HP (NYSE:HPQ)
● |
Fiscal 2017 GAAP
diluted net earnings per share from continuing operations of $1.48,
within the previously provided outlook of $1.46 to $1.50 per
share |
● |
Fiscal 2017 non-GAAP
diluted net earnings per share of $1.65, within the previously
provided outlook of $1.63 to $1.66 per share |
● |
Fiscal 2017 net revenue
of $52.1 billion, up 8% (up 9% in constant currency) from the
prior-year period |
● |
Fiscal 2017 net cash
provided by operating activities of $3.7 billion |
● |
Fiscal 2017 returned
$2.3 billion to shareholders in the form of share repurchases and
dividends |
● |
Fourth quarter GAAP
diluted net earnings per share from continuing operations of $0.39,
within the previously provided outlook of $0.37 to $0.41 per
share |
● |
Fourth quarter non-GAAP
diluted net earnings per share of $0.44, within the previously
provided outlook of $0.42 to $0.45 per share |
● |
Fourth quarter net
revenue of $13.9 billion, up 11% (up 12% in constant currency) from
the prior-year period |
● |
Fourth quarter net cash
provided by operating activities of $0.7 billion |
● |
Fourth quarter returned
$722 million to shareholders in the form of share repurchases and
dividends |
|
HP
Inc.'s fiscal 2017 full-year and fourth quarter financial
performance |
|
|
FY17 |
|
|
|
|
FY16 |
|
|
|
Y/Y |
|
|
|
Q4 FY17 |
|
|
|
|
Q4 FY16 |
|
|
|
Y/Y |
|
GAAP net revenue
($B) |
$ |
52.1 |
|
|
$ |
48.2 |
|
|
8% |
|
|
$ |
13.9 |
|
|
$ |
12.5 |
|
|
11% |
|
GAAP operating margin
from continuing operations |
|
6.8% |
|
|
|
|
7.4% |
|
|
|
(0.6)
pts |
|
|
|
6.4% |
|
|
|
|
5.3% |
|
|
|
1.1
pts |
|
GAAP net earnings from
continuing operations ($B) |
$ |
2.5 |
|
|
$ |
2.7 |
|
|
(5)% |
|
|
$ |
0.7 |
|
|
$ |
0.5 |
|
|
29% |
|
GAAP diluted net
earnings per share from continuing operations |
$ |
1.48 |
|
|
$ |
1.53 |
|
|
(3)% |
|
|
$ |
0.39 |
|
|
$ |
0.30 |
|
|
30% |
|
Non-GAAP operating
margin |
|
7.4% |
|
|
|
|
7.9% |
|
|
|
(0.5)
pts |
|
|
|
7.3% |
|
|
|
|
7.0% |
|
|
|
0.3
pts |
|
Non-GAAP net earnings
($B) |
$ |
2.8 |
|
|
$ |
2.8 |
|
|
1% |
|
|
$ |
0.7 |
|
|
$ |
0.6 |
|
|
22% |
|
Non-GAAP diluted net
earnings per share |
$ |
1.65 |
|
|
$ |
1.60 |
|
|
3% |
|
|
$ |
0.44 |
|
|
$ |
0.36 |
|
|
22% |
|
Net cash provided by
operating activities ($B) |
$ |
3.7 |
|
|
$ |
3.3 |
|
|
13% |
|
|
$ |
0.7 |
|
|
$ |
0.7 |
|
|
(3)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to tableInformation about HP Inc.'s use of non-GAAP
financial information is provided under "Use of non-GAAP financial
information" below.
Net revenue and EPS resultsHP Inc. (“HP”)
announced fiscal 2017 net revenue of $52.1 billion, up 8% as
reported and up 9% in constant currency from the prior-year
period.
Fiscal 2017 GAAP diluted net earnings per share (“EPS”) from
continuing operations was $1.48, down from $1.53 in the prior-year
period and within the previously provided outlook of $1.46 to
$1.50. Fiscal 2017 non-GAAP diluted net EPS was $1.65, up from
$1.60 in the prior-year period and within the previously provided
outlook of $1.63 to $1.66. Fiscal 2017 non-GAAP net earnings and
non-GAAP diluted net EPS exclude after-tax adjustments of $289
million, or $0.17 per share, related to restructuring and other
charges, acquisition-related charges, defined benefit plan
settlement charges, amortization of intangible assets,
non-operating retirement-related credits/(charges) and net tax
indemnification amounts.
Fourth quarter net revenue was $13.9 billion, up 11% (up 12% in
constant currency) from the prior-year period.
Fourth quarter GAAP diluted net EPS from continuing operations
was $0.39, up from $0.30 in the prior-year period and within the
previously provided outlook of $0.37 to $0.41. Fourth quarter
non-GAAP diluted net EPS was $0.44, up from $0.36 in the prior-year
period and within the previously provided outlook of $0.42 to
$0.45. Fourth quarter non-GAAP net earnings and non-GAAP diluted
net EPS exclude after-tax adjustments of $89 million, or $0.05 per
share, related to restructuring and other charges,
acquisition-related charges, defined benefit plan settlement
charges, amortization of intangible assets, non-operating
retirement-related credits/(charges) and net tax indemnification
amounts.
“Our results demonstrate that HP is strong and getting
stronger,” said Dion Weisler, President and CEO, HP Inc. “We posted
top-line growth across both Personal Systems and Print, with
broad-based, double-digit growth in all three regions, while also
growing operating profit and non-GAAP EPS year-over-year.”
Asset managementHP’s net cash provided by
operating activities in the fourth quarter was $0.7 billion.
Accounts receivable ended the quarter at $4.4 billion, flat quarter
over quarter at 29 days. Inventory ended the quarter at $5.8
billion, up 2 days quarter over quarter to 46 days. Accounts
payable ended the quarter at $13.3 billion, down 3 days quarter
over quarter to 105 days.
HP’s dividend payment of $0.1327 per share in the fourth quarter
resulted in cash usage of $0.2 billion. HP also utilized $0.5
billion of cash during the quarter to repurchase approximately 24.4
million shares of common stock in the open market. HP exited the
quarter with $8.1 billion in gross cash, which includes cash and
cash equivalents and short-term investments of $1.1 billion
included in other current assets.
HP generated $3.7 billion in net cash provided by operating
activities and $3.3 billion of free cash flow in fiscal 2017. Free
cash flow includes net cash provided by operating activities and
net investments in property, plant and equipment of $0.4 billion.
