HP INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1

Attached files

file	filename
8-K - FORM 8-K - HP INC	q2form8-k_52014.htm
EX-99.2 - EXHIBIT 99.2 - HP INC	ex99-2_52014.htm

		EXHIBIT 99.1

	Hewlett-Packard Company 3000 Hanover Street Palo Alto, CA 94304 hp.com

	News Release
	HP Reports Fiscal 2014 Second Quarter Results

Editorial contacts	●	Second quarter non-GAAP diluted net earnings per share of $0.88, up 1% from the prior-year period, versus the previously provided outlook of $0.85 to $0.89 per share
Kate Holderness, HP +1 650 236 1024	●	Second quarter GAAP diluted net earnings per share of $0.66, up 20% from the prior-year period, versus the previously provided outlook of $0.62 to $0.66 per share
corpmediarelations@hp.com	●	Second quarter net revenue of $27.3 billion, down 1% from the prior-year period and flat on a constant currency basis
HP Investor Relations	●	Second quarter cash flow from operations of $3.0 billion
investor.relations@hp.com	●	Returned $1.1 billion to shareholders in the form of dividends and share repurchases in the second quarter
www.hp.com/go/newsroom	●	Improved operating company net cash position by $1.0 billion, the ninth consecutive quarterly improvement of approximately $1 billion or more

HP fiscal 2014 second quarter financial performance
	Q2FY14	Q2FY13	Y/Y
GAAP net revenue ($B)	$27.3	$27.6	(1%)
GAAP operating margin	6.7%	5.8%	0.9 pts.
GAAP net earnings ($B)	$1.3	$1.1	18%
GAAP diluted net earnings per share	$0.66	$0.55	20%
Non-GAAP operating margin	8.6%	8.6%	0.0 pts.
Non-GAAP net earnings ($B)	$1.7	$1.7	0%
Non-GAAP diluted net earnings per share	$0.88	$0.87	1%
Cash flow from operations ($B)	$3.0	$3.6	(16%)

Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below.

PALO ALTO, Calif., May 22, 2014 — HP today announced financial results for its fiscal 2014 second quarter ended April 30, 2014.

Second quarter GAAP diluted net earnings per share (EPS) was $0.66, up from $0.55 in the prior-year period and within its previously provided outlook of $0.62 to $0.66. Second quarter non-GAAP diluted net EPS was $0.88, up from $0.87 in the prior-year period and within its previously provided outlook of $0.85 to $0.89. Second quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $418 million and $0.22

Page 1 of 22

	per diluted share, respectively, related to the amortization of intangible assets, restructuring charges and acquisition-related charges.

	Second quarter net revenue of $27.3 billion was down 1% from the prior-year period and flat on a constant currency basis.

	“With the first half of our fiscal year completed, I’m pleased to report that HP’s turnaround remains on track,” said Meg Whitman, president and chief executive officer, HP. “With each passing quarter, HP is improving its systems, structures and core go-to-market capabilities. We’re gradually shaping HP into a more nimble, lower-cost, more customer- and partner-centric company that can successfully compete across a rapidly changing IT landscape.”

	In May 2012, HP adopted a multi-year restructuring plan designed to simplify business processes, accelerate innovation, lower costs and deliver better results. HP previously estimated that 34,000 positions would be eliminated in connection with the plan. As HP continues to reengineer the workforce to be more competitive and meet its objectives, the previously estimated number of eliminated positions will increase by between 11,000 to 16,000.

	Outlook
	For the fiscal 2014 third quarter, HP estimates non-GAAP diluted net EPS to be in the range of $0.86 to $0.90 and GAAP diluted net EPS to be in the range of $0.59 to $0.63. Fiscal 2014 third quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.27 per share, related primarily to the amortization of intangible assets and restructuring charges.

	For fiscal 2014, HP estimates non-GAAP diluted net EPS to be in the range of $3.63 to $3.75 and GAAP diluted net EPS to be in the range of $2.68 to $2.80. Fiscal 2014 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.95 per share, related primarily to the amortization of intangible assets and restructuring charges.

