Hewlett Packard Enterprise Co - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - April 6, 2017

Attached files

file filename
8-K - 8-K - Hewlett Packard Enterprise Cohpe-everettclosing8xk.htm


UNAUDITED PRO FORMA CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

On April 1, 2017, Hewlett Packard Enterprise Company ("HPE") completed the previously announced separation and merger of its Enterprise Services business ("Everett" or "Everett SpinCo, Inc.") with Computer Sciences Corporation ("CSC") (collectively, the "Everett Transaction"). The Everett Transaction was accomplished by a series of transactions among CSC, HPE, Everett (a wholly-owned subsidiary of HPE) and New Everett Merger Sub Inc., a wholly-owned subsidiary of Everett ("Merger Sub"). HPE transferred its Enterprise Services business to Everett and distributed all of the shares of Everett to HPE stockholders. HPE stockholders received 0.085904 shares of common stock in the new company for every one share of HPE common stock held at the close of business on the record date. Following the distribution, the Merger Sub merged with and into CSC which will continue as a wholly-owned subsidiary of Everett. At the time of the merger, Everett changed its name to DXC Technology Company ("DXC").

In connection with the Everett Transaction, Everett borrowed an aggregate principal amount of approximately $3.5 billion, which consisted of Senior Notes in the principal amount of $1.5 billion and a term loan facility in the principal amount of $2.0 billion. The proceeds from these arrangements were used to fund a $3.0 billion cash dividend payment from Everett to HPE. The obligations under these borrowing arrangements were retained by Everett.

The following Unaudited Pro Forma Condensed Consolidated Financial Statements of Hewlett Packard Enterprise for the three months ended January 31, 2017 and Unaudited Pro Forma Consolidated Financial Statements for the fiscal years ended October 31, 2016 and 2015 and Unaudited Pro Forma Combined Financial Statement for the fiscal year ended October 31, 2014 reflect Hewlett Packard Enterprise's results of operations as if the Everett Transaction occurred on November 1, 2013 (the first day of HPE's fiscal 2014). The following Unaudited Pro Forma Condensed Consolidated Balance Sheet of Hewlett Packard Enterprise as of January 31, 2017 assumes the Everett Transaction occurred on January 31, 2017. Beginning in the second quarter of fiscal 2017, following the completion of the Everett Transaction, all results and balances associated with Everett will be reflected in Hewlett Packard Enterprise's consolidated financial statements as discontinued operations.

The Unaudited Pro Forma Condensed Consolidated and Combined Financial Statements are presented based on information currently available and are intended for information purposes and are not intended to represent what HPE's financial position and results of operations actually would have been had the Everett Transaction occurred on the date indicated. In addition, the Unaudited Pro Forma Condensed Consolidated and Combined Financial Statements are not necessarily indicative of HPE’s financial position and results of operations for any future period.

The Unaudited Pro Forma Condensed Consolidated and Combined Financial Statements should be read in conjunction with:

i.
the Hewlett Packard Enterprise Annual Report on Form 10-K for the fiscal year ended October 31, 2016;
ii.
the Hewlett Packard Enterprise Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2017;
iii.
Amendment No.1 to the Everett SpinCo, Inc. Registration Statement on Form 10, filed with the Securities and Exchange Commission ("SEC") on February 24, 2017; and
iv.
the Everett SpinCo, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2017.

The historical column in the Unaudited Pro Forma Condensed Consolidated and Combined Financial Statements reflects HPE’s historical financial statements for the periods presented.

The amounts in the Everett discontinued operations column in the Unaudited Pro Forma Condensed Consolidated and Combined Financial Statements were derived from the Combined Financial Statements included in Amendment No.1 to the Everett SpinCo, Inc. Registration Statement on Form 10 and the Condensed Combined Financial Statements included in the Everett SpinCo, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2017, adjusted for certain items which are relevant to the continuing operations of HPE.

The pro forma adjustments are based on available information and assumptions that HPE’s management believes are reasonable, that reflect the impact of events directly attributable to the Everett Transaction and related transaction agreements that are factually supportable, and for purposes of the statements of earnings, are expected to have a continuing impact on HPE. The pro forma adjustments do not reflect future events that may occur after the Everett Transaction.





