UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 
August 20, 2015
Date of Report (Date of Earliest Event Reported)
 
 
HEWLETT-PACKARD COMPANY
(Exact name of registrant as specified in its charter)




 
DELAWARE
1-4423
94-1081436
(State or other jurisdiction
of incorporation)
(Commission File Number)
(I.R.S. Employer
Identification No.)
     
     
3000 HANOVER STREET, PALO ALTO, CA
  
94304
(Address of principal executive offices)
  
(Zip code)
     
     
(650) 857-1501
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 
 

 
 

 
Item 2.02.
Results of Operations and Financial Condition.
     
 
On August 20, 2015, Hewlett-Packard Company (“HP”) issued a press release relating to its fiscal quarter ended July 31, 2015 entitled “HP Reports Fiscal 2015 Third Quarter Results.” The text of this press release, with the related GAAP consolidated condensed statements of earnings, adjustments to certain GAAP financial information, GAAP consolidated condensed balance sheets, GAAP consolidated condensed statements of cash flows, certain segment and business unit information, and certain additional financial information, is furnished herewith as Exhibit 99.1. The information in Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), solely as a result of being included in Exhibit 99.1.
 
HP’s GAAP consolidated condensed statements of earnings for the three and nine months ended July 31, 2015, HP’s GAAP consolidated condensed balance sheets as of July 31, 2015 and certain segment information for the three and nine months ended July 31, 2015 also are filed herewith as Exhibit 99.2. The information in Exhibit 99.2 is filed for purposes of Section 18 of the Exchange Act and therefore may be incorporated by reference into filings under the Securities Act.
 
To supplement HP’s consolidated condensed financial statements presented on a GAAP basis, HP provides revenue on a constant currency basis, non-GAAP operating expense, non-GAAP operating profit, non-GAAP operating margin, non-GAAP tax rates, 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 HP’s fiscal quarter ended July 31, 2015 and prior periods is included in the tables that are a part of Exhibit 99.1 or elsewhere in the materials related hereto. 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 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 information” in Exhibit 99.1. 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.


 
2
 
 
Item 9.01.
Financial Statements and Exhibits.
   
Exhibit Number
Description
   
Exhibit 99.1
Text of HP’s press release relating to its fiscal quarter ended July 31, 2015 entitled “HP Reports Fiscal 2015 Third Quarter Results,” with the related GAAP consolidated condensed statements of earnings, adjustments to certain GAAP financial information, GAAP consolidated condensed balance sheets, GAAP consolidated condensed statements of cash flows, segment financial results, statements of business unit revenue and certain additional financial information (furnished herewith).
   
Exhibit 99.2
HP’s GAAP consolidated condensed statements of earnings for the three and nine months ended July 31, 2015,  GAAP consolidated condensed balance sheets as of July 31, 2015 and segment financial results for the three and nine months ended July 31, 2015 (filed herewith).

 

3

 
 
SIGNATURE
 
 
          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
   
   
 
HEWLETT-PACKARD COMPANY
 
     
     
DATE: August 20, 2015
By:
 /s/  Rishi Varma
  
 
Name:
Rishi Varma
 
Title:
Senior Vice President,
Deputy General Counsel
and Assistant Secretary
 

 
4
 
 
EXHIBIT INDEX
   
Item 9.01.
Financial Statements and Exhibits.
   
Exhibit Number
Description
   
Exhibit 99.1
Text of HP’s press release relating to its fiscal quarter ended July 31, 2015 entitled “HP Reports Fiscal 2015 Third Quarter Results,” with the related GAAP consolidated condensed statements of earnings, adjustments to certain GAAP financial information, GAAP consolidated condensed balance sheets, GAAP consolidated condensed statements of cash flows, segment financial results, statements of business unit revenue and certain additional financial information (furnished herewith).
   
Exhibit 99.2
HP’s GAAP consolidated condensed statements of earnings for the three and nine months ended July 31, 2015, GAAP consolidated condensed balance sheets as of July 31, 2015 and segment financial results for the three and nine months ended July 31, 2015 (filed herewith).

 
5


 
 
     EXHIBIT 99.1
     
 
 
 
 
 
 
 
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304

hp.com
  
     
  News Release  
  HP Reports Fiscal 2015 Third Quarter Results
 
Editorial contacts
 
Kate Holderness, HP
+1 650 236 1024
corpmediarelations@hp.com
 
HP Investor Relations
investor.relations@hp.com
 
www.hp.com/go/newsroom
●
Third quarter net revenue of $25.3 billion
●
Third quarter non-GAAP diluted net earnings per share of $0.88, versus the previously provided outlook of $0.83 to $0.87 per share 
●
Third quarter GAAP diluted net earnings per share of $0.47, versus the previously provided outlook of $0.50 to $0.54 per share 
●
 Third quarter cash flow from operations of $1.7 billion 
●
Returned $670 million to shareholders in the form of share repurchases and dividends in the third quarter 
 
  HP fiscal 2015 third quarter financial performance
     
Q3 FY15
Q3 FY14
Y/Y
 
 
 
GAAP net revenue ($B)
   $25.3
$27.6
 (8%)  
 
GAAP operating margin
   4.8%
5.3%
(0.5 pts.)
   .
 
GAAP net earnings ($B)
  
    $0.9
$1.0
 (13%)    
 
GAAP diluted net earnings per share
 $0.47
$0.52
 (10%)  
 
Non-GAAP operating margin
   8.6%
8.5%
 0.1 pts.   .
 
Non-GAAP net earnings ($B)
   $1.6
$1.7
 (6%)  
 
Non-GAAP diluted net earnings per share
 $0.88
$0.89
 (1%)  
  Cash flow from operations ($B)   $1.7 $3.6 (54%)  
 
  Information about HP’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below.
 
 
PALO ALTO, Calif., August 20, 2015 — HP today announced financial results for its fiscal 2015 third quarter ended July 31, 2015.
 
