7 billion in cash flow from operations in the third quarter, down 6% from the prior-year period. Inventory ended the quarter at $6.5 billion, down 1 day year over year to 28 days. Accounts receivable ended the quarter at $14.3 billion, down 1 day year over year to 47 days. Accounts payable ended the quarter at $13.3 billion, up 7 days year over year to 57 days. HP's dividend payment of $0.1452 per share in the third quarter resulted in cash usage of $280 million. HP also utilized $3 million of cash during the quarter to repurchase approximately 168,000 shares of common stock in the open market. HP exited the quarter with $13.7 billion in gross cash.

Third quarter fiscal 2013 segment results

  • Personal Systems revenue was down 11% year over year with a 3.0% operating margin. Commercial revenue decreased 3% and Consumer revenue declined 22%. Total units were down 8% with Desktops units down 9% and Notebooks units down 14%.
  • Printing revenue declined 4% year over year with a 15.6% operating margin. Total hardware units were up 5% with Commercial hardware units up 12% and Consumer hardware units up 2%. Supplies revenue was down 4%.
  • Enterprise Group revenue declined 9% year over year with a 15.2% operating margin. Networking revenue was flat, Industry Standard Servers revenue was down 11%, Business Critical Systems revenue was down 26%, Storage revenue was down 10% and Technology Services revenue was down 7%.
  • Enterprise Services revenue declined 9% year over year with a 3.3% operating margin. Application and Business Services revenue was down 11% and Infrastructure Technology Outsourcing revenue declined 7%.
  • Software revenue was up 1% year over year with a 20.5% operating margin. Support revenue was up 4%, license revenue was flat, professional services revenue was down 11% and SaaS revenue was up 4%.
  • HP Financial Services revenue was down 6% year over year with a 4% decrease in net portfolio assets and a 9% decrease in financing volume. The business delivered an operating margin of 11.3%.

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 Q3 FY13 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2013Q3webcast.

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 GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash, free cash flow, net debt and operating company net debt. HP also provides forecasts of non-GAAP diluted 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 management uses these non-GAAP measures to evaluate its business, the substance behind HP 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 management compensates for those limitations, and the substantive reasons why HP management believes that these non-GAAP measures provide useful information to investors is included under "Use of Non-GAAP Financial Measures" after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for operating profit, operating margin, net earnings, diluted earnings per share, cash and cash equivalents, cash flow from operations or total company debt prepared in accordance with GAAP.

Forward-looking statements
This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, earnings, earnings per share, tax provisions, cash flows, benefit obligations, share repurchases, currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring charges; any statements of the plans, strategies and objectives of management for future operations, including the execution of restructuring plans and any resulting cost savings or revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the need to address the many challenges facing HP's businesses; the competitive pressures faced by HP's businesses; risks associated with executing HP's strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of HP's products and services effectively; the protection of HP's intellectual property assets, including intellectual property licensed from third parties; risks associated with HP's international operations; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers and partners; the hiring and retention of key employees; integration and other risks associated with business combination and investment transactions; the execution, timing and results of restructuring plans, including estimates and assumptions related to the cost and the anticipated benefits of implementing those plans; the resolution of pending investigations, claims and disputes; and other risks that are described in HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2012 and HP's other filings with the Securities and Exchange Commission, including HP's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2013. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP's Form 10-Q for the fiscal quarter ended July 31, 2013. In particular, determining HP's actual tax balances and provisions as of July 31, 2013 requires extensive internal and external review of tax data (including consolidating and reviewing the tax provisions of numerous domestic and foreign entities), which is being completed in the ordinary course of preparing HP's Form 10-Q. 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  
    July 31,
2013
    April 30,
2013
    July 31,
2012
 
                         
Net revenue   $ 27,226     $ 27,582     $ 29,669  
                         
Costs and expenses:                        
  Cost of sales     20,859       21,055       22,820  
  Research and development     797       815       854  
  Selling, general and administrative     3,274       3,342       3,366  
  Amortization of purchased intangible assets     356       350       476  
  Impairment of goodwill and purchased intangible assets     -       -       9,188  
  Restructuring charges     81       408       1,795  
  Acquisition-related charges     4       11       3  
    Total costs and expenses     25,371       25,981       38,502  
                         
Earnings (loss) from operations     1,855       1,601       (8,833 )
                         
Interest and other, net     (146 )     (193 )     (224 )
                         
Earnings (loss) before taxes     1,709       1,408       (9,057 )
                         
(Provision) benefit for taxes     (319 )     (331 )     200  
                         
Net earnings (loss)   $ 1,390     $ 1,077     $ (8,857 )
                         
Net earnings (loss) per share:                        
  Basic   $ 0.72     $ 0.56     $ (4.49 )
  Diluted   $ 0.71     $ 0.55     $ (4.49 )
                         
