a) Shareholders Equity (Reformulated)

Beginning Shareholders Equity

Transactions with Shareholders
Shareholder contribution
Stock repurchases
Cash dividends paid

Net/Comprensive Income
Net income reported (GAAP)
Other comprehensive income
Other income/ expense

Ending Shareholders Equity

Notes:
1 BV of equity + Dividend Payable
2 Stock Options Exercised + Issuance of Shares to employees +
Amortization of Unearned Compensation - Forfeiture of shares from
employees
3 Dividend on common stock - Changes in dividend payable
Foreign currency translation + Adjustment of FV of hedge
4 derivatives
5 Preferred dividend from the footnote
6 BV of equity + Dividend Payable

3,871.00

$
$
$
$

58.70
(191.00)
(137.80)
(270.10)

$
$
$
$

474.00
(47.30)
0.03
426.73

4,027.63

3839 + 32
48.2 + 9.4 +
3.7 - 2.6
142.7 - (36.9 32)
127.4 + (174.7)
-0.03
3990.7 + 36.9

b) Balance Sheet (Reformulated)

2003
Operating Assets (OA)
Operating Cash
Accounts Receivable
Inventory
Deferred Income Taxes
Prepaid Expenses and Other current Assets
Property, Plant & Equipment
Identifiable Intangible Assets
Goodwill
Deferred Income Taxes and other assets

$
$
$
$
$
$
$
$
$
$

53.49
2,101.10
1,514.90
163.70
266.20
1,620.80
118.20
65.60
203.90
6,107.89

Operating Liabilities (OL)

Accounts Payable
Accrued Liabilities
Income Taxes Payable
Deferred income taxes and other liabilities

Net Operating Assets (NOA)

Net Financing Obligations (NFO)
Extra cash
Derivative - Interest rate swap
Current portion of Long term Debt
Notes payable
Long term debt
Redeemable preferred stock

Common Shareholders Equity (NOA-NFO)

Notes
1 0.5% of sales is operating cash, the rest is extra cash
2 Interest rate swap is a financial asset
3 Dividend payable is common equity
4 Interest rate swap is a financial liability
5 Interest rate swap is a financial asset and liability
6 Redeemable preferred stock is a financial liability

$
$
$
$
$

572.70
1,017.30
107.20
155.10
1,852.30

4,255.59

$
$
$
$
$
$
$
$

(580.52)
(24.50)
205.70
75.40
551.60
0.30
227.99
4,027.60

0.005*10697
25.5
36.9
1
-(25.5-1)
0.3

c) Reformulated Income Statement

2003
Sales
Cost of Sales
Gross Margin

$
$
$

10,697.00
6,313.60
4,383.40

$
$
$
$
$

1,168.60
1,969.00
79.90
1.00
1,164.90

Other operating expenses

Advertising
Administrative
Other expense (Income)
Interest expense on accounts payable
Operating income from sales (Pre Tax)
Taxes
Taxes as reported
Tax Expense (benefit) on financial items
Tax on operating income

$
$
$

382.90
(10.43)
393.33

Operating income from sales (Post tax)

771.58

Other operating income (expenses)

Goodwill Impairment
Foreign currency translation gain (loss)
Cash flow hedge derivative, net
Operating income (post tax)

$
$
$
$

(266.10)
127.40
(174.70)
458.18

Net interest expense (income)

Tax expense (benefit)
Net interest expenses (post tax)
Preferred dividends
Net financial expenses (income)

$
$
$
$
$

27.80
10.43
17.38
0.30
17.08

Net Income to Common Equity (OI - NFE)

441.10

Notes
1 Selling & Admin - Advertising
2 Avg. Accounts payable to NIAC * Avg. Interest Rate
3 Net interest expense * marginal tax

3137.6-1168.6
2.34%*43
27.8*37.5%

Reported Interest expense - Interest expense on accounts payable

4 + Interest Income

42.9-1-14.1

(Note 1)

(Note 2)
(Note 3)

(Note 4)
(Note 5)

(Note 6)

(Note 1)

(Note 2)

(Note 3)
(Note 4)

(Note 5)

(Note 6)

(Note 1)
(Note 2)

(Note 3)

(Note 4)

