HEWLETT PACKARD CO | 2013 | FY | 3


Note 18: Segment Information

        HP is a leading global provider of products, technologies, software, solutions and services to individual consumers, small- and medium-sized businesses ("SMBs"), and large enterprises, including customers in the government, health and education sectors. HP's offerings span personal computing and other access devices; imaging and printing-related products and services; multi-vendor customer services, including infrastructure technology and business process outsourcing, application development and support services, and consulting and integration services; enterprise information technology ("IT") infrastructure, including enterprise server and storage technology, networking products and solutions, and technology support and maintenance; and IT management software, information management solutions and security intelligence/risk management solutions.

        HP's operations are organized into seven reportable business segments for financial reporting purposes: Personal Systems, Printing, the Enterprise Group, Enterprise Services, Software, HP Financial Services and Corporate Investments. HP's organizational structure is based on a number of factors that management uses to evaluate, view and run its business operations, which include, but are not limited to, customer base, homogeneity of products and technology. The reportable business segments are based on this organizational structure and information reviewed by HP's management to evaluate the business segment results.

        The Personal Systems segment and the Printing segment are structured beneath a broader Printing and Personal Systems Group ("PPS"). While PPS is not a reportable segment, HP sometimes provides financial data aggregating the Personal Systems and the Printing segments within it in order to provide a supplementary view of its business.

        HP has implemented certain organizational realignments. As a result of these realignments, HP re-evaluated its reportable segment structure and, effective in the first quarter of fiscal 2013, created two new reportable segments, the EG segment and the ES segment, and eliminated two other reportable segments, the ESSN segment and the Services segment. The EG segment consists of the business units within the former ESSN segment and most of the services offerings of the TS business unit, which was previously a part of the former Services segment. The ES segment consists of the ABS and 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.

        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, are now 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 are now reported as part of the ABS business unit. In addition, the end-user workplace support business, which, as noted above, was previously a part of the TS business unit and is now a part of the ES segment, is reported as part of the ITO business unit within that segment.

        A description of the types of products and services provided by each business segment follows.

        The Printing and Personal Systems Group's mission is to leverage the respective strengths of the Personal Systems business and the Printing business by creating a unified business that is customer-focused and poised to capitalize on rapidly shifting industry trends. Each of the business segments within PPS is described in detail below.

        Personal Systems provides commercial personal computers ("PCs"), consumer PCs, workstations, thin clients, tablets, retail point-of-sale ("POS") systems, calculators and other related accessories, software, support and services for the commercial and consumer markets. HP groups commercial notebooks, commercial desktops, commercial tablets and workstations into commercial clients and consumer notebooks, consumer desktops and consumer tablets into consumer clients when describing its performance in these markets. Described below are HP's global business capabilities within Personal Systems.

        Printing provides consumer and commercial printer hardware, supplies, media, software and services, as well as scanning devices. Printing is also focused on imaging solutions in the commercial markets. HP groups LaserJet, large format and Indigo printers into commercial hardware and inkjet printers into consumer hardware when describing our performance in these markets. Described below are HP's global business capabilities within Printing.

        The Enterprise Group provides servers, storage, networking, technology services that, when combined with HP's Cloud solutions, enable the customers to manage applications across public cloud, virtual private cloud, private cloud and traditional IT environments. Described below are HP's business units and capabilities within EG.

        Enterprise Services provides technology consulting, outsourcing and support services across infrastructure, applications and business process domains. ES is divided into Infrastructure Technology Outsourcing and Application and Business Services.

        Software provides IT management big data and security solutions for businesses and enterprises of all sizes. HP's IT management solutions help customers deliver applications and services that perform to defined standards and automate and assure the underlying infrastructure, be it traditional, cloud or hybrid. HP's big data solutions include the HP HAVEn Big Data platform, which, together with the Autonomy and Vertica products, is designed to help customers with their structured and unstructured information. HP's security solutions provide security from the infrastructure through applications and information. HP's Software offerings include licenses, support, professional services and SaaS.

        HP Financial Services acts as a strategic enabler for HP by providing financing for customers to purchase complete IT solutions, including hardware, software and services from HP. HPFS offers financial solutions to customers to manage to the lowest total cost of ownership—from planning and acquiring technology all the way to replacing or retiring it. HPFS offers leasing, financing, utility programs and asset management services for large enterprise customers. HPFS also helps customers to manage the risks of dealing with older or surplus IT equipment, which helps provide full life cycle coverage to HPFS customers.

        Corporate Investments includes HP Labs, the webOS business and certain business incubation projects.

