HP's FY16 Q1 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2016Q1Webcast.
About HP Inc.
HP Inc. creates technology that makes life better for everyone, everywhere. Through our portfolio of printers, PCs, mobile devices, solutions, and services, we engineer experiences that amaze. More information about HP Inc. 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 net revenue on a constant currency basis, as well as non-GAAP operating margin from continuing operations, non-GAAP net earnings from continuing operations, non-GAAP diluted net earnings per share from continuing operations and gross cash financial measures. HP also provides forecasts of non-GAAP diluted net earnings per share from continuing operations. 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 net revenue, operating profit, operating margin, net earnings from continuing operations, diluted net earnings per share from continuing operations or cash and cash equivalents 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 forward-looking statements, including but not limited to any projections of net 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, as well as the execution of the restructuring plan 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; 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 results of the restructuring plan, including estimates and assumptions related to the cost (including any possible disruption of HP's business) and the anticipated benefits of the restructuring plan; 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, 2015, 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, 2016. HP assumes no obligation and does not intend to update these forward-looking statements. HP's Investor Relations website at www.hp.com/investor/home contains a significant amount of information about HP, including financial and other information for investors. HP encourages investors to visit our website from time to time, as information is updated and new information is posted.
HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)
Three months ended
----------------------------------------
January 31, October 31, January 31,
2016 2015 2015
------------ ------------ ------------
Net revenue $ 12,246 $ 12,266 $ 13,858
Costs and expenses:
Cost of products and services 9,961 9,900 11,173
Research and development 292 282 304
Selling, general and
administrative 1,037 1,212 1,222
Amortization of intangible
assets 8 26 27
Restructuring charges 20 41 14
Defined benefit plan settlement
charges - 7 -
------------ ------------ ------------
Total costs and expenses 11,318 11,468 12,740
------------ ------------ ------------
Earnings from continuing
operations before interest and
taxes 928 798 1,118
Interest and other, net (94) (99) (121)
------------ ------------ ------------
Earnings from continuing
operations before taxes 834 699 997
(Provision) benefit for taxes (184) 816 (227)
------------ ------------ ------------
Earnings from continuing
operations 650 1,515 770
(Loss) earnings from discontinued
operations, net of taxes (58) (192) 596
------------ ------------ ------------
Net earnings $ 592 $ 1,323 $ 1,366
============ ============ ============
Net earnings (loss) per share:
Basic
Continuing operations $ 0.37 $ 0.84 $ 0.42
Discontinued operations (0.04) (0.11) 0.33
------------ ------------ ------------
Total basic net earnings per
share $ 0.33 $ 0.73 $ 0.75
============ ============ ============
Diluted
Continuing operations $ 0.36 $ 0.83 $ 0.41
Discontinued operations (0.03) (0.10) 0.32
------------ ------------ ------------
Total diluted net earnings per
share $ 0.33 $ 0.73 $ 0.73
============ ============ ============
Cash dividends declared per share $ 0.25 $ - $ 0.32
Weighted-average shares used to
compute net earnings per share:
Basic 1,776 1,802 1,833
Diluted 1,785 1,821 1,861
HP INC. 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 Diluted Three Diluted Three Diluted
months net months net months net
ended earnings ended earnings ended earnings
January per October per January per
31, 2016 share 31, 2015 share 31, 2015 share
-------- -------- -------- -------- -------- --------
GAAP net earnings
from continuing
operations $ 650 $ 0.36 $ 1,515 $ 0.83 $ 770 $ 0.41
Non-GAAP
adjustments:
Amortization of
intangible assets 8 0.01 26 0.01 27 0.01
Restructuring
charges 20 0.01 41 0.02 14 0.01
Non-operating
retirement-
related credits (40) (0.02) (58) (0.03) (58) (0.03)
Defined benefit
plan settlement
charges - - 7 - - -
Adjustments for
taxes 7 - 9 0.01 12 0.01
Valuation
allowances, net
and separation
taxes and
adjustments - - (992) (0.54) - -
-------- -------- -------- -------- -------- --------
Non-GAAP net
earnings from
continuing
operations $ 645 $ 0.36 $ 548 $ 0.30 $ 765 $ 0.41
======== ======== ======== ======== ======== ========
GAAP earnings from
continuing
operations before
interest and taxes $ 928 $ 798 $ 1,118
Non-GAAP
adjustments:
Amortization of
intangible assets 8 26 27
Restructuring
charges 20 41 14
Non-operating
retirement-
related credits (40) (58) (58)
Defined benefit
plan settlement
charges - 7 -
-------- -------- --------
Non-GAAP earnings
from continuing
operations before
interest and taxes $ 916 $ 814 $ 1,101
======== ======== ========
GAAP operating
margin from
continuing
operations 8% 7% 8%
Non-GAAP adjustments (1%) 0% 0%
-------- -------- --------
Non-GAAP operating
margin from
continuing
operations 7% 7% 8%
======== ======== ========
HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In millions)
As of
---------------------------
January 31, October 31,
2016 2015
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,688 $ 7,584
Accounts receivable 4,114 4,825
Inventory 4,052 4,288
Other current assets 3,301 4,498
Current assets of discontinued operations - 30,592
------------ -------------
Total current assets 15,155 51,787
