SOURCE: HP Inc.

HP Inc.

August 24, 2016 16:05 ET

HP Inc. Reports Third Quarter Fiscal 2016 Results

PALO ALTO, CA--(Marketwired - Aug 24, 2016) - HP (NYSE: HPQ)

  • Third quarter GAAP diluted net earnings per share from continuing operations of $0.49 -- above the previously provided outlook of $0.40 to $0.43 per share
  • Third quarter non-GAAP diluted net earnings per share from continuing operations of $0.48 -- above the previously provided outlook of $0.43 to $0.46 per share 
  • Third quarter net revenue of $11.9 billion, down 4% (down 1% in constant currency) from the prior-year period
  • Third quarter net cash provided by operating activities of $1.1 billion
  • Third quarter returned $269 million to shareholders in the form of share repurchases and dividends

HP Inc.'s fiscal 2016 third quarter financial performance

             
    Q3 FY16   Q3 FY15   Y/Y
GAAP net revenue ($B)   $11.9   $12.4   (4%)
GAAP operating margin from continuing operations   9.4%   8.1%   1.3 pts
GAAP net earnings from continuing operations ($B)   $0.8   $0.7   20%
GAAP diluted net earnings per share from continuing operations   $0.49   $0.39   26%
Non-GAAP operating margin from continuing operations   9.4%   7.4%   2.0 pts
Non-GAAP net earnings from continuing operations ($B)   $0.8   $0.6   28%
Non-GAAP diluted net earnings per share from continuing operations   $0.48   $0.35   37%
Net cash provided by operating activities ($B)(1)  
$1.1
 
$1.7
 
(36%)
             

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

(1) The consolidated condensed statement of cash flows for the three months ended July 31, 2015 represents the combined cash flows of Hewlett-Packard Company prior to the separation of Hewlett Packard Enterprise Company (the "Separation"), as previously filed, and has not been adjusted to reflect the effect of the Separation.
   

Revenue and EPS results
HP Inc. ("HP") announced third quarter net revenue of $11.9 billion, down 4% (down 1% in constant currency) from the prior-year period.

Third quarter GAAP diluted net earnings per share (EPS) from continuing operations was $0.49, up from $0.39 in the prior-year period and above the previously provided outlook of $0.40 to $0.43. Third quarter non-GAAP diluted net EPS from continuing operations was $0.48, up from $0.35 in the prior-year period and above its previously provided outlook of $0.43 to $0.46. Third quarter non-GAAP net earnings from continuing operations and non-GAAP diluted net EPS from continuing operations exclude after-tax adjustments of $17 million, or $0.01 per share, related to restructuring and other charges, amortization of intangible assets, tax indemnifications, and non-operating retirement-related credits / (charges).

"In Q3, we delivered on our financial commitments and continued to make solid progress in executing against our core, growth and future strategic framework," said Dion Weisler, President and CEO, HP Inc. "Although the markets remain challenged, we have the innovation and executional rigor needed to continue to take profitable share and invest in the right opportunities to drive long-term success for the company."

Asset management 
HP's net cash provided by operating activities in the third quarter was $1.1 billion. Accounts receivable ended the quarter at $4.0 billion, unchanged quarter over quarter at 30 days. Inventory ended the quarter at $4.0 billion, up 3 days quarter over quarter to 37 days. Accounts payable ended the quarter at $10.4 billion, up 8 days quarter over quarter to 96 days. HP's dividend payment of $0.124 per share in the third quarter resulted in cash usage of $0.2 billion. HP also utilized $0.1 billion of cash during the quarter to repurchase approximately 4.5 million shares of common stock in the open market. HP exited the quarter with $5.6 billion in gross cash, which includes cash and cash equivalents, short-term investments, and certain liquid long-term investments.

Fiscal 2016 third quarter segment results

  • Personal Systems net revenue was flat year over year (up 2% in constant currency) with a 4.4% operating margin. Commercial net revenue decreased 3% and Consumer net revenue increased 8%. Total units were up 4% with Notebooks units up 12% and Desktops units down 6%.
  • Printing net revenue was down 14% year over year (down 10% in constant currency) with a 20.4% operating margin. Total hardware units were down 10% with Commercial hardware units down 2% and Consumer hardware units down 14%. Supplies revenue was down 18% (down 13% in constant currency).

