HPQ
$21.91
Hewlett-Packard
($.01)
(.05%)
Earnings Details
1st Quarter January 2018
Thursday, February 22, 2018 4:06:43 PM
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Summary

Hewlett-Packard Beats

Hewlett-Packard (HPQ) reported 1st Quarter January 2018 earnings of $0.48 per share on revenue of $14.5 billion. The consensus earnings estimate was $0.42 per share on revenue of $13.4 billion. The Earnings Whisper number was $0.43 per share. Revenue grew 14.5% on a year-over-year basis.

The company said it expects second quarter earnings of $0.45 to $0.49 per share and fiscal 2018 earnings of $1.90 to $2.00 per share. The company's previous guidance was for 2018 earnings of $1.75 to $1.85 per share. The current consensus earnings estimate is $0.43 per share for the quarter ending April 30, 2018 and $1.81 per share for the year ending October 31, 2018.

Hewlett-Packard Company is a provider of products, technologies, software, solutions & services to individual consumers, small- and medium-sized businesses and large enterprises, including customers in the government, health and education sectors.

Results
Reported Earnings
$0.48
Earnings Whisper
$0.43
Consensus Estimate
$0.42
Reported Revenue
$14.52 Bil
Revenue Estimate
$13.43 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

HP Inc. Reports Fiscal 2018 First Quarter Results

HP (HPQ)

??? First quarter GAAP diluted net earnings per share of $1.16, above the previously provided outlook of $0.38 to $0.42 per share
??? First quarter non-GAAP diluted net earnings per share of $0.48, above the previously provided outlook of $0.40 to $0.43 per share
??? First quarter net revenue of $14.5 billion, up 14% (up 13% in constant currency) from the prior-year period
??? First quarter net cash provided by operating activities of $996 million
??? First quarter free cash flow of $977 million
??? First quarter returned $692 million to shareholders in the form of share repurchases and dividends
HP Inc.’s fiscal 2018 first quarter financial performance
Q1 FY18
Q1 FY17
Y/Y
GAAP net revenue ($B)
$
14.5
$
12.7
14%
GAAP operating margin
6.7%
6.7%
flat
GAAP net earnings ($B)
$
1.9
$
0.6
217%
GAAP diluted net earnings per share
$
1.16
$
0.36
222%
Non-GAAP operating margin
7.0%
7.1%
(0.1)pts
Non-GAAP net earnings ($B)
$
0.8
$
0.6
24%
Non-GAAP diluted net earnings per share
$
0.48
$
0.38
26%
Net cash provided by operating activities ($B)
$
1.0
$
0.8
30%
Free cash flow ($B)
$
1.0
$
0.7
33%

Notes to table

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

Net revenue and EPS results

HP Inc. ("HP") announced Fiscal 2018 first quarter net revenue of $14.5 billion, up 14% (up 13% in constant currency) from the prior-year period.

First quarter GAAP diluted net EPS was $1.16, up from $0.36 in the prior-year period and above the previously provided outlook of $0.38 to $0.42. First quarter non-GAAP diluted net EPS was $0.48, up from $0.38 in the prior-year period and above the previously provided outlook of $0.40 to $0.43. First quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax adjustments of $1.1 billion, or $0.68 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), net tax indemnification amounts and US tax reform adjustment.

"We’re coming out of the gate strong in Q1, with double digit revenue and EPS growth year over year," said Dion Weisler, President and CEO, HP Inc. "Our impressive results spanned all segments and all regions, reflecting our innovative product portfolio and global execution."

Asset management

HP’s net cash provided by operating activities in the first quarter was $996 million. Accounts receivable ended the quarter at $4.4 billion, down 2 days quarter over quarter to 27 days. Inventory ended the quarter at $5.7 billion, down 3 days quarter over quarter to 43 days. Accounts payable ended the quarter at $12.8 billion, down 8 days quarter over quarter to 97 days.

HP generated $977 million of free cash flow in the first quarter of fiscal 2018. Free cash flow includes net cash provided by operating activities and net investments in property, plant and equipment of $19 million.

