February 20, 2014 at 16:04 PM EST
HP Reports Fiscal 2014 First Quarter Results

PALO ALTO, CA -- (Marketwired) -- 02/20/14 -- HP (NYSE: HPQ)

  • First quarter non-GAAP diluted net earnings per share of $0.90, up 10% from the prior-year period, versus the previously provided outlook of $0.82 to $0.86 per share
  • First quarter GAAP diluted net earnings per share of $0.74, up 17% from the prior-year period, versus the previously provided outlook of $0.60 to $0.64 per share
  • First quarter net revenue of $28.2 billion, down 1% from the prior-year period and flat on a constant currency basis
  • First quarter cash flow from operations of $3.0 billion, up 17% from the prior-year period
  • Returned $843 million to shareholders in the form of dividends and share repurchases in the first quarter
  • Improved operating company net cash position by $1.6 billion, the eighth consecutive quarterly improvement of over $1 billion

HP fiscal 2014 first quarter financial performance


                                              Q1 FY14    Q1 FY13       Y/Y
GAAP net revenue ($B)                       $    28.2  $    28.4        (1%)
GAAP operating margin                             7.1%       6.2% 0.9 pts.
GAAP net earnings ($B)                      $     1.4  $     1.2        16%
GAAP diluted net earnings per share         $    0.74  $    0.63        17%
Non-GAAP operating margin                         8.5%       7.9% 0.6 pts.
Non-GAAP net earnings ($B)                  $     1.7  $     1.6         9%
Non-GAAP diluted net earnings per share     $    0.90  $    0.82        10%
Cash flow from operations ($B)              $     3.0  $     2.6        17%

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

HP today announced financial results for its fiscal 2014 first quarter ended Jan. 31, 2014.

First quarter GAAP diluted net earnings per share (EPS) was $0.74, up from $0.63 in the prior-year period and above the previously provided outlook of $0.60 to $0.64. First quarter non-GAAP diluted net EPS was $0.90, up from $0.82 in the prior-year period and above the previously provided outlook of $0.82 to $0.86. First quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $317 million and $0.16 per diluted share, respectively, related to the amortization of intangible assets, restructuring charges and acquisition-related charges.

First quarter net revenue of $28.2 billion was down 1% from the prior-year period and flat on a constant currency basis.

"HP is in a stronger position today than we've been in quite some time," said Meg Whitman, HP president and chief executive officer. "The progress we're making is reflected in growth across several parts of our portfolio, the growing strength of our balance sheet, and the strong support we're receiving from customers and channel partners. Innovation is igniting our comeback, and at a time when many of our competitors are confronting new challenges, two years of turnaround work is setting us up for an exciting future."

Outlook
For the fiscal 2014 second quarter, HP estimates non-GAAP diluted net EPS to be in the range of $0.85 to $0.89 and GAAP diluted net EPS to be in the range of $0.62 to $0.66. Fiscal 2014 second quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.23 per share, related primarily to the amortization of intangible assets and restructuring charges.

For fiscal 2014, HP estimates non-GAAP diluted net EPS to be in the range of $3.60 to $3.75 and GAAP diluted net EPS to be in the range of $2.85 to $3.00. Fiscal 2014 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.75 per share, related primarily to the amortization of intangible assets and restructuring charges.

Asset management
HP generated $3.0 billion in cash flow from operations in the first quarter, up 17% from the prior-year period. Inventory ended the quarter at $6.0 billion, down 1 day year over year to 25 days. Accounts receivable ended the quarter at $13.5 billion, down 2 days year over year at 43 days. Accounts payable ended the quarter at $12.6 billion, up 4 days year over year to 52 days. HP's dividend payment of $0.1452 per share in the first quarter resulted in cash usage of $278 million. HP also utilized $565 million of cash during the quarter to repurchase approximately 20.4 million shares of common stock in the open market. HP exited the quarter with $16.4 billion in gross cash.