------------ -------------
Property, plant and equipment 1,529 1,492
Other non-current assets 3,873 1,508
Goodwill and intangible assets 5,756 5,764
Non-current assets of discontinued operations - 46,331
------------ -------------
Total assets $ 26,313 $ 106,882
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings $ 49 $ 2,194
Accounts payable 9,041 10,194
Employee compensation and benefits 553 747
Taxes on earnings 182 243
Deferred revenue 863 1,051
Other accrued liabilities 6,073 6,241
Current liabilities of discontinued operations - 21,521
------------ -------------
Total current liabilities 16,761 42,191
------------ -------------
Long-term debt 6,683 6,677
Other non-current liabilities 8,644 7,414
Non-current liabilities of discontinued
operations - 22,449
Stockholders' (deficit) equity:
HP stockholders' (deficit) equity (5,775) 27,768
Non-controlling interests - 383
------------ -------------
Total stockholders' (deficit) equity (5,775) 28,151
------------ -------------
Total liabilities and stockholder's equity $ 26,313 $ 106,882
============ =============
HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three months ended
January 31,
--------------------------
2016 2015(a)
------------ ------------
Cash flows from operating activities:
Net earnings $ 592 $ 1,366
Adjustments to reconcile net earnings to net
cash (used in) provided by operating
activities:
Depreciation and amortization 79 1,028
Stock-based compensation expense 61 187
Provision for doubtful accounts and
inventory 45 62
Restructuring charges 20 146
Deferred taxes on earnings 526 (173)
Excess tax benefit from stock-based
compensation (1) (109)
Other, net (18) 138
Changes in operating assets and liabilities
(net of acquisitions):
Accounts receivable 704 1,540
Financing receivable - 222
Inventory 202 (224)
Accounts payable (1,104) (852)
Taxes on earnings (534) 293
Restructuring (31) (483)
Other assets and liabilities (649) (2,397)
------------ ------------
Net cash (used in) provided by operating
activities (108) 744
------------ ------------
Cash flows from investing activities:
Investment in property, plant and equipment (120) (947)
Proceeds from sale of property, plant and
equipment - 130
Purchases of available-for-sale securities
and other investments - (50)
Maturities and sales of available-for-sale
securities and other investments 9 30
Payments made in connection with business
acquisitions - (1)
------------ ------------
Net cash used in investing activities (111) (838)
------------ ------------
Cash flows from financing activities:
Short-term borrowings with original
maturities less than 90 days, net 26 77
Proceeds from debt, net of issuance costs 4 299
Payment of debt (2,155) (911)
Settlement of cash flow hedge (11) -
Net transfer of cash and cash equivalents to
Hewlett Packard Enterprise Company (10,375) -
Issuance of common stock under employee
stock plans 2 181
Repurchase of common stock (797) (1,571)
Excess tax benefit from stock-based
compensation 1 109
Cash dividends paid (221) (304)
------------ ------------
Net cash used in financing activities (13,526) (2,120)
------------ ------------
Decrease in cash and cash equivalents (13,745) (2,214)
Cash and cash equivalents at beginning of period 17,433 15,133
------------ ------------
Cash and cash equivalents at end of period $ 3,688 $ 12,919
============ ============
(a) The consolidated condensed statement of cash flows for the three months
ended January 31, 2015 represents the combined cash flows of HP prior to
separation, as previously filed, and has not been adjusted to reflect the
effect of the separation of Hewlett Packard Enterprise Company.
HP INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Three months ended
----------------------------------------
January 31, October 31, January 31,
2016 2015 2015
------------ ------------ ------------
Net revenue:(a)
Personal Systems $ 7,467 $ 7,694 $ 8,562
Printing 4,642 4,965 5,596
Corporate Investments 3 4 12
------------ ------------ ------------
Total segments 12,112 12,663 14,170
Intersegment net revenue
eliminations and other 134 (397) (312)
------------ ------------ ------------
Total net revenue $ 12,246 $ 12,266 $ 13,858
============ ============ ============
Earnings from continuing
operations before taxes:(a)
Personal Systems $ 229 $ 281 $ 303
Printing 787 837 1,050
Corporate Investments (23) (11) (5)
------------ ------------ ------------
Total segment earnings from
operations 993 1,107 1,348
Corporate and unallocated costs
and eliminations (16) (223) (196)
Stock-based compensation expense (61) (70) (51)
Amortization of intangible
assets (8) (26) (27)
Restructuring charges (20) (41) (14)
Non-operating retirement-related
credits 40 58 58
Defined benefit plan settlement
charges - (7) -
Interest and other, net (94) (99) (121)
------------ ------------ ------------
Total earnings from continuing
operations before taxes $ 834 $ 699 $ 997
============ ============ ============
(a) Effective at the beginning of its first quarter of fiscal 2016, HP
implemented an organizational change to align its segment financial
reporting more closely with its current business structure. In addition,
HP implemented a reporting change to provide better transparency to its
segment operating results. This reporting change resulted in the
exclusion of certain market-related factors such as interest cost,
expected return on plan assets, amortized actuarial gains/losses, and
impacts from other market-related factors related to its defined benefit
pension and post-retirement benefit plans from its segment operating
results ("Non-operating retirement-related credits"). This change also
resulted in the exclusion of certain plan curtailments, settlements and
special termination benefits related to its defined benefit pension and
post-retirement benefit plans from HP's segment operating results.