Outlook
For the fiscal 2016 fourth quarter, HP estimates GAAP diluted net EPS from continuing operations to be in the range of $0.22 to $0.25 and non-GAAP diluted net EPS from continuing operations to be in the range of $0.34 to $0.37. Fiscal 2016 fourth quarter non-GAAP diluted net EPS from continuing operations estimates exclude $0.12 per diluted share, primarily related to items such as restructuring and other charges, defined benefit plan settlement charges, non-operating retirement-related credits/(charges), tax indemnifications, net valuation allowances and separation taxes and adjustments, acquisition and other related charges and amortization of intangible assets.

For fiscal 2016, HP estimates GAAP diluted net EPS from continuing operations to be in the range of $1.46 to $1.49 and non-GAAP diluted net EPS from continuing operations to be in the range of $1.59 to $1.62. Fiscal 2016 non-GAAP diluted net EPS from continuing operations estimates exclude $0.13 per diluted share, primarily related to items such as restructuring and other charges, defined benefit plan settlement charges, non-operating retirement-related credits/(charges), tax indemnifications, net valuation allowances and separation taxes and adjustments, acquisition and other related charges and amortization of intangible assets.

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 FY16 Q3 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2016Q3Webcast.

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. 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, as well as non-GAAP operating margin from continuing operations, non-GAAP net earnings from continuing operations, non-GAAP diluted net earnings per share from continuing operations and gross cash financial measures. HP also provides forecasts of non-GAAP diluted net earnings per share from continuing operations. 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 from continuing operations, diluted net earnings per share from continuing operations 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 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 earnings per share, cash flows, benefit plan funding, deferred tax assets, share repurchases, currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring and other charges; any statements of the plans, strategies and objectives of management for future operations, including the execution of the restructuring plans and any resulting cost savings, revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing.

Risks, uncertainties and assumptions include the need to address the many challenges facing HP's businesses; the competitive pressures faced by HP's businesses; risks associated with executing HP's strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of HP's products and the delivery of HP's services effectively; the protection of HP's intellectual property assets, including intellectual property licensed from third parties; risks associated with HP's international operations; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers, clients and partners; the hiring and retention of key employees; integration and other risks associated with business combination and investment transactions; the results of the restructuring plans, including estimates and assumptions related to the cost (including any possible disruption of HP's business) and the anticipated benefits of the restructuring plans; the resolution of pending investigations, claims and disputes; and other risks that are described in HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2015, HP's Quarterly Reports on Form 10-Q for the fiscal quarters ended January 31, 2016 and April 30, 2016, and HP's other filings with the Securities and Exchange Commission.

As in prior periods, the financial information set forth in this release, including any tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be reasonable, these amounts could differ materially from reported amounts in HP's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2016. 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.

Use of non-GAAP financial measures
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 operating margin from continuing operations, non-GAAP net earnings, non-GAAP diluted net earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted net earnings per share from continuing operations.

These non-GAAP financial measures are not computed in accordance with, or as an alternative to, generally accepted accounting principles 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 assumes no change in the foreign exchange rate from the prior-year period. Non-GAAP operating margin from continuing operations is defined to exclude the effects of any charges relating to restructuring and other charges, the amortization of intangible assets, non-operating retirement-related credits/(charges) and tax indemnification amounts. Non-GAAP net earnings from continuing operations and non-GAAP diluted net earnings per share from continuing operations consist of net earnings from continuing operations or diluted net earnings per share from continuing operations excluding those same charges. In addition, non-GAAP net earnings from continuing operations and non-GAAP diluted net earnings per share from continuing operations 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. HP's management uses these non-GAAP financial measures for purposes of evaluating HP's historical and prospective financial performance, as well as HP's performance relative to its competitors. HP's management also uses these non-GAAP measures to further its own understanding of HP's segment operating performance. HP believes that excluding the items mentioned above from these non-GAAP financial measures allows HP's management to better understand HP's consolidated financial performance in relation to the operating results of HP's segments, as HP's management does not believe that the excluded items are reflective of ongoing operating results. More specifically, HP's management excludes each of those items mentioned above for the following reasons:

  • Restructuring and other charges are costs associated with a formal restructuring plan and are primarily related to (i) employee termination costs and benefits; (ii) costs of real estate consolidation and other non-labor charges; and (iii) other charges incurred in connection with the Separation. HP excludes these restructuring costs (and any reversals of charges recorded in prior periods) for purposes of calculating these non-GAAP measures because it believes that these historical costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of HP's current operating performance or comparisons to HP's operating performance in other periods.

