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OVERVIEW OF THE COMPANY .............................................................................................................. 3 SWOT ANALYSIS HEWLETT PACKARD................................................................................................. 6 Hewlett-Packard Co., Consolidated Income Statement ....................................................................... 9 Hewlett-Packard Co., Consolidated Statement of Comprehensive Income ....................................... 11 Hewlett-Packard Co., Consolidated Statement of Financial Position, Assets ..................................... 13 Hewlett-Packard Co., Consolidated Statement of Financial Position, Liabilities and Stockholders' Equity .................................................................................................................................................. 16 Hewlett-Packard Co., Consolidated Statement of Cash Flows ........................................................... 18 Hewlett-Packard Co., Common-Size Consolidated Income Statement .............................................. 20 Hewlett-Packard Co., Common-Size Consolidated Statement of Financial Position, Assets.............. 22 Hewlett-Packard Co., Common-Size Consolidated Statement of Financial Position, Liabilities and Stockholders' Equity............................................................................................................................ 23 Hewlett-Packard Co., short-term (operating) activity ratios .............................................................. 25 Hewlett-Packard Co., long-term (investment) activity ratios ............................................................. 32 Hewlett-Packard Co., liquidity ratios .................................................................................................. 34 Hewlett-Packard Co., debt and solvency ratios .................................................................................. 37 Hewlett-Packard Co., profitability ratios ............................................................................................ 40 Net Revenue........................................................................................................................................ 44 Gross Margin ....................................................................................................................................... 45 Operating Expenses ............................................................................................................................ 47 Research and Development ............................................................................................................ 47 Selling, General and Administrative ................................................................................................ 47 Amortization of Purchased Intangible Assets ................................................................................. 47 Acquisition-Related Charges ........................................................................................................... 48 Interest and Other, Net ................................................................................................................... 48 Provision for Taxes .......................................................................................................................... 48 Operating Activities............................................................................................................................. 49 Investing Activities .............................................................................................................................. 50 Financing Activities ............................................................................................................................. 50 Cash and Cash Equivalents .................................................................................................................. 50
Competitive Positioning
They are positioning their businesses to take advantage of important trends in the markets for their products and services. For example, they are aligning their printing business to capitalize on key market trends such as the shift from analog to digital printing and the growth in printable content by developing innovative products for consumers such as the first web-connected home printer, working to enable web and mobile printing, expanding their presence in high-usage annuity businesses including graphics and retail publishing printing, and growing their managed print services business. They are also positioning their enterprise business to capitalize on the trend towards converged infrastructure products that integrate storage, networking, servers and management software, while also delivering services for that converged infrastructure in a manner that best fits each client's needs, be it
at a client site, as an outsourced service via the Internet or via a hybrid approach. In addition, they have developed IT management software offerings that seek to satisfy the increasing demand for virtualization management and increased automation.
device markets. In September 2010, they completed the acquisition of 3PAR Inc. (''3PAR''), which expands their storage portfolio into enterprise-class public and private cloud computing environments. In October 2010, they completed the acquisition of ArcSight, Inc. (''ArcSight''), which enables them to offer customers an integrated security platform with a holistic approach to securing their networks, applications and sensitive data. These acquisitions have enabled them to expand in high-margin and high-growth industry segments and have further strengthened their portfolio of hardware, software and services.
STRENGTHS
STRONG MARKET POSITION: Hewlett-Packard has the largest global market share in the PC market at 17.7% with the closest competitor Dell at 14% and Lenovo which possesses 13.5%.In addition Hewlett Packard can boast of a 30% of the global server market. Its domination of the global printer market is evidenced by its 40% market share. In 2009 Hewlett Packard took a major step in strengthening its position in the IT services market by acquiring EDS. PROMINENT BRAND NAME RECOGNITION: Hewlett-Packard has a strong, well-known brand. They have the ability to pursue endeavors in other markets and their brand name will allow them to do so with credibility to a certain extent. Hewlett Packard is keenly aware of the importance of branding. It has long sought to adjust its brand image as required by changing market forces. In the late nineties it began to shift its image to encompass more than just the business to business segment making adjustments to increase its presence in the consumer market as well. Although business to business sales continue to prevail, the company seeks to exploit its good relationship with retailers. As a result of this strategy many current consumer products are business models stripped of costly features in order to appeal to the needs and pocketbook of the consumer market. Hewlett Packard has launched a branding initiative called, One Voice, in order to better integrate its line of consumer electronics and computer hardware products. With a fresh design to the packaging, they are striving to on brand across thousands of product lines and dozens of packaging types. The project has resulted in hundreds of thousands of dollars in cost savings by automating package design creation. In addition, the company gained greater consistency in its packaging by providing a system that keeps the company on brand. In 2009 the company moved up from the 12th to the 11th most recognizable brand according to a global survey. SUCCESSFUL STRATEGIC ACQUISITIONS: Hewlett Packard continues its trend of recognizing and capitalizing on strategic acquisitions. The companys major mergers and acquisitions in recent past include Compaq Computer Corporation in 2002, Mercury Interactive in 2006 and Electronic Data Systems Corporation (EDS) in 2009. In November of 2009, Hewlett Packard announced that it had reached an agreement to acquire 3Com, a provider of computer network equipment, for $2.7 billion in a deal that H.P. plans as a the beginning of an assault on the market leader in networking, Cisco Systems. Computer networking is a $40 billion-ayear market with high profit margins that is growing briskly and dominated by Cisco, which has so far had little head-to-head competition. The companys successful inorganic growth allows it to increase its competitiveness as well as create value for both investors and customers of the company.
EXPERTISE: Hewlett-Packard has printer expertise and is a world leader in this product.
WEAKNESSES
WEAK MARKET SEGMENT INTEGRATION: Although Hewlett Packard is currently addressing its lack of presence in some seemingly obvious segments, there remains room for improvement. The companys portfolio of offerings lack significant software product or manage consulting services when compared to major competitors including, Accenture, EMC and IBM. For example, both IBM and Accenture are establishing management consulting divisions so as to provide more comprehensive and integrated range of services. Hewlett Packard has partnered with Thomson eXimius to provide front office processes for private client wealth management firms to support the increasingly sophisticated needs of their customers.
SUPPLY CHAIN: Hewlett-Packard is supplied by third party vendors. Since they are unable to accurately determine demand 100% of the time, they run the risks of having a shortage or being oversupplied.
PERSONAL COMPUTER: Hewlett-Packards inability to create a desktop that can compete with companies such as Dell within a timely manner.