Cash dividends declared per share   $ 0.29     $ -     $ 0.26  
                         
                         
Weighted-average shares used to compute net earnings (loss) per share:                        
  Basic     1,929       1,935       1,971  
  Diluted     1,948       1,947       1,971  
                         
                         
                         
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS  
(Unaudited)  
(In millions except per share amounts)  
             
             
             
    Nine months ended  
    July 31,  
    2013     2012  
                 
Net revenue   $ 83,167     $ 90,398  
                 
Costs and expenses:                
  Cost of sales     63,943       69,674  
  Research and development     2,406       2,490  
  Selling, general and administrative     9,916       10,273  
  Amortization of purchased intangible assets     1,056       1,412  
  Impairment of goodwill and purchased intangible assets     -       9,188  
  Restructuring charges     619       1,888  
  Acquisition-related charges     19       42  
    Total costs and expenses     77,959       94,967  
                 
Earnings (loss) from operations     5,208       (4,569 )
                 
Interest and other, net     (518 )     (688 )
                 
Earnings (loss) before taxes     4,690       (5,257 )
                 
Provision for taxes     (991 )     (539 )
                 
Net earnings (loss)   $ 3,699     $ (5,796 )
                 
Net earnings (loss) per share:          
  Basic   $ 1.91     $ (2.93 )
  Diluted   $ 1.89     $ (2.93 )
                 
Cash dividends declared per share   $ 0.55     $ 0.50  
                 
                 
Weighted-average shares used to compute net earnings (loss) per share:                  
  Basic     1,939       1,977  
  Diluted     1,952       1,977  
                 
                 
                 
   
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
July 31,
2013
    Diluted earnings per share     Three months ended
April 30,
2013
    Diluted earnings per share     Three months ended
July 31,
2012
  Diluted earnings per share  
                                             
GAAP net earnings (loss) $ 1,390     $ 0.71     $ 1,077     $ 0.55     $ (8,857 ) $ (4.49 )
                                             
Non-GAAP adjustments:                                            
  Amortization of purchased intangible assets   356       0.19       350       0.17       476     0.25  
  Impairment of goodwill and purchased intangible assets(a)   -       -       -       -       9,188     4.66  
  Restructuring charges   81       0.04       408       0.21       1,795     0.91  
  Acquisition-related charges   4       -       11       0.01       3     -  
  Wind down of non-strategic businesses(b)   -       -       -       -       108     0.05  
  Adjustments for taxes(c)   (155 )     (0.08 )     (148 )     (0.07 )     (740 )   (0.38 )
Non-GAAP net earnings $ 1,676     $ 0.86     $ 1,698     $ 0.87     $ 1,973   $ 1.00  
                                             
                                             
GAAP earnings (loss) from operations $ 1,855             $ 1,601             $ (8,833 )      
                                             
Non-GAAP adjustments:                                            
  Amortization of purchased intangible assets   356               350               476        
  Impairment of goodwill and purchased intangible assets(a)   -               -               9,188        
  Restructuring charges   81               408               1,795        
  Acquisition-related charges   4               11               3        
  Wind down of non-strategic businesses(b)   -               -               108        
Non-GAAP earnings from operations $ 2,296             $ 2,370             $ 2,737        
                                             
GAAP operating margin   7 %             6 %             (30 %)      
Non-GAAP adjustments   1 %             3 %             39 %      
Non-GAAP operating margin   8 %             9 %             9 %      
                                             
   
(a) For the period ended July 31, 2012, represents a goodwill impairment charge of $8 billion associated with the Enterprise Services segment and an intangible asset impairment charge of $1.2 billion associated with the "Compaq" trade name.
   
(b) For the period ended July 31, 2012, represents primarily contract-related charges, including inventory write-downs, related to winding down certain retail publishing business activities within the Printing segment.
   
(c) For the period ended July 31, 2012, adjustments for taxes is net of a valuation allowance of $823 million provided for certain deferred tax assets related to the Enterprise Services segment.
   
   
   
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)  
                       
                       
                       
    Nine months ended
July 31,
2013
    Diluted earnings per share     Nine months ended
July 31,
2012
  Diluted earnings per share  
                               
GAAP net earnings (loss)   $ 3,699     $ 1.89     $ (5,796 ) $ (2.93 )
                               
Non-GAAP adjustments:                              
  Amortization of purchased intangible assets     1,056       0.54       1,412     0.71  
  Impairment of goodwill and purchased intangible assets(a)     -       -       9,188     4.65  
  Restructuring charges     619       0.32       1,888     0.95  
  Acquisition-related charges     19       0.01       42     0.02  
  Wind down of non-strategic businesses(b)     -       -       72     0.04  
  Adjustments for taxes(c)     (414 )     (0.21 )     (1,052 )   (0.55 )
Non-GAAP net earnings   $ 4,979     $ 2.55     $ 5,754   $ 2.89  
                               
                               
GAAP earnings (loss) from operations   $ 5,208             $ (4,569 )      
                               
