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, as well as 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 financial measures. 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 non-GAAP measures to evaluate its business, the substance behind HP'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, effective tax rates, 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 previously announced separation transaction and the future performances of the post-separation companies if the separation is completed, as well as 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 or 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, including the planned separation transaction; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of HP's products and the delivery of HP's 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 the separation transaction or restructuring plans, including estimates and assumptions related to the cost (including any possible disruption of HP's business) and the anticipated benefits of implementing the separation transaction and restructuring 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, 2014, and HP's other filings with the Securities and Exchange Commission.
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 reasonable, these amounts could differ materially from reported amounts in HP's Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2015. 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
-------------------------------------
January 31, October 31, January 31,
2015 2014 2014
----------- ----------- -----------
Net revenue $ 26,839 $ 28,406 $ 28,154
Costs and expenses:
Cost of sales 20,571 21,425 21,736
Research and development 825 876 811
Selling, general and administrative 3,071 3,364 3,210
Amortization of intangible assets 222 226 283
Restructuring charges 146 604 114
Acquisition-related charges 4 3 3
Separation costs 80 - -
----------- ----------- -----------
Total costs and expenses 24,919 26,498 26,157
----------- ----------- -----------
Earnings from operations 1,920 1,908 1,997
Interest and other, net (174) (146) (163)
----------- ----------- -----------
Earnings before taxes 1,746 1,762 1,834
Provision for taxes (380) (432) (409)
----------- ----------- -----------
Net earnings $ 1,366 $ 1,330 $ 1,425
=========== =========== ===========
Net earnings per share:
Basic $ 0.75 $ 0.71 $ 0.75
Diluted $ 0.73 $ 0.70 $ 0.74
Cash dividends declared per share $ 0.32 $ - $ 0.29
Weighted-average shares used to
compute net earnings per share:
Basic 1,833 1,862 1,907
Diluted 1,861 1,896 1,935
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 Three Three
months Diluted months Diluted months Diluted
ended net ended net ended net
January earnings October earnings January earnings
31, 2015 per share 31, 2014 per share 31, 2014 per share
-------- --------- -------- --------- -------- ---------
GAAP net earnings $ 1,366 $ 0.73 $ 1,330 $ 0.70 $ 1,425 $ 0.74
Non-GAAP
adjustments:
Amortization of
intangible
assets 222 0.12 226 0.12 283 0.15
Restructuring
charges 146 0.08 604 0.32 114 0.06
Acquisition-
related charges 4 - 3 - 3 -
Separation costs 80 0.04 - - - -
Adjustments for
taxes (113) (0.05) (149) (0.08) (83) (0.05)
-------- --------- -------- --------- -------- ---------
Non-GAAP net
earnings $ 1,705 $ 0.92 $ 2,014 $ 1.06 $ 1,742 $ 0.90
======== ========= ======== ========= ======== =========
GAAP earnings from
operations $ 1,920 $ 1,908 $ 1,997
Non-GAAP
adjustments:
Amortization of
intangible
assets 222 226 283
Restructuring
charges 146 604 114
Acquisition-
related charges 4 3 3
Separation costs 80 - -
-------- -------- --------
Non-GAAP earnings
from operations $ 2,372 $ 2,741 $ 2,397
======== ======== ========
GAAP operating
margin 7% 7% 7%
Non-GAAP
adjustments 2% 3% 2%
-------- -------- --------
Non-GAAP operating
margin 9% 10% 9%
======== ======== ========
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
As of
---------------------------
January 31, October 31,
2015 2014
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 12,919 $ 15,133
Accounts receivable 12,295 13,832
Financing receivables 2,907 2,946
Inventory 6,575 6,415
Other current assets 13,502 11,819
------------- -------------
Total current assets 48,198 50,145
------------- -------------
Property, plant and equipment 11,030 11,340
Long-term financing receivables and other assets 8,619 8,454
Goodwill and intangible assets 33,014 33,267
------------- -------------
Total assets $ 100,861 $ 103,206
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings $ 3,509 $ 3,486
Accounts payable 14,873 15,903
Employee compensation and benefits 2,900 4,209
Taxes on earnings 1,565 1,017
Deferred revenue 6,241 6,143
Other accrued liabilities 13,441 12,977
------------- -------------
Total current liabilities 42,529 43,735
------------- -------------
Long-term debt 15,552 16,039
Other liabilities 15,876 16,305
Stockholders' equity:
HP stockholders' equity 26,507 26,731
Non-controlling interests 397 396
------------- -------------
Total stockholders' equity 26,904 27,127
------------- -------------
Total liabilities and stockholders' equity $ 100,861 $ 103,206
============= =============
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three months ended January 31,