OPPURTUNITIES
EXPANDING PRESENCE IN CLOUD COMPUTING MARKET: Cloud computing describes a new delivery model for IT services. In July 2008, HP along with Intel Corporation and Yahoo! created a global, multi-data center, open source test bed for cloud computing research and education. The goal of the project was to promote collaboration among industry, academy and governments by removing the financial and logistical barriers. In 2009, HP announced HP Cloud Assure, a new SaaS offering designed to assist businesses to safely and effectively adopt cloud-based services. HP Cloud Assure consists of HP services and software, including HP Application Security Center, HP Performance Center and HP Business Availability Center. These solutions are delivered to customers though HP SaaS platform. The increasing demand for cloud computing is likely to create demand for HPs solutions in coming years. The global spending on cloud computing is forecast to cross a value of over $40 billion by 2012
EXPANDING PORTFOLIO OF IMAGING AND PRINTING SOLUTIONS: Hewlett Packard has made several strategic acquisitions and introduced new products in the imaging solutions segment in recent times. Its imaging solutions strategy entails the commercial markets, from print services solutions to new growth opportunities in commercial printing and capturing high-value pages in areas such as industrial applications, outdoor signage, and graphic arts. Among those key acquisitions are Tabblo, Logoworks, MacDermid and ColorSpan.
RETAIL PHOTO PRINTING SOLUTIONS AND SERVICES: HP provides consumers the tools to personalize their photos and publish customized creative output. In addition, it has introduced new digital printing technologies, HP Inkjet Web Press, HP Latex Inks and three HP Indigo presses, as part of its graphic arts offerings. In October 2010, it also announced a plan to launch full wireless HP Photosmart printer line-up by 2012.
THREATS
PROJECTED DECREASE IN IT MARKET: Forecasters predict a decrease in the worldwide demand for various IT products offered by HP. The economic slowdown has negatively affected many market segments, including information technology. Hewlett Packard has experienced this decline not only in the U.S. but also in its global markets. Worldwide spending on IT was predicted to decline by 4% in 2011. HYPER COMPETITIVE ENVIRONMENT: Although Hewlett Packard recently overtook Dell in sales, the latter remains a formidable competitor, as are other companies such as Toshiba, Lenova Group and Aver. It competes in terms of price, quality, brand, technology, reputation, distribution and range of products, among other factors. In some regions, the company faces competition from local companies and from generically-branded or white box manufacturers. COMPETITORS: Specifically, the companys competitors in enterprise servers and storage include IBM an in storage there is the EMC Corporation, Dell in industry standard servers and Sun Microsystems in UNIX-based servers. The imaging and printing groups key competitors include Canon USA, Lexmark International, Xerox Corporation, Seiko Epson Corporation, Samsung Electronics and Dell. HP even faces competition from re-manufacturers including private label brand stores, supply stores such, internet vendors and original equipment manufacturers (OEMs) such as Lexmark. The remanufacturers buy the original cartridges from customers, refill them with their own ink and resell them at a discount to the branded OEMS. These entities provide a continuous source of competition which could impact the profitability of HP.
12 months ended Products Services Financing income Net revenue Cost of products Cost of services Financing interest Gross profit Research and development Selling, general and administrative Amortization of purchased intangible assets Impairment of goodwill and purchased intangible assets Restructuring charges Acquisition-related charges Pension curtailments and pension settlements, net Earnings from operations Interest expense Other income (expense), net Interest and other, net Earnings before taxes Provision for taxes Net earnings
Oct 31, 2011 84,757 42,039 449 127,245 (65,167) (32,056) (306) 29,716 (3,254) (13,466) (1,607) (885) (645) (182) 9,677 (551) (144) (695) 8,982 (1,908) 7,074
Oct 31, 2010 84,799 40,816 418 126,033 (65,064) (30,723) (302) 29,944 (2,959) (12,585) (1,484) (1,144) (293) 11,479 (417) (88) (505) 10,974 (2,213) 8,761
Oct 31, 2009 74,051 40,124 377 114,552 (56,503) (30,695) (326) 27,028 (2,819) (11,613) (1,578) (640) (242) 10,136 (597) (124) (721) 9,415 (1,755) 7,660
Oct 31, 2008 91,697 26,297 370 118,364 (69,342) (20,250) (329) 28,443 (3,543) (13,104) (1,012) (270) (41) 10,473 (467) 467 10,473 (2,144) 8,329
Oct 31, 2007 84,229 19,699 358 104,286 (63,435) (15,163) (289) 25,399 (3,611) (12,226) (973) (387) 517 8,719 (531) 989 458 9,177 (1,913) 7,264
Description Aggregate revenue recognized during the period (derived from goods sold, services rendered, insurance premiums, or other activities that constitute an entity's earning process). For financial services companies, also includes investment and interest income, and sales and trading gains. The net result for the period of deducting operating expenses from operating revenues.
The company Hewlett-Packard Co.'s net revenue increased from 2009 to 2010 and from 2010 to 2011. Hewlett-Packard Co.'s earnings from operations increased from 2009 to 2010 but then declined significantly from 2010 to 2011. Hewlett-Packard Co.'s earnings before taxes increased from 2009 to 2010 but then declined significantly from 2010 to 2011. Hewlett-Packard Co.'s net earnings increased from 2009 to 2010 but then declined significantly from 2010 to 2011.
Sum of operating profit and non operating income (expense) before income (loss) from equity method investments, income taxes, extraordinary items, cumulative effects of changes in accounting principles, and non controlling interest. The portion of consolidated profit or loss for the period, net of income taxes, which is attributable to the parent. If the entity does not present consolidated financial statements, the amount of profit or loss for the period, net of income taxes.
Net earnings
12 months ended Net earnings Change in net unrealized gains (losses), net of tax Net unrealized (gains) losses reclassified into earnings, with no tax effect Net change in unrealized gains (losses) on available-for-sale securities Unrealized gains (losses) recognized in OCI, net of tax (Gains) losses reclassified into income, net of tax Net change in unrealized gains (losses) on cash flow hedges Net change in cumulative translation adjustment, net of tax Net change in unrealized components of defined benefit plans, net of tax Other comprehensive income (loss) Comprehensive income
17
16
16
(16)
(12)
Item Net change in unrealized gains (losses) on available-for-sale securities Net change in unrealized gains (losses) on cash flow hedges
Description Gross appreciation or the gross loss in value of the total unsold securities at the end of an accounting period, after tax, attributable to the parent entity.
The company
Net of tax effect change in accumulated gains and losses from derivative instruments designated and qualifying as the effective portion of cash flow hedges, after taxes, that is attributable to the parent entity. A cash flow hedge is a hedge of the exposure to variability in the cash flows of a recognized asset or liability or a forecasted transaction that is attributable to a particular risk. The change includes an entity's share of an equity investee's increase (decrease) in deferred hedging gains or losses. Adjustment that results from the process of translating subsidiary financial statements and foreign equity investments into functional currency of the reporting entity, net of tax, attributable to the parent entity. Net changes to accumulated comprehensive income during the period related to benefit plans, after tax, attributable to the parent entity.
Hewlett-Packard Co.'s net change in unrealized gains (losses) on cash flow hedges increased from 2009 to 2010 and from 2010 to 2011.