Non-GAAP adjustments:                              
  Amortization of purchased intangible assets     1,056               1,412        
  Impairment of goodwill and purchased intangible assets(a)     -               9,188        
  Restructuring charges     619               1,888        
  Acquisition-related charges     19               42        
  Wind down of non-strategic businesses(b)     -               72        
Non-GAAP earnings from operations   $ 6,902             $ 8,033        
                               
GAAP operating margin     6 %             (5 %)      
Non-GAAP adjustments     2 %             14 %      
Non-GAAP operating margin     8 %             9 %      
                               
   
(a) For the period ended July 31, 2012, represents a goodwill impairment charge of $8 billion associated with the Enterprise Services segment and an intangible asset impairment charge of $1.2 billion associated with the "Compaq" trade name.
   
(b) For the period ended July 31, 2012, represents primarily contract-related charges, including inventory write-downs, related to winding down certain retail publishing business activities within the Printing segment net of adjustments to expenses for supplier-related obligations related to winding down the webOS device business.
   
(c) For the period ended July 31, 2012, adjustments for taxes is net of a valuation allowance of $823 million provided for certain deferred tax assets related to the Enterprise Services segment.
   
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
         
         
         
    July 31,
2013
  October 31,
2012
    (Unaudited)    
ASSETS            
             
Current assets:            
  Cash and cash equivalents   $ 13,251   $ 11,301
  Accounts receivable     14,336     16,407
  Financing receivables     3,113     3,252
  Inventory     6,540     6,317
  Other current assets     12,718     13,360
             
    Total current assets     49,958     50,637
             
Property, plant and equipment     11,328     11,954
             
Long-term financing receivables and other assets     9,913     10,593
             
Goodwill and purchased intangible assets     34,601     35,584
             
Total assets   $ 105,800   $ 108,768
             
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
Current liabilities:            
  Notes payable and short-term borrowings   $ 7,624   $ 6,647
  Accounts payable     13,293     13,350
  Employee compensation and benefits     4,075     4,058
  Taxes on earnings     979     846
  Deferred revenue     6,571     7,494
  Other accrued liabilities     13,470     14,271
             
    Total current liabilities     46,012     46,666
             
Long-term debt     17,124     21,789
             
Other liabilities     17,686     17,480
             
Stockholders' equity:            
  HP stockholders' equity     24,603     22,436
  Non-controlling interests     375     397
             
    Total stockholders' equity     24,978     22,833
             
Total liabilities and stockholders' equity   $ 105,800   $ 108,768
             
             
             
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS  
(Unaudited)  
(In millions)  
   
             
   
    Three months ended
July 31,
2013
    Nine months ended
July 31,
2013
 
                 
Cash flows from operating activities:                
  Net earnings   $ 1,390     $ 3,699  
  Adjustments to reconcile net earnings to net cash provided by operating activities:                
    Depreciation and amortization     1,158       3,491  
    Stock-based compensation expense     107       398  
    Provision for bad debt and inventory     48       265  
    Restructuring charges     81       619  
    Deferred taxes on earnings     70       542  
    Excess tax benefit from stock-based compensation     (1 )     (1 )
    Other, net     117       343  
                 
    Changes in operating assets and liabilities:                
      Accounts and financing receivables     492       2,640  
      Inventory     (585 )     (445 )
      Accounts payable     980       (70 )
      Taxes on earnings     (94 )     (520 )
      Restructuring     (242 )     (644 )
      Other assets and liabilities     (847 )     (1,525 )
        Net cash provided by operating activities     2,674       8,792  
                 
Cash flows from investing activities:                
    Investment in property, plant and equipment     (880 )     (2,280 )
    Proceeds from sale of property, plant and equipment     233       507  
    Purchases of available-for-sale securities and other investments     (296 )     (793 )
    Maturities and sales of available-for-sale securities and other investments     282       874  
    Payments made in connection with business acquisitions, net of cash acquired     -       (167 )
        Net cash used in investing activities     (661 )     (1,859 )
                 
Cash flows from financing activities:                
    Repayment of commercial paper and notes payable, net     (37 )     (170 )
    Issuance of debt     55       254  
    Payment of debt     (1,805 )     (3,473 )
    Issuance of common stock under employee stock plans     67       279  
    Repurchase of common stock     (3 )     (1,053 )
    Excess tax benefit from stock-based compensation     1       1  
    Cash dividends paid     (280 )     (821 )
        Net cash used in financing activities     (2,002 )     (4,983 )
                 
Increase in cash and cash equivalents     11       1,950  
Cash and cash equivalents at beginning of period     13,240       11,301  
Cash and cash equivalents at end of period   $ 13,251     $ 13,251  
                 
                 
                 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT INFORMATION  
(Unaudited)  
(In millions)  
   
   
                   
    Three months ended  
    July 31,
2013
    April 30,
2013
    July 31,
2012
 
Net revenue:(a)                        
                         
