HP (NYSE: HPQ)
- Second quarter GAAP diluted net earnings per share ("EPS") of
$0.51, above the previously provided outlook of $0.45 to $0.48 per
share
- Second quarter non-GAAP diluted net EPS of $0.53, within the
previously provided outlook of $0.50 to $0.53 per share
- Second quarter net revenue of $14.0 billion, up 0.2% from the
prior-year period
- Second quarter net cash provided by operating activities of
$0.9 billion, free cash flow of $0.7 billion
- Second quarter returned $0.9 billion to shareholders in the
form of share repurchases and dividends
HP Inc.
fiscal 2019 second quarter financial performance |
|
|
|
Q2 FY19 |
|
Q2 FY18 |
|
Y/Y |
|
GAAP net revenue ($B) |
|
$ |
14.0 |
|
|
$ |
14.0 |
|
|
0.2 |
% |
|
GAAP operating margin |
|
6.6 |
% |
|
6.5 |
% |
|
0.1 pts |
|
GAAP net earnings ($B) |
|
$ |
0.8 |
|
|
$ |
1.1 |
|
|
(26.1 |
)% |
|
GAAP diluted net EPS |
|
$ |
0.51 |
|
|
$ |
0.64 |
|
|
(20.3 |
)% |
|
Non-GAAP operating margin |
|
7.4 |
% |
|
7.3 |
% |
|
0.1 pts |
|
Non-GAAP net earnings ($B) |
|
$ |
0.8 |
|
|
$ |
0.8 |
|
|
2.9 |
% |
|
Non-GAAP diluted net EPS |
|
$ |
0.53 |
|
|
$ |
0.48 |
|
|
10.4 |
% |
|
Net cash provided by operating
activities ($B) |
|
$ |
0.9 |
|
|
$ |
1.1 |
|
|
(18.0 |
)% |
|
Free cash flow ($B) |
|
$ |
0.7 |
|
|
$ |
0.9 |
|
|
(20.3 |
)% |
|
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 2019 second quarter net revenue of $14.0 billion,
up 0.2% (up 2% in constant currency) from the prior-year
period.
Second quarter GAAP diluted net EPS was $0.51, down from $0.64
in the prior-year period and above the previously provided outlook
of $0.45 to $0.48. Second quarter non-GAAP diluted net EPS was
$0.53, up from $0.48 in the prior-year period and within the
previously provided outlook of $0.50 to $0.53. Second quarter
non-GAAP net earnings and non-GAAP diluted net EPS exclude
after-tax adjustments of $39 million, or $0.02 per diluted share,
related to restructuring and other charges, acquisition-related
charges, amortization of intangible assets, non-operating
retirement-related (credits)/charges, and tax adjustments.
“We delivered solid Q2 financial results, with strong non-GAAP
EPS growing double-digits and coming in at the high end of our
outlook,” said Dion Weisler, HP’s President and CEO. “We continue
to strike the right balance between driving results today and
investing in innovation to deliver long term financial
performance.”
Asset managementHP’s net cash provided by
operating activities in the second quarter of fiscal 2019 was $0.9
billion. Accounts receivable ended the quarter at $5.4 billion, up
4-days quarter over quarter to 35 days. Inventory ended the quarter
at $5.4 billion, up 1-day quarter over quarter to 43 days. Accounts
payable ended the quarter at $13.8 billion, up 2 days quarter over
quarter to 110 days.
HP generated $0.7 billion of free cash flow in the second
quarter. Free cash flow includes net cash provided by operating
activities of $0.9 billion less net investments in and proceeds
from the sale of property, plant and equipment of $114 million.
HP’s dividend payment of $0.1602 per share in the second quarter
resulted in cash usage of $0.2 billion. HP also utilized $0.7
billion of cash during the quarter to repurchase approximately 33.6
million shares of common stock in the open market. As a
result, HP returned 125% of its second quarter free cash flow to
shareholders. HP exited the quarter with $3.6 billion in gross
cash, which includes cash and cash equivalents and short-term
investments.
Fiscal 2019 second quarter segment results
- Personal Systems net revenue was up 2% year over year (up 5% in
constant currency) with a 4.3% operating margin. Commercial net
revenue increased 7% and Consumer net revenue decreased 9%. Total
units were down 1% with Notebooks units down 5% and Desktops units
up 6%.
- Printing net revenue was down 2% year over year (down 2% in
constant currency) with a 16.4% operating margin. Total hardware
units were down 4% with Commercial hardware units down 3% and
Consumer hardware units down 4%. Supplies net revenue was down 3%
(down 3% in constant currency).
OutlookFor the fiscal 2019 third quarter, HP
estimates GAAP diluted net EPS to be in the range of $0.49 to $0.52
and non-GAAP diluted net EPS to be in the range of $0.53 to $0.56.
Fiscal 2019 third quarter non-GAAP diluted net EPS estimates
exclude $0.04 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, tax adjustments
and the related tax impact on these items.