Net change in cumulative translation adjustment, net of tax Net change in unrealized components of defined benefit plans, net of tax Comprehensive income
Hewlett-Packard Co.'s net change in cumulative translation adjustment, net of tax declined from 2009 to 2010 but then slightly increased from 2010 to 2011. Hewlett-Packard Co.'s net change in unrealized components of defined benefit plans, net of tax increased from 2009 to 2010 and from 2010 to 2011. Hewlett-Packard Co.'s comprehensive income increased from 2009 to 2010 but then slightly declined from 2010 to 2011.
The change in equity [net assets] of a business enterprise during a period from transactions and other events and circumstances from non-owner sources which are attributable to the reporting entity. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners, but excludes any and all transactions which are directly or indirectly attributable to that ownership interest in subsidiary equity which is not attributable to the parent.
Oct 31, 2011 Cash and cash equivalents Accounts receivable Financing receivables Inventory Deferred tax assets, short-term Value added taxes receivable from various governments Supplier and other receivables Prepaid and other current assets Other current assets Current assets Property, plant and equipment Financing receivables, net Deferred tax assets, long term Other Long-term financing receivables and other assets Goodwill Purchased intangible assets Noncurrent assets Total assets 8,043 18,224 3,162 7,490 5,374 2,480 2,762 3,486 14,102 51,021 12,292 4,015 1,283 5,457 10,755 44,551 10,898 78,496 129,517
Oct 31, 2010 10,929 18,481 2,986 6,466 5,833 3,366 2,737 3,386 15,322 54,184 11,763 3,584 2,070 6,571 12,225 38,483 7,848 70,319 124,503
Oct 31, 2009 13,279 16,537 2,675 6,128 4,979 2,650 3,439 2,852 13,920 52,539 11,262 3,303 1,750 6,236 11,289 33,109 6,600 62,260 114,799
Oct 31, 2008 10,153 16,928 2,314 7,879 3,920 3,115 3,082 4,337 14,454 51,728 10,838 2,722 792 6,954 10,468 32,335 7,962 61,603 113,331
Oct 31, 2007 11,293 13,420 2,507 8,033 4,609 2,979 2,676 1,885 12,149 47,402 7,798 2,778 961 3,908 7,647 21,773 4,079 41,297 88,699
Description Includes currency on hand as well as demand deposits with banks or financial institutions. It also includes other kinds of accounts that have the general characteristics of demand deposits in that the Entity may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. Cash equivalents, excluding items classified as marketable securities, include short-term, highly liquid investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months. Compensating balance arrangements that do not legally restrict the withdrawal or usage of cash amounts may be reported as Cash and Cash Equivalents, while legally restricted deposits held as compensating balances against borrowing arrangements, contracts entered into with others, or company statements of intention with regard to particular deposits should not be reported as cash and cash equivalents. Amount due from customers or clients, within one year of the balance sheet date (or the normal operating cycle, whichever is longer), for goods or services (including trade receivables) that have been delivered or sold in the normal course of business, reduced to the estimated net realizable fair value by an allowance established by the entity of the amount it deems uncertain of collection. Carrying amount (lower of cost or market) as of the balance sheet date of inventories less all valuation and other allowances. Excludes noncurrent inventory balances (expected to remain on hand past one year or one operating cycle, if longer). Sum of the carrying amounts as of the balance sheet date of all assets that are expected to be realized in cash, sold, or consumed within one year (or the normal operating cycle, if longer). Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
The company Hewlett-Packard Co.'s cash and cash equivalents declined from 2009 to 2010 and from 2010 to 2011.
Accounts receivable
Hewlett-Packard Co.'s accounts receivable increased from 2009 to 2010 but then slightly declined from 2010 to 2011.
Inventory
Hewlett-Packard Co.'s inventory increased from 2009 to 2010 and from 2010 to 2011. Hewlett-Packard Co.'s current assets increased from 2009 to 2010 but then declined significantly from 2010 to 2011.
Current assets
Tangible assets that are held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes and that are expected to provide economic benefit for more than one year; net of accumulated depreciation. Examples include land, buildings, and production equipment. Sum of the carrying amounts as of the balance sheet date of all assets that are expected to be realized in cash, sold or consumed after one year or beyond the normal operating cycle, if longer. Sum of the carrying amounts as of the balance sheet date of all assets that are recognized. Assets are probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
Hewlett-Packard Co.'s property, plant and equipment increased from 2009 to 2010 and from 2010 to 2011. Hewlett-Packard Co.'s noncurrent assets increased from 2009 to 2010 and from 2010 to 2011. Hewlett-Packard Co.'s total assets increased from 2009 to 2010 and from 2010 to 2011.
Hewlett-Packard Co., Consolidated Statement of Financial Position, Liabilities and Stockholders' Equity
USD $ in millions
Oct 31, 2011 Notes payable and short-term borrowings Accounts payable Employee compensation and benefits Taxes on earnings Deferred revenue Accrued restructuring Other accrued taxes Warranty Sales and marketing programs Other Other accrued liabilities Current liabilities Long-term debt Pension, post-retirement, and post-employment liabilities Deferred tax liability, long-term Long-term deferred revenue Other long-term liabilities Other liabilities Long-term liabilities Total liabilities Preferred stock, $0.01 par value Common stock, $0.01 par value Additional paid-in capital Prepaid stock repurchase Retained earnings 8,083 14,750 3,999 1,048 7,449 654 2,414 1,773 3,317 6,955 14,459 50,442 22,551 5,414 5,163 3,453 3,490 17,520 40,071 90,513 20 6,837 35,266 Oct 31, 2010 7,046 14,365 4,256 802 6,727 911 3,216 1,774 3,374 6,932 15,296 49,403 15,258 6,754 5,239 3,303 3,765 19,061 34,319 83,722 22 11,569 32,695 Oct 31, 2009 1,850 14,809 4,071 910 6,182 1,109 2,784 1,777 2,724 6,787 14,072 43,003 13,980 6,427 4,230 3,249 3,146 17,052 31,032 74,035 24 13,804 29,936 Oct 31, 2008 10,176 14,138 4,159 869 6,287 1,099 3,258 1,973 2,958 8,022 16,211 52,939 7,676 3,692 3,162 3,152 3,768 13,774 21,450 74,389 24 14,012 24,971 Oct 31, 2007 3,186 11,787 3,465 1,891 5,025 123 2,965 1,762 2,930 6,126 13,783 39,260 4,997 1,495 397 2,459 1,565 5,916 10,913 50,173 26 16,381 21,560
(3,498) Accumulated other comprehensive income (loss) HP stockholders' equity Non-controlling interests Total stockholders' equity Total liabilities and stockholders' equity 38,625 379 39,004 129,517
(3,837)
(3,247)
(65)
559
Item
Description
The company
Accounts payable
Carrying value as of the balance sheet date of liabilities incurred (and for which invoices have typically been received) and payable to vendors for goods and services received that are used in an entity's business. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer). Total obligations incurred as part of normal operations that are expected to be paid during the following twelve months or within one business cycle, if longer.