  Personal Systems   $ 7,704     $ 7,584     $ 8,636  
  Printing     5,803       6,081       6,017  
    Total Printing and Personal Systems Group(b)     13,507       13,665       14,653  
  Enterprise Group     6,786       6,819       7,492  
  Enterprise Services     5,843       5,999       6,397  
  Software     982       941       973  
  HP Financial Services     879       881       935  
  Corporate Investments     5       10       11  
  Total segments     28,002       28,315       30,461  
  Elimination of intersegment net revenue and other     (776 )     (733 )     (792 )
                         
    Total HP consolidated net revenue   $ 27,226     $ 27,582     $ 29,669  
                         
Earnings before taxes:(a)                        
                         
  Personal Systems   $ 228     $ 239     $ 405  
  Printing     908       958       949  
    Total Printing and Personal Systems Group(b)     1,136       1,197       1,354  
  Enterprise Group     1,033       1,082       1,284  
  Enterprise Services     192       156       240  
  Software     201       180       175  
  HP Financial Services     99       97       97  
  Corporate Investments     (58 )     (56 )     (57 )
    Total segment earnings from operations     2,603       2,656       3,093  
                         
  Corporate and unallocated costs and eliminations     (200 )     (179 )     (314 )
  Unallocated costs related to stock-based compensation expense     (107 )     (107 )     (150 )
  Amortization of purchased intangible assets     (356 )     (350 )     (476 )
  Impairment of goodwill and purchased intangible assets     -       -       (9,188 )
  Restructuring charges     (81 )     (408 )     (1,795 )
  Acquisition-related charges     (4 )     (11 )     (3 )
  Interest and other, net     (146 )     (193 )     (224 )
                         
    Total HP consolidated earnings (loss) before taxes   $ 1,709     $ 1,408     $ (9,057 )
   
(a) HP has implemented certain organizational realignments in the first quarter of fiscal 2013. As a result of these realignments, HP has re-evaluated its segment financial reporting structure and, effective in the first quarter of fiscal 2013, created two new financial reporting segments, the Enterprise Group segment and the Enterprise Services segment, and eliminated two other financial reporting segments, the Enterprise Servers, Storage and Networking ("ESSN") segment and the Services segment. The Enterprise Group segment consists of the business units within the former ESSN segment and most of the services offerings of the Technology Services ("TS") business unit, which was previously a part of the former Services segment. The Enterprise Services segment consists of the Applications and Business Services ("ABS") and Infrastructure Technology Outsourcing ("ITO") business units from the former Services segment, along with the end-user workplace support services business that was previously a part of the TS business unit. Taking into account these changes, HP has the following seven financial reporting segments: Personal Systems, Printing, the Enterprise Group, Enterprise Services, Software, HP Financial Services and Corporate Investments.
   
  Also as a result of these realignments, the financial results of the Personal Systems commercial products support business, which were previously reported as part of the TS business unit, will now be reported as part of the Other business unit within the Personal Systems segment, and the financial results of the portion of the business intelligence services business that had continued to be reported as part of the Corporate Investments segment following the implementation of prior realignment actions will now be reported as part of the ABS business unit. In addition, the end-user workplace support services business, which, as noted above, was previously a part of the TS business unit and will now become a part of the Enterprise Services segment, will be reported as part of the ITO business unit within that segment.
   
  To provide improved visibility and comparability, HP has reflected these changes to its reporting structure in prior financial reporting periods on an as-if basis, which has resulted in the transfer of revenue and operating profit among the Personal Systems, the Enterprise Group, Enterprise Services and Corporate Investments segments. These changes had no impact on the previously reported financial results for the Printing, Software or HP Financial Services segments. In addition, none of these changes impacted HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) The Personal Systems segment and the Printing segment are structured beneath a broader Printing and Personal Systems Group ("PPS"). While PPS is not a financial reporting segment, HP provides financial data aggregating the segments within it in order to provide a supplementary view of its business.
   
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT INFORMATION  
(Unaudited)  
(In millions)  
   
   
    Nine months ended  
    July 31,  
    2013     2012  
Net revenue:(a)                
                 
  Personal Systems   $ 23,492     $ 26,998  
  Printing     17,810       18,407  
    Total Printing and Personal Systems Group(b)     41,302       45,405  
  Enterprise Group     20,589       22,320  
  Enterprise Services     17,761       19,257  
  Software     2,849       2,889  
  HP Financial Services     2,717       2,853  
  Corporate Investments     19       48  
    Total Segments     85,237       92,772  
  Elimination of intersegment net revenue and other     (2,070 )     (2,374 )
                 
    Total HP consolidated net revenue   $ 83,167     $ 90,398  
                 
Earnings before taxes:(a)                
                 