  • HP incurs charges relating to the amortization of intangible assets. Those charges are included in HP's GAAP earnings from operations, operating margin, net earnings from continuing operations and diluted net earnings per share from continuing operations. Such charges are significantly impacted by the timing and magnitude of HP's acquisitions and any related impairment charges. Consequently, HP excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of HP's current operating performance and comparisons to HP's operating performance in other periods.

  • Non-operating retirement-related credits/(charges) includes certain market-related factors such as interest cost, expected return on plan assets, amortized actuarial gains or losses, and impacts from other market-related factors associated with our 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 tax indemnifications amounts for the quarter. HP excludes these adjustments for the purpose 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 plan benefit settlement charges relating to 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 purpose 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.

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 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 gross cash to evaluate HP's historical and prospective liquidity. Because gross cash includes liquid assets that are not included in GAAP cash and cash equivalents, HP believes that gross cash provides a helpful assessment of HP's liquidity.

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 from continuing operations, non-GAAP net earnings from continuing operations and non-GAAP diluted net earnings per share from continuing operations, 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, non-operating retirement-related credits/(charges), tax indemnifications, defined benefit plan settlement charges and net valuation allowance, separation taxes and adjustments that are excluded from non-GAAP operating margin from continuing operations, non-GAAP net earnings from continuing operations and non-GAAP diluted net earnings per share from continuing operations 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 from continuing operations, non-GAAP net earnings from continuing operations, non-GAAP diluted net earnings per share from continuing operations and gross cash to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by HP's management in its financial and operational decision making and allows investors to see HP's results "through the eyes" of management. HP further believes that providing this information better enables HP's investors to understand HP's operating performance and financial condition and to evaluate the efficacy of the methodology and information used by HP's management to evaluate and measure such performance and financial condition. Disclosure of these non-GAAP financial measures also facilitates comparisons of HP's operating performance with the performance of other companies in HP's industry that supplement their GAAP results with non-GAAP financial measures that may be calculated in a similar manner.

© Copyright 2016 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.

   
HP INC. AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS  
(Unaudited)  
(In millions, except per share amounts)  
                   
    Three months ended  
    July 31,
2016
    April 30,
2016
    July 31,
2015
 
                         
Net revenue   $ 11,892     $ 11,588     $ 12,362  
                         
Costs and expenses:                        
  Cost of revenue     9,720       9,338       10,036  
  Research and development     298       301       300  
  Selling, general and administrative     719       1,002       1,058  
  Restructuring and other charges     36       100       1  
  Amortization of intangible assets     2       6       24  
  Defined benefit plan settlement credits     -       -       (64 )
    Total costs and expenses     10,775       10,747       11,355  
                         
Earnings from continuing operations     1,117       841       1,007  
                         
Interest and other, net     (36 )     (5 )     (90 )
                         
Earnings from continuing operations before taxes     1,081       836       917  
                         
Provision for taxes     (238 )     (176 )     (217 )
                         
Net earnings from continuing operations     843       660       700  
Net (loss) earnings from discontinued operations     (60 )     (31 )     154  
                         
Net earnings   $ 783     $ 629     $ 854  
                         
Net earnings (loss) per share:                        
Basic                        
  Continuing operations   $ 0.49     $ 0.38     $ 0.39  
  Discontinued operations     (0.03 )     (0.01 )     0.08  
    Total basic net earnings per share   $ 0.46     $ 0.37     $ 0.47  
                         
Diluted                        
  Continuing operations   $ 0.49     $ 0.38     $ 0.39  
  Discontinued operations     (0.04 )     (0.02 )     0.08  
    Total diluted net earnings per share   $ 0.45     $ 0.36     $ 0.47  
                         
Cash dividends declared per share   $ 0.25     $ -     $ 0.35  
                         
Weighted-average shares used to compute net earnings per share:                        
  Basic     1,711       1,720       1,805  
  Diluted     1,725       1,731       1,828  
                         
   
HP INC. AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS  
(Unaudited)  
(In millions, except per share amounts)  
             
    Nine months ended July 31,  
    2016     2015  
                 
Net revenue   $ 35,726     $ 39,197  
                 
Costs and expenses:                
  Cost of revenue     29,019       31,624  
  Research and development     891       909  
  Selling, general and administrative     2,758       3,508  
  Restructuring and other charges     156       22  
  Amortization of intangible assets     16       76  
  Defined benefit plan settlement credits     -       (64 )
    Total costs and expenses     32,840       36,075  
                 
Earnings from continuing operations     2,886       3,122  
                 
Interest and other, net     (135 )     (289 )
                 