Fiscal 2014 first quarter segment results

  • Personal Systems revenue was up 4% year over year with a 3.3% operating margin. Commercial revenue increased 8% and Consumer revenue declined 3%. Total units were up 6% with Desktops units down 3% and Notebooks units up 5%.
  • Printing revenue was down 2% year over year with a 16.8% operating margin. Total hardware units were up 5% with Commercial hardware units up 6% and Consumer hardware units up 4%. Supplies revenue was down 3%.
  • Enterprise Group revenue was up 1% year over year with a 14.4% operating margin. Industry Standard Servers revenue was up 6%, Storage revenue was flat, Business Critical Systems revenue was down 25%, Networking revenue was up 4% and Technology Services revenue was down 4%.
  • Enterprise Services revenue was down 7% year over year with a 1% operating margin. Application and Business Services revenue was down 4%, and Infrastructure Technology Outsourcing revenue declined 9%.
  • Software revenue was down 4% year over year with a 15.8% operating margin. Support revenue was down 2%, license revenue was down 6%, professional services revenue was down 12% and software-as-a-service (SaaS) revenue was up 6%.
  • HP Financial Services revenue was down 9% year over year with a 6% decrease in net portfolio assets and an 18% increase in financing volume. The business delivered an operating margin of 11.6%.
  • Corporate Investments revenue increased due to the sale of a portfolio of mobile computing intellectual property.

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 Q1 FY14 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2014Q1webcast.

About HP
HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. With the broadest technology portfolio spanning printing, personal systems, software, services and IT infrastructure, HP delivers solutions for customers' most complex challenges in every region of the world. More information about HP 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 revenue on a constant currency basis, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net debt, net cash, operating company net debt and operating company net cash. HP also provides forecasts of non-GAAP diluted net earnings per share. 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 management'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 revenue, operating profit, operating margin, net earnings, diluted net earnings per share, cash and cash equivalents, cash flow from operations or total company debt 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 revenue, margins, expenses, HP's effective tax rate, net earnings, net earnings per share, cash flows, benefit plan funding, share repurchases, currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring charges; any statements of the plans, strategies and objectives of management for future operations, including the execution of restructuring plans and any resulting cost savings or revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on 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 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 and partners; the hiring and retention of key employees; integration and other risks associated with business combination and investment transactions; the execution, timing and results of restructuring plans, including estimates and assumptions related to the cost and the anticipated benefits of implementing those 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, 2013 and HP's other filings with the Securities and Exchange Commission. As in prior periods, the financial information set forth in this release, including 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 actual reported amounts in HP's Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2014. HP assumes no obligation and does not intend to update these forward-looking statements.



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


                                                 Three months ended
                                         ----------------------------------
                                           Jan 31,     Oct 31,     Jan 31,
                                            2014        2013        2013
                                         ----------  ----------  ----------

Net revenue                              $   28,154  $   29,131  $   28,359

Costs and expenses:
  Cost of sales                              21,736      22,437      22,029
  Research and development                      811         729         794
  Selling, general and administrative         3,210       3,351       3,300
  Amortization of intangible assets             283         317         350
  Restructuring charges                         114         371         130
  Acquisition-related charges                     3           3           4
                                         ----------  ----------  ----------
    Total costs and expenses                 26,157      27,208      26,607
                                         ----------  ----------  ----------

Earnings from operations                      1,997       1,923       1,752

Interest and other, net                        (163)       (103)       (179)
                                         ----------  ----------  ----------

Earnings before taxes                         1,834       1,820       1,573

Provision for taxes                            (409)       (406)       (341)
                                         ----------  ----------  ----------

Net earnings                             $    1,425  $    1,414  $    1,232
                                         ==========  ==========  ==========

Net earnings per share:
  Basic                                  $     0.75  $     0.74  $     0.63
  Diluted                                $     0.74  $     0.73  $     0.63

Cash dividends declared per share        $     0.29  $        -  $     0.26


Weighted-average shares used to compute
 net earnings per share:
  Basic                                       1,907       1,918       1,953
  Diluted                                     1,935       1,940       1,956



                  HEWLETT-PACKARD COMPANY 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
                    Jan 31,     per    Oct 31,     per    Jan 31,     per
                      2014     share     2013     share     2013     share
                    -------  --------  -------  --------  -------  --------

GAAP net earnings   $ 1,425  $   0.74  $ 1,414  $   0.73  $ 1,232  $   0.63

Non-GAAP
 adjustments:
  Amortization of
   intangible assets    283      0.15      317      0.16      350      0.18
  Restructuring
   charges              114      0.06      371      0.19      130      0.07
  Acquisition-
   related charges        3         -        3         -        4         -
  Adjustments for
   taxes                (83)    (0.05)    (146)    (0.07)    (111)    (0.06)
                    -------  --------  -------  --------  -------  --------
Non-GAAP net
 earnings           $ 1,742  $   0.90  $ 1,959  $   1.01  $ 1,605  $   0.82
                    =======  ========  =======  ========  =======  ========


