hp q2 fy05hp uses non-gaap additional measures of operating results, net earnings and earnings per...

© 2004 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice

HP Q2 FY05 Earnings AnnouncementMay 17, 2005

HP Investor Relationshttp://investor.hp.com/

http://investor.hp.com/

May 17, 2005 http://investor.hp.com/ email: [email protected] 2

Forward-looking statementsThese materials contain 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 earnings, revenue, expenses, cash repatriation, margins or other financial items; any statements of the plans, strategies, and objectives of management for future operations, including execution of any restructuring plans and remediation of execution issues; any statements concerning the expected development, performance or market share relating to products or services; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include macroeconomic and geopolitical trends and events; the outcome of pending legislation; execution and performance of contracts by suppliers, customers and partners; the challenge of managing asset levels, including inventory; the difficulty of aligning expense levels with revenue changes; assumptions related to pension and other post-retirement costs; and other risks that are described from time to time in HP’s Securities and Exchange Commission reports, including but not limited to the risks described in HP’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2005 and other reports filed after HP’s Annual Report on Form 10-K for the fiscal year ended October 31, 2004. HP assumes no obligation and does not intend to update these forward-looking statements.


Use of non-GAAP termsTo supplement our consolidated condensed financial statements presented on a GAAP basis, HP uses non-GAAP additional measures of operating results, net earnings and earnings per share adjusted to exclude certain costs, expenses, gains and losses we believe appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of the underlying operational results and trends and our marketplace performance. For example, the non-GAAP results are an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core business segment operational results. In addition, these adjusted non-GAAP results are among the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net earnings or diluted earnings per share prepared in accordance with generally accepted accounting principles in the United States.


Q2 FY05 Overview

Revenue Operating Profit $ in millions Y/Y % % of rev

Enterprise Storage & Servers $4,184 6% $184

$3,984 $292

($6)

$147

$814

$58

$277

$6,369

$6,390

$544

4.4%

Software 23% (2.2%)

HP Services 14% 7.3%

HP Financial Services 16% 10.7%

Personal Systems Group 6% 2.3%

Imaging & Printing Group 5% 12.7%

Note: All non-GAAP numbers have been adjusted to exclude certain items. A reconciliation of specific adjustments to GAAP results for this quarter and the prior period is included on the slide titled: “Q2 FY05 GAAP to non-GAAP Bridge” A description of HP’s use of non-GAAP information is provided on slide 3 under “Use of Non-GAAP Financial Information.”

• Record quarterly revenue of $21.6 billion, up 7% year-over-year

• Non-GAAP operating profit of $1.3 billion, $0.37 earnings per share

• GAAP operating profit of $1.2 billion, $0.33 earnings per share

• Strong cash flow from operations of $2.4 billion

• Workforce reduction costs of $177 million


Imaging and Printing Group

$967 $952

$836

$1,088

$932

$814

$1,013

$744

$924$910

$400

$500

$600

$700

$800

$900

$1,000

$1,100

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

56%27%

16%1% Supplies

Commercial HW

Consumer HW

Other

$6.1

$5.6

$6.5

$6.1$6.4

$5.9$5.6$5.5

$6.2

$5.2

$3.0

$3.6

$4.2

$4.8

$5.4

$6.0

$6.6

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

• IPG revenue of $6.4B; up 5% Y/Y• Operating profit of $814M; 12.7% of revenue;

13.8% excluding workforce reductions of $71M• Consumer hardware units grew 13% Y/Y• Commercial hardware units up 12% Y/Y• Color LaserJet units up 96% Y/Y• MFP units up 61% Y/Y• Supplies revenue grew 4% Y/Y

Q2 FY05 revenue by GBU

Revenue Operating profitIn billions In millions


$61$44

$77

$147 $147

$23$21

($57)

$32 $22

($80)

($40)

$0

$40

$80

$120

$160

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

5%

35% 55%

2%3% DesktopNotebookWorkstationHandheldOther

$6.0

$6.5

$6.9

$6.4$6.2

$5.9

$5.1

$6.0

$5.0$5.1

$3.0

$3.5

$4.0

$4.5

$5.0

$5.5

$6.0

$6.5

$7.0

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

• PSG revenue up 6% Y/Y; units up 12% Y/Y

• Operating profit of $147M; 2.3% of revenue

• Nearly $300M in 1H05 operating profit

• Desktop revenue up 1% Y/Y; Notebook revenue up 10% Y/Y

• Consumer client revenue up 10% Y/Y; Commercial client revenue up 3% Y/Y


Revenue Operating profitIn billions In millions

Personal Systems Group


Enterprise Storage and Servers$153

$100$71

$184

($211)