------------------------------
2015 2014
-------------- --------------
Cash flows from operating activities:
Net earnings $ 1,366 $ 1,425
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 1,028 1,117
Stock-based compensation expense 187 170
Provision for doubtful accounts and
inventory 62 57
Restructuring charges 146 114
Deferred taxes on earnings (173) 9
Excess tax benefit from stock-based
compensation (109) (27)
Other, net 138 (33)
Changes in operating assets and
liabilities (net of acquisitions):
Accounts receivable 1,540 2,391
Financing receivables 222 296
Inventory (224) (19)
Accounts payable (852) (1,165)
Taxes on earnings 293 170
Restructuring (483) (381)
Other assets and liabilities (2,397) (1,134)
-------------- --------------
Net cash provided by operating
activities 744 2,990
-------------- --------------
Cash flows from investing activities:
Investment in property, plant and
equipment (947) (997)
Proceeds from sale of property, plant
and equipment 130 450
Purchases of available-for-sale
securities and other investments (50) (135)
Maturities and sales of available-for-
sale securities and other investments 30 465
Payments made in connection with
business acquisitions (1) -
-------------- --------------
Net cash used in investing
activities (838) (217)
-------------- --------------
Cash flows from financing activities:
Short-term borrowings with original
maturities less than 90 days, net 77 2
Issuance of debt 299 2,005
Payment of debt (911) (45)
Issuance of common stock under employee
stock plans 181 83
Repurchase of common stock (1,571) (565)
Excess tax benefit from stock-based
compensation 109 27
Cash dividends paid (304) (278)
-------------- --------------
Net cash (used in) provided by
financing activities (2,120) 1,229
-------------- --------------
(Decrease) increase in cash and cash
equivalents (2,214) 4,002
Cash and cash equivalents at beginning of
period 15,133 12,163
-------------- --------------
Cash and cash equivalents at end of period $ 12,919 $ 16,165
============== ==============
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Three months ended
-------------------------------------
January 31, October 31, January 31,
2015 2014 2014
----------- ----------- -----------
Net revenue:(a)
Personal Systems $ 8,544 $ 8,948 $ 8,530
Printing 5,543 5,740 5,815
----------- ----------- -----------
Total Printing and Personal
Systems Group 14,087 14,688 14,345
Enterprise Group 6,981 7,248 6,970
Enterprise Services 4,993 5,511 5,595
Software 871 1,087 916
HP Financial Services 803 906 870
Corporate Investments 16 5 288
----------- ----------- -----------
Total segments 27,751 29,445 28,984
Elimination of intersegment net
revenue and other (912) (1,039) (830)
----------- ----------- -----------
Total HP consolidated net
revenue $ 26,839 $ 28,406 $ 28,154
=========== =========== ===========
Earnings before taxes:(a)
Personal Systems $ 313 $ 355 $ 279
Printing 1,067 1,040 979
----------- ----------- -----------
Total Printing and Personal
Systems Group 1,380 1,395 1,258
Enterprise Group 1,090 1,072 1,003
Enterprise Services 148 377 60
Software 157 338 145
HP Financial Services 90 110 101
Corporate Investments (124) (107) 121
----------- ----------- -----------
Total segment earnings from
operations 2,741 3,185 2,688
Corporate and unallocated costs and
eliminations (182) (316) (121)
Stock-based compensation expense (187) (128) (170)
Amortization of intangible assets (222) (226) (283)
Restructuring charges (146) (604) (114)
Acquisition-related charges (4) (3) (3)
Separation costs (80) - -
Interest and other, net (174) (146) (163)
----------- ----------- -----------
Total HP consolidated earnings
before taxes $ 1,746 $ 1,762 $ 1,834
=========== =========== ===========
(a) Effective at the beginning of its first quarter of fiscal 2015, HP
implemented an organizational change to align its segment financial
reporting more closely with its current business structure. This
organizational change resulted in the transfer of third party multi-
vendor support arrangements from the Technology Services business unit
within the Enterprise Group segment to the Infrastructure Technology
Outsourcing business unit within the Enterprise Services segment. HP
reflected this change to its segment information in prior reporting
periods on an as-if basis, which resulted in the removal of intersegment
revenue from the Technology Services business unit within the Enterprise
Group segment and the related corporate intersegment revenue
eliminations, and the transfer of operating profit from the Technology
Services business unit within the Enterprise Group segment to the
Infrastructure Technology Outsourcing business unit within the
Enterprise Services segment. This change had no impact on HP's
previously reported consolidated net revenue, earnings from operations,
net earnings or net earnings per share.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT/BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
Change
Three months ended (%)
------------------------------------- ---------
January 31, October 31, January 31,
2015 2014 2014 Q/Q Y/Y
----------- ----------- ----------- --- ---
Net revenue:(a)
Printing and Personal
Systems Group
Personal Systems
Notebooks $ 4,724 $ 4,869 $ 4,335 (3%) 9%