  Third quarter net revenue of $25.3 billion was down 8% from the prior-year period and down 2% on a constant currency basis.
 
 
Page 1 of 22
 
 
 
  Third quarter GAAP diluted net earnings per share (EPS) was $0.47, down from $0.52 in the prior-year period and below its previously provided outlook of $0.50 to $0.54. Third quarter non-GAAP diluted net EPS was $0.88, down from to $0.89 in the prior-year period and above its previously provided outlook of $0.83 to $0.87. Third quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $750 million and $0.41 per diluted share, respectively, related to separation costs, the amortization of intangible assets, impairment of data center assets, defined benefit plan settlement charges, acquisition-related charges and restructuring charges.
 
  Separation update
  On July 1, Hewlett Packard Enterprise filed an initial Registration Statement on Form 10 with the Securities and Exchange Commission (SEC), an important step in the separation process. The filing provides detailed information on the business and historical financial results of Hewlett Packard Enterprise. On August 10, HP filed the first amendment to the Form 10, which included the pro forma cash and debt levels for Hewlett Packard Enterprise. 
 
  With the Hewlett Packard Enterprise capital structure determined, credit ratings agencies published expected investment grade ratings for both Hewlett Packard Enterprise and HP Inc., which is in line with our objectives.
 
  On August 12, HP introduced the expected members of the boards of directors for both Hewlett Packard Enterprise and HP Inc., effective upon the completion of the separation. Each board will include members of the current HP board, as well as several new directors chosen after a comprehensive review of personal and professional qualifications as they relate to the specific needs of the two new companies.
 
  “HP delivered results in the third quarter that reflect very strong performance in our Enterprise Group and substantial progress in turning around Enterprise Services,” said Meg Whitman, chairman, president and chief executive officer, HP. “I am very pleased that we have continued to deliver the results we said we would, while remaining on track to execute one of the largest and most complex separations ever undertaken.”
 
  Outlook
  For the fiscal 2015 fourth quarter, HP estimates non-GAAP diluted net EPS to be in the range of $0.92 to $0.98 and GAAP diluted net EPS to be in the range of $0.12 to $0.18.  Fiscal 2015 fourth quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.80 per share, related to separation costs, the amortization of intangible assets, restructuring charges, defined benefit plan settlement charges and acquisition-related charges.
 
  For fiscal 2015, HP estimates non-GAAP diluted net EPS to be in the range of $3.59 to $3.65 and GAAP diluted net EPS to be in the range of $1.87 to $1.93. Fiscal 2015 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $1.72 per share, related to separation costs, the amortization of intangible assets, restructuring charges,
 
 
Page 2 of 22
 
 
  defined benefit plan settlement charges, impairment of data center assets and acquisition-related charges.
 
  Asset management
 
HP generated $1.7 billion in cash flow from operations in the third quarter, down 54% from the prior-year period. Inventory ended the quarter at $6.7 billion, up 4 days year over year to 31 days. Accounts receivable ended the quarter at $12.8 billion, down 1 day year over year to 45 days. Accounts payable ended the quarter at $15.5 billion, up 7 days year over year to 72 days. HP’s dividend payment of $0.176 per share in the third quarter resulted in cash usage of $318 million. HP also utilized $352 million of cash during the quarter to repurchase approximately 11.0 million shares of common stock in the open market. HP exited the quarter with $17.4 billion in gross cash, where gross cash includes cash and cash equivalents, short-term investments and certain long-term investments.
 
  Fiscal 2015 third quarter segment results
 
  •
Personal Systems revenue was down 13% year over year with a 3.0% operating margin. Commercial revenue decreased 9% and Consumer revenue decreased 22%. Total units were down 11% with Notebooks units down 3% and Desktops units down 20%.
  •
Printing revenue was down 9% year over year with a 17.8% operating margin. Total hardware units were down 2% with Commercial hardware units down 6% and Consumer hardware units flat. Supplies revenue was down 6%.
  •
Enterprise Group revenue was up 2% year over year with a 13.0% operating margin. Industry Standard Servers revenue was up 8%, Storage revenue was down 2%, Business Critical Systems revenue was down 21%, Networking revenue was up 22% and Technology Services revenue was down 9%.
  •
Enterprise Services revenue was down 11% year over year with a 6.0% operating margin. Infrastructure Technology Outsourcing revenue was down 13%, and Application and Business Services revenue declined 7%.
  • Software revenue was down 6% year over year with a 20.6% operating margin. License revenue was down 11%, support revenue was down 3%, professional services revenue was down 8% and software-as-a-service (SaaS) revenue was down 4%.
  • HP Financial Services revenue was down 6% year over year with a 2% decrease in net portfolio assets and a 2% decrease in financing volume. The business delivered an operating margin of 10.8%.
 
  More information on HP’s earnings, including additional financial analysis and an earnings overview presentation, is available on HP’s Investor Relations website at http://www.hp.com/investor/home.
 
 
HP’s FY15 Q3 earnings conference call is accessible via an audio webcast at http://www.hp.com/investor/2015Q3Webcast.
 
 
Page 3 of 22
 
 
  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, 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
 
 
Page 4 of 22
 
 
  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, including HP’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2015.
 
