HP Reports Fiscal 2015 Second Quarter Results

PALO ALTO, CA--(Marketwired - May 21, 2015) - HP (NYSE: HPQ) 

  • Second quarter net revenue of $25.5 billion
  • Second quarter non-GAAP diluted net earnings per share of $0.87, versus the previously provided outlook of $0.84 to $0.88 per share
  • Second quarter GAAP diluted net earnings per share of $0.55, versus the previously provided outlook of $0.57 to $0.61 per share
  • Second quarter cash flow from operations of $1.5 billion
  • Returned $950 million to shareholders in the form of share repurchases and dividends in the second quarter
 
HP fiscal 2015 second quarter financial performance
    Q2 FY15   Q2 FY14   Y/Y
GAAP net revenue ($B)   $25.5   $27.3   (7%)
GAAP operating margin   5.6%   6.7%   (1.1 pts.)
GAAP net earnings ($B)   $1.0   $1.3   (21%)
GAAP diluted net earnings per share   $0.55   $0.66   (17%)
Non-GAAP operating margin   8.6%   8.6%   0.0 pts.
Non-GAAP net earnings ($B)   $1.6   $1.7   (6%)
Non-GAAP diluted net earnings per share   $0.87   $0.88   (1%)
Cash flow from operations ($B)   $1.5   $3.0   (51%)
             

Information about HP's use of non-GAAP financial information is provided under "Use of non-GAAP financial information" below.

HP today announced financial results for its fiscal 2015 second quarter ended April 30, 2015.

Second quarter net revenue of $25.5 billion was down 7% from the prior-year period and down 2% on a constant currency basis.

Second quarter GAAP diluted net earnings per share (EPS) was $0.55, down from $0.66 in the prior-year period and below its previously provided outlook of $0.57 to $0.61. Second quarter non-GAAP diluted net EPS was $0.87, down from $0.88 in the prior-year period and within its previously provided outlook of $0.84 to $0.88. Second quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $585 million and $0.32 per diluted share, respectively, related to separation costs, restructuring charges, the amortization of intangible assets and acquisition-related charges.

Separation update
HP provided an update on its planned separation into two independent, Fortune 50 companies.  The separation remains on track and the company expects associated dis-synergies of approximately $400 to $450 million. 

The company also announced new future leadership appointments for both companies:   Cathie Lesjak will become Chief Financial Officer of HP Inc.  Lesjak's deep expertise will best serve Dion and his team as they embark on creating a new company.  With Lesjak's move to HP Inc., Tim Stonesifer will become CFO of Hewlett Packard Enterprise.  Stonesifer currently serves as CFO of HP's Enterprise Group. Prior to joining HP, Stonesifer served as CFO for General Motors International Operations based in Shanghai, and held a number of finance leadership positions during his twenty-year tenure at General Electric Company.

Chris Hsu has been selected to become Chief Operating Officer at Hewlett Packard Enterprise. Hsu has proven strength in driving performance optimization across a number of key business areas, including real estate, indirect procurement, and business process improvement. As Chief Operating Officer, Hsu will expand his duties to oversee and manage the continued separation execution, as well as HP Financial Services.  

Alan May will join Hewlett Packard Enterprise as Head of Human Resources.  Most recently, May worked for the Boeing Company as head of HR for their commercial airplanes division.  He also led HR for Boeing Defense, Space and Security and served as head of Strategy, Compensation and Benefits for the Company. Prior to Boeing, May spent many years at PepsiCo. in various global HR and business integration leadership roles.

"I'm pleased with where we ended the quarter, the continued success of our turnaround, and the progress we're making on separation," said Meg Whitman, chairman, president and chief executive officer, HP. "Despite some tough challenges, we executed well across many parts of our portfolio, sustained our commitment to innovation, and delivered the results we said we would. HP is becoming stronger as we head into the second half of our fiscal year and separation in November."

Outlook
For the fiscal 2015 third quarter, HP estimates non-GAAP diluted net EPS to be in the range of $0.83 to $0.87 and GAAP diluted net EPS to be in the range of $0.50 to $0.54.  Fiscal 2015 third quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.33 per share, related to separation costs, the amortization of intangible assets, restructuring charges, defined benefit plans settlement charges and acquisition-related charges.

