HPE Reports Fiscal 2017 Third Quarter Results

September 05, 2017 • Press Release

IN THIS ARTICLE

  • Third quarter net revenue of $8.2 billion, up 3% from the prior-year period, and up 6% when adjusted for divestitures and currency
  • Future HPE (excludes Software) revenue was up 6% year-over-year when adjusted for divestitures and currency
  • Third quarter GAAP diluted net earnings per share of $0.10, above the previously provided outlook of ($0.02) to $0.02 per share, due primarily to an Enterprise Services spin-merger related non-cash income tax benefit  
  • Third quarter non-GAAP diluted net earnings per share of $0.30, above the previously provided outlook of $0.24 to $0.28 per share
  • Updated fiscal 2017 GAAP diluted net earnings per share outlook to ($0.11) to ($0.07), and fiscal 2017 non-GAAP diluted net earnings per share outlook to $1.36 to $1.40 to reflect the successful separation of its Software business

PALO ALTO, Calif., Sept. 05, 2017 (GLOBE NEWSWIRE) -- Hewlett Packard Enterprise (NYSE:HPE) today announced financial results for its fiscal 2017 third quarter, ended July 31, 2017.

Third quarter net revenue of $8.2 billion was up 3% from the prior-year period and up 6% when adjusted for divestitures and currency.

Third quarter GAAP diluted net earnings per share ("EPS") from continuing operations was $0.15, down from GAAP diluted net EPS from continuing operations of $1.43 in the prior-year period. Third quarter non-GAAP diluted net EPS from continuing operations was $0.31, down from non-GAAP diluted net EPS from continuing operations of $0.40 in the prior-year period. Third quarter non-GAAP net earnings from continuing operations and non-GAAP diluted net EPS from continuing operations exclude after-tax costs of $269 million and $0.16 per diluted share, respectively, related to separation costs, restructuring charges, amortization of intangible assets, acquisition and other related charges, transformation costs, valuation allowances and divestiture taxes, tax indemnification adjustments, defined benefit plan settlement charges and remeasurement benefit and an adjustment to earnings from equity interests.

"The results of the third quarter are an encouraging sign of the progress we are making," said Whitman."With better execution we drove overall revenue growth, exceeded our EPS targets and improved our operating margins sequentially, all while completing the spin-merge of our Software business.Theres more work to do, but we are on the right track."

HPE fiscal 2017 third quarter continuing operations financial performance

 

 

Q3 FY17

Q3 FY16

Y/Y

GAAP net revenue ($B)

$8.2

$8.0

3%

GAAP operating margin

1.8%

33.0%

(31.2 pts.)

GAAP net earnings ($B)

$0.2

$2.5

(90%)

GAAP diluted net earnings per share

$0.15

$1.43

(90%)

Non-GAAP operating margin

8.4%

9.9%

(1.5 pts.)

Non-GAAP net earnings ($B)

$0.5

$0.7

(24%)

Non-GAAP diluted net earnings per share

$0.31

$0.40

(23%)

Cash flow from operations ($B)

$0.9

$1.7

($0.8)

 

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

Outlook
For the fiscal 2017 fourth quarter, Hewlett Packard Enterprise estimates GAAP diluted net EPS to be in the range of $0.00 to $0.04 and non-GAAP diluted net EPS to be in the range of $0.26 to $0.30. Fiscal 2017 fourth quarter non-GAAP diluted net EPS from continuing operations estimates exclude after-tax costs of approximately $0.26 per diluted share, related primarily to separation costs, restructuring charges, the amortization of intangible assets, acquisition and other related charges and an adjustment to earnings from equity interests.

HPE is adjusting its fiscal 2017 full year outlook in connection with the close of the Software transaction. As previously disclosed, the Software transaction will impact HPEs fiscal 2017 diluted net EPS by approximately $0.13, including Software-related stranded costs. For fiscal 2017, Hewlett Packard Enterprise estimates GAAP diluted net EPS to be in the range of ($0.11) to ($0.07) and non-GAAP diluted net EPS to be in the range of $1.36 to $1.40. Fiscal 2017 non-GAAP diluted net EPS from continuing operations estimates exclude after-tax costs of approximately $1.47 per diluted share, related primarily to valuation allowances and divestiture taxes, separation costs, restructuring charges, transformation costs, amortization of intangible assets, acquisition and other related charges and an adjustment to earnings from equity interests.

Fiscal 2017 third quarter segment results

 

  • Enterprise Group revenue was $6.8 billion, up 3% year over year, up 3% when adjusted for currency, with a 9.3% operating margin. Servers revenue was down 1%, flat when adjusted for currency, Storage revenue was up 11%, up 11% when adjusted for currency, Networking revenue was up 16%, up 17% when adjusted for currency, and Technology Services revenue was up 1%, up 2% when adjusted for currency.
  • Software revenue was $718 million, down 3% year over year, down 2% when adjusted for divestitures and currency, with a 24.9% operating margin. License revenue was up 2%, up 5% when adjusted for divestitures and currency, Support revenue was down 2%, down 1% when adjusted for divestitures and currency, Professional Services revenue was down 23%, down 22% when adjusted for divestitures and currency, and Software-as-a-service (SaaS) revenue was up 7%, up 7% when adjusted for divestitures and currency.
  • Financial Services revenue was $897 million, up 10% year over year, net portfolio assets were up 2%, and financing volume was down 8%. The business delivered an operating margin of 7.8%.

 

Revenue from continuing operations adjusted for divestitures and currency excludes revenue resulting from businesses divestitures in fiscal 2017 and 2016 and also assumes no change in the foreign exchange rate from the prior-year period. A reconciliation of GAAP revenue to revenue adjusted for divestitures and currency is provided in the earnings presentation at investors.hpe.com.

About Hewlett Packard Enterprise
Hewlett Packard Enterprise (HPE)is an industry leading technology company that enables customers to go further, faster. With the industrys most comprehensive portfolio, spanning the cloud to the data center to workplace applications, our technology and services help customers around the world make IT more efficient, more productive and more secure.

Use of non-GAAP financial information
To supplement Hewlett Packard Enterprises condensed and consolidated financial statement information presented on a generally accepted accounting principles (GAAP) basis, Hewlett Packard Enterprise provides revenue on a constant currency basis and revenue adjusted for divestitures and currency, as well as non-GAAP operating expense, non-GAAP operating profit, non-GAAP operating margin, non-GAAP income tax rate, non-GAAP net earnings from continuing operations, non-GAAP net (loss) earnings from discontinued operations, non-GAAP diluted net earnings per share from continuing operations, non-GAAP diluted net (loss) earnings per share from discontinued operations, gross cash, free cash flow, normalized free cash flow, net capital expenditures, net debt, net cash, operating company net debt, operating company net cash and adjusted operating company net cash financial measures. Hewlett Packard Enterprise also provides forecasts of non-GAAP diluted net earnings per share and free cash flow. A reconciliation of adjustments to GAAP financial measures 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 Hewlett Packard Enterprises management uses these non-GAAP measures to evaluate its business, the substance behind Hewlett Packard Enterprises decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which Hewlett Packard Enterprises management compensates for those limitations, and the substantive reasons why Hewlett Packard Enterprises management believes that these non-GAAP measures provide useful information to investors is included under "Use of non-GAAP financial measures" further 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 from continuing operations, net (loss) earnings from discontinued operations, diluted net earnings per share from continuing operations, diluted net (loss) earnings per share from discontinued operations, cash and cash equivalents, cash flow from operations, investments in property, plant and equipment, or total company debt prepared in accordance with GAAP.