HP utilized approximately $1.4 billion of cash during fiscal 2017
to repurchase approximately 80 million shares of common stock in
the open market. When combined with the almost $0.9 billion of cash
used to pay dividends in fiscal 2017, HP returned 69% of its free
cash flow to shareholders in fiscal 2017.
Fiscal 2017 fourth quarter segment results
- Personal Systems net revenue was up 13% year over year (up 14%
in constant currency) with a 3.8% operating margin. Commercial net
revenue increased 11% and Consumer net revenue increased 18%. Total
units were up 6% with Notebooks units up 8% and Desktops units up
2%.
- Printing net revenue was up 7% year over year (up 7% in
constant currency) with a 16.6% operating margin. Total hardware
units were up 3% with Commercial hardware units flat and Consumer
hardware units up 3%. Supplies net revenue was up 10% (up 11% in
constant currency).
OutlookFor the fiscal 2018 first quarter, HP
estimates GAAP diluted net EPS from continuing operations to be in
the range of $0.38 to $0.42 and non-GAAP diluted net EPS to be in
the range of $0.40 to $0.43. Fiscal 2018 first quarter
non-GAAP diluted net EPS estimates exclude $0.01 to $0.02 per
diluted share, primarily related to restructuring and other
charges, acquisition-related charges, defined benefit plan
settlement charges, amortization of intangible assets,
non-operating retirement-related credits/(charges), net tax
indemnifications, net valuation allowances and discontinued
operations.
For fiscal 2018, HP raises estimates for GAAP diluted net EPS
from continuing operations to be in the range of $1.70 to $1.80 and
non-GAAP diluted net EPS to be in the range of $1.75 to
$1.85. Fiscal 2018 non-GAAP diluted net EPS estimates exclude
$0.05 per diluted share, primarily related to restructuring and
other charges, acquisition-related charges, defined benefit plan
settlement charges, amortization of intangible assets,
non-operating retirement-related credits/(charges), net tax
indemnifications, net valuation allowances and discontinued
operations.
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 FY17 Q4 earnings conference call is accessible via an audio
webcast at www.hp.com/investor/2017Q4Webcast.
About HP Inc.HP Inc. creates technology that
makes life better for everyone, everywhere. Through our portfolio
of printers, PCs, mobile devices, solutions, and services, we
engineer experiences that amaze. More information about HP Inc.
(NYSE: HPQ) is available at http://www.hp.com.
Use of non-GAAP financial informationTo
supplement HP’s consolidated condensed financial statements
presented on a generally accepted accounting principles (“GAAP”)
basis, HP provides net revenue on a constant currency basis,
non-GAAP total operating expense, non-GAAP operating margin,
non-GAAP tax rate, non-GAAP net earnings, non-GAAP diluted net EPS,
free cash flow, gross cash and net cash (debt) financial measures.
HP also provides forecasts of non-GAAP diluted net EPS. A
reconciliation of the adjustments to GAAP results for this quarter
and prior periods is included in the tables below or elsewhere in
the materials accompanying this news release. In addition, an
explanation of the ways in which HP’s management uses these
non-GAAP measures to evaluate its business, the substance behind
HP’s decision to use these non-GAAP measures, the material
limitations associated with the use of these non-GAAP measures, the
manner in which HP’s management compensates for those limitations,
and the substantive reasons why HP’s management believes that these
non-GAAP measures provide useful information to investors is
included under “Use of non-GAAP financial measures” after the
tables below. This additional non-GAAP financial information is not
meant to be considered in isolation or as a substitute for net
revenue, operating profit from continuing operations, operating
margin from continuing operations, net earnings from continuing
operations, diluted net EPS from continuing operations or cash and
cash equivalents prepared in accordance with GAAP.
Forward-looking statementsThis 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
and its consolidated subsidiaries 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 net revenue,
margins, expenses, effective tax rates, net earnings, net EPS, cash
flows, benefit plan funding, deferred taxes, share repurchases,
foreign currency exchange rates or other financial items; any
projections of the amount, timing or impact of cost savings or
restructuring and other charges; any statements of the plans,
strategies and objectives of management for future operations,
including the execution of the restructuring plans and any
resulting cost savings, net 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, including with respect to the timing and expected
benefits of acquisitions and other business combination and
investment transactions; and any statements of assumptions
underlying any of the foregoing.
Risks, uncertainties and assumptions include the need to address
the many challenges facing HP’s businesses; the competitive
pressures faced by HP’s businesses; risks associated with executing
HP’s strategy; the impact of macroeconomic and geopolitical trends
and events; the need to manage third-party suppliers and the
distribution of HP’s products and the delivery of HP’s services
effectively; the protection of HP’s intellectual property assets,
including intellectual property licensed from third parties; risks
associated with HP’s international operations; the development and
transition of new products and services and the enhancement of
existing products and services to meet customer needs and respond
to emerging technological trends; the execution and performance of
contracts by HP and its suppliers, customers, clients and partners;
the hiring and retention of key employees; integration and other
risks associated with business combination and investment
transactions; the results of the restructuring plans, including
estimates and assumptions related to the cost (including any
possible disruption of HP’s business) and the anticipated benefits
of the 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, 2016, and HP’s other filings with the Securities
and Exchange Commission.
As in prior periods, the financial information set forth in this
release, including any 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 Annual Report on Form 10-K for the
fiscal year ended October 31, 2017 and HP’s other filings with the
Securities and Exchange Commission. HP assumes no obligation and
does not intend to update these forward-looking statements. HP’s
Investor Relations website at www.hp.com/investor/home contains a
significant amount of information about HP, including financial and
other information for investors. HP encourages investors to visit
its website from time to time, as information is updated and new
information is posted.