For fiscal 2015, HP estimates non-GAAP diluted net EPS to be in the range of $3.53 to $3.73 and GAAP diluted net EPS to be in the range of $2.03 to $2.23. Fiscal 2015 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $1.50 per share, related to separation costs, the amortization of intangible assets, restructuring charges, defined benefit plans settlement charges and acquisition-related charges.

Asset management
HP generated $1.5 billion in cash flow from operations in the second quarter, down 51% from the prior-year period. Inventory ended the quarter at $6.2 billion, up 4 days year over year to 29 days. Accounts receivable ended the quarter at $12.3 billion, down 3 days year over year to 44 days. Accounts payable ended the quarter at $14.9 billion, up 10 days year over year to 69 days. HP's dividend payment of $0.16 per share in the second quarter resulted in cash usage of $291 million. HP also utilized $659 million of cash during the quarter to repurchase approximately 19.0 million shares of common stock in the open market. HP exited the quarter with $15.1 billion in gross cash, where gross cash includes cash and cash equivalents, short-term investments, and certain long-term investments.

Fiscal 2015 second quarter segment results

  • Personal Systems revenue was down 5% year over year with a 3.0% operating margin. Commercial revenue decreased 7% and Consumer revenue decreased 2%. Total units were up 2% with Notebooks units up 19% and Desktops units down 14%.
  • Printing revenue was down 7% year over year with an 18.3% operating margin. Total hardware units were down 4% with Commercial hardware units up 1% and Consumer hardware units down 6%. Supplies revenue was down 5%.
  • Enterprise Group revenue was down 1% year over year with a 14.5% operating margin. Industry Standard Servers revenue was up 11%, Storage revenue was down 8%, Business Critical Systems revenue was down 15%, Networking revenue was down 16% and Technology Services revenue was down 8%.  Additionally, HP closed its acquisition of Aruba in May.
  • Enterprise Services revenue was down 16% year over year with a 4.0% operating margin.  Infrastructure Technology Outsourcing revenue was down 20%, and Application and Business Services revenue declined 8%.
  • Software revenue was down 8% year over year with a 17.9% operating margin. License revenue was down 17%, support revenue was down 2%, professional services revenue was down 15% and software-as-a-service (SaaS) revenue was down 5%.
  • HP Financial Services revenue was down 7% year over year with a 2% decrease in net portfolio assets and a 1% decrease in financing volume. The business delivered an operating margin of 10.6%.

More information on HP's earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations website at www.hp.com/investor/home.

HP's FY15 Q2 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2015Q2Webcast.

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 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 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 January 31, 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 April 30, 2015. HP assumes no obligation and does not intend to update these forward-looking statements.

   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS  
(Unaudited)  
(In millions, except per share amounts)  
                   
    Three months ended  
    April 30,
2015
    January 31,
2015
    April 30,
2014
 
                         
Net revenue   $ 25,453     $ 26,839     $ 27,309  
                         
Costs and expenses:                        
  Cost of sales     19,345       20,571       20,704  
  Research and development     850       825       873  
  Selling, general and administrative     3,063       3,071       3,391  
  Amortization of intangible assets     221       222       264  
  Restructuring charges     255       146       252  
  Acquisition-related charges     19       4       3  
  Separation costs     269       80       -  
    Total costs and expenses     24,022       24,919       25,487  
                         
Earnings from operations     1,431       1,920       1,822  
                         
Interest and other, net     (139 )     (174 )     (174 )
                         
Earnings before taxes     1,292       1,746       1,648  
                         
Provision for taxes     (281 )     (380 )     (375 )
                         
Net earnings   $ 1,011     $ 1,366     $ 1,273  
                         
Net earnings per share:                        
  Basic   $ 0.56     $ 0.75     $ 0.67  
  Diluted   $ 0.55     $ 0.73     $ 0.66  
                         
Cash dividends declared per share   $ -     $ 0.32     $ -  
                         
                         
Weighted-average shares used to compute net earnings per share:                        
  Basic     1,814       1,833       1,890  
  Diluted     1,836       1,861       1,916  
                         
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS  
(Unaudited)  
(In millions, except per share amounts)  
             
    Six months ended
April 30,
 
    2015     2014  
                 
Net revenue   $ 52,292     $ 55,463  
                 
Costs and expenses:                
  Cost of sales     39,916       42,440  
  Research and development     1,675       1,684  
  Selling, general and administrative     6,134       6,601  
  Amortization of intangible assets     443       547  
  Restructuring charges     401       366  
  Acquisition-related charges     23       6  
  Separation costs     349       -  
    Total costs and expenses     48,941       51,644  
                 