Forward-looking statements
This press 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 Hewlett Packard Enterprise 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 completed divestiture transaction, 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 Hewlett Packard Enterprise 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 Hewlett Packard Enterprise's businesses; the competitive pressures faced by Hewlett Packard Enterprises businesses; risks associated with executing Hewlett Packard Enterprises strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of Hewlett Packard Enterprises products and the delivery of Hewlett Packard Enterprises services effectively; the protection of Hewlett Packard Enterprises intellectual property assets, including intellectual property licensed from third parties; risks associated with Hewlett Packard Enterprises 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 Hewlett Packard Enterprise and its suppliers, customers and partners; the hiring and retention of key employees; integration and other risks associated with business combination and investment transactions; the results of the divestiture transactions or restructuring plans, including estimates and assumptions related to the cost (including any possible disruption of Hewlett Packard Enterprises business) and the anticipated benefits of the transactions or of implementing the restructuring plans; the resolution of pending investigations, claims and disputes; and other risks that are described in Hewlett Packard Enterprises Annual Report on Form 10-K for the fiscal year ended October 31, 2016 and subsequent Quarterly Reports on Form 10-Q.

As in prior periods, the financial information set forth in this press release, including tax-related items, reflects estimates based on information available at this time. While Hewlett Packard Enterprise believes these estimates to be reasonable, these amounts could differ materially from reported amounts in the Hewlett Packard Enterprise Quarterly Report on Form 10-Q for the quarter ended July 31, 2017. Hewlett Packard Enterprise assumes no obligation and does not intend to update these forward-looking statements.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)

 

 

Three months ended

 

July 31, 2017

April 30, 2017

July 31, 2016

Net revenue

$ 8,209

$ 7,445

$ 8,005

Costs and expenses:

 

 

 

Cost of sales

5,496

4,927

5,089

Research and development

508

486

551

Selling, general and administrative

1,512

1,449

1,575

Amortization of intangible assets

132

107

111

Restructuring charges

165

118

93

Transformation costs

31

-

-

Acquisition and other related charges

56

51

34

Separation costs

186

141

76

Defined benefit plan settlement charges and remeasurement (benefit)(a)

(24)

(16)

-

Gain on H3C divestiture

-

-

(2,169)

Total costs and expenses

8,062

7,263

5,360

Earnings from continuing operations

147

182

2,645

Interest and other, net

(97)

(85)

(69)

Tax indemnification adjustments

10

7

60

Earnings (loss) from equity interests(b)

1

(3)

(72)

Earnings from continuing operations before taxes

61

101

2,564

Tax valuation allowances and divestiture taxes(c)

189

(593)

-

(Provision) benefit for taxes

(2)

5

(107)

Net earnings (loss) from continuing operations

248

(487)

2,457

Net loss from discontinued operations

(83)

(125)

(185)

Net earnings (loss)

$ 165

$ (612)

$ 2,272

 

 

 

 

Net earnings (loss) per share:

 

 

 

Basic

 

 

 

Continuing operations

$ 0.15

$ (0.29)

$ 1.46

Discontinued operations

(0.05)

(0.08)

(0.11)

Total basic net earnings (loss) per share

$ 0.10

$ (0.37)

$ 1.35

Diluted

 

 

 

Continuing operations

$ 0.15

$ (0.29)

$ 1.43

Discontinued operations

(0.05)

(0.08)

(0.11)

Total diluted net earnings (loss) per share

$ 0.10

$ (0.37)

$ 1.32

Cash dividends declared per share

$ 0.065

$ 0.065

$ 0.055

Weighted-average shares used to compute net earnings (loss) per share:

 

 

 

Basic

1,641

1,658

1,681

Diluted

1,667

1,658

1,715

 

(a) Represents adjustment to net periodic pension cost resulting from remeasurements of the Hewlett Packard Enterprise pension plans in connection with the spin-off of the software business, Seattle SpinCo, Inc., and the merger of Seattle SpinCo, Inc. with Micro Focus International plc and the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation.

(b) Primarily represents the Companys ownership interest in the net earnings of H3C, which it records as an equity method investment.

(c) Represents amounts in connection with the spin-off of the enterprise services business, Everett SpinCo, Inc. For the three months ended July 31, 2017, primarily represents $164 million of income tax benefit on deferred losses. For the three months ended April 30, 2017, represents $593 million of income tax expense from valuation allowances on certain U.S. deferred tax assets and other divestiture related taxes.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)

 

 

Nine Months Ended July 31,

 

2017

2016

Net revenue

$ 23,210

$ 25,046

Costs and expenses:

 

 

Cost of sales

15,247

15,957

Research and development

1,475

1,754

Selling, general and administrative

4,415

4,899

Amortization of intangible assets

340

331

Restructuring charges

399

346

Transformation costs

31

-

Acquisition and other related charges

151

114

Separation costs

412

246

Defined benefit plan settlement charges and remeasurement (benefit)(a)

(45)

(2,169)

Gain on H3C divestiture

 

 

Total costs and expenses

22,425

21,478

Earnings from continuing operations

785

3,568

Interest and other, net

(260)

(195)

Tax indemnification adjustments

(1)

6

Loss from equity interests(b)

(24)

(72)

Earnings from continuing operations before taxes

500

3,307

Tax valuation allowances and divestiture taxes(c)

(404)

-

Provision for taxes

(80)

(166)

Net earnings from continuing operations

16

3,141

Net loss from discontinued operations

(196)

(282)

Net (loss) earnings

$ (180)

$ 2,859

 

 

 

Net (loss) earnings per share:

 

 

Basic

 

 

Continuing operations

$ 0.01

$ 1.82

Discontinued operations

(0.12)

(0.16)

Total basic net (loss) earnings per share

$ (0.11)

$ 1.66

Diluted

 

 

Continuing operations

$ 0.01

$ 1.80

Discontinued operations

(0.12)

(0.16)

Total diluted net (loss) earnings per share

$ (0.11)

$ 1.64

Cash dividends declared per share

$ 0.260

$ 0.220

Weighted-average shares used to compute net (loss) earnings per share:

 

 

Basic

1,656

1,722

Diluted

1,683

1,748

 

(a) Represents adjustment to net periodic pension cost resulting from remeasurements of the Hewlett Packard Enterprise pension plans in connection with the spin-off of the software business, Seattle SpinCo, Inc., and the merger of Seattle SpinCo, Inc. with Micro Focus International plc and the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation.

(b) Primarily represents the Companys ownership interest in the net earnings of H3C, which it records as an equity method investment.