        HP derives the results of the business segments directly from its internal management reporting system. The accounting policies HP uses to derive business segment results are substantially the same as those the consolidated company uses. Management measures the performance of each business segment based on several metrics, including earnings from operations. Management uses these results, in part, to evaluate the performance of, and to assign resources to, each of the business segments. HP does not allocate to its business segments certain operating expenses, which it manages separately at the corporate level. These unallocated costs include restructuring charges, amortization of intangible assets, impairment of goodwill and intangible assets, certain stock-based compensation expense and acquisition-related charges, as well as certain corporate governance costs.

        Segment revenue includes revenues from sales to external customers and intersegment revenues that reflect transactions between the segments that are carried out at an arm's-length transfer price. Intersegment revenues primarily consist of sales of hardware and software that are sourced internally and, in the majority of the cases, are classified as operating leases within HPFS. HP's Consolidated Net Revenue is derived and reported after elimination of intersegment revenues for such arrangements in accordance with U.S. GAAP.

        To provide improved visibility and comparability, HP has reflected the 2013 changes effective in the first quarter of fiscal 2013 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, EG, ES and Corporate Investments segments. These changes had no impact on the previously reported financial results for the Printing, Software or HPFS 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.

        Selected operating results information for each business segment was as follows for the following fiscal years ended October 31:

 
  Printing and Personal Systems    
   
   
   
   
   
 
 
  Personal
Systems
  Printing   Enterprise
Group
  Enterprise
Services
  Software(1)   HP Financial
Services
  Corporate
Investments(2)
  Total  
 
  In millions
 

2013

                                                 

Net revenue

  $ 31,124   $ 23,643   $ 27,303   $ 23,041   $ 3,593   $ 3,570   $ 24   $ 112,298  

Intersegment net revenue and other

    947     211     880     479     320     59         2,896  
                                   

Total segment net revenue

  $ 32,071   $ 23,854   $ 28,183   $ 23,520   $ 3,913   $ 3,629   $ 24   $ 115,194  
                                   

Earnings (loss) from operations

  $ 949   $ 3,890   $ 4,301   $ 679   $ 866   $ 399   $ (236 ) $ 10,848  
                                   

2012

                                                 

Net revenue

  $ 34,774   $ 24,266   $ 28,628   $ 25,091   $ 3,757   $ 3,784   $ 57   $ 120,357  

Intersegment net revenue and other

    951     221     1,151     518     303     35     1     3,180  
                                   

Total segment net revenue

  $ 35,725   $ 24,487   $ 29,779   $ 25,609   $ 4,060   $ 3,819   $ 58   $ 123,537  
                                   

Earnings (loss) from operations

  $ 1,689   $ 3,585   $ 5,194   $ 1,045   $ 827   $ 388   $ (233 ) $ 12,495  
                                   

2011

                                                 

Net revenue

  $ 38,448   $ 25,874   $ 30,135   $ 25,938   $ 3,128   $ 3,568   $ 154   $ 127,245  

Intersegment net revenue and other

    1,206     302     1,325     330     239     28     12     3,442  
                                   

Total segment net revenue

  $ 39,654   $ 26,176   $ 31,460   $ 26,268   $ 3,367   $ 3,596   $ 166   $ 130,687  
                                   

Earnings (loss) from operations

  $ 2,327   $ 3,927   $ 6,265   $ 1,972   $ 722   $ 348   $ (1,633 ) $ 13,928  
                                   

(1)
Includes the results of Autonomy from the date of acquisition in October 2011.

(2)
Includes the impact of the decision to wind down the webOS device business during the quarter ended October 31, 2011.

        The reconciliation of segment operating results to HP consolidated results was as follows for the fiscal years ended October 31:

 
  2013   2012   2011  
 
  In millions
 

Net revenue:

                   

Segment total

  $ 115,194   $ 123,537   $ 130,687  

Elimination of intersegment net revenue and other

    (2,896 )   (3,180 )   (3,442 )
               

Total HP consolidated net revenue

  $ 112,298   $ 120,357   $ 127,245  
               

Earnings before taxes:

                   

Total segment earnings from operations

  $ 10,848   $ 12,495   $ 13,928  

Corporate and unallocated costs and eliminations

    (832 )   (787 )   (314 )

Unallocated costs related to certain stock-based compensation expense

    (500 )   (635 )   (618 )

Amortization of intangible assets

    (1,373 )   (1,784 )   (1,607 )

Impairment of goodwill and intangible assets

        (18,035 )   (885 )

Restructuring charges

    (990 )   (2,266 )   (645 )

Acquisition-related charges

    (22 )   (45 )   (182 )

Interest and other, net

    (621 )   (876 )   (695 )
               

Total HP consolidated earnings (loss) before taxes

  $ 6,510   $ (11,933 ) $ 8,982  
               

        HP allocates assets to its business segments based on the segments primarily benefiting from the assets. Total assets by segment and the reconciliation of segment assets to HP consolidated assets were as follows at October 31:

