HP revises first quarter earnings

The revisions reflect an increase in the amount of the contingency reserve previously established in connection with the litigation and resulted in a negative impact on HP’s first quarter net earnings of approximately $73 million, or $0.03 per diluted share.

EDS and one of EDS’s subsidiaries are defendants in litigation filed in the United Kingdom by Sky Subscribers Services Limited and British Sky Broadcasting Limited (BSkyB) in 2004 relating to a customer relationship management project that was awarded to EDS in 2000. At a court hearing held on March 1, 2010, the court ordered EDS to make an interim payment to BSkyB of £70 million, or approximately $112 million, which is in addition to an interim payment of £200 million, or approximately $320 million, that HP made voluntarily to BSkyB in February 2010. Following that March 1 hearing, HP determined that it was appropriate to increase the contingency reserve. HP will continue to evaluate the reserve pending final resolution of the litigation.

The court’s March 1 order followed an earlier decision in January 2010 that dismissed the majority of BSkyB’s claims against EDS but found the company liable in certain areas. HP is seeking permission to appeal the ruling.

As these developments occurred after the end of HP’s first fiscal quarter and before the company had filed its financial statements as part of its Quarterly Report on Form 10-Q, applicable accounting rules required HP to update its financial results for that quarter to reflect the impact of the increased contingency reserve. The updated financial results do not reflect any other changes or adjustments to HP’s previously announced first quarter financial results.

As a result of the revisions, the company’s GAAP net earnings for the quarter has been revised to $2.25 billion and GAAP diluted earnings per share (EPS) has been revised to $0.93 per share – down from GAAP net earnings of $2.32 billion and GAAP diluted EPS of $0.96 – as previously reported on Feb. 17, 2010.

Non-GAAP net earnings has been revised to $2.59 billion, with non-GAAP diluted EPS of $1.07 – down from the previously reported non-GAAP net earnings of $2.67 billion and non-GAAP diluted EPS of $1.10. Non-GAAP financial information excludes $344 million of adjustments on an after-tax basis, or $0.14 per diluted share, related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges.

HP did not provide updated guidance for either its second fiscal quarter or the remainder of its 2010 fiscal year.