	Asset management
	HP generated $3.0 billion in cash flow from operations in the second quarter, down 16% from the prior-year period. Inventory ended the quarter at $5.8 billion, down 1 day year over year to 25 days. Accounts receivable ended the quarter at $14.3 billion, down 1 day year over year at 47 days. Accounts payable ended the quarter at $13.5 billion, up 6 days year over year to 59 days. HP’s dividend payment of $0.1452 per share in the second quarter resulted in cash usage of $298 million. HP also utilized $831 million of cash during the quarter to repurchase approximately 26.7 million shares of common stock in the open market. HP exited the quarter with $15.4 billion in gross cash.

Page 2 of 22


	Fiscal 2014 second quarter segment results

	●	Personal Systems revenue was up 7% year over year with a 3.5% operating margin. Commercial revenue increased 12% and Consumer revenue declined 2%. Total units were up 10% with Desktops units up 6% and Notebooks units up 6%.
	●	Printing was down 4% year over year with a 19.5% operating margin. Total hardware units were up 1% with Commercial hardware units up 3% and Consumer hardware units flat. Supplies revenue was down 6%.
	●	Enterprise Group revenue was down 2% year over year with a 14.4% operating margin. Industry Standard Servers revenue was up 1%, Storage revenue was down 6%, Business Critical Systems revenue was down 14%, Networking revenue was up 6% and Technology Services revenue was down 5%.
	●	Enterprise Services revenue was down 7% year over year with a 2.5% operating margin. Application and Business Services revenue was down 8%, and Infrastructure Technology Outsourcing revenue declined 7%.
	●	Software revenue was flat year over year with a 19.2% operating margin. License revenue was up 8%, support revenue was down 4%, professional services revenue was up 1% and software-as-a-service (SaaS) revenue was up 6%.
	●	HP Financial Services revenue was down 2% year over year with a 2% decrease in net portfolio assets and a 12% increase in financing volume. The business delivered an operating margin of 11.4%.

	More information on HP’s 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 FY14 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2014Q2webcast.

	About HP
	HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. With the broadest technology portfolio spanning printing, personal systems, software, services and IT infrastructure, HP delivers solutions for customers’ most complex challenges in every region of the world. More information about HP (NYSE: HPQ) is available at http://www.hp.com.

	Use of non-GAAP financial information
	To supplement HP’s consolidated condensed financial statements presented on a generally accepted accounting principles (GAAP) basis, HP provides revenue on a constant currency basis, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net capital expenditures, net debt, net cash, operating company net debt and operating company net cash. HP also provides forecasts of non-GAAP diluted net earnings per share. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below or elsewhere in the materials accompanying this news release. In addition, an explanation of the ways in which HP’s management uses these

Page 3 of 22

	non-GAAP measures to evaluate its business, the substance behind HP’s 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’s management compensates for those limitations, and the substantive reasons why HP’s 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 net earnings per share, cash and cash equivalents, cash flow from operations, capital expenditures, or total company debt 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, HP’s effective tax rate, net earnings, net earnings per share, cash flows, benefit plan funding, share repurchases, currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring 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 need to address the many challenges facing HP’s businesses; the competitive pressures faced by HP’s businesses; risks associated with executing HP’s strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of HP’s products and services effectively; the protection of HP’s intellectual property assets, including intellectual property licensed from third parties; risks associated with HP’s international operations; 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 hiring and retention of key employees; integration and other risks associated with business combination and investment transactions; 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, 2013, 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, 2014. As in prior periods, the financial

Page 4 of 22


	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 reasonable, these amounts could differ materially from actual reported amounts in HP’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2014. HP assumes no obligation and does not intend to update these forward-looking statements.

Page 5 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)

	Three months ended
	April 30, 2014			January 31, 2014			April 30, 2013
Net revenue	$	27,309		$	28,154		$	27,582

Costs and expenses:
Cost of sales		20,704			21,736			21,055
Research and development		873			811			815
Selling, general and administrative		3,391			3,210			3,342
Amortization of intangible assets		264			283			350
Restructuring charges		252			114			408
Acquisition-related charges		3			3			11
Total costs and expenses		25,487			26,157			25,981

Earnings from operations		1,822			1,997			1,601

Interest and other, net		(174	)		(163	)		(193	)

Earnings before taxes		1,648			1,834			1,408

Provision for taxes		(375	)		(409	)		(331	)

Net earnings	$	1,273		$	1,425		$	1,077

Net earnings per share:
Basic	$	0.67		$	0.75		$	0.56
Diluted	$	0.66		$	0.74		$	0.55

Cash dividends declared per share	$	-		$	0.29		$	-

Weighted-average shares used to compute net earnings per share:
Basic		1,890			1,907			1,935
Diluted		1,916			1,935			1,947

Page 6 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)

	Six months ended
	April 30,
	2014			2013
Net revenue	$	55,463		$	55,941

Costs and expenses:
Cost of sales		42,440			43,084
Research and development		1,684			1,609
Selling, general and administrative		6,601			6,642
Amortization of intangible assets		547			700
Restructuring charges		366			538
Acquisition-related charges		6			15
Total costs and expenses		51,644			52,588

Earnings from operations		3,819			3,353

Interest and other, net		(337	)		(372	)

Earnings before taxes		3,482			2,981

Provision for taxes		(784	)		(672	)

Net earnings	$	2,698		$	2,309

Net earnings per share:
Basic	$	1.42		$	1.19
Diluted	$	1.40		$	1.18

Cash dividends declared per share	$	0.29		$	0.26

Weighted-average shares used to compute net earnings per share:
Basic		1,898			1,944
Diluted		1,922			1,952

Page 7 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)


	Three months ended April 30, 2014			Diluted net earnings per share			Three months ended January 31, 2014			Diluted net earnings per share			Three months ended April 30, 2013			Diluted net earnings per share
GAAP net earnings	$	1,273		$	0.66		$	1,425		$	0.74		$	1,077		$	0.55

Non-GAAP adjustments:
Amortization of intangible assets		264			0.14			283			0.15			350			0.17
Restructuring charges		252			0.13			114			0.06			408			0.21
Acquisition-related charges		3			-			3			-			11			0.01
Adjustments for taxes		(101	)		(0.05	)		(83	)		(0.05	)		(148	)		(0.07	)
Non-GAAP net earnings	$	1,691		$	0.88		$	1,742		$	0.90		$	1,698		$	0.87


GAAP earnings from operations	$	1,822					$	1,997					$	1,601

Non-GAAP adjustments:
Amortization of intangible assets		264						283						350
Restructuring charges		252						114						408
Acquisition-related charges		3						3						11
Non-GAAP earnings from operations	$	2,341					$	2,397					$	2,370

GAAP operating margin		7	%					7	%					6	%
Non-GAAP adjustments		2	%					2	%					3	%
Non-GAAP operating margin		9	%					9	%					9	%

Page 8 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)

	Six months ended April 30, 2014			Diluted net earnings per share			Six months ended April 30, 2013			Diluted net earnings per share
GAAP net earnings	$	2,698		$	1.40		$	2,309		$	1.18

Non-GAAP adjustments:
Amortization of intangible assets		547			0.28			700			0.35
Restructuring charges		366			0.19			538			0.28
Acquisition-related charges		6			-			15			0.01
Adjustments for taxes		(184	)		(0.08	)		(259	)		(0.13	)
Non-GAAP net earnings	$	3,433		$	1.79		$	3,303		$	1.69


GAAP earnings from operations	$	3,819					$	3,353

Non-GAAP adjustments:
Amortization of intangible assets		547						700
Restructuring charges		366						538
Acquisition-related charges		6						15
Non-GAAP earnings from operations	$	4,738					$	4,606

GAAP operating margin		7	%					6	%
Non-GAAP adjustments		2	%					2	%
Non-GAAP operating margin		9	%					8	%

Page 9 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
	As of
	April 30, 2014		October 31, 2013
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	15,096	$	12,163
Accounts receivable		14,288		15,876
Financing receivables		3,112		3,144
Inventory		5,840		6,046
Other current assets		11,547		13,135

Total current assets		49,883		50,364

Property, plant and equipment		11,350		11,463

Long-term financing receivables and other assets		9,043		9,556

Goodwill and intangible assets		33,696		34,293

Total assets	$	103,972	$	105,676


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable and short-term borrowings	$	5,396	$	5,979
Accounts payable		13,521		14,019
Employee compensation and benefits		3,662		4,436
Taxes on earnings		1,263		1,203
Deferred revenue		6,416		6,477
Other accrued liabilities		13,022		13,407

Total current liabilities		43,280		45,521

Long-term debt		17,190		16,608

Other liabilities		14,920		15,891

Stockholders' equity:
HP stockholders' equity		28,185		27,269
Non-controlling interests		397		387

Total stockholders' equity		28,582		27,656

Total liabilities and stockholders' equity	$	103,972	$	105,676

Page 10 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)

	Three months ended April 30, 2014			Six months ended April 30, 2014
Cash flows from operating activities:
Net earnings	$	1,273		$	2,698
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		1,087			2,204
Stock-based compensation expense		130			300
Provision for doubtful accounts and inventory		55			112
Restructuring charges		252			366
Deferred taxes on earnings		(99	)		(90	)
Excess tax benefit from stock-based compensation		(6	)		(33	)
Other, net		47			14

Changes in operating assets and liabilities (net of acquisitions):
Accounts receivable		(801	)		1,590
Financing receivables		(42	)		254
Inventory		126			107
Accounts payable		765			(400	)
Taxes on earnings		(17	)		153
Restructuring		(300	)		(681	)
Other assets and liabilities		525			(609	)
Net cash provided by operating activities		2,995			5,985

Cash flows from investing activities:
Investment in property, plant and equipment		(840	)		(1,837	)
Proceeds from sale of property, plant and equipment		120			570
Purchases of available-for-sale securities and other investments		(316	)		(451	)
Proceeds from sale of available-for-sale securities and other investments		79			544
Payments made in connection with business acquisitions		(20	)		(20	)
Net cash used in investing activities		(977	)		(1,194	)

Cash flows from financing activities:
Issuance of commercial paper and notes payable, net		58			60
Issuance of debt		-			2,005
Payment of debt		(2,070	)		(2,115	)
Issuance of common stock under employee stock plans		48			131
Repurchase of common stock		(831	)		(1,396	)
Excess tax benefit from stock-based compensation		6			33
Cash dividends paid		(298	)		(576	)
Net cash used in financing activities		(3,087	)		(1,858	)

(Decrease) increase in cash and cash equivalents		(1,069	)		2,933
Cash and cash equivalents at beginning of period		16,165			12,163
Cash and cash equivalents at end of period	$	15,096		$	15,096

Page 11 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)

	Three months ended
	April 30, 2014			January 31, 2014			April 30, 2013
Net revenue:(a)

Personal Systems	$	8,176		$	8,530		$	7,610
Printing		5,834			5,815			6,094
Total Printing and Personal Systems Group		14,010			14,345			13,704
Enterprise Group		6,657			6,993			6,794
Enterprise Services		5,702			5,595			6,133
Software		971			916			967
HP Financial Services		867			870			881
Corporate Investments		6			288			10
Total segments		28,213			29,007			28,489
Elimination of intersegment net revenue and other		(904	)		(853	)		(907	)

Total HP consolidated net revenue	$	27,309		$	28,154		$	27,582

Earnings before taxes:(a)

Personal Systems	$	290		$	279		$	244
Printing		1,140			979			970
Total Printing and Personal Systems Group		1,430			1,258			1,214
Enterprise Group		961			1,006			1,074
Enterprise Services		144			57			156
Software		186			145			180
HP Financial Services		99			101			97
Corporate Investments		(98	)		121			(75	)
Total segment earnings from operations		2,722			2,688			2,646

Corporate and unallocated costs and eliminations		(251	)		(121	)		(169	)
Stock-based compensation expense		(130	)		(170	)		(107	)
Amortization of intangible assets		(264	)		(283	)		(350	)
Restructuring charges		(252	)		(114	)		(408	)
Acquisition-related charges		(3	)		(3	)		(11	)
Interest and other, net		(174	)		(163	)		(193	)

Total HP consolidated earnings before taxes	$	1,648		$	1,834		$	1,408

(a)

Effective at the beginning of its first quarter of fiscal 2014, HP implemented certain organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes include (i) transferring the HP Exstream business from the Commercial Hardware business unit within the Printing segment to the Software segment; (ii) transferring the Personal Systems trade and warranty support business from the Technology Services business unit within the Enterprise Group segment to the Other business unit within the Personal Systems segment; (iii) transferring the spare and replacement parts business supporting the Personal Systems and Printing segments from the Technology Services business unit within the Enterprise Group segment to the Other business unit within the Personal Systems segment and the Commercial Hardware business unit within the Printing segment, respectively; and (iv) transferring certain cloud-related incubation activities previously reported in Corporate and unallocated costs and eliminations and in the Enterprise Group segment to the Corporate Investments segment. In addition, HP transferred certain intrasegment eliminations from the Enterprise Services segment and the Enterprise Group segment to corporate intersegment revenue eliminations.

