The company says it also expects to save money from non-headcount cost reductions in supply chain optimization, SKU and platform rationalization, go-to-market strategy simplification and business process improvement.

The company will invest in research and development, accelerating service capabilities in cloud security and information analytics, and speed development in security, big data and other areas, to name a few.

“These initiatives build upon our recent organizational realignment, and will further streamline our operations, improve our processes, and remove complexity from our business,” said HP President and CEO Meg Whitman. “While some of these actions are difficult because they involve the loss of jobs, they are necessary to improve execution and to fund the long term health of the company. We are setting HP on a path to extend our global leadership and deliver the greatest value to customers and shareholders.”

The company also released its Q2 earnings report today, including net revenue of $30.7 billion(down 3% year over year).

“We are making progress in our multi-year effort to make HP simpler, more efficient and better for customers, employees, and shareholders,” said Whitman. “This quarter we exceeded our previously provided outlook and are executing against our strategy, but we still have a lot of work to do.”

Here’s the earnings release in its entirety:

HP Reports Second Quarter 2012 Results

PALO ALTO, CA, May 23, 2012 (MARKETWIRE via COMTEX) –HP (NYSE: HPQ) -- Second quarter non-GAAP diluted earnings per share of $0.98, above previously provided outlook of $0.88 to $0.91 per share -- Second quarter GAAP diluted earnings per share of $0.80, above previously provided outlook of $0.68 to $0.71 per share -- Second quarter net revenue of $30.7 billion, down 3% from the prior-year period -- Returned $601 million in cash to shareholders in the form of dividends and share repurchases -- Company announces multi-year restructuring to fuel innovation and enable investment -- see separate press release for details HP second quarter fiscal 2012 financial performance Q2 FY12 Q2 FY11 Y/Y GAAP net revenue ($B) $30.7 $31.6 (3%) GAAP operating margin 7.2% 9.4% (2.2 pts.) GAAP net earnings ($B) $1.6 $2.3 (31%) GAAP diluted EPS $0.80 $1.05 (24%) Non-GAAP operating margin 8.9% 11.3% (2.4 pts.) Non-GAAP net earnings ($B) $1.9 $2.7 (28%) Non-GAAP diluted EPS $0.98 $1.24 (21%) Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below. HP (NYSE: HPQ) today announced financial results for its second fiscal quarter ended April 30, 2012. For the quarter, net revenue of $30.7 billion was down 3% year over year both as reported and when adjusted for the effects of currency. GAAP diluted earnings per share (EPS) was $0.80, down 24% from the prior-year period. Non-GAAP diluted EPS was $0.98, down 21% from the prior-year period. Second quarter non-GAAP earnings information excludes after-tax costs of $356 million, or $0.18 per diluted share, related to amortization of purchased intangible assets, restructuring charges and acquisition-related charges. “We are making progress in our multi-year effort to make HP simpler, more efficient and better for customers, employees, and shareholders,” said Meg Whitman, HP president and chief executive officer. “This quarter we exceeded our previously provided outlook and are executing against our strategy, but we still have a lot of work to do.” Business Group Results -- Personal Systems Group(PSG) revenue was flat year over year with a 5.5% operating margin. Commercial revenue increased 3%, and Consumer revenue declined 4% while Workstations revenue was down 1% year over year. Desktop units were up 5%, notebook units were down 6% and total units were down 1%. -- Services revenue declined 1% year over year with an 11.3% operating margin. Technology Services revenue was flat year over year, Application and Business Services revenue grew 1% and IT Outsourcing revenue declined 3% year over year. -- Imaging and Printing Group (IPG) revenue declined 10% year over year with a 13.2% operating margin. Commercial hardware revenue was down 4% year over year with commercial printer units down 7%. Consumer hardware revenue was down 15% year over year with a 13% decline in printer units. -- Enterprise Servers, Storage and Networking (ESSN) revenue declined 6% year over year with an 11.2% operating margin. Networking revenue was up 2%, Industry Standard Servers revenue was down 6%, Business Critical Systems revenue was down 23%, and Storage revenue was up 1% year over year. -- HP Financial Services revenue grew 9% year over year driven by a 4% increase in net portfolio assets and a 5% increase in financing volume. The business delivered a 9.9% operating margin. -- Software revenue grew 22% year over year with a 17.7% operating margin, including the results of Autonomy. Software revenue was driven by 7% license growth, 17% support growth, and 72% growth in services. Autonomy saw a significant decline in license revenue. To help improve Autonomy’s performance, Bill Veghte, HP’s chief strategy officer and executive vice president of HP Software, will step in to lead Autonomy. Veghte is an experienced software leader who will help develop the right processes and discipline to scale Autonomy and fulfill its promise. Mike Lynch, Autonomy’s founder and executive vice president for Information Management, will leave HP after a transition period. The market and competitive positioning for Autonomy remain strong, particularly in cloud offerings. Asset Management HP generated $2.5 billion in cash flow from operations in the second quarter. Inventory ended the quarter at $7.3 billion, with days of inventory up 2 days year over year to 28 days. Accounts receivable of $16.6 billion was down 4 days year over year to 49 days. Accounts payable ended the quarter at $12.9 billion, down 5 days from the prior-year period to 49 days. HP’s dividend payment of $0.12 per share in the second quarter resulted in cash usage of $251 million. HP also utilized $350 million of cash during the quarter to repurchase approximately 13 million shares of common stock in the open market. HP exited the quarter with $8.7 billion in gross cash. Outlook In connection with the restructuring efforts discussed in a separate press release issued today (http://www8.hp.com/us/en/hp-news/press-release.html?id=1247078), HP expects to record a pre-tax charge of approximately $1.7 billion in fiscal 2012 that will be included in its GAAP financial results for that period. Of that amount, HP expects to record a pre-tax charge of approximately $1.0 billion in its third fiscal quarter. The cash impact associated with the restructuring efforts is expected to be approximately $400 million in fiscal year 2012. Through fiscal 2014, HP expects to record additional pre-tax charges approximating $1.8 billion that will be included in its GAAP financial results for the applicable periods. In May 2012, HP committed to a change in its PC branding strategy. As a result, HP has commenced an asset impairment analysis to determine the current value of the Compaq trade name acquired in 2002. Based on the preliminary results of that analysis, HP expects to record an impairment charge of up to approximately $1.2 billion that will be included in its GAAP financial results for its third fiscal quarter. There will be no cash impact associated with the impairment charge. For the third quarter of fiscal 2012, HP estimates non-GAAP diluted EPS to be in the range of $0.94 to $0.97 and GAAP diluted EPS to be in the range of $0.00 to $0.03. Third quarter fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $0.94 per share, related primarily to the amortization and impairment of purchased intangible assets, restructuring charges, and acquisition-related charges. For the full year fiscal 2012, HP now estimates non-GAAP diluted EPS to be in the range of $4.05 to $4.10 and GAAP diluted EPS to be in the range of $2.25 to $2.30. Full year fiscal 2012 non-GAAP diluted EPS estimates exclude after-tax costs of approximately $1.80 per share, related primarily to the amortization and impairment of purchased intangible assets, restructuring charges and acquisition-related charges. More information on HP’s quarterly earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at www.hp.com/investor/home. HP’s Q2 FY12 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2012q2webcast. About HP HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. The world’s largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and IT infrastructure to solve customer problems. More information about HP is available at http://www.hp.com. Use of non-GAAP financial information To supplement HP’s consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow. HP also provides forecasts of non-GAAP diluted earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below. In addition, an explanation of the ways in which HP management uses these non-GAAP measures to evaluate its business, the substance behind HP management’s decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which HP management compensates for those limitations, and the substantive reasons why HP management believes that these non-GAAP measures provide useful information to investors is included under “Use of Non-GAAP Financial Measures” after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for revenue, operating profit, operating margin, net earnings, diluted earnings per share, cash and cash equivalents or cash flow from operations prepared in accordance with GAAP. Forward-looking statements This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, earnings, earnings per share, tax provisions, cash flows, benefit obligations, share repurchases, currency exchange rates, the impact of acquisitions or other financial items; any projections of the amount, timing or impact of cost savings, restructuring charges, early retirement programs, workforce reductions or impairment charges; any statements of the plans, strategies and objectives of management for future operations, including the execution of restructuring plans and any resulting cost savings or revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the impact of macroeconomic and geopolitical trends and events; the competitive pressures faced by HP’s businesses; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers and partners; the protection of HP’s intellectual property assets, including intellectual property licensed from third parties; integration and other risks associated with business combination and investment transactions; the hiring and retention of key employees; assumptions related to pension and other post-retirement costs and retirement programs; the execution, timing and results of restructuring plans, including estimates and assumptions related to the cost and the anticipated benefits of implementing those plans; the resolution of pending investigations, claims and disputes; and other risks that are described in HP’s Annual Report on Form 10-K for the fiscal year ended October 31, 2011 and HP’s other filings with the Securities and Exchange Commission, including HP’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2012. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be meaningful, these amounts could differ materially from actual reported amounts in HP’s Form 10-Q for the fiscal quarter ended April 30, 2012. In particular, determining HP’s actual tax balances and provisions as of April 30, 2012 requires extensive internal and external review of tax data (including consolidating and reviewing the tax provisions of numerous domestic and foreign entities), which is being completed in the ordinary course of preparing HP’s Form 10-Q. HP assumes no obligation and does not intend to update these forward-looking statements. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited) (In millions except per share amounts) Three months ended ------------------------------------- April 30, January 31, April 30, 2012 2012 2011 ----------- ----------- ----------- Net revenue $ 30,693 $ 30,036 $ 31,632 Costs and Expenses:(a) Cost of sales 23,541 23,313 23,832 Research and development 850 786 815 Selling, general and administrative 3,540 3,367 3,425 Amortization of purchased intangible assets 470 466 413 Restructuring charges 53 40 158 Acquisition-related charges 17 22 21 ----------- ----------- ----------- Total costs and expenses 28,471 27,994 28,664 ----------- ----------- ----------- Earnings from operations 2,222 2,042 2,968 Interest and other, net (243) (221) (76) ----------- ----------- ----------- Earnings before taxes 1,979 1,821 2,892 Provision for taxes 386 353 588 ----------- ----------- ----------- Net earnings $ 1,593 $ 1,468 $ 2,304 =========== =========== =========== Net earnings per share: Basic $ 0.80 $ 0.74 $ 1.07 Diluted $ 0.80 $ 0.73 $ 1.05 Cash dividends declared per share $ - $ 0.24 $ - Weighted-average shares used to compute net earnings per share: Basic 1,979 1,981 2,150 Diluted 1,987 1,998 2,184 (a) In connection with organizational realignments implemented in the first quarter of fiscal year 2012, certain costs previously reported as Cost of Sales have been reclassified as Selling, General and Administrative expenses to better align those costs with the functional areas that benefit from those expenditures. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited) (In millions except per share amounts) Six months ended ------------------------ April 30, ------------------------ 2012 2011 ----------- ----------- Net revenue $ 60,729 $ 63,934 Costs and expenses:(a) Cost of sales 46,854 48,213 Research and development 1,636 1,613 Selling, general and administrative 6,907 6,542 Amortization of purchased intangible assets 936 838 Restructuring charges 93 316 Acquisition-related charges 39 50 ----------- ----------- Total costs and expenses 56,465 57,572 ----------- ----------- Earnings from operations 4,264 6,362 Interest and other, net (464) (173) ----------- ----------- Earnings before taxes 3,800 6,189 Provision for taxes 739 1,280 ----------- ----------- Net earnings $ 3,061 $ 4,909 =========== =========== Net earnings per share: Basic $ 1.55 $ 2.27 Diluted $ 1.53 $ 2.23 Cash dividends declared per share $ 0.24 $ 0.16 Weighted-average shares used to compute net earnings per share: Basic 1,980 2,166 Diluted 1,995 2,203 (a) In connection with organizational realignments implemented in the first quarter of fiscal year 2012, certain costs previously reported as Cost of Sales have been reclassified as Selling, General and Administrative expenses to better align those costs with the functional areas that benefit from those expenditures. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS, OPERATING MARGIN AND EARNINGS PER SHARE (Unaudited) (In millions except per share amounts) Three Three Three months months months ended Diluted ended Diluted ended Diluted April earnings January earnings April earnings 30, per 31, per 30, per 2012 share 2012 share 2011 share ------- -------- ------- -------- ------- -------- GAAP net earnings $ 1,593 $ 0.80 $ 1,468 $ 0.73 $ 2,304 $ 1.05 Non-GAAP adjustments: Amortization of purchased intangible assets 470 0.23 466 0.24 413 0.19 Restructuring charges 53 0.03 40 0.02 158 0.07 Acquisition- related charges 17 0.01 22 0.01 21 0.01 Wind down of the webOS device business(a) (36) (0.02) - - - - Adjustments for taxes (148) (0.07) (164) (0.08) (179) (0.08) ------- -------- ------- -------- ------- -------- Non-GAAP net earnings $ 1,949 $ 0.98 $ 1,832 $ 0.92 $ 2,717 $ 1.24 ======= ======== ======= ======== ======= ======== GAAP earnings from operations $ 2,222 $ 2,042 $ 2,968 Non-GAAP adjustments: Amortization of purchased intangible assets 470 466 413 Restructuring charges 53 40 158 Acquisition- related charges 17 22 21 Wind down of the webOS device business(a) (36) - - ------- ------- ------- Non-GAAP earnings from operations $ 2,726 $ 2,570 $ 3,560 ======= ======= ======= GAAP operating margin 7% 7% 9% Non-GAAP adjustments 2% 2% 2% ------- ------- ------- Non-GAAP operating margin 9% 9% 11% ======= ======= ======= (a) Primarily includes adjustments to expenses for supplier-related obligations related to winding down the webOS device business. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS, OPERATING MARGIN AND EARNINGS PER SHARE (Unaudited) (In millions except per share amounts) Six months Six months ended Diluted ended Diluted April 30, earnings April 30, earnings 2012 per share 2011 per share ---------- ---------- ---------- ---------- GAAP net earnings $ 3,061 $ 1.53 $ 4,909 $ 2.23 Non-GAAP adjustments: Amortization of purchased intangible assets 936 0.47 838 0.39 Restructuring charges 93 0.05 316 0.14 Acquisition-related charges 39 0.02 50 0.02 Wind down of the webOS device business(a) (36) (0.02) - - Adjustments for taxes (312) (0.15) (366) (0.17) ---------- ---------- ---------- ---------- Non-GAAP net earnings $ 3,781 $ 1.90 $ 5,747 $ 2.61 ========== ========== ========== ========== GAAP earnings from operations $ 4,264 $ 6,362 Non-GAAP adjustments: Amortization of purchased intangible assets 936 838 Restructuring charges 93 316 Acquisition-related charges 39 50 Wind down of the webOS device business(a) (36) - ---------- ---------- Non-GAAP earnings from operations $ 5,296 $ 7,566 ========== ========== GAAP operating margin 7% 10% Non-GAAP adjustments 2% 2% ---------- ---------- Non-GAAP operating margin 9% 12% ========== ========== (a) Primarily includes adjustments to expenses for supplier-related obligations related to winding down the webOS device business. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In millions) April 30, October 31, 2012 2011 ----------- ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 8,311 $ 8,043 Accounts receivable 16,609 18,224 Financing receivables 3,139 3,162 Inventory 7,306 7,490 Other current assets 14,324 14,102 ----------- ----------- Total current assets 49,689 51,021 ----------- ----------- Property, plant and equipment 12,236 12,292 Long-term financing receivables and other assets 11,018 10,755 Goodwill and purchased intangible assets 54,746 55,449 ----------- ----------- Total assets $ 127,689 $ 129,517 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and short-term borrowings $ 4,252 $ 8,083 Accounts payable 12,900 14,750 Employee compensation and benefits 3,609 3,999 Taxes on earnings 871 1,048 Deferred revenue 7,582 7,449 Other accrued liabilities 13,585 15,113 ----------- ----------- Total current liabilities 42,799 50,442 ----------- ----------- Long-term debt 25,825 22,551 Other liabilities 17,368 17,520 Stockholders' equity: HP stockholders' equity 41,288 38,625 Non-controlling interests 409 379 ----------- ----------- Total stockholders' equity 41,697 39,004 ----------- ----------- Total liabilities and stockholders' equity $ 127,689 $ 129,517 =========== =========== HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In millions) Three months Six months ended ended April 30, April 30, 2012 2012 ------------ ------------ Cash flows from operating activities: Net earnings $ 1,593 $ 3,061 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,285 2,588 Stock-based compensation expense 169 344 Provision for bad debt and inventory 95 147 Restructuring charges 53 93 Deferred taxes on earnings (45) (155) Excess tax benefit from stock-based compensation (1) (12) Other, net 196 240 Changes in operating assets and liabilities: Accounts and financing receivables (832) 1,479 Inventory (91) 89 Accounts payable 525 (1,851) Taxes on earnings (42) (54) Restructuring (100) (274) Other assets and liabilities (332) (2,029) ------------ ------------ Net cash provided by operating activities 2,473 3,666 ------------ ------------ Cash flows from investing activities: Investment in property, plant and equipment (1,080) (1,963) Proceeds from sale of property, plant and equipment 128 224 Purchases of available-for-sale securities and other investments (565) (565) Maturities and sales of available-for-sale securities and other investments 250 346 Payments made in connection with business acquisitions, net of cash acquired - (141) Proceeds from business divestiture, net - 81 ------------ ------------ Net cash used in investing activities (1,267) (2,018) ------------ ------------ Cash flows from financing activities: Repayment of commercial paper and notes payable, net (185) (2,792) Issuance of debt 2,017 5,052 Payment of debt (2,561) (2,661) Issuance of common stock under employee stock plans 321 634 Repurchase of common stock (350) (1,130) Excess tax benefit from stock-based compensation 1 12 Cash dividends paid (251) (495) ------------ ------------ Net cash used in financing activities (1,008) (1,380) ------------ ------------ Increase in cash and cash equivalents 198 268 Cash and cash equivalents at beginning of period 8,113 8,043 ------------ ------------ Cash and cash equivalents at end of period $ 8,311 $ 8,311 ============ ============ HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited) (In millions) Three months ended ------------------------------------- April 30, January 31, April 30, 2012 2012 2011 ----------- ----------- ----------- Net revenue:(a) Personal Systems Group $ 9,452 $ 8,873 $ 9,415 Services 8,831 8,626 8,916 Imaging and Printing Group 6,132 6,258 6,843 Enterprise Servers, Storage and Networking 5,211 5,018 5,516 Software 970 946 797 HP Financial Services 968 950 885 Corporate Investments 18 58 42 ----------- ----------- ----------- Total segments 31,582 30,729 32,414 Eliminations of intersegment net revenue and other (889) (693) (782) ----------- ----------- ----------- Total HP consolidated net revenue $ 30,693 $ 30,036 $ 31,632 =========== =========== =========== Earnings before taxes:(a) Personal Systems Group $ 524 $ 464 $ 533 Services 997 905 1,372 Imaging and Printing Group 808 761 1,136 Enterprise Servers, Storage and Networking 585 562 760 Software 172 162 158 HP Financial Services 96 91 83 Corporate Investments (49) (48) (199) ----------- ----------- ----------- Total segment earnings from operations 3,133 2,897 3,843 Corporate and unallocated costs and eliminations (203) (153) (153) Unallocated costs related to stock- based compensation expense (168) (174) (130) Amortization of purchased intangible assets (470) (466) (413) Restructuring charges (53) (40) (158) Acquisition-related charges (17) (22) (21) Interest and other, net (243) (221) (76) ----------- ----------- ----------- Total HP consolidated earnings before taxes $ 1,979 $ 1,821 $ 2,892 =========== =========== =========== (a) Certain fiscal 2012 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2011, the reclassifications resulted in the transfer of revenue and operating profit among the Services, Imaging and Printing Group, Enterprise Servers, Storage and Networking, Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of the Indigo Scitex support and the LaserJet and enterprise solutions trade support businesses from Services to the Imaging and Printing Group, the transfer of the business intelligence services business from Corporate Investments to Services, the transfer of the information management services business from Software to Services, and the transfer of the TippingPoint business from Enterprise Servers, Storage and Networking to Software. There was no impact on the previously reported financial results for the Personal Systems Group and HP Financial Services segments. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT INFORMATION (Unaudited) (In millions) Six months ended April 30, ------------------------ 2012 2011 ----------- ----------- Net revenue:(a) Personal Systems Group $ 18,325 $ 19,864 Services 17,457 17,445 Imaging and Printing Group 12,390 13,574 Enterprise Servers, Storage and Networking 10,229 11,115 Software 1,916 1,522 HP Financial Services 1,918 1,712 Corporate Investments 76 104 ----------- ----------- Total Segments 62,311 65,336 Eliminations of intersegment net revenue and other (1,582) (1,402) ----------- ----------- Total HP consolidated net revenue $ 60,729 $ 63,934 =========== =========== Earnings before taxes:(a) Personal Systems Group $ 988 $ 1,205 Services 1,902 2,753 Imaging and Printing Group 1,569 2,255 Enterprise Servers, Storage and Networking 1,147 1,590 Software 334 278 HP Financial Services 187 162 Corporate Investments (97) (377) ----------- ----------- Total segment earnings from operations 6,030 7,866 Corporate and unallocated costs and eliminations (356) (4) Unallocated costs related to stock-based compensation expense (342) (296) Amortization of purchased intangible assets (936) (838) Restructuring charges (93) (316) Acquisition-related charges (39) (50) Interest and other, net (464) (173) ----------- ----------- Total HP consolidated earnings before taxes $ 3,800 $ 6,189 =========== =========== (a) Certain fiscal 2012 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2011, the reclassifications resulted in the transfer of revenue and operating profit among the Services, Imaging and Printing Group, Enterprise Servers, Storage and Networking, Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of the Indigo Scitex support and the LaserJet and enterprise solutions trade support businesses from Services to the Imaging and Printing Group, the transfer of the business intelligence services business from Corporate Investments to Services, the transfer of the information management services business from Software to Services, and the transfer of the TippingPoint business from Enterprise Servers, Storage and Networking to Software. There was no impact on the previously reported financial results for the Personal Systems Group and HP Financial Services segments. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT / BUSINESS UNIT INFORMATION (Unaudited) (In millions) Growth rate Three months ended (%) ------------------------------------- ----------- April 30, January 31, April 30, 2012 2012 2011 Q/Q Y/Y ----------- ----------- ----------- ---- ---- Net revenue:(a) Personal Systems Group Notebooks $ 4,900 $ 4,942 $ 5,039 (1%) (3%) Desktops 3,827 3,206 3,641 19% 5% Workstations 537 535 541 0% (1%) Other 188 190 194 (1%) (3%) ----------- ----------- ----------- Total Personal Systems Group 9,452 8,873 9,415 7% 0% ----------- ----------- ----------- Services Infrastructure Technology Outsourcing 3,669 3,701 3,786 (1%) (3%) Technology Services 2,638 2,562 2,629 3% 0% Application and Business Services(b) 2,524 2,363 2,501 7% 1% ----------- ----------- ----------- Total Services 8,831 8,626 8,916 2% (1%) ----------- ----------- ----------- Imaging and Printing Group Supplies 4,060 4,079 4,612 0% (12%) Commercial Hardware 1,479 1,489 1,536 (1%) (4%) Consumer Hardware 593 690 695 (14%) (15%) ----------- ----------- ----------- Total Imaging and Printing Group 6,132 6,258 6,843 (2%) (10%) ----------- ----------- ----------- Enterprise Servers, Storage and Networking Industry Standard Servers 3,186 3,072 3,387 4% (6%) Storage 990 955 980 4% 1% Business Critical Systems 421 405 546 4% (23%) Networking 614 586 603 5% 2% ----------- ----------- ----------- Total Enterprise Servers, Storage and Networking 5,211 5,018 5,516 4% (6%) ----------- ----------- ----------- Software 970 946 797 3% 22% ----------- ----------- ----------- HP Financial Services 968 950 885 2% 9% ----------- ----------- ----------- Corporate Investments 18 58 42 (69%) (57%) ----------- ----------- ----------- Total segments 31,582 30,729 32,414 3% (3%) ----------- ----------- ----------- Elimination of intersegment net revenue and other (889) (693) (782) 28% 14% ----------- ----------- ----------- Total HP consolidated net revenue $ 30,693 $ 30,036 $ 31,632 2% (3%) =========== =========== =========== (a) Certain fiscal 2012 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2011, the reclassifications resulted in the transfer of revenue among the Services, Imaging and Printing Group, Enterprise Servers, Storage and Networking, Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of Indigo Scitex support and the LaserJet and enterprise solutions trade support businesses from Services to the Imaging and Printing Group, the transfer of the business intelligence services business from Corporate Investments to Services, the transfer of the information management services business from Software to Services, and the transfer of the TippingPoint business from Enterprise Servers, Storage and Networking to Software. In addition, revenue was transferred among the business units within the Services segment. There was no impact on the previously reported financial results for the Personal Systems Group and HP Financial Services segments. (b) The former Application Services, Business Process Outsourcing and Other Services business units were consolidated into a new Application and Business Services business unit in fiscal 2012. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT / BUSINESS UNIT INFORMATION (Unaudited) (In millions) Six months ended April 30, ------------------------ 2012 2011 ----------- ----------- Net revenue:(a) Personal Systems Group Notebooks $ 9,842 $ 10,847 Desktops 7,033 7,537 Workstations 1,072 1,076 Other 378 404 ----------- ----------- Total Personal Systems Group 18,325 19,864 ----------- ----------- Services Infrastructure Technology Outsourcing 7,370 7,430 Technology Services 5,200 5,143 Application and Business Services(b) 4,887 4,872 ----------- ----------- Total Services 17,457 17,445 ----------- ----------- Imaging and Printing Group Supplies 8,139 8,970 Commercial Hardware 2,968 3,101 Consumer Hardware 1,283 1,503 ----------- ----------- Total Imaging and Printing Group 12,390 13,574 ----------- ----------- Enterprise Servers, Storage and Networking Industry Standard Servers 6,258 6,835 Storage 1,945 1,992 Business Critical Systems 826 1,101 Networking 1,200 1,187 ----------- ----------- Total Enterprise Servers, Storage and Networking 10,229 11,115 ----------- ----------- Software 1,916 1,522 ----------- ----------- HP Financial Services 1,918 1,712 ----------- ----------- Corporate Investments 76 104 ----------- ----------- Total segments 62,311 65,336 ----------- ----------- Elimination of intersegment net revenue and other (1,582) (1,402) ----------- ----------- Total HP consolidated net revenue $ 60,729 $ 63,934 =========== =========== (a) Certain fiscal 2012 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2011, the reclassifications resulted in the transfer of revenue among the Services, Imaging and Printing Group, Enterprise Servers, Storage and Networking, Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of Indigo Scitex support and the LaserJet and enterprise solutions trade support businesses from Services to the Imaging and Printing Group, the transfer of the business intelligence services business from Corporate Investments to Services, the transfer of the information management services business from Software to Services, and the transfer of the TippingPoint business from Enterprise Servers, Storage and Networking to Software. In addition, revenue was transferred among the business units within the Services segment. There was no impact on the previously reported financial results for the Personal Systems Group and HP Financial Services segments. (b) The former Application Services, Business Process Outsourcing and Other Services business units were consolidated into a new Application and Business Services business unit in fiscal 2012. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SEGMENT NON-GAAP OPERATING MARGIN SUMMARY DATA (Unaudited) (In millions) Three months Change in Operating ended Margin (pts) ------------ ---------------------- April 30, 2012 Q/Q Y/Y ------------ ---------- ---------- Non-GAAP operating margin:(a) Personal Systems Group 5.5% 0.3 pts (0.2 pts) Services 11.3% 0.8 pts (4.1 pts) Imaging and Printing Group 13.2% 1.0 pts (3.4 pts) Enterprise Servers, Storage and Networking 11.2% 0.0 pts (2.6 pts) Software 17.7% 0.6 pts (2.1 pts) HP Financial Services 9.9% 0.3 pts 0.5 pts Corporate Investments (472.2%) (389.4 pts) 1.6 pts Total segments 9.8% 0.4 pts (2.1 pts) Total HP consolidated non-GAAP operating margin 8.9% 0.3 pts (2.4 pts) (a) Certain fiscal 2012 organizational reclassifications have been reflected retroactively to provide improved visibility and comparability. For each of the quarters in fiscal year 2011, the reclassifications resulted in the transfer of revenue and operating profit among the Services, Imaging and Printing Group, Enterprise Servers, Storage and Networking, Software and Corporate Investments financial reporting segments. Reclassifications between segments included the transfer of Indigo Scitex support and the LaserJet and enterprise solutions trade support businesses from Services to the Imaging and Printing Group, the transfer of the business intelligence services business from Corporate Investments to Services, the transfer of the information management services business from Software to Services, and the transfer of the TippingPoint business from Enterprise Servers, Storage and Networking to Software. There was no impact on the previously reported financial results for the Personal Systems Group and HP Financial Services segments. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CALCULATION OF NET EARNINGS PER SHARE (Unaudited) (In millions except per share amounts) Three months ended ------------------------------------- April 30, January 31, April 30, 2012 2012 2011 ----------- ----------- ----------- Numerator: GAAP net earnings $ 1,593 $ 1,468 $ 2,304 =========== =========== =========== Non-GAAP net earnings $ 1,949 $ 1,832 $ 2,717 =========== =========== =========== Denominator: Weighted-average shares used to compute basic EPS 1,979 1,981 2,150 Dilutive effect of employee stock plans 8 17 34 ----------- ----------- ----------- Weighted-average shares used to compute diluted EPS 1,987 1,998 2,184 =========== =========== =========== GAAP net earnings per share: Basic(a) $ 0.80 $ 0.74 $ 1.07 Diluted(c) $ 0.80 $ 0.73 $ 1.05 Non-GAAP net earnings per share: Basic(b) $ 0.98 $ 0.92 $ 1.26 Diluted(c) $ 0.98 $ 0.92 $ 1.24 (a) GAAP basic earnings per share were calculated based on GAAP net earnings and the weighted-average number of shares outstanding during the reporting period. (b) Non-GAAP basic earnings per share were calculated based on non-GAAP net earnings and the weighted-average number of shares outstanding during the reporting period. (c) Diluted net earnings per share included any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock. HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CALCULATION OF NET EARNINGS PER SHARE (Unaudited) (In millions except per share amounts) Six months ended April 30, ------------------------ 2012 2011 ----------- ----------- Numerator: GAAP net earnings $ 3,061 $ 4,909 =========== =========== Non-GAAP net earnings $ 3,781 $ 5,747 =========== =========== Denominator: Weighted-average shares used to compute basic EPS 1,980 2,166 Dilutive effect of employee stock plans 15 37 ----------- ----------- Weighted-average shares used to compute diluted EPS 1,995 2,203 =========== =========== GAAP net earnings per share: Basic(a) $ 1.55 $ 2.27 Diluted(c) $ 1.53 $ 2.23 Non-GAAP net earnings per share: Basic(b) $ 1.91 $ 2.65 Diluted(c) $ 1.90 $ 2.61 (a) GAAP basic earnings per share were calculated based on GAAP net earnings and the weighted-average number of shares outstanding during the reporting period. (b) Non-GAAP basic earnings per share were calculated based on non-GAAP net earnings and the weighted-average number of shares outstanding during the reporting period. (c) Diluted net earnings per share included any dilutive effect of outstanding stock options, performance-based restricted units, restricted stock units and restricted stock. Use of Non-GAAP Financial Measures To supplement HP’s consolidated condensed financial statements presented on a GAAP basis, HP provides non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow. HP also provides forecasts of non-GAAP diluted earnings per share. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP net revenue is net revenue. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted earnings per share is diluted net earnings per share. The GAAP measure most directly comparable to gross cash is cash and cash equivalents. The GAAP measure most directly comparable to free cash flow is cash flow from operations. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above. Use and Economic Substance of Non-GAAP Financial Measures Used by HP Non-GAAP net revenue reflects the elimination of contra revenue associated with sales incentive programs implemented in the fourth fiscal quarter of 2011 in connection with the wind down of HP’s webOS device business, net of webOS device revenue for the period. Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the impairment of goodwill and purchased intangible assets, charges relating to the amortization of purchased intangible assets, and acquisition-related charges recorded during the relevant period. Non-GAAP net earnings and non-GAAP diluted earnings per share consist of net earnings or diluted net earnings per share excluding those same charges. In addition, non-GAAP net earnings and non-GAAP diluted earnings per share are adjusted by the amount of additional taxes or tax benefit associated with each non-GAAP item. HP’s management uses these non-GAAP financial measures for purposes of evaluating HP’s historical and prospective financial performance, as well as HP’s performance relative to its competitors. HP’s management also uses these non-GAAP measures to further its own understanding of HP’s segment operating performance. HP believes that excluding those items mentioned above from these non-GAAP financial measures allows HP management to better understand HP’s consolidated financial performance in relationship to the operating results of HP’s segments, as management does not believe that the excluded items are reflective of ongoing operating results. More specifically, HP’s management excludes each of those items mentioned above for the following reasons: -- In the fourth quarter of fiscal 2011, HP announced that it would wind down its webOS device business. Non-GAAP net revenue reported in the fourth quarter of fiscal 2011 reflects the elimination of contra revenue associated with sales incentive programs implemented in connection with the wind down of that business, net of webOS device revenue for the period. Because the winding down of HP businesses is inconsistent in amount and frequency, HP believes that eliminating these amounts for purposes of calculating non-GAAP net revenue facilitates a more meaningful evaluation of HP's current operating performance and comparisons to HP's past and future operating performance. -- Goodwill is the excess of the purchase price of acquired companies over the estimated fair value of the tangible and intangible assets acquired and liabilities assumed. Purchased intangible assets consist primarily of customer contracts, customer lists, distribution agreements, technology patents, and products, trademarks and trade names purchased in connection with acquisitions. In the fourth quarter of fiscal 2011, HP recorded impairment charges to goodwill and certain intangible assets associated with the acquisition of Palm Inc. The charges relate to HP's decision to wind-down the webOS device business. Impairment charges are inconsistent in amount and frequency. HP excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of HP's current operating performance and comparisons to HP's past and future operating performance. -- HP incurs charges relating to the amortization of purchased intangibles. HP also incurs charges relating to the amortization of amounts assigned to intangible assets to be used in research and development projects. All of those charges are included in HP's GAAP presentation of earnings from operations, operating margin, net earnings and net earnings per share. Such charges are inconsistent in amount and frequency and are significantly impacted by the timing and magnitude of HP's acquisitions. Consequently, HP excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of HP's current operating performance and comparisons to HP's past and future operating performance. -- Restructuring charges consist of costs associated with a formal restructuring plan and are primarily related to (i) employee termination costs and benefits, and (ii) costs to vacate duplicative facilities. HP excludes these restructuring costs (and any reversals of charges recorded in prior periods) for purposes of calculating these non-GAAP measures because it believes that these historical costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of HP's current operating performance or comparisons to HP's past and future operating performance. -- HP incurs costs related to its acquisitions, most of which are treated as non-capitalized expenses. Because non-capitalized, acquisition-related expenses are inconsistent in amount and frequency and are significantly impacted by the timing and nature of HP's acquisitions, HP believes that eliminating the non-capitalized expenses for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of HP's current operating performance and comparisons to HP's past and future operating performance. Gross cash is a non-GAAP measure that is defined as cash and cash equivalents plus short-term investments and certain long-term investments that may be liquidated within 90 days pursuant to the terms of existing put options or similar rights. Free cash flow is defined as cash flow from operations less net capital expenditures. HP’s management uses gross cash and free cash flow for the purpose of determining the amount of cash available for investment in HP’s businesses, funding strategic acquisitions, repurchasing stock and other purposes. HP’s management also uses gross cash and free cash flow for the purposes of evaluating HP’s historical and prospective liquidity, as well as to further its own understanding of HP’s segment operating results. Because gross cash includes liquid assets that are not included in GAAP cash and cash equivalents, HP believes that gross cash provides a more accurate and complete assessment of HP’s liquidity and segment operating results. Because free cash flow includes the effect of capital expenditures that are not reflected in GAAP cash flow from operations, HP believes that free cash flow provides a more accurate and complete assessment of HP’s liquidity and capital resources. Material Limitations Associated with Use of Non-GAAP Financial Measures These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HP’s results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are: -- Items such as amortization of purchased intangible assets, though not directly affecting HP's cash position, represent the loss in value of intangible assets over time. The expense associated with this loss in value is not included in non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share and therefore does not reflect the full economic effect of the loss in value of those intangible assets. -- Items such as restructuring charges that are excluded from non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted earnings per share can have a material impact on cash flows and earnings per share. -- HP may not be able to liquidate immediately the long-term investments included in gross cash, which may limit the usefulness of gross cash as a liquidity measure. -- Other companies may calculate non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow differently than HP does, limiting the usefulness of those measures for comparative purposes. Compensation for Limitations Associated with Use of Non-GAAP Financial Measures HP compensates for the limitations on its use of non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this press release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations. Usefulness of Non-GAAP Financial Measures to Investors HP believes that providing non-GAAP net revenue, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted earnings per share, gross cash and free cash flow to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by HP’s management in its financial and operational decision-making and allows investors to see HP’s results “through the eyes” of management. HP further believes that providing this information better enables HP’s investors to understand HP’s operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of HP’s operating performance with the performance of other companies in HP’s industry that supplement their GAAP results with non-GAAP financial measures that are calculated in a similar manner. Copyright 2012 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. The only warranties for HP products and services are set forth in the express warranty statements accompanying such products and services. Nothing herein should be construed as constituting an additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein. SOURCE: HP