GAAP earnings from
 operations         $ 1,997            $ 1,923            $ 1,752

Non-GAAP
 adjustments:
  Amortization of
   intangible assets    283                317                350
  Restructuring
   charges              114                371                130
  Acquisition-
   related charges        3                  3                  4
                    -------            -------            -------
Non-GAAP earnings
 from operations    $ 2,397            $ 2,614            $ 2,236
                    =======            =======            =======

GAAP operating
 margin                   7%                 7%                 6%
Non-GAAP adjustments      2%                 2%                 2%
                    -------            -------            -------
Non-GAAP operating
 margin                   9%                 9%                 8%
                    =======            =======            =======



                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                    CONSOLIDATED CONDENSED BALANCE SHEETS
                                (In millions)


                                                    January 31,  October 31,
                                                        2014         2013
                                                    -----------  -----------
                                                    (Unaudited)
ASSETS

Current assets:
  Cash and cash equivalents                         $    16,165  $    12,163
  Accounts receivable                                    13,492       15,876
  Financing receivables                                   3,054        3,144
  Inventory                                               6,004        6,046
  Other current assets                                   11,969       13,135
                                                    -----------  -----------

    Total current assets                                 50,684       50,364
                                                    -----------  -----------

Property, plant and equipment                            11,259       11,463

Long-term financing receivables and other assets          9,131        9,556

Goodwill and intangible assets                           33,951       34,293
                                                    -----------  -----------

Total assets                                        $   105,025  $   105,676
                                                    ===========  ===========


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Notes payable and short-term borrowings           $     6,621  $     5,979
  Accounts payable                                       12,640       14,019
  Employee compensation and benefits                      3,171        4,436
  Taxes on earnings                                       1,224        1,203
  Deferred revenue                                        6,754        6,477
  Other accrued liabilities                              13,201       13,407
                                                    -----------  -----------

    Total current liabilities                            43,611       45,521
                                                    -----------  -----------

Long-term debt                                           17,971       16,608

Other liabilities                                        15,294       15,891

Stockholders' equity:
  HP stockholders' equity                                27,754       27,269
  Non-controlling interests                                 395          387
                                                    -----------  -----------

    Total stockholders' equity                           28,149       27,656
                                                    -----------  -----------

Total liabilities and stockholders' equity          $   105,025  $   105,676
                                                    ===========  ===========



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


                                                      Three months ended
                                                   ------------------------
                                                   January 31,  January 31,
                                                       2014         2013
                                                   -----------  -----------
Cash flows from operating activities:
  Net earnings                                     $     1,425  $     1,232
  Adjustments to reconcile net earnings to net
   cash provided by operating activities:
    Depreciation and amortization                        1,117        1,163
    Stock-based compensation expense                       170          184
    Provision for doubtful accounts and inventory           57          124
    Restructuring charges                                  114          130
    Deferred taxes on earnings                               9          500
    Excess tax benefit from stock-based
     compensation                                          (27)           -
    Other, net                                             (33)         167

    Changes in operating assets and liabilities:
      Accounts receivable                                2,391        2,148
      Financing receivables                                296           98
      Inventory                                            (19)        (149)
      Accounts payable                                  (1,165)      (1,690)
      Taxes on earnings                                    170         (423)
      Restructuring                                       (381)        (237)
      Other assets and liabilities                      (1,134)        (685)
                                                   -----------  -----------
        Net cash provided by operating activities        2,990        2,562
                                                   -----------  -----------

Cash flows from investing activities:
    Investment in property, plant and equipment           (997)        (633)
    Proceeds from sale of property, plant and
     equipment                                             450          127
    Purchases of available-for-sale securities and
     other investments                                    (135)        (299)
    Maturities and sales of available-for-sale
     securities and other investments                      465          161
                                                   -----------  -----------
        Net cash used in investing activities             (217)        (644)
                                                   -----------  -----------

Cash flows from financing activities:
    Issuance (repayment) of commercial paper and
     notes payable, net                                      2         (105)
    Issuance of debt                                     2,005           45
    Payment of debt                                        (45)        (114)
    Issuance of common stock under employee stock
     plans                                                  83           55
    Repurchase of common stock                            (565)        (253)
    Excess tax benefit from stock-based
     compensation                                           27            -
    Cash dividends paid                                   (278)        (258)
                                                   -----------  -----------
        Net cash provided by (used in) financing
         activities                                      1,229         (630)
                                                   -----------  -----------