HP’s dividend payment of $0.1393 per share in the first quarter resulted in cash usage of $0.2 billion. HP also utilized $0.5 billion of cash during the quarter to repurchase approximately 21.2 million shares of common stock in the open market. As a result, HP returned 71% of its free cash flow to shareholders in the first quarter of fiscal 2018. HP exited the quarter with $6.7 billion in gross cash, which includes cash and cash equivalents and short-term investments of $1.3 billion included in other current assets.

Fiscal 2018 first quarter segment results

Personal Systems net revenue was up 15% year over year (up 13% in constant currency) with a 3.6% operating margin. Commercial net revenue increased 16% and Consumer net revenue increased 13%. Total units were up 7% with Notebooks units up 8% and Desktops units up 6%.

Printing net revenue was up 14% year over year (up 12% in constant currency) with a 15.8% operating margin. Total hardware units were up 14% with Commercial hardware units up 73% and Consumer hardware units up 7%. Supplies net revenue was up 10% (up 10% in constant currency).

Outlook

For the fiscal 2018 second quarter, HP estimates GAAP diluted net EPS to be in the range of $0.42 to $0.46 and non-GAAP diluted net EPS to be in the range of $0.45 to $0.49. Fiscal 2018 second quarter non-GAAP diluted net EPS estimates exclude $0.03 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, US tax reform adjustment, net valuation allowances and discontinued operations and the related tax impact on these items.

For fiscal 2018, HP raises estimates for GAAP diluted net EPS to be in the range of $2.53 to $2.63 and non-GAAP diluted net EPS to be in the range of $1.90 to $2.00. Fiscal 2018 non-GAAP diluted net EPS estimates exclude $0.63 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, US tax reform adjustment, net valuation allowances and discontinued operations 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 www.hp.com/investor/home.

HP’s FY18 Q1 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2018Q1Webcast.

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. (HPQ) is available at http://www.hp.com.

Use of non-GAAP financial information

To supplement HP’s consolidated condensed financial statements presented on a generally accepted accounting principles ("GAAP") basis, HP provides 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 and free cash flow. 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, operating margin, net earnings, diluted net EPS, cash provided by operating activities or cash and cash equivalents prepared in accordance with GAAP.