Facebook says shares will begin trading on the NASDAQ under the symbol “FB.” The company is offering 180,000,000 shares of Class A common stock. Selling stockholders are offering 241,233,615 shares of Class A common stock.

According to the New York Times, it’s the third largest public offering in the history of the U.S. (just behind GM and Visa).

Wow. I hope it doesn’t become the next Myspace.

As a quick refresher, here’s what the company listed as risk factors.

Facebook says closing of the offering is expected to occur on May 22 (subject to customary closing conditions).

The company and stockholders have granted the underwriters a 30-day option to purchase up to 63,185,042 additional shares of Class A common stock “to cover over-allotments, if any.”

The IPO ‘s book runners are: Morgan Stanley, J.P. Morgan, Goldman, Sachs & Co., BofA Merrill Lynch, Barclays, Allen & Company LLC, Citigroup, Credit Suisse and Deutsche Bank Securities. RBC Capital Markets and Wells Fargo Securities are serving as active co-managers.

CEO Richard Rosenblatt discussed eHow’s progress during the company’s earnings call.

It was the second quarter in a row in which eHow saw revenue growth. The company’s free cash flow was also greatly impacted (increased by $11.8 million YoY) by the company’s decreased content spend on eHow.

He said they have removed over 600,000 pieces of low quality content, while adding additional higher quality content. The company had indicated in the past that it deleted 300,000 articles, so clearly this is a substantial decrease in content.

Rosenblatt also made another interesting comment, seemingly implying that the “clean-up” process may evolve to finding other uses for some of the content. He said they may remove some content form the site and put it elsewhere where it can still generate revenue. This is apparently for things that are too similar to other existing articles on the property, rather than necessarily low quality content.

With regards to the content that has already been deleted, he said, “We just wanted to take that one broad stroke and show that we could clean it up.”

Other improvements included: redesigning article pages, increasing the number of image rich pages, creating high quality video content, incorporating high production value video content from the YouTube channel and launching eHow spark, a social product. eHow Spark users, he said, generate three times the page views of typical eHow users.

eHow’s mobile audience, he said, grew by 29%. He also said they’re increasing their efforts in mobile monetization.

The company has been tweeting out various stats as well:

That’s the company as a whole – not just eHow, by the way, but eHow is obviously a huge part of it.

Another interesting point brought out by Rosenblatt during the Q&A portion of the call: monetization on the iPad is the same or better than the deskop for eHow.

It’s also clear that mobile is a major focus. Rosenblatt says people would rather consume the content on mobile, for eHow’s cooking/fixing things-type videos.

CEO Richard Rosenblatt said, “Driven by continued growth across our businesses, our first quarter revenue exceeded our seasonally strong Q4 2011 results. We are pleased with our first quarter results and remain focused on investing in our long-term growth initiatives, including enhancing the quality of our Owned & Operated properties, expanding our content distribution channels and partnerships, and pursuing new generic Top Level Domain opportunities.”

It was the second quarter in a row in which eHow saw revenue growth. The company’s free cash flow was also greatly impacted (increased by $11.8 million YoY) by the company’s decreased content spend on eHow.

According to the report, eHow ranked as the #17 website in the US in March 2012, up from #19 in July 2011. LIVESTRONG.COM/eHow Health continued to rank as the #3 Health property in the US based on unique visits throughout the first quarter of 2012, it says.

Another major point of interest:

Owned & Operated page views increased 22% year-over-year, driven primarily by strong traffic growth to Cracked.com and LIVESTRONG.COM, partially offset by lower year-over-year eHow.com page views due to early 2011 search algorithm changes.

That would be Google’s Panda update. During its last earnings call, however, the company said it had not been impacted by a Google algorithm change since July. We’ll be listening to today’s call, and will see what they have to say about it this time. Stay tuned.

For now, here’s the release in its entirety:

SANTA MONICA, Calif.–(BUSINESS WIRE)–May. 8, 2012– Demand Media, Inc. (NYSE: DMD), a leading content and social media company, today reported financial results for the quarter ended March 31, 2012 and raised its previously issued fiscal 2012 financial guidance.

Source: Demand Media, Inc.

Sure enough, cost-per-click is down even more this time. Here’s the relevant part of the release:

Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 12% over the first quarter of 2011 and decreased approximately 6% over the fourth quarter of 2011.

“Google had another great quarter with revenues up 24% year on year,” said CEO Larry Page. “We also saw tremendous momentum from the big bets we’ve made in products like Android, Chrome and YouTube. We are still at the very early stages of what technology can do to improve people’s lives and we have enormous opportunities ahead. It is a very exciting time to be at Google.”

Oh yeah, and about that dividend…

Google also announced that its Board of Directors unanimously approved a stock dividend proposal, “designed to preserve the corporate structure that has allowed Google to remain focused on the long term.”

Last week, Page put out a big letter to investors, talking about Google’s focus and direction. You can read that whole thing here. I’m sure we’ll be hearing more about all of that this afternoon, and most likely some about that new “simpler, more beautiful Google“. Either way, here’s more on that, including why users like and don’t like it.

Hopefully Project Glass will come up.

From the earnings call: Google Dividend Provides Two-For-One Stock Split

Here’s the release in its entirety:

MOUNTAIN VIEW, Calif. – April 12, 2012 – Google Inc. (NASDAQ: GOOG) today announced financial results for the quarter ended March 31, 2012.

“Google had another great quarter with revenues up 24% year on year,” said Larry Page, CEO of Google.  “We also saw tremendous momentum from the big bets we’ve made in products like Android, Chrome and YouTube. We are still at the very early stages of what technology can do to improve people’s lives and we have enormous opportunities ahead.  It is a very exciting time to be at Google.”

Google announced today that its Board of Directors unanimously approved a stock dividend proposal designed to preserve the corporate structure that has allowed Google to remain focused on the long term. More information is available on our Investor Relations site, including a letter from our founders Larry Page and Sergey Brin explaining the proposal, and in our forthcoming proxy statement.

Q1 Financial Summary

Google reported revenues of $10.65 billion for the quarter ended March 31, 2012, an increase of 24% compared to the first quarter of 2011. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the first quarter of 2012, TAC totaled $2.51 billion, or 25% of advertising revenues.

Google reports operating income, operating margin, net income, and earnings per share (EPS) on a GAAP and non-GAAP basis. The non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, are described below and are reconciled to the corresponding GAAP measures at the end of this release.

• GAAP operating income in the first quarter of 2012 was $3.39 billion, or 32% of revenues. This compares to GAAP operating income of $2.30 billion, or 27% of revenues, in the first quarter of 2011. Non-GAAP operating income in the first quarter of 2012 was $3.94 billion, or 37% of revenues. This compares to non-GAAP operating income of $3.23 billion, or 38% of revenues, in the first quarter of 2011.
• GAAP net income in the first quarter of 2012 was $2.89 billion, compared to $1.80 billion in the first quarter of 2011. Non-GAAP net income in the first quarter of 2012 was $3.33 billion, compared to $2.64 billion in the first quarter of 2011.
• GAAP EPS in the first quarter of 2012 was $8.75 on 330 million diluted shares outstanding, compared to $5.51 in the first quarter of 2011 on 326 million diluted shares outstanding. Non-GAAP EPS in the first quarter of 2012 was $10.08, compared to $8.08 in the first quarter of 2011.
• Non-GAAP operating income and non-GAAP operating margin exclude the expenses related to stock-based compensation (SBC) and a charge related to the resolution of a Department of Justice investigation in the first quarter of 2011. Non-GAAP net income and non-GAAP EPS exclude the expenses noted above, net of the related tax benefits. In the first quarter of 2012, the charge related to SBC and related tax benefits were $556 million and $118 million compared to $432 million and $92 million in the first quarter of 2011. In the first quarter of 2011, the charge related to the resolution of the Department of Justice investigation was $500 million. We recognized no tax benefit for the charge related to the resolution of the Department of Justice investigation. Reconciliations of non-GAAP measures to GAAP operating income, operating margin, net income, and EPS are included at the end of this release.

Q1 Financial Highlights

Revenues – Google reported revenues of $10.65 billion in the first quarter of 2012, representing a 24% increase over first quarter 2011 revenues of $8.58 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting TAC.

Google Sites Revenues - Google-owned sites generated revenues of $7.31 billion, or 69% of total revenues, in the first quarter of 2012. This represents a 24% increase over first quarter 2011 revenues of $5.88 billion.

Google Network Revenues - Google’s partner sites generated revenues of $2.91 billion, or 27% of total revenues, in the first quarter of 2012. This represents a 20% increase from first quarter 2011 network revenues of $2.43 billion.

International Revenues - Revenues from outside of the United States totaled $5.77 billion, representing 54% of total revenues in the first quarter of 2012, compared to 53% in the fourth quarter of 2011 and 53% in the first quarter of 2011. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the fourth quarter of 2011 through the first quarter of 2012, our revenues in the first quarter of 2012 would have been $79 million higher. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the first quarter of 2011 through the first quarter of 2012, our revenues in the first quarter of 2012 would have been $67 million higher.

• Revenues from the United Kingdom totaled $1.15 billion, representing 11% of revenues in the first quarter of 2012, compared to 11% in the first quarter of 2011.
• In the first quarter of 2012, we recognized a benefit of $37 million to revenues through our foreign exchange risk management program, compared to $14 million in the first quarter of 2011.

A reconciliation of our non-GAAP international revenues excluding the impact of foreign exchange and hedging to GAAP international revenues is included at the end of this release.

Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 39% over the first quarter of 2011 and increased approximately 7% over the fourth quarter of 2011.

Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 12% over the first quarter of 2011 and decreased approximately 6% over the fourth quarter of 2011.

TAC - Traffic acquisition costs, the portion of revenues shared with Google’s partners, increased to $2.51 billion in the first quarter of 2012, compared to TAC of $2.04 billion in the first quarter of 2011. TAC as a percentage of advertising revenues was 25% in the first quarter of 2012, compared to 25% in the first quarter of 2011.

The majority of TAC is related to amounts ultimately paid to our Network members, which totaled $2.04 billion in the first quarter of 2012. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $468 million in the first quarter of 2012.

Other Cost of Revenues - Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs, and credit card processing charges increased to $1.28 billion, or 12% of revenues, in the first quarter of 2012, compared to $897 million, or 10% of revenues, in the first quarter of 2011.

Operating Expenses - Operating expenses, other than cost of revenues, were $3.47 billion in the first quarter of 2012, or 33% of revenues, compared to $3.34 billion in the first quarter of 2011, or 39% of revenues.

Stock-Based Compensation (SBC) – In the first quarter of 2012, the total charge related to SBC was $556 million, compared to $432 million in the first quarter of 2011.

We currently estimate SBC charges for grants to employees prior to March 31, 2012 to be approximately $2 billion for 2012. This estimate does not include expenses to be recognized related to employee stock awards that are granted after March 31, 2012 or non-employee stock awards that have been or may be granted.

Operating Income – GAAP operating income in the first quarter of 2012 was $3.39 billion, or 32% of revenues. This compares to GAAP operating income of $2.30 billion, or 27% of revenues, in the first quarter of 2011. Non-GAAP operating income in the first quarter of 2012 was $3.94 billion, or 37% of revenues. This compares to non-GAAP operating income of $3.23 billion, or 38% of revenues, in the first quarter of 2011.

Interest and Other Income, Net – Interest and other income, net increased to $156 million in the first quarter of 2012, compared to $96 million in the first quarter of 2011.

Income Taxes – Our effective tax rate was 18% for the first quarter of 2012.

Net Income – GAAP net income in the first quarter of 2012 was $2.89 billion, compared to $1.80 billion in the first quarter of 2011. Non-GAAP net income was $3.33 billion in the first quarter of 2012, compared to $2.64 billion in the first quarter of 2011. GAAP EPS in the first quarter of 2012 was $8.75 on 330 million diluted shares outstanding, compared to $5.51 in the first quarter of 2011 on 326 million diluted shares outstanding. Non-GAAP EPS in the first quarter of 2012 was $10.08, compared to $8.08 in the first quarter of 2011.

Cash Flow and Capital Expenditures – Net cash provided by operating activities in the first quarter of 2012 totaled $3.69 billion, compared to $3.17 billion in the first quarter of 2011. In the first quarter of 2012, capital expenditures were $607 million, the majority of which was related to IT infrastructure investments, including data centers, servers, and networking equipment. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the first quarter of 2012, free cash flow was $3.09 billion.

We expect to continue to make significant capital expenditures.

A reconciliation of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, is included at the end of this release.

Cash – As of March 31, 2012, cash, cash equivalents, and short-term marketable securities were $49.3 billion.

Headcount – On a worldwide basis, Google employed 33,077 full-time employees as of March 31, 2012, up from 32,467 full-time employees as of December 31, 2011.

WEBCAST AND CONFERENCE CALL INFORMATION

A live audio webcast of Google’s first quarter 2012 earnings release call will be available at http://investor.google.com/webcast.html. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, the financial tables, as well as other supplemental information including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, are also available on that site.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that involve risks and uncertainties. These statements include statements regarding our continued investments in our core areas of strategic focus, our expected SBC charges, and our plans to make significant capital expenditures. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, unforeseen changes in our hiring patterns and our need to expend capital to accommodate the growth of the business, as well as those risks and uncertainties included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2011, which is on file with the SEC and is available on our investor relations website at investor.google.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012. All information provided in this release and in the attachments is as of April 12, 2012, and we undertake no duty to update this information unless required by law.

ABOUT NON-GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which statements are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP EPS, free cash flow, and non-GAAP international revenues. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures,” “Reconciliation from net cash provided by operating activities to free cash flow,” and “Reconciliation from GAAP international revenues to non-GAAP international revenues” included at the end of this release.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our “recurring core business operating results,” meaning our operating performance excluding not only non-cash charges, such as SBC, but also discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity as well as comparisons to our competitors’ operating results. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

Non-GAAP operating income and operating margin. We define non-GAAP operating income as operating income plus expenses related to SBC, and, as applicable, other special items. Non-GAAP operating margin is defined as non-GAAP operating income divided by revenues. Google considers these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of SBC and as applicable, other special items so that Google’s management and investors can compare Google’s recurring core business operating results over multiple periods. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, Google’s management believes that providing a non-GAAP financial measure that excludes SBC allows investors to make meaningful comparisons between Google’s recurring core business operating results and those of other companies, as well as providing Google’s management with an important tool for financial and operational decision making and for evaluating Google’s own recurring core business operating results over different periods of time. There are a number of limitations related to the use of non-GAAP operating income versus operating income calculated in accordance with GAAP. First, non-GAAP operating income excludes some costs, namely, SBC, that are recurring. SBC has been and will continue to be for the foreseeable future a significant recurring expense in Google’s business. Second, SBC is an important part of our employees’ compensation and impacts their performance. Third, the components of the costs that we exclude in our calculation of non-GAAP operating income may differ from the components that our peer companies exclude when they report their results of operations. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating income and evaluating non-GAAP operating income together with operating income calculated in accordance with GAAP.

Non-GAAP net income and EPS. We define non-GAAP net income as net income plus expenses related to SBC, and, as applicable, other special items less the related tax effects. The tax effect of SBC is calculated using the tax-deductible portion of SBC and applying the entity-specific, U.S. federal and blended state tax rates. We define non-GAAP EPS as non-GAAP net income divided by the weighted average outstanding shares, on a fully-diluted basis. We consider these non-GAAP financial measures to be a useful metric for management and investors for the same reasons that Google uses non-GAAP operating income and non-GAAP operating margin. However, in order to provide a complete picture of our recurring core business operating results, we exclude from non-GAAP net income and non-GAAP EPS the tax effects associated with SBC and, as applicable, other special items. Without excluding these tax effects, investors would only see the gross effect that excluding these expenses had on our operating results. The same limitations described above regarding Google’s use of non-GAAP operating income and non-GAAP operating margin apply to our use of non-GAAP net income and non-GAAP EPS. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and non-GAAP EPS and evaluating non-GAAP net income and non-GAAP EPS together with net income and EPS calculated in accordance with GAAP.

Free cash flow. We define free cash flow as net cash provided by operating activities less capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, including information technology infrastructure and land and buildings, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of free cash flow also facilitates management’s comparisons of our operating results to competitors’ operating results. A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating Google is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it excludes cash used for capital expenditures during the period. Our management compensates for this limitation by providing information about our capital expenditures on the face of the statement of cash flows and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Quarterly Report on Form 10-Q and Annual Report on Form 10-K. Google has computed free cash flow using the same consistent method from quarter to quarter and year to year.

Non-GAAP international revenues. We define non-GAAP international revenues as international revenues excluding the impact of foreign exchange and hedging. Non-GAAP international revenues are calculated by translating current quarter revenues using prior quarter and prior year exchange rates, as well as excluding any hedging gains realized in the current quarter. We consider non-GAAP international revenues as a useful metric as it facilitates management’s internal comparison to our historical performance.

The accompanying tables have more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

ADDITIONAL INFORMATION AND WHERE TO FIND IT

This press release may be deemed to be solicitation material in respect of the solicitation of proxies from stockholders for Google’s 2012 annual meeting of stockholders (“2012 Annual Meeting”).  Google intends to file with the Securities and Exchange Commission (the “SEC”) and make available to the stockholders of Google of record on April 23, 2012 a proxy statement containing important information about the proposed creation of a new class of stock (the “Proposal”) and certain other matters to be considered by the stockholders of Google at its 2012 Annual Meeting. BEFORE MAKING ANY VOTING DECISION, GOOGLE’S STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) WHEN IT BECOMES AVAILABLE CAREFULLY AND IN ITS ENTIRETY BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSAL AND CERTAIN OTHER MATTERS TO BE CONSIDERED AT THE 2012 ANNUAL MEETING.

Investors will be able to obtain the proxy statement and other relevant materials, when available, free of charge at the SEC’s website (http://www.sec.gov). In addition, documents filed with the SEC by Google, including the proxy statement when available, and the Annual Report on Form 10-K for the year ended December 31, 2011, will be available free of charge from Google, at Google’s website (http://www.google.com) or by writing to Google Inc., 1600 Amphitheatre Parkway, Mountain View, CA 94043, Attn: Corporate Secretary.

PARTICIPANTS IN THE SOLICITATION

Google and its directors, nominees, and executive officers may be deemed to be participants in the solicitation of proxies from Google’s stockholders with respect to the matters to be considered at the 2012 Annual Meeting, including the Proposal.  Information regarding the names, affiliations, and direct or indirect interests (by security holdings or otherwise) of these persons will be described in the proxy statement to be filed with the SEC.

Contact:

Willa Lo
Investor Relations
+1-650-214-3381
wlo@google.com

Google Inc.
CONSOLIDATED BALANCE SHEETS
(In millions)

	As of December 31, 2011 *	As of March 31, 2012
		(unaudited)
Assets
Current assets:
Cash and cash equivalents	$9,983	$23,108
Marketable securities	34,643	26,208
Accounts receivable, net of allowance	5,427	5,163
Receivable under reverse repurchase agreements	745	550
Deferred income taxes, net	215	51
Prepaid revenue share, expenses and other assets	1,745	1,779
Total current assets	52,758	56,859
Prepaid revenue share, expenses and other assets, non-current	499	664
Non-marketable equity securities	790	880
Property and equipment, net	9,603	9,875
Intangible assets, net	1,578	1,541
Goodwill	7,346	7,325
Total assets	$72,574	$77,144

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$588	$760
Short-term debt	1,218	2,468
Accrued compensation and benefits	1,818	1,017
Accrued expenses and other current liabilities	1,370	1,248
Accrued revenue share	1,168	1,164
Securities lending payable	2,007	2,252
Deferred revenue	547	594
Income taxes payable, net	197	239
Total current liabilities	8,913	9,742
Long-term debt	2,986	2,987
Deferred revenue, non-current	44	42
Income taxes payable, non-current	1,693	1,787
Deferred income taxes, net, non-current	287	384
Other long-term liabilities	506	490
Stockholders’ equity:
Common stock and additional paid-in capital	20,264	20,795
Accumulated other comprehensive income	276	422
Retained earnings	37,605	40,495
Total stockholders’ equity	58,145	61,712
Total liabilities and stockholders’ equity	$72,574	$77,144

* Derived from audited financial statements.

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Google Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except share amounts which are reflected in thousands and per share amounts)

	Three Months Ended March 31,
	2011	2012
	(unaudited)
Revenues:	$8,575	$10,645
Costs and expenses:
Costs of revenues ¹	2,936	3,789
Research and development ¹	1,226	1,441
Sales and marketing ¹	1,026	1,269
General and administrative ¹	591	757
Charge related to the resolution of Department of Justice investigation	500	-
Total costs and expenses	6,279	7,256
Income from operations	2,296	3,389
Interest and other income, net	96	156
Income before income taxes	2,392	3,545
Provision for income taxes	594	655
Net income	$1,798	$2,890
Net income per share – basic	$5.59	$8.88
Net income per share – diluted	$5.51	$8.75
Shares used in per share calculation – basic	321,527	325,299
Shares used in per share calculation – diluted	326,383	330,136
¹ Includes stock-based compensation expense as follows:
Costs of revenues	$49	$74
Research and development	237	299
Sales and marketing	78	97
General and administrative	68	86

 

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Google Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

	Three Months Ended March 31,
	2011	2012
	(unaudited)
Operating activities
Net income	$1,798	$2,890
Adjustments:
Depreciation and amortization of property and equipment	301	378
Amortization of intangible and other assets	100	133
Stock-based compensation expense	432	556
Excess tax benefits from stock-based award activities	(24)	(28)
Deferred income taxes	289	354
Gain on marketable equity securities	-	(44)
Other	36	(24)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable	181	301
Income taxes, net	73	143
Prepaid revenue share, expenses and other assets	(78)	(308)
Accounts payable	27	169
Accrued expenses and other liabilities	37	(855)
Accrued revenue share	(33)	(11)
Deferred revenue	33	40
Net cash provided by operating activities	3,172	3,694
Investing activities
Purchases of property and equipment	(890)	(607)
Purchases of marketable securities	(7,591)	(8,688)
Maturities and sales of marketable securities	4,645	17,201
Investments in non-marketable equity securities	(131)	(103)
Cash collateral received (returned) related to securities lending	(481)	245
Maturities of reverse repurchase agreements	175	195
Acquisitions, net of cash acquired, and purchases of intangible and other assets	(148)	(92)
Net cash provided by (used in) investing activities	(4,421)	8,151
Financing activities
Net proceeds (payments) related to stock-based award activities	116	(47)
Excess tax benefits from stock-based award activities	24	28
Proceeds from issuance of debt, net of costs	2,184	3,149
Repayments of debt	(2,435)	(1,900)
Net cash provided by (used in) financing activities	(111)	1,230
Effect of exchange rate changes on cash and cash equivalents	145	50
Net increase (decrease) in cash and cash equivalents	(1,215)	13,125
Cash and cash equivalents at beginning of period	13,630	9,983
Cash and cash equivalents at end of period	$12,415	$23,108

 

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Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures

The following table presents certain non-GAAP results before certain material items (in millions, except share amounts which are reflected in thousands and per share amounts, unaudited):

	Three Months Ended March 31, 2011						Three Months Ended March 31, 2012
	GAAP Actual	Operating Margin (a)	Adjustments		Non-GAAP Results	Non-GAAP Operating Margin (b)	GAAP Actual	Operating Margin (a)	Adjustments		Non-GAAP Results	Non-GAAP Operating Margin (b)
			$432	(c)					$556	(d)
			500	(e)
Income from operations	$2,296	26.8%	$932		$3,228	37.6%	$3,389	31.8%	$556		$3,945	37.1%
			$432	(c)					$556	(d)
			(92)	(f)					(118)	(f)
			500	(e)
Net income	$1,798		$840		$2,638		$2,890		$438		$3,328
Net income per share – diluted	$5.51				$8.08		$8.75				$10.08
Shares used in per share calculation – diluted	326,383				326,383		330,136				330,136
(a) Operating margin is defined as income from operations divided by revenues.
(b) Non-GAAP operating margin is defined as non-GAAP income from operations divided by revenues.
(c) To eliminate $432 million of stock-based compensation expense recorded in the first quarter of 2011.
(d) To eliminate $556 million of stock-based compensation expense recorded in the first quarter of 2012.
(e) To eliminate $500 million of the charge related to the resolution of Department of Justice investigation.
(f) To eliminate income tax effects related to expenses noted in (c) and (d).

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Reconciliation from net cash provided by operating activities to free cash flow (in millions, unaudited):

	Three Months Ended March 31, 2012
Net cash provided by operating activities	$3,694
Less purchases of property and equipment	(607)
Free cash flow	$3,087
Net cash provided by investing activities*	8,151
Net cash provided by financing activities	$1,230

* Includes purchases of property and equipment.

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Reconciliation from GAAP international revenues to non-GAAP international revenues (in millions, unaudited):

	Three Months Ended March 31, 2012	Three Months Ended March 31, 2012
	(using Q1’11′s FX rates)	(using Q4’11′s FX rates)
United Kingdom revenues (GAAP)	$1,150	$1,150
Exclude foreign exchange impact on Q1’12 revenues using Q1’11 rates	7	-
Exclude foreign exchange impact on Q1’12 revenues using Q4’11 rates	-	4
Exclude hedging gains recognized in Q1’12	(4)	(4)
United Kingdom revenues excluding foreign exchange and hedging impact (Non-GAAP)	$1,153	$1,150
Rest of the world revenues (GAAP)	$4,621	$4,621
Exclude foreign exchange impact on Q1’12 revenues using Q1’11 rates	60	-
Exclude foreign exchange impact on Q1’12 revenues using Q4’11 rates	-	75
Exclude hedging gains recognized in Q1’12	(33)	(33)
Rest of the world revenues excluding foreign exchange and hedging impact (Non-GAAP)	$4,648	$4,663

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The following table presents our revenues by revenue source (in millions, unaudited):

	Three Months Ended March 31,
	2011	2012
Advertising revenues:
Google websites	$5,879	$7,312
Google Network Members’ websites	2,427	2,913
Total advertising revenues	8,306	10,225
Other revenues	269	420
Revenues	$8,575	$10,645

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The following table presents our revenues, by revenue source, as a percentage of total revenues (unaudited):

	Three Months Ended March 31,
	2011	2012
Advertising revenues:
Google websites	69%	69%
Google Network Members’ websites	28%	27%
Total advertising revenues	97%	96%
Other revenues	3%	4%
Revenues	100%	100%

]]> http://www.webpronews.com/google-earnings-revenue-up-24-cost-per-click-down-12-2012-04/feed 1 http://www.webpronews.com/google-earnings-revenue-up-24-cost-per-click-down-12-2012-04 http://feedproxy.google.com/~r/Financial-News-WebProNews/~3/wxS0tJjmY5U/google-dividend-provides-two-for-one-stock-split-2012-04 http://www.webpronews.com/google-dividend-provides-two-for-one-stock-split-2012-04#comments Thu, 12 Apr 2012 20:49:03 +0000 Chris Crum http://www.webpronews.com/?p=138028 Google released its Q1 earnings report today, and along with it, the company announced that its Board of Directors unanimously approved a stock dividend proposal, which Google says is “designed to preserve the corporate structure that has allowed Google to remain focused on the long term.”