Increase in cash and cash equivalents                    4,002        1,288
Cash and cash equivalents at beginning of period        12,163       11,301
                                                   -----------  -----------
Cash and cash equivalents at end of period         $    16,165  $    12,589
                                                   ===========  ===========



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

                                                Three months ended
                                      -------------------------------------
                                      January 31,  October 31,  January 31,
                                          2014         2013         2013
                                      -----------  -----------  -----------
Net revenue:(a)

  Personal Systems                    $     8,530  $     8,604  $     8,232
  Printing                                  5,815        6,047        5,946
                                      -----------  -----------  -----------
    Total Printing and Personal
     Systems Group                         14,345       14,651       14,178
  Enterprise Group                          6,993        7,575        6,948
  Enterprise Services                       5,595        5,918        6,038
  Software                                    916        1,093          951
  HP Financial Services                       870          912          957
  Corporate Investments                       288            5            4
                                      -----------  -----------  -----------
    Total segments                         29,007       30,154       29,076
  Elimination of intersegment net
   revenue and other                         (853)      (1,023)        (717)
                                      -----------  -----------  -----------

    Total HP consolidated net revenue $    28,154  $    29,131  $    28,359
                                      ===========  ===========  ===========

Earnings before taxes:(a)

  Personal Systems                    $       279  $       265  $       233
  Printing                                    979        1,081          967
                                      -----------  -----------  -----------
    Total Printing and Personal
     Systems Group                          1,258        1,346        1,200
  Enterprise Group                          1,006        1,092        1,070
  Enterprise Services                          57          255           76
  Software                                    145          330          155
  HP Financial Services                       101          102          101
  Corporate Investments                       121          (86)         (73)
                                      -----------  -----------  -----------
    Total segment earnings from
     operations                             2,688        3,039        2,529

  Corporate and unallocated costs and
   eliminations                              (121)        (323)        (109)
  Unallocated costs related to stock-
   based compensation expense                (170)        (102)        (184)
  Amortization of intangible assets          (283)        (317)        (350)
  Restructuring charges                      (114)        (371)        (130)
  Acquisition-related charges                  (3)          (3)          (4)
  Interest and other, net                    (163)        (103)        (179)
                                      -----------  -----------  -----------

    Total HP consolidated earnings
     before taxes                     $     1,834  $     1,820  $     1,573
                                      ===========  ===========  ===========

(a)  Effective at the beginning of its first quarter of fiscal 2014, HP
     implemented certain organizational changes to align its segment
     financial reporting more closely with its current business structure.
     These organizational changes include (i) transferring the HP Exstream
     business from the Commercial Hardware business unit within the Printing
     segment to the Software segment; (ii) transferring the Personal Systems
     trade and warranty support business from the Technology Services
     business unit within the Enterprise Group segment to the Other business
     unit within the Personal Systems segment; (iii) transferring the spare
     and replacement parts business supporting the Personal Systems and
     Printing segments from the Technology Services business unit within the
     Enterprise Group segment to the Other business unit within the Personal
     Systems segment and the Commercial Hardware business unit within the
     Printing segment, respectively; and (iv) transferring certain cloud-
     related incubation activities previously reported in Corporate and
     unallocated costs and eliminations and in the Enterprise Group segment
     to the Corporate Investments segment. In addition, HP transferred
     certain intrasegment eliminations from the Enterprise Services segment
     and the Enterprise Group segment to corporate intersegment revenue
     eliminations.

     HP reflected these changes to its segment information in prior
     reporting periods on an as-if basis, which resulted in the transfer of
     revenue among the Personal Systems, Printing, the Enterprise Group,
     Enterprise Services and Software segments. These changes also resulted
     in the transfer of operating profit among the Personal Systems,
     Printing, the Enterprise Group, Software and Corporate Investments
     segments. These changes had no impact on HP's previously reported
     consolidated net revenue, earnings from operations, net earnings or net
     earnings per share.