  Personal Systems   $ 690     $ 1,380  
  Printing     2,819       2,518  
    Total Printing and Personal Systems Group(b)     3,509       3,898  
  Enterprise Group     3,199       3,965  
  Enterprise Services     424       622  
  Software     538       509  
  HP Financial Services     297       284  
  Corporate Investments     (179 )     (155 )
    Total segment earnings from operations     7,788       9,123  
                 
  Corporate and unallocated costs and eliminations     (488 )     (670 )
  Unallocated costs related to stock-based compensation expense     (398 )     (492 )
  Amortization of purchased intangible assets     (1,056 )     (1,412 )
  Impairment of goodwill and purchased intangible assets     -       (9,188 )
  Restructuring charges     (619 )     (1,888 )
  Acquisition-related charges     (19 )     (42 )
  Interest and other, net     (518 )     (688 )
                 
    Total HP consolidated earnings (loss) before taxes   $ 4,690     $ (5,257 )
   
(a) HP has implemented certain organizational realignments in the first quarter of fiscal 2013. As a result of these realignments, HP has re-evaluated its segment financial reporting structure and, effective in the first quarter of fiscal 2013, created two new financial reporting segments, the Enterprise Group segment and the Enterprise Services segment, and eliminated two other financial reporting segments, the Enterprise Servers, Storage and Networking ("ESSN") segment and the Services segment. The Enterprise Group segment consists of the business units within the former ESSN segment and most of the services offerings of the Technology Services ("TS") business unit, which was previously a part of the former Services segment. The Enterprise Services segment consists of the Applications and Business Services ("ABS") and Infrastructure Technology Outsourcing ("ITO") business units from the former Services segment, along with the end-user workplace support services business that was previously a part of the TS business unit. Taking into account these changes, HP has the following seven financial reporting segments: Personal Systems, Printing, the Enterprise Group, Enterprise Services, Software, HP Financial Services and Corporate Investments.
   
  Also as a result of these realignments, the financial results of the Personal Systems commercial products support business, which were previously reported as part of the TS business unit, will now be reported as part of the Other business unit within the Personal Systems segment, and the financial results of the portion of the business intelligence services business that had continued to be reported as part of the Corporate Investments segment following the implementation of prior realignment actions will now be reported as part of the ABS business unit. In addition, the end-user workplace support services business, which, as noted above, was previously a part of the TS business unit and will now become a part of the Enterprise Services segment, will be reported as part of the ITO business unit within that segment.
   
  To provide improved visibility and comparability, HP has reflected these changes to its reporting structure in prior financial reporting periods on an as-if basis, which has resulted in the transfer of revenue and operating profit among the Personal Systems, the Enterprise Group, Enterprise Services and Corporate Investments segments. These changes had no impact on the previously reported financial results for the Printing, Software or HP Financial Services segments. In addition, none of these changes impacted HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share. 
   
(b) The Personal Systems segment and the Printing segment are structured beneath a broader Printing and Personal Systems Group ("PPS"). While PPS is not a financial reporting segment, HP provides financial data aggregating the segments within it in order to provide a supplementary view of its business.
 
   
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT / BUSINESS UNIT INFORMATION  
(Unaudited)  
(In millions)  
   
                   
    Three months ended     Growth rate (%)  
    July 31,
2013
    April 30,
2013
    July 31,
2012
    Q/Q     Y/Y  
Net revenue:(a)                                    
                                     
  Printing and Personal Systems Group(b)                                    
    Personal Systems                                    
      Notebooks   $ 3,722     $ 3,718     $ 4,416     0 %   (16 %)
      Desktops     3,147       3,103       3,486     1 %   (10 %)
      Workstations     537       521       526     3 %   2 %
      Other     298       242       208     23 %   43 %
        Total Personal Systems     7,704       7,584       8,636     2 %   (11 %)
                                     
    Printing                                    
      Supplies     3,839       4,122       4,005     (7 %)   (4 %)
      Commercial Hardware     1,399       1,398       1,445     0 %   (3 %)
      Consumer Hardware     565       561       567     1 %   0 %
        Total Printing     5,803       6,081       6,017     (5 %)   (4 %)
          Total Printing and Personal Systems Group     13,507       13,665       14,653     (1 %)   (8 %)
                                     
    Enterprise Group                                    
      Industry Standard Servers     2,851       2,806       3,187     2 %   (11 %)
      Technology Services     2,174       2,272       2,349     (4 %)   (7 %)
      Storage     833       857       924     (3 %)   (10 %)
      Networking     644       618       647     4 %   0 %
      Business Critical Systems     284       266       385     7 %   (26 %)
        Total Enterprise Group     6,786       6,819       7,492     0 %   (9 %)
                                     
    Enterprise Services                                    
      Infrastructure Technology Outsourcing     3,662       3,721       3,934     (2 %)   (7 %)
      Application and Business Services     2,181       2,278       2,463     (4 %)   (11 %)
        Total Enterprise Services     5,843       5,999       6,397     (3 %)   (9 %)
                                     