(c) Represents tax amounts in connection with the spin-off of the enterprise services business, Everett SpinCo, Inc. Includes $593 million of income tax expense from valuation allowances on certain U.S. deferred tax assets and other divestiture related taxes and $164 million income tax benefit on deferred losses.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except percentages and per share amounts)

 

 

Three
months
ended July
31, 2017

Diluted net
(loss)
earnings
per share

Three months
ended
April 30,
2017

Diluted net
earnings
per share

Three
months
ended July
31, 2016

Diluted net
earnings
per share

GAAP net earnings (loss) from continuing operations

$ 248

$ 0.15

$ (487)

$ (0.29)

$ 2,457

$ 1.43

 

 

 

 

 

 

 

Non-GAAP adjustments:

 

 

 

 

 

 

Amortization of intangible assets

132

0.08

107

0.06

111

0.06

Restructuring charges

165

0.10

118

0.07

93

0.05

Transformation costs

31

0.02

 

 

 

 

Acquisition and other related charges

56

0.03

51

0.03

34

0.02

Separation costs

186

0.11

141

0.09

76

0.04

Defined benefit plan settlement charges and remeasurement (benefit)(a)

(24)

(0.01)

(16)

(0.01)

 

 

Gain on H3C divestiture

 

 

 

 

(2,169)

(1.26)

Tax indemnification adjustments

(10)

(0.01)

(7)

 

(60)

(0.03)

Loss from equity interests(b)

39

0.02

38

0.02

58

0.03

Separation costs in interest and other, net

11

0.01

 

 

 

 

Adjustments for taxes

(128)

(0.08)

(122)

(0.08)

83

0.06

Tax valuation allowances and divestiture taxes(c)

(189)

(0.11)

593

0.36

 

 

Non-GAAP net earnings from continuing operations

$ 517

$ 0.31

$ 416

$ 0.25

$ 683

$ 0.40

 

 

 

 

 

 

 

GAAP earnings from continuing operations

$ 147

 

$ 182

 

$ 2,645

 

 

 

 

 

 

 

 

Non-GAAP adjustments related to continuing operations:

 

 

 

 

 

 

Amortization of intangible assets

132

 

107

 

111

 

Restructuring charges

165

 

118

 

93

 

Transformation costs

31

 

 

 

 

 

Acquisition and other related charges

56

 

51

 

34

 

Separation costs

186

 

141

 

76

 

Defined benefit plan settlement charges and remeasurement (benefit)(a)

(24)

 

(16)

 

 

 

Gain on H3C divestiture

 

 

 

 

(2,169)

 

Non-GAAP earnings from continuing operations

$ 693

 

$ 583

 

$ 790

 

 

 

 

 

 

 

 

GAAP operating margin from continuing operations

2%

 

2%

 

33%

 

Non-GAAP adjustments from continuing operations

6%

 

6%

 

(23)%

 

Non-GAAP operating margin from continuing operations

8%

 

8%

 

10%

 

 

 

 

 

 

 

 

GAAP net loss from discontinued operations

$ (83)

$ (0.05)

$ (125)

$ (0.08)

$ (185)

$ (0.11)

 

 

 

 

 

 

 

Non-GAAP adjustments related to discontinued operations:

 

 

 

 

 

 

Amortization of intangible assets

 

 

 

 

99

0.06

Restructuring charges

 

 

98

0.06

276

0.16

Acquisition and other related charges

 

 

 

 

3

 

Separation costs

72

0.04

337

0.20

59

0.03

Defined benefit plan settlement charges and remeasurement (benefit)(b)

 

 

(1)

 

 

 

Adjustments for taxes

(21)

(0.01)

(120)

(0.07)

(95)

(0.05)

Tax valuation allowances and divestiture taxes(c)

12

0.01

(18)

(0.01)

 

 

Non-GAAP net (loss) earnings from discontinued operations

$ (20)

$ (0.01)

$ 171

$ 0.10

$ 157

$ 0.09

 

 

 

 

 

 

 

Total GAAP net earnings (loss)

$ 165

$ 0.10

$ (612)

$ (0.37)

$ 2,272

$1.32

Total Non-GAAP net earnings

$ 497

$ 0.30

$ 587

$ 0.35

$ 840

$ 0.49

 

(a) Represents adjustment to net periodic pension cost resulting from remeasurements of the Hewlett Packard Enterprise pension plans in connection with the spin-off of the software business, Seattle SpinCo, Inc., and the merger of Seattle SpinCo, Inc. with Micro Focus International plc and the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation.

(b) Represents the amortization of basis difference adjustments related to the H3C divestiture.

(c) Represents tax amounts in connection with the spin-off of the enterprise services business, Everett SpinCo, Inc. For the three months ended July 31, 2017, primarily represents $164 million of income tax benefit on deferred losses. For the three months ended April 30, 2017, represents $593 million of income tax expense from valuation allowances on certain U.S. deferred tax assets and other divestiture related taxes.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except percentages and per share amounts)

 

 

Nine
Months
Ended July
31, 2017

Diluted net
(loss)
earnings per
share

Nine
Months
Ended July
31, 2016

Diluted net
(loss)
earnings per
share

GAAP net earnings from continuing operations

$ 16

$ 0.01

$ 3,141

$ 1.80

         

Non-GAAP adjustments:

       

Amortization of intangible assets

340

0.20

331

0.19

estructuring charges

399

0.24

346

0.20

Transformation costs

31

0.02

   

Acquisition and other related charges

151

0.09

114

0.07

Separation costs

412

0.24

246

0.14

Defined benefit plan settlement charges and remeasurement (benefit)(a)

(45)

(0.03)

   

Gain on H3C divestiture

   

(2,169)

(1.24)

Tax indemnification adjustments

1

 

(6)

 

Loss from equity interests(b)

112

0.07

58

0.03

Separation costs in interest and other, net

11

0.01

   

Adjustments for taxes

(318)

(0.19)

(172)

(0.11)

Tax valuation allowances and divestiture taxes(c)

404

0.24

   

Non-GAAP net earnings from continuing operations

$ 1,514

$ 0.90

$ 1,889

$ 1.08

       

 

GAAP earnings from continuing operations

$ 785

 

$ 3,568

 
       

 

Non-GAAP adjustments related to continuing operations:

     

 

Amortization of intangible assets

340

 

331

 

Restructuring charges

399

 

346

 

Transformation costs

31

     

Acquisition and other related charges

151

 

114

 

Separation costs

412

 

246

 

Defined benefit plan settlement charges and remeasurement (benefit)(a)

(45)

     

Gain on H3C divestiture

   

(2,169)

 

Non-GAAP earnings from continuing operations

$ 2,073

 

$ 2,436

 
         

GAAP operating margin from continuing operations

3%

 

14%

 

Non-GAAP adjustments from continuing operations

6%

 

(4)%

 

Non-GAAP operating margin from continuing operations

9%

 

10%

 
     

 

 

GAAP net loss from discontinued operations

$ (196)

$ (0.12)

$ (282)

$ (0.16)

         

Non-GAAP adjustments related to discontinued operations:

       

Amortization of intangible assets

   

298

0.17

Restructuring charges

159

0.09

495

0.28

Acquisition and other related charges

   

13

0.01

Separation costs

600

0.36

59

0.03

Defined benefit plan settlement charges and remeasurement (benefit)(b)

(2)

     

Adjustments for taxes

(213)

(0.13)

(170)

(0.09)

Tax valuation allowances and divestiture taxes(c)

(6)

     

Non-GAAP net earnings from discontinued operations

$ 342

$ 0.20

$ 413

$ 0.24

         

Total GAAP net (loss) earnings

$(180)

$ (0.11)

$ 2,859

$ 1.64

Total Non-GAAP net earnings

$1,856

$ 1.10

$ 2,302

$ 1.32

 

(a) Represents adjustment to net periodic pension cost resulting from remeasurements of the Hewlett Packard Enterprise pension plans in connection with the spin-off of the software business, Seattle SpinCo, Inc., and the merger of Seattle SpinCo, Inc. with Micro Focus International plc and the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation.