For fiscal 2019, HP is updating its estimate of GAAP diluted net
EPS to be in the range of $2.04 to $2.11 and revises its previous
estimate of non-GAAP diluted net EPS to be in the range of $2.14 to
$2.21. Fiscal 2019 non-GAAP diluted net EPS estimates exclude
$0.10 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, tax adjustments
and the related tax impact on these items.
More information on HP's earnings, including additional
financial analysis and an earnings overview presentation, is
available on HP's Investor Relations website at
investor.hp.com.
HP's FY19 Q2 earnings conference call is accessible via an audio
webcast at www.hp.com/investor/2019Q2Webcast.
About HP Inc.HP Inc. (NYSE: HPQ) creates
technology that makes life better for everyone, everywhere. Through
our product and service portfolio of personal systems, printers and
3D printing solutions, we engineer experiences that amaze. More
information about HP Inc. is available at 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 profit,
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 and free cash flow. Reconciliations of
these non-GAAP financial measures to the most directly comparable
GAAP financial measures are included in the tables below or
elsewhere in the materials accompanying this news release. In
addition, an explanation of the ways in which HP’s management uses
these non-GAAP measures to evaluate its business, the substance
behind HP’s decision to use these non-GAAP measures, the material
limitations associated with the use of these non-GAAP measures, the
manner in which HP’s management compensates for those limitations,
and the substantive reasons why HP’s management believes that these
non-GAAP measures provide useful information to investors is
included under “Use of non-GAAP financial measures” after the
tables below. This additional non-GAAP financial information is not
meant to be considered in isolation or as a substitute for net
revenue, operating profit, operating margin, tax rate, net
earnings, diluted net EPS, cash provided by operating activities 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, but not limited to, our sustainability goals, the
execution of 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 impact of changes in tax laws,
including uncertainties related to the interpretation and
application of the Tax Cuts and Jobs Act of 2017 on HP's tax
obligations and effective tax rate; 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, 2018, 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 Quarterly Report on Form 10-Q for the
fiscal quarters ended April 30, 2019 and July 31, 2019, Annual
Report on Form 10-K for the fiscal year ended October 31, 2019 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
investor.hp.com 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 |
|
April 30, 2019 |
|
January 31, 2019 |
|
April 30, 2018 |
Net revenue |
$ |
14,036 |
|
|
$ |
14,710 |
|
|
$ |
14,003 |
|
Costs and expenses: |
|
|
|
|
|
Cost of revenue |
11,307 |
|
|
12,098 |
|
|
11,301 |
|
Research and development |
353 |
|
|
344 |
|
|
356 |
|
Selling, general and administrative(a) |
1,339 |
|
|
1,248 |
|
|
1,318 |
|
Restructuring and other charges |
69 |
|
|
55 |
|
|
57 |
|
Acquisition-related charges |
11 |
|
|
10 |
|
|
45 |
|
Amortization of intangible assets |
29 |
|
|
29 |
|
|
20 |
|
Total costs and expenses |
13,108 |
|
|
13,784 |
|
|
13,097 |
|
|
|
|
|
|
|
Earnings from operations |
928 |
|
|
926 |
|
|
906 |
|
Interest and other, net(a) |
(45 |
) |
|
(26 |
) |
|
(823 |
) |
Earnings before taxes |
883 |
|
|
900 |
|
|
83 |
|
(Provision for) benefit from
taxes |
(101 |
) |
|
(97 |
) |
|
975 |
|
Net earnings |
$ |
782 |
|
|
$ |
803 |
|
|
$ |
1,058 |
|
|
|
|
|
|
|
Net earnings per share: |
|
|
|
|
|
Basic |
$ |
0.51 |
|
|
$ |
0.52 |
|
|
$ |
0.65 |
|
Diluted |
$ |
0.51 |
|
|
$ |
0.51 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
Cash dividends declared per
share |
$ |
— |
|
|
$ |
0.32 |
|
|
$ |
— |
|
|
|
|
|
|
|
Weighted-average shares used to
compute net earnings per share: |
|
|
|
|
|
Basic |
1,529 |
|
|
1,556 |
|
|
1,630 |
|
Diluted |
1,536 |
|
|
1,567 |
|
|
1,646 |
|
- Pursuant to adoption of Accounting Standards Update (“ASU”)
2017-07, “Compensation - Retirement Benefits (Topic 715): Improving
the Presentation of Net Periodic Pension Cost and Net Periodic
Post-retirement Benefit Cost”, in the first quarter of fiscal year
2019, HP now reclassifies all components (excluding service cost
component) of net periodic benefit cost from Selling, general and
administrative expenses to Interest and other, net. HP reflected
this change in prior reporting periods on an as-if basis.