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED
STATEMENTS OF EARNINGS(Unaudited)(In millions, except per share
amounts) |
|
|
|
Three months ended |
|
October 31, 2017 |
|
July 31, 2017 |
|
October 31, 2016 |
Net revenue |
$ |
13,927 |
|
|
$ |
13,060 |
|
|
$ |
12,512 |
|
Costs and
expenses: |
|
|
|
|
|
Cost of
revenue |
11,407 |
|
|
10,633 |
|
|
10,221 |
|
Research
and development |
291 |
|
|
289 |
|
|
318 |
|
Selling,
general and administrative |
1,176 |
|
|
1,096 |
|
|
1,075 |
|
Restructuring and other charges |
113 |
|
|
46 |
|
|
49 |
|
Acquisition-related charges |
49 |
|
|
40 |
|
|
7 |
|
Defined
benefit plan settlement charges |
1 |
|
|
1 |
|
|
179 |
|
Total
costs and expenses |
13,037 |
|
|
12,105 |
|
|
11,849 |
|
|
|
|
|
|
|
Earnings from
continuing operations |
890 |
|
|
955 |
|
|
663 |
|
Interest and other,
net |
(42 |
) |
|
(56 |
) |
|
347 |
|
Earnings from
continuing operations before taxes |
848 |
|
|
899 |
|
|
1,010 |
|
Provision for
taxes |
(188 |
) |
|
(203 |
) |
|
(497 |
) |
Net earnings from
continuing operations |
660 |
|
|
696 |
|
|
513 |
|
Net loss from
discontinued operations |
— |
|
|
— |
|
|
(21 |
) |
Net earnings |
$ |
660 |
|
|
$ |
696 |
|
|
$ |
492 |
|
|
|
|
|
|
|
Net earnings per
share: |
|
|
|
|
|
Basic |
|
|
|
|
|
Continuing operations |
$ |
0.40 |
|
|
$ |
0.41 |
|
|
$ |
0.30 |
|
Discontinued operations |
— |
|
|
— |
|
|
(0.01 |
) |
Total
basic net earnings per share |
$ |
0.40 |
|
|
$ |
0.41 |
|
|
$ |
0.29 |
|
Diluted |
|
|
|
|
|
Continuing operations |
$ |
0.39 |
|
|
$ |
0.41 |
|
|
$ |
0.30 |
|
Discontinued operations |
— |
|
|
— |
|
|
(0.02 |
) |
Total
diluted net earnings per share |
$ |
0.39 |
|
|
$ |
0.41 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
Cash dividends declared
per share |
$ |
— |
|
|
$ |
0.26 |
|
|
$ |
— |
|
|
|
|
|
|
|
Weighted-average shares
used to compute net earnings per share: |
|
|
|
|
|
Basic |
1,670 |
|
|
1,681 |
|
|
1,712 |
|
Diluted |
1,687 |
|
|
1,695 |
|
|
1,729 |
|
|
|
|
|
|
|
|
|
|
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED
STATEMENTS OF EARNINGS(Unaudited)(In millions, except per share
amounts) |
|
|
Twelve months ended Oct 31, |
|
2017 |
|
2016 |
Net revenue |
$ |
52,056 |
|
|
$ |
48,238 |
|
Costs and
expenses: |
|
|
|
Cost of
revenue |
42,478 |
|
|
39,240 |
|
Research
and development |
1,190 |
|
|
1,209 |
|
Selling,
general and administrative |
4,376 |
|
|
3,833 |
|
Restructuring and other charges |
362 |
|
|
205 |
|
Acquisition-related charges |
125 |
|
|
7 |
|
Amortization of intangible assets |
1 |
|
|
16 |
|
Defined
benefit plan settlement charges |
5 |
|
|
179 |
|
Total
costs and expenses |
48,537 |
|
|
44,689 |
|
|
|
|
|
Earnings from
continuing operations |
3,519 |
|
|
3,549 |
|
Interest and other,
net |
(243 |
) |
|
212 |
|
Earnings from
continuing operations before taxes |
3,276 |
|
|
3,761 |
|
Provision for
taxes |
(750 |
) |
|
(1,095 |
) |
Net earnings from
continuing operations |
2,526 |
|
|
2,666 |
|
Net loss from
discontinued operations |
— |
|
|
(170 |
) |
Net earnings |
$ |
2,526 |
|
|
$ |
2,496 |
|
|
|
|
|
Net earnings per
share: |
|
|
|
Basic |
|
|
|
Continuing operations |
$ |
1.50 |
|
|
$ |
1.54 |
|
Discontinued operations |
— |
|
|
(0.10 |
) |
Total
basic net earnings per share |
$ |
1.50 |
|
|
$ |
1.44 |
|
Diluted |
|
|
|
Continuing operations |
$ |
1.48 |
|
|
$ |
1.53 |
|
Discontinued operations |
— |
|
|
(0.10 |
) |
Total diluted net earnings per share |
$ |
1.48 |
|
|
$ |
1.43 |
|
|
|
|
|
Cash dividends declared
per share |
$ |
0.53 |
|
|
$ |
0.50 |
|
|
|
|
|
Weighted-average shares
used to compute net earnings per share: |
|
|
|
Basic |
1,688 |
|
|
1,730 |
|
Diluted |
1,702 |
|
|
1,743 |
|
|
|
|
|
|
|
|
HP INC. AND SUBSIDIARIESADJUSTMENTS 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 October 31,
2017 |
|
Diluted net earnings per share |
|
Three months ended July 31, 2017 |
|
Diluted net earnings per share |
|
Three months ended October 31,
2016 |
|
Diluted net earnings per share |
GAAP net earnings from
continuing operations |
$ |
660 |
|
|
$ |
0.39 |
|
|
$ |
696 |
|
|
$ |
0.41 |
|
|
$ |
513 |
|
|
$ |
0.30 |
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other charges |
113 |
|
|
0.06 |
|
|
46 |
|
|
0.03 |
|
|
49 |
|
|
0.03 |
|
Acquisition-related charges |
49 |
|
|
0.03 |
|
|
40 |
|
|
0.02 |
|
|
7 |
|
|
— |
|
Non-operating retirement-related credits |
(34 |
) |
|
(0.02 |
) |
|
(34 |
) |
|
(0.02 |
) |
|
(28 |
) |
|
(0.02 |
) |
Defined
benefit plan settlement charges |
1 |
|
|
— |
|
|
1 |
|
|
— |