Earnings from continuing operations before taxes     2,751       2,833  
                 
Provision for taxes     (598 )     (630 )
                 
Net earnings from continuing operations     2,153       2,203  
Net (loss) earnings from discontinued operations     (149 )     1,028  
                 
Net earnings   $ 2,004     $ 3,231  
                 
Net earnings (loss) per share:                
Basic                
  Continuing operations   $ 1.24     $ 1.21  
  Discontinued operations     (0.08 )     0.57  
    Total basic net earnings per share   $ 1.16     $ 1.78  
                 
Diluted                
  Continuing operations   $ 1.23     $ 1.20  
  Discontinued operations     (0.08 )     0.55  
    Total diluted net earnings per share   $ 1.15     $ 1.75  
                 
Cash dividends declared per share   $ 0.50     $ 0.67  
                 
Weighted-average shares used to compute net earnings per share:                
  Basic     1,735       1,817  
  Diluted     1,747       1,842  
                 
   
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,  
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE  
(Unaudited)  
(In millions, except per share amounts)  
                                   
    Three months ended
July 31, 2016
    Diluted net earnings per share     Three months ended
April 30, 2016
    Diluted net earnings per share     Three months ended
July 31, 2015
  Diluted net earnings per share  
                                               
GAAP net earnings from continuing operations   $ 843     $ 0.49     $ 660     $ 0.38     $ 700   $ 0.39  
                                               
Non-GAAP adjustments:                                              
  Restructuring and other charges     36       0.02       100       0.06       1     -  
  Aquisition-related charges     -       -       -       -       1     -  
  Amortization of intangible assets     2       -       6       -       24     0.01  
  Non-operating retirement-related credits     (38 )     (0.02 )     (40 )     (0.02 )     (58 )   (0.03 )
  Defined benefit plan settlement credits     -       -       -       -       (64 )   (0.04 )
  Adjustments for taxes     12       0.01       (16 )     (0.01 )     42     0.02  
  Tax indemnification credits     (29 )     (0.02 )     (8 )     -       -     -  
Non-GAAP net earnings   $ 826     $ 0.48     $ 702     $ 0.41     $ 646   $ 0.35  
                                               
GAAP earnings from continuing operations   $ 1,117             $ 841             $ 1,007        
                                               
Non-GAAP adjustments:                                              
  Restructuring and other charges     36               100               1        
  Acquisition-related charges     -               -               1        
  Amortization of intangible assets     2               6               24        
  Non-operating retirement-related credits     (38 )             (40 )             (58 )      
  Defined benefit plan settlement credits     -               -               (64 )      
Non-GAAP earnings   $ 1,117             $ 907             $ 911        
                                               
GAAP operating margin from continuing operations     9 %             7 %             8 %      
Non-GAAP adjustments     0 %             1 %             (1 %)      
Non-GAAP operating margin     9 %             8 %             7 %      
                                               
   
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)  
                         
    Nine months ended
July 31, 2016
    Diluted
net earnings per share
    Nine months ended
July 31, 2015
    Diluted
net earnings
per share
 
                                 
GAAP net earnings from continuing operations   $ 2,153     $ 1.23     $ 2,203     $ 1.20  
                                 
Non-GAAP adjustments:                                
  Restructuring and other charges     156       0.09       22       0.01  
  Aquisition-related charges     -       -       1       -  
  Amortization of intangible assets     16       0.01       76       0.04  
  Non-operating retirement-related credits     (118 )     (0.07 )     (174 )     (0.10 )
  Defined benefit plan settlement credits     -       -       (64 )     (0.03 )
  Adjustments for taxes     3       -       67       0.04  
  Tax indemnification credits     (37 )     (0.02 )     -       -  
Non-GAAP net earnings   $ 2,173     $ 1.24     $ 2,131     $ 1.16  
                                 
GAAP earnings from continuing operations   $ 2,886             $ 3,122          
                                 
Non-GAAP adjustments:                                
  Restructuring and other charges     156               22          
  Acquisition-related charges     -               1          
  Amortization of intangible assets     16               76          
  Non-operating retirement-related credits     (118 )             (174 )        
  Defined benefit plan settlement credits     -               (64 )        
Non-GAAP earnings   $ 2,940             $ 2,983          
                                 
GAAP operating margin from continuing operations     8 %             8 %        
Non-GAAP adjustments     0 %             0 %        
Non-GAAP operating margin     8 %             8 %        
         
 
HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In millions)
           