Forward-looking statements

This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP 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, 2017, 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 quarter ended January 31, 2018 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 SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)
Three months ended
January 31,
October 31,
January 31,
2018
2017
2017
Net revenue
$
14,517
$
13,927
$
12,684
Costs and expenses:
Cost of revenue
11,935
11,407
10,436
Research and development
347
291
296
Selling, general and administrative
1,168
1,176
1,017
Restructuring and other charges
31
113
63
Acquisition-related charges
42
49
16
Amortization of intangible assets
20
--
--
Defined benefit plan settlement charges
1
1
--
Total costs and expenses
13,544
13,037
11,828
Earnings from operations
973
890
856
Interest and other, net
(68
)
(42
)
(81
)
Earnings before taxes
905
848
775
Provision for taxes
1,033
(188
)
(164
)
Net earnings
$
1,938
$
660
$
611
Net earnings per share:
Basic
$
1.17
$
0.40
$
0.36
Diluted
$
1.16
$
0.39
$
0.36
Cash dividends declared per share
$
0.28
$
--
$
0.27
Weighted-average shares used to compute net earnings per share:
Basic
1,650
1,670
1,704
Diluted
1,669
1,687
1,721
HP INC. AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts)
Three
Diluted
Three
Diluted
Three
Diluted
months
net
months
net
months
net
ended
earnings
ended
earnings
ended
earnings
January
per share
October
per share
January
per share
31, 2018
31, 2017
31, 2017
GAAP net earnings
$
1,938
$
1.16
$
660
$
0.39
$
611
$
0.36
Non-GAAP adjustments:
Restructuring and other charges
31
0.02
113
0.06
63
0.04
Acquisition-related charges
42
0.02
49
0.03
16
0.01
Amortization of intangible assets
20
0.01
--
--
--
--
Non-operating retirement-related credits (56
)
(0.03
)
(34
)
(0.02
)
(32
)
(0.02
)
Defined benefit plan settlement charges
1
--
1
--
--
--
Tax indemnification credits
2
--
(23
)
(0.01
)
(9
)
(0.01
)
Adjustments for taxes
(30
)
(0.02
)
(17
)
(0.01
)
(3
)
--
US tax reform adjustment
(1,145
)
(0.68
)
--
--
--
--
Non-GAAP net earnings
$
803
$
0.48
$
749
$
0.44
$
646
$
0.38
GAAP earnings from operations
$
973
$
890
$
856
Non-GAAP adjustments:
Restructuring and other charges
31
113
63
Acquisition-related charges
42
49
16
Amortization of intangible assets
20
--
--
Non-operating retirement-related credits (56
)
(34
)
(32
)
Defined benefit plan settlement charges
1
1
--
Non-GAAP earnings from operations
$
1,011
$
1,019
$
903
GAAP operating margin
7
%
6
%
7
%
Non-GAAP adjustments
0
%
1
%
0
%
Non-GAAP operating margin
7
%
7
%
7
%
HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In millions)
As of
January 31,
October 31,
2018
2017
ASSETS
Current assets:
Cash and cash equivalents
$
5,475
$
6,997
Accounts receivable
4,396
4,414
Inventory
5,655
5,786
Other current assets
5,691
5,121
Total current assets
21,217
22,318
Property, plant and equipment
2,026
1,878
Goodwill
5,935
5,622
Other non-current assets
6,067
3,095
Total assets
$
35,245
$
32,913
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Notes payable and short-term borrowings
$
1,529
$
1,072
Accounts payable
12,848
13,279
Employee compensation and benefits
706
894
Taxes on earnings
213
214
Deferred revenue
1,039
1,012
Other accrued liabilities
7,014
5,941
Total current liabilities
23,349
22,412
Long-term debt
6,340
6,747
Other non-current liabilities
8,298
7,162
Stockholders’ deficit
(2,742
)
(3,408
)
Total liabilities and stockholders’ deficit $
35,245
$
32,913
HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three months ended January 31
2018
2017
Cash flows from operating activities:
Net earnings
$
1,938
$
611
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
129
84
Stock-based compensation expense
85
75
Restructuring and other charges
31
63
Deferred taxes on earnings
(3,713
)
67
Other, net
13
19
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
272
614
Inventory
364
(69
)
Accounts payable
(478
)
(116
)
Taxes on earnings
2,463
(75
)
Restructuring and other
(133
)
(51
)
Other assets and liabilities
25
(455
)
Net cash provided by operating activities
996
767
Cash flows from investing activities:
Investment in property, plant and equipment
(129
)
(101
)
Proceeds from sale of property, plant and equipment
110
69
Purchases of available-for-sale securities and other investments
(268
)
(2
)
Maturities and sales of available-for-sale securities and other investments
139
2
Collateral posted for derivative instruments
(608
)
(54
)
Collateral returned for derivative instruments
53
--
Payment made in connection with business acquisitions, net of cash acquired
(1,020
)
--
Net cash used in investing activities
(1,723
)
(86
)
Cash flows from financing activities:
(Payments) proceeds from short-term borrowings with original maturities less than 90 days, net (106
)
35
Proceeds from short-term borrowings with original maturities greater than 90 days
200
--
Proceeds from debt, net of issuance costs
--
5
Payment of short-term borrowings with original maturities greater than 90 days
(118
)
(3
)
Payment of debt
(41
)
(24
)
Settlement of cash flow hedges
--
(4
)
Net proceeds related to stock-based award activities
(38
)
(34
)
Repurchase of common stock
(462
)
(386
)
Cash dividends paid
(230
)
(227
)
Net cash used in financing activities
(795
)
(638
)
Increase (decrease) in cash and cash equivalents
(1,522
)
43
Cash and cash equivalents at beginning of period
6,997
6,288
Cash and cash equivalents at end of period
$
5,475
$
6,331
HP INC. AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Three months ended
January 31, 2018
October 31, 2017
January 31, 2017
Net revenue:
Personal Systems
$
9,440
$
9,067
$
8,216
Printing
5,076
4,859
4,464
Corporate Investments
1
1
2
Total segments
14,517
13,927
12,682
Other
--
--
2
Total net revenue
$
14,517
$
13,927
$
12,684
Earnings from operations before taxes:
Personal Systems
$
337
$
341
$
312
Printing
801
805
714
Corporate Investments
(19
)
(18
)
(23
)
Total segment earnings from operations
1,119
1,128
1,003
Corporate and unallocated costs and other
(23
)
(54
)
(25
)
Stock-based compensation expense
(85
)
(55
)
(75
)
Restructuring and other charges
(31
)
(113
)
(63
)
Acquisition-related charges
(42
)
(49
)
(16
)
Amortization of intangible assets
(20
)
--
--
Non-operating retirement-related credits
56
34
32
Defined benefit plan settlement charges
(1
)
(1
)
--
Interest and other, net
(68
)
(42
)
(81
)
Total earnings before taxes from operations $
905
$
848
$
775