(b) Represents the amortization of basis difference adjustments related to the H3C divestiture.

(c) Represents tax amounts in connection with the spin-off of the enterprise services business, Everett SpinCo, Inc. Includes $593 million of income tax expense from valuation allowances on certain U.S. deferred tax assets and other divestiture related taxes and $164 million income tax benefit on deferred losses.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except par value)

 

 

As of

 

July 31, 2017

October 31, 2016

ASSETS

   

Current assets:

   

Cash and cash equivalents

$ 7,757

$ 12,987

Accounts receivable

3,845

3,816

Financing receivables

3,295

3,360

Inventory

2,144

1,740

Other current assets(a)

6,102

2,771

Current assets of discontinued operations

-

4,243

Total current assets

23,143

28,917

Property, plant and equipment

6,730

6,304

Long-term financing receivables and other assets(b)

11,530

11,575

Investments in equity interests

2,626

2,648

Goodwill and intangible assets

26,902

25,262

Non-current assets of discontinued operations

 

4,923

Total assets

$ 70,931

$ 79,629

LIABILITIES AND STOCKHOLDERS EQUITY

   

Current liabilities:

   

Notes payable and short-term borrowings(b)

$ 2,069

$ 3,527

Accounts payable

5,717

5,010

Employee compensation and benefits

1,306

1,526

Taxes on earnings

467

365

Deferred revenue

3,828

3,761

Accrued restructuring

229

301

Other accrued liabilities

4,663

3,857

Current liabilities of discontinued operations

 

4,182

Total current liabilities

18,279

22,529

Long-term debt(b)

14,527

12,168

Other non-current liabilities

9,075

9,401

Non-current liabilities of discontinued operations

 

4,013

Stockholders equity

   

HPE stockholders equity:

   

Preferred stock, $0.01 par value (300 shares authorized; none issued and outstanding at July 31, 2017)

   

Common stock, $0.01 par value (9,600 shares authorized; 1,624 and 1,666 shares issued and outstanding at July 31, 2017 and October 31, 2016, respectively)

16

17

Additional paid-in capital

34,032

35,248

Retained earnings

(1,676)

2,782

Accumulated other comprehensive loss

(3,360)

(6,599)

Total HPE stockholders equity

29,012

31,448

Non-controlling interests of continuing operations

38

40

Non-controlling interests of discontinued operations

 

30

Total stockholders equity

29,050

31,518

Total liabilities and stockholders equity

$ 70,931

$ 79,629

 

(a) During the third quarter of fiscal 2017, Seattle SpinCo, Inc., the Company's wholly owned subsidiary entered into a term loan facility in the principal amount of $2.6 billion. The cash proceeds are presented as restricted cash within Other current assets in the Condensed Consolidated Balance Sheet. At the close of the Seattle Transaction and spin-off of Seattle SpinCo, Inc., on September 1, 2017, the obligation under this borrowing arrangement was retained by Seattle SpinCo, Inc.

(b) During the first quarter of fiscal 2017, the Company adopted on a retrospective basis the guidance on the presentation of debt issuance cost as a direct deduction from the related debt liability. As such, prior period amounts have been reclassified to conform to the current presentation.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)

 

 

Three months ended
July 31, 2017

Nine months ended
July 31, 2017

Cash flows from operating activities:

   

Net earnings (loss)

$ 165

$ (180)

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

   

Depreciation and amortization

737

2,369

Stock-based compensation expense

97

349

Provision for doubtful accounts and inventory

43

82

Restructuring charges

165

558

Deferred taxes on earnings

(361)

145

Excess tax benefit from stock-based compensation

(18)

(116)

(Earnings) loss from equity interests

(1)

24

Other, net

82

392

Changes in operating assets and liabilities, net of acquisitions:

   

Accounts receivable

(51)

250

Financing receivables

(247)

(127)

Inventory

(131)

(341)

Accounts payable

523

652

Taxes on earnings

(216)

(602)

Restructuring

(143)

(688)

Other assets and liabilities(a)

247

(2,704)

Net cash provided by operating activities

891

63

Cash flows from investing activities:

   

Investment in property, plant and equipment

(724)

(2,405)

Proceeds from sale of property, plant and equipment

261

403

Purchases of available-for-sale securities and other investments

(5)

(31)

Maturities and sales of available-for-sale securities and other investments

12

14

Financial collateral posted

(158)

(384)

Financial collateral returned

 

49

Payments made in connection with business acquisitions, net of cash acquired

 

(2,050)

Payments from business divestitures, net(b)

 

(20)

Net cash used in investing activities

(614)

(4,424)

Cash flows from financing activities:

   

Short-term borrowings with original maturities less than 90 days, net

2

30

Proceeds from debt, net of issuance costs

2,799

3,340

Restricted cash- Seattle debt issuance (c)

(2,620)

(2,620)

Payment of debt

(194)

(2,296)

Settlement of cash flow hedge

5

5

Issuance of common stock under employee stock plans

101

366

Repurchase of common stock

(625)

(1,936)

Cash dividend from Everett(d)

 

3,008

Net transfer of cash and cash equivalents to Everett

 

(559)

Excess tax benefit from stock-based compensation

18

116

Cash dividends paid

(107)

(323)

Net cash used in financing activities

(621)

(869)

Decrease in cash and cash equivalents

(344)

(5,230)

Cash and cash equivalents at beginning of period

8,101

12,987

Cash and cash equivalents at end of period

$ 7,757

$ 7,757

Supplemental schedule of non-cash investing and financing activities:

   

Net assets transferred to Everett

$

$ 322

 

(a) Includes $1.9 billion of funding payments made in the six months ended April 30, 2017 related to pension liabilities in connection with the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation.

(b) Primarily relates to a H3C working capital adjustment payment.

(c) During the third quarter of fiscal 2017, Seattle SpinCo, Inc., the Company's wholly owned subsidiary entered into a term loan facility in the principal amount of $2.6 billion. The proceeds from the term loan were held in escrow. Just prior to the close of the Seattle Transaction on September 1, 2017, the proceeds from the term loan were released to Seattle and used to fund a $2.5 billion dividend payment from Seattle SpinCo, Inc. to HPE. The obligation under the debt issuance was retained by Seattle SpinCo, Inc.

(d) Represents a $3.0 billion cash dividend payment from Everett SpinCo, Inc. to HPE in the nine months ended July 31, 2017. The proceeds of which were funded from the issuance of $3.5 billion of aggregate debt by Everett SpinCo, Inc. The obligations under the debt issuance were retained by Everett SpinCo, Inc.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)

 

 

Three months ended

 

July 31,
2017

April 30,
2017

July 31,
2016

Net revenue:(a)

   

Enterprise Group

$ 6,791

$ 6,243

$ 6,615

Software

718

685

738

Financial Services

897

872

812

Corporate Investments

   

185

Total segment net revenue

8,406

7,800

8,350

Elimination of intersegment net revenue and other

(197)

(355)

(345)

Total Hewlett Packard Enterprise consolidated net revenue

8,209

7,445

8,005

     

Earnings from continuing operations before taxes:(a)

   

Enterprise Group

$ 634

$ 548

$ 849

Software

179

181

131

Financial Services

70

78

80

Corporate Investments

(34)

(38)

(41)

Total segment earnings from operations

849

769

1,019

     

Corporate and unallocated costs and eliminations

(59)

(90)

(129)

Stock-based compensation expense

(97)

(96)

(100)

Amortization of intangible assets

(132)

(107)

(111)

Restructuring charges

(165)

(118)

(93)

Transformation costs

(31)

   

Acquisition and other related charges

(56)

(51)

(34)

Separation costs

(186)

(141)

(76)

Defined benefit plan settlement charges and remeasurement (benefit)(b)

24

16

 

Gain on H3C divestiture

   

2,169

Interest and other, net

(97)

(85)

(69)

Tax indemnification adjustments

10

7

60

Earnings (loss) from equity interests(c)

1

(3)

(72)

Total Hewlett Packard Enterprise consolidated earnings from continuing operations before taxes

$ 61

$ 101

$ 2,564

 

(a) As of April 1, 2017, with the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation, the Company reclassified the historical net (loss) earnings from the former enterprise services segment ("former ES segment"), to Net (loss) earnings from discontinued operations in its Condensed Consolidated Statements of Earnings.

