Restoring HP’s Balance Sheet

As we progress through the “Fix and Rebuild” year of our multi-year journey to turn HP around, my role as CFO is to ensure we do what we say we would do by taking the appropriate actions to bring costs in line with our revenue trajectory, and at the same time make the required investments for the long term, while maintaining a disciplined approach to capital allocation centered on restoring our company’s balance sheet.

To enhance our financial strength and enable investments needed to restore HP to growth, we are effectively allocating capital, driving increased cash flow and paying down our operating net debt.

We’ve emphasized many times that cash flow is the lifeblood of HP, and the progress we have made this fiscal year with our cash performance clearly indicates that the company is well positioned. Let me remind you that in the first fiscal quarter of 2013, HP generated $2.6 billion in cash flow from operations, up 115 percent from the prior-year period. Our performance in the second fiscal quarter of 2013 continues this trend. We returned more than a billion dollars to shareholders in the form of share repurchases and dividends, we also lowered our operating company net debt position by $1.8 billion quarter over quarter, to $2.9 billion.  Operating cash flow climbed 44 percent from a year ago to $3.6 billion, and free cash flow grew more than 90 percent to $2.9 billion. 

I get many questions about how we’re achieving these strong cash results, and what our strong cash result means for shareholder value.

Firstly, let me say that I am incredibly proud to see employees across HP focusing aggressively on working capital metrics, including days receivable, days payable and days of inventory. We have launched a new financial education effort, with a simple video series to educate every employee on the value of cash flow, and help them to understand how they can positively impact our financial results. The collective effort is paying off – this quarter we saw a reduction in our cash-conversion cycle by 7 days year-over-year, and 2 days sequentially.

When it comes to shareholder value, our strong cash results are key. A stronger balance sheet gives us stable access to capital markets and flexibility in an evolving technology landscape. In the short-term, shareholders will see immediate value in the form of returns from dividends and share buybacks. Today, the HP Board of Directors declared our Q3 dividend – reflecting a 10 percent increase in the quarterly dividend paid. It’s our third consecutive year of increasing the dividend.

Let me recap our Q2 balance-sheet results:

  • Operating cash flow was $3.6 billion, up 44 percent year over year and free cash flow was $2.9 billion, up over 90 percent
  • Delivered $5 billion of free cash flow in the first half of fiscal 2013, already achieving the full year outlook we provided for fiscal 2013, and are raising our FY13 free cash flow outlook to $7.5 billion
  • Repaid a $1.5 billion debt maturity with cash on hand, and this Friday (5/24) we will repay debt maturities totaling an additional $1.75 billion
  • Improved operating company net debt position by $1.8 billion, the fifth consecutive quarterly reduction of over $1 billion.  By the end of fiscal 2013, we expect our operating company net debt to be below pre Autonomy levels, and approaching our goal of approximately zero
  • We returned $1.1 billion in cash to shareholders in the form of dividends and share repurchases and raised the 3Q13 dividend by 10 percent

We are making tremendous progress rebuilding HP’s balance sheet while continuing to distribute capital back to shareholders.

In short, the turnaround at Hewlett-Packard is taking hold as we continue execute and follow through on doing what we said we would do. As Meg has said, there is much more work to be done, but from a financial perspective we have made great progress on our journey.


Forward-Looking Statements

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