(a) Effective at the beginning of its first quarter of fiscal year 2018, HP implemented an organizational change to align its segment and business unit financial reporting more closely with its current business structure. The organizational change resulted in the transfer of a portion of long life consumables from Commercial to Supplies within the Printing segment. Certain revenues related to service arrangements which are being eliminated for the purposes of reporting HP’s consolidated net revenue, have now been reclassified from Other to segments. HP has reflected this change to its segment and business unit information in prior reporting periods on an as-if basis. The reporting change had no impact to previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.

HP INC. AND SUBSIDIARIES
SEGMENT/BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
Three months ended
Change (%)
January 31,
October 31,
January 31,
Q/Q
Y/Y
2018
2017
2017
Net revenue:
Personal Systems
Notebooks
$
5,595
$
5,391
$
4,890
4
%
14
%
Desktops
2,955
2,821
2,534
5
%
17
%
Workstations
543
526
491
3
%
11
%
Other
347
329
301
5
%
15
%
Total Personal Systems 9,440
9,067
8,216
4
%
15
%
Printing
Supplies
3,351
3,156
3,035
6
%
10
%
Commercial Hardware
1,070
1,077
839
(1 )%
28
%
Consumer Hardware
655
626
590
5
%
11
%
Total Printing
5,076
4,859
4,464
4
%
14
%
Corporate Investments
1
1
2
-- %
(50 )%
Total segments
14,517
13,927
12,682
4
%
14
%
Other
--
--
2
NM
NM
Total net revenue
$
14,517
$
13,927
$
12,684
4
%
14
%

(a) Effective at the beginning of its first quarter of fiscal year 2018, HP implemented an organizational change to align its segment and business unit financial reporting more closely with its current business structure. The organizational change resulted in the transfer of a portion of long life consumables from Commercial to Supplies within the Printing segment. Certain revenues related to service arrangements which are being eliminated for the purposes of reporting HP’s consolidated net revenue, have now been reclassified from Other to segments. HP has reflected this change to its segment and business unit information in prior reporting periods on an as-if basis. The reporting change had no impact to previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.

(b) "NM" represents not meaningful.

HP INC. AND SUBSIDIARIES
SEGMENT OPERATING MARGIN SUMMARY DATA
(Unaudited)
Three months ended
Change in Operating Margin (pts)
January 31,
October 31,
January 31,
Q/Q
Y/Y
2018
2017
2017
Segment operating margin:
Personal Systems
3.6%
3.8%
3.8%
(0.2) pts
(0.2) pts
Printing
15.8%
16.6%
16.0%
(0.8) pts
(0.2) pts
Corporate Investments
NM
NM
NM
NM
NM
Total segments
7.7%
8.1%
7.9%
(0.4) pts
(0.2) pts

(a) Effective at the beginning of its first quarter of fiscal year 2018, HP implemented an organizational change to align its segment and business unit financial reporting more closely with its current business structure. The organizational change resulted in the transfer of a portion of long life consumables from Commercial to Supplies within the Printing segment. Certain revenues related to service arrangements which are being eliminated for the purposes of reporting HP’s consolidated net revenue, have now been reclassified from Other to segments. HP has reflected this change to its segment and business unit information in prior reporting periods on an as-if basis. The reporting change had no impact to previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.

(b) "NM" represents not meaningful.