It’s a two-for-one stock split. There’s a new class of stock – class c. It will have no voting rights. Stockholders who hold one class a share will have a non-voting class c share.

That long term, by the way, was addressed in a letter to investors from Larry Page last week. Of course, it was also discussed in the company’s earnings call.

Page said, “throughout our evolution” Google has managed the company for the long term and enjoyed tremendous success as a result. He made a point that since he took over as CEO last year, he’s trying run the company more like a startup.

He also made the point to say, “We don’t have an unusually large acquisition plan, in case you were wondering.”

Google will be filing a proxy statement soon.

Page and fellow co-founder Sergey Brin have put up the following letter on the company’s investor relations site.

Here’s the letter in its entirety:

2012 Founders’ Letter

Introduction

Throughout our evolution, from privately held start-up to large, publicly listed company, we have managed Google for the long term—enjoying tremendous success as a result, especially since our IPO in 2004. Sergey and I hoped, though we did not expect, that Google would have such significant impact, and this progress has made us even more impatient to do important things that matter in the world. Our enduring love for Google comes from a strong desire to create technology products that enrich millions of people’s lives in deep and meaningful ways. To fulfill these dreams, we need to ensure that Google remains a successful, growing business that can generate significant returns for everyone involved.

Corporate Structure

When we went public, we created a dual-class voting structure. Our goal was to maintain the freedom to focus on the long term by ensuring that the management team, in particular Eric, Sergey and I, retained control over Google’s destiny. As we explained in our first founders’ letter:

“We are creating a corporate structure that is designed for stability over long time horizons. By investing in Google, you are placing an unusual long term bet on the team, especially Sergey and me, and on our innovative approach…

We want Google to become an important and significant institution. That takes time, stability and independence…

In the transition to public ownership, we have set up a corporate structure that will make it harder for outside parties to take over or influence Google. This structure will also make it easier for our management team to follow the long term, innovative approach emphasized earlier…

The main effect of this structure is likely to leave our team, especially Sergey and me, with increasingly significant control over the company’s decisions and fate, as Google shares change hands…

New investors will fully share in Google’s long term economic future but will have little ability to influence its strategic decisions through their voting rights…

Our colleagues will be able to trust that they themselves and their labors of hard work, love and creativity will be well cared for by a company focused on stability and the long term…

As an investor, you are placing a potentially risky long term bet on the team, especially Sergey and me. …. Sergey and I are committed to Google for the long term.”

I wanted to quote all that because these were the clear, well-publicized expectations we established for investors in 2004. While this decision was controversial at the time, we believe with hindsight it was absolutely the right thing to do. Eight years later, these statements are still remarkably accurate, and everyone involved has realized tremendous benefits as a result. Given Google’s success, it’s unsurprising that this type of dual-class governance structure is now somewhat standard among newer technology companies.

In our experience, success is more likely if you concentrate on the long term. Technology products often require significant investment over many years to fulfill their potential. For example, it took over three years just to ship our first Android handset, and then another three years on top of that before the operating system truly reached critical mass. These kinds of investments are not for the faint-hearted.

We have protected Google from outside pressures and the temptation to sacrifice future opportunities to meet short-term demands. Long-term product investments, like Chrome and YouTube, which now enjoy phenomenal usage, were made with a significant degree of independence.

We have a structure that prevents outside parties from taking over or unduly influencing our management decisions. However, day-to-day dilution from routine equity-based employee compensation and other possible dilution, such as stock-based acquisitions, will likely undermine this dual-class structure and our aspirations for Google over the very long term. We have put our hearts into Google and hope to do so for many more years to come. So we want to ensure that our corporate structure can sustain these efforts and our desire to improve the world.

Effectively a Stock Split: And a New Class of Stock

Today we announced plans to create a new class of non-voting capital stock, which will be listed on NASDAQ. These shares will be distributed via a stock dividend to all existing stockholders: the owner of each existing share will receive one new share of the non-voting stock, giving investors twice the number of shares they had before. It’s effectively a two-for-one stock split—something many of our investors have long asked us for. These non-voting shares will be available for corporate uses, like equity-based employee compensation, that might otherwise dilute our governance structure.

We recognize that some people, particularly those who opposed this structure at the start, won’t support this change—and we understand that other companies have been very successful with more traditional governance models. But after careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users. Having the flexibility to use stock without diluting our structure will help ensure we are set up for success for decades to come.

In November 2009, Sergey and I published plans to sell a modest percentage of our overall stock, ending in 2015. We are currently halfway through those plans and we don’t expect any changes to that, certainly not as the result of this new potential class. We both remain very much committed to Google for the long term.

It’s important to bear in mind that this proposal will only have an effect on governance over the very long term. In fact, there’s no particular urgency to make these changes now—we don’t have an unusually big acquisition planned, in case you were wondering. It’s just that since we know what we want to do, there’s no reason to delay the decision. Also note that there will be no immediate change in votes, because everyone will still have the same number. In addition, Eric, Sergey and I have all agreed to “stapling” arrangements so that, above set thresholds, if our economic interest in Google were to decline, our votes would as well. We also have provisions to ensure all shareholders are treated fairly from an economic perspective.

For more details on all of this, please see the postscript below from our Chief Legal Officer, David Drummond, and the preliminary proxy statement we will file with the SEC next week.

Conclusion

We have always managed Google for the long term, investing heavily in the big bets we hope will make a significant difference in the world. Some of these bets have been tremendous, funding our activities and generating significant gains for our shareholders. Others have been less successful. But the ability to take these kinds of risks has been crucial to Google’s overall success and we aim to maintain this pioneering culture going forward.

The proposal we announced today is consistent with the governance philosophy we articulated when we took the company public, as well as the trend for newer technology companies to adopt strong dual-class structures. We believe that it will provide great competitive strength—insulating Google from short-term pressures, whatever the source, for a long time to come, while also giving us more flexibility around equity grants.

Investors and others have always taken a big bet on us, the founders, and that bet will likely last longer as a result of these changes. We are honored that so many of you have put your trust in us and we recognize the tremendous responsibility that rests on our shoulders. We think this is a good thing because users rely on Google to produce and operate amazing technology products and to safely and responsibly store their data. This is our passion.

Sergey and I share a profound belief in the potential for technology to improve people’s lives and we are enormously excited about what lies ahead. I couldn’t write a better conclusion to this founder’s letter than what we wrote in 2004… so here goes: “We have a strong commitment to our users worldwide, their communities, the web sites in our network, our advertisers, our investors, and of course our employees. Sergey and I, and the team will do our best to make Google a long term success and the world a better place.”

Larry Page
CEO and Co-founder

Sergey Brin
Co-founder

April 2012

Postscript from David Drummond, Chief Legal Officer, Google Inc.

This is not the usual yada yada… so please read on.

Although we’ll be filing a comprehensive proxy statement soon, I wanted to share some details about today’s proposal to create a new class of stock and the process our board of directors followed to approve it.

As Larry and Sergey note above, the stock dividend we are announcing today will have the basic effect of a two-for-one stock split. Each holder of a share of Class A or Class B common stock will receive one share of the new non-voting Class C capital stock. So after the dividend, a stockholder who currently owns one Class A share with a single vote will continue to own that share plus one Class C share without a vote.

The Class A shares will continue to trade under the “GOOG” ticker symbol, while the Class C shares will trade under a different ticker symbol, so stockholders will be able to trade these shares, just as they can with Class A shares today. Except for voting rights, the Class C shares will have the same rights as the existing Class A and Class B shares. As is typically the case with stock splits, the Class C stock dividend will be tax-free.

One thing to keep in mind is that immediately after the Class C dividend, all stockholders, including Larry, Sergey and Eric, will retain the same voting interest they hold prior to the dividend. In addition, Larry, Sergey and Eric have agreed to subject their shares to a Transfer Restriction Agreement. This agreement will maintain the same link between their voting and economic interests that exists today, even if they sell some of their non-voting Class C shares. If the founders or Eric wish to sell or transfer their non-voting Class C shares, a “stapling” provision in the agreement requires them to either sell an equal number of Class B shares, or convert an equal number of Class B shares into Class A shares. No other stockholders will be subject to these restrictions upon the transfer or sale of their shares. The stapling requirement will terminate as to the founders when their collective ownership falls below a certain threshold, and as to Eric when his ownership falls below a certain threshold. Further details of the Transfer Restriction Agreement will be included in our proxy, but it’s important to note that the stapling provision is designed so that, subject to the thresholds, the votes held by the founders and Eric will be reduced proportionally as their economic interest in the company declines.

Our board of directors carefully considered this proposal to create a new class of stock before reaching a decision. In January 2011, the board established a special committee, comprised of independent, non-management board members to consider a new class of stock, or other alternatives. This committee retained its own financial and legal advisers to assist with its deliberations, and met on numerous occasions over the 15 months that the special committee considered the proposal separately from the board. The committee recommended, and the board unanimously approved, today’s proposal.

The proposal is subject to the approval of a majority of the voting power of Google’s common stock, voting together as a single class, at our annual meeting on June 21, 2012. Given that Larry, Sergey, and Eric control the majority of voting power and support this proposal, we expect it to pass. The Board of Directors has not set a record date for the issuance of the Class C dividend and currently expects to set the date following the annual meeting.

Next week, we’ll file a preliminary proxy statement with the SEC, which will contain further details regarding today’s proposal.

David Drummond
Chief Legal Officer, Google Inc.

April 2012

]]> http://www.webpronews.com/google-dividend-provides-two-for-one-stock-split-2012-04/feed 0 http://www.webpronews.com/google-dividend-provides-two-for-one-stock-split-2012-04 http://feedproxy.google.com/~r/Financial-News-WebProNews/~3/oisw2ZpKcQo/google-finance-adds-tpe-cnsx-realtime-quotes-2012-04 http://www.webpronews.com/google-finance-adds-tpe-cnsx-realtime-quotes-2012-04#comments Tue, 10 Apr 2012 21:09:42 +0000 Chris Crum http://www.webpronews.com/?p=136775 Google announced the addition of realtime quotes from Canada and Taiwan to Google Finance today.

“Here at Google, we get excited by bringing our users relevant information at blazing speeds. So, why would we want to make users wait 15 minutes to see what trades are being made?” writes engineer Mark Schmit on the Google Finance blog. “Instead, we’re continuing to expand our real-time coverage and are very pleased to announce the launch of two more real-time exchanges.”

Those would be the Taiwan Stock Exchange (TPE) and the Canadian National Stock Exchange (CNSX). Here’s the full list of exchanges Google Finance now proivdes info for. Many of them are realtime while others have different increments:

Google Finance also provides info for North America, Europe and Asia. Likewise for the following indexes:

Google says it will be looking to add more info at a later date, which from the “check back soon” wording used in the announcement, could be in the near term.

I guess this all falls under the blanket of increased direct answers in Google search results the company has been talking about.

]]> http://www.webpronews.com/google-finance-adds-tpe-cnsx-realtime-quotes-2012-04/feed 0 http://www.webpronews.com/google-finance-adds-tpe-cnsx-realtime-quotes-2012-04 http://feedproxy.google.com/~r/Financial-News-WebProNews/~3/qLnmAok5iBw/facebook-ipo-facebook-will-reportedly-list-as-fb-on-nasdaq-2012-04 http://www.webpronews.com/facebook-ipo-facebook-will-reportedly-list-as-fb-on-nasdaq-2012-04#comments Thu, 05 Apr 2012 18:40:55 +0000 Chris Crum http://www.webpronews.com/?p=134112 Word is that Facebook is shooting for a $5 billion IPO in May, and now we know which exchange host it.

The New York Times is reporting, citing “people with knowledge of the matter,” that Facebook has chosen NASDAQ for its IPO, and will ist under the ticker symbol FB. According to the report, Facebook has already notified the exchanges.

CNBC appears to confirm the news separately:

@CNBC
CNBCBreaking: Facebook to list on the @Nasdaq. 29 minutes ago via TweetDeck ·  Reply ·  Retweet ·  Favorite · powered by @socialditto

Groupon, whose stock just hit an all-time low, also trades on the NASDAQ as does long-time Facebook partner Zynga, and other major tech companies like Google, Apple, Microsoft, Amazon, Intel and Yahoo. Other recent high profile IPOs like Yelp, Pandora and LinkedIn have gone to the NYSE.

Watch our recent interviews with analysts about the implications of the IPO:

]]> http://www.webpronews.com/facebook-ipo-facebook-will-reportedly-list-as-fb-on-nasdaq-2012-04/feed 0 http://www.webpronews.com/facebook-ipo-facebook-will-reportedly-list-as-fb-on-nasdaq-2012-04 http://feedproxy.google.com/~r/Financial-News-WebProNews/~3/TTMrWIocGjM/groupon-draws-secs-eye-forks-out-8-5-million-to-settle-string-of-lawsuits-2012-04 http://www.webpronews.com/groupon-draws-secs-eye-forks-out-8-5-million-to-settle-string-of-lawsuits-2012-04#comments Tue, 03 Apr 2012 13:46:48 +0000 Chris Crum http://www.webpronews.com/?p=132244 Late on Friday, Groupon issued a press release revising its earnings report, which was initially released in February. As previously reported, lawyers immediately started seeking complaints against the company.