Hewlett-Packard Co.'s accounts payable declined from 2009 to 2010 but then increased from 2010 to 2011 not reaching 2009 level. Hewlett-Packard Co.'s current liabilities increased from 2009 to 2010 and from 2010 to 2011. Hewlett-Packard Co.'s long-term liabilities increased from 2009 to 2010 and from 2010 to 2011. Hewlett-Packard Co.'s total liabilities increased from 2009 to 2010 and from 2010 to 2011. Hewlett-Packard Co.'s hP stockholders' equity declined from 2009 to 2010 and from 2010 to 2011.
Current liabilities
Long-term liabilities
Total obligations incurred as part of normal operations that is expected to be repaid beyond the following twelve months or one business cycle.
Total liabilities
Sum of the carrying amounts as of the balance sheet date of all liabilities that are recognized. Liabilities are probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities in the future. Total of all Stockholders' Equity (deficit) items, net of receivables from officers, directors owners, and affiliates of the entity which are attributable to the parent. The amount of the economic entity's stockholders' equity attributable to the parent excludes the amount of stockholders' equity which is allocable to that ownership interest in subsidiary equity which is not attributable to the parent (non controlling interest, minority interest). Total of Stockholders' Equity (deficit) items, net of receivables from officers, directors owners, and affiliates of the entity including portions attributable to both the parent and non controlling interests (previously referred to as minority interest), if any. The entity including portions attributable to the parent and non controlling interests is sometimes referred to as the economic entity.
HP stockholders' equity
Hewlett-Packard Co.'s total stockholders' equity increased from 2009 to 2010 but then declined significantly from 2010 to 2011.
12 months ended Net earnings Depreciation and amortization Impairment of goodwill and purchased intangible assets Stock-based compensation expense Provision for doubtful accounts, accounts and financing receivables Provision for inventory Restructuring charges Pension curtailments and pension settlements, net Deferred taxes on earnings Excess tax benefit from stock-based compensation Other, net Accounts and financing receivables Inventory Accounts payable Taxes on earnings Restructuring Other assets and liabilities Changes in assets and liabilities Adjustments to reconcile net earnings to net cash provided by operating activities Net cash provided by operating activities Investment in property, plant and equipment Proceeds from sale of property, plant and equipment Purchases of available-for-sale securities and other investments Maturities and sales of available-for-sale securities and other investments Payments in connection with business acquisitions, net of cash acquired Proceeds from business divestiture, net Net cash used in investing activities
Oct 31, 2011 7,074 4,984 885 685 81 217 645 166 (163) (46) (227) (1,252) 275 610 (1,002) (293) (1,889) 5,565 12,639 (4,539) 999 (96) 68 (10,480) 89 (13,959)
Oct 31, 2010 8,761 4,820 668 156 189 1,144 197 (294) 169 (2,398) (270) (698) 723 (1,334) 89 (3,888) 3,161 11,922 (4,133) 602 (51) 200 (8,102) 125 (11,359)
Oct 31, 2009 7,660 4,780 635 345 221 640 379 (162) (54) (549) 1,532 (153) 733 (1,237) (1,391) (1,065) 5,719 13,379 (3,695) 495 (160) 171 (391) (3,580)
Oct 31, 2008 8,329 3,401 606 275 214 270 1,035 (293) (31) (261) 89 1,630 (43) (165) (465) 785 6,262 14,591 (2,990) 425 (178) 280 (11,248) (13,711)
Oct 31, 2007 7,264 2,895 629 47 362 387 (517) 415 (481) (100) (2,808) (633) (346) 502 (606) 2,605 (1,286) 2,351 9,615 (3,040) 568 (283) 425 (6,793) (9,123)
Issuance (payments) of commercial paper and notes payable, net Issuance of debt Payment of debt Issuance of common stock under employee stock plans Repurchase of common stock Prepayment of common stock repurchase Excess tax benefit from stock-based compensation Cash dividends paid Net cash used in financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period
(1,270) 11,942 (2,336) 896 (10,117) 163 (844) (1,566) (2,886) 10,929 8,043
4,156 3,156 (1,323) 2,617 (11,042) 294 (771) (2,913) (2,350) 13,279 10,929
(6,856) 6,800 (2,710) 1,837 (5,140) 162 (766) (6,673) 3,126 10,153 13,279
5,015 3,121 (1,843) 1,810 (9,620) 293 (796) (2,020) (1,140) 11,293 10,153
1,863 4,106 (3,419) 3,103 (10,887) 481 (846) (5,599) (5,107) 16,400 11,293
Description The net cash from (used in) all of the entity's operating activities, including those of discontinued operations, of the reporting entity. Operating activities generally involve producing and delivering goods and providing services. Operating activity cash flows include transactions, adjustments, and changes in value that are not defined as investing or financing activities.
The company Hewlett-Packard Co.'s net cash provided by operating activities declined from 2009 to 2010 but then slightly increased from 2010 to 2011.
Interest expense
Hewlett-Packard Co., Common-Size Consolidated Income Statement
-0.43
-0.33
-0.52
-0.39
-0.51
-0.11 Other income (expense), net Interest and other, net Earnings before taxes Provision for taxes Net earnings -0.55% 7.06% -1.50 5.56%
-0.07
-0.11
0.39
0.95
Current assets Property, plant and equipment Financing receivables, net Deferred tax assets, long term Other Long-term financing receivables and other assets Goodwill Purchased intangible assets Noncurrent assets
Total assets
100.00%
100.00%
100.00%
100.00%
100.00%
Hewlett-Packard Co., Common-Size Consolidated Statement of Financial Position, Liabilities and Stockholders' Equity
Current liabilities Long-term debt Pension, post-retirement, and post-employment liabilities Deferred tax liability, long-term
Long-term liabilities
30.94%
27.56%
27.03%
18.93%
12.30%
Total liabilities
69.89%
67.24%
64.49%
65.64%
56.57%
Hewlett-Packard Co., Common-Size Consolidated Statement of Financial Position, Liabilities and Stockholders' Equity
Common stock, $0.01 par value Additional paid-in capital Prepaid stock repurchase Retained earnings Accumulated other comprehensive income (loss) HP stockholders' equity Non-controlling interests Total stockholders' equity
100.00%
100.00%
100.00%
100.00%
100.00%
RATIOS
Hewlett-Packard Co., short-term (operating) activity ratios
Oct 31, 2011 Turnover Ratios Inventory turnover Receivables turnover Payables turnover 16.99 6.98 8.63 19.49 6.82 8.77 18.69 6.93 7.74 15.02 6.99 8.37 12.98 7.77 8.85 Oct 31, 2010 Oct 31, 2009 Oct 31, 2008 Oct 31, 2007
11.61
11.91
14.58
11.09
10.79
Average No of Days Average inventory processing period Add: Average receivable collection period 21 52 19 54 20 53 24 52 28 47
Operating cycle
74
72
72
76
75
-42
-42
-47
-44
-41
31
31
25
33
34
Inventory Turnover
Oct 31, 2011 Selected Financial Data (USD $ in millions) Oct 31, 2010 Oct 31, 2009 Oct 31, 2008 Oct 31, 2007
Net revenue
127,245
126,033
114,552
118,364
104,286
Inventory
7,490
6,466
6,128
7,879
8,033
16.99
19.49 19.15
18.69 19.52
15.02 17.49
12.98 16.09
2011 Calculations
Inventory turnover = Net revenue Inventory = 127,245 7,490 = 16.99
Ratio
Inventory turnover
Description
An activity ratio calculated as revenue divided by inventory.