HP INC. AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts)
Three months ended
January 31, October 31,
January 31,
2018
2017
2017
Numerator:
GAAP net earnings
$
1,938
$
660
$
611
Non-GAAP net earnings
$
803
$
749
$
646
Denominator:
Weighted-average shares used to compute basic net earnings per share
1,650
1,670
1,704
Dilutive effect of employee stock plans
19
17
17
Weighted-average shares used to compute diluted net earnings per share 1,669
1,687
1,721
GAAP diluted net earnings per share
$
1.16
$
0.39
$
0.36
Non-GAAP diluted net earnings per share
$
0.48
$
0.44
$
0.38

(a) Includes any dilutive effect of restricted stock units, stock options and performance-based awards.

HP INC. AND SUBSIDIARIES
FISCAL 2017 SEGMENT / BUSINESS UNIT INFORMATION (Revised)
(Unaudited)
(In millions)
REVISED AMOUNTS
AMOUNTS AS PREVIOUSLY REPORTED
CHANGE
Three months ended
Twelve
Three months ended
Twelve
Three months ended
Twelve
months
months
months
ended
ended
ended
Jan 31,
Apr 30,
July 31,
Oct 31,
Oct 31,
Jan 31,
Apr 30,
July 31,
Oct 31,
Oct 31,
Jan 31,
Apr 30,
July 31,
Oct 31,
Oct 31,
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
Net revenue:
Personal Systems
Notebooks
$
4,890
$
4,493
$
5,008
$
5,391
$
19,782
$
4,890
$
4,493
$
5,008
$
5,391
$
19,782
$
--
$
--
$
--
$
--
$
--
Desktops
2,534
2,377
2,566
2,821
10,298
2,534
2,377
2,566
2,821
10,298
--
--
--
--
--
Workstations
491
495
530
526
2,042
491
495
530
526
2,042
--
--
--
--
--
Other
301
288
281
329
1,199
309
297
300
346
1,252
(8
)
(9
)
(19
)
(17
)
(53
)
Total Personal Systems 8,216
7,653
8,385
9,067
33,321
8,224
7,662
8,404
9,084
33,374
(8
)
(9
)
(19
)
(17
)
(53
)
Printing
Supplies
3,035
3,188
3,145
3,156
12,524
3,007
3,157
3,120
3,132
12,416
28
31
25
24
108
Commercial Hardware
839
936
940
1,077
3,792
886
982
986
1,119
3,973
(47
)
(46
)
(46
)
(42
)
(181
)
Consumer Hardware
590
604
592
626
2,412
590
604
592
626
2,412
--
--
--
--
--
Total Printing
4,464
4,728
4,677
4,859
18,728
4,483
4,743
4,698
4,877
18,801
(19
)
(15
)
(21
)
(18
)
(73
)
Corporate Investments
2
3
2
1
8
2
3
2
1
8
--
--
--
--
--
Total segments
12,682
12,384
13,064
13,927
52,057
12,709
12,408
13,104
13,962
52,183
(27
)
(24
)
(40
)
(35
)
(126
)
Other
2
1
(4
)
--
(1
)
(25
)
(23
)
(44
)
(35
)
(127
)
27
24
40
35
126
Total net revenue
$
12,684
$
12,385
$
13,060
$
13,927
$
52,056
$
12,684
$
12,385
$
13,060
$
13,927
$
52,056
$
--
$
--
$
--
$
--
$
--

(a) Effective at the beginning of its first quarter of fiscal year 2018, HP implemented an organizational change to align its segment and business unit financial reporting more closely with its current business structure. The organizational change resulted in the transfer of a portion of long life consumables from Commercial to Supplies within the Printing segment. Certain revenues related to service arrangements, which are being eliminated for the purposes of reporting HP’s consolidated net revenue, have now been reclassified from Other to segments. HP has reflected this change to its segment and business unit information in prior reporting periods on an as-if basis. The reporting change had no impact to previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.