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF
EARNINGS(Unaudited)(In millions, except per share amounts) |
|
|
Six months ended |
|
April 30, 2019 |
|
April 30,2018 |
Net revenue |
$ |
28,746 |
|
|
$ |
28,520 |
|
Costs and expenses: |
|
|
|
Cost of revenue |
23,405 |
|
|
23,236 |
|
Research and development |
697 |
|
|
703 |
|
Selling, general and administrative(a) |
2,587 |
|
|
2,547 |
|
Restructuring and other charges |
124 |
|
|
88 |
|
Acquisition-related charges |
21 |
|
|
87 |
|
Amortization of intangible assets |
58 |
|
|
40 |
|
Total costs and expenses |
26,892 |
|
|
26,701 |
|
|
|
|
|
Earnings from operations |
1,854 |
|
|
1,819 |
|
Interest and other, net(a) |
(71 |
) |
|
(831 |
) |
Earnings before taxes |
1,783 |
|
|
988 |
|
(Provision for) benefit from
taxes |
(198 |
) |
|
2,008 |
|
Net earnings |
$ |
1,585 |
|
|
$ |
2,996 |
|
|
|
|
|
Net earnings per share: |
|
|
|
Basic |
$ |
1.03 |
|
|
$ |
1.83 |
|
Diluted |
$ |
1.02 |
|
|
$ |
1.81 |
|
|
|
|
|
Cash dividends declared per
share |
$ |
0.32 |
|
|
$ |
0.28 |
|
|
|
|
|
Weighted-average shares used to
compute net earnings per share: |
|
|
|
Basic |
1,543 |
|
|
1,640 |
|
Diluted |
1,551 |
|
|
1,658 |
|
- Pursuant to adoption of Accounting Standards Update (“ASU”)
2017-07, “Compensation - Retirement Benefits (Topic 715): Improving
the Presentation of Net Periodic Pension Cost and Net Periodic
Post-retirement Benefit Cost”, in the first quarter of fiscal year
2019, HP now reclassifies all components (excluding service cost
component) of net periodic benefit cost from Selling, general and
administrative expenses to Interest and other, net. HP reflected
this change in prior reporting periods on an as-if basis.
|
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 |
|
April 30, 2019 |
|
January 31, 2019 |
|
April 30, 2018 |
|
Amounts |
|
Diluted net earnings per share |
|
Amounts |
|
Diluted net earnings per share |
|
Amounts |
|
Diluted net earnings per share |
GAAP net earnings |
$ |
782 |
|
|
$ |
0.51 |
|
|
$ |
803 |
|
|
$ |
0.51 |
|
|
$ |
1,058 |
|
|
$ |
0.64 |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other charges |
69 |
|
|
0.03 |
|
|
55 |
|
|
0.04 |
|
|
57 |
|
|
0.03 |
|
Acquisition-related charges |
11 |
|
|
0.01 |
|
|
10 |
|
|
0.01 |
|
|
45 |
|
|
0.03 |
|
Amortization of intangible assets |
29 |
|
|
0.02 |
|
|
29 |
|
|
0.02 |
|
|
20 |
|
|
0.01 |
|
Non-operating retirement-related credits |
(10 |
) |
|
(0.01 |
) |
|
(12 |
) |
|
(0.01 |
) |
|
(53 |
) |
|
(0.03 |
) |
Debt extinguishment costs |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
126 |
|
|
0.08 |
|
Tax adjustments(a) |
(60 |
) |
|
(0.03 |
) |
|
(76 |
) |
|
(0.05 |
) |
|
(455 |
) |
|
(0.28 |
) |
Non-GAAP net earnings |
$ |
821 |
|
|
$ |
0.53 |
|
|
$ |
809 |
|
|
$ |
0.52 |
|
|
$ |
798 |
|
|
$ |
0.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP earnings from
operations(b) |
$ |
928 |
|
|
|
|
$ |
926 |
|
|
|
|
$ |
906 |
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other charges |
69 |
|
|
|
|
55 |
|
|
|
|
57 |
|
|
|
Acquisition-related charges |
11 |
|
|
|
|
10 |
|
|
|
|
45 |
|
|
|
Amortization of intangible assets |
29 |
|
|
|
|
29 |
|
|
|
|
20 |
|
|
|
Non-GAAP earnings from
operations |
$ |
1,037 |
|
|
|
|
$ |
1,020 |
|
|
|
|
$ |
1,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating margin(b) |
7 |
% |
|
|
|
6 |
% |
|
|
|
7 |
% |
|
|
Non-GAAP adjustments |
0 |
% |
|
|
|
1 |
% |
|
|
|
0 |
% |
|
|
Non-GAAP operating margin |
7 |
% |
|
|
|
7 |
% |
|
|
|
7 |
% |
|
|
- Includes tax impact on non-GAAP adjustments.
- Pursuant to adoption of Accounting Standards Update (“ASU”)
2017-07, “Compensation - Retirement Benefits (Topic 715): Improving
the Presentation of Net Periodic Pension Cost and Net Periodic
Post-retirement Benefit Cost”, in the first quarter of fiscal year
2019, HP now reclassifies all components (excluding service cost
component) of net periodic benefit cost from Selling, general and
administrative expenses to Interest and other, net. HP reflected
this change in prior reporting periods on an as-if
basis.