                 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
                    SEGMENT / BUSINESS UNIT INFORMATION
                                (Unaudited)
                               (In millions)

                                                              Growth rate
                                Three months ended                (%)
                      -------------------------------------  -------------
                      January 31,  October 31,  January 31,
                          2014         2013         2013      Q/Q     Y/Y
                      -----------  -----------  -----------  -----   -----
Net revenue:(a)

  Printing and
   Personal Systems
   Group
    Personal Systems
      Notebooks       $     4,335  $     4,461  $     4,128     (3%)     5%
      Desktops              3,274        3,273        3,321      0%     (1%)
      Workstations            533          554          535     (4%)     0%
      Other                   388          316          248     23%     56%
                      -----------  -----------  -----------
        Total
         Personal
         Systems            8,530        8,604        8,232     (1%)     4%
                      -----------  -----------  -----------

    Printing
      Supplies              3,795        3,862        3,893     (2%)    (3%)
      Commercial
       Hardware             1,347        1,554        1,374    (13%)    (2%)
      Consumer
       Hardware               673          631          679      7%     (1%)
                      -----------  -----------  -----------
        Total
         Printing           5,815        6,047        5,946     (4%)    (2%)
                      -----------  -----------  -----------
          Total
           Printing
           and
           Personal
           Systems
           Group           14,345       14,651       14,178     (2%)     1%
                      -----------  -----------  -----------

    Enterprise Group
      Industry
       Standard
       Servers              3,178        3,451        2,994     (8%)     6%
      Technology
       Services             2,123        2,182        2,207     (3%)    (4%)
      Storage                 834          952          833    (12%)     0%
      Networking              630          656          608     (4%)     4%
      Business
       Critical
       Systems                228          334          306    (32%)   (25%)
                      -----------  -----------  -----------
        Total
         Enterprise
         Group              6,993        7,575        6,948     (8%)     1%
                      -----------  -----------  -----------

    Enterprise
     Services
      Infrastructure
       Technology
       Outsourcing          3,501        3,722        3,855     (6%)    (9%)
      Application and
       Business
       Services             2,094        2,196        2,183     (5%)    (4%)
                      -----------  -----------  -----------
        Total
         Enterprise
         Services           5,595        5,918        6,038     (5%)    (7%)
                      -----------  -----------  -----------

    Software                  916        1,093          951    (16%)    (4%)
                      -----------  -----------  -----------

    HP Financial
     Services                 870          912          957     (5%)    (9%)
                      -----------  -----------  -----------

    Corporate
     Investments              288            5            4     NM      NM
                      -----------  -----------  -----------
        Total
         segments          29,007       30,154       29,076     (4%)     0%
                      -----------  -----------  -----------

    Elimination of
     intersegment net
     revenue and
     other                   (853)      (1,023)        (717)   (17%)    19%
                      -----------  -----------  -----------

      Total HP
       consolidated
       net revenue    $    28,154  $    29,131  $    28,359     (3%)    (1%)
                      ===========  ===========  ===========

(a)  Effective at the beginning of its first quarter of fiscal 2014, HP
     implemented certain organizational changes to align its segment
     financial reporting more closely with its current business structure.
     These organizational changes include (i) transferring the HP Exstream
     business from the Commercial Hardware business unit within the Printing
     segment to the Software segment; (ii) transferring the Personal Systems
     trade and warranty support business from the Technology Services
     business unit within the Enterprise Group segment to the Other business
     unit within the Personal Systems segment; (iii) transferring the spare
     and replacement parts business supporting the Personal Systems and
     Printing segments from the Technology Services business unit within the
     Enterprise Group segment to the Other business unit within the Personal
     Systems segment and the Commercial Hardware business unit within the
     Printing segment, respectively; and (iv) transferring certain cloud-
     related incubation activities previously reported in Corporate and
     unallocated costs and eliminations and in the Enterprise Group segment
     to the Corporate Investments segment. In addition, HP transferred
     certain intrasegment eliminations from the Enterprise Services segment
     and the Enterprise Group segment to corporate intersegment revenue
     eliminations.

     HP reflected these changes to its segment information in prior
     reporting periods on an as-if basis, which resulted in the transfer of
     revenue among the Personal Systems, Printing, the Enterprise Group,
     Enterprise Services and Software segments. These changes had no impact
     on HP's previously reported consolidated net revenue, earnings from
     operations, net earnings or net earnings per share.