Effective at the beginning of the first quarter of fiscal 2017, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes resulted in: (i) within the Enterprise Group segment, primarily, the transfer of the big data storage product group previously reported within the Servers business unit to the Storage business unit; the transfer of the Aruba services capabilities previously reported within the Networking business unit to the Technology Services business unit; and (ii) the transfer of the CMS product group previously reported within the former ES segment to the Technology Services business unit within the Enterprise Group segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which resulted in: (i)within the Enterprise Group segment, primarily, the transfer of net revenue from the big data storage product group previously reported within the Servers business unit to the Storage business unit; the transfer of net revenue from the Aruba services capabilities previously reported within the Networking business unit to the Technology Services business unit; and (ii) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the CMS product group previously reported within the former ES segment to the Technology Services business unit within the Enterprise Group segment.

Effective at the beginning of the second quarter of fiscal 2017 and prior to the completion of the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation, the Company transferred historical net revenue and operating profit from the previously divested MphasiS product group which was reported within the former ES segment to the Corporate Investments segment.

The changes within the Enterprise Group segment had no impact on Hewlett Packard Enterprise's previously reported Enterprise Group segment net revenue and earnings from operations. The change between former ES segment and the Enterprise Group segment had no impact on Hewlett Packard Enterprise's previously reported consolidated net revenue, earnings from continuing operations, net earnings from continuing operations or net earnings per share from continuing operations.

(b) Represents adjustment to net periodic pension cost resulting from remeasurements of the Hewlett Packard Enterprise pension plans in connection with the spin-off of the software business, Seattle SpinCo, Inc., and the merger of Seattle SpinCo, Inc. with Micro Focus International plc and the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation.

(c) Represents the Companys ownership interest in the net earnings of equity method investments, primarily H3C.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)

 

 

Nine Months Ended July 31,

 

2017

2016

Net revenue:(a)

   

Enterprise Group

$ 19,359

$ 20,956

Software

2,124

2,292

Financial Services

2,592

2,376

Corporate Investments

 

533

Total segment net revenue

24,075

26,157

Elimination of intersegment net revenue and other

(865)

(1,111)

Total Hewlett Packard Enterprise consolidated net revenue

$ 23,210

$ 25,046

     

Earnings from continuing operations before taxes:(a)

   

Enterprise Group

1,984

$ 2,660

Software

514

459

Financial Services

226

253

Corporate Investments

(115)

(176)

Total segment earnings from operations

2,609

3,196

     

Corporate and unallocated costs and eliminations

(220)

(430)

Stock-based compensation expense

(316)

(330)

Amortization of intangible assets

(340)

(331)

Restructuring charges

(399)

(346)

Transformation costs

(31)

 

Acquisition and other related charges

(151)

(114)

Separation costs

(412)

(246)

Defined benefit plan settlement charges and remeasurement (benefit)(b)

45

 

Gain on H3C divestiture

 

2,169

Interest and other, net

(260)

(195)

Tax indemnification adjustments

(1)

6

Loss from equity interests(c)

(24)

(72)

Total Hewlett Packard Enterprise consolidated earnings from continuing operations before taxes

$ 500

$ 3,307

 

(a) As of April 1, 2017, with the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation, the Company reclassified the historical net (loss) earnings from the former enterprise services segment ("former ES segment"), to Net (loss) earnings from discontinued operations in its Condensed Consolidated Statements of Earnings.

Effective at the beginning of the first quarter of fiscal 2017, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes resulted in: (i) within the Enterprise Group segment, primarily, the transfer of the big data storage product group previously reported within the Servers business unit to the Storage business unit; the transfer of the Aruba services capabilities previously reported within the Networking business unit to the Technology Services business unit; and (ii) the transfer of the CMS product group previously reported within the former ES segment to the Technology Services business unit within the Enterprise Group segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which resulted in: (i)within the Enterprise Group segment, primarily, the transfer of net revenue from the big data storage product group previously reported within the Servers business unit to the Storage business unit; the transfer of net revenue from the Aruba services capabilities previously reported within the Networking business unit to the Technology Services business unit; and (ii) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the CMS product group previously reported within the former ES segment to the Technology Services business unit within the Enterprise Group segment.

Effective at the beginning of the second quarter of fiscal 2017 and prior to the completion of the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation, the Company transferred historical net revenue and operating profit from the previously divested MphasiS product group which was reported within the former ES segment to the Corporate Investments segment.

The changes within the Enterprise Group segment had no impact on Hewlett Packard Enterprises previously reported Enterprise Group segment net revenue and earnings from operations. The change between former ES segment and the Enterprise Group segment had no impact on Hewlett Packard Enterprise's previously reported consolidated net revenue, earnings from continuing operations, net earnings from continuing operations or net earnings per share from continuing operations.

(b) Represents adjustment to net periodic pension cost resulting from remeasurements of the Hewlett Packard Enterprise pension plans in connection with the spin-off of the software business, Seattle SpinCo, Inc., and the merger of Seattle SpinCo, Inc. with Micro Focus International plc and the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation.

(c) Represents the Company's ownership interest in the net earnings of equity method investments, primarily H3C.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
SEGMENT/BUSINESS UNIT INFORMATION
(Unaudited)
(In millions, except percentages)

 

 

Three months ended

Change (%)

 

July 31,
2017

April 30,
2017

July 31,
2016

Q/Q

Y/Y

Net revenue:(a)

         

Enterprise Group

         

Servers

$ 3,298

$ 2,991

$ 3,316

10%

(1%)

Technology Services

1,947

1,971

1,933

(1%)

1%

Storage

844

699

763

21%

11%

Networking

702

582

603

21%

16%

Total Enterprise Group

6,791

6,243

6,615

9%

3%

           

Software

718

685

738

5%

(3%)

Financial Services

897

872

812

3%

10%

Corporate Investments

   

185

 

(100%)

Total segment net revenue

8,406

7,800

8,350

8%

1%

           

Elimination of intersegment net revenue and other

(197)

(355)

(345)

(45%)

(43%)

Total Hewlett Packard Enterprise consolidated net revenue

$ 8,209

$ 7,445

$ 8,005

10%

3%

 

(a) As of April 1, 2017, with the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation, the Company reclassified the historical net (loss) earnings from the former enterprise services segment ("former ES segment"), to Net (loss) earnings from discontinued operations in its Condensed Consolidated Statements of Earnings.