|
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)
|
|
|
Six months ended |
|
April 30, 2019 |
|
April 30, 2018 |
|
Amounts |
|
Diluted net earnings per share |
|
Amounts |
|
Diluted net earnings per share |
GAAP net earnings |
$ |
1,585 |
|
|
$ |
1.02 |
|
|
$ |
2,996 |
|
|
$ |
1.81 |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
Restructuring and other charges |
124 |
|
|
0.07 |
|
|
88 |
|
|
0.05 |
|
Acquisition-related charges |
21 |
|
|
0.01 |
|
|
87 |
|
|
0.05 |
|
Amortization of intangible assets |
58 |
|
|
0.04 |
|
|
40 |
|
|
0.02 |
|
Non-operating retirement-related credits |
(22 |
) |
|
(0.01 |
) |
|
(109 |
) |
|
(0.07 |
) |
Defined benefit plan settlement charges |
— |
|
|
— |
|
|
1 |
|
|
— |
|
Debt extinguishment costs |
— |
|
|
— |
|
|
126 |
|
|
0.08 |
|
Tax adjustments(a) |
(136 |
) |
|
(0.08 |
) |
|
(1,628 |
) |
|
(0.97 |
) |
Non-GAAP net earnings |
$ |
1,630 |
|
|
$ |
1.05 |
|
|
$ |
1,601 |
|
|
$ |
0.97 |
|
|
|
|
|
|
|
|
|
GAAP earnings from
operations(b) |
$ |
1,854 |
|
|
|
|
$ |
1,819 |
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
Restructuring and other charges |
124 |
|
|
|
|
88 |
|
|
|
Acquisition-related charges |
21 |
|
|
|
|
87 |
|
|
|
Amortization of intangible assets |
58 |
|
|
|
|
40 |
|
|
|
Non-GAAP earnings |
$ |
2,057 |
|
|
|
|
$ |
2,034 |
|
|
|
|
|
|
|
|
|
|
|
GAAP operating margin(b) |
6 |
% |
|
|
|
6 |
% |
|
|
Non-GAAP adjustments |
1 |
% |
|
|
|
1 |
% |
|
|
Non-GAAP operating margin |
7 |
% |
|
|
|
7 |
% |
|
|
- Includes tax impact on non-GAAP adjustments.
- Pursuant to adoption of Accounting Standards Update (“ASU”)
2017-07, “Compensation - Retirement Benefits (Topic 715): Improving
the Presentation of Net Periodic Pension Cost and Net Periodic
Post-retirement Benefit Cost”, in the first quarter of fiscal year
2019, HP now reclassifies all components (excluding service cost
component) of net periodic benefit cost from Selling, general and
administrative expenses to Interest and other, net. HP reflected
this change in prior reporting periods on an as-if basis.
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED BALANCE
SHEETS(Unaudited)(In millions) |
|
|
As
of |
|
April 30, 2019 |
|
October 31, 2018 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
3,556 |
|
|
$ |
5,166 |
|
Accounts receivable, net |
5,414 |
|
|
5,113 |
|
Inventory |
5,394 |
|
|
6,062 |
|
Other current assets |
3,921 |
|
|
5,046 |
|
Total current assets |
18,285 |
|
|
21,387 |
|
Property, plant and equipment,
net |
2,412 |
|
|
2,198 |
|
Goodwill |
6,349 |
|
|
5,968 |
|
Other non-current assets |
4,900 |
|
|
5,069 |
|
Total assets |
$ |
31,946 |
|
|
$ |
34,622 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
Current liabilities: |
|
|
|
Notes payable and short-term borrowings |
$ |
290 |
|
|
$ |
1,463 |
|
Accounts payable |
13,839 |
|
|
14,816 |
|
Employee compensation and benefits |
826 |
|
|
1,136 |
|
Taxes on earnings |
206 |
|
|
340 |
|
Other accrued liabilities |
8,042 |
|
|
7,376 |
|
Total current liabilities |
23,203 |
|
|
25,131 |
|
Long-term debt |
4,749 |
|
|
4,524 |
|
Other non-current
liabilities |
5,481 |
|
|
5,606 |
|
Stockholders' deficit |
(1,487 |
) |
|
(639 |
) |
Total liabilities and
stockholders' deficit |
$ |
31,946 |
|
|
$ |
34,622 |
|
|
HP
INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF CASH
FLOWS(Unaudited)(In millions) |
|
|
Three months
ended |
|
April 30, 2019 |
|
April 30, 2018 |
Cash flows from operating
activities: |
|
|
|
Net earnings |
$ |
782 |
|
|
$ |
1,058 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
Depreciation and amortization |
181 |
|
|
127 |
|
Stock-based compensation expense |
66 |
|
|
63 |
|
Restructuring and other charges |
69 |
|
|
57 |
|
Deferred taxes on earnings |
15 |
|
|
397 |
|
Other, net |
118 |
|
|
185 |
|
Changes in operating assets and liabilities, net of
acquisitions: |
|
|
|
Accounts receivable |
(314 |
) |
|
(234 |
) |
Inventory |
171 |
|
|
86 |
|
Accounts payable |
(779 |
) |
|
201 |
|
Taxes on earnings |
(11 |
) |
|
(1,528 |
) |
Restructuring and other |
(33 |
) |
|
(44 |
) |
Other assets and liabilities |
596 |
|
|
682 |
|
Net cash provided by operating activities |
861 |
|
|
1,050 |
|
Cash flows from investing
activities: |
|
|
|
Investment in property, plant and equipment |
(114 |
) |
|
(113 |
) |
Purchases of available-for-sale securities and other
investments |
— |
|
|
(36 |
) |
Maturities and sales of available-for-sale securities and other
investments |
410 |
|
|
206 |
|
Collateral posted for derivative instruments |
(2 |
) |
|
(293 |
) |
Collateral returned for derivative instruments |
2 |
|
|
857 |
|
Net cash provided by investing activities |
296 |
|
|
621 |
|
Cash flows from financing
activities: |
|
|
|
(Payment of) Proceeds from short-term borrowings with original
maturities less than 90 days, net |
(1 |
) |
|
943 |
|
Proceeds from short-term borrowings with original maturities
greater than 90 days |
— |
|
|
100 |
|
Proceeds from debt, net of issuance costs |
24 |
|
|
— |
|
Payment of short-term borrowings with original maturities greater
than 90 days |
— |
|
|
(969 |
) |
Payment of debt |
(62 |
) |
|
(1,985 |
) |
Stock-based award activities |
7 |
|
|
40 |
|
Repurchase of common stock |
(691 |
) |
|
(801 |
) |
Cash dividends paid |
(245 |
) |
|
(227 |
) |
Net cash used in financing activities |
(968 |
) |
|
(2,899 |
) |
Increase (Decrease) in cash and
cash equivalents |
189 |
|
|
(1,228 |
) |
Cash and cash equivalents at
beginning of period |
3,367 |
|
|
5,475 |
|
Cash and cash equivalents at end
of period |
$ |
3,556 |
|
|
$ |
4,247 |
|
|
HP
INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF CASH
FLOWS(Unaudited)(In millions) |
|
|
Six months ended |
|
April 30, 2019 |
|
April 30, 2018 |
Cash flows from operating
activities: |
|
|
|
Net earnings |
$ |
1,585 |
|
|
$ |
2,996 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
Depreciation and amortization |
349 |
|
|
256 |
|
Stock-based compensation expense |
173 |
|
|
148 |
|
Restructuring and other charges |
124 |
|
|
88 |
|
Deferred taxes on earnings |
118 |
|
|
(3,316 |
) |
Other, net |
113 |
|
|
198 |
|
Changes in operating assets and liabilities, net of
acquisitions: |
|
|
|
Accounts receivable |
(103 |
) |
|
38 |
|
Inventory |
362 |
|
|
450 |
|
Accounts payable |
(963 |
) |
|
(277 |
) |
Taxes on earnings |
— |
|
|
935 |
|
Restructuring and other |
(79 |
) |
|
(177 |
) |
Other assets and liabilities |
44 |
|
|
707 |
|
Net cash provided by operating activities |
1,723 |
|
|
2,046 |
|
Cash flows from investing
activities: |
|
|
|
Investment in property, plant and equipment |
(303 |
) |
|
(242 |
) |
Proceeds from sale of property, plant and equipment |
— |
|
|
110 |
|
Purchases of available-for-sale securities and other
investments |
(69 |
) |
|
(304 |
) |
Maturities and sales of available-for-sale securities and other
investments |
754 |
|
|
345 |
|
Collateral posted for derivative instruments |
(32 |
) |
|
(901 |
) |
Collateral returned for derivative instruments |
32 |
|
|
910 |
|
Payments made in connection with business acquisitions, net of cash
acquired |
(404 |
) |
|
(1,020 |
) |
Net cash used in investing activities |
(22 |
) |
|
(1,102 |
) |
Cash flows from financing
activities: |
|
|
|
(Payments of) Proceeds from short-term borrowings with original
maturities less than 90 days, net |
(856 |
) |
|
837 |
|
Proceeds from short-term borrowings with original maturities
greater than 90 days |
— |
|
|
300 |
|
Proceeds from debt, net of issuance costs |
64 |
|
|
— |
|
Payment of short-term borrowings with original maturities greater
than 90 days |
— |
|
|
(1,087 |
) |
Payment of debt |
(538 |
) |
|
(2,026 |
) |
Stock-based award activities |
(76 |
) |
|
2 |
|
Repurchase of common stock |
(1,411 |
) |
|
(1,263 |
) |
Cash dividends paid |
(494 |
) |
|
(457 |
) |
Net cash used in financing activities |
(3,311 |
) |
|
(3,694 |
) |
Decrease in cash and cash
equivalents |
(1,610 |
) |
|
(2,750 |
) |
Cash and cash equivalents at
beginning of period |
5,166 |
|
|
6,997 |
|
Cash and cash equivalents at end
of period |
$ |
3,556 |
|
|
$ |
4,247 |
|
|
HP INC. AND SUBSIDIARIESSEGMENT INFORMATION(Unaudited)(In
millions) |
|
|
Three months ended |
|
April 30, 2019 |
|
January 31, 2019 |
|
April 30, 2018 |
Net revenue:(a) |
|
|
|
|
|
Personal Systems |
$ |
8,921 |
|
|
$ |
9,657 |
|
|
$ |
8,762 |
|
Printing |
5,116 |
|
|
5,056 |
|
|
5,241 |
|
Corporate Investments |
— |
|
|
1 |
|
|
1 |
|
Total segments |
14,037 |
|
|
14,714 |
|
|
14,004 |
|
Other |
(1 |
) |
|
(4 |
) |
|
(1 |
) |
Total net revenue |
$ |
14,036 |
|
|
$ |
14,710 |
|
|
$ |
14,003 |
|
|
|
|
|
|
|
Earnings before
taxes:(a),(b) |
|
|
|
|
|
Personal Systems |
$ |
385 |
|
|
$ |
410 |
|
|
$ |
329 |
|
Printing |
839 |
|
|
821 |
|
|
837 |
|
Corporate Investments |
(24 |
) |
|
(24 |
) |
|
(21 |
) |
Total segment earnings from operations |
1,200 |
|
|
1,207 |
|
|
1,145 |
|
Corporate and unallocated costs and other |
(97 |
) |
|
(80 |
) |
|
(54 |
) |
Stock-based compensation expense |
(66 |
) |
|
(107 |
) |
|
(63 |
) |
Restructuring and other charges |
(69 |
) |
|
(55 |
) |
|
(57 |
) |
Acquisition-related charges |
(11 |
) |
|
(10 |
) |
|
(45 |
) |
Amortization of intangible assets |
(29 |
) |
|
(29 |
) |
|
(20 |
) |
Interest and other, net |
(45 |
) |
|
(26 |
) |
|
(823 |
) |
Earnings before taxes |
$ |
883 |
|
|
$ |
900 |
|
|
$ |
83 |
|
- Effective at the beginning of its first quarter of fiscal year
2019, HP implemented an organizational change to align its business
unit financial reporting more closely with its current business
structure. The organizational change resulted in the transfer of
certain Samsung-branded product categories 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. The reporting change had no impact to previously
reported segment net revenue, consolidated net revenue, earnings
from operations, net earnings or net EPS.
- Pursuant to adoption of ASU 2017-07 in the first quarter of
fiscal year 2019, HP now reclassifies market-related retirement
credits and all other components (excluding service cost component)
of net periodic benefit cost to Interest and other, net in
Consolidated Condensed Statement of Earnings. HP reflected this
change in prior reporting periods on an as-if basis.
|
HP INC. AND SUBSIDIARIESSEGMENT INFORMATION(Unaudited)(In
millions) |
|
|
Six months ended |
|
April 30, 2019 |
|
April 30, 2018 |
Net revenue:(a) |
|
|
|
Personal Systems |
$ |
18,578 |
|
|
$ |
18,202 |
|
Printing |
10,172 |
|
|
10,317 |
|
Corporate Investments |
1 |
|
|
2 |
|
Total segments |
28,751 |
|
|
28,521 |
|
Other |
(5 |
) |
|
(1 |
) |
Total net revenue |
$ |
28,746 |
|
|
$ |
28,520 |
|
|
|
|
|
Earnings before
taxes:(a),(b) |
|
|
|
Personal Systems |
$ |
795 |
|
|
$ |
664 |
|
Printing |
1,660 |
|
|
1,636 |
|
Corporate Investments |
(48 |
) |
|
(40 |
) |
Total segment earnings from operations |
2,407 |
|
|
2,260 |
|
Corporate costs and eliminations |
(177 |
) |
|
(78 |
) |
Stock-based compensation expense |
(173 |
) |
|
(148 |
) |
Restructuring and other charges |
(124 |
) |
|
(88 |
) |
Acquisition-related charges |
(21 |
) |
|
(87 |
) |
Amortization of intangible assets |
(58 |
) |
|
(40 |
) |
Interest and other, net |
(71 |
) |
|
(831 |
) |
Earnings before taxes |
$ |
1,783 |
|
|
$ |
988 |
|
- Effective at the beginning of its first quarter of fiscal year
2019, HP implemented an organizational change to align its business
unit financial reporting more closely with its current business
structure. The organizational change resulted in the transfer of
certain Samsung-branded product categories 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. The reporting change had no impact to previously
reported segment net revenue, consolidated net revenue, earnings
from operations, net earnings or net EPS.
- Pursuant to adoption of ASU 2017-07 in the first quarter of
fiscal year 2019, HP now reclassifies market-related retirement
credits and all other components (excluding service cost component)
of net periodic benefit cost to Interest and other, net in
Consolidated Condensed Statement of Earnings. HP reflected this
change in prior reporting periods on an as-if basis.
|
HP INC. AND SUBSIDIARIESSEGMENT/BUSINESS UNIT
INFORMATION(Unaudited)(In millions) |
|
|
Three months
ended |
|
Change
(%) |
|
April 30, 2019 |
|
January 31, 2019 |
|
April 30, 2018 |
|
Q/Q |
|
Y/Y |
Net revenue:(a) |
|
|
|
|
|
|
|
|
|
Personal Systems |
|
|
|
|
|
|
|
|
|
Notebooks |
$ |
5,099 |
|
|
$ |
5,919 |
|
|
$ |
5,153 |
|
|
(14 |
)% |
|
(1 |
)% |
Desktops |
2,940 |
|
|
2,857 |
|
|
2,752 |
|
|
3 |
% |
|
7 |
% |
Workstations |
569 |
|
|
562 |
|
|
538 |
|
|
1 |
% |
|
6 |
% |
Other |
313 |
|
|
319 |
|
|
319 |
|
|
(2 |
)% |
|
(2 |
)% |
Total Personal Systems |
8,921 |
|
|
9,657 |
|
|
8,762 |
|
|
(8 |
)% |
|
2 |
% |
Printing |
|
|
|
|
|
|
|
|
|
Supplies |
3,331 |
|
|
3,267 |
|
|
3,434 |
|
|
2 |
% |
|
(3 |
)% |
Commercial Hardware |
1,179 |
|
|
1,090 |
|
|
1,145 |
|
|
8 |
% |
|
3 |
% |
Consumer Hardware |
606 |
|
|
699 |
|
|
662 |
|
|
(13 |
)% |
|
(8 |
)% |
Total Printing |
5,116 |
|
|
5,056 |
|
|
5,241 |
|
|
1 |
% |
|
(2 |
)% |
Corporate Investments(b) |
— |
|
|
1 |
|
|
1 |
|
|
NM |
|
NM |
Total segments |
14,037 |
|
|
14,714 |
|
|
14,004 |
|
|
(5 |
)% |
|
— |
% |
Other(b) |
(1 |
) |
|
(4 |
) |
|
(1 |
) |
|
NM |
|
NM |
Total net revenue |
$ |
14,036 |
|
|
$ |
14,710 |
|
|
$ |
14,003 |
|
|
(5 |
)% |
|
— |
% |
- Effective at the beginning of its first quarter of fiscal year
2019, HP implemented an organizational change to align its business
unit financial reporting more closely with its current business
structure. The organizational change resulted in the transfer of
certain Samsung-branded product categories 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. The reporting change had no impact to previously
reported segment net revenue, consolidated net revenue, earnings
from operations, net earnings or net EPS.
- "NM" represents not meaningful.
|
HP INC. AND SUBSIDIARIESSEGMENT/BUSINESS UNIT
INFORMATION(Unaudited)(In millions) |
|
|
Six months ended |
|
Change (%) |
|
April 30, 2019 |
|
April 30, 2018 |
|
Y/Y |
Net revenue:(a) |
|
|
|
|
|
Personal Systems |
|
|
|
|
|
Notebooks |
$ |
11,018 |
|
|
$ |
10,748 |
|
|
3 |
% |
Desktops |
5,797 |
|
|
5,707 |
|
|
2 |
% |
Workstations |
1,131 |
|
|
1,081 |
|
|
5 |
% |
Other |
632 |
|
|
666 |
|
|
(5 |
)% |
Total Personal Systems |
18,578 |
|
|
18,202 |
|
|
2 |
% |
Printing |
|
|
|
|
|
Supplies |
6,598 |
|
|
6,785 |
|
|
(3 |
)% |
Commercial Hardware |
2,269 |
|
|
2,182 |
|
|
4 |
% |
Consumer Hardware |
1,305 |
|
|
1,350 |
|
|
(3 |
)% |
Total Printing |
10,172 |
|
|
10,317 |
|
|
(1 |
)% |
Corporate Investments(b) |
1 |
|
|
2 |
|
|
NM |
|
Total segments |
28,751 |
|
|
28,521 |
|
|
1 |
% |
Other(b) |
(5 |
) |
|
(1 |
) |
|
NM |
|
Total net revenue |
$ |
28,746 |
|
|
$ |
28,520 |
|
|
1 |
% |
- Effective at the beginning of its first quarter of fiscal year
2019, HP implemented an organizational change to align its business
unit financial reporting more closely with its current business
structure. The organizational change resulted in the transfer of
certain Samsung-branded product categories 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. The reporting change had no impact to previously
reported segment net revenue, consolidated net revenue, earnings
from operations, net earnings or net EPS.
- "NM" represents not meaningful.
|
HP INC. AND SUBSIDIARIESSEGMENT OPERATING MARGIN
SUMMARY(Unaudited) |
|
|
Three months ended |
|
Change in Operating Margin (pts) |
|
April 30, 2019 |
|
January 31, 2019 |
|
April 30, 2018 |
|
Q/Q |
|
Y/Y |
Segment operating
margin:(a) |
|
|
|
|
|
|
|
|
|
Personal Systems |
4.3 |
% |
|
4.2 |
% |
|
3.8 |
% |
|
0.1 |
pts |
|
0.5 |
pts |
Printing |
16.4 |
% |
|
16.2 |
% |
|
16.0 |
% |
|
0.2 |
pts |
|
0.4 |
pts |
Corporate Investments(b) |
NM |
|
|
NM |
|
|
NM |
|
|
NM |
|
NM |
Total segments |
8.5 |
% |
|
8.2 |
% |
|
8.2 |
% |
|
0.3 |
pts |
|
0.3 |
pts |
- Effective at the beginning of its first quarter of fiscal year
2019, HP implemented an organizational change to align its business
unit financial reporting more closely with its current business
structure. The organizational change resulted in the transfer of
certain Samsung-branded product categories 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. The reporting change had no impact to previously
reported segment net revenue, consolidated net revenue, earnings
from operations, net earnings or net EPS.