    As of
    July 31,
2016
    October 31,
2015
               
ASSETS              
               
Current assets:              
  Cash and cash equivalents   $ 5,636     $ 7,584
  Accounts receivable     4,008       4,825
  Inventory     3,961       4,288
  Other current assets     3,797       4,498
  Current assets of discontinued operations     -       30,592
               
    Total current assets     17,402       51,787
               
Property, plant and equipment     1,607       1,492
Goodwill     5,618       5,680
Other non-current assets     2,597       1,592
Non-current assets of discontinued operations     -       46,331
               
Total assets   $ 27,224     $ 106,882
               
               
LIABILITIES AND STOCKHOLDERS' EQUITY              
               
Current liabilities:              
  Notes payable and short-term borrowings   $ 75     $ 2,194
  Accounts payable     10,402       10,194
  Employee compensation and benefits     712       747
  Taxes on earnings     162       243
  Deferred revenue     877       1,051
  Other accrued liabilities     5,886       6,241
  Current liabilities of discontinued operations     -       21,521
               
    Total current liabilities     18,114       42,191
               
Long-term debt     6,760       6,677
Other non-current liabilities     6,276       7,414
Non-current liabilities of discontinued operations     -       22,449
               
Stockholders' equity:              
  HP stockholders' (deficit) equity     (3,926 )     27,768
  Non-controlling interests of discontinued operations     -       383
    Total stockholders' (deficit) equity     (3,926 )     28,151
               
Total liabilities and stockholders' equity   $ 27,224     $ 106,882
               
   
HP INC. AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS  
(Unaudited)  
(In millions)  
             
    Three months ended July 31,  
    2016     2015(a)  
                 
Cash flows from operating activities:                
  Net earnings   $ 783     $ 854  
                 
  Adjustments to reconcile net earnings to net cash provided by operating activities:                
    Depreciation and amortization     85       1,023  
    Stock-based compensation expense     39       160  
    Provision for doubtful accounts and inventory     68       101  
    Restructuring and other charges     31       25  
    Deferred taxes on earnings     378       898  
    Excess tax benefit from stock-based compensation     (2 )     (6 )
    Other, net     (313 )     378  
                 
  Changes in operating assets and liabilities, net of acquisitions:                
    Accounts receivable     (166 )     (295 )
    Financing receivables     -       (53 )
    Inventory     (471 )     (520 )
    Accounts payable     1,301       534  
    Taxes on earnings     (372 )     (1,160 )
    Restructuring and other     (46 )     (303 )
    Other assets and liabilities     (250 )     37  
      Net cash provided by operating activities     1,065       1,673  
                 
Cash flows from investing activities:                
  Investment in property, plant and equipment     (81 )     (916 )
  Proceeds from sale of property, plant and equipment     -       99  
  Purchases of available-for-sale securities and other investments     -       (72 )
  Maturities and sales of available-for-sale securities and other investments     121       123  
  Payments made in connection with business acquisitions, net of cash acquired     -       (2,478 )
  Proceeds from business divestitures, net     99       156  
    Net cash provided by (used in) investing activities     139       (3,088 )
                 
Cash flows from financing activities:                
  Short-term borrowings with original maturities less than 90 days, net     33       775  
  Proceeds from debt, net of issuance costs     -       4,406  
  Payment of debt     -       (747 )
  Settlement of cash flow hedge     (2 )     (32 )
  Issuance of common stock under employee stock plans     32       80  
  Repurchase of common stock     (57 )     (352 )
  Excess tax benefit from stock-based compensation     2       6  
  Cash dividends paid     (212 )     (318 )
    Net cash (used in) provided by financing activities     (204 )     3,818  
                 
Net increase in cash and cash equivalents     1,000       2,403  
Cash and cash equivalents at beginning of period     4,636       14,768  
Cash and cash equivalents at end of period   $ 5,636     $ 17,171  
   
(a) The consolidated condensed statement of cash flows for the three months ended July 31, 2015 represents the combined cash flows of HP prior to separation, as previously filed, and has not been adjusted to reflect the effect of the separation of Hewlett Packard Enterprise Company.
   