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


                                   Three months  Change in Operating Margin
                                       ended                (pts)
                                   ------------  --------------------------
                                   January 31,
                                       2014           Q/Q           Y/Y
                                   ------------  ------------  ------------

Segment operating margin:(a)
  Personal Systems                          3.3%      0.2 pts       0.5 pts
  Printing                                 16.8%     (1.1 pts)      0.5 pts
    Printing and Personal Systems
     Group                                  8.8%     (0.4 pts)      0.3 pts

  Enterprise Group                         14.4%            -      (1.0 pts)
  Enterprise Services                       1.0%     (3.3 pts)     (0.3 pts)
  Software                                 15.8%    (14.4 pts)     (0.5 pts)
  HP Financial Services                    11.6%      0.4 pts       1.0 pts
  Corporate Investments                    42.0%           NM            NM
    Total segments                          9.3%     (0.8 pts)      0.6 pts

(a) Effective at the beginning of its first quarter of fiscal 2014, HP
    implemented certain organizational changes to align its segment
    financial reporting more closely with its current business structure.
    These organizational changes include (i) transferring the HP Exstream
    business from the Commercial Hardware business unit within the Printing
    segment to the Software segment; (ii) transferring the Personal Systems
    trade and warranty support business from the Technology Services
    business unit within the Enterprise Group segment to the Other business
    unit within the Personal Systems segment; (iii) transferring the spare
    and replacement parts business supporting the Personal Systems and
    Printing segments from the Technology Services business unit within the
    Enterprise Group segment to the Other business unit within the Personal
    Systems segment and the Commercial Hardware business unit within the
    Printing segment, respectively; and (iv) transferring certain cloud-
    related incubation activities previously reported in Corporate and
    unallocated costs and eliminations and in the Enterprise Group segment
    to the Corporate Investments segment. In addition, HP transferred
    certain intrasegment eliminations from the Enterprise Services segment
    and the Enterprise Group segment to corporate intersegment revenue
    eliminations.

    HP reflected these changes to its segment information in prior
    reporting periods on an as-if basis, which resulted in the transfer of
    revenue among the Personal Systems, Printing, the Enterprise Group,
    Enterprise Services and Software segments. These changes also resulted
    in the transfer of operating profit among the Personal Systems,
    Printing, the Enterprise Group, Software and Corporate Investments
    segments. These changes had no impact on HP's previously reported
    consolidated net revenue, earnings from operations, net earnings or net
    earnings per share.



                  HEWLETT-PACKARD COMPANY 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,
                                           2014         2013         2013
                                       -----------  -----------  -----------

Numerator:
  GAAP net earnings                    $     1,425  $     1,414  $     1,232
                                       ===========  ===========  ===========
  Non-GAAP net earnings                $     1,742  $     1,959  $     1,605
                                       ===========  ===========  ===========

Denominator:
  Weighted-average number of shares
   outstanding duirng the reporting
   period                                    1,907        1,918        1,953
  Dilutive effect of employee stock
   plans(a)                                     28           22            3
                                       -----------  -----------  -----------
    Weighted-average number of shares
     used to compute diluted net
     earnings per share                      1,935        1,940        1,956
                                       ===========  ===========  ===========

GAAP diluted net earnings per share    $      0.74  $      0.73  $      0.63
                                       ===========  ===========  ===========
Non-GAAP diluted net earnings per
 share                                 $      0.90  $      1.01  $      0.82
                                       ===========  ===========  ===========

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

Use of non-GAAP financial measures
To supplement HP's consolidated condensed financial statements presented on a GAAP basis, HP provides revenue on a constant currency basis, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net debt, net cash, operating company net debt and operating company net cash. HP also provides forecasts of non-GAAP diluted net earnings per share. These non-GAAP financial measures are not computed in accordance with, or as an alternative to, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to revenue on a constant currency basis is revenue. The GAAP measure most directly comparable to non-GAAP operating profit is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted net earnings per share is diluted net earnings per share. The GAAP measure most directly comparable to gross cash is cash and cash equivalents. The GAAP measure most directly comparable to free cash flow is cash flow from operations. The GAAP measure most directly comparable to net debt and operating company net debt is total company debt. The GAAP measure most directly comparable to net cash and operating company net cash is cash and cash equivalents. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above or elsewhere in the materials accompanying this news release.

Use and economic substance of non-GAAP financial measures used by HP
Revenue on a constant currency basis assumes no change in the foreign exchange rate from the prior-year period. Non-GAAP operating profit and non-GAAP operating margin are defined to exclude the effects of any restructuring charges, charges relating to the impairment of goodwill and intangible assets, charges relating to the amortization of intangible assets, acquisition-related charges and charