IRS Tax Settlement Boosts Hewlett Packard's Profits

by Leroy Baker, Tax-News.com, New York

08 June 2006

Computer maker Hewlett Packard has announced an upward revision of its second quarter profits following the signing of a settlement agreement with the Internal Revenue Service (IRS), stemming from a multi-year tax audit.

The company announced Tuesday that the revisions resulted in a positive impact on HP's second quarter net income of approximately $443 million, relating to the closure of an audit of its federal tax returns for 1996 through 1998.

HP explained that it had set aside financial reserves to cover any potential tax liability, and that those funds accrued substantial amounts of interest. These reserves, now released, had previously been recorded as an additional income tax expense at the time they were established.

As the settlement agreement was signed by the IRS on June 1 - after the end of HP's second fiscal quarter and before the company had filed its financial statements as part of its Quarterly Report - applicable accounting rules required HP to update its financial results for that quarter to reflect the impact of the settlement agreement.

As a result of the settlement, the company's GAAP net income for the quarter has been revised to $1.9 billion and GAAP diluted earnings per share (EPS) has been revised to $0.66 per share - up from GAAP net income of $1.5 billion and GAAP diluted EPS of $0.51 - as previously reported on May 16, 2006.

Non-GAAP net income has been revised to $2.0 billion, with non-GAAP diluted EPS of $0.69 - up from the previously reported non-GAAP net income of $1.6 billion and non-GAAP diluted EPS of $0.54.

Recommended