   
HP INC. AND SUBSIDIARIES  
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS  
(Unaudited)  
(In millions)  
             
    Nine months ended July 31,  
    2016     2015(a)  
                 
Cash flows from operating activities:                
  Net earnings   $ 2,004     $ 3,231  
                 
  Adjustments to reconcile net earnings to net cash provided by operating activities:                
    Depreciation and amortization     249       3,054  
    Stock-based compensation expense     140       476  
    Provision for doubtful accounts and inventory     113       265  
    Restructuring and other charges     151       426  
    Deferred taxes on earnings     978       898  
    Excess tax benefit from stock-based compensation     (4 )     (124 )
    Other, net     (408 )     675  
                 
  Changes in operating assets and liabilities, net of acquisitions:                
    Accounts receivable     728       1,199  
    Financing receivables     -       192  
    Inventory     251       (467 )
    Accounts payable     238       (358 )
    Taxes on earnings     (877 )     (1,075 )
    Restructuring and other     (114 )     (1,006 )
    Other assets and liabilities     (917 )     (3,505 )
      Net cash provided by operating activities     2,532       3,881  
                 
Cash flows from investing activities:                
  Investment in property, plant and equipment     (287 )     (2,642 )
  Proceeds from sale of property, plant and equipment     -       310  
  Purchases of available-for-sale securities and other investments     (122 )     (180 )
  Maturities and sales of available-for-sale securities and other investments     133       246  
  Payments made in connection with business acquisitions, net of cash acquired     -       (2,617 )
  Proceeds from business divestitures, net     160       156  
    Net cash used in investing activities     (116 )     (4,727 )
                 
Cash flows from financing activities:                
  Short-term borrowings with original maturities less than 90 days, net     72       2,633  
  Proceeds from debt, net of issuance costs     4       5,993  
  Payment of debt     (2,158 )     (2,642 )
  Settlement of cash flow hedge     4       (32 )
  Net transfer of cash and cash equivalents to Hewlett Packard Enterprise Company     (10,375 )     -  
  Issuance of common stock under employee stock plans     41       303  
  Repurchase of common stock     (1,159 )     (2,582 )
  Excess tax benefit from stock-based compensation     4       124  
  Cash dividends paid     (646 )     (913 )
    Net cash (used in) provided by financing activities     (14,213 )     2,884  
                 
Net (decrease) increase in cash and cash equivalents     (11,797 )     2,038  
Cash and cash equivalents at beginning of period(a)     17,433       15,133  
Cash and cash equivalents at end of period   $ 5,636     $ 17,171  
   
(a) The consolidated condensed statement of cash flows for the nine months ended July 31, 2015 represents the combined cash flows of HP prior to separation, as previously filed, and has not been adjusted to reflect the effect of the separation of Hewlett Packard Enterprise Company.
   
   
HP INC. AND SUBSIDIARIES  
SEGMENT INFORMATION  
(Unaudited)  
(In millions)  
   
    Three months ended  
    July 31,
2016
    April 30,
2016
    July 31,
2015
 
                         
Net revenue:(a)                        
                         
  Personal Systems   $ 7,512     $ 6,990     $ 7,505  
  Printing     4,423       4,637       5,163  
  Corporate Investments     -       3       2  
    Total segments     11,935       11,630       12,670  
  Intersegment net revenue eliminations and other     (43 )     (42 )     (308 )
    Total net revenue   $ 11,892     $ 11,588     $ 12,362  
                         
Earnings from continuing operations before taxes:(a)                        
                         
  Personal Systems   $ 333     $ 242     $ 211  
  Printing     903       801       896  
  Corporate Investments     (35 )     (8 )     (12 )
    Total segment earnings from operations     1,201       1,035       1,095  
                         
  Corporate costs and eliminations     (45 )     (88 )     (126 )
  Stock-based compensation expense     (39 )     (40 )     (58 )
  Acquisition-related charges     -       -       (1 )
  Restructuring and other charges     (36 )     (100 )     (1 )
  Amortization of intangible assets     (2 )     (6 )     (24 )
  Non-operating retirement-related credits(a)     38       40       58  
  Defined benefit plan settlement credits     -       -       64  
  Interest and other, net     (36 )     (5 )     (90 )
                         
    Total earnings from continuing operations before taxes   $ 1,081     $ 836     $ 917  
   
(a) Effective at the beginning of its first quarter of fiscal 2016, HP implemented a reporting change to provide better transparency to its segment operating results. This reporting change resulted in the exclusion of 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 related to its defined benefit pension and post-retirement benefit plans from its segment operating results ("Non-operating retirement-related credits/(charges)"). This change also resulted in the exclusion of certain plan curtailments, settlements and special termination benefits related to its defined benefit pension and post-retirement benefit plans from HP's segment operating results. Segment operating results will continue to include service costs and amortization of prior service costs associated with HP's defined benefit pension and post-retirement benefit plans. The reporting change had an immaterial impact to previously reported segment net revenue and earnings from operations. This change had no impact on HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
   