In fact, one press release from law firm Federman & Sherwood came out yesterday afternoon, saying:

The law firm of Federman & Sherwood, a nationwide law firm specializing in securities, derivative and merger litigation, has initiated an investigation into Groupon, Inc. (NASDAQ: GRPN) with respect to possible breaches of fiduciary duty by the company’s officers and directors, as well as violations of state law. More specifically, the company and its auditor found material weaknesses with the company’s reported revenue and earnings for the fourth quarter 2011, and therefore may have misstated earnings and revenue in its Annual Report. There is also speculation that the officers and directors of the company “rushed” the initial public offering.

If you purchased Groupon, Inc. shares between the IPO date of November 4, 2011 and March 31, 2012, have information to assist in our investigation, or have any questions or concerns regarding this notice or preservation of your rights, please contact our firm.

That’s just a sampling of a greater number of such releases, according to reports.

The Wall Street Journal is now reporting that the Securities and Exchange Commission is now involved. According to the publication, there has not been a formal investigation launched yet, but a probe is in a preliminary stage, which may or may not lead to a bigger investigation.

The revisions included a $14.3 million reduction in Q4 revenue, which was originally reported as $506.5 million, up 194% year-over-year.Operating expenses were also increased, reducing operating income by $30 million, net income by $22.6 million and earnings per share by $0.04.

CFO Jason Child said in the announcement, “We remain confident in the fundamentals of our business, as our performance continues to highlight the value that we provide to customers and merchants.”

Meanwhile, Groupon has agreed to an $8.5 million settlement in a string of suits related to expiration dates on deals. This, according to Reuters, settles 17 suits in all.

]]> http://www.webpronews.com/groupon-draws-secs-eye-forks-out-8-5-million-to-settle-string-of-lawsuits-2012-04/feed 0 http://www.webpronews.com/groupon-draws-secs-eye-forks-out-8-5-million-to-settle-string-of-lawsuits-2012-04 http://feedproxy.google.com/~r/Financial-News-WebProNews/~3/oL5y6uwkCNQ/rim-earnings-released-q4-revenue-down-25-full-year-down-7-2012-03 http://www.webpronews.com/rim-earnings-released-q4-revenue-down-25-full-year-down-7-2012-03#comments Thu, 29 Mar 2012 21:06:18 +0000 Chris Crum http://www.webpronews.com/?p=130380 BlackBerry maker Research In Motion (RIM) just released its fourth quarter and year-end of fiscal 2012 earnings.

For Q4, the company reported a 19% drop in revenue from $5.2 billion in the third quarter to $4.2 billion. That’s also down 25% from $5.6 billion in the year-ago quarter. The company shipped 11.1 million BlackBerry smartphones and over 500,000 BlackBerry PlayBook tablets in the quarter.

For the year, revenue was $18.4 billion, down 7% from $19.9 billion the previous year.

“I have assessed many aspects of RIM’s business during my first 10 weeks as CEO,” says CEO Thorsten Heins, who assumed the CEO position in January. “I have confirmed that the Company has substantial strengths that can be further leveraged to improve our financial performance, including RIM’s global network infrastructure, a strong enterprise offering and a large and growing base of more than 77 million subscribers.”

“I’m very excited about the prospects for the BlackBerry 10 platform, which is on track for the latter part of calendar 2012,” he added. “Notwithstanding these strengths and opportunities, the business challenges we face over the next several quarters are significant and I am taking the necessary steps to address them. In addition to delivering the BlackBerry 10 platform and refocusing resources on RIM’s key opportunities, such as BlackBerry Mobile Fusion and new integrated service offerings, we will also drive greater operational performance through a variety of initiatives including increased management accountability and process discipline. In parallel, we are undertaking a comprehensive review of strategic opportunities including partnerships and joint ventures, licensing, and other ways to leverage RIM’s assets and maximize value for our stakeholders.”

Here’s the release in its entirety:

WATERLOO, ONTARIO–(Marketwire -03/29/12)- Research In Motion Limited (RIM) (NASDAQ: RIMM - News)(TSX: RIM.TO -News), a world leader in the mobile communications market, today reported fourth quarter results for the three months and fiscal year ended March 3, 2012 (all figures in U.S. dollars and U.S. GAAP, except where otherwise indicated).

Highlights:

 

--  $2.1 billion in cash, cash equivalents, short-term and long-term
    investments at the end of the quarter, which increased by approximately
    $610 million in the quarter
--  Cash flow from operations of approximately $1.1 billion, up from
    approximately $900 million in Q3
--  Revenue of $4.2 billion, down 19% from the third quarter
--  GAAP net loss in Q4 of $125 million or $0.24 per share diluted; adjusted
    net income of $418 million or $0.80 per share diluted
--  BlackBerry smartphone shipments of 11.1 million in Q4, down 21% from Q3
--  RIM to discontinue providing specific quantitative guidance
--  RIM provides update on organizational changes

Q4 Results:

Revenue for the fourth quarter of fiscal 2012 was $4.2 billion, down 19% from $5.2 billion in the previous quarter and down 25% from $5.6 billion in the same quarter of fiscal 2011. The revenue breakdown for the quarter was approximately 68% for hardware, 27% for service and 5% for software and other revenue. During the quarter, RIM shipped approximately 11.1 million BlackBerry smartphones and over 500,000 BlackBerry PlayBook tablets.

“I have assessed many aspects of RIM’s business during my first 10 weeks as CEO. I have confirmed that the Company has substantial strengths that can be further leveraged to improve our financial performance, including RIM’s global network infrastructure, a strong enterprise offering and a large and growing base of more than 77 million subscribers. I’m very excited about the prospects for the BlackBerry 10 platform, which is on track for the latter part of calendar 2012. Notwithstanding these strengths and opportunities, the business challenges we face over the next several quarters are significant and I am taking the necessary steps to address them,” said Thorsten Heins, President & CEO of Research In Motion. “In addition to delivering the BlackBerry 10 platform and refocusing resources on RIM’s key opportunities, such as BlackBerry Mobile Fusion and new integrated service offerings, we will also drive greater operational performance through a variety of initiatives including increased management accountability and process discipline. In parallel, we are undertaking a comprehensive review of strategic opportunities including partnerships and joint ventures, licensing, and other ways to leverage RIM’s assets and maximize value for our stakeholders.”

The Company’s GAAP net loss for the fourth quarter of fiscal 2012 was $125 million, or $0.24 per share diluted, compared with GAAP net income of $265 million, or $0.51 per share diluted, in the prior quarter and GAAP net income of $934 million, or $1.78 per share diluted, in the same quarter of fiscal 2011. Adjusted net income for the fourth quarter was $418 million, or $0.80 per share diluted. Adjusted net income and adjusted diluted earnings per share for the fourth quarter exclude the impact of pre-tax charges of $355 million which are predominantly non-cash ($346 million after tax) for the impairment of goodwill and $267 million ($197 million after-tax) for an inventory provision taken primarily on certain BlackBerry7 products. These charges and their related impacts on GAAP net income and diluted earnings per share are summarized in the tables below.

Reconciliation of GAAP gross margin, gross margin percentage, net income and diluted EPS to adjusted gross margin, gross margin percentage, net income and diluted EPS:

(United States dollars, in millions except per share data)

 

                              For the quarter ended March 3, 2012
                   ---------------------------------------------------------
                                    Gross Margin
                   Gross Margin(1)   %(1)(before   Net Income or    Diluted
                    (before taxes)        taxes)          (Loss)        EPS
                   ---------------------------------------------------------
As reported         $        1,401          33.4%  $        (125)     (0.24)

Adjustments:
Impairment of
 Goodwill(2)                     -             -             346       0.66
Inventory
 Provision(3)                  267           6.4%            197       0.38

                   ---------------------------------------------------------
Adjusted            $        1,668          39.8%  $         418 $     0.80
                   ---------------------------------------------------------
                   ---------------------------------------------------------
Note: Adjusted gross margin, adjusted net income and adjusted diluted
earnings per share do not have a standardized meaning prescribed by GAAP and
thus are not comparable to similarly titled measures presented by other
issuers. The Company believes that the presentation of adjusted gross
margin, adjusted gross margin percentage, adjusted net income and adjusted
diluted earnings per share enables the Company and its shareholders to
better assess RIM's operating results relative to its operating results in
prior periods and improves the comparability of the information presented.
Investors should consider these non-GAAP measures in the context of RIM's
GAAP results.

(1) During the fourth quarter of fiscal 2012, the Company reported GAAP
gross margin of $1.4 billion or 33.4% of revenue. Excluding the impact of
charges primarily related to inventory valuation of certain BlackBerry 7
products, the adjusted gross margin was $1.7 billion, or 39.8% of revenue.

(2) Subsequent to the fourth quarter of fiscal 2012, the Company performed a
goodwill impairment test and based on the results of that test, the Company
recorded a non-cash pre-tax goodwill impairment charge of $355 million, $346
million after tax.

(3) During the fourth quarter of fiscal 2012, the Company recorded a pre-tax
provision of approximately $267 million, $197 million after tax, which was
mostly non-cash, primarily related to its inventory valuation of certain
BlackBerry 7 products.

The total of cash, cash equivalents, short-term and long-term investments was $2.1 billion as of March 3, 2012, compared to $1.5 billion at the end of the previous quarter, an increase of approximately $610 million from the prior quarter. Cash flow from operations in Q4 was approximately $1.1 billion, up from $900 million in Q3. Uses of cash included intangible asset additions of approximately $260 million and capital expenditures of approximately $190 million.

Fiscal 2012 Results

Revenue for the fiscal year ended March 3, 2012 was $18.4 billion, down 7% from $19.9 billion in fiscal 2011. The Company’s GAAP net income for fiscal 2012 was $1.2 billion, or $2.22 per share diluted, compared with GAAP net income of $3.4 billion, or $6.34 per share diluted in fiscal 2011. Adjusted net income for fiscal 2012 was $2.2 billion, or $4.20 per share diluted. Adjusted net income and adjusted diluted earnings per share for fiscal 2012 exclude the adjustments described above as well as the impact of pre-tax charges of $54 million ($40 million after tax) to revenue related to the service interruption experienced in the third quarter, $485 million ($356 million after tax) for the PlayBook inventory provision taken in the third quarter and $125 million ($96 million after tax) for the Company’s cost optimization program that was implemented in the second quarter of fiscal 2012. These charges and their related impacts on GAAP net income and diluted earnings per share are summarized in the tables below.

Reconciliation of GAAP revenue, gross margin, gross margin percentage, net income and diluted EPS to adjusted revenue, gross margin, gross margin percentage, net income, and diluted EPS:

(United States dollars, in millions except per share data)

 

                              For the year ended March 3, 2012
                ------------------------------------------------------------
                                 Gross       Gross
                    Revenue  Margin(1)  Margin%(1)
                    (before    (before     (before
                     taxes)     taxes)      taxes)   Net Income  Diluted EPS
                ------------------------------------------------------------
As reported     $    18,435 $    6,579        35.7% $     1,164 $       2.22

Adjustments:
PlayBook
 Inventory
 Provision(2)             -        485         2.6%         356         0.68
Cost
 Optimization
 Program(3)               -         14           -           96         0.18
Q3 Service
 Interruption(4)         54         54         0.3%          40         0.08
Impairment of
 Goodwill(5)              -          -           -          346         0.66
Inventory
 Provision(6)            19        267         1.4%         197         0.38

                ------------------------------------------------------------
Adjusted        $    18,508 $    7,399        40.0% $     2,199 $       4.20
                ------------------------------------------------------------
                ------------------------------------------------------------
Note: Adjusted revenue, adjusted gross margin, adjusted gross margin
percentage, adjusted net income and adjusted diluted earnings per share do
not have a standardized meaning prescribed by GAAP and thus are not
comparable to similarly titled measures presented by other issuers. The
Company believes that the presentation of adjusted revenue, adjusted gross
margin, adjusted gross margin percentage, adjusted net income and adjusted
diluted earnings per share enables the Company and its shareholders to
better assess RIM's operating results relative to its operating results in
prior periods and improves the comparability of the information presented.
Investors should consider these non-GAAP measures in the context of RIM's
GAAP results.

(1) During fiscal 2012, the Company reported GAAP gross margin of $6.6
billion, or 35.7% of revenue. Excluding the impact of charges related to the
PlayBook Inventory Provision, the Cost Optimization Program, the Q3 Service
Interruption and the Inventory Provision, the adjusted gross margin was $7.4
billion, or 40.0% of revenue.

(2) During fiscal 2012, the Company recorded a pre-tax provision of
approximately $485 million, $356 million after tax, related to its inventory
valuation of BlackBerry PlayBook tablets. The charge was predominantly non-
cash.

(3) Cost of sales, research and development, and selling, marketing and
administration expenses in fiscal 2012 included approximately $11 million,
$18 million, and $67 million, respectively, in after-tax charges related to
the cost optimization program to streamline operations across the Company.

(4) During fiscal 2012, the Company experienced a service interruption which
resulted in the loss of service revenue and the payment of service credits
totally approximately $54 million, approximately $40 million after tax,
related to the interruption in the availability of the Company's network.