HP INC. AND SUBSIDIARIES
FISCAL 2016 SEGMENT / BUSINESS UNIT INFORMATION (Revised)
(Unaudited)
(In millions)
REVISED AMOUNTS
AMOUNTS AS PREVIOUSLY REPORTED
CHANGE
Three months ended
Twelve
Three months ended
Twelve
Three months ended
Twelve
months
months
months
ended
ended
ended
Jan 31,
Apr 30,
July 31,
Oct 31,
Oct 31,
Jan 31,
Apr 30,
July 31,
Oct 31,
Oct 31,
Jan 31,
Apr 30,
July 31,
Oct 31,
Oct 31,
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
Net revenue:
Personal Systems
Notebooks
$
4,205
$
3,838
$
4,303
$
4,636
$
16,982
$
4,205
$
3,838
$
4,303
$
4,636
$
16,982
$
--
$
--
$
--
$
--
$
--
Desktops
2,527
2,402
2,455
2,572
9,956
2,527
2,402
2,455
2,572
9,956
--
--
--
--
--
Workstations
444
461
476
489
1,870
444
461
476
489
1,870
--
--
--
--
--
Other
291
284
277
286
1,138
291
289
278
321
1,179
--
(5
)
(1
)
(35
)
(41
)
Total Personal Systems 7,467
6,985
7,511
7,983
29,946
7,467
6,990
7,512
8,018
29,987
--
(5
)
(1
)
(35
)
(41
)
Printing
Supplies
3,127
3,125
2,865
2,864
11,981
3,101
3,099
2,840
2,835
11,875
26
26
25
29
106
Commercial Hardware
892
915
940
1,045
3,792
964
957
1,007
1,107
4,035
(72
)
(42
)
(67
)
(62
)
(243
)
Consumer Hardware
577
581
576
616
2,350
577
581
576
616
2,350
--
--
--
--
--
Total Printing
4,596
4,621
4,381
4,525
18,123
4,642
4,637
4,423
4,558
18,260
(46
)
(16
)
(42
)
(33
)
(137
)
Corporate Investments
3
3
--
1
7
3
3
--
1
7
--
--
--
--
--
Total segments
12,066
11,609
11,892
12,509
48,076
12,112
11,630
11,935
12,577
48,254
(46
)
(21
)
(43
)
(68
)
(178
)
Other
180
(21
)
--
3
162
134
(42
)
(43
)
(65
)
(16
)
46
21
43
68
178
Total net revenue
$
12,246
$
11,588
$
11,892
$
12,512
$
48,238
$
12,246
$
11,588
$
11,892
$
12,512
$
48,238
$
--
$
--
$
--
$
--
$
--

(a) Effective at the beginning of its first quarter of fiscal year 2018, HP implemented an organizational change to align its segment and business unit financial reporting more closely with its current business structure. The organizational change resulted in the transfer of a portion of long life consumables from Commercial to Supplies within the Printing segment. Certain revenues related to service arrangements, which are being eliminated for the purposes of reporting HP’s consolidated net revenue, have now been reclassified from Other to segments. HP has reflected this change to its segment and business unit information in prior reporting periods on an as-if basis. The reporting change had no impact to previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.