HP reflected these changes to its segment information in prior reporting periods on an as-if basis, which resulted in the transfer of revenue among the Personal Systems, Printing, the Enterprise Group, Enterprise Services and Software segments. These changes also resulted in the transfer of operating profit among the Personal Systems, Printing, the Enterprise Group, Software and Corporate Investments segments. These changes had no impact on HP’s previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.

Page 12 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)

	Six months ended
	April 30,
	2014			2013
Net revenue:(a)

Personal Systems	$	16,706		$	15,842
Printing		11,649			12,040
Total Printing and Personal Systems Group		28,355			27,882
Enterprise Group		13,650			13,742
Enterprise Services		11,297			12,171
Software		1,887			1,918
HP Financial Services		1,737			1,838
Corporate Investments		294			14
Total segments		57,220			57,565
Elimination of intersegment net revenue and other		(1,757	)		(1,624	)

Total HP consolidated net revenue	$	55,463		$	55,941

Earnings before taxes:(a)

Personal Systems	$	569		$	477
Printing		2,119			1,937
Total Printing and Personal Systems Group		2,688			2,414
Enterprise Group		1,967			2,144
Enterprise Services		201			232
Software		331			335
HP Financial Services		200			198
Corporate Investments		23			(148	)
Total segment earnings from operations		5,410			5,175


Corporate and unallocated costs and eliminations		(372	)		(278	)
Stock-based compensation expense		(300	)		(291	)
Amortization of intangible assets		(547	)		(700	)
Restructuring charges		(366	)		(538	)
Acquisition-related charges		(6	)		(15	)
Interest and other, net		(337	)		(372	)

Total HP consolidated earnings before taxes	$	3,482		$	2,981

(a)

Page 13 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)

	Three months ended									Growth rate (%)
	April 30, 2014			January 31, 2014			April 30, 2013				Q/Q			Y/Y
Net revenue:(a)

Printing and Personal Systems Group
Personal Systems
Notebooks	$	3,977		$	4,335		$	3,718			(8	%)		7	%
Desktops		3,343			3,274			3,103			2	%		8	%
Workstations		548			533			521			3	%		5	%
Other		308			388			268			(21	%)		15	%
Total Personal Systems		8,176			8,530			7,610			(4	%)		7	%

Printing
Supplies		3,866			3,795			4,122			2	%		(6	%)
Commercial Hardware		1,402			1,347			1,411			4	%		(1	%)
Consumer Hardware		566			673			561			(16	%)		1	%
Total Printing		5,834			5,815			6,094			0	%		(4	%)
Total Printing and Personal Systems Group		14,010			14,345			13,704			(2	%)		2	%

Enterprise Group
Industry Standard Servers		2,829			3,178			2,806			(11	%)		1	%
Technology Services		2,132			2,123			2,247			0	%		(5	%)
Storage		808			834			857			(3	%)		(6	%)
Networking		658			630			618			4	%		6	%
Business Critical Systems		230			228			266			1	%		(14	%)
Total Enterprise Group		6,657			6,993			6,794			(5	%)		(2	%)

Enterprise Services
Infrastructure Technology Outsourcing		3,597			3,501			3,855			3	%		(7	%)
Application and Business Services		2,105			2,094			2,278			1	%		(8	%)
Total Enterprise Services		5,702			5,595			6,133			2	%		(7	%)

Software		971			916			967			6	%		0	%

HP Financial Services		867			870			881			0	%		(2	%)

Corporate Investments		6			288			10		(98		%)	(40		%)
Total segments		28,213			29,007			28,489			(3	%)		(1	%)

Elimination of intersegment net revenue and other		(904	)		(853	)		(907	)		6	%		0	%

Total HP consolidated net revenue	$	27,309		$	28,154		$	27,582			(3	%)		(1	%)

(a)

Page 14 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)

	Six months ended
	April 30,
	2014			2013
Net revenue:(a)

Printing and Personal Systems Group
Personal Systems
Notebooks	$	8,312		$	7,846
Desktops		6,617			6,424
Workstations		1,081			1,056
Other		696			516
Total Personal Systems		16,706			15,842

Printing
Supplies		7,661			8,015
Commercial Hardware		2,749			2,785
Consumer Hardware		1,239			1,240
Total Printing		11,649			12,040
Total Printing and Personal Systems Group		28,355			27,882

Enterprise Group
Industry Standard Servers		6,007			5,800
Technology Services		4,255			4,454
Storage		1,642			1,690
Networking		1,288			1,226
Business Critical Systems		458			572
Total Enterprise Group		13,650			13,742

Enterprise Services
Infrastructure Technology Outsourcing		7,098			7,710
Application and Business Services		4,199			4,461
Total Enterprise Services		11,297			12,171

Software		1,887			1,918

HP Financial Services		1,737			1,838

Corporate Investments		294			14
Total segments		57,220			57,565

Elimination of intersegment net revenue and other		(1,757	)		(1,624	)

Total HP consolidated net revenue	$	55,463		$	55,941

(a)

Page 15 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT OPERATING MARGIN SUMMARY DATA
(Unaudited)



	Three months ended			Change in Operating Margin (pts)
	April 30, 2014			Q/Q		Y/Y
Segment operating margin:(a)
Personal Systems		3.5	%	0.2	pts	0.3	pts
Printing		19.5	%	2.7	pts	3.6	pts
Printing and Personal Systems Group		10.2	%	1.4	pts	1.3	pts

Enterprise Group		14.4	%	-		(1.4	pts)
Enterprise Services		2.5	%	1.5	pts	-
Software		19.2	%	3.4	pts	0.6	pts
HP Financial Services		11.4	%	(0.2	pts)	0.4	pts
Corporate Investments (b)	NM			NM		NM
Total segments		9.6	%	0.3	pts	0.3	pts

(a)	Effective at the beginning of its first quarter of fiscal 2014, HP implemented certain organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes include (i) transferring the HP Exstream business from the Commercial Hardware business unit within the Printing segment to the Software segment; (ii) transferring the Personal Systems trade and warranty support business from the Technology Services business unit within the Enterprise Group segment to the Other business unit within the Personal Systems segment; (iii) transferring the spare and replacement parts business supporting the Personal Systems and Printing segments from the Technology Services business unit within the Enterprise Group segment to the Other business unit within the Personal Systems segment and the Commercial Hardware business unit within the Printing segment, respectively; and (iv) transferring certain cloud-related incubation activities previously reported in Corporate and unallocated costs and eliminations and in the Enterprise Group segment to the Corporate Investments segment. In addition, HP transferred certain intrasegment eliminations from the Enterprise Services segment and the Enterprise Group segment to corporate intersegment revenue eliminations. HP reflected these changes to its segment information in prior reporting periods on an as-if basis, which resulted in the transfer of revenue among the Personal Systems, Printing, the Enterprise Group, Enterprise Services and Software segments. These changes also resulted in the transfer of operating profit among the Personal Systems, Printing, the Enterprise Group, Software and Corporate Investments segments. These changes had no impact on HP’s previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.

(b)	"NM" represents not meaningful.

Page 16 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)

	Three months ended
	April 30, 2014		January 31, 2014		April 30, 2013
Numerator:
GAAP net earnings	$	1,273	$	1,425	$	1,077
Non-GAAP net earnings	$	1,691	$	1,742	$	1,698

Denominator:
Weighted-average number of shares outstanding during the reporting period		1,890		1,907		1,935
Dilutive effect of employee stock plans(a)		26		28		12
Weighted-average number of shares used to compute diluted net earnings per share		1,916		1,935		1,947

GAAP diluted net earnings per share	$	0.66	$	0.74	$	0.55
Non-GAAP diluted net earnings per share	$	0.88	$	0.90	$	0.87

(a)

Includes any dilutive effect of outstanding stock options, performance-based restricted stock units, restricted stock units and restricted stock.

Page 17 of 22

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)


	Six months ended
	April 30,
	2014		2013
Numerator:
GAAP net earnings	$	2,698	$	2,309
Non-GAAP net earnings	$	3,433	$	3,303

Denominator:
Weighted-average number of shares outstanding during the reporting period		1,898		1,944
Dilutive effect of employee stock plans(a)		24		8
Weighted-average number of shares used to compute diluted net earnings per share		1,922		1,952

GAAP diluted net earnings per share	$	1.40	$	1.18
Non-GAAP diluted net earnings per share	$	1.79	$	1.69

(a)

Includes any dilutive effect of outstanding stock options, performance-based restricted stock units, restricted stock units and restricted stock.