Earnings from operations     3,351       3,819  
                 
Interest and other, net     (313 )     (337 )
                 
Earnings before taxes     3,038       3,482  
                 
Provision for taxes     (661 )     (784 )
                 
Net earnings   $ 2,377     $ 2,698  
                 
Net earnings per share:                
  Basic   $ 1.30     $ 1.42  
  Diluted   $ 1.29     $ 1.40  
                 
Cash dividends declared per share   $ 0.32     $ 0.29  
                 
                 
Weighted-average shares used to compute net earnings per share:                
  Basic     1,824       1,898  
  Diluted     1,848       1,922  
                 
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,  
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE  
(Unaudited)  
(In millions, except per share amounts)  
                                     
    Three months ended
April 30, 2015
    Diluted net earnings per share     Three months ended
January 31, 2015
    Diluted net earnings per share     Three months ended
April 30, 2014
    Diluted
net earnings per share
 
                                                 
GAAP net earnings   $ 1,011     $ 0.55     $ 1,366     $ 0.73     $ 1,273     $ 0.66  
                                                 
Non-GAAP adjustments:                                                
  Amortization of intangible assets     221       0.12       222       0.12       264       0.14  
  Restructuring charges     255       0.14       146       0.08       252       0.13  
  Acquisition-related charges     19       0.01       4       -       3       -  
  Separation costs     269       0.15       80       0.04       -       -  
  Adjustments for taxes     (179 )     (0.10 )     (113 )     (0.05 )     (101 )     (0.05 )
Non-GAAP net earnings   $ 1,596     $ 0.87     $ 1,705     $ 0.92     $ 1,691     $ 0.88  
                                                 
                                                 
GAAP earnings from operations   $ 1,431             $ 1,920             $ 1,822          
                                                 
Non-GAAP adjustments:                                                
  Amortization of intangible assets     221               222               264          
  Restructuring charges     255               146               252          
  Acquisition-related charges     19               4               3          
  Separation costs     269               80               -          
Non-GAAP earnings from operations   $ 2,195             $ 2,372             $ 2,341          
                                                 
GAAP operating margin     6 %             7 %             7 %        
Non-GAAP adjustments     3 %             2 %             2 %        
Non-GAAP operating margin     9 %             9 %             9 %        
                                                 
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,  
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE  
(Unaudited)  
(In millions, except per share amounts)  
                         
    Six months ended
April 30, 2015
    Diluted
net earnings per share
    Six months ended
April 30, 2014
    Diluted
net earnings
per share
 
                                 
GAAP net earnings   $ 2,377     $ 1.29     $ 2,698     $ 1.40  
                                 
Non-GAAP adjustments:                                
  Amortization of intangible assets     443       0.24       547       0.28  
  Restructuring charges     401       0.22       366       0.19  
  Acquisition-related charges     23       0.01       6       -  
  Separation costs     349       0.19       -       -  
  Adjustments for taxes     (292 )     (0.16 )     (184 )     (0.08 )
Non-GAAP net earnings   $ 3,301     $ 1.79     $ 3,433     $ 1.79  
                                 
                                 
GAAP earnings from operations   $ 3,351             $ 3,819          
                                 
Non-GAAP adjustments:                                
  Amortization of intangible assets     443               547          
  Restructuring charges     401               366          
  Acquisition-related charges     23               6          
  Separation costs     349               -          
Non-GAAP earnings from operations   $ 4,567             $ 4,738          
                                 
GAAP operating margin     6 %             7 %        
Non-GAAP adjustments     3 %             2 %        
Non-GAAP operating margin     9 %             9 %        
                                 
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
         
    As of
    April 30, 2015   October 31, 2014
    (Unaudited)    
ASSETS            
             
Current assets:            
  Cash and cash equivalents   $ 14,768   $ 15,133
  Accounts receivable     12,320     13,832
  Financing receivables     2,842     2,946
  Inventory     6,227     6,415
  Other current assets     12,726     11,819
             
    Total current assets     48,883     50,145
             
Property, plant and equipment     11,014     11,340
             
Long-term financing receivables and other assets     8,552     8,454
             
Goodwill and intangible assets     32,947     33,267
             
Total assets   $ 101,396   $ 103,206
             
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
Current liabilities:            
  Notes payable and short-term borrowings   $ 5,594   $ 3,486
  Accounts payable     14,923     15,903
  Employee compensation and benefits     3,145     4,209
  Taxes on earnings     1,144     1,017
  Deferred revenue     6,055     6,143
  Other accrued liabilities     12,325     12,977
             