  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 July 31, 2015. 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
   
July 31,
2015
  
April 30,
2015
  
July 31,
2014
             
Net revenue
  
$
25,349
    
$
25,453
    
$
27,585
  
                         
Costs and expenses:
                        
        Cost of sales
    
19,317
      
19,345
      
20,974
  
        Research and development
    
893
      
850
      
887
  
        Selling, general and administrative
    
2,962
      
3,063
      
3,388
  
        Amortization of intangible assets
    
242
      
221
      
227
  
        Restructuring charges
    
25
      
255
      
649
  
        Acquisition-related charges
    
47
      
19
      
2
  
        Separation costs
    
401
      
269
      
-
  
        Defined benefit plan settlement charges
    
114
      
-
      
-
  
        Impairment of data center assets
    
136
      
-
      
-
  
                   Total costs and expenses
    
24,137
      
24,022
      
26,127
  
                         
Earnings from operations
    
1,212
      
1,431
      
1,458
  
                         
Interest and other, net
    
(108
)
    
(139
)
    
(145
)
                         
Earnings before taxes
    
1,104
      
1,292
      
1,313
  
                         
Provision for taxes
    
(250
)
    
(281
)
    
(328
)
                         
Net earnings
  
$
854
    
$
1,011
    
$
985
  
                         
Net earnings per share:
                        
        Basic
  
$
0.47
    
$
0.56
    
$
0.53
  
        Diluted
  
$
0.47
    
$
0.55
    
$
0.52
  
                         
Cash dividends declared per share
  
$
0.35
    
$
-
    
$
0.32
  
                         
                         
Weighted-average shares used to compute net earnings per share:
                        
        Basic
    
1,805
      
1,814
      
1,870
  
        Diluted
    
1,828
      
1,836
      
1,899
  
 
 
Page 6 of 22
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)
 
         
   
Nine months ended July 31
   
2015
  
2014
         
Net revenue
  
$
77,641
    
$
83,048
  
                 
Costs and expenses:
                
        Cost of sales
    
59,233
      
63,414
  
        Research and development
    
2,568
      
2,571
  
        Selling, general and administrative
    
9,096
      
9,989
  
        Amortization of intangible assets
    
685
      
774
  
        Restructuring charges
    
426
      
1,015
  
        Acquisition-related charges
    
70
      
8
  
        Separation costs
    
750
      
-
  
        Defined benefit plan settlement charges
    
114
      
-
  
        Impairment of data center assets
    
136
      
-
  
                   Total costs and expenses
    
73,078
      
77,771
  
                 
Earnings from operations
    
4,563
      
5,277
  
                 
Interest and other, net
    
(421
)
    
(482
)
                 
Earnings before taxes
    
4,142
      
4,795
  
                 
Provision for taxes
    
(911
)
    
(1,112
)
                 
Net earnings
  
$
3,231
    
$
3,683
  
                 
Net earnings per share:
                
        Basic
  
$
1.78
    
$
1.95
  
        Diluted
  
$
1.75
    
$
1.93
  
                 
Cash dividends declared per share
  
$
0.67
    
$
0.61
  
                 
                 
Weighted-average shares used to compute net earnings per share:
          
        Basic
    
1,817
      
1,889
  
        Diluted
    
1,842
      
1,913
  
 
 
 
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
July 31, 2015
  
Diluted
net earnings
per share
  
Three months ended
April 30, 2015
  
Diluted
net earnings
per share
  
Three months ended
July 31, 2014
  
Diluted
net earnings
per share
                         
GAAP net earnings
  
$
854
    
$
0.47
    
$
1,011
    
$
0.55
    
$
985
    
$
0.52
  
                                                 
Non-GAAP adjustments:
                                                
     Amortization of intangible assets
    
242
      
0.13
      
221
      
0.12
      
227
      
0.12
  
     Restructuring charges
    
25
      
0.01
      
255
      
0.14
      
649
      
0.34
  
     Acquisition-related charges
    
47
      
0.03
      
19
      
0.01
      
2
      
-
  
     Separation costs
    
401
      
0.22
      
269
      
0.15
      
-
      
-
  
     Defined benefit plan settlement charges
114
      
0.06
      
-
      
-
      
-
      
-
  
     Impairment of data center assets
    
136
      
0.07
      
-
      
-
      
-
      
-
  
     Adjustments for taxes
    
(215
)
    
(0.11
)
    
(179
)
    
(0.10
)
    
(165
)
    
(0.09
)
Non-GAAP net earnings
  
$
1,604
    
$
0.88
    
$
1,596
    
$
0.87
    
$
1,698
    
$
0.89
  
                                                 
                                                 
GAAP earnings from operations
  
$
1,212
            
$
1,431
            
$
1,458
          
                                                 
Non-GAAP adjustments:
                                                
     Amortization of intangible assets
    
242
              
221
              
227
          
     Restructuring charges
    
25
              
255
              
649
          
     Acquisition-related charges
    
47
              
19
              
2
          
     Separation costs
    
401
              
269
              
-
          
     Defined benefit plan settlement charges
114
              
-
              
-
          
     Impairment of data center assets
    
136
              
-
              
-
          
Non-GAAP earnings from operations
  
$
2,177
            
$
2,195
            
$
2,336
          
                                                 
GAAP operating margin
    
5
%
            
6
%
            
5
%
        
Non-GAAP adjustments
    
4
%
            
3
%
            
3
%
        
Non-GAAP operating margin
    
9
%
            
9
%
            
8
%
        
 
 
 
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)
 
 
 
                 
    
Nine months ended
July 31, 2015
  
Diluted
net earnings
per share
  
Nine months ended
July 31, 2014
  
Diluted
net earnings
per share
                 
GAAP net earnings
  
$
3,231
    
$
1.75
    
$
3,683
    
$
1.93
  
                                 
Non-GAAP adjustments:
                                
   Amortization of intangible assets
    
685
      
0.37
      
774
      
0.40
  
   Restructuring charges
    
426
      
0.23
      
1,015
      
0.53
  
   Acquisition-related charges
70
0.04
8
-
   Separation costs
    
750
      
0.41
      
-
      
-
  
   Defined benefit plan settlement charges
    
114
      
0.06
      
-
      
-
  
   Impairment of data center assets
    
136
      
0.07
      
-
      
-
  
   Adjustments for taxes
    
(507
)
    
(0.27
)
    
(349
)
    
(0.18
)
Non-GAAP net earnings
  
$
4,905
    
$
2.66
    
$
5,131
    
$
2.68
  
                                 
                                 
GAAP earnings from operations
  
$
4,563
            
$
5,277
          
                                 
Non-GAAP adjustments:
                                