    Software     982       941       973     4 %   1 %
                                     
    HP Financial Services     879       881       935     0 %   (6 %)
                                     
    Corporate Investments     5       10       11     (50 %)   (55 %)
        Total segments     28,002       28,315       30,461     (1 %)   (8 %)
                                     
    Elimination of intersegment net revenue and other     (776 )     (733 )     (792 )   6 %   (2 %)
                                     
      Total HP consolidated net revenue   $ 27,226     $ 27,582     $ 29,669     (1 %)   (8 %)
   
(a) HP has implemented certain organizational realignments in the first quarter of fiscal 2013. As a result of these realignments, HP has re-evaluated its segment financial reporting structure and, effective in the first quarter of fiscal 2013, created two new financial reporting segments, the Enterprise Group segment and the Enterprise Services segment, and eliminated two other financial reporting segments, the Enterprise Servers, Storage and Networking ("ESSN") segment and the Services segment. The Enterprise Group segment consists of the business units within the former ESSN segment and most of the services offerings of the Technology Services ("TS") business unit, which was previously a part of the former Services segment. The Enterprise Services segment consists of the Applications and Business Services ("ABS") and Infrastructure Technology Outsourcing ("ITO") business units from the former Services segment, along with the end-user workplace support services business that was previously a part of the TS business unit. Taking into account these changes, HP has the following seven financial reporting segments: Personal Systems, Printing, the Enterprise Group, Enterprise Services, Software, HP Financial Services and Corporate Investments.
   
  Also as a result of these realignments, the financial results of the Personal Systems commercial products support business, which were previously reported as part of the TS business unit, will now be reported as part of the Other business unit within the Personal Systems segment, and the financial results of the portion of the business intelligence services business that had continued to be reported as part of the Corporate Investments segment following the implementation of prior realignment actions will now be reported as part of the ABS business unit. In addition, the end-user workplace support services business, which, as noted above, was previously a part of the TS business unit and will now become a part of the Enterprise Services segment, will be reported as part of the ITO business unit within that segment.
   
  To provide improved visibility and comparability, HP has reflected these changes to its reporting structure in prior financial reporting periods on an as-if basis, which has resulted in the transfer of revenue and operating profit among the Personal Systems, the Enterprise Group, Enterprise Services and Corporate Investments segments. These changes had no impact on the previously reported financial results for the Printing, Software or HP Financial Services segments. In addition, none of these changes impacted HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) The Personal Systems segment and the Printing segment are structured beneath a broader Printing and Personal Systems Group ("PPS"). While PPS is not a financial reporting segment, HP provides financial data aggregating the segments within it in order to provide a supplementary view of its business.
   
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT / BUSINESS UNIT INFORMATION  
(Unaudited)  
(In millions)  
   
       
    Nine months ended  
    July 31,  
    2013     2012  
                 
Net revenue:(a)                
                 
  Printing and Personal Systems Group(b)                
    Personal Systems                
      Notebooks   $ 11,568     $ 14,258  
      Desktops     9,571       10,519  
      Workstations     1,593       1,598  
      Other     760       623  
        Total Personal Systems     23,492       26,998  
                 
    Printing                
      Supplies     11,854       12,144  
      Commercial Hardware     4,151       4,413  
      Consumer Hardware     1,805       1,850  
        Total Printing     17,810       18,407  
          Total Printing and Personal Systems Group     41,302       45,405  
                 
    Enterprise Group                
      Industry Standard Servers     8,651       9,445  
      Technology Services     6,689       6,948  
      Storage     2,523       2,869  
      Networking     1,870       1,847  
      Business Critical Systems     856       1,211  
        Total Enterprise Group     20,589       22,320  
                 
    Enterprise Services                
    Infrastructure Technology Outsourcing     11,119       11,868  
    Application and Business Services     6,642       7,389  
    Total Enterprise Services     17,761       19,257  
                 
    Software     2,849       2,889  
                 
    HP Financial Services     2,717       2,853  
                 
    Corporate Investments     19       48  
        Total segments     85,237       92,772  
                 
    Elimination of intersegment net revenue and other     (2,070 )     (2,374 )
                 
      Total HP consolidated net revenue   $ 83,167     $ 90,398  
   
(a) HP has implemented certain organizational realignments in the first quarter of fiscal 2013. As a result of these realignments, HP has re-evaluated its segment financial reporting structure and, effective in the first quarter of fiscal 2013, created two new financial reporting segments, the Enterprise Group segment and the Enterprise Services segment, and eliminated two other financial reporting segments, the Enterprise Servers, Storage and Networking ("ESSN") segment and the Services segment. The Enterprise Group segment consists of the business units within the former ESSN segment and most of the services offerings of the Technology Services ("TS") business unit, which was previously a part of the former Services segment. The Enterprise Services segment consists of the Applications and Business Services ("ABS") and Infrastructure Technology Outsourcing ("ITO") business units from the former Services segment, along with the end-user workplace support services business that was previously a part of the TS business unit. Taking into account these changes, HP has the following seven financial reporting segments: Personal Systems, Printing, the Enterprise Group, Enterprise Services, Software, HP Financial Services and Corporate Investments.
   