    Total current liabilities     43,186     43,735
             
Long-term debt     15,464     16,039
             
Other liabilities     15,577     16,305
             
Stockholders' equity:            
  HP stockholders' equity     26,768     26,731
  Non-controlling interests     401     396
             
    Total stockholders' equity     27,169     27,127
             
Total liabilities and stockholders' equity   $ 101,396   $ 103,206
             
             
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS  
(Unaudited)  
(In millions)  
             
    Three months ended
April 30, 2015
    Six months ended
April 30, 2015
 
Cash flows from operating activities:                
  Net earnings   $ 1,011     $ 2,377  
  Adjustments to reconcile net earnings to net cash provided by operating activities:                
    Depreciation and amortization     1,003       2,031  
    Stock-based compensation expense     129       316  
    Provision for doubtful accounts and inventory     102       164  
    Restructuring charges     255       401  
    Deferred taxes on earnings     173       -  
    Excess tax benefit from stock-based compensation     (9 )     (118 )
    Other, net     159       297  
                 
    Changes in operating assets and liabilities (net of acquisitions):                
      Accounts receivable     (46 )     1,494  
      Financing receivables     23       245  
      Inventory     277       53  
      Accounts payable     (40 )     (892 )
      Taxes on earnings     (208 )     85  
      Restructuring     (220 )     (703 )
      Other assets and liabilities     (1,145 )     (3,542 )
        Net cash provided by operating activities     1,464       2,208  
                 
Cash flows from investing activities:                
    Investment in property, plant and equipment     (779 )     (1,726 )
    Proceeds from sale of property, plant and equipment     81       211  
    Purchases of available-for-sale securities and other investments     (58 )     (108 )
    Maturities and sales of available-for-sale securities and other investments     93       123  
    Payments made in connection with business acquisitions     (138 )     (139 )
        Net cash used in investing activities     (801 )     (1,639 )
                 
Cash flows from financing activities:                
    Short-term borrowings with original maturities less than 90 days, net     1,781       1,858  
    Issuance of debt     1,288       1,587  
    Payment of debt     (984 )     (1,895 )
    Issuance of common stock under employee stock plans     42       223  
    Repurchase of common stock     (659 )     (2,230 )
    Excess tax benefit from stock-based compensation     9       118  
    Cash dividends paid     (291 )     (595 )
        Net cash provided by (used in) financing activities     1,186       (934 )
                 
Increase (decrease) in cash and cash equivalents     1,849       (365 )
Cash and cash equivalents at beginning of period     12,919       15,133  
Cash and cash equivalents at end of period   $ 14,768     $ 14,768  
                 
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT INFORMATION  
(Unaudited)  
(In millions)  
                   
    Three months ended  
    April 30,
2015
    January 31,
2015
    April 30,
2014
 
Net revenue:(a)                        
                         
  Personal Systems   $ 7,740     $ 8,544     $ 8,176  
  Printing     5,453       5,543       5,834  
    Total Printing and Personal Systems Group     13,193       14,087       14,010  
  Enterprise Group     6,561       6,981       6,633  
  Enterprise Services     4,817       4,993       5,702  
  Software     892       871       971  
  HP Financial Services     805       803       867  
  Corporate Investments     2       16       6  
    Total segments     26,270       27,751       28,189  
  Elimination of intersegment net revenue and other     (817 )     (912 )     (880 )
                         
    Total HP consolidated net revenue   $ 25,453     $ 26,839     $ 27,309  
                         
Earnings before taxes:(a)                        
                         
  Personal Systems   $ 235     $ 313     $ 290  
  Printing     996       1,067       1,140  
    Total Printing and Personal Systems Group     1,231       1,380       1,430  
  Enterprise Group     950       1,090       957  
  Enterprise Services     194       148       148  
  Software     160       157       186  
  HP Financial Services     85       90       99  
  Corporate Investments     (144 )     (124 )     (98 )
    Total segment earnings from operations     2,476       2,741       2,722  
                         