   Amortization of intangible assets
    
685
              
774
          
   Restructuring charges
    
426
              
1,015
          
   Acquisition-related charges
    
70
              
8
          
   Separation costs
    
750
              
-
          
   Defined benefit plan settlement charges
    
114
              
-
          
   Impairment of data center assets
    
136
              
-
          
Non-GAAP earnings from operations
  
$
6,744
            
$
7,074
          
                                 
GAAP operating margin
    
6
%
            
6
%
        
Non-GAAP adjustments
    
3
%
            
3
%
        
Non-GAAP operating margin
    
9
%
            
9
%
        
 
 
Page 9 of 22
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
 
         
   
As of
   
July 31, 2015
  
October 31, 2014
   
(Unaudited)
      
 
ASSETS
        
         
Current assets:
        
        Cash and cash equivalents
$
17,171
$
15,133
        Accounts receivable
    
12,753
      
13,832
  
        Financing receivables
    
2,804
      
2,946
  
        Inventory
    
6,700
      
6,415
  
        Other current assets
    
12,570
      
11,819
  
                 
            Total current assets
    
51,998
      
50,145
  
                 
Property, plant and equipment
    
11,028
      
11,340
  
                 
Long-term financing receivables and other assets
    
8,733
      
8,454
  
                 
Goodwill and intangible assets
    
35,274
      
33,267
  
                 
Total assets
  
$
107,033
    
$
103,206
  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
                 
Current liabilities:
                
        Notes payable and short-term borrowings
  
$
11,034
    
$
3,486
  
        Accounts payable
    
15,549
      
15,903
  
        Employee compensation and benefits
    
3,348
      
4,209
  
        Taxes on earnings
    
629
      
1,017
  
        Deferred revenue
    
6,277
      
6,143
  
        Other accrued liabilities
    
12,196
      
12,977
  
                 
            Total current liabilities
    
49,033
      
43,735
  
                 
Long-term debt
    
14,468
      
16,039
  
                 
Other liabilities
    
16,089
      
16,305
  
                 
Stockholders' equity:
                
        HP stockholders' equity
    
27,035
      
26,731
  
        Non-controlling interests
    
408
      
396
  
                 
            Total stockholders' equity
    
27,443
      
27,127
  
                 
Total liabilities and stockholders' equity
  
$
107,033
    
$
103,206
  
 
 
 
Page 10 of 22
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 
         
Three months
ended
July 31, 2015
  
Nine months
ended
July 31, 2015
 
Cash flows from operating activities:
        
      Net earnings
  
$
854
    
$
3,231
  
      Adjustments to reconcile net earnings to net cash provided by operating activities:
          
          Depreciation and amortization
    
1,023
      
3,054
  
          Stock-based compensation expense
    
160
      
476
  
          Provision for doubtful accounts and inventory
    
101
      
265
  
          Restructuring charges
    
25
      
426
  
          Deferred taxes on earnings
    
898
      
898
  
          Excess tax benefit from stock-based compensation
    
(6
)
    
(124
)
          Other, net
    
378
      
675
  
                 
          Changes in operating assets and liabilities (net of acquisitions):
                
              Accounts receivable
    
(295
)
    
1,199
  
              Financing receivables
    
(53
)
    
192
  
              Inventory
    
(520
)
    
(467
)
              Accounts payable
    
534
      
(358
)
              Taxes on earnings
    
(1,160
)
    
(1,075
)
              Restructuring
    
(303
)
    
(1,006
)
              Other assets and liabilities
    
37
      
(3,505
)
                 Net cash provided by operating activities
    
1,673
      
3,881
  
                 
Cash flows from investing activities:
                
          Investment in property, plant and equipment
    
(916
)
    
(2,642
)
          Proceeds from sale of property, plant and equipment
    
99
      
310
  
          Purchases of available-for-sale securities and other investments
    
(72
)
    
(180
)
          Maturities and sales of available-for-sale securities and other investments
123
      
246
  
          Payments made in connection with business acquisitions, net of cash acquired  
  
(2,478
)
    
(2,617
)
          Proceeds from business divestitures, net
    
156
      
156
  
                 Net cash used in investing activities
    
(3,088
)
    
(4,727
)
                 
Cash flows from financing activities:
                
          Short-term borrowings with original maturities less than 90 days, net
    
775
      
2,633
  
          Issuance of debt
    
4,406
      
5,993
  
          Payment of debt
    
(747
)
    
(2,642
)
          Settlement of cash flow hedge
    
(32
)
    
(32
)
          Issuance of common stock under employee stock plans
    
80
      
303
  
          Repurchase of common stock
    
(352
)
    
(2,582
)
          Excess tax benefit from stock-based compensation
    
6
      
124
  
          Cash dividends paid
    
(318
)
    
(913
)
                 Net cash provided by financing activities
    
3,818
      
2,884
  
                 
Increase in cash and cash equivalents
    
2,403
      
2,038
  
Cash and cash equivalents at beginning of period
    
14,768
      
15,133
  
Cash and cash equivalents at end of period
  
$
17,171
    
$
17,171
  
 
 
 
Page 11 of 22
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
 
             
   
Three months ended
   
July 31,
2015
  
April 30,
2015
  
July 31,
2014
 
Net revenue:(a)
            
             
   Personal Systems
  
$
7,491
    
$
7,740
    
$
8,649
  
   Printing
    
5,108
      
5,453
      
5,590
  
      Total Printing and Personal Systems Group
    
12,599
      
13,193
      
14,239
  
   Enterprise Group
    
7,007
      
6,561
      
6,872
  
   Enterprise Services
    
4,976
      
4,817
      
5,590
  
   Software
    
900
      
892
      
959
  
   HP Financial Services
    
806
      
805
      
855
  
   Corporate Investments
    
4
      
2
      
3
  
          Total segments
    
26,292
      
26,270
      
28,518
  
   Elimination of intersegment net revenue and other
    
(943
)
    