|
|
179 |
|
|
0.10 |
|
Tax
indemnification credits |
(23 |
) |
|
(0.01 |
) |
|
(10 |
) |
|
(0.01 |
) |
|
(435 |
) |
|
(0.25 |
) |
Adjustments for taxes |
(17 |
) |
|
(0.01 |
) |
|
(4 |
) |
|
— |
|
|
329 |
|
|
0.20 |
|
Non-GAAP net
earnings |
$ |
749 |
|
|
$ |
0.44 |
|
|
$ |
735 |
|
|
$ |
0.43 |
|
|
$ |
614 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP earnings from
continuing operations |
$ |
890 |
|
|
|
|
$ |
955 |
|
|
|
|
$ |
663 |
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other charges |
113 |
|
|
|
|
46 |
|
|
|
|
49 |
|
|
|
Acquisition-related charges |
49 |
|
|
|
|
40 |
|
|
|
|
7 |
|
|
|
Non-operating retirement-related credits |
(34 |
) |
|
|
|
(34 |
) |
|
|
|
(28 |
) |
|
|
Defined benefit plan settlement charges |
1 |
|
|
|
|
1 |
|
|
|
|
179 |
|
|
|
Non-GAAP earnings |
$ |
1,019 |
|
|
|
|
$ |
1,008 |
|
|
|
|
$ |
870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating margin
from continuing operations |
6 |
% |
|
|
|
7 |
% |
|
|
|
5 |
% |
|
|
Non-GAAP
adjustments |
1 |
% |
|
|
|
1 |
% |
|
|
|
2 |
% |
|
|
Non-GAAP operating
margin |
7 |
% |
|
|
|
8 |
% |
|
|
|
7 |
% |
|
|
|
|
HP INC. AND SUBSIDIARIESADJUSTMENTS TO GAAP NET
EARNINGS, EARNINGS FROM OPERATIONS,OPERATING MARGIN AND DILUTED NET
EARNINGS PER SHARE(Unaudited)(In millions, except per share
amounts) |
|
|
Twelve months ended October 31,
2017 |
|
Diluted net earnings per share |
|
Twelve months ended October 31,
2016 |
|
Diluted net earnings per share |
GAAP net earnings from
continuing operations |
$ |
2,526 |
|
|
$ |
1.48 |
|
|
$ |
2,666 |
|
|
$ |
1.53 |
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
Restructuring and other charges |
362 |
|
|
0.21 |
|
|
205 |
|
|
0.12 |
|
Acquisition-related charges |
125 |
|
|
0.07 |
|
|
7 |
|
|
— |
|
Amortization of intangible assets |
1 |
|
|
— |
|
|
16 |
|
|
0.01 |
|
Non-operating retirement-related credits |
(135 |
) |
|
(0.07 |
) |
|
(146 |
) |
|
(0.08 |
) |
Defined
benefit plan settlement charges |
5 |
|
|
— |
|
|
179 |
|
|
0.10 |
|
Tax
indemnification credits |
(47 |
) |
|
(0.03 |
) |
|
(472 |
) |
|
(0.27 |
) |
Adjustments for taxes |
(22 |
) |
|
(0.01 |
) |
|
332 |
|
|
0.19 |
|
Non-GAAP net
earnings |
$ |
2,815 |
|
|
$ |
1.65 |
|
|
$ |
2,787 |
|
|
$ |
1.60 |
|
|
|
|
|
|
|
|
|
GAAP earnings from
continuing operations |
$ |
3,519 |
|
|
|
|
$ |
3,549 |
|
|
|
Non-GAAP
adjustments: |
|
|
|
|
|
|
|
Restructuring and other charges |
362 |
|
|
|
|
205 |
|
|
|
Acquisition-related charges |
125 |
|
|
|
|
7 |
|
|
|
Amortization of intangible assets |
1 |
|
|
|
|
16 |
|
|
|
Non-operating retirement-related credits |
(135 |
) |
|
|
|
(146 |
) |
|
|
Defined
benefit plan settlement charges |
5 |
|
|
|
|
179 |
|
|
|
Non-GAAP earnings |
$ |
3,877 |
|
|
|
|
$ |
3,810 |
|
|
|
|
|
|
|
|
|
|
|
GAAP operating margin
from continuing operations |
7 |
% |
|
|
|
7 |
% |
|
|
Non-GAAP
adjustments |
0 |
% |
|
|
|
1 |
% |
|
|
Non-GAAP operating
margin |
7 |
% |
|
|
|
8 |
% |
|
|
|
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED
BALANCE SHEETS(Unaudited)(In millions) |
|
|
As of |
|
October 31, 2017 |
|
October 31, 2016 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and
cash equivalents |
$ |
6,997 |
|
|
$ |
6,288 |
|
Accounts
receivable |
4,414 |
|
|
4,114 |
|
Inventory |
5,786 |
|
|
4,484 |
|
Other
current assets |
5,121 |
|
|
3,582 |
|
Total
current assets |
22,318 |
|
|
18,468 |
|
Property, plant and
equipment |
1,878 |
|
|
1,736 |
|
Goodwill |
5,622 |
|
|
5,622 |
|
Other non-current
assets(a) |
3,095 |
|
|
3,161 |
|
Total assets |
$ |
32,913 |
|
|
$ |
28,987 |
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' DEFICIT |
|
|
|
Current
liabilities: |
|
|
|
Notes
payable and short-term borrowings |
$ |
1,072 |
|
|
$ |
78 |
|
Accounts
payable |
13,279 |
|
|
11,103 |
|
Employee
compensation and benefits |
894 |
|
|
759 |
|
Taxes on
earnings |
214 |
|
|
231 |
|
Deferred
revenue |
1,012 |
|
|
919 |
|
Other
accrued liabilities |
5,941 |
|
|
5,718 |
|
Total
current liabilities |
22,412 |
|
|
18,808 |
|
Long-term debt(a) |
6,747 |
|
|
6,735 |
|
Other non-current
liabilities |
7,162 |
|
|
7,333 |
|
Stockholders' deficit |
(3,408 |
) |
|
(3,889 |
) |
Total liabilities and
stockholders' deficit |
$ |
32,913 |
|
|
$ |
28,987 |
|
|
(a) Pursuant to the adoption of Accounting Standard Update
2015-03 "Simplifying the Presentation of Debt Issuance Costs" in Q1
FY17, debt issuance costs has been reclassified from other
non-current assets to long-term debt. The change has been adopted
including prior comparative periods.