The company
Hewlett-Packard Co.'s inventory turnover improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011.
Receivables Turnover
Oct 31, 2011 Selected Financial Data (USD $ in millions) Oct 31, 2010 Oct 31, 2009 Oct 31, 2008 Oct 31, 2007
127,245 18,224
126,033 18,481
114,552 16,537
118,364 16,928
104,286 13,420
6.98
6.82 6.98
6.93 6.68
6.99 7.04
7.77 6.39
2011 Calculations
Receivables turnover = Net revenue Accounts receivable = 127,245 18,224 = 6.98
Ratio
Receivables turnover
Description
An activity ratio equal to revenue divided by receivables.
The company
Hewlett-Packard Co.'s receivables turnover deteriorated from 2009 to 2010 but then improved from 2010 to 2011 exceeding 2009 level.
Payables Turnover
Oct 31, 2011 Selected Financial Data (USD $ in millions) Oct 31, 2010 Oct 31, 2009 Oct 31, 2008 Oct 31, 2007
Net revenue
127,245
126,033
114,552
118,364
104,286
Accounts payable
14,750
14,365
14,809
14,138
11,787
8.63
8.77 10.26
7.74 9.95
8.37 11.23
8.85 9.82
2011 Calculations
Payables turnover = Net revenue Accounts payable = 127,245 14,750 = 8.63
Ratio
Payables turnover
Description
An activity ratio calculated as revenue divided by payables.
The company
Hewlett-Packard Co.'s payables turnover increased from 2009 to 2010 but then slightly declined from 2010 to 2011.
Net revenue
127,245
126,033
114,552
118,364
104,286
Working capital
10,964
10,582
7,856
10,669
9,666
11.61
11.91 10.22
14.58 9.95
11.09 9.07
10.79 8.55
2011 Calculations
Working capital turnover = Net revenue Working capital = 127,245 10,964 = 11.61
Ratio
Working capital turnover
Description
An activity ratio calculated as revenue divided by working capital.
The company
Hewlett-Packard Co.'s working capital turnover deteriorated from 2009 to 2010 and from 2010 to 2011.
Inventory turnover
16.99
19.49
18.69
15.02
12.98
21
19 19
20 19
24 21
28 23
2011 Calculations
Average inventory processing period = 365 Inventory turnover = 365 16.99 = 21
Ratio
Average inventory processing period
Description
An activity ratio equal to the number of days in the period divided by inventory turnover over the period.
The company
Hewlett-Packard Co.'s average inventory processing period improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011.
Receivables turnover
6.98
6.82
6.93
6.99
7.77
52
54 52
53 55
52 52
47 57
2011 Calculations
Average receivable collection period = 365 Receivables turnover = 365 6.98 = 52
Ratio
Average receivable collection period
Description
An activity ratio equal to the number of days in the period divided by receivables turnover.
The company
Hewlett-Packard Co.'s average receivable collection period deteriorated from 2009 to 2010 but then improved from 2010 to 2011 exceeding 2009 level.
Operating Cycle
Oct 31, 2011 Selected Financial Data (no. of days) Oct 31, 2010 Oct 31, 2009 Oct 31, 2008 Oct 31, 2007
21
19
20
24
28
52
54
53
52
47
74
72 71
72 73
76 73
75 80
2011 Calculations
Operating cycle = Average inventory processing period + Average receivable collection period = 21 + 52 = 74
Ratio
Operating cycle
Description
Equal to average inventory processing period plus average receivables collection period.
The company
Hewlett-Packard Co.'s operating cycle deteriorated from 2009 to 2010 and from 2010 to 2011.
Payables turnover
8.63
8.77
7.74
8.37
8.85
42
42 36
47 37
44 33
41 37
2011 Calculations
Average payables payment period = 365 Payables turnover = 365 8.63 = 42
Ratio
Average payables payment period
Description
An estimate of the average number of days it takes a company to pay its suppliers; equal to the number of days in the period divided by payables turnover ratio for the period.
The company
Hewlett-Packard Co.'s average payables payment period declined from 2009 to 2010 but then slightly increased from 2010 to 2011.
Average inventory processing period Average receivable collection period Average payables payment period
21 52 42
19 54 42
20 53 47
24 52 44
28 47 41
31
31 36
25 37
33 40
34 43
2011 Calculations
Cash conversion cycle = Average inventory processing period + Average receivable collection period Average payables payment period = 21 + 52 42 = 31
Ratio
Cash conversion cycle
Description
A financial metric that measures the length of time required for a company to convert cash invested in its operations to cash received as a result of its operations; equal to average inventory processing period plus average receivables collection period minus average payables payment period.
The company
Hewlett-Packard Co.'s cash conversion cycle deteriorated from 2009 to 2010 and from 2010 to 2011.
127,245 12,292
126,033 11,763
114,552 11,262
118,364 10,838
104,286 7,798
10.35
10.71 6.03
10.17 6.11
10.92 6.76
13.37 6.90
2011 Calculations
Net fixed asset turnover = Net revenue Property, plant and equipment = 127,245 12,292 = 10.35
Ratio
Net fixed asset turnover
Description
An activity ratio calculated as total revenue divided by net fixed assets.
The company
Hewlett-Packard Co.'s net fixed asset turnover improved from 2009 to 2010 but then slightly deteriorated from 2010 to 2011 not reaching 2009 level.
Net revenue
127,245
126,033
114,552
118,364
104,286
Total assets
129,517
124,503
114,799
113,331
88,699
0.98
1.01 0.90
1.00 0.90
1.04 0.99
1.18 0.99
2011 Calculations
Total asset turnover = Net revenue Total assets = 127,245 129,517 = 0.98
Ratio
Total asset turnover
Description
An activity ratio calculated as total revenue divided by total assets.
The company
Hewlett-Packard Co.'s total asset turnover improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011.
Equity Turnover
Oct 31, 2011 Selected Financial Data (USD $ in millions) Oct 31, 2010 Oct 31, 2009 Oct 31, 2008 Oct 31, 2007
127,245 38,625
126,033 40,449
114,552 40,517
118,364 38,942
104,286 38,526
3.29
3.12 2.22
2.83 2.15
3.04 2.64
2.71 2.29
2011 Calculations
Equity turnover = Net revenue HP stockholders' equity = 127,245 38,625 = 3.29
Ratio
Equity turnover
Description
An activity ratio calculated as total revenue divided by shareholders' equity.
The company
Hewlett-Packard Co.'s equity turnover improved from 2009 to 2010 and from 2010 to 2011.