$119

($25) ($19)

$59

$131

($220)

($170)

($120)

($70)

($20)

$30

$80

$130

$180

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

56%

24%

20%Industry Standard Servers

Business Critical Systems

Network Storage Systems

Revenue Operating profit

$4.0

$3.3

$4.1$4.0

$4.2

$3.5

$3.8$3.7

$3.5

$3.7

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

s In millions

• ESS revenue grew 6% Y/Y

• Operating profit of $184M; 4.4% of revenue;5.0% excluding workforce reductions of $24M

• ISS revenue up 12% Y/Y; Blade revenue up 56%

• BCS revenue up 2% Y/Y; HP-UX up 9%

• Integrity revenue up 37% Y/Y; 21% of Business Critical Server revenue

• NSS revenue down 6% Y/Y


$3.0

$3.2

$3.4

$3.6

$3.8

$4.0

$4.2

In billion


HP Services

$261

$332$314

$375

$281 $292

$394

$337

$299

$339

$0

$50

$100

$150

$200

$250

$300

$350

$400

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

62%

19%

19% Technology Services

Managed Services

Consulting & Integration

$3.5 $3.5

$3.7$3.8

$4.0

$3.2

$3.0$3.1

$3.3

$3.1

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

• HPS revenue grew 14% Y/Y; revenue growth excluding acquisitions was 8% Y/Y

• Operating profit of $292M; 7.3% of revenue; 9.2% excluding workforce reductions of $74M

• TS revenue up 11% Y/Y

• MS revenue up 27% Y/Y

• C&I revenue up 10% Y/Y


Revenue Operating profits In millions

$2.0

$2.4

$2.8

$3.2

$3.6

$4.0

In billion


Software

($49)

($7)

($40)

($6)

($26)

($67) ($54)($59)($52) ($48)

(160)

(140)

(120)

(100)

(80)

(60)

(40)

(20)

0

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

$225 $225

$280

$240

$277

$192

$223

$182$184

$203

$100

$120

$140

$160

$180

$200

$220

$240

$260

$280

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

• Software revenue grew 23% Y/Y

• HP OpenView revenue grew 36% Y/Y

• HP OpenCall revenue grew 5% Y/Y

• On track to break-even exiting Q4 FY05

66%

34%OpenView

OpenCall & Other


Revenue Operating profitIn millions In millions


HP Financial Services

$441$469

$488 $497

$555 $544$517

$501$461

$442

$200

$250

$300

$350

$400

$450

$500

$550

$600

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

$35

$42

$19

$45

$58

$29$26

$18$14

$21

$0

$10

$20

$30

$40

$50

$60

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

38%

16%

46%

Americas

EMEA

AsiaPac

• HPFS revenue of $544M, up 16% Y/Y

• Operating profit of $58M; 10.7% of revenue

• Financing volume up 4% Y/Y

• Net portfolio assets $7.1B, up 2% Y/Y

Q2 FY05 revenue by region

Revenue Operating profitIn millions In millions


Q2 FY05 GAAP to non-GAAP bridgeAll data in $Ms except per share amount

2Q05 GAAPAmort. of

Intangibles

Re-structuring charges

Acq.related

chargesIn-process

R&D

Settlement - -

(4)

4

4

Income tax 113 46 1 (2) 158

G/LInvest. Non-GAAP

Revenue 21,570

(3)

(3)

Cost of sales 16,429

21,570

16,429

3,823

1,318

(87)

1,231

13%

Total OpEx 3,978 (151)

Operating profit 1,163 151

Interest & other, net (84)

Pre-tax earnings 1,079 151

Tax rate 10%

EPS $0.33 $0.37


Q2 FY05 Revenue

EMEA42%, Up 10% Y/Y

U.S.34%

Asia Pacific17%,

Up 9% Y/Y

Americas41%, Up 4% Y/Y

Canada/Latin America

7%

Revenue by segment

Imaging & Printing Group

30%

Personal Systems Group

30%

HP Services18%

Enterprise Storage &

Servers19%

HP FinancialServices

2%

Software & Other1%

Revenue by region


P&LNon-GAAPAll data in $Ms except per share amount

M$ %

100%

77.1%

16.7%

6.2%

Settlement ($116) ($70)