- "NM" represents not meaningful.
|
HP INC. AND SUBSIDIARIESCALCULATION OF DILUTED NET EARNINGS
PER SHARE(Unaudited)(In millions, except per share amounts) |
|
|
Three months
ended |
|
April 30, 2019 |
|
January 31, 2019 |
|
April 30, 2018 |
Numerator: |
|
|
|
|
|
GAAP net earnings |
$ |
782 |
|
|
$ |
803 |
|
|
$ |
1,058 |
|
Non-GAAP net earnings |
$ |
821 |
|
|
$ |
809 |
|
|
$ |
798 |
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
Weighted-average shares used to compute basic net earnings per
share |
1,529 |
|
|
1,556 |
|
|
1,630 |
|
Dilutive effect of employee stock plans(a) |
7 |
|
|
11 |
|
|
16 |
|
Weighted-average shares used to compute diluted net earnings per
share |
1,536 |
|
|
1,567 |
|
|
1,646 |
|
|
|
|
|
|
|
GAAP diluted net earnings per
share |
$ |
0.51 |
|
|
$ |
0.51 |
|
|
$ |
0.64 |
|
Non-GAAP diluted net earnings per
share |
$ |
0.53 |
|
|
$ |
0.52 |
|
|
$ |
0.48 |
|
- 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) |
|
|
Six months ended |
|
April 30, 2019 |
|
April 30, 2018 |
Numerator: |
|
|
|
GAAP net earnings |
$ |
1,585 |
|
|
$ |
2,996 |
|
Non-GAAP net earnings |
$ |
1,630 |
|
|
$ |
1,601 |
|
|
|
|
|
Denominator: |
|
|
|
Weighted-average shares used to compute basic net earnings per
share |
1,543 |
|
|
1,640 |
|
Dilutive effect of employee stock plans(a) |
8 |
|
|
18 |
|
Weighted-average shares used to compute diluted net earnings per
share |
1,551 |
|
|
1,658 |
|
|
|
|
|
GAAP diluted net earnings per
share |
$ |
1.02 |
|
|
$ |
1.81 |
|
Non-GAAP diluted net earnings per
share |
$ |
1.05 |
|
|
$ |
0.97 |
|
- 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 and free cash flow.
These non-GAAP financial measures are not computed in accordance
with, or as an alternative to, GAAP in the United States.
Reconciliations of these non-GAAP financial measures to the most
directly comparable GAAP financial measures 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 calculated by
translating current period revenues using monthly average exchange
rates from the comparative period and excluding any hedging impact
recognized in the current 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 or diluted net EPS excluding those same charges, debt
extinguishment cost, tax adjustments and the amount of additional
taxes or tax benefits associated with each non-GAAP item. HP’s
management uses these non-GAAP financial measures for purposes of
evaluating HP’s historical and prospective financial performance,
as well as HP’s performance relative to its competitors. HP’s
management also uses these non-GAAP measures to further its own
understanding of HP’s segment operating performance. HP believes
that excluding the items mentioned above 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
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, as well as non-cash adjustments to
the fair value of certain acquired assets such as inventory. 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 in other
periods.
- HP incurs charges relating to the amortization of intangible
assets. Those charges are included in HP’s GAAP earnings, operating
margin, net earnings and diluted net EPS. 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 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.
- HP incurred debt extinguishment costs related to the March 2018
repurchase of certain of its outstanding U.S. dollar global notes.
These costs primarily included bond repurchase premiums and losses
from fair value hedges. HP excludes these costs 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.
- Tax adjustments include U.S. tax reform adjustment and net tax
indemnification amounts.
- HP recorded U.S. tax reform adjustment as one-time charges
relating to the enactment of the Tax Cuts and Jobs Act of 2017.
These charges encompass several elements, including the reversal of
previously accrued taxes on unrepatriated overseas profits, a
one-time transition tax on accumulated overseas profits and the
revaluation of deferred tax assets and liabilities to the new U.S.
tax rate. HP has completed the accounting for the tax effects of
the Tax Cuts and Jobs Act within the one year measurement period.
However, new guidance issued by regulators and new positions taken
or elections made by HP may materially impact the provision for
income taxes and effective tax rate in the period in which the
adjustments are made.
- As a part of the separation of Hewlett Packard Enterprise
Company from HP Inc. (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 also recorded other tax adjustments including tax benefits
primarily related to the realizability of certain deferred tax
assets.
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.
Free cash flow is a non-GAAP measure that is defined as cash
flow from operations less the net of investments in and proceeds
from sales 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 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, and tax
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
certain 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 total operating expense, non-GAAP
operating profit, 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) 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.
Editorial contacts
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