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS(Unaudited)(In millions) |
|
|
Three months ended October 31 |
|
2017 |
|
2016 |
Cash flows from
operating activities:(a) |
|
|
|
Net
earnings |
$ |
660 |
|
|
$ |
492 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
Depreciation and amortization |
91 |
|
|
83 |
|
Stock-based compensation expense |
55 |
|
|
42 |
|
Restructuring and other charges |
113 |
|
|
49 |
|
Deferred
taxes on earnings |
(174 |
) |
|
(577 |
) |
Other,
net |
65 |
|
|
258 |
|
Changes
in operating assets and liabilities: |
|
|
|
Accounts
receivable |
(238 |
) |
|
(163 |
) |
Inventory |
(615 |
) |
|
(542 |
) |
Accounts
payable |
423 |
|
|
690 |
|
Taxes on
earnings |
318 |
|
|
983 |
|
Restructuring and other |
(78 |
) |
|
(43 |
) |
Other
assets and liabilities |
60 |
|
|
(568 |
) |
Net cash
provided by operating activities |
680 |
|
|
704 |
|
Cash flows from
investing activities: |
|
|
|
Investment in property, plant and equipment |
(165 |
) |
|
(146 |
) |
Proceeds
from sale of property, plant and equipment |
— |
|
|
6 |
|
Purchases
of available-for-sale securities and other investments |
(362 |
) |
|
(4 |
) |
Maturities and sales of available-for-sale securities and other
investments |
533 |
|
|
— |
|
Payment
made in connection with business acquisitions, net of cash
acquired |
— |
|
|
(7 |
) |
Proceeds
from business divestitures |
— |
|
|
315 |
|
Net cash
provided by investing activities |
6 |
|
|
164 |
|
Cash flows from
financing activities:(a) |
|
|
|
Short-term borrowings with original maturities less than
90 days, net |
(844 |
) |
|
25 |
|
Proceeds
from debt, net of issuance costs |
887 |
|
|
— |
|
Payment
of debt |
(22 |
) |
|
(30 |
) |
Net
proceeds related to stock-based award activities |
45 |
|
|
3 |
|
Repurchase of common stock |
(501 |
) |
|
(2 |
) |
Cash
dividends paid |
(221 |
) |
|
(212 |
) |
Net cash
used in financing activities |
(656 |
) |
|
(216 |
) |
Increase in cash and
cash equivalents |
30 |
|
|
652 |
|
Cash and cash
equivalents at beginning of period |
6,967 |
|
|
5,636 |
|
Cash and cash
equivalents at end of period |
$ |
6,997 |
|
|
$ |
6,288 |
|
|
(a) Pursuant to the adoption of Accounting Standard Update
2016-09 “Improvements to Employee Share-Based Payment Accounting”
in Q1 FY17, excess income tax benefit from stock-based
compensation expense is no longer separated from operating income
tax cash flows and reported as financing activity. In addition,
income taxes paid on shares withheld is now required to be
presented as financing activity as opposed to operating activity.
The change has been adopted including prior comparative
periods.
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS(Unaudited)(In millions) |
|
|
Twelve months ended October 31, |
|
2017 |
|
2016 |
Cash flows from
operating activities:(a) |
|
|
|
Net
earnings |
$ |
2,526 |
|
|
$ |
2,496 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
Depreciation and amortization |
354 |
|
|
332 |
|
Stock-based compensation expense |
224 |
|
|
182 |
|
Restructuring and other charges |
362 |
|
|
200 |
|
Deferred
taxes on earnings |
238 |
|
|
401 |
|
Other,
net |
134 |
|
|
(32 |
) |
Changes
in operating assets and liabilities, net of acquisitions: |
|
|
|
Accounts
receivable |
(453 |
) |
|
565 |
|
Inventory |
(1,346 |
) |
|
(291 |
) |
Accounts
payable |
2,161 |
|
|
928 |
|
Taxes on
earnings |
73 |
|
|
106 |
|
Restructuring and other |
(233 |
) |
|
(157 |
) |
Other
assets and liabilities |
(363 |
) |
|
(1,478 |
) |
Net cash
provided by operating activities |
3,677 |
|
|
3,252 |
|
Cash flows from
investing activities: |
|
|
|
Investment in property, plant and equipment |
(402 |
) |
|
(433 |
) |
Proceeds
from sale of property, plant and equipment |
69 |
|
|
6 |
|
Purchases
of available-for-sale securities and other investments |
(1,919 |
) |
|
(126 |
) |
Maturities and sales of available-for-sale securities and other
investments |
535 |
|
|
133 |
|
Payments
made in connection with business acquisitions, net of cash
acquired |
— |
|
|
(7 |
) |
Proceeds
from business divestitures, net |
— |
|
|
475 |
|
Net cash
(used in) provided by investing activities |
(1,717 |
) |
|
48 |
|
Cash flows from
financing activities:(a) |
|
|
|
Short-term borrowings with original maturities less than 90 days,
net |
202 |
|
|
97 |
|
Proceeds
from debt, net of issuance costs |
892 |
|
|
4 |
|
Payment
of debt |
(87 |
) |
|
(2,188 |
) |
Settlement of cash flow hedge |
(9 |
) |
|
4 |
|
Net
transfer of cash and cash equivalents to Hewlett Packard Enterprise
Company |
— |
|
|
(10,375 |
) |
Net
proceeds (payments) related to stock-based award activities |
57 |
|
|
32 |
|
Repurchase of common stock |
(1,412 |
) |
|
(1,161 |
) |
Cash
dividends paid |
(894 |
) |
|
(858 |
) |
Net cash
used in financing activities |
(1,251 |
) |
|
(14,445 |
) |
Increase (Decrease) in
cash and cash equivalents |
709 |
|
|
(11,145 |
) |
Cash and cash
equivalents at beginning of period |
6,288 |
|
|
17,433 |
|
Cash and cash
equivalents at end of period |
$ |
6,997 |
|
|
$ |
6,288 |
|
(a) Pursuant to the adoption of Accounting Standard Update
2016-09 “Improvements to Employee Share-Based Payment Accounting”
in Q1 FY17, excess income tax benefit from stock-based
compensation expense is no longer separated from operating income
tax cash flows and reported as financing activity. In addition,
income taxes paid on shares withheld is now required to be
presented as financing activity as opposed to operating activity.
The change has been adopted including prior comparative
periods.
|
HP INC. AND SUBSIDIARIESSEGMENT
INFORMATION(Unaudited)(In millions) |
|
|
Three months ended |
|
October 31, 2017 |
|
July 31, 2017 |
|
October 31, 2016 |
Net revenue:(a) |
|
|
|
|
|
Personal
Systems |
$ |
9,084 |
|
|
$ |
8,404 |
|
|
$ |
8,018 |
|
Printing |
4,877 |
|
|
4,698 |
|
|
4,558 |
|
Corporate
Investments |
1 |
|
|
2 |
|
|
1 |
|
Total
segments |
13,962 |
|
|
13,104 |
|
|
12,577 |
|
Net
revenue eliminations and other |
(35 |
) |
|
(44 |
) |
|
(65 |
) |
Total net
revenue |
$ |
13,927 |
|
|
$ |
13,060 |
|
|
$ |
12,512 |
|
|
|
|
|
|
|
Earnings from
continuing operations before taxes:(a) |
|
|
|
|
|
Personal
Systems |
$ |
343 |
|
|
$ |
313 |
|
|
$ |
346 |
|
Printing |
807 |
|
|
813 |
|
|
637 |
|
Corporate
Investments |
(18 |
) |
|
(20 |
) |
|
(32 |
) |
Total
segment earnings from operations |
1,132 |
|
|
1,106 |
|
|
951 |
|
Corporate
costs and eliminations |
(58 |
) |
|
(52 |
) |
|
(39 |
) |
Stock-based compensation expense |
(55 |
) |
|
(46 |
) |
|
(42 |
) |
Restructuring and other charges |
(113 |
) |
|
(46 |
) |
|
(49 |
) |
Acquisition-related charges |
(49 |
) |
|
(40 |
) |
|
(7 |
) |
Non-operating retirement-related credits |
34 |
|
|
34 |
|
|
28 |
|
Defined
benefit plan settlement charges |
(1 |
) |
|
(1 |
) |
|
(179 |
) |
Interest
and other, net |
(42 |
) |
|
(56 |
) |
|
347 |
|
Total
earnings from continuing operations before taxes |
$ |
848 |
|
|
$ |
899 |
|
|
$ |
1,010 |
|
|
(a) Effective beginning of Q1 FY17, HP implemented an
organizational change to align its business unit financial
reporting more closely with its current business structure. The
organizational change resulted in transfer of a portion of LaserJet
printers from Commercial to Consumer within the Printing segment.