5.8%

$21,454

M$

$20,113

$15,182

$3,589

$1,342

$2$1,274

$242

$16,537

$3,582

$1,335

$0.34

$25$1,244

$166

$0. 37

M$ % %

Revenue $21,570 100% 100%

Cost of sales $16,429 76.2% 75.5%

Total OpEx $3,823 17.7% 17.8%

Operating profit $1,318 6.1% 6.7%

Interest & other, net ($87)Pre-tax earnings $1,231 5.7% 6.3%

Income tax $158

EPS $0.37

Q2 FY05 Q1 FY05 Q2 FY041

1. Certain reclassifications have been made to prior year amounts in order to conform to fiscal 2005 presentation


Balance sheetInventory and accounts receivable

$6.1

$5.7

$6.1

$6.3

$6.7

$7.1 $7.1

$6.5$6.1

$6.5

$4.0

$4.4

$4.8

$5.2

$5.6

$6.0

$6.4

$6.8

$7.2

6.0%

6.4%

6.8%

7.2%

7.6%

8.0%

8.4%

8.8%

9.2%

Inventory $6.1 $5.7 $6.1 $6.1 $6.5 $6.3 $6.7 $7.1 $7.1 $6.5

% of Rev 8.6% 8.2% 8.6% 8.3% 8.7% 8.2% 8.6% 8.8% 8.7% 7.8%

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

$7.9 $7.9

$7.6

$8.9

$8.3$8.5 $8.5

$8.7

$9.3

$10.2

$6.0

$6.4

$6.8

$7.2

$7.6

$8.0

$8.4

$8.8

$9.2

$9.6

$10.0

4%

6%

8%

10%

12%

14%

Receivables $7.9 $7.9 $7.6 $8.9 $8.3 $8.5 $8.5 $10.2 $8.7 $9.3

% of Rev 11.1% 11.2% 10.7% 12.2% 11.1% 11.1% 10.8% 12.8% 10.6% 11.1%

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

Accounts receivableInventoryIn billions In billions


Balance sheetPP&E and accounts payable

$6.3

$7.1$7.6

$9.4

$7.0

$8.3$8.5

$9.4

$8.2$8.6

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

Payables $6.3 $7.1 $7.6 $9.4 $7.0 $8.3 $8.5 $9.4 $8.2 $8.6

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

$6.9

$6.7$6.6

$6.5

$6.3

$6.4

$6.2

$6.6$6.7 $6.7

$5.0

$5.2

$5.4

$5.6

$5.8

$6.0

$6.2

$6.4

$6.6

$6.8

$7.0

6%

7%

8%

9%

10%

11%

PP&E $6.9 $6.7 $6.6 $6.5 $6.3 $6.4 $6.2 $6.6 $6.7 $6.7

% of Rev 9.7% 9.5% 9.2% 8.9% 8.5% 8.3% 8.0% 8.3% 8.2% 8.0%

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

In billions In billionsAccounts payableNet PP&E


Stock repurchase

$0

$500

$1,000

$1,500

$2,000

Stock repurchase $155 $191 $203 $202 $256 $348 $500 $2,205 $637 $618

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

Continued strong repurchases through 1H05

$1.3B accelerated stock repurchase program

$1.6B remaining total repurchase authorization at the end of Q2 FY05

In millions


$13.2$14.1

$13.4

$14.7$14.0

$15.1$14.4

$13.0$13.6

$14.5

$7.4$6.4

$5.9

$7.3$7.8

$6.7$7.2

$5.7$5.8

$4.2

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

Gross cash and inv. $13.2 $14.1 $13.4 $14.7 $14.0 $15.1 $14.4 $13.0 $13.6 $14.5

Net cash $4.2 $5.8 $5.7 $7.2 $6.7 $7.8 $7.3 $5.9 $6.4 $7.4

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

1. Includes cash and cash equivalents, short-term investments, and certain liquid long-term investments2. Net cash is defined as gross cash and investments less total debt

2

1

In billions

Gross cash and investments


Q3 FY05 Outlook

• HP estimates third quarter FY05 revenue will be in the range of $20.3 billion to $20.7 billion.

• HP estimates third quarter non-GAAP earnings per share will be in the range of $0.29 to $0.31.

• This excludes after-tax costs of approximately $0.03 per share from amortization of purchased intangible assets and approximately $100 million, or $0.03 per share, in workforce reductions.