  Corporate and unallocated costs and eliminations     (152 )     (182 )     (251 )
  Stock-based compensation expense     (129 )     (187 )     (130 )
  Amortization of intangible assets     (221 )     (222 )     (264 )
  Restructuring charges     (255 )     (146 )     (252 )
  Acquisition-related charges     (19 )     (4 )     (3 )
  Separation costs     (269 )     (80 )     -  
  Interest and other, net     (139 )     (174 )     (174 )
                         
    Total HP consolidated earnings before taxes   $ 1,292     $ 1,746     $ 1,648  
   
(a) Effective at the beginning of its first quarter of fiscal 2015, HP implemented an organizational change to align its segment financial reporting more closely with its current business structure. This organizational change resulted in the transfer of third party multi-vendor support arrangements from the Technology Services business unit within the Enterprise Group segment to the Infrastructure Technology Outsourcing business unit within the Enterprise Services segment. HP reflected this change to its segment information in prior reporting periods on an as-if basis, which resulted in the removal of intersegment revenue from the Technology Services business unit within the Enterprise Group segment and the related corporate intersegment revenue eliminations, and the transfer of operating profit from the Technology Services business unit within the Enterprise Group segment to the Infrastructure Technology Outsourcing business unit within the Enterprise Services segment. This change had no impact on HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT INFORMATION  
(Unaudited)  
(In millions)  
             
    Six months ended
April 30,
 
    2015     2014  
Net revenue:(a)                
                 
  Personal Systems   $ 16,284     $ 16,706  
  Printing     10,996       11,649  
    Total Printing and Personal Systems Group     27,280       28,355  
  Enterprise Group     13,542       13,603  
  Enterprise Services     9,810       11,297  
  Software     1,763       1,887  
  HP Financial Services     1,608       1,737  
  Corporate Investments     18       294  
    Total segments     54,021       57,173  
  Elimination of intersegment net revenue and other     (1,729 )     (1,710 )
                 
    Total HP consolidated net revenue   $ 52,292     $ 55,463  
                 
Earnings before taxes:(a)                
                 
  Personal Systems   $ 548     $ 569  
  Printing     2,063       2,119  
    Total Printing and Personal Systems Group     2,611       2,688  
  Enterprise Group     2,040       1,960  
  Enterprise Services     342       208  
  Software     317       331  
  HP Financial Services     175       200  
  Corporate Investments     (268 )     23  
    Total segment earnings from operations     5,217       5,410  
                 
  Corporate and unallocated costs and eliminations     (334 )     (372 )
  Stock-based compensation expense     (316 )     (300 )
  Amortization of intangible assets     (443 )     (547 )
  Restructuring charges     (401 )     (366 )
  Acquisition-related charges     (23 )     (6 )
  Separation costs     (349 )     -  
  Interest and other, net     (313 )     (337 )
                 
    Total HP consolidated earnings before taxes   $ 3,038     $ 3,482  
   
(a) Effective at the beginning of its first quarter of fiscal 2015, HP implemented an organizational change to align its segment financial reporting more closely with its current business structure. This organizational change resulted in the transfer of third party multi-vendor support arrangements from the Technology Services business unit within the Enterprise Group segment to the Infrastructure Technology Outsourcing business unit within the Enterprise Services segment. HP reflected this change to its segment information in prior reporting periods on an as-if basis, which resulted in the removal of intersegment revenue from the Technology Services business unit within the Enterprise Group segment and the related corporate intersegment revenue eliminations, and the transfer of operating profit from the Technology Services business unit within the Enterprise Group segment to the Infrastructure Technology Outsourcing business unit within the Enterprise Services segment. This change had no impact on HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT/BUSINESS UNIT INFORMATION  
(Unaudited)  
(In millions)  
                   
    Three months ended     Change (%)  
    April 30,
2015
    January 31,
2015
    April 30,
2014
    Q/Q     Y/Y  
Net revenue:(a)                                    
                                     
  Printing and Personal Systems Group                                    
    Personal Systems                                    
      Notebooks   $ 4,170     $ 4,724     $ 3,977     (12 %)   5 %
      Desktops     2,762       2,949       3,343     (6 %)   (17 %)
      Workstations     513       526       548     (2 %)   (6 %)
      Other     295       345       308     (14 %)   (4 %)
        Total Personal Systems     7,740       8,544       8,176     (9 %)   (5 %)
                                     