HP INC. AND SUBSIDIARIES  
SEGMENT INFORMATION  
(Unaudited)  
(In millions)  
   
    Nine months ended July 31,  
    2016     2015  
                 
Net revenue:(a)                
                 
  Personal Systems   $ 21,969     $ 23,826  
  Printing     13,702       16,267  
  Corporate Investments     6       16  
    Total segments     35,677       40,109  
  Intersegment net revenue eliminations and other     49       (912 )
    Total net revenue   $ 35,726     $ 39,197  
                 
Earnings from continuing operations before taxes:(a)                
                 
  Personal Systems   $ 804     $ 741  
  Printing     2,491       2,928  
  Corporate Investments     (66 )     (32 )
    Total segment earnings from operations     3,229       3,637  
                 
  Corporate costs and eliminations     (149 )     (486 )
  Stock-based compensation expense     (140 )     (168 )
  Aquisition-related charges     -       (1 )
  Restructuring and other charges     (156 )     (22 )
  Amortization of intangible assets     (16 )     (76 )
  Non-operating retirement-related credits(a)     118       174  
  Defined benefit plan settlement credits     -       64  
  Interest and other, net     (135 )     (289 )
                 
    Total earnings from continuing operations before taxes   $ 2,751     $ 2,833  
                 
(a) Effective at the beginning of its first quarter of fiscal 2016, HP implemented a reporting change to provide better transparency to its segment operating results. This reporting change resulted in the exclusion of 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 related to its defined benefit pension and post-retirement benefit plans from its segment operating results ("Non-operating retirement-related credits/(charges)"). This change also resulted in the exclusion of certain plan curtailments, settlements and special termination benefits related to its defined benefit pension and post-retirement benefit plans from HP's segment operating results. Segment operating results will continue to include service costs and amortization of prior service costs associated with HP's defined benefit pension and post-retirement benefit plans. The reporting change had an immaterial impact to previously reported segment net revenue and earnings from operations. This change had no impact on HP's 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 (%)  
    July 31,
2016
    April 30,
2016
    July 31,
2015
    Q/Q     Y/Y  
                                     
Net revenue:(a)                                    
                                     
  Personal Systems                                    
    Notebooks   $ 4,303     $ 3,838     $ 3,993     12 %   8 %
    Desktops     2,455       2,402       2,700     2 %   (9 %)
    Workstations     476       461       507     3 %   (6 %)
    Other     278       289       305     (4 %)   (9 %)
      Total Personal Systems     7,512       6,990       7,505     7 %   0 %
                                     
  Printing                                    
    Supplies     2,840       3,099       3,455     (8 %)   (18 %)
    Commercial Hardware     1,290       1,227       1,330     5 %   (3 %)
    Consumer Hardware     293       311       378     (6 %)   (22 %)
      Total Printing     4,423       4,637       5,163     (5 %)   (14 %)
                                     
  Corporate Investments     -       3       2     (100 %)   (100 %)
      Total segments     11,935       11,630       12,670     3 %   (6 %)
                                     
  Intersegment net revenue eliminations and other(b)     (43 )     (42 )     (308 )   NM     NM  
                                     
    Total net revenue   $ 11,892     $ 11,588     $ 12,362     3 %   (4 %)
   
(a) Effective at the beginning of its first quarter of fiscal 2016, HP implemented a reporting change to provide better transparency to its segment operating results. This reporting change resulted in the exclusion of 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 related to its defined benefit pension and post-retirement benefit plans from its segment operating results ("Non-operating retirement-related credits/(charges)"). This change also resulted in the exclusion of certain plan curtailments, settlements and special termination benefits related to its defined benefit pension and post-retirement benefit plans from HP's segment operating results. Segment operating results will continue to include service costs and amortization of prior service costs associated with HP's defined benefit pension and post-retirement benefit plans. The reporting change had an immaterial impact to previously reported segment net revenue and earnings from operations. This change had no impact on HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) "NM" represents not meaningful.
   