Desktops 2,949 3,185 3,274 (7%) (10%)
Workstations 526 558 533 (6%) (1%)
Other 345 336 388 3% (11%)
----------- ----------- -----------
Total Personal
Systems 8,544 8,948 8,530 (5%) 0%
----------- ----------- -----------
Printing
Supplies 3,601 3,596 3,795 0% (5%)
Commercial Hardware 1,316 1,567 1,347 (16%) (2%)
Consumer Hardware 626 577 673 8% (7%)
----------- ----------- -----------
Total Printing 5,543 5,740 5,815 (3%) (5%)
----------- ----------- -----------
Total Printing
and Personal
Systems Group 14,087 14,688 14,345 (4%) (2%)
----------- ----------- -----------
Enterprise Group
Industry Standard
Servers 3,387 3,370 3,178 1% 7%
Technology Services 1,987 2,093 2,100 (5%) (5%)
Storage 837 878 834 (5%) 0%
Networking 562 669 630 (16%) (11%)
Business Critical
Systems 208 238 228 (13%) (9%)
----------- ----------- -----------
Total Enterprise
Group 6,981 7,248 6,970 (4%) 0%
----------- ----------- -----------
Enterprise Services
Infrastructure
Technology
Outsourcing 3,132 3,446 3,501 (9%) (11%)
Application and
Business Services 1,861 2,065 2,094 (10%) (11%)
----------- ----------- -----------
Total Enterprise
Services 4,993 5,511 5,595 (9%) (11%)
----------- ----------- -----------
Software 871 1,087 916 (20%) (5%)
----------- ----------- -----------
HP Financial Services 803 906 870 (11%) (8%)
----------- ----------- -----------
Corporate Investments
(b) 16 5 288 NM (94%)
----------- ----------- -----------
Total segments 27,751 29,445 28,984 (6%) (4%)
----------- ----------- -----------
Elimination of
intersegment net
revenue and other (912) (1,039) (830) (12%) 10%
----------- ----------- -----------
Total HP
consolidated net
revenue $ 26,839 $ 28,406 $ 28,154 (6%) (5%)
=========== =========== ===========
(a) Effective at the beginning of its first quarter of fiscal 2015, HP
implemented an organizational change to align its segment financial
reporting more closely with its current business structure. This
organizational change resulted in the transfer of third party multi-
vendor support arrangements from the Technology Services business unit
within the Enterprise Group segment to the Infrastructure Technology
Outsourcing business unit within the Enterprise Services segment. HP
reflected this change to its segment information in prior reporting
periods on an as-if basis, which resulted in the removal of intersegment
revenue from the Technology Services business unit within the Enterprise
Group segment and the related corporate intersegment revenue
eliminations. This change 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.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT OPERATING MARGIN SUMMARY DATA
(Unaudited)
Three months Change in Operating
ended Margin (pts)
------------ --------------------
January 31,
2015 Q/Q Y/Y
------------ --------- ---------
Segment operating margin:(a)
Personal Systems 3.7% (0.3 pts) 0.4 pts
Printing 19.2% 1.1 pts 2.4 pts
Total Printing & Personal Systems 9.8% 0.3 pts 1.0 pts
Enterprise Group 15.6% 0.8 pts 1.2 pts
Enterprise Services 3.0% (3.8 pts) 1.9 pts
Software 18.0% (13.1 pts) 2.2 pts
HP Financial Services 11.2% (0.9 pts) (0.4 pts)
Corporate Investments(b) NM NM NM
Total segments 9.9% (0.9 pts) 0.6 pts
(a) Effective at the beginning of its first quarter of fiscal 2015, HP
implemented an organizational change to align its segment financial
reporting more closely with its current business structure. This
organizational change resulted in the transfer of third party multi-
vendor support arrangements from the Technology Services business unit
within the Enterprise Group segment to the Infrastructure Technology
Outsourcing business unit within the Enterprise Services segment. HP
reflected this change to its segment information in prior reporting
periods on an as-if basis, which resulted in the removal of intersegment
revenue from the Technology Services business unit within the Enterprise
Group segment and the related corporate intersegment revenue
eliminations, and the transfer of operating profit from the Technology
Services business unit within the Enterprise Group segment to the
Infrastructure Technology Outsourcing business unit within the
Enterprise Services segment. This change 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.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts)
Three months ended
-----------------------------------
January 31, October 31, January 31,
2015 2014 2014
----------- ----------- -----------
Numerator:
GAAP net earnings $ 1,366 $ 1,330 $ 1,425
=========== =========== ===========
Non-GAAP net earnings $ 1,705 $ 2,014 $ 1,742
=========== =========== ===========
Denominator:
Weighted-average shares outstanding
during the reporting period 1,833 1,862 1,907
Dilutive effect of employee stock
plans(a) 28 34 28
----------- ----------- -----------
Weighted-average shares used to
compute diluted net earnings per
share 1,861 1,896 1,935
=========== =========== ===========
GAAP diluted net earnings per share $ 0.73 $ 0.70 $ 0.74
=========== =========== ===========
Non-GAAP diluted net earnings per share $ 0.92 $ 1.06 $ 0.90
=========== =========== ===========
(a) Includes any dilutive effect of restricted stock units, restricted
stock, stock options and performance-based restricted stock units.