HP reflected this change to its business unit information in prior
reporting periods on an as-if basis which resulted in
reclassification of revenues between the Commercial and Consumer
business units of Printing. The reporting change had no impact to
previously reported segment net revenue, consolidated net revenue,
earnings from continuing operations, net earnings or net earnings
per share.
|
HP INC. AND SUBSIDIARIESSEGMENT
INFORMATION(Unaudited)(In millions) |
|
|
Twelve months ended October 31, |
|
2017 |
|
2016 |
Net revenue:(a) |
|
|
|
Personal
Systems |
$ |
33,374 |
|
|
$ |
29,987 |
|
Printing |
18,801 |
|
|
18,260 |
|
Corporate
Investments |
8 |
|
|
7 |
|
Total
segments |
52,183 |
|
|
48,254 |
|
Net
revenue eliminations and other |
(127 |
) |
|
(16 |
) |
Total net
revenue |
$ |
52,056 |
|
|
$ |
48,238 |
|
|
|
|
|
Earnings from
continuing operations before taxes:(a) |
|
|
|
Personal
Systems |
$ |
1,213 |
|
|
$ |
1,150 |
|
Printing |
3,161 |
|
|
3,128 |
|
Corporate
Investments |
(87 |
) |
|
(98 |
) |
Total
segment earnings from operations |
4,287 |
|
|
4,180 |
|
Corporate
costs and eliminations |
(186 |
) |
|
(188 |
) |
Stock-based compensation expense |
(224 |
) |
|
(182 |
) |
Restructuring and other charges |
(362 |
) |
|
(205 |
) |
Acquisition-related charges |
(125 |
) |
|
(7 |
) |
Amortization of intangible assets |
(1 |
) |
|
(16 |
) |
Non-operating retirement-related credits |
135 |
|
|
146 |
|
Defined
benefit plan settlement charges |
(5 |
) |
|
(179 |
) |
Interest
and other, net |
(243 |
) |
|
212 |
|
Total
earnings from continuing operations before taxes |
$ |
3,276 |
|
|
$ |
3,761 |
|
|
|
|
|
|
|
|
|
(a) Effective beginning of Q1 FY17, HP implemented an
organizational change to align its business unit financial
reporting more closely with its current business structure. The
organizational change resulted in transfer of a portion of LaserJet
printers from Commercial to Consumer within the Printing segment.
HP reflected this change to its business unit information in prior
reporting periods on an as-if basis which resulted in
reclassification of revenues between the Commercial and Consumer
business units of Printing. The reporting change had no impact to
previously reported segment net revenue, consolidated net revenue,
earnings from continuing operations, net earnings or net earnings
per share.
|
HP INC. AND SUBSIDIARIESSEGMENT/BUSINESS UNIT
INFORMATION(Unaudited)(In millions) |
|
|
Three months ended |
|
Change (%) |
|
October 31, 2017 |
|
July 31, 2017 |
|
October 31, 2016 |
|
Q/Q |
|
Y/Y |
Net revenue(a): |
|
|
|
|
|
|
|
|
|
Personal Systems |
|
|
|
|
|
|
|
|
|
Notebooks |
$ |
5,391 |
|
|
$ |
5,008 |
|
|
$ |
4,636 |
|
|
8 |
% |
|
16 |
% |
Desktops |
2,821 |
|
|
2,566 |
|
|
2,572 |
|
|
10 |
% |
|
10 |
% |
Workstations |
526 |
|
|
530 |
|
|
489 |
|
|
(1 |
)% |
|
8 |
% |
Other |
346 |
|
|
300 |
|
|
321 |
|
|
15 |
% |
|
8 |
% |
Total
Personal Systems |
9,084 |
|
|
8,404 |
|
|
8,018 |
|
|
8 |
% |
|
13 |
% |
Printing |
|
|
|
|
|
|
|
|
|
Supplies |
3,132 |
|
|
3,120 |
|
|
2,835 |
|
|
0 |
% |
|
10 |
% |
Commercial Hardware |
1,119 |
|
|
986 |
|
|
1,107 |
|
|
13 |
% |
|
1 |
% |
Consumer
Hardware |
626 |
|
|
592 |
|
|
616 |
|
|
6 |
% |
|
2 |
% |
Total
Printing |
4,877 |
|
|
4,698 |
|
|
4,558 |
|
|
4 |
% |
|
7 |
% |
Corporate
Investments |
1 |
|
|
2 |
|
|
1 |
|
|
100 |
% |
|
0 |
% |
Total
segments |
13,962 |
|
|
13,104 |
|
|
12,577 |
|
|
7 |
% |
|
11 |
% |
Net revenue
eliminations and other(b) |
(35 |
) |
|
(44 |
) |
|
(65 |
) |
|
NM |
|
|
NM |
|
Total net revenue |
$ |
13,927 |
|
|
$ |
13,060 |
|
|
$ |
12,512 |
|
|
7 |
% |
|
11 |
% |
|
(a) Effective beginning of Q1 FY17, HP implemented an
organizational change to align its business unit financial
reporting more closely with its current business structure. The
organizational change resulted in transfer of a portion of LaserJet
printers from Commercial to Consumer within the Printing segment.
HP reflected this change to its business unit information in prior
reporting periods on an as-if basis which resulted in
reclassification of revenues between the Commercial and Consumer
business units of Printing. The reporting change had no impact to
previously reported segment net revenue, consolidated net revenue,
earnings from continuing operations, net earnings or net earnings
per share.