Hewlett Packard Enterprise Company and Subsidiaries
 Unaudited Pro Forma Condensed Consolidated Statement of Earnings
Three months ended January 31, 2017
(In millions, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 Historical
 
Discontinued Operations
 
Pro Forma Adjustments
 
 Notes
 
Pro Forma HPE
 
 
 
 Everett
 
 
 
 
 
 
Net revenue:
 
 
 
 
 
 
 
 
 
Products
$
4,246

 
$
(8
)
 
$
59

 
(B)
 
$
4,297

Services
7,068

 
(4,029
)
 
127

 
(B)
 
3,166

Financing income
93

 
—

 
—

 
 
 
93

Total net revenue
11,407

 
(4,037
)
 
186

 
 
 
7,556

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of products
2,838

 
(9
)
 
58

 
(A) (B)
 
2,887

Cost of services
5,204

 
(3,462
)
 
129

 
(A) (B)
 
1,871

Financing interest
66

 
—

 
—

 
 
 
66

Research and development
485

 
(5
)
 
1

 
(A)
 
481

Selling, general and administrative
1,759

 
(348
)
 
43

 
(A)
 
1,454

Amortization of intangible assets
101

 
—

 
—

 
 
 
101

Restructuring charges
177

 
(61
)
 
—

 
 
 
116

Acquisition and other related charges
44

 
—

 
—

 
 
 
44

Separation costs
276

 
(195
)
 
4

 
(C)
 
85

Defined benefit plan settlement charges and remeasurement (benefit)
(6
)
 
1

 
—

 
 
 
(5
)
Total costs and expenses
10,944

 
(4,079
)
 
235

 
 
 
7,100

Earnings from operations
463

 
42

 
(49
)
 
 
 
456

Interest and other, net
(78
)
 
—

 
—

 
 
 
(78
)
Tax indemnification adjustments
(18
)
 
—

 
—

 
 
 
(18
)
Loss from equity interests
(22
)
 
—

 
—

 
 
 
(22
)
Earnings before taxes
345

 
42

 
(49
)
 
 
 
338

Provision / benefit for taxes
(78
)
 
(19
)
 
14

 
(D)
 
(83
)
Net earnings
$
267

 
$
23

 
$
(35
)
 
 
 
$
255

Net earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.16

 
 
 
 
 
 
 
$
0.15

Diluted
$
0.16

 
 
 
 
 
 
 
$
0.15

Weighted-average shares used to compute net earnings per share:
 
 
 
 
 
 
 
 
 
Basic
1,669

 
 
 
 
 
 
 
1,669

Diluted
1,700

 
 
 
 
 
 
 
1,700











Hewlett Packard Enterprise Company and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Earnings
Fiscal year ended October 31, 2016
(In millions, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 Historical
 
Discontinued Operations
 
Pro Forma Adjustments
 
 Notes
 
Pro Forma HPE
 
 
 
 Everett
 
 
 
 
 
 
Net revenue:
 
 
 
 
 
 
 
 
 
Products
$
19,250

 
$
(51
)
 
$
247

 
(B)
 
$
19,446

Services
30,509

 
(17,657
)
 
530

 
(B)
 
13,382

Financing income
364

 
—

 
—

 
 
 
364

Total net revenue
50,123

 
(17,708
)
 
777

 
 
 
33,192

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of products
12,715

 
(85
)
 
257

 
(A) (B)
 
12,887

Cost of services
22,543

 
(15,121
)
 
535

 
(A) (B)
 
7,957

Financing interest
249

 
—

 
—

 
 
 
249

Research and development
2,298

 
(28
)
 
16

 
(A)
 
2,286

Selling, general and administrative
7,821

 
(1,626
)
 
231

 
(A)
 
6,426

Amortization of intangible assets
755

 
(330
)
 
—

 
 
 
425

Restructuring charges
1,236

 
(706
)
 
—

 
 
 
530

Acquisition and other related charges
178

 
(13
)
 
—

 
 
 
165

Separation costs
598

 
(321
)
 
132

 
(C)
 
409

Gain on H3C and MphasiS divestitures
(2,420
)
 
—

 
—

 
 
 
(2,420
)
Total costs and expenses
45,973

 
(18,230
)
 
1,171

 
 
 
28,914

Earnings from operations
4,150

 
522

 
(394
)
 
 
 
4,278

Interest and other, net
(312
)
 
27

 
—

 
 
 
(285
)
Tax indemnification adjustments
317

 
—

 
—

 
 
 
317

Loss from equity interests
(76
)
 
—

 
—

 
 
 
(76
)
Earnings before taxes
4,079

 
549

 
(394
)
 
 
 
4,234

Provision / benefit for taxes
(918
)
 
15

 
107

 
(D)
 
(796
)
Net earnings
$
3,161

 
$
564

 
$
(287
)
 
 
 
$
3,438

Net earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
1.84

 
 
 
 
 
 
 
$
2.00

Diluted
$
1.82

 
 
 
 
 
 
 
$
1.98

Weighted-average shares used to compute net earnings per share:
 
 
 
 
 
 
 
 
 
Basic
1,715

 
 
 
 
 
 
 
1,715

Diluted
1,739

 
 
 
 
 
 
 
1,739






Hewlett Packard Enterprise Company and Subsidiaries
 Unaudited Pro Forma Consolidated Statement of Earnings
Fiscal year ended October 31, 2015
(In millions, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 Historical
 
Discontinued Operations
 
Pro Forma Adjustments
 
 Notes
 
Pro Forma HPE
 
 
 
 Everett
 
 
 
 
 
 
Net revenue:
 
 
 
 
 
 
 
 
 
Products
$
19,635

 
$
(123
)
 
$
316

 
(B)
 
$
19,828

Services
32,111

 
(18,399
)
 
482

 
(B)
 
14,194

Financing income
361

 
—

 
—

 
 
 
361

Total net revenue
52,107

 
(18,522
)
 
798

 
 
 
34,383

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of products
12,978

 
(142
)
 
340

 
(A) (B)
 
13,176

Cost of services
23,950

 
(16,209
)
 
504

 
(A) (B)
 
8,245

Financing interest
240

 
—

 
—

 
 
 
240

Research and development
2,338

 
(21
)
 
6

 
(A)
 
2,323

Selling, general and administrative
8,025

 
(1,814
)
 
193

 
(A)
 
6,404

Amortization of intangible assets
852

 
(399
)
 
—

 
 
 
453

Restructuring charges
954

 
(722
)
 
—

 
 
 
232

Acquisition and other related charges
89

 
—

 
—

 
 
 
89

Separation costs
797

 
(258
)
 
258

 
(C)
 
797

Defined benefit plan settlement charges
225

 
(233
)
 
—

 
 
 
(8
)
Impairment of data center assets
136

 
(136
)
 
—

 
 
 
—

Total costs and expenses
50,584

 
(19,934
)
 
1,301

 
 
 
31,951

Earnings from operations
1,523

 
1,412

 
(503
)
 
 
 
2,432

Interest and other, net
(51
)
 
41

 
—

 
 
 
(10
)
Loss from equity interests
(2
)
 
—

 
—

 
 
 
(2
)
Earnings before taxes
1,470

 
1,453

 
(503
)
 
 
 
2,420

Benefit for taxes
991

 
(254
)
 
25

 
(D)
 
762

Net earnings
$
2,461

 
$
1,199

 
$
(478
)
 
 
 
$
3,182

Net earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
1.36

 
 
 
 
 
 
 
$
1.76

Diluted
$
1.34

 
 
 
 
 
 
 
$
1.74

Weighted-average shares used to compute net earnings per share:
 
 
 
 
 
 
 
 
 
Basic
1,804

 
 
 
 
 
 
 
1,804

Diluted
1,834

 
 
 
 
 
 
 
1,834






Hewlett Packard Enterprise Company and Subsidiaries
 Unaudited Pro Forma Combined Statement of Earnings
Fiscal year ended October 31, 2014
(In millions, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 Historical
 
Discontinued Operations
 
Pro Forma Adjustments
 
 Notes
 
Pro Forma HPE
 
 
 
 Everett
 
 
 
 
 
 
Net revenue:
 
 
 
 
 
 
 
 
 
Products
$
19,171

 
$
(175
)
 
$
456

 
(B)
 
$
19,452

Services
35,551

 
(20,924
)
 
646

 
(B)
 
15,273

Financing income
401

 
—

 
—

 
 
 
401

Total net revenue
55,123

 
(21,099
)
 
1,102

 
 
 
35,126

Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of products
12,394

 
(259
)
 
488

 
(A) (B)
 
12,623

Cost of services
26,815

 
(18,537
)
 
672

 
(A) (B)
 
8,950

Financing interest
277

 
—

 
—

 
 
 
277

Research and development
2,197

 
(37
)
 
(1
)
 
(A)
 
2,159

Selling, general and administrative
8,717

 
(2,214
)
 
292

 
(A)
 
6,795

Amortization of intangible assets
906

 
(398
)
 
—

 
 
 
508

Restructuring charges
1,471

 
(1,048
)
 
—

 
 
 
423

Acquisition and other related charges
11

 
—

 
—

 
 
 
11

Total cost and expenses
52,788

 
(22,493
)
 
1,451

 
 
 
31,746

Earnings from operations
2,335

 
1,394

 
(349
)
 
 
 
3,380

Interest and other, net
(91
)
 
63

 
—

 
 
 
(28
)
Earnings before taxes
2,244

 
1,457

 
(349
)
 
 
 
3,352

Provision / benefit for taxes
(596
)
 
(84
)
 
32

 
(D)
 
(648
)
Net earnings
$
1,648

 
$
1,373

 
$
(317
)
 
 
 
$
2,704

Net earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.91

 
 
 
 
 
 
 
$
1.50

Diluted
$
0.90

 
 
 
 
 
 
 
$
1.47

Weighted-average shares used to compute net earnings per share:
 
 
 
 
 
 
 
 
 
Basic
1,804

 
 
 
 
 
 
 
1,804

Diluted
1,834

 
 
 
 
 
 
 
1,834






Hewlett Packard Enterprise Company and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of January 31, 2017
(in millions, except par value)
 
 Historical
 
Discontinued Operations
 
Pro Forma Adjustments
 
Notes
 
Pro Forma HPE
 
 
 
 Everett
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
9,858

 
$
—

 
$
3,008

 
(E)
 
$
12,866

Accounts receivable
6,482

 
(3,263
)
 
—

 
 
 
3,219

Financing receivables
2,922

 
—

 
365

 
(F)
 
3,287

Inventory
1,988

 
(35
)
 
—

 
 
 
1,953

Other current assets
4,275

 
(1,471
)
 
—

 
 
 
2,804

     Total current assets
25,525

 
(4,769
)
 
3,373

 
 
 
24,129

Property, plant and equipment
9,497

 
(3,467
)
 
—

 
 
 
6,030

Long-term financing receivables and other assets
13,604

 
(2,303
)
 
34

 
(F)(G)
 
11,335

Investments in equity interests
2,620

 
—

 
—

 
 
 
2,620

Goodwill
24,252

 
—

 
—

 
 
 
24,252

Intangible assets
1,164

 
—

 
—

 
 
 
1,164

Total assets
$
76,662

 
$
(10,539
)
 
$
3,407

 
 
 
$
69,530

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
Notes payable and short-term borrowings
$
3,520

 
$
(3
)
 
$
—

 
 
 
$
3,517

Accounts payable
5,535

 
(871
)
 
—

 
 
 
4,664

Employee compensation and benefits
1,736

 
(793
)
 
—

 
 
 
943

Taxes on earnings
538

 
(53
)
 
—

 
 
 
485

Deferred revenue
4,712

 
(876
)
 
—

 
 
 
3,836

Accrued restructuring
510

 
(259
)
 
—

 
 
 
251

Other accrued liabilities
5,135

 
(1,250
)
 
—

 
 
 
3,885

 Total current liabilities
21,686

 
(4,105
)
 
—

 
 
 
17,581

Long-term debt
12,270

 
(388
)
 
—

 
 
 
11,882

Other liabilities
11,132

 
(1,869
)
 
—

 
 
 
9,263

Commitments and contingencies
 
 
 
 
 
 
 
 
 
Stockholders' equity
 
 
 
 
 
 
 
 
 
HPE stockholders' equity:
 
 
 
 
 
 
 
 
 
Preferred stock, $0.01 par value
(300 shares authorized; none issued and outstanding)
—

 
—

 
—

 
 
 
—

Common stock, $0.01 par value
(9,600 shares authorized; 1,663 shares issued and outstanding at January 31, 2017)
17

 
—

 
—

 
 
 
17

Additional paid-in capital
34,848

 
—

 
—

 
 
 
34,848

Retained earnings / Parent Company investment in Everett SpinCo, Inc.
2,760

 
(6,628
)
 
3,407

 
(H)
 
(461
)
Accumulated other comprehensive loss
(6,124
)
 
2,484

 
—

 
 
 
(3,640
)
Total HPE stockholders' equity
31,501

 
(4,144
)
 
3,407

 
 
 
30,764

Non-controlling interests
73

 
(33
)
 
—

 
 
 
40

Total stockholders' equity
31,574

 
(4,177
)
 
3,407

 
 
 
30,804

Total liabilities and stockholders' equity
$
76,662

 
$
(10,539
)
 
$
3,407

 
 
 
$
69,530





Hewlett Packard Enterprise Company and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated and Combined Financial Statements
 
 
The Unaudited Pro Forma Condensed Consolidated and Combined Statements of Earnings for the three months ended January 31, 2017 and for the fiscal years ended October 31, 2016, 2015 and 2014 and the Unaudited Pro Forma Condensed Consolidated Balance Sheet as of January 31, 2017 include the following pro forma adjustments:
 
 
(A)
Reflects general corporate overhead costs which were historically allocated to the Everett business unit.
(B)
Represents intercompany revenues and costs that will be treated as third-party arrangements.
(C)
Reflects the retention of separation costs by HPE which were allocated to Everett's results of operations for the three months ended January 31, 2017 and fiscal years ended October 31, 2016 and 2015. These costs were incurred as part of HPE's separation from HP Inc. and were primarily related to third-party consulting, contractor fees and other incremental costs.
(D)
Represents the tax impact of the pro forma adjustments at the applicable statutory income tax rates, exclusive of jurisdictions with a full valuation allowance.
(E)
Represents the cash dividend payment from Everett to HPE.
(F)
Represents intercompany lease arrangements that will be treated as third-party capital leases in connection with the Everett Transaction.
(G)
Reflects certain tax reclassifications and remeasurements in connection with the Everett Transaction.
(H)
Represents adjustments to Retained earnings as a result of notes (E), (F) and (G) above.


Hewlett Packard Enterprise Co Reports