HP INC. AND SUBSIDIARIES
FISCAL 2017 SEGMENT INFORMATION (Revised)
(Unaudited)
(In millions)
REVISED AMOUNTS
AMOUNTS AS PREVIOUSLY REPORTED
CHANGE
Three months ended
Twelve
Three months ended
Twelve
Three months ended
Twelve
months
months
months
ended
ended
ended
Jan 31,
Apr 30,
July 31,
Oct 31,
Oct 31,
Jan 31,
Apr 30,
July 31,
Oct 31,
Oct 31,
Jan 31,
Apr 30,
July 31,
Oct 31,
Oct 31,
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
Net revenue:
Personal Systems
$
8,216
$
7,653
$
8,385
$
9,067
$
33,321
$
8,224
$
7,662
$
8,404
$
9,084
$
33,374
$
(8 )
$
(9 )
$
(19 )
$
(17 )
$
(53 )
Printing
4,464
4,728
4,677
4,859
18,728
4,483
4,743
4,698
4,877
18,801
(19
)
(15
)
(21
)
(18
)
(73
)
Corporate Investments
2
3
2
1
8
2
3
2
1
8
--
--
--
--
--
Total segments
12,682
12,384
13,064
13,927
52,057
12,709
12,408
13,104
13,962
52,183
(27
)
(24
)
(40
)
(35
)
(126
)
Other
2
1
(4
)
--
(1
)
(25
)
(23
)
(44
)
(35
)
(127
)
27
24
40
35
126
Total net revenue
$
12,684
$
12,385
$
13,060
$
13,927
$
52,056
$
12,684
$
12,385
$
13,060
$
13,927
$
52,056
$
--
$
--
$
--
$
--
$
--
Earnings before taxes:
Personal Systems
$
312
$
244
$
313
$
341
$
1,210
$
313
$
244
$
313
$
343
$
1,213
$
(1 )
$
--
$
--
$
(2
)
$
(3
)
Printing
714
820
807
805
3,146
716
825
813
807
3,161
(2
)
(5
)
(6
)
(2
)
(15
)
Corporate Investments
(23
)
(26
)
(20
)
(18
)
(87
)
(23
)
(26
)
(20
)
(18
)
(87
)
--
--
--
--
--
Total segments
1,003
1,038
1,100
1,128
4,269
1,006
1,043
1,106
1,132
4,287
(3
)
(5
)
(6
)
(4
)
(18
)
Corporate and unallocated costs and other
(25
)
(43
)
(46
)
(54
)
(168
)
(28
)
(48
)
(52
)
(58
)
(186
)
3
5
6
4
18
Stock-based compensation expense
(75
)
(48
)
(46
)
(55
)
(224
)
(75
)
(48
)
(46
)
(55
)
(224
)
--
--
--
--
--
Restructuring and other charges
(63
)
(140
)
(46
)
(113
)
(362
)
(63
)
(140
)
(46
)
(113
)
(362
)
--
--
--
--
--
Acquisition and other related charges
(16
)
(20
)
(40
)
(49
)
(125
)
(16
)
(20
)
(40
)
(49
)
(125
)
--
--
--
--
--
Amortization of intangible assets
--
(1
)
--
--
(1
)
--
(1
)
--
--
(1
)
--
--
--
--
--
Non-operating retirement-related credits
32
35
34
34
135
32
35
34
34
135
--
--
--
--
--
Defined benefit plan settlement credits (expense) --
(3
)
(1
)
(1
)
(5
)
--
(3
)
(1
)
(1
)
(5
)
--
--
--
--
--
Interest and other, net
(81
)
(64
)
(56
)
(42
)
(243
)
(81
)
(64
)
(56
)
(42
)
(243
)
--
--
--
--
--
Total earnings before taxes
$
775
$
754
$
899
$
848
$
3,276
$
775
$
754
$
899
$
848
$
3,276
$
--
$
--
$
--
$
--
$
--

(a) Effective at the beginning of its first quarter of fiscal year 2018, HP implemented an organizational change to align its segment and business unit financial reporting more closely with its current business structure. The organizational change resulted in the transfer of a portion of long life consumables from Commercial to Supplies within the Printing segment. Certain revenues related to service arrangements, which are being eliminated for the purposes of reporting HP’s consolidated net revenue, have now been reclassified from Other to segments. HP has reflected this change to its segment and business unit information in prior reporting periods on an as-if basis.The reporting change had no impact to previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.