(817
)
    
(933
)
                         
          Total HP consolidated net revenue
  
$
25,349
    
$
25,453
    
$
27,585
  
                         
Earnings before taxes:(a)
                        
                         
   Personal Systems
  
$
222
    
$
235
    
$
346
  
   Printing
    
910
      
996
      
1,026
  
      Total Printing and Personal Systems Group
    
1,132
      
1,231
      
1,372
  
   Enterprise Group
    
912
      
950
      
963
  
   Enterprise Services
    
297
      
194
      
231
  
   Software
    
185
      
160
      
203
  
   HP Financial Services
    
87
      
85
      
79
  
   Corporate Investments
    
(148
)
    
(144
)
    
(115
)
          Total segment earnings from operations
    
2,465
      
2,476
      
2,733
  
                         
   Corporate and unallocated costs and eliminations
    
(129
)
    
(152
)
    
(265
)
   Stock-based compensation expense
    
(159
)
    
(129
)
    
(132
)
   Amortization of intangible assets
    
(242
)
    
(221
)
    
(227
)
   Restructuring charges
    
(25
)
    
(255
)
    
(649
)
   Acquisition-related charges(b)
    
(47
)
    
(19
)
    
(2
)
   Separation costs
    
(401
)
    
(269
)
    
-
  
   Defined benefit plan settlement charges
    
(114
)
    
-
      
-
  
   Impairment of data center assets
    
(136
)
    
-
      
-
  
   Interest and other, net
    
(108
)
    
(139
)
    
(145
)
                         
          Total HP consolidated earnings before taxes
  
$
1,104
    
$
1,292
    
$
1,313
  
 
(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) Acquisition-related charges in the current period include non-cash inventory fair value adjustment charges, as well as professional service and legal fees associated with the acquisition of Aruba Networks, Inc.
 
 
Page 12 of 22
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES    
SEGMENT INFORMATION
(Unaudited)
(In millions)
 
 
   
Nine months ended July 31
   
2015
  
2014
 
Net revenue:(a)
        
         
  Personal Systems
  
$
23,775
    
$
25,355
  
  Printing
    
16,104
      
17,239
  
      Total Printing and Personal Systems Group
    
39,879
      
42,594
  
  Enterprise Group
    
20,549
      
20,475
  
  Enterprise Services
    
14,786
      
16,887
  
  Software
    
2,663
      
2,846
  
  HP Financial Services
    
2,414
      
2,592
  
  Corporate Investments
    
22
      
297
  
         Total segments
    
80,313
      
85,691
  
  Elimination of intersegment net revenue and other
    
(2,672
)
    
(2,643
)
                 
         Total HP consolidated net revenue
  
$
77,641
    
$
83,048
  
                 
Earnings before taxes:(a)
                
                 
  Personal Systems
  
$
770
    
$
915
  
  Printing
    
2,973
      
3,145
  
      Total Printing and Personal Systems Group
    
3,743
      
4,060
  
  Enterprise Group
    
2,952
      
2,923
  
  Enterprise Services
    
639
      
439
  
  Software
    
502
      
534
  
  HP Financial Services
    
262
      
279
  
  Corporate Investments
    
(416
)
    
(92
)
          Total segment earnings from operations
    
7,682
      
8,143
  
                 
  Corporate and unallocated costs and eliminations
    
(463
)
    
(637
)
  Stock-based compensation expense
    
(475
)
    
(432
)
  Amortization of intangible assets
    
(685
)
    
(774
)
  Restructuring charges
(426
 )
(1,015
 )
  Acquisition-related charges(b)
    
(70
)
    
(8
)
  Separation costs
    
(750
)
    
-
  
  Defined benefit plan settlement charges
    
(114
)
    
-
  
  Impairment of data center assets
    
(136
)
    
-
  
  Interest and other, net
    
(421
)
    
(482
)
                 
          Total HP consolidated earnings before taxes
  
$
4,142
    
$
4,795
  
 
(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) Acquisition-related charges in the current period include non-cash inventory fair value adjustment charges, as well as professional service and legal fees associated with the acquisition of Aruba Networks, Inc.
 
 
 
Page 13 of 22
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT/BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
 
 
   
Three months ended
  
Change (%)
   
July 31,
2015
  
April 30,
2015
  
July 31,
2014
    
Q/Q
    
Y/Y
 
Net revenue:(a)
                            
                             
      Printing and Personal Systems Group
                            
         Personal Systems
                            
              Notebooks
  
$
3,993
    
$
4,170
    
$
4,359
      
(4
%)
    
(8
%)
              Desktops
    
2,700
      
2,762
      
3,395
      
(2
%)
    
(20
%)
              Workstations
    
507
      
513
      
579
      
(1
%)
    
(12
%)
              Other
    
291
      
295
      
316
      
(1
%)
    
(8
%)
                     Total Personal Systems
    
7,491
      
7,740
      
8,649
      
(3
%)
    
(13
%)
                                         
         Printing
                                        
              Supplies
    
3,455
      
3,684
      
3,660
      
(6
%)
    
(6
%)
              Commercial Hardware
    
1,250
      
1,304
      
1,401
      
(4
%)
    
(11
%)
              Consumer Hardware
    
403
      
465
      
529
      
(13
%)
    
(24
%)
                     Total Printing
    
5,108
      
5,453
      
5,590
      
(6
%)
    
(9
%)
                         Total Printing and Personal Systems Group
  
12,599
      
13,193
      
14,239
      
(5
%)
    
(12
%)
                                         
         Enterprise Group
              Industry Standard Servers
    
3,335
      
3,138
      
3,097
      
6
%
    
8
%
              Technology Services
    
1,881
      
1,932
      
2,074
      
(3
%)
    
(9
%)
              Storage
784
740
796
6
 %
(2
 %)
              Networking
    
823
      
556
      
672
      
48
%
    
22
%
              Business Critical Systems
    
184
      
195
      
233
      
(6
%)
    