Effective at the beginning of the first quarter of fiscal 2017, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes resulted in: (i) within the Enterprise Group segment, primarily, the transfer of the big data storage product group previously reported within the Servers business unit to the Storage business unit; the transfer of the Aruba services capabilities previously reported within the Networking business unit to the Technology Services business unit; and (ii) the transfer of the CMS product group previously reported within the former ES segment to the Technology Services business unit within the Enterprise Group segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which resulted in: (i)within the Enterprise Group segment, primarily, the transfer of net revenue from the big data storage product group previously reported within the Servers business unit to the Storage business unit; the transfer of net revenue from the Aruba services capabilities previously reported within the Networking business unit to the Technology Services business unit; and (ii) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the CMS product group previously reported within the former ES segment to the Technology Services business unit within the Enterprise Group segment.

Effective at the beginning of the second quarter of fiscal 2017 and prior to the completion of the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation, the Company transferred historical net revenue and operating profit from the previously divested MphasiS product group which was reported within the former ES segment to the Corporate Investments segment.

The changes within the Enterprise Group segment had no impact on Hewlett Packard Enterprises previously reported Enterprise Group segment net revenue and earnings from operations. The change between former ES segment and the Enterprise Group segment had no impact on Hewlett Packard Enterprise's previously reported consolidated net revenue, earnings from continuing operations, net earnings from continuing operations or net earnings per share from continuing operations.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
SEGMENT/BUSINESS UNIT INFORMATION
(Unaudited)
(In millions, except percentages)

 

 

Nine Months Ended July 31,

Change (%)

 

2017

2016

Y/Y

Net revenue:(a)

     

Enterprise Group

     

Servers

$ 9,392

$ 10,350

(9%)

Technology Services

5,861

5,937

(1%)

Storage

2,273

2,408

(6%)

Networking

1,833

2,261

(19%)

Total Enterprise Group

19,359

20,956

(8%)

       

Software

2,124

2,292

(7%)

Financial Services

2,592

2,376

9%

Corporate Investments

 

533

(100%)

Total segment net revenue

24,075

26,157

(8%)

       

Elimination of intersegment net revenue and other

(865)

(1,111)

(22%)

Total Hewlett Packard Enterprise consolidated net revenue

$ 23,210

$ 25,046

(7%)

 

(a) As of April 1, 2017, with the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation, the Company reclassified the historical net (loss) earnings from the former enterprise services segment ("former ES segment"), to Net (loss) earnings from discontinued operations in its Condensed Consolidated Statements of Earnings.

Effective at the beginning of the first quarter of fiscal 2017, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes resulted in: (i) within the Enterprise Group segment, primarily, the transfer of the big data storage product group previously reported within the Servers business unit to the Storage business unit; the transfer of the Aruba services capabilities previously reported within the Networking business unit to the Technology Services business unit; and (ii) the transfer of the CMS product group previously reported within the former ES segment to the Technology Services business unit within the Enterprise Group segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which resulted in: (i)within the Enterprise Group segment, primarily, the transfer of net revenue from the big data storage product group previously reported within the Servers business unit to the Storage business unit; the transfer of net revenue from the Aruba services capabilities previously reported within the Networking business unit to the Technology Services business unit; and (ii) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the CMS product group previously reported within the former ES segment to the Technology Services business unit within the Enterprise Group segment.

Effective at the beginning of the second quarter of fiscal 2017 and prior to the completion of the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation, the Company transferred historical net revenue and operating profit from the previously divested MphasiS product group which was reported within the former ES segment to the Corporate Investments segment.

The changes within the Enterprise Group segment had no impact on Hewlett Packard Enterprises previously reported Enterprise Group segment net revenue and earnings from operations. The change between former ES segment and the Enterprise Group segment had no impact on Hewlett Packard Enterprise's previously reported consolidated net revenue, earnings from continuing operations, net earnings from continuing operations or net earnings per share from continuing operations.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
SEGMENT OPERATING MARGIN SUMMARY DATA
(Unaudited)

 

 

Three months
ended

Change in Operating
Margin (pts)

 

July 31, 2017

Q/Q

Y/Y

Segment operating margin:(a)

     

Enterprise Group

9.3%

0.5 pts

(3.5) pts

Software

24.9%

(1.5) pts

7.1 pts

Financial Services

7.8%

(1.1) pts

(2.1) pts

Corporate Investments(b)

NM

NM

NM

Total segment operating margin

10.1%

0.2 pts

(2.1) pts

 

(a) As of April 1, 2017, with the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation, the Company reclassified the historical net (loss) earnings from the former enterprise services segment ("former ES segment"), to Net (loss) earnings from discontinued operations in its Condensed Consolidated Statements of Earnings.

Effective at the beginning of the first quarter of fiscal 2017, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes resulted in: (i) within the Enterprise Group segment, primarily, the transfer of the big data storage product group previously reported within the Servers business unit to the Storage business unit; the transfer of the Aruba services capabilities previously reported within the Networking business unit to the Technology Services business unit; and (ii) the transfer of the CMS product group previously reported within the former ES segment to the Technology Services business unit within the Enterprise Group segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which resulted in: (i)within the Enterprise Group segment, primarily, the transfer of net revenue from the big data storage product group previously reported within the Servers business unit to the Storage business unit; the transfer of net revenue from the Aruba services capabilities previously reported within the Networking business unit to the Technology Services business unit; and (ii) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the CMS product group previously reported within the former ES segment to the Technology Services business unit within the Enterprise Group segment.

Effective at the beginning of the second quarter of fiscal 2017 and prior to the completion of the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation, the Company transferred historical net revenue and operating profit from the previously divested MphasiS product group which was reported within the former ES segment to the Corporate Investments segment.

The changes within the Enterprise Group segment had no impact on Hewlett Packard Enterprises previously reported Enterprise Group segment net revenue and earnings from operations. The change between former ES segment and the Enterprise Group segment had no impact on Hewlett Packard Enterprise's previously reported consolidated net revenue, earnings from continuing operations, net earnings from continuing operations or net earnings per share from continuing operations.

(b) "NM" represents not meaningful.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET (LOSS) EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts)

 

 

Three months ended

 

July 31,
2017

April 30,
2017

July 31,
2016

Numerator:

     

GAAP net earnings (loss) from continuing operations

$ 248

$ (487)

$ 2,457

GAAP net loss from discontinued operations

$ (83)

$ (125)

$ (185)

Non-GAAP net earnings from continuing operations

$ 517

$ 416

$ 683

Non-GAAP net (loss) earnings from discontinued operations

$ (20)

$ 171

$ 157

       

Denominator:

     

Weighted-average shares used to compute basic net earnings (loss) per share and diluted net (loss) per share

1,641

1,658

1,681

Dilutive effect of employee stock plans(a)

26

27

34

Weighted-average shares used to compute diluted net earnings per share

1,667

1,685

1,715

       

GAAP net earnings (loss) per share from continuing operations

     

Basic

$ 0.15

$ (0.29)

$ 1.46

Diluted(a)

$ 0.15

$ (0.29)

$ 1.43

       

GAAP net loss per share from discontinued operations

     

Basic

$ (0.05)

$ (0.08)

$ (0.11)

Diluted(a)

$ (0.05)

$ (0.08)

$ (0.11)

       

Non-GAAP net earnings per share from continuing operations

     

Basic

$ 0.32

$ 0.25

$ 0.41

Diluted(b)

$ 0.31

$ 0.25

$ 0.40

       

Non-GAAP net (loss) earnings per share from discontinued operations

     

Basic

$ (0.02)

$ 0.10

$ 0.09

Diluted(b)

$ (0.01)

$ 0.10

$ 0.09

       

Total Hewlett Packard Enterprise GAAP basic net earnings (loss) per share

$ 0.10

$ (0.37)

$ 1.35

Total Hewlett Packard Enterprise GAAP diluted net earnings (loss) per share

$ 0.10

$ (0.37)

$ 1.32

Total Hewlett Packard Enterprise Non-GAAP basic net earnings per share

$ 0.30

$ 0.35

$ 0.50

Total Hewlett Packard Enterprise Non-GAAP diluted net earnings per share

$ 0.30

$ 0.35

$ 0.49

 

(a) GAAP diluted net earnings per share reflects any dilutive effect of restricted stock awards, stock options and performance-based awards, but the effect is excluded when there is a net (loss) from continuing operations because it would be anti-dilutive.