    Printing                                    
      Supplies     3,684       3,601       3,866     2 %   (5 %)
      Commercial Hardware     1,304       1,316       1,402     (1 %)   (7 %)
      Consumer Hardware     465       626       566     (26 %)   (18 %)
        Total Printing     5,453       5,543       5,834     (2 %)   (7 %)
          Total Printing and Personal Systems Group     13,193       14,087       14,010     (6 %)   (6 %)
                                     
    Enterprise Group                                    
      Industry Standard Servers     3,138       3,387       2,829     (7 %)   11 %
      Technology Services     1,932       1,987       2,108     (3 %)   (8 %)
      Storage     740       837       808     (12 %)   (8 %)
      Networking     556       562       658     (1 %)   (16 %)
      Business Critical Systems     195       208       230     (6 %)   (15 %)
        Total Enterprise Group     6,561       6,981       6,633     (6 %)   (1 %)
                                     
    Enterprise Services                                    
      Infrastructure Technology Outsourcing     2,871       3,132       3,597     (8 %)   (20 %)
      Application and Business Services     1,946       1,861       2,105     5 %   (8 %)
        Total Enterprise Services     4,817       4,993       5,702     (4 %)   (16 %)
                                     
    Software     892       871       971     2 %   (8 %)
                                     
    HP Financial Services     805       803       867     0 %   (7 %)
                                     
    Corporate Investments     2       16       6     (88 %)   (67 %)
        Total segments     26,270       27,751       28,189     (5 %)   (7 %)
                                     
    Elimination of intersegment net revenue and other     (817 )     (912 )     (880 )   (10 %)   (7 %)
                                     
    Total HP consolidated net revenue   $ 25,453     $ 26,839     $ 27,309     (5 %)   (7 %)
   
(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.
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT/BUSINESS UNIT INFORMATION  
(Unaudited)  
(In millions)  
       
    Six months ended
April 30,
 
    2015     2014  
Net revenue:(a)                
                 
  Printing and Personal Systems Group                
    Personal Systems                
      Notebooks   $ 8,894     $ 8,312  
      Desktops     5,711       6,617  
      Workstations     1,039       1,081  
      Other     640       696  
        Total Personal Systems     16,284       16,706  
                 
    Printing                
      Supplies     7,285       7,661  
      Commercial Hardware     2,620       2,749  
      Consumer Hardware     1,091       1,239  
        Total Printing     10,996       11,649  
          Total Printing and Personal Systems Group     27,280       28,355  
                 
    Enterprise Group                
      Industry Standard Servers     6,525       6,007  
      Technology Services     3,919       4,208  
      Storage     1,577       1,642  
      Networking     1,118       1,288  
      Business Critical Systems     403       458  
        Total Enterprise Group     13,542       13,603  
                 
    Enterprise Services                
      Infrastructure Technology Outsourcing     6,003       7,098  
      Application and Business Services     3,807       4,199  
        Total Enterprise Services     9,810       11,297  
                 
    Software     1,763       1,887  
                 
    HP Financial Services     1,608       1,737  
                 
    Corporate Investments     18       294  
        Total segments     54,021       57,173  
                 
    Elimination of intersegment net revenue and other     (1,729 )     (1,710 )
                 
    Total HP consolidated net revenue   $ 52,292     $ 55,463  
   
(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.
   
   
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES  
SEGMENT OPERATING MARGIN SUMMARY DATA  
(Unaudited)  
                   
    Three months ended     Change in Operating Margin (pts)  
    April 30,
2015
    Q/Q     Y/Y  
                   
Segment operating margin:(a)                  
  Personal Systems   3.0 %   (0.7 pts )   (0.5 pts )
  Printing   18.3 %   (0.9 pts )   (1.2 pts )
    Total Printing & Personal Systems Group   9.3 %   (0.5 pts )   (0.9 pts )
                   
  Enterprise Group   14.5 %   (1.1 pts )   0.1 pts  
  Enterprise Services   4.0 %   1.0 pts     1.4 pts  
  Software   17.9 %   (0.1 pts )   (1.3 pts )
  HP Financial Services   10.6 %   (0.6 pts )   (0.8 pts )
  Corporate Investments(b)   NM     NM     NM  
    Total segments   9.4 %   (0.5 pts )   (0.3 pts )
                   
   
(a) Effective at the beginning of its first quarter of fiscal 2015, HP implemented an organizational change to align its segment financial reporting more closely with its current business structure. This organizational change resulted in the transfer of third party multi-vendor support arrangements from the Technology Services business unit within the Enterprise Group segment to the Infrastructure Technology Outsourcing business unit within the Enterprise Services segment. HP reflected this change to its segment information in prior reporting periods on an as-if basis, which resulted in the removal of intersegment revenue from the Technology Services business unit within the Enterprise Group segment and the related corporate intersegment revenue eliminations, and the transfer of operating profit from the Technology Services business unit within the Enterprise Group segment to the Infrastructure Technology Outsourcing business unit within the Enterprise Services segment. This change had no impact on HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) "NM" represents not meaningful.
   