Supplemental slides


Revenue & EPS performance

$16.0

$17.0

$18.0

$19.0

$20.0

$21.0

$22.0

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

$0.45

Revenue $17.9 $18.0 $17.3 $19.9 $19.5 $20.1 $18.9 $21.4 $21.5 21.6

Non-GAAP EPS $0.29 $0.29 $0.23 $0.36 $0.35 $0.34 $0.24 $0.41 $0.37 0.37

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

1. See GAAP to Non-GAAP bridge slides

1

In billions


Operating profitIn millions

$1,356 $1,342

$846

$1,491

$1,335 $1,318

$1,165 $1,163

$1,435

$858

$1,144$1,103

$1,289

$1,143

$657

$1,138$1,073

$301

$643

$879

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05

Non-GAAP op profit

GAAP op profit



2Q05 GAAPAmort. of

Intangibles


Acq.related

chargesIn-process

R&D

Settlement - -

(4)

4

4

Income tax 113 46 1 (2) 158

G/LInvest. Non-GAAP

Revenue 21,570

(3)

(3)


21,570

16,429

3,823

1,318

(87)

1,231

13%





Tax rate 10%

EPS $0.33 $0.37



1Q05 GAAPAmort. of

Intangibles


Acq.related

chargesIn-process

R&D

Settlement (116) (116)

(3)

3

3

Income tax 107 49 2 8 166

G/LInvest. Non-GAAP

Revenue 21,454

24

24


21,454

16,537

3,582

1,335

25

1,244

13%



Interest & other, net 1


Tax rate 10%

EPS $0.32 $0.37


Q4 FY04 GAAP to non-GAAP bridge1

All data in $Ms except per share amount

4Q04 GAAPAmort. of

Intangibles


Acq.related

chargesIn-process

R&D

(13)

13

13

Income tax 199 59 4 4 266

G/LInvest. Non-GAAP

Revenue 21,389

(24)

24

24

1

1


21,389

16,393

3,505

1,491

2

1,493

18%





Tax rate 15%

EPS $0.37 $0.41





3Q04 GAAPAmort. of

Intangibles


Acq.related

chargesIn-process

R&D

(28)

28

28

(9)

9

9

Income tax 92 41 3 2 138

G/LInvest. Non-GAAP

Revenue 18,889

(6)

6

6

(1)

(1)


18,889

14,545

3,498

846

20

866

16%


Operating profit 657 146


Pre-tax earnings 678 146

Tax rate 14%

EPS $0.19 $0.24





2Q04 GAAPAmort. of

Intangibles


Acq.related

chargesIn-process

R&D

(9)

9

9

(38)

38

38

Income tax 181 44 13 3 1 242

G/LInvest. Non-GAAP

Revenue 20,113

(9)

9

9

5

5


20,113

15,182

3,589

1,342

(68)

1,274

19%





Tax rate 17%

EPS $0.29 $0.34




All data in $Ms except per share amount1Q04 GAAP

Amort. ofIntangibles


Acq.related

chargesG/L

Invest. Non-GAAP

(54)

54

54

Income tax 227 42 17 5 (4) 287

Revenue 19,514

(15)

15


15

19,514

(9)


(9)

14,691

3,467

1,356

11

1,367




21%

$0.35

Tax rate 20%

EPS $0.30





Amort. ofIntangibles


Retent. bonus IPRD

(1)

1

(1)

1

1

Income tax 203 41 65 10 (7) 312

(190)

190

190

Acq.related

chargesG/L

Invest.Non-GAAP

(27)

27

27

Revenue 19,853

(12)

(12)


19,853

14,939

3,479

1,435

(20)

1,415

22.0%





Tax rate 19.1%

$0.36EPS $0.28





Amort. ofintangibles


Retent. bonus

(11)

11

11

Income tax (10) 31 126 4 10 7 168

(376)

376

376

Acq.related

chargesG/L

Invest.Non-GAAP

(29)

29

29

Revenue 17,348

24

24


17,348

12,945

3,545

858

10

868

19.4%





Tax rate (3.5%)

$0.23EPS $0.10







Retent. bonus

Accrued tax benefit

Income tax (48) 43 71 27 17 6 131 247

(79)

79

79

(234)

234

234

Acq.related

chargesG/L

Invest.Non-GAAP

(47)

47

47

Revenue 17,983

12

12


17,983

13,240

3,599

1,144

(20)

1,124

22%





Tax rate (8%)

$0.29EPS $0.22







Retent. bonus

Accrued tax benefit

Income tax 204 43 26 4 277

(76)

76

76

Acq.related

chargesG/L

Invest.Non-GAAP

(10)

10

10

Revenue 17,877

5

5


17,877

13,269

3,505

1,103

511,154

24%



Interest & other, net 46Pre-tax earnings 925 138

Tax rate 22%

$0.29EPS $0.24


hp q2 fy05hp uses non-gaap additional measures of operating results, net earnings and earnings per...

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