HP INC. AND SUBSIDIARIES
FISCAL 2016 SEGMENT INFORMATION (Revised)
(Unaudited)
(In millions)
REVISED AMOUNTS
AMOUNTS AS PREVIOUSLY REPORTED
CHANGE
Three months ended
Twelve
Three months ended
Twelve
Three months ended
Twelve
months
months
months
ended
ended
ended
Jan 31,
Apr 30,
July 31,
Oct 31,
Oct 31,
Jan 31,
Apr 30,
July 31,
Oct 31,
Oct 31,
Jan 31,
Apr 30,
July 31,
Oct 31,
Oct 31,
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
Net revenue:
Personal Systems
$
7,467
$
6,985
$
7,511
$
7,983
$
29,946
$
7,467
$
6,990
$
7,512
$
8,018
$
29,987
$
--
$
(5 )
$
(1 )
$
(35 )
$
(41 )
Printing
4,596
4,621
4,381
4,525
18,123
4,642
4,637
4,423
4,558
18,260
(46
)
(16
)
(42
)
(33
)
(137
)
Corporate Investments
3
3
--
1
7
3
3
--
1
7
--
--
--
--
--
Total segments
12,066
11,609
11,892
12,509
48,076
12,112
11,630
11,935
12,577
48,254
(46
)
(21
)
(43
)
(68
)
(178
)
Other
180
(21
)
--
3
162
134
(42
)
(43
)
(65
)
(16
)
46
21
43
68
178
Total net revenue
$
12,246
$
11,588
$
11,892
$
12,512
$
48,238
$
12,246
$
11,588
$
11,892
$
12,512
$
48,238
$
--
$
--
$
--
$
--
$
--
Earnings before taxes:
Personal Systems
$
229
$
242
$
334
$
345
$
1,150
$
229
$
242
$
333
$
346
$
1,150
$
--
$
--
$
1
$
(1
)
$
--
Printing
780
801
900
633
3,114
787
801
903
637
3,128
(7
)
--
(3
)
(4
)
(14
)
Corporate Investments
(23
)
(8
)
(35
)
(32
)
(98
)
(23
)
(8
)
(35
)
(32
)
(98
)
--
--
--
--
--
Total segments
986
1,035
1,199
946
4,166
993
1,035
1,201
951
4,180
(7
)
--
(2
)
(5
)
(14
)
Corporate and unallocated costs and other
(9
)
(88
)
(43
)
(34
)
(174
)
(16
)
(88
)
(45
)
(39
)
(188
)
7
--
2
5
14
Stock-based compensation expense
(61
)
(40
)
(39
)
(42
)
(182
)
(61
)
(40
)
(39
)
(42
)
(182
)
--
--
--
--
--
Restructuring and other charges
(20
)
(100
)
(36
)
(49
)
(205
)
(20
)
(100
)
(36
)
(49
)
(205
)
--
--
--
--
--
Acquisition and other related charges
--
--
--
(7
)
(7
)
--
--
--
(7
)
(7
)
--
--
--
--
--
Amortization of intangible assets
(8
)
(6
)
(2
)
--
(16
)
(8
)
(6
)
(2
)
--
(16
)
--
--
--
--
--
Non-operating retirement-related credits
40
40
38
28
146
40
40
38
28
146
--
--
--
--
--
Defined benefit plan settlement credits (expense) --
--
--
(179
)
(179
)
--
--
--
(179
)
(179
)
--
--
--
--
--
Interest and other, net
(94
)
(5
)
(36
)
347
212
(94
)
(5
)
(36
)
347
212
--
--
--
--
--
Total earnings before taxes
$
834
$
836
$
1,081
$
1,010
$
3,761
$
834
$
836
$
1,081
$
1,010
$
3,761
$
--
$
--
$
--
$
--
$
--

(a) Effective at the beginning of its first quarter of fiscal year 2018, HP implemented an organizational change to align its segment and business unit financial reporting more closely with its current business structure. The organizational change resulted in the transfer of a portion of long life consumables from Commercial to Supplies within the Printing segment. Certain revenues related to service arrangements, which are being eliminated for the purposes of reporting HP’s consolidated net revenue, have now been reclassified from Other to segments. HP has reflected this change to its segment and business unit information in prior reporting periods on an as-if basis. The reporting change had no impact to previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.

Use of non-GAAP financial measures

To 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 each of these non-GAAP financial measures to GAAP information are included in the tables above or elsewhere in the materials accompanying this news release.

Use and economic substance of non-GAAP financial measures

Net 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, net tax indemnifications and US tax reform adjustment. 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, 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.

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 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.

HP recorded US 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 US tax rate. These charges are provisional based on reasonable estimates. Changes to these estimates, new guidance issued by regulators and new positions taken or elections made by HP may materially impact provision for income taxes and effective tax rate in the period in which the adjustments are made. HP expects the accounting for the tax effects of the Tax Cuts and Jobs Act will be completed during the measurement period, which should not extend beyond the fourth fiscal quarter of 2018. HP believes these adjustments facilitate a better evaluation of its current operating performance and comparisons to HP’s past 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 measures

These 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, US tax reform adjustment 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 measures

HP compensates for the limitations on its use of non-GAAP financial measures by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this news release and in other written materials that include these non-GAAP financial measures, and HP encourages investors to review those reconciliations carefully.

Usefulness of non-GAAP financial measures to investors

HP 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.

(C) Copyright 2018 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.

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