(5) Subsequent to fiscal 2012, the Company performed a goodwill impairment
test and based on the results of that test, the Company recorded a non-cash
pre-tax goodwill impairment charge of approximately $355 million,
approximately $346 after tax.

(6) In the fourth quarter of fiscal 2012, the Company recorded a pre-tax
provision of approximately $267 million, $197 million after tax, which was
mostly non-cash, primarily related to its inventory valuation of certain
BlackBerry 7 products.

Change to Guidance Practices and Outlook:

The company expects continued pressure on revenue and earnings throughout fiscal 2013. Due to a desire to focus on long term value creation and the current business environment, RIM will no longer provide specific quantitative guidance. Some of the factors contributing to this include, ongoing weakness in the Company’s U.S. smartphone business, an increased focus on selling BlackBerry 7 smartphones to grow the subscriber base in advance of the BlackBerry 10 launch, increasing competitive pressure in the Company’s international markets and the introduction of certain new lower tier service pricing initiatives and a higher mix of sales coming from entry level products.

Organizational and Board of Directors Update:

Jim Balsillie, former Co-CEO of the Company, has resigned as a Director on the Company’s Board.

“As I complete my retirement from RIM, I’m grateful for this remarkable experience and for the opportunity to have worked with outstanding professionals who helped turn a Canadian idea into a global success,” said Jim Balsillie.

“On behalf of the Board and everyone at RIM, I would like to thank Jim for his 20 years of service to RIM,” said Barb Stymiest, Chair of RIM’s Board of Directors. “His energy, drive and enthusiasm helped build one of the most successful technology companies of our time.”

In addition, David Yach will be retiring from his role as CTO, Software after 13 years with the Company and after 4 years with the company and following an open dialogue on the future of global operations, Jim Rowan, COO, Global Operations, has decided to pursue other interests. The Company is currently undertaking a search to hire a single COO with responsibilities to run the Company’s operations.

“RIM would like to thank David Yach and Jim Rowan for their years of service and many contributions to RIM,” said Thorsten Heins, President and CEO. “We wish them well in their future pursuits.”

Conference Call and Webcast

A conference call and live webcast will be held beginning at 5 pm ET, March 29, 2012, which can be accessed by dialing 1-800-814-4859 (North America), (+1)416-644-3414 (outside North America) or through your personal computer or BlackBerry® PlayBook™ tablet atwww.rim.com/investors/events/index.shtml. A replay of the conference call will also be available at approximately 7 pm ET by dialing (+1)416-640-1917 and entering passcode 4466496#. A replay of the webcast will be available on your personal computer or BlackBerry PlayBook tablet by clicking the link above. This replay will be available until midnight ET, April 12, 2012.

About Research In Motion

Research In Motion (RIM), a global leader in wireless innovation, revolutionized the mobile industry with the introduction of the BlackBerry® solution in 1999. Today, BlackBerry products and services are used by millions of customers around the world to stay connected to the people and content that matter most throughout their day. Founded in 1984 and based in Waterloo, Ontario, RIM operates offices in North America, Europe, Asia Pacific and Latin America. RIM is listed on the NASDAQ Stock Market (NASDAQ: RIMM - News) and the Toronto Stock Exchange (TSX: RIM.TO - News). For more information, visit www.rim.com or www.blackberry.com.

This news release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Canadian securities laws, including: statements relating to RIM’s plans, strategies and objectives, statements relating to RIM’s ability to leverage its business strengths, the anticipated timing of the launch of RIM’s BlackBerry 10 platform, statements regarding the challenges RIM faces, opportunities and initiatives that RIM intends to consider or pursue, statements regarding RIM’s guidance practices in the future, and the Company’s expectations regarding revenue and earnings in fiscal 2012. The terms and phrases “discontinue”, “can”, “leverage”, “offering”, “challenges”, “plan”, “next several quarters”, “take”, “on track”, “refocus”, “opportunities”, “drive”, “initiatives”, “undertaking”, “maximize”, “outlook”, “will”, “ongoing”, “expects” and similar terms and phrases are intended to identify these forward-looking statements. Forward-looking statements are based on estimates and assumptions made by RIM in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that RIM believes are appropriate in the circumstances, including but not limited to general economic conditions, product pricing levels and competitive intensity, supply constraints, the timing and success of new product introductions, RIM’s expectations regarding its business, strategy and prospects, and RIM’s confidence in the cash flow generation of its business.

Many factors could cause RIM’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation: RIM’s ability to enhance current products and develop new products and services in a timely manner or at competitive prices, including risks related to further delays in new product introductions, such as the Company’s BlackBerry 10 smartphones; risks related to intense competition, including RIM’s ability to compete in the tablet market, and strategic alliances or transactions within the wireless communications industry; risks relating to RIM’s ability to maintain or grow its services revenue; RIM’s reliance on carrier partners and distributors; security risks and risks related to the collection, storage, transmission, use and disclosure of user and personal information; risks relating to network disruptions and other business interruptions, including costs, potential liabilities, lost revenue and reputational damage associated with service disruptions; RIM’s ability to manage inventory and asset risk; RIM’s ability to implement and realize the anticipated benefits of its Be Bold Excellence program (formerly referred to as the CORE program); RIM’s ability to maintain or increase its cash balance; potential additional charges relating to the impairment of goodwill or other intangible assets recorded on RIM’s balance sheet; RIM’s ability to attract and retain key personnel; RIM’s reliance on suppliers of functional components for its products and risks relating to its supply chain; RIM’s ability to maintain and enhance the BlackBerry brand; risks related to RIM’s international operations; risks related to government regulations, including regulations relating to encryption technology; RIM’s reliance on third-party network infrastructure developers, software platform vendors and service platform vendors; RIM’s ability to expand and manage its BlackBerry App World applications catalogue; RIM’s reliance on third-party manufacturers; risks relating to litigation, including litigation claims arising from the Company’s past practice of providing forward-looking guidance; potential defects in RIM’s products; RIM’s ability to manage its past growth and its ongoing development of service and support operations; disruptions to RIM’s business as a result of shareholder activism; risks related to intellectual property; and difficulties in forecasting RIM’s financial results, particularly over longer periods given the rapid technological changes, evolving industry standards, intense competition and short product life cycles that characterize the wireless communications industry.

These risk factors and others relating to RIM are discussed in greater detail in the “Risk Factors” section of RIM’s Annual Information Form, which is included in its Annual Report on Form 40-F and the “Cautionary Note Regarding Forward-Looking Statements” section of RIM’s MD&A (copies of which filings may be obtained at www.sedar.com or www.sec.gov). These factors should be considered carefully, and readers should not place undue reliance on RIM’s forward-looking statements. RIM has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

                         Research In Motion Limited
                   Incorporated under the Laws of Ontario
  (United States dollars, in millions except share and per share amounts)
                                 (unaudited)

                   Consolidated Statements of Operations

                         Three months ended            For the year ended
                ------------------------------------ -----------------------
                 March 3, November 26, February 26,   March 3, February 26,
                     2012         2011         2011       2012         2011
---------------------------------------------------- -----------------------

Revenue         $   4,190  $     5,169  $     5,556  $  18,435  $    19,907
Cost of sales       2,789        3,759        3,103     11,856       11,082
                ------------------------------------ -----------------------
Gross margin        1,401        1,410        2,453      6,579        8,825
                ------------------------------------ -----------------------

  Gross margin %     33.4%        27.3%        44.2%      35.7%        44.3%

Operating
 expenses
 Research and
  development         386          369          383      1,559        1,351
 Selling,
  marketing and
  administration      650          567          705      2,604        2,400
 Amortization         152          146          125        571          438
 Impairment of
  goodwill            355            -            -        355            -
                ------------------------------------ -----------------------
                    1,543        1,082        1,213      5,089        4,189
                ------------------------------------ -----------------------

Income (Loss)
 from operations     (142)         328        1,240      1,490        4,636

 Investment
  income, net           5            2            3         21            8
                ------------------------------------ -----------------------

Income (Loss)
 before income
 taxes               (137)         330        1,243      1,511        4,644

Provision for
 (recovery of)
 income taxes         (12)          65          309        347        1,233

                ------------------------------------ -----------------------
Net income
 (loss)         $    (125) $       265  $       934  $   1,164  $     3,411
                ------------------------------------ -----------------------
                ------------------------------------ -----------------------

Earnings (loss)
 per share
  Basic         $   (0.24) $      0.51  $      1.79  $    2.22  $      6.36
                ------------------------------------ -----------------------
                ------------------------------------ -----------------------
  Diluted       $   (0.24) $      0.51  $      1.78  $    2.22  $      6.34
                ------------------------------------ -----------------------
                ------------------------------------ -----------------------

Weighted-average
 number of
 common shares
 outstanding
 (000's)
  Basic           524,160      524,139      522,764    524,101      535,986
  Diluted         524,160      524,139      524,334    524,190      538,330

Total common
 shares
 outstanding
 (000's)          524,160      524,160      523,869    524,160      523,869

                         Research In Motion Limited
                   Incorporated under the Laws of Ontario
   (United States dollars, in millions except per share data) (unaudited)

                        Consolidated Balance Sheets

                                                     March 3,  February 26,
As at                                                    2012          2011
----------------------------------------------------------------------------
Assets
Current
  Cash and cash equivalents                       $     1,527   $     1,791
  Short-term investments                                  247           330
  Accounts receivable, net                              3,062         3,955
  Other receivables                                       496           324
  Inventories                                           1,027           618
  Income taxes receivable                                 135             -
  Other current assets                                    365           241
  Deferred income tax asset                               197           229
                                                 ---------------------------
                                                        7,056         7,488

Long-term investments                                     337           577
Property, plant and equipment, net                      2,748         2,504
Goodwill                                                  304           508
Intangible assets, net                                  3,286         1,798
                                                 ---------------------------
                                                  $    13,731   $    12,875
                                                 ---------------------------
                                                 ---------------------------

Liabilities
 Current
  Accounts payable                                $       744   $       832
  Accrued liabilities                                   2,382         2,511
  Income taxes payable                                      -           179
  Deferred revenue                                        263           108
                                                 ---------------------------
                                                        3,389         3,630
Deferred income tax liability                             232           276
Income taxes payable                                       10            31
                                                 ---------------------------
                                                        3,631         3,937
                                                 ---------------------------

Shareholders' Equity
Capital stock and additional paid-in capital            2,446         2,359
Treasury stock                                           (299)         (160)
Retained earnings                                       7,913         6,749
Accumulated other comprehensive income (loss)              40           (10)
                                                 ---------------------------
                                                       10,100         8,938
                                                 ---------------------------
                                                  $    13,731   $    12,875
                                                 ---------------------------
                                                 ---------------------------

                        Research In Motion Limited
                  Incorporated under the Laws of Ontario
  (United States dollars, in millions except per share data) (unaudited)

                  Consolidated Statements of Cash Flows

                                              For the year ended
                                    --------------------------------------

                                        March 3. 2012   February 26, 2011
--------------------------------------------------------------------------

Cash flows from operating activities
Net income                           $          1,164  $            3,411

Adjustments to reconcile net income
 to net cash provided by
operating activities:
 Amortization                                   1,523                 927
 Deferred income taxes                             (5)                 92
 Income taxes payable                             (21)                  2
 Stock-based compensation                          97                  72
 Impairment of goodwill                           355                   -
 Other                                              9                   1
Net changes in working capital items             (210)               (496)
                                    --------------------------------------
Net cash provided by operating
 activities                                     2,912               4,009
                                    --------------------------------------

Cash flows from investing activities
Acquisition of long-term investments             (355)               (784)
Proceeds on sale or maturity of
 long-term investments                            376                 893
Acquisition of property, plant and
 equipment                                       (902)             (1,039)
Acquisition of intangible assets               (2,217)               (557)
Business acquisitions, net of cash
 acquired                                        (226)               (494)
Acquisition of short-term
 investments                                     (250)               (503)
Proceeds on sale or maturity of
 short-term investments                           550                 786
                                    --------------------------------------
Net cash used in investing
 activities                                    (3,024)             (1,698)
                                    --------------------------------------

Cash flows from financing activities
Issuance of common shares                           9                  67
Tax deficiencies related to stock-
 based compensation                                (2)                 (1)
Purchase of treasury stock                       (156)                (76)
Common shares repurchased                           -              (2,077)
                                    --------------------------------------
Net cash used in financing
 activities                                      (149)             (2,087)
                                    --------------------------------------
Effect of foreign exchange gain
 (loss) on cash and cash equivalents               (3)                 16
                                    --------------------------------------

Net increase (decrease) in cash and
 cash equivalents for the period                 (264)                240
Cash and cash equivalents, beginning
 of period                                      1,791               1,551
                                    --------------------------------------
Cash and cash equivalents, end of
 period                              $          1,527  $            1,791
                                    --------------------------------------
                                    --------------------------------------

As at                                   March 3, 2012   November 26, 2011
--------------------------------------------------------------------------

Cash and cash equivalents            $          1,527  $            1,123
Short-term investments                            247                 184
Long-term investments                             337                 195
                                    --------------------------------------
                                     $          2,111  $            1,502
                                    --------------------------------------
                                    --------------------------------------

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