(b) "NM" represents not meaningful.
|
HP INC. AND SUBSIDIARIESSEGMENT/BUSINESS UNIT
INFORMATION(Unaudited)(In millions) |
|
|
Twelve months ended October 31, |
|
Change (%) |
|
2017 |
|
2016 |
|
Y/Y |
Net revenue(a): |
|
|
|
|
|
Personal Systems |
|
|
|
|
|
Notebooks |
$ |
19,782 |
|
|
$ |
16,982 |
|
|
16 |
% |
Desktops |
10,298 |
|
|
9,956 |
|
|
3 |
% |
Workstations |
2,042 |
|
|
1,870 |
|
|
9 |
% |
Other |
1,252 |
|
|
1,179 |
|
|
6 |
% |
Total
Personal Systems |
33,374 |
|
|
29,987 |
|
|
11 |
% |
Printing |
|
|
|
|
|
Supplies |
12,416 |
|
|
11,875 |
|
|
5 |
% |
Commercial Hardware |
3,973 |
|
|
4,035 |
|
|
(2 |
)% |
Consumer
Hardware |
2,412 |
|
|
2,350 |
|
|
3 |
% |
Total
Printing |
18,801 |
|
|
18,260 |
|
|
3 |
% |
Corporate
Investments |
8 |
|
|
7 |
|
|
14 |
% |
Total
segments |
52,183 |
|
|
48,254 |
|
|
8 |
% |
Net revenue
eliminations and other(b) |
(127 |
) |
|
(16 |
) |
|
NM |
|
Total net revenue |
$ |
52,056 |
|
|
$ |
48,238 |
|
|
8 |
% |
|
(a) Effective beginning of Q1 FY17, HP implemented an
organizational change to align its business unit financial
reporting more closely with its current business structure. The
organizational change resulted in transfer of a portion of LaserJet
printers from Commercial to Consumer within the Printing segment.
HP reflected this change to its business unit information in prior
reporting periods on an as-if basis which resulted in
reclassification of revenues between the Commercial and Consumer
business units of Printing. The reporting change had no impact to
previously reported segment net revenue, consolidated net revenue,
earnings from continuing operations, net earnings or net earnings
per share.(b) "NM" represents not meaningful.
|
HP INC. AND SUBSIDIARIESSEGMENT OPERATING MARGIN
SUMMARY DATA(Unaudited) |
|
|
Three months ended |
|
Change in Operating Margin (pts) |
|
October 31, 2017 |
|
July 31, 2017 |
|
October 31, 2016 |
|
Q/Q |
|
Y/Y |
Segment operating
margin:(a) |
|
|
|
|
|
|
|
|
|
Personal
Systems |
3.8% |
|
|
3.7% |
|
|
4.3% |
|
|
0.1pts |
|
(0.5)pts |
Printing |
16.6% |
|
|
17.3% |
|
|
14.0% |
|
|
(0.7)pts |
|
2.6pts |
Corporate
Investments(b) |
NM |
|
|
NM |
|
|
NM |
|
|
NM |
|
NM |
Total
segments |
8.1% |
|
|
8.4% |
|
|
7.6% |
|
|
(0.3)pts |
|
0.5pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Effective beginning of Q1 FY17, HP implemented an
organizational change to align its business unit financial
reporting more closely with its current business structure. The
organizational change resulted in transfer of a portion of LaserJet
printers from Commercial to Consumer within the Printing segment.
HP reflected this change to its business unit information in prior
reporting periods on an as-if basis which resulted in
reclassification of revenues between the Commercial and Consumer
business units of Printing. The reporting change had no impact to
previously reported segment net revenue, consolidated net revenue,
earnings from continuing operations, net earnings or net earnings
per share.
(b) "NM" represents not meaningful.
|
HP INC. AND SUBSIDIARIESCALCULATION OF DILUTED
NET EARNINGS PER SHARE(Unaudited)(In millions, except per share
amounts) |
|
|
Three months ended |
|
October 31, 2017 |
|
July 31, 2017 |
|
October 31, 2016 |
Numerator: |
|
|
|
|
|
GAAP net
earnings from continuing operations |
$ |
660 |
|
|
$ |
696 |
|
|
$ |
513 |
|
Non-GAAP
net earnings |
$ |
749 |
|
|
$ |
735 |
|
|
$ |
614 |
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
Weighted-average shares used to compute basic net earnings per
share |
1,670 |
|
|
1,681 |
|
|
1,712 |
|
Dilutive effect
of employee stock plans(a) |
17 |
|
|
14 |
|
|
17 |
|
Weighted-average shares used to compute diluted net earnings per
share |
1,687 |
|
|
1,695 |
|
|
1,729 |
|
|
|
|
|
|
|
GAAP diluted net
earnings per share from continuing operations |
$ |
0.39 |
|
|
$ |
0.41 |
|
|
$ |
0.30 |
|
Non-GAAP diluted net
earnings per share |
$ |
0.44 |
|
|
$ |
0.43 |
|
|
$ |
0.36 |
|
|
(a) Includes any dilutive effect of restricted stock units,
stock options and performance-based awards.
|
HP INC. AND SUBSIDIARIESCALCULATION OF DILUTED NET
EARNINGS PER SHARE(Unaudited)(In millions, except per share
amounts) |
|
|
Twelve months ended October 31, |
|
2017 |
|
2016 |
Numerator: |
|
|
|
GAAP net
earnings from continuing operations |
$ |
2,526 |
|
|
$ |
2,666 |
|
Non-GAAP
net earnings |
$ |
2,815 |
|
|
$ |
2,787 |
|
|
|
|
|
Denominator: |
|
|
|
Weighted-average shares used to compute basic net earnings per
share |
1,688 |
|
|
1,730 |
|
Dilutive effect
of employee stock plans(a) |
14 |
|
|
13 |
|
Weighted-average shares used to compute diluted net earnings per
share |
1,702 |
|
|
1,743 |
|
|
|
|
|
GAAP
diluted net earnings per share from continuing operations |
$ |
1.48 |
|
|
$ |
1.53 |
|
Non-GAAP
diluted net earnings per share |
$ |
1.65 |
|
|
$ |
1.60 |
|
|
(a) Includes any dilutive effect of restricted stock units,
stock options and performance-based awards.
Use of non-GAAP financial measuresTo supplement
HP’s consolidated condensed financial statements presented on a
GAAP basis, HP provides net revenue on a constant currency basis,
non-GAAP total operating expense, non-GAAP operating margin,
non-GAAP tax rate, non-GAAP net earnings, non-GAAP diluted net EPS,
free cash flow, gross cash and net cash (debt). HP also provides
forecasts of non-GAAP diluted net EPS.