  Also as a result of these realignments, the financial results of the Personal Systems commercial products support business, which were previously reported as part of the TS business unit, will now be reported as part of the Other business unit within the Personal Systems segment, and the financial results of the portion of the business intelligence services business that had continued to be reported as part of the Corporate Investments segment following the implementation of prior realignment actions will now be reported as part of the ABS business unit. In addition, the end-user workplace support services business, which, as noted above, was previously a part of the TS business unit and will now become a part of the Enterprise Services segment, will be reported as part of the ITO business unit within that segment.
   
  To provide improved visibility and comparability, HP has reflected these changes to its reporting structure in prior financial reporting periods on an as-if basis, which has resulted in the transfer of revenue and operating profit among the Personal Systems, the Enterprise Group, Enterprise Services and Corporate Investments segments. These changes had no impact on the previously reported financial results for the Printing, Software or HP Financial Services segments. In addition, none of these changes impacted HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) The Personal Systems segment and the Printing segment are structured beneath a broader Printing and Personal Systems Group ("PPS"). While PPS is not a financial reporting segment, HP provides financial data aggregating the segments within it in order to provide a supplementary view of its business.
   
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT NON-GAAP OPERATING MARGIN SUMMARY DATA  
(Unaudited)  
   
                 
                 
    Three months ended   Change in Operating Margin (pts)  
    July 31,
2013
  Q/Q     Y/Y  
                 
Non-GAAP operating margin:(a)                
  Personal Systems   3.0%   (0.2 pts )   (1.7 pts )
  Printing   15.6%   (0.2 pts )   (0.2 pts )
    Printing and Personal Systems Group(b)   8.4%   (0.4 pts )   (0.8 pts )
                 
  Enterprise Group   15.2%   (0.7 pts )   (1.9 pts )
  Enterprise Services   3.3%   0.7 pts     (0.5 pts )
  Software   20.5%   1.4 pts     2.5 pts  
  HP Financial Services   11.3%   0.3 pts     0.9 pts  
  Corporate Investments   NM   NM     NM  
    Total segments   9.3%   (0.1 pts )   (0.8 pts )
                 
    Total HP consolidated non-GAAP operating margin   8.4%   (0.2 pts )   (0.8 pts )
                 
   
(a) HP has implemented certain organizational realignments in the first quarter of fiscal 2013. As a result of these realignments, HP has re-evaluated its segment financial reporting structure and, effective in the first quarter of fiscal 2013, created two new financial reporting segments, the Enterprise Group segment and the Enterprise Services segment, and eliminated two other financial reporting segments, the Enterprise Servers, Storage and Networking ("ESSN") segment and the Services segment. The Enterprise Group segment consists of the business units within the former ESSN segment and most of the services offerings of the Technology Services ("TS") business unit, which was previously a part of the former Services segment. The Enterprise Services segment consists of the Applications and Business Services ("ABS") and Infrastructure Technology Outsourcing ("ITO") business units from the former Services segment, along with the end-user workplace support services business that was previously a part of the TS business unit. Taking into account these changes, HP has the following seven financial reporting segments: Personal Systems, Printing, the Enterprise Group, Enterprise Services, Software, HP Financial Services and Corporate Investments.
   
  Also as a result of these realignments, the financial results of the Personal Systems commercial products support business, which were previously reported as part of the TS business unit, will now be reported as part of the Other business unit within the Personal Systems segment, and the financial results of the portion of the business intelligence services business that had continued to be reported as part of the Corporate Investments segment following the implementation of prior realignment actions will now be reported as part of the ABS business unit. In addition, the end-user workplace support services business, which, as noted above, was previously a part of the TS business unit and will now become a part of the Enterprise Services segment, will be reported as part of the ITO business unit within that segment.
   
  To provide improved visibility and comparability, HP has reflected these changes to its reporting structure in prior financial reporting periods on an as-if basis, which has resulted in the transfer of revenue and operating profit among the Personal Systems, the Enterprise Group, Enterprise Services and Corporate Investments segments. These changes had no impact on the previously reported financial results for the Printing, Software or HP Financial Services segments. In addition, none of these changes impacted HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) The Personal Systems segment and the Printing segment are structured beneath a broader Printing and Personal Systems Group ("PPS"). While PPS is not a financial reporting segment, HP provides financial data aggregating the segments within it in order to provide a supplementary view of its business.
   