Cash ratio
0.16
0.22
0.31
0.19
0.29
Current Ratio
Oct 31, 2011 Selected Financial Data (USD $ in millions) Oct 31, 2010 Oct 31, 2009 Oct 31, 2008 Oct 31, 2007
51,021 50,442
54,184 49,403
52,539 43,003
51,728 52,939
47,402 39,260
1.01
1.10 1.36
1.22 1.54
0.98 1.26
1.21 1.48
2011 Calculations
Current ratio = Current assets Current liabilities = 51,021 50,442 = 1.01
Ratio
Current ratio
Description
A liquidity ratio calculated as current assets divided by current liabilities.
The company
Hewlett-Packard Co.'s current ratio deteriorated from 2009 to 2010 and from 2010 to 2011.
Quick Ratio
Oct 31, 2011 Selected Financial Data (USD $ in millions) Oct 31, 2010 Oct 31, 2009 Oct 31, 2008 Oct 31, 2007
8,043 18,224
10,929 18,481
13,279 16,537
10,153 16,928
11,293 13,420
Financing receivables
3,162
2,986
2,675
2,314
2,507
29,429
32,396
32,491
29,395
27,220
Current liabilities
50,442
49,403
43,003
52,939
39,260
0.58
0.66 1.00
0.76 1.13
0.56 0.89
0.69 1.11
2011 Calculations
Quick ratio = Total quick assets Current liabilities = 29,429 50,442 = 0.58
Ratio
Quick ratio
Description
A liquidity ratio calculated as (cash plus short-term marketable investments plus receivables) divided by current liabilities.
The company
Hewlett-Packard Co.'s quick ratio deteriorated from 2009 to 2010 and from 2010 to 2011.
Cash Ratio
Oct 31, 2011 Selected Financial Data (USD $ in millions) Oct 31, 2010 Oct 31, 2009 Oct 31, 2008 Oct 31, 2007
8,043
10,929
13,279
10,153
11,293
8,043
10,929
13,279
10,153
11,293
Current liabilities
50,442
49,403
43,003
52,939
39,260
0.16
0.22 0.48
0.31 0.55
0.19 0.40
0.29 0.53
2011 Calculations
Cash ratio = Total cash assets Current liabilities = 8,043 50,442 = 0.16
Ratio
Cash ratio
Description
A liquidity ratio calculated as (cash plus short-term marketable investments) divided by current liabilities.
The company
Hewlett-Packard Co.'s cash ratio deteriorated from 2009 to 2010 and from 2010 to 2011.
Interest coverage
17.30
27.32
16.77
23.43
18.28
Debt to Equity
Oct 31, 2011 Selected Financial Data (USD $ in millions) Oct 31, 2010 Oct 31, 2009 Oct 31, 2008 Oct 31, 2007
8,083 22,551
7,046 15,258
1,850 13,980
10,176 7,676
3,186 4,997
Total debt
30,634
22,304
15,830
17,852
8,183
HP stockholders' equity
38,625
40,449
40,517
38,942
38,526
0.79
0.55 0.39
0.39 0.33
0.46 0.45
0.21 0.31
2011 Calculations
Debt to equity = Total debt HP stockholders' equity = 30,634 38,625 = 0.79
Ratio
Debt-to-equity ratio
Description
A solvency ratio calculated as total debt divided by total shareholders' equity.
The company
Hewlett-Packard Co.'s debt-to-equity ratio deteriorated from 2009 to 2010 and from 2010 to 2011.
Debt to Capital
Oct 31, 2011 Selected Financial Data (USD $ in millions) Oct 31, 2010 Oct 31, 2009 Oct 31, 2008 Oct 31, 2007
8,083
7,046
1,850
10,176
3,186
Long-term debt
22,551
15,258
13,980
7,676
4,997
Total debt
30,634
22,304
15,830
17,852
8,183
HP stockholders' equity
38,625
40,449
40,517
38,942
38,526
Total capital
69,259
62,753
56,347
56,794
46,709
0.44
0.36 0.28
0.28 0.25
0.31 0.31
0.18 0.23
2011 Calculations
Debt to capital = Total debt Total capital = 30,634 69,259 = 0.44
Ratio
Debt-to-capital ratio
Description
A solvency ratio calculated as total debt divided by total debt plus shareholders' equity.
The company
Hewlett-Packard Co.'s debt-to-capital ratio deteriorated from 2009 to 2010 and from 2010 to 2011.
Interest Coverage
Oct 31, 2011 Selected Financial Data (USD $ in millions) Oct 31, 2010 Oct 31, 2009 Oct 31, 2008 Oct 31, 2007
7,074 551
8,761 417
7,660 597
8,329 467
7,264 531
1,908
2,213
1,755
2,144
1,913
9,533
11,391
10,012
10,940
9,708
17.30
27.32 37.04
16.77 25.35
23.43 31.38
18.28 43.38
2011 Calculations
Ratio
Interest coverage ratio
Description
A solvency ratio calculated as EBIT divided by interest payments.
The company
Hewlett-Packard Co.'s interest coverage ratio improved from 2009 to 2010 but then slightly deteriorated from 2010 to 2011 not reaching 2009 level.
23.35% 7.61%
23.76% 9.11%
23.59% 8.85%
24.03% 8.85%
24.36% 8.36%
5.56%
6.95%
6.69%
7.04%
6.97%
Return on Investment
18.31%
21.66%
18.91%
21.39%
18.85%
5.46%
7.04%
6.67%
7.35%
8.19%
Gross profit
29,716
29,944
27,028
28,443
25,399
Net revenue
127,245
126,033
114,552
118,364
104,286
23.35%
23.76%
23.59%
24.03%
24.36%
2011 Calculations
Gross profit margin = 100 Gross profit Net revenue = 100 29,716 127,245 = 23.35%
Ratio
Gross profit margin
Description
Gross profit margin indicates the percentage of revenue available to cover operating and other expenditures.
The company
Hewlett-Packard Co.'s gross profit margin improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011.
9,677
11,479
10,136
10,473
8,719
Net revenue
127,245
126,033
114,552
118,364
104,286
7.61% %
9.11% 13.96%
8.85% 12.02%
8.85% 13.06%
8.36% 14.69%
2011 Calculations
Operating profit margin = 100 Earnings from operations Net revenue = 100 9,677 127,245 = 7.61%
Ratio
Operating profit margin
Description
A profitability ratio calculated as operating income divided by revenue.
The company
Hewlett-Packard Co.'s operating profit margin improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011.
Net earnings
7,074
8,761
7,660
8,329
7,264
Net revenue
127,245
126,033
114,552
118,364
104,286
5.56% %
6.95% 10.82%
6.69% 8.97%
7.04% 9.85%
6.97% 11.65%
2011 Calculations
Net profit margin = 100 Net earnings Net revenue = 100 7,074 127,245 = 5.56%
Ratio
Net profit margin
Description
An indicator of profitability, calculated as net income divided by revenue.
The company
Hewlett-Packard Co.'s net profit margin improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011.