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts)
             
    Three months ended
    April 30,
2015
  January 31,
2015
  April 30,
2014
                   
Numerator:                  
  GAAP net earnings   $ 1,011   $ 1,366   $ 1,273
  Non-GAAP net earnings   $ 1,596   $ 1,705   $ 1,691
                   
Denominator:                  
  Weighted-average shares outstanding during the reporting period     1,814     1,833     1,890
  Dilutive effect of employee stock plans(a)     22     28     26
    Weighted-average shares used to compute diluted net earnings per share     1,836     1,861     1,916
                   
GAAP diluted net earnings per share   $ 0.55   $ 0.73   $ 0.66
Non-GAAP diluted net earnings per share   $ 0.87   $ 0.92   $ 0.88
   
(a) Includes any dilutive effect of restricted stock units, restricted stock, stock options and performance-based restricted stock units.
   
 
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts)
         
    Six months ended
April 30,
    2015   2014
             
Numerator:            
  GAAP net earnings   $ 2,377   $ 2,698
  Non-GAAP net earnings   $ 3,301   $ 3,433
             
Denominator:            
  Weighted-average shares outstanding during the reporting period     1,824     1,898
  Dilutive effect of employee stock plans(a)     24     24
    Weighted-average shares used to compute diluted net earnings per share     1,848     1,922
             
GAAP diluted net earnings per share   $ 1.29   $ 1.40
Non-GAAP diluted net earnings per share   $ 1.79   $ 1.79
   
(a) Includes any dilutive effect of restricted stock units, restricted stock, stock options and performance-based restricted stock units.
   

Use of non-GAAP financial measures
To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides revenue on a constant currency basis, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net capital expenditures, net debt, net cash, operating company net debt and operating company net cash. HP also provides forecasts of non-GAAP diluted net earnings per share.

These non-GAAP financial measures are not computed in accordance with, or as an alternative to, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to revenue on a constant currency basis is revenue. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted net earnings per share is diluted net earnings per share. The GAAP measure most directly comparable to gross cash is cash and cash equivalents. The GAAP measure most directly comparable to free cash flow is cash flow from operations. The GAAP measure most directly comparable to net capital expenditures is capital expenditures. The GAAP measure most directly comparable to net debt and operating company net debt is total company debt. The GAAP measure most directly comparable to 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 and acquisition-related 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:

  • 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 related primarily to third-party consulting and contractor fees and other expenses 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 costs related to its acquisitions. As acquisition-related expenses are inconsistent in amount and frequency and are significantly impacted by the timing and nature of HP's acquisitions, HP believes that eliminating these expenses for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of HP's current operating performance and comparisons to HP's operating performance in other periods.

Gross cash is a non-GAAP measure that is defined as cash and cash equivalents plus short-term investments and certain long-term investments that may be liquidated within 90 days pursuant to the terms of existing put options or similar rights. Free cash flow is defined as cash flow from operations less net capital expenditures. Net capital expenditures is defined as investments in property, plant and equipment less proceeds from the sale of property, plant and equipment. HP's management uses gross cash and free cash flow for the purpose of determining the amount of cash available for investment in HP's businesses, funding acquisitions, repurchasing stock and other purposes. HP's management also uses gross cash and free cash flow to evaluate HP's historical and prospective liquidity. Because gross cash includes liquid assets that are not included in GAAP cash and cash equivalents, HP believes that gross cash provides a more accurate and complete assessment of HP's liquidity. Because net capital expenditures includes proceeds from the sale of property, plant and equipment, HP believes that net capital expenditures provides a more accurate and complete assessment of HP's liquidity. Because free cash flow includes the effect of net capital expenditures that are not reflected in GAAP cash flow from operations, HP believes that free cash flow provides a more accurate and complete assessment of HP's liquidity and capital resources.

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

  • 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.

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