   
HP INC. AND SUBSIDIARIES  
SEGMENT/BUSINESS UNIT INFORMATION  
(Unaudited)  
(In millions)  
             
    Nine months ended July 31,     Change (%)  
    2016   2015     Y/Y  
                     
Net revenue:(a)                    
                     
  Personal Systems                    
    Notebooks   $ 12,346   $ 12,887     (4 %)
    Desktops     7,384     8,411     (12 %)
    Workstations     1,381     1,546     (11 %)
    Other     858     982     (13 %)
      Total Personal Systems     21,969     23,826     (8 %)
                     
  Printing                    
    Supplies     9,040     10,740     (16 %)
    Commercial Hardware     3,736     4,100     (9 %)
    Consumer Hardware     926     1,427     (35 %)
      Total Printing     13,702     16,267     (16 %)
                     
  Corporate Investments     6     16     (63 %)
      Total segments     35,677     40,109     (11 %)
                     
  Intersegment net revenue eliminations and other(b)     49     (912 )   NM  
                     
    Total net revenue   $ 35,726   $ 39,197     (9 %)
   
(a) Effective at the beginning of its first quarter of fiscal 2016, HP implemented a reporting change to provide better transparency to its segment operating results. This reporting change resulted in the exclusion of 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 related to its defined benefit pension and post-retirement benefit plans from its segment operating results ("Non-operating retirement-related credits/(charges)"). This change also resulted in the exclusion of certain plan curtailments, settlements and special termination benefits related to its defined benefit pension and post-retirement benefit plans from HP's segment operating results. Segment operating results will continue to include service costs and amortization of prior service costs associated with HP's defined benefit pension and post-retirement benefit plans. The reporting change had an immaterial impact to previously reported segment net revenue and earnings from operations. This change had no impact on HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) "NM" represents not meaningful.
   
 
HP INC. AND SUBSIDIARIES
SEGMENT OPERATING MARGIN SUMMARY DATA
(Unaudited)
 
    Three months ended     Change in Operating Margin (pts)
    July 31,
2016
    April 30,
2016
    July 31,
2015
    Q/Q   Y/Y
                           
Segment operating margin:(a)                          
  Personal Systems   4.4 %   3.5 %   2.8 %   0.9 pts   1.6 pts
  Printing   20.4 %   17.3 %   17.4 %   3.1 pts   3.0 pts
  Corporate Investments(b)   NM     NM     NM     NM   NM
    Total segments   10.1 %   8.9 %   8.6 %   1.2 pts   1.5 pts
                           
(a) Effective at the beginning of its first quarter of fiscal 2016, HP implemented a reporting change to provide better transparency to its segment operating results. This reporting change resulted in the exclusion of 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 related to its defined benefit pension and post-retirement benefit plans from its segment operating results ("Non-operating retirement-related credits/(charges)"). This change also resulted in the exclusion of certain plan curtailments, settlements and special termination benefits related to its defined benefit pension and post-retirement benefit plans from HP's segment operating results. Segment operating results will continue to include service costs and amortization of prior service costs associated with HP's defined benefit pension and post-retirement benefit plans. The reporting change had an immaterial impact to previously reported segment net revenue and earnings from operations. This change had no impact on HP's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.
   
(b) "NM" represents not meaningful.
   
 
HP INC. AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts)
             
    Three months ended
    July 31,
2016
  April 30,
2016
  July 31,
2015
                   
Numerator:                  
  GAAP net earnings from continuing operations   $ 843   $ 660   $ 700
  Non-GAAP net earnings   $ 826   $ 702   $ 646
                   
Denominator:                  
  Weighted-average shares outstanding during the reporting period     1,711     1,720     1,805
  Dilutive effect of employee stock plans(a)     14     11     23
    Weighted-average shares used to compute diluted net earnings per share     1,725     1,731     1,828
                   
GAAP diluted net earnings per share from continuing operations   $ 0.49   $ 0.38   $ 0.39
Non-GAAP diluted net earnings per share   $ 0.48   $ 0.41   $ 0.35
   
(a) Includes any dilutive effect of restricted stock units, stock options and performance-based awards.
   
 
HP INC. AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts)
         
    Nine months ended July 31,
    2016   2015
             
Numerator:            
  GAAP net earnings from continuing operations   $ 2,153   $ 2,203
  Non-GAAP net earnings   $ 2,173   $ 2,131
             
Denominator:            
  Weighted-average shares outstanding during the reporting period     1,735     1,817
  Dilutive effect of employee stock plans(a)     12     25
    Weighted-average shares used to compute diluted net earnings per share     1,747     1,842
             
GAAP diluted net earnings per share from continuing operations   $ 1.23   $ 1.20
Non-GAAP diluted net earnings per share   $ 1.24   $ 1.16
   
(a) Includes any dilutive effect of restricted stock units, stock options and performance-based awards.