(b) Non-GAAP diluted net earnings per share reflects any dilutive effect of restricted stock awards, stock options and performance-based awards.

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET (LOSS) EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts)

 

 

Nine Months Ended July 31,

 

2017

2016

Numerator:

   

GAAP net earnings from continuing operations

$ 16

$ 3,141

GAAP net loss from discontinued operations

$ (196)

$ (282)

Non-GAAP net earnings from continuing operations

$ 1,514

$ 1,889

Non-GAAP net earnings from discontinued operations

$ 342

$ 413

     

Denominator:

   

Weighted-average shares used to compute basic net (loss) earnings per share and diluted net (loss) per share

1,656

1,722

Dilutive effect of employee stock plans(a)

27

26

Weighted-average shares used to compute diluted net earnings per share

1,683

1,748

     

GAAP net earnings per share from continuing operations

   

Basic

$ 0.01

$ 1.82

Diluted(a)

$ 0.01

$ 1.80

     

GAAP net loss per share from discontinued operations

   

Basic

$ (0.12)

$ (0.16)

Diluted(a)

$ (0.12)

$ (0.16)

     

Non-GAAP net earnings per share from continuing operations

   

Basic

$

0.91

$

1.10

Diluted(b)

$ 0.90

$ 1.08

     

Non-GAAP net earnings per share from discontinued operations

   

Basic

$ 0.21

$ 0.24

Diluted(b)

$ 0.20

$ 0.24

     

Total Hewlett Packard Enterprise GAAP basic net (loss) earnings per share

$ (0.11)

$ 1.66

Total Hewlett Packard Enterprise GAAP diluted net (loss) earnings per share

$ (0.11)

$ 1.64

Total Hewlett Packard Enterprise Non-GAAP basic net earnings per share

$ 1.12

$ 1.34

Total Hewlett Packard Enterprise Non-GAAP diluted net earnings per share

$ 1.10

$ 1.32

 

(a) GAAP diluted net earnings per share reflects any dilutive effect of restricted stock awards, stock options and performance-based awards, but the effect is excluded when there is a net (loss) from continuing operations because it would be anti-dilutive.

(b) Non-GAAP diluted net earnings per share reflects any dilutive effect of restricted stock awards, stock options and performance-based awards.

Use of non-GAAP financial measures
To supplement Hewlett Packard Enterprises condensed and consolidated financial statement information presented on a GAAP basis, Hewlett Packard Enterprise provides revenue on a constant currency basis, revenue adjusted for divestitures and currency, non-GAAP operating expenses, non-GAAP operating profit, non-GAAP operating margin, non-GAAP income tax rate, non-GAAP net earnings from continuing operations, non-GAAP net (loss) earnings from discontinued operations, non-GAAP diluted net earnings per share from continuing operations, non-GAAP diluted net (loss) earnings per share from discontinued operations, gross cash, free cash flow, normalized free cash flow, net capital expenditures, net debt, net cash, operating company net debt, operating company net cash and adjusted operating company net cash financial measures. Hewlett Packard Enterprise also provides forecasts of non-GAAP diluted net earnings per share and free cash flow.

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 revenue adjusted for divestitures and currency is revenue. The GAAP measure most directly comparable to non-GAAP operating expense is total costs and expenses. 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 income tax rate is income tax rate. The GAAP measure most directly comparable to non-GAAP net earnings from continuing operations is net (loss) earnings from continuing operations. The GAAP measure most directly comparable to non-GAAP net (loss) earnings from discontinued operations is net (loss) earnings from discontinued operations. The GAAP measure most directly comparable to non-GAAP diluted net earnings per share from continuing operations is diluted net (loss) earnings per share from continuing operations. The GAAP measure most directly comparable to non-GAAP diluted net (loss) earnings per share from discontinued operations is diluted net (loss) earnings per share from discontinued operations. 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 normalized free cash flow is cash flow from operations. The GAAP measure most directly comparable to net capital expenditures is investment in property, plant and equipment. 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, operating company net cash and adjusted 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 Hewlett Packard Enterprise
Revenue on a constant currency basis assumes no change in the foreign exchange rate from the prior-year period. Revenue from continuing operations adjusted for divestitures and currency excludes revenue resulting from businesses divestitures in fiscal 2017, 2016 and 2015 and also assumes no change in the foreign exchange rate from the prior-year period. Non-GAAP operating expenses, non-GAAP operating profit, and non-GAAP operating margin are defined to exclude the effects of a gain on the MphasiS and H3C divestitures and any charges relating to the amortization of intangible assets, restructuring charges, charges relating to the separation and divestiture transactions, transformation costs, acquisition and other related charges and defined benefit plan settlement and remeasurement charges. Non-GAAP net earnings from continuing operations and non-GAAP diluted net earnings per share from continuing operations consist of net (loss) earnings or diluted net (loss) earnings per share excluding those same charges and tax valuation allowances and divestiture taxes, adjustments to loss from equity interest, tax indemnification adjustments and tax settlements. Non-GAAP net (loss) earnings from discontinued operations and non-GAAP diluted net (loss) earnings per share from discontinued operations consist of net (loss) earnings from discontinued operations or diluted net (loss) earnings per share from discontinued operations excluding those same charges, as applicable to discontinued operations. In addition, non-GAAP net earnings from continuing operations, non-GAAP net (loss) earnings from discontinued operations, non-GAAP diluted net earnings per share from continuing operations and non-GAAP diluted net (loss) earnings per share from discontinued operations are adjusted by the amount of additional taxes or tax benefits associated with each non-GAAP item. Hewlett Packard Enterprises management uses these non-GAAP financial measures for purposes of evaluating Hewlett Packard Enterprises historical and prospective financial performance, as well as Hewlett Packard Enterprises performance relative to its competitors. Hewlett Packard Enterprises management also uses these non-GAAP measures to further its own understanding of Hewlett Packard Enterprises segment operating performance. Hewlett Packard Enterprise believes that excluding the items mentioned above from these non-GAAP financial measures allows Hewlett Packard Enterprises management to better understand Hewlett Packard Enterprises consolidated financial performance in relation to the operating results of Hewlett Packard Enterprises segments, as Hewlett Packard Enterprise's management does not believe that the excluded items are reflective of ongoing operating results. More specifically, Hewlett Packard Enterprises management excludes each of those items mentioned above for the following reasons:

 