Page 18 of 22


	Use of non-GAAP financial measures
	To supplement HP’s consolidated condensed financial statements presented on a GAAP basis, HP provides revenue on a constant currency basis, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net capital expenditures, net debt, net cash, operating company net debt and operating company net cash. HP also provides forecasts of non-GAAP diluted net earnings per share. These non-GAAP financial measures are not computed in accordance with, or as an alternative to, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to revenue on a constant currency basis is 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 net 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. The GAAP measure most directly comparable to net capital expenditures is capital expenditures. The GAAP measure most directly comparable to net debt and operating company net debt is total company debt. The GAAP measure most directly comparable to net cash and operating company net cash is cash and cash equivalents. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above or elsewhere in the materials accompanying this news release.

	Use and economic substance of non-GAAP financial measures used by HP
	Revenue on a constant currency basis assumes no change in the foreign exchange rate from the prior-year 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 intangible assets, charges relating to the amortization of intangible assets, acquisition-related charges and charges related to the wind-down of HP businesses recorded during the relevant period. Non-GAAP net earnings and non-GAAP diluted net 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 net 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 the items mentioned above from these non-GAAP financial measures allows HP’s management to better understand HP’s consolidated financial performance in relation to the operating results of HP’s segments, as HP’s 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:

Page 19 of 22


	●	HP incurs charges relating to the amortization of intangible assets, including acquired research and development projects. Those charges are included in HP’s GAAP presentation of earnings from operations, operating margin, net earnings and diluted net earnings per share. Such charges are significantly impacted by the timing and magnitude of HP’s acquisitions and any related impairment charges. 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 operating performance in other periods.

	●	Restructuring charges are 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 operating performance in other periods.

	●	HP incurs costs related to its acquisitions. As 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 these 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 operating performance in other periods.

	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. Net capital expenditures is defined as investments in property plant and equipment less proceeds from the sale of property, plant and equipment. 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 acquisitions, repurchasing stock and other purposes. HP’s management also uses gross cash and free cash flow to evaluate HP’s historical and prospective liquidity. 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. Because net capital expenditures includes proceeds from the sale of property, plant and equipment, HP believes that net capital expenditures provides a more accurate and complete assessment of HP’s liquidity. Because free cash flow includes the effect of net 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.

	Total company net debt consists of total debt (including the effects of hedging) less gross cash, which includes cash and cash equivalents, short-term investments, and certain liquid long-term investments. Total company net cash consists of gross cash less total debt. HP Financial Services (HPFS) net debt consists of HPFS debt, which includes primarily intercompany equity that is treated as debt for segment reporting purposes,

Page 20 of 22

	intercompany debt, and borrowing and funding related activity associated with HPFS and its subsidiaries, less HPFS cash. Total company net debt and total company net cash provide useful information to HP’s management about the state of HP’s consolidated condensed balance sheet. Operating company net debt is a non-GAAP measure that is defined as total company net debt less HPFS net debt. Operating company net cash is a non-GAAP measure that is defined as total company net cash less HPFS cash less HPFS debt. Operating company net debt and operating company net cash provide additional useful information to HP’s management about the state of HP’s consolidated condensed balance sheet by providing more transparency into the financial components of the operating company separate from HP’s financing business, which has different capital structure requirements and requires much greater leverage to run effectively.

	Material limitations associated with use of non-GAAP financial measures
	These non-GAAP financial measures 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 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 or non-GAAP diluted net 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 net earnings per share can have a material impact on the equivalent GAAP earnings measure and cash flows.

	●	HP may not be able to liquidate immediately the short-term and long-term investments included in gross cash, which may limit the usefulness of gross cash as a liquidity measure.

	●	Other companies may calculate revenue on a constant currency basis, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net capital expenditures, net debt, net cash, operating company net debt and operating company net cash 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 financial measures 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 news release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations.

Page 21 of 22


	Usefulness of non-GAAP financial measures to investors
	HP believes that providing revenue on a constant currency basis, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net capital expenditures, net debt, net cash, operating company net debt and operating company net cash 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 HP’s 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 may be calculated in a similar manner.

	© 2014 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.

Page 22 of 22

HP INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - May 22, 2014

Attached files

HP INC Reports