Net earnings
7,074
8,761
7,660
8,329
7,264
HP stockholders' equity
38,625
40,449
40,517
38,942
38,526
18.31% %
21.66% 24.01%
18.91% 19.32%
21.39% 25.96%
18.85% 26.63%
2011 Calculations
ROE = 100 Net earnings HP stockholders' equity = 100 7,074 38,625 = 18.31%
Ratio
ROE
Description
A profitability ratio calculated as net income divided by shareholders' equity.
The company
Hewlett-Packard Co.'s ROE improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011.
Net earnings
7,074
8,761
7,660
8,329
7,264
Total assets
129,517
124,503
114,799
113,331
88,699
5.46% %
7.04% 9.68%
6.67% 8.05%
7.35% 9.77%
8.19% 11.57%
2011 Calculations
ROA = 100 Net earnings Total assets = 100 7,074 129,517 = 5.46%
Ratio
ROA
Description
A profitability ratio calculated as net income divided by total assets.
The company
Hewlett-Packard Co.'s ROA improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011.
DETAILED ANALYSIS:
Results of operations in dollars and as a percentage of net revenue were as follows for the following fiscal years ended October 31:
2010
2009
In millions
2008
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . Selling, general and administrative . . . . . . . Amortization of purchased intangible assets Restructuring charges . . . . . . . . . . . . . . . . Acquisition-related charges . . . . . . . . . . . . Earnings from operations . . . . . . . . . . . . . . . Interest and other, net . . . . . . . . . . . . . . . . . Earnings before taxes . . . . . . . . . . . . . . . . . . Provision for taxes . . . . . . . . . . . . . . . . . . . . Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .
$126,033 96,089 29,944 2,959 12,585 1,484 1,144 293 11,479 (505) 10,974 2,213 $ 8,761
$114,552 100.0% 87,524 27,028 2,819 11,613 1,578 640 242 76.4% 23.6% 2.5% 10.1% 1.4% 0.6% 0.2% 8.8% (0.6)% 8.2% 1.5% 6.7% $
$118,364 100.0% 89,699 28,665 3,543 13,326 1,012 270 41 10,473 10,473 2,144 8,329 75.8% 24.2% 3.0% 11.3% 0.9% 0.2% 8.8% 8.8% 1.8% 7.0%
..
9.1% 10,136 (0.4)% 8.7% 1.7% 7.0% $ (721) 9,415 1,755 7,660
Net Revenue
The components of the weighted net revenue change were as follows for the following fiscal years ended October 31: 2010 2009
Personal Systems Group . . . . . Enterprise Storage and Servers Imaging and Printing Group . . HP Financial Services . . . . . . . Corporate Investments/Other . . Services . . . . . . . . . . . . . . . . . HP Software . . . . . . . . . . . . . . ........................................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 2.9 1.5 0.3 0.3 0.2 10.0 (5.9) (3.4) (4.7) (0.2) 11.6 (0.6) (3.2)
Percentage Points
Total HP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2010 In fiscal 2010, total HP net revenue increased 10% (8.3% on a constant currency basis). U.S. net revenue increased 7.8% to $44.5 billion, while net revenue from outside of the United States increased 11.3% to $81.5 billion. As reflected in the table above, the PSG segment was the largest contributor to HP net revenue growth as a result of balanced growth across the regions. Fiscal 2009 In fiscal 2009, the global slowdown of IT and consumer spending impacted each of HP segments. Net revenue decreased 3.2% in fiscal 2009 (increased 1.3% on a constant currency basis). The unfavorable currency impact for fiscal 2009 was due primarily to the movement of the dollar against the euro. For fiscal 2009, the Services segment contributed favorably to the total HP net revenue change primarily as a result of the EDS acquisition. U.S. net revenue increased 12% to $41.3 billion for fiscal 2009 as compared to fiscal 2008, while net revenue from outside of the United States decreased 10% to $73.2 billion. The increase in U.S. net revenue in fiscal 2009 was primarily a result of the acquisition of EDS.
Gross Margin
Fiscal 2010 In fiscal 2010, total HP gross margin increased by 0.2 percentage points. The increase was a result of an increased mix in networking products and rate increase in Services, the effect of which was partially offset by strong revenue growth in personal computers and printer hardware that have lower gross margins. Services gross margin increased in fiscal 2010 due primarily to the continued focus on operating improvements, including delivery efficiencies and cost controls in HPs technology services business, and EDS-related acquisition synergies. ESS gross margin declined in fiscal 2010 due primarily to a product mix shift resulting from the strength in industry standard servers (''ISS''), the effect of which was partially offset by lower product costs and strong volume. HP Software gross margin increased in fiscal 2010 primarily as a result of a higher license and support mix, the effect of which was partially offset by a reduced services gross margin rate. PSG gross margin declined in fiscal 2010 primarily as a result of higher component costs, the effect of which was partially offset by lower warranty and logistics expenses.
IPG gross margin declined in fiscal 2010 due primarily to a higher mix of hardware and a correspondingly lower mix of supplies, the effect of which was partially offset by cost savings associated with their ongoing efforts to optimize their supply chain. HPFS gross margin increased in fiscal 2010 primarily as a result of higher portfolio margins due to favorable financing conditions and higher remarketing margin, the effect of which was partially offset by higher bad debt. Corporate Investments gross margin increased in fiscal 2010 primarily as a result of the impact from the 3Com acquisition along with lower product costs for their network infrastructure products.
Fiscal 2009 Total HP gross margin decreased by 0.6 percentage points in fiscal 2009. From a segment perspective and on a weighted basis, ESS had the largest impact to the total company gross margin decline due to product mix shift and rate declines. Services gross margin increased in fiscal 2009 due primarily to the continued focus on cost structure improvements, including delivery efficiencies and cost controls in their technology services business, and EDS-related acquisition synergies. This was partially offset by the mix effect from the acquisition of the EDS business, which has lower gross margins. ESS gross margin decreased in fiscal 2009 due primarily to competitive pricing across each of the segment business units and product mix shifts. HP Software gross margin increased in fiscal 2009 primarily as a result of favorable support and services revenue mix and improved services margins, the effect of which was partially offset by an unfavorable license revenue mix. PSG gross margin declined in fiscal 2009, resulting from average selling prices (''ASPs'') declining at a faster pace than component costs combined with a mix shift towards lower-end products, the effects of which were partially offset by lower warranty and supply chain costs and improvements in the option attach rate. IPG gross margin improved in fiscal 2009 primarily as a result of an increase in the supplies mix and supplies pricing, the effect of which was partially offset by hardware margin declines. HPFS gross margin declined in fiscal 2009 primarily as a result of unfavorable currency impacts, lower margins relating to end-of-lease activities, higher bad debt expenses and lower margins for remarketing and buyout activities, the effect of which was partially offset by higher portfolio margins. Corporate Investments gross margin declined in fiscal 2009 primarily as a result of a unit volume decline in the sale of network infrastructure products and competitive pricing pressures.