Segment operating results will continue to include service costs and
amortization of prior service costs associated with HP's defined benefit
pension and post-retirement benefit plans. The organizational and
reporting changes had an immaterial impact to previously reported
segment net revenue and earnings from operations. These changes also had
no impact on HP's previously reported consolidated net revenue, earnings
from operations, net earnings or net earnings per share.
HP INC. AND SUBSIDIARIES
SEGMENT/BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
Three months ended Change (%)
------------------------------------- ------------
January 31, October 31, January 31,
2016 2015 2015 Q/Q Y/Y
------------ ----------- ----------- ----- -----
Net revenue:(a)
Personal Systems
Notebooks $ 4,205 $ 4,384 $ 4,724 (4%) (11%)
Desktops 2,527 2,530 2,949 0% (14%)
Workstations 444 472 526 (6%) (16%)
Other 291 308 363 (6%) (20%)
------------ ----------- -----------
Total Personal
Systems 7,467 7,694 8,562 (3%) (13%)
------------ ----------- -----------
Printing
Supplies 3,101 3,239 3,601 (4%) (14%)
Commercial Hardware 1,219 1,366 1,394 (11%) (13%)
Consumer Hardware 322 360 601 (11%) (46%)
------------ ----------- -----------
Total Printing 4,642 4,965 5,596 (7%) (17%)
------------ ----------- -----------
Corporate Investments 3 4 12 (25%) (75%)
------------ ----------- -----------
Total segments 12,112 12,663 14,170 (4%) (15%)
------------ ----------- -----------
Elimination of
intersegment net
revenue and other(b) 134 (397) (312) NM NM
------------ ----------- -----------
Total net revenue $ 12,246 $ 12,266 $ 13,858 (0%) (12%)
============ =========== ===========
(a) Effective at the beginning of its first quarter of fiscal 2016, HP
implemented an organizational change to align its segment financial
reporting more closely with its current business structure. This
organizational change had an immaterial impact to previously reported
segment net revenue and operating profit, and HP has reflected this
change to its segment information retrospectively to the earliest period
presented. This change had no impact on HP's previously reported
consolidated net revenue, earnings from operations, net earnings or net
EPS.
(b) "NM" represents not meaningful.
HP INC. AND SUBSIDIARIES
SEGMENT OPERATING MARGIN SUMMARY DATA
(Unaudited)
Three months Change in Operating
ended Margin (pts)
-------------- ---------------------
January 31,
2016 Q/Q Y/Y
-------------- ---------- ----------
Segment operating margin:(a)
Personal Systems 3.1% (0.6 pts) (0.4 pts)
Printing 17.0% 0.1 pts (1.8 pts)
Corporate Investments(b) NM NM NM
Total segments 8.2% (0.5 pts) (1.3 pts)
(a) Effective at the beginning of its first quarter of fiscal 2016, HP
implemented an organizational change to align its segment financial
reporting more closely with its current business structure. In addition,
HP implemented a reporting change to provide better transparency to its
segment operating results. This reporting change resulted in the
exclusion of certain market-related factors such as interest cost,
expected return on plan assets, amortized actuarial gains/losses, and
impacts from other market-related factors related to its defined benefit
pension and post-retirement benefit plans from its segment operating
results ("Non-operating retirement-related credits"). This change also
resulted in the exclusion of certain plan curtailments, settlements and
special termination benefits related to its defined benefit pension and
post-retirement benefit plans from HP's segment operating results.
Segment operating results will continue to include service costs and
amortization of prior service costs associated with HP's defined benefit
pension and post-retirement benefit plans. The organizational and
reporting changes had an immaterial impact to previously reported
segment net revenue and earnings from operations. These changes also 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.
HP INC. 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,
2016 2015 2015
------------- ------------- -------------
Numerator:
GAAP net earnings from
continuing operations $ 650 $ 1,515 $ 770
============= ============= =============
Non-GAAP net earnings from
continuing operations $ 645 $ 548 $ 765
============= ============= =============
Denominator:
Weighted-average shares
outstanding during the
reporting period 1,776 1,802 1,833
Dilutive effect of employee
stock plans(a) 9 19 28
------------- ------------- -------------
Weighted-average shares used
to compute diluted net
earnings per share 1,785 1,821 1,861
============= ------------- =============
GAAP diluted net earnings per
share from continuing operations $ 0.36 $ 0.83 $ 0.41
============= ============= =============
Non-GAAP diluted net earnings per
share from continuing operations $ 0.36 $ 0.30 $ 0.41
============= ============= =============
(a) Includes any dilutive effect of restricted stock units, restricted
stock, stock options and performance-based awards.
