HP 2006 Annual Report Download - page 40

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
are expected to be eliminated during fiscal 2007. We expect to reinvest a significant portion of the
savings from these actions back into our business operations or use these savings to offset market
forces. For more information on our restructuring plan, see Note 8 to the Consolidated Financial
Statements in Item 8, which is incorporated herein by reference.
In terms of how our execution has translated into financial performance, the following provides an
overview of our key fiscal 2006 financial metrics:
TSG
HP
Consolidated ESS HPS Software Total IPG PSG HPFS
In millions, except per share amounts
Net revenue ........... $91,658 $17,308 $15,617 $1,301 $34,226 $26,786 $29,166 $2,078
Year-over-year net revenue
% increase .......... 6% 4% 1% 23% 3% 6% 9% (1)%
Earnings from operations . $ 6,560 $ 1,446 $ 1,507 $ 85 $ 3,038 $ 3,978 $ 1,152 $ 147
Earnings from operations
as a % of net revenue . . 7.2% 8.4% 9.6% 6.5% 8.9% 14.9% 3.9% 7.1%
Net earnings ........... $ 6,198
Net earnings per share
Basic ............... $ 2.23
Diluted ............. $ 2.18
Cash and cash equivalents at October 31, 2006 totaled $16.4 billion, an increase of $2.5 billion
from the October 31, 2005 balance of $13.9 billion. The increase for fiscal 2006 was related primarily to
$11.4 billion of net cash provided by operating activities and $2.5 billion of proceeds from shares issued
in connection with our employee stock plans. The increase was partially offset by $6.1 billion paid to
repurchase our common stock, $2.0 billion of net investments in property, plant and equipment, a
$1.7 billion prepayment for common stock to be repurchased in the future, $0.9 billion for cash
dividends and $0.9 billion for net cash paid for business acquisitions.
We intend the discussion of our financial condition and results of operations that follows to
provide information that will assist in understanding our Consolidated Financial Statements, the
changes in certain key items in those financial statements from year to year, and the primary factors
that accounted for those changes, as well as how certain accounting principles, policies and estimates
affect our Consolidated Financial Statements.
The discussion of results of operations at the consolidated level is followed by a more detailed
discussion of results of operations by segment.
For a further discussion of factors that could impact operating results, see the section entitled
‘‘Risk Factors’’ in Item 1A, which is incorporated herein by reference.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General
The Consolidated Financial Statements of HP are prepared in accordance with U.S. generally
accepted accounting principles, which require management to make estimates, judgments and
assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the
disclosure of contingent assets and liabilities. Management bases its estimates on historical experience
and on various other assumptions that it believes to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and liabilities that are
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