  • Hewlett Packard Enterprise recorded a gain on the sale of its assets and liabilities identified as part of the H3C and MphasiS transactions during fiscal 2016. Hewlett Packard Enterprise excludes these gains for purposes of calculating these non-GAAP measures because it believes that these one-time gains do not reflect the Companys ongoing operational performance, thereby facilitating a more meaningful evaluation of Hewlett Packard Enterprises current operating performance and comparisons to Hewlett Packard Enterprises operating performance in other periods.
  • Hewlett Packard Enterprise incurs charges relating to the amortization of intangible assets. Those charges are included in Hewlett Packard Enterprises GAAP earnings from operations, operating margin, net (loss) earnings and diluted net (loss) earnings per share. Such charges are significantly impacted by the timing and magnitude of Hewlett Packard Enterprises acquisitions and any related impairment charges. Consequently, Hewlett Packard Enterprise excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of Hewlett Packard Enterprises current operating performance and comparisons to Hewlett Packard Enterprise'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 (ii) costs to vacate duplicative facilities and (iii) an accelerated employee stock compensation program. Hewlett Packard Enterprise 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 Hewlett Packard Enterprises current operating performance or comparisons to Hewlett Packard Enterprise's operating performance in other periods.
  • Separation costs are expenses associated with HPI's (formerly known as "Hewlett-Packard Company" or "HP Co.") separation into two independent publicly-traded companies and the spin-off and merger transactions of the Enterprise Services business with CSC ("Everett Transaction") and the Software business with Micro Focus. The charges are primarily related to third-party consulting, contractor fees, early debt settlement costs, marketing and branding related expenses, and other incremental costs incurred to complete the transactions. Hewlett Packard Enterprise excludes these separation costs for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of Hewlett Packard Enterprises current operating performance and comparisons to Hewlett Packard Enterprises operating performance in other periods.
  • Hewlett Packard Enterprise incurs cost related to its acquisitions and divestitures, 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 Hewlett Packard Enterprises acquisitions and divestitures, Hewlett Packard Enterprise believes that eliminating such expenses for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of Hewlett Packard Enterprises current operating performance and comparisons to Hewlett Packard Enterprises past operating performance.
  • Transformation costs represent strategic costs to simplify, create greater efficiencies, and focus our technical capabilities on our customers' needs and include costs related to the transformation of Hewlett Packard Enterprise's IT infrastructure. Hewlett Packard Enterprise believes that eliminating such expenses for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of Hewlett Packard Enterprise's current operating performance and comparisons to Hewlett Packard Enterprises past operating performance.
  • Adjustments to loss from equity interests includes purchase accounting adjustments and the amortization of the basis difference in relation to the H3C divestiture and the resulting equity method investment in H3C. Hewlett Packard Enterprise believes that eliminating these amounts for purposes of calculating non-GAAP operating profit facilitates a more meaningful evaluation of Hewlett Packard Enterprises current operating performance and comparisons to Hewlett Packard Enterprises operating performance in other periods.
  • Hewlett Packard Enterprise incurs defined benefit plan settlement and remeasurement charges relating to its defined pension plans. The charges are associated with the net settlement resulting from voluntary lump sum payments offered to certain terminated vested participants and remeasurement of plan assets in connection with the Everett Transaction, resulting in a decrease to the net periodic pension expense. Hewlett Packard Enterprise excludes these charges for the purpose of calculating these non- GAAP measures to facilitate a more meaningful evaluation of Hewlett Packard Enterprises current operating performance and comparisons to Hewlett Packard Enterprise's operating performance in other periods.
  • Tax indemnification adjustments are related to changes in the indemnification positions between Hewlett Packard Enterprise and HPI that are recorded by the Company as pre-tax income or expense and not considered tax expense. Hewlett Packard Enterprise excludes these charges for the purpose of calculating these non-GAAP measures to facilitate a more meaningful evaluation of Hewlett Packard Enterprises current operating performance and comparisons to Hewlett Packard Enterprise's operating performance in other periods.
  • Tax settlements represent settlements of certain pre-Separation Hewlett-Packard Company income tax liabilities shared with HP Inc. through the Tax Matters Agreement. The Company excluded this charge for the purpose of calculation non-GAAP measures to facilitate a more meaningful evaluation of Hewlett Packard Enterprises current operating performance and comparisons to Hewlett Packard Enterprise's operating performance in other periods.
  • As a result of the Everett Transaction, a full valuation allowance was recorded on U.S. state deferred tax assets, which resulted from the removal of Everett entities. As a result, the Company has a 3 year cumulative loss position and insufficient future earnings to be able to realize these deferred tax assets. There are additional taxes related to the Everett Transaction that was recorded upon the spinoff, as well as provision to return adjustments related to business divestitures in the prior period. Since these charges do not represent ongoing expenses, Hewlett Packard Enterprise excludes these charges for the purpose of calculating these non-GAAP measures to facilitate a more meaningful evaluation of Hewlett Packard Enterprises current operating performance and comparisons to Hewlett Packard Enterprise's operating performance in other periods.

 

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 Hewlett Packard Enterprises 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 Hewlett Packard Enterprises 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 expenses, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings from continuing operations, non-GAAP net (loss) earnings from discontinued operations, non- GAAP diluted net earnings per share from continuing operations and non- GAAP diluted net (loss) earnings per share from discontinued operations, and therefore does not reflect the full economic effect of the loss in value of those intangible assets.
  • Items such as restructuring charges, separation costs and transformation costs that are excluded from non-GAAP operating expenses, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings from continuing operations, non- GAAP net (loss) earnings from discontinued operations, non-GAAP diluted net earnings per share from continuing operations and non-GAAP diluted net (loss) earnings per share from discontinued operations can have a material impact on the equivalent GAAP earnings measure and cash flows.
  • Hewlett Packard Enterprise 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 from continuing operations, non-GAAP net (loss) earnings from discontinued operations, non-GAAP diluted net earnings per share from continuing operations and non-GAAP diluted net (loss) earnings per share from discontinued operations differently than Hewlett Packard Enterprise does, limiting the usefulness of those measures for comparative purposes.

 

Compensation for limitations associated with use of non-GAAP financial measures
Hewlett Packard Enterprise 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 as supplement. Hewlett Packard Enterprise also provides a reconciliation 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 Hewlett Packard Enterprise encourages investors to review carefully those reconciliations.

Usefulness of non-GAAP financial measures to investors
Hewlett Packard Enterprise believes that providing revenue on a constant currency basis, revenue adjusted for divestitures and currency, non-GAAP operating expenses, non-GAAP operating profit, non-GAAP operating margin, non-GAAP income tax rate, non-GAAP net earnings from continuing operations, non-GAAP net (loss) earnings from discontinued operations, non-GAAP diluted net earnings per share from continuing operations and non-GAAP diluted net (loss) earnings per share from discontinued operations, gross cash, free cash flow, normalized free cash flow, net capital expenditures, net debt, net cash, operating company net debt and operating company net cash financial measures to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by Hewlett Packard Enterprise's management in its financial and operational decision making and allows investors to see Hewlett Packard Enterprises results "through the eyes" of management. Hewlett Packard Enterprise further believes that providing this information better enables Hewlett Packard Enterprises investors to understand Hewlett Packard Enterprises operating performance and to evaluate the efficacy of the methodology and information used by Hewlett Packard Enterprises management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of Hewlett Packard Enterprises operating performance with the performance of other companies in Hewlett Packard Enterprise's industry that supplement their GAAP results with non-GAAP financial measures that may be calculated in a similar manner.

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