 
  2013   2012   2011  
 
  In millions
 

Personal Systems

  $ 11,870   $ 12,752   $ 15,781  

Printing

    10,705     11,169     11,939  
               

Printing and Personal Systems Group

    22,575     23,921     27,720  
               

Enterprise Group

    30,858     30,851     32,388  

Enterprise Services

    15,229     16,383     25,765  

Software

    11,868     12,264     21,028  

HP Financial Services

    12,011     12,924     13,543  

Corporate Investments

    123     248     517  

Corporate and unallocated assets

    13,012     12,177     8,556  
               

Total HP consolidated assets

  $ 105,676   $ 108,768   $ 129,517  
               

        Assets allocated to the Personal Systems segment in fiscal 2012 decreased as compared to fiscal 2011 as a result of an impairment charge impacting the "Compaq" trade name as described further in Note 6. Assets allocated to the ES segment decreased in fiscal 2012 due primarily to a goodwill impairment charge as described further in Note 6. In addition, assets allocated to the Software segment decreased in fiscal 2012 due primarily to intangible asset and goodwill impairment charges related to the Autonomy reporting unit as described further in Note 6.

        No single customer represented 10% or more of HP's total net revenue in any fiscal year presented.

        Net revenue, classified by the major geographic areas in which HP operates, was as follows for the following fiscal years ended October 31:

 
  2013   2012   2011  
 
  In millions
 

Net revenue:

                   

U.S. 

  $ 40,284   $ 42,140   $ 44,111  

Non-U.S. 

    72,014     78,217     83,134  
               

Total HP consolidated net revenue

  $ 112,298   $ 120,357   $ 127,245  
               

        Net revenue by geographic area is based upon the sales location that predominately represents the customer location. For each of the fiscal years ended October 31, 2013, 2012 and 2011, other than the United States, no country represented more than 10% of HP's total consolidated net revenue. HP reports revenue net of sales taxes, use taxes and value-added taxes directly imposed by governmental authorities on HP's revenue producing transactions with its customers.

        At October 31, 2013 and 2012, the United States, the Cayman Islands and Ireland each had 10% or more of HP's consolidated net assets. At October 31, 2011, the United States and the Netherlands each had 10% or more of HP's consolidated net assets.

        Net property, plant and equipment, classified by major geographic areas in which HP operates, was as follows for the following fiscal years ended October 31:

 
  2013   2012   2011  
 
  In millions
 

Net property, plant and equipment:

                   

U.S. 

  $ 5,546   $ 5,894   $ 6,126  

U.K. 

    1,090     1,195     1,195  

Other countries

    4,827     4,865     4,971  
               

Total HP consolidated net property, plant and equipment

  $ 11,463   $ 11,954   $ 12,292  
               

        The following table provides net revenue by segment and business unit for the following fiscal years ended October 31:

 
  2013   2012   2011  
 
  In millions
 

Net revenue:

                   

Notebooks

  $ 16,029   $ 18,830   $ 21,319  

Desktops

    12,844     13,888     15,260  

Workstations

    2,147     2,148     2,216  

Other

    1,051     859     859  
               

Personal Systems

    32,071     35,725     39,654  
               

Supplies

    15,716     16,151     17,154  

Commercial Hardware

    5,702     5,895     6,183  

Consumer Hardware

    2,436     2,441     2,839  
               

Printing

    23,854     24,487     26,176  
               

Printing and Personal Systems Group

    55,925     60,212     65,830  
               

Industry Standard Servers

    12,102     12,582     13,521  

Technology Services

    8,890     9,288     9,396  

Storage

    3,475     3,815     4,056  

Networking

    2,526     2,482     2,392  

Business Critical Systems

    1,190     1,612     2,095  
               

Enterprise Group

    28,183     29,779     31,460  
               

Infrastructure Technology Outsourcing

    14,682     15,792     16,290  

Application and Business Services

    8,838     9,817     9,978  
               

Enterprise Services

    23,520     25,609     26,268  
               

Software(1)

    3,913     4,060     3,367  

HP Financial Services

    3,629     3,819     3,596  

Corporate Investments(2)

    24     58     166  
               

Total segments

    115,194     123,537     130,687  
               

Eliminations of intersegment net revenue and other

    (2,896 )   (3,180 )   (3,442 )
               

Total HP consolidated net revenue

  $ 112,298   $ 120,357   $ 127,245  
               

(1)
Includes the results of Autonomy from the date of acquisition in October 2011.

(2)
Includes the impact of the decision to wind down the webOS device business during the quarter ended October 31, 2011.

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