Reformulated Income Statement

Sales
Cost of Sales
Gross Profit
Other operating expenses
Research and Development
Marketing, General & Development
Other Expense (Income)
Amortization and impairment of acquisition related Intangibles
Operating Income from Sales (Pre Tax)
Taxes
Taxes as reported
Tax expense (benefit) on financial items
Tax on operating income
Operating Income from Sales (Post Tax)
Other operating income (expenses)
Litigation loss
Operating Income (Post tax)
Net Interest Expense (Income)
Tax Expense (Benefit)
Net Interest Expense (Post Tax)
Unrealized gain on Debt Investment
Unrealized gain on Interest Rate Swap
Net Financial Expense (Income)
Net Income to Common Equity (OI-NFE)
Notes
1 Operating Income removed from Interest and Other, net
2 Tax Expense from Interest income
3 Reported Interest Income - Other operating income

$
$
$
$
$
$

34,209.00
14,463.00
19,746.00
4,778.00
4,659.00
(38.00) (Note 1)

179.00

10,168.00

$
$
$
$

2,901.00
92.87 (Note 2)
2,808.13
7,359.87

$
$

(2.00)
7,357.87

$
$
$
$
$
$
$

(251.00) (Note 3)
92.87
(158.13)
(2.00)
(54.00)
(214.13)
7,572.00

38
37%*251
289-38

Income Statement (in millions)

Net revenue
Cost of sales
Gross margin
Research and development
Marketing, general, and administration
Amortization and impairment of acquisition-related intangibles

Operating expenses
Operating income
Litigation losses
Interest and other, net
Income before taxes
Provision for taxes
Net income

$
$
$
$
$
$

34,209.00
14,463.00
19,746.00
4,778.00
4,659.00
179.00

$
$
$
$
$
$
$

9,616.00
10,130.00
(2.00)
289.00
10,417.00
2,901.00
7,516.00

a)

Reformulated Income Statement

Sales
Cost of Sales
Gross Profit

$
$
$

1998
10,979.00 $
7,505.00 $
3,474.00 $

Other Operating Expenses

Research and Development
Selling General & Administrative
Operating Income from Sales (Pre Tax)

$
$
$

815.00 $
1,885.00 $
774.00 $

Taxes
Taxes as reported
Tax Expense (benefit) on financial items
Tax on Operating Income
Operating Income from Sales (Post Tax)

$
$
$
$

253.00
38.00
215.00
559.00

Net Interest Expense (Income)

Tax expense (benefit)
Net Financial Expense (post tax)

$
$
$

(100.00) $
38.00 $
(62.00) $

(56.00)
21.28
(34.72)

Net Income to Common Equity (OI-NFE)

621.00 $

617.00

Notes
1 Tax expense from financial item (1998)
2 Tax expense from financial item (1997)
3 Interest Expense - Interest Income (1998)
4 Interest Expense - Interest Income (1997)

b)

1997
10,471.00
7,053.00
3,418.00

777.00
1,816.00
825.00

$
$
$
$

264.00
21.28
242.72
582.28

38%*(154-54)
38%+(109-53)
54-154
53-109

When the earnings were reported as flat, they had meant GAAP earnings. But they do not give
good representation of the company and how its moving forward. On reformulating the Income
Statement and taking account of the growth of Operating Income from Sales and the Net
Financial Income, we understand more about the company. We see that the Operating Income
from Sales has fallen by 4% while the Financial Income has grown by approximately 79%. This
gives us a representation of how the overall income remains the same while the two different
aspects are on opposite sides. This situation is much less favourable to HP than the report that
their earnings were flat.

Three Months Ended July 3

1998
Net revenue
Products
Services
Cost and expenses
Cost of products sold and services
Research and development
Selling, general, and administrative

(Note 1,2)

Earnings from operations

Interest income
Interest expense
Earning before taxes
-4.00% Provision for taxes
Net earnings

(Note 3,4)

But they do not give a

mulating the Income
es and the Net
e Operating Income
oximately 79%. This
le the two different
than the report that

78.57%

$
$
$

9,213.00
1,766.00
10,979.00

$
$
$
$
$
$
$
$
$
$

7,505.00
815.00
1,885.00
10,205.00
774.00
154.00
54.00
874.00
253.00
621.00

Months Ended July 31

1997
$
$
$

8,900.00
1,571.00
10,471.00

$
$
$
$
$
$
$
$
$
$

7,053.00
777.00
1,816.00
9,646.00
825.00
109.00
53.00
881.00
264.00
617.00