(21
%)
                     Total Enterprise Group
    
7,007
      
6,561
      
6,872
      
7
%
    
2
%
                                         
         Enterprise Services
                                        
              Infrastructure Technology Outsourcing
    
3,036
      
2,871
      
3,494
      
6
%
    
(13
%)
              Application and Business Services
    
1,940
      
1,946
      
2,096
      
0
%
    
(7
%)
                     Total Enterprise Services
    
4,976
      
4,817
      
5,590
      
3
%
    
(11
%)
                                         
         Software
    
900
      
892
      
959
      
1
%
    
(6
%)
                                         
         HP Financial Services
    
806
      
805
      
855
      
0
%
    
(6
%)
                                         
         Corporate Investments
    
4
      
2
      
3
      
100
%
    
33
%
                     Total segments
    
26,292
      
26,270
      
28,518
      
0
%
    
(8
%)
                                         
         Elimination of intersegment net revenue and other
    
(943
)
    
(817
)
    
(933
)
    
15
%
    
1
%
                                         
               Total HP consolidated net revenue
  
$
25,349
    
$
25,453
    
$
27,585
      
0
%
    
(8
%)
 
(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. 
 
 
 
Page 14 of 22
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT/BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
 
         
   
Nine months ended July 31
   
2015
  
2014
 
Net revenue:(a)
        
         
      Printing and Personal Systems Group
        
         Personal Systems
        
              Notebooks $ 12,887 $ 12,671
              Desktops
    
8,411
      
10,012
  
              Workstations
    
1,546
      
1,660
  
              Other
    
931
      
1,012
  
                     Total Personal Systems
    
23,775
      
25,355
  
                 
         Printing
                
              Supplies
    
10,740
      
11,321
  
              Commercial Hardware
    
3,870
      
4,150
  
              Consumer Hardware
    
1,494
      
1,768
  
                     Total Printing
    
16,104
      
17,239
  
                         Total Printing and Personal Systems Group
    
39,879
      
42,594
  
                 
         Enterprise Group
                
              Industry Standard Servers
    
9,860
      
9,104
  
              Technology Services
    
5,800
      
6,282
  
              Storage
    
2,361
      
2,438
  
              Networking
    
1,941
      
1,960
  
              Business Critical Systems
    
587
      
691
  
                     Total Enterprise Group
    
20,549
      
20,475
  
                 
         Enterprise Services
                
              Infrastructure Technology Outsourcing
    
9,039
      
10,592
  
              Application and Business Services
    
5,747
      
6,295
  
                     Total Enterprise Services
    
14,786
      
16,887
  
                 
         Software
    
2,663
      
2,846
  
                 
         HP Financial Services
    
2,414
      
2,592
  
                 
         Corporate Investments
    
22
      
297
  
                     Total segments
    
80,313
      
85,691
  
                 
         Elimination of intersegment net revenue and other
    
(2,672
)
    
(2,643
)
                 
            Total HP consolidated net revenue
  
$
77,641
    
$
83,048
  
 
(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.
 
 
 
Page 15 of 22
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT OPERATING MARGIN SUMMARY DATA
(Unaudited)
 
               
      
Three months
ended
  
Change in Operating Margin (pts)
     
July 31,
2015
    
Q/Q
    
Y/Y
                       
Segment operating margin:(a)
                    
       Personal Systems
    
3.0
%
  
0.0 pts
    
(1.0 pts
 )
       Printing
    
17.8
%
  
(0.5 pts
 )  
(0.6 pts
 )
          Total Printing & Personal Systems Group
    
9.0
%
  
(0.3 pts
 )  
(0.6 pts
 )
                           
       Enterprise Group
    
13.0
%
  
(1.5 pts
 )  
(1.0 pts
 )
       Enterprise Services
    
6.0
%
  
2.0 pts
    
1.9 pts
  
       Software
    
20.6
%
  
2.7 pts
    
(0.6 pts
 )
       HP Financial Services
    
10.8
%
  
0.2 pts
    
1.6 pts
  
       Corporate Investments(b)
  
NM
    
NM
    
NM
  
               Total segments
    
9.4
%
  
0.0 pts
    
(0.2 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.
                        
 
 
 
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   
   
July 31,
2015 
  
April 30,
2015
  
July 31,
2014
             
Numerator:
            
    GAAP net earnings
  
$
854
    
$
1,011
    
$
985
  
    Non-GAAP net earnings
  
$
1,604
    
$
1,596
    
$
1,698
  
                         
Denominator:
                        
    Weighted-average shares outstanding during the reporting period
    
1,805
      
1,814
      
1,870
  
    Dilutive effect of employee stock plans(a)
    
23
      
22
      
29
  
         Weighted-average shares used to compute diluted net earnings per share
    
1,828
      
1,836
      
1,899
  
                         
GAAP diluted net earnings per share
  
$
0.47
    
$
0.55
    
$
0.52
  
Non-GAAP diluted net earnings per share
  
$
0.88
    
$
0.87
    
$
0.89
  
 
(a)   
Includes any dilutive effect of restricted stock units, restricted stock, stock options and performance-based restricted stock units. 
 
 
 
 
Page 17 of 22
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts)
 
         
    
Nine months ended July 31
   
2015
  
2014
         
Numerator:
        
    GAAP net earnings
  
$
3,231
    
$
3,683
  
    Non-GAAP net earnings
  
$
4,905
    
$
5,131
  
                 
Denominator:
                
    Weighted-average shares outstanding during the reporting period
    
1,817
      
1,889
  
    Dilutive effect of employee stock plans(a)
    
25
      
24
  
         Weighted-average shares used to compute diluted net earnings per share
    
1,842
      
1,913
  
                 
GAAP diluted net earnings per share
  
$
1.75
    
$
1.93
  
Non-GAAP diluted net earnings per share
  
$
2.66
    
$
2.68
  
 
(a)   
Includes any dilutive effect of restricted stock units, restricted stock, stock options and performance-based restricted stock units. 
 
 
 
 
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 earnings from operations 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 each of 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 charges relating to the amortization of intangible assets, restructuring charges, charges relating to the separation transaction, acquisition-related charges, impairment of data center assets and defined benefit plan settlement charges. 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 benefits 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. Those charges are included in HP’s GAAP 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.
 
  •
Separation costs are expenses associated with HP’s plan to separate into two independent publicly-traded companies. The charges are primarily related to third-party consulting, contractor fees and other incremental costs incurred to complete the separation. HP excludes these separation costs 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.
 
  •
HP incurs cost related to its acquisitions, most of which are treated as non-cash or non-capitalized expenses. The charges are direct expenses such as professional fees and retention costs, as well as non-cash adjustments to the fair value of certain acquired assets such as inventory. Because non-cash or non-capitalized 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 such 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 past operating performance.
 
  •
HP incurs impairment charges related to its exit from certain data centers.  Such charges are inconsistent in amount and frequency. HP believes that eliminating these amounts for purposes of calculating non-GAAP operating profit facilitates a more meaningful evaluation of HP's current operating performance and comparisons to HP's operating performance in other periods.
 
  •
HP incurs defined benefit settlement charges relating to U.S. HP pension plan. The charges are associated with the net settlement and remeasurement resulting from voluntary lump sum payments offered to certain terminated vested participants. HP excludes these charges for the purpose 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.
 
 
 
Page 20 of 22
 
 
 
 
  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, 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 net 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.
 
 
 
 
Page 21 of 22
 
 
 
 
  •
Items such as restructuring charges and separation costs 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 immediately liquidate 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.
 
  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.
 
 
 
  © 2015 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
 
 


 
EXHIBIT 99.2
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)
 
             
   
Three months ended
   
July 31,
2015
  
April 30,
2015
  
July 31,
2014
             
Net revenue
  
$
25,349
    
$
25,453
    
$
27,585
  
                         
Costs and expenses:
                        
        Cost of sales
    
19,317
      
19,345
      
20,974
  
        Research and development
    
893
      
850
      
887
  
        Selling, general and administrative
    
2,962
      
3,063
      
3,388
  
        Amortization of intangible assets
    
242
      
221
      
227
  
        Restructuring charges
    
25
      
255
      
649
  
        Acquisition-related charges
    
47
      
19
      
2
  
        Separation costs
    
401
      
269
      
-
  
        Defined benefit plan settlement charges
    
114
      
-
      
-
  
        Impairment of data center assets
    
136
      
-
      
-
  
                   Total costs and expenses
    
24,137
      
24,022
      
26,127
  
                         
Earnings from operations
    
1,212
      
1,431
      
1,458
  
                         
Interest and other, net
    
(108
)
    
(139
)
    
(145
)
                         
Earnings before taxes
    
1,104
      
1,292
      
1,313
  
                         
Provision for taxes
    
(250
)
    
(281
)
    
(328
)
                         
Net earnings
  
$
854
    
$
1,011
    
$
985
  
                         
Net earnings per share:
                        
        Basic
  
$
0.47
    
$
0.56
    
$
0.53
  
        Diluted
  
$
0.47
    
$
0.55
    
$
0.52
  
                         
Cash dividends declared per share
  
$
0.35
    
$
-
    
$
0.32
  
                         
                         
Weighted-average shares used to compute net earnings per share:
                        
        Basic
    
1,805
      
1,814
      
1,870
  
        Diluted
    
1,828
      
1,836
      
1,899
  
 
 
Page 1 of 5
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)
 
         
   
Nine months ended July 31 
   
2015
  
2014
         
Net revenue
  
$
77,641
    
$
83,048
  
                 
Costs and expenses:
                
        Cost of sales
    
59,233
      
63,414
  
        Research and development
    
2,568
      
2,571
  
        Selling, general and administrative
    
9,096
      
9,989
  
        Amortization of intangible assets
    
685
      
774
  
        Restructuring charges
    
426
      
1,015
  
        Acquisition-related charges
    
70
      
8
  
        Separation costs
    
750
      
-
  
        Defined benefit plan settlement charges
    
114
      
-
  
        Impairment of data center assets
    
136
      
-
  
                   Total costs and expenses
    
73,078
      
77,771
  
                 
Earnings from operations
    
4,563
      
5,277
  
                 
Interest and other, net
    
(421
)
    
(482
)
                 
Earnings before taxes
    
4,142
      
4,795
  
                 
Provision for taxes
    
(911
)
    
(1,112
)
                 
Net earnings
  
$
3,231
    
$
3,683
  
                 
Net earnings per share:
                
        Basic
  
$
1.78
    
$
1.95
  
        Diluted
  
$
1.75
    
$
1.93
  
                 
Cash dividends declared per share
  
$
0.67
    
$
0.61
  
                 
                 
Weighted-average shares used to compute net earnings per share:
          
        Basic
    
1,817
      
1,889
  
        Diluted
    
1,842
      
1,913
  
 
 
 
Page 2 of 5
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
 
         
   
As of
   
July 31, 2015
  
October 31, 2014
   
(Unaudited)
      
 
ASSETS
        
         
Current assets:
        
        Cash and cash equivalents
$
17,171
$
15,133
        Accounts receivable
    
12,753
      
13,832
  
        Financing receivables
    
2,804
      
2,946
  
        Inventory
    
6,700
      
6,415
  
        Other current assets
    
12,570
      
11,819
  
                 
            Total current assets
    
51,998
      
50,145
  
                 
Property, plant and equipment
    
11,028
      
11,340
  
                 
Long-term financing receivables and other assets
    
8,733
      
8,454
  
                 
Goodwill and intangible assets
    
35,274
      
33,267
  
                 
Total assets
  
$
107,033
    
$
103,206
  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
                 
Current liabilities:
                
        Notes payable and short-term borrowings
  
$
11,034
    
$
3,486
  
        Accounts payable
    
15,549
      
15,903
  
        Employee compensation and benefits
    
3,348
      
4,209
  
        Taxes on earnings
    
629
      
1,017
  
        Deferred revenue
    
6,277
      
6,143
  
        Other accrued liabilities
    
12,196
      
12,977
  
                 
            Total current liabilities
    
49,033
      
43,735
  
                 
Long-term debt
    
14,468
      
16,039
  
                 
Other liabilities
    
16,089
      
16,305
  
                 
Stockholders' equity:
                
        HP stockholders' equity
    
27,035
      
26,731
  
        Non-controlling interests
    
408
      
396
  
                 
            Total stockholders' equity
    
27,443
      
27,127
  
                 
Total liabilities and stockholders' equity
  
$
107,033
    
$
103,206
  
 
 
Page 3 of 5
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
 
             
   
Three months ended
   
July 31,
2015
  
April 30,
2015
  
July 31,
2014
 
Net revenue:(a)
            
             
   Personal Systems
  
$
7,491
    
$
7,740
    
$
8,649
  
   Printing
    
5,108
      
5,453
      
5,590
  
      Total Printing and Personal Systems Group
    
12,599
      
13,193
      
14,239
  
   Enterprise Group
    
7,007
      
6,561
      
6,872
  
   Enterprise Services
    
4,976
      
4,817
      
5,590
  
   Software
    
900
      
892
      
959
  
   HP Financial Services
    
806
      
805
      
855
  
   Corporate Investments
    
4
      
2
      
3
  
          Total segments
    
26,292
      
26,270
      
28,518
  
   Elimination of intersegment net revenue and other
    
(943
)
    
(817
)
    
(933
)
                         
          Total HP consolidated net revenue
  
$
25,349
    
$
25,453
    
$
27,585
  
                         
Earnings before taxes:(a)
                        
                         
   Personal Systems
  
$
222
    
$
235
    
$
346
  
   Printing
    
910
      
996
      
1,026
  
      Total Printing and Personal Systems Group
    
1,132
      
1,231
      
1,372
  
   Enterprise Group
    
912
      
950
      
963
  
   Enterprise Services
    
297
      
194
      
231
  
   Software
    
185
      
160
      
203
  
   HP Financial Services
    
87
      
85
      
79
  
   Corporate Investments
    
(148
)
    
(144
)
    
(115
)
          Total segment earnings from operations
    
2,465
      
2,476
      
2,733
  
                         
   Corporate and unallocated costs and eliminations
    
(129
)
    
(152
)
    
(265
)
   Stock-based compensation expense
    
(159
)
    
(129
)
    
(132
)
   Amortization of intangible assets
    
(242
)
    
(221
)
    
(227
)
   Restructuring charges
    
(25
)
    
(255
)
    
(649
)
   Acquisition-related charges(b)
    
(47
)
    
(19
)
    
(2
)
   Separation costs
    
(401
)
    
(269
)
    
-
  
   Defined benefit plan settlement charges
    
(114
)
    
-
      
-
  
   Impairment of data center assets
    
(136
)
    
-
      
-
  
   Interest and other, net
    
(108
)
    
(139
)
    
(145
)
                         
          Total HP consolidated earnings before taxes
  
$
1,104
    
$
1,292
    
$
1,313
  
 
(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) Acquisition-related charges in the current period include non-cash inventory fair value adjustment charges, as well as professional service and legal fees associated with the acquisition of Aruba Networks, Inc.
 
 
Page 4 of 5
 
 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES    
SEGMENT INFORMATION
(Unaudited)
(In millions)
 
 
   
Nine months ended July 31
   
2015
  
2014
 
Net revenue:(a)
        
         
  Personal Systems
  
$
23,775
    
$
25,355
  
  Printing
    
16,104
      
17,239
  
      Total Printing and Personal Systems Group
    
39,879
      
42,594
  
  Enterprise Group
    
20,549
      
20,475
  
  Enterprise Services
    
14,786
      
16,887
  
  Software
    
2,663
      
2,846
  
  HP Financial Services
    
2,414
      
2,592
  
  Corporate Investments
    
22
      
297
  
         Total segments
    
80,313
      
85,691
  
  Elimination of intersegment net revenue and other
    
(2,672
)
    
(2,643
)
                 
         Total HP consolidated net revenue
  
$
77,641
    
$
83,048
  
                 
Earnings before taxes:(a)
                
                 
  Personal Systems
  
$
770
    
$
915
  
  Printing
    
2,973
      
3,145
  
      Total Printing and Personal Systems Group
    
3,743
      
4,060
  
  Enterprise Group
    
2,952
      
2,923
  
  Enterprise Services
    
639
      
439
  
  Software
    
502
      
534
  
  HP Financial Services
    
262
      
279
  
  Corporate Investments
    
(416
)
    
(92
)
          Total segment earnings from operations
    
7,682
      
8,143
  
                 
  Corporate and unallocated costs and eliminations
    
(463
)
    
(637
)
  Stock-based compensation expense
    
(475
)
    
(432
)
  Amortization of intangible assets
    
(685
)
    
(774
)
  Restructuring charges
(426
 )
(1,015
 )
  Acquisition-related charges(b)
    
(70
)
    
(8
)
  Separation costs
    
(750
)
    
-
  
  Defined benefit plan settlement charges
    
(114
)
    
-
  
  Impairment of data center assets
    
(136
)
    
-
  
  Interest and other, net
    
(421
)
    
(482
)
                 
          Total HP consolidated earnings before taxes
  
$
4,142
    
$
4,795
  
 
(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) Acquisition-related charges in the current period include non-cash inventory fair value adjustment charges, as well as professional service and legal fees associated with the acquisition of Aruba Networks, Inc.
 
 
Page 5 of 5
 
 
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