Operating Expenses
Research and Development Total research and development (''R&D'') expense increased in fiscal 2010 due primarily to additional expenses from acquired companies. In fiscal 2010, R&D expense as a percentage of net revenue increased for Corporate Investments, HP Software and Services, decreased for ESS, PSG, and IPG and was flat for HPFS. Total R&D expense decreased in fiscal 2009 due primarily to favorable currency impacts related to the movement of the dollar against the euro, as well as effective cost controls, the effect of which was partially offset by additional expenses related primarily to Services. In fiscal 2009, R&D expense as a percentage of net revenue decreased for ESS, PSG, and IPG, and increased for HP Software, Services and Corporate Investments.
Selling, General and Administrative Selling, general and administrative (''SG&A'') expense increased in fiscal 2010 due primarily to higher field selling and marketing costs as a result of their investments in sales resources to grow revenue. In fiscal 2010, SG&A expense as a percentage of net revenue increased for Corporate Investments and IPG, and decreased for ESS, HP Software, PSG, HPFS and Services even as HP invested in incremental sales resources across the segments. Total SG&A expense decreased in fiscal 2009 due primarily to favorable currency impacts related to the movement of the dollar against the euro, lower compensation expense as well as effective cost management, the impact of which was partially offset by additional expenses related to the EDS acquisition. In fiscal 2009, SG&A expense as a percentage of net revenue decreased for each of their segments, except for Corporate Investments.
Amortization of Purchased Intangible Assets The decrease in amortization expense in fiscal 2010 was due primarily to certain intangible assets associated with prior acquisitions reaching the end of their amortization periods, the effect of which was partially offset by increased amortization of purchased intangible assets from acquisitions completed during fiscal 2010. The increase in amortization expense in fiscal 2009 was due primarily to amortization expenses related to the intangible assets purchased as part of the EDS acquisition.
Acquisition-Related Charges In fiscal 2010, HP recorded acquisition-related charges of $293 million primarily for consulting and integration costs, acquisition costs and retention bonuses associated with the EDS, 3Com, Palm, 3PAR and ArcSight acquisitions. In fiscal 2009, HP recorded acquisition-related charges of $242 million primarily for consulting and integration costs as well as retention bonuses associated with the EDS acquisition. Interest and Other, Net Interest and other, net improved by $216 million in fiscal 2010. The improvement was driven primarily by lower currency losses on balance sheet remeasurement items, lower interest expenses on debt balances due to lower interest rates, and a value-added tax refund, the effect of which was partially offset by an increase to their litigation accruals. Interest and other, net decreased by $721 million in fiscal 2009. The decrease was driven primarily by higher interest expenses due to higher average debt balances principally related to the EDS acquisition, lower interest income as a result of lower interest rates, and higher currency losses on balance sheet remeasurement items. Additionally, there were higher gains from the sale of real estate in fiscal 2008 as compared to fiscal 2009.
Provision for Taxes HPs effective tax rates were 20.2%, 18.6% and 20.5% in fiscal 2010, 2009 and 2008, respectively. HP's effective tax rate generally differs from the U.S. federal statutory rate of 35% due to favorable tax rates associated with certain earnings from HP's operations in lower-tax jurisdictions throughout the world. HP has not provided U.S. taxes for all of its international earnings because HP plans to reinvest some of those earnings indefinitely outside the United States. The increase in the overall tax rate in fiscal 2010 was due primarily to a decrease in the income tax benefits related to foreign earnings. The decrease in the overall tax rate in fiscal 2009 was due primarily to the net income tax benefits recorded for fiscal 2009 which were related to foreign net operating losses, adjustments to estimated fiscal 2008 tax accruals upon filing the 2008 income tax returns, valuation allowance reversals for state and foreign net operating losses, and other miscellaneous items.
Operating Activities
Net cash provided by operating activities decreased by approximately $1.5 billion for fiscal 2010, as compared to fiscal 2009. The decrease was due primarily to an increase in accounts and financing receivables resulting from higher revenues in the fourth quarter and higher payments for account payable activities, the impact of which was partially offset by the increase in net earnings. Net cash provided by operating activities decreased by approximately $1.2 billion for fiscal 2009, as compared to fiscal 2008. The decrease was due primarily to increased utilization of cash resources for payment of operating liabilities such as accounts payable, other current liabilities and restructuring along with a decrease in net earnings. Days of sales outstanding in accounts receivable (''DSO'') measures the average number of days HPs receivables are outstanding. DSO is calculated by dividing ending accounts receivable, net of allowance for doubtful accounts, by a 90-day average net revenue. HPs accounts receivable balance was $18.5 billion as of October 31, 2010. Days of supply in inventory (''DOS'') measures the average number of days from procurement to sale of HPs product. DOS is calculated by dividing ending inventory by a 90-day average cost of goods sold. HPs inventory balance was $6.5 billion as of October 31, 2010. Days of purchases outstanding in accounts payable (''DPO'') measures the average number of days HPs accounts payable balances are outstanding. DPO is calculated by dividing ending accounts payable by a 90-day average cost of goods sold. HPs accounts payable balance was $14.4 billion as of October 31, 2010. HPs working capital requirements depend upon HPs effective management of the cash conversion cycle, which represents effectively the number of days that elapse from the day HP pay for the purchase of raw materials to the collection of cash from HPs customers. The cash conversion cycle is the sum of DSO and DOS less DPO. The cash conversion cycle for fiscal 2010 increased by 7 days as compared to fiscal 2009. The increase in DSO was due primarily to linearity and fewer cash discounts in the fourth quarter. DOS remained flat year over year. The decrease in DPO was due primarily to a change in purchasing linearity in the fourth quarter. The cash conversion cycle for fiscal 2009 decreased by 6 days as compared to fiscal 2008. The increase in DSO was due primarily to HPs improving penetration into the enterprise market which tends to have a higher DSO profile, optimizing terms to drive shareholder value as well as more sales in the month of October. The decrease in DOS was due to lower inventory levels driven primarily by improved inventory management. The increase in DPO was due primarily to a change in purchasing linearity as business recovered through the fourth quarter.
Investing Activities
Net cash used in investing activities increased by approximately $7.8 billion for fiscal 2010 as compared to fiscal 2009 due primarily to higher cash payments made in connection with fiscal 2010 acquisitions and decreased by approximately $10.1 billion for fiscal 2009 as compared to fiscal 2008 due primarily to higher cash payments made in connection with fiscal 2008 acquisitions.
Financing Activities
Net cash used in financing activities decreased by approximately $3.8 billion for fiscal 2010, as compared to fiscal 2009. The decrease was due primarily to a higher net issuance of commercial paper, the impact of which was partially offset by increased repurchases of HPs common stock and lower global debt issuance. Net cash used in financing activities increased by approximately $4.7 billion for fiscal 2009, as compared to fiscal 2008. The increase was due primarily to higher net repayments of commercial paper and debt, the impact of which was partially offset by decreased repurchases of HPs common stock.