These non-GAAP financial measures are not computed in accordance
with, or as an alternative to, GAAP in the United States.
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
measuresNet revenue on a constant currency basis excludes
the effect of foreign currency exchange fluctuations and hedging
activities from the comparative period. Non-GAAP operating margin
is defined to exclude the effects of any amounts relating to
restructuring and other charges, acquisition-related charges,
defined benefit plan settlement charges, amortization of intangible
assets and non-operating retirement-related credits/(charges).
Non-GAAP net earnings and non-GAAP diluted net EPS consist of net
earnings from continuing operations or diluted net EPS from
continuing operations excluding those same charges and net tax
indemnifications. In addition, non-GAAP net earnings and non-GAAP
diluted net EPS are adjusted by the amount of additional taxes or
tax benefits associated with each non-GAAP item and other tax
benefits or charges as a consequence of the separation of Hewlett
Packard Enterprise Company from HP Inc. (the “Separation”). 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 for 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:
- Restructuring and other charges are (i) costs associated with a
formal restructuring plan and are primarily related to employee
termination costs and benefits, costs of real estate consolidation
and other non-labor charges; and (ii) other charges, which include
non-recurring costs that are distinct from ongoing operational
costs. HP excludes these restructuring and other charges (and any
reversals of charges recorded in prior periods) for purposes of
calculating these non-GAAP measures because HP 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.
- HP incurs cost related to its acquisitions, which it would not
have otherwise incurred as part of its operations. The charges are
direct expenses such as third-party professional and legal fees,
and integration-related costs. These charges related to
acquisitions are inconsistent in amount and frequency and are
significantly impacted by the timing and nature of HP's
acquisitions. HP believes that eliminating such expenses for
purposes of calculating these non-GAAP measures facilitates a more
meaningful evaluation of HP's current operating performance and
comparisons to HP's past operating performance.
- HP incurs charges relating to the amortization of intangible
assets. Those charges are included in HP’s GAAP earnings from
continuing operations, operating margin from continuing operations,
net earnings from continuing operations and diluted net EPS from
continuing operations. 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.
- Non-operating retirement-related credits/(charges) includes
certain market-related factors such as interest cost, expected
return on plan assets, amortized actuarial gains or losses, and
impacts from other market-related factors associated with HP’s
defined benefit pension and post-retirement benefit plans. The
market-driven retirement-related adjustments are primarily due to
the changes in pension plan assets and liabilities which are tied
to financial market performance and HP considers these adjustments
to be outside the operational performance of the business.
Non-operating retirement-related credits/(charges) also include
certain plan curtailments, settlements and special termination
benefits related to HP’s defined benefit pension and
post-retirement benefit plans. HP believes that eliminating such
adjustments for purposes of calculating non-GAAP measures
facilitates a more meaningful evaluation of HP's current operating
performance and provides better transparency into the segment
operating results.
- As part of the Separation, HP evaluates all tax uncertain
positions to determine the indemnification amounts under the Tax
Matters Agreement with Hewlett Packard Enterprise Company and
records the adjustments as net tax indemnifications amounts for the
quarter. HP excludes these adjustments for the 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 incurred defined benefit plan settlement charges relating to
the U.S. HP pension plan. The charges are associated with the net
settlement and remeasurement resulting from voluntary lump sum
payments offered to certain terminated vested participants. HP
excludes these charges for the 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.
- As part of the Separation, HP recorded several
Separation-related items including: the reversal of a previously
recorded valuation allowance, the write-off of specific deferred
taxes providing no continued benefit to HP and the entry of certain
Separation-related deferred tax expense. HP believes that
eliminating these amounts for purposes of calculating non-GAAP net
earnings facilitates a more meaningful comparison of HP’s net
earnings to other periods, as HP’s management does not believe that
the excluded items are reflective of ongoing operating
results.
Free cash flow is a non-GAAP measure that 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. 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.
HP’s management uses free cash flow and gross cash for the purpose
of determining the amount of cash available for investment in HP’s
businesses, repurchasing stock and other purposes. HP’s management
also uses free cash flow and gross cash to evaluate HP’s historical
and prospective liquidity. Because gross cash includes liquid
assets that are not included in cash and cash equivalents, HP
believes that gross cash provides a helpful assessment of HP’s
liquidity. Because free cash flow includes the effect of investment
in property, plant and equipment and proceeds from the sale of
property, plant and equipment that are not reflected in net cash
provided by operating activities, HP believes that free cash flow
provides a more accurate and complete assessment of HP’s liquidity
and capital resources. Net cash (debt) is defined as gross cash
less gross debt after adjusting the effect of unamortized
premium/discount on debt issuance, debt issuance costs and
unrealized gains/losses on fair value hedges and interest rate
swaps.
Material limitations associated with use of non-GAAP
financial measuresThese non-GAAP financial measures may
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
change in value is not included in non-GAAP operating margin,
non-GAAP net earnings and non-GAAP diluted net EPS, and therefore
does not reflect the full economic effect of the change in value of
those intangible assets.
- Items such as restructuring and other charges,
acquisition-related charges, non-operating retirement-related
credits/(charges), defined benefit plan settlement charges, net tax
indemnifications and net valuation allowance, and separation taxes
and adjustments that are excluded from non-GAAP operating margin,
non-GAAP net earnings and non-GAAP diluted net EPS 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 the non-GAAP financial measures
differently than HP, limiting the usefulness of those measures for
comparative purposes.
Compensation for limitations associated with use of
non-GAAP financial measuresHP 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 those
reconciliations carefully.
Usefulness of non-GAAP financial measures to
investorsHP believes that providing net revenue on a
constant currency basis, non-GAAP operating margin, non-GAAP tax
rate, non-GAAP total operating expense, non-GAAP net earnings,
non-GAAP diluted net EPS, free cash flow, gross cash and net cash
(debt) to investors in addition to the related GAAP financial
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 financial condition and
to evaluate the efficacy of the methodology and information used by
HP’s management to evaluate and measure such performance and
financial condition. 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.
© Copyright 2017 HP Development Company, L.P. The
information contained herein is subject to change without notice.
The only warranties for HP Inc. products and services are set forth
in the express warranty statements accompanying such products and
services. Nothing herein should be construed as constituting an
additional warranty. HP Inc. shall not be liable for technical or
editorial errors or omissions contained herein.
Editorial contacts
HP Inc. Media Relations
MediaRelations@hp.com
HP Inc. Investor Relations
investorrelations@hp.com
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