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
CALCULATION OF NET EARNINGS PER SHARE  
(Unaudited)  
(In millions except per share amounts)  
               
               
    Three months ended  
    July 31,
2013
  April 30,
2013
  July 31,
2012
 
                     
Numerator:                    
  GAAP net earnings (loss)   $ 1,390   $ 1,077   $ (8,857 )
  Non-GAAP net earnings   $ 1,676   $ 1,698   $ 1,973  
                     
Denominator:                    
  Weighted-average shares used to compute basic net earnings (loss) per share and diluted net (loss) per share     1,929     1,935     1,971  
  Dilutive effect of employee stock plans     19     12     4  
    Weighted-average shares used to compute diluted net earnings per share     1,948     1,947     1,975  
                     
GAAP net earnings (loss) per share:                    
  Basic   $ 0.72   $ 0.56   $ (4.49 )
  Diluted(a)   $ 0.71   $ 0.55   $ (4.49 )
                     
Non-GAAP net earnings per share:                    
  Basic   $ 0.87   $ 0.88   $ 1.00  
  Diluted(b)   $ 0.86   $ 0.87   $ 1.00  
                     
   
   
(a) GAAP diluted net earnings per share reflects any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock, but that effect is excluded when calculating GAAP diluted net (loss) per share because it would be anti-dilutive.
   
(b) Non-GAAP diluted net earnings per share reflects any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock.
   
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
CALCULATION OF NET EARNINGS PER SHARE  
(Unaudited)  
(In millions except per share amounts)  
           
           
    Nine months ended  
    July 31,  
    2013   2012  
               
Numerator:              
  GAAP net earnings (loss)   $ 3,699   $ (5,796 )
  Non-GAAP net earnings   $ 4,979   $ 5,754  
               
Denominator:              
  Weighted-average shares used to compute basic net earnings (loss) per share and diluted net (loss) per share     1,939     1,977  
  Dilutive effect of employee stock plans     13     15  
    Weighted-average shares used to compute diluted net earnings per share     1,952     1,992  
               
GAAP net earnings (loss) per share:              
  Basic   $ 1.91   $ (2.93 )
  Diluted(a)   $ 1.89   $ (2.93 )
               
Non-GAAP net earnings per share:              
  Basic   $ 2.57   $ 2.91  
  Diluted(b)   $ 2.55   $ 2.89  
   
   
(a) GAAP diluted net earnings per share reflects any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock, but that effect is excluded when calculating GAAP diluted net (loss) per share because it would be anti-dilutive.
   
(b) Non-GAAP diluted net earnings per share reflects any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock.
   

Use of non-GAAP financial measures
To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash, free cash flow, net debt and operating company net debt. HP also provides forecasts of non-GAAP diluted earnings per share. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted earnings per share is diluted net earnings per share. The GAAP measure most directly comparable to gross cash is cash and cash equivalents. The GAAP measure most directly comparable to free cash flow is cash flow from operations. The GAAP measure most directly comparable to net debt and operating company net debt is total company debt. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above or elsewhere in the materials accompanying this news release.

Use and economic substance of non-GAAP financial measures used by HP
Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the impairment of goodwill and purchased intangible assets, charges relating to the amortization of purchased 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 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 earnings per share are adjusted by the amount of additional taxes or tax benefit associated with each non-GAAP item. HP's management uses these non-GAAP financial measures for purposes of evaluating HP's historical and prospective financial performance, as well as HP's performance relative to its competitors. HP's management also uses these non-GAAP measures to further its own understanding of HP's segment operating performance. HP believes that excluding those items mentioned above from these non-GAAP financial measures allows HP management to better understand HP's consolidated financial performance in relationship to the operating results of HP's segments, as management does not believe that the excluded items are reflective of ongoing operating results. More specifically, HP's management excludes each of those items mentioned above for the following reasons:

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

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

  • HP incurs charges relating to the amortization of purchased intangibles. HP also incurs charges relating to the amortization of amounts assigned to intangible assets to be used in research and development projects. All of those charges are included in HP's GAAP presentation of earnings from operations, operating margin, net earnings and net earnings per share. Such charges are significantly impacted by the timing and magnitude of HP's acquisitions and any 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 past and future operating performance.

  • Restructuring charges consist of 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 past and future operating performance.

  • 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 the 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 past and future operating performance.

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

Operating company net debt is a non-GAAP measure that is defined as total company net debt less HP Financial Services ("HPFS") net debt. Total company net debt consists of total debt (including the effect of hedging) less gross cash, which includes cash and cash equivalents, short-term investments, and certain liquid long-term investments. HPFS net debt consists of HPFS debt, which includes primarily intercompany equity that is treated as debt for segment reporting purposes, intercompany debt and debt issued directly by HPFS, less HPFS cash. Total company net debt provides useful information to management about the state of HP's consolidated balance sheet. Operating company net debt provides additional useful information to management about the state of HP's consolidated 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 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, gross cash, free cash flow, net debt and operating company net debt 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, gross cash, free cash flow, net debt and operating company net debt 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, gross cash, free cash flow, net debt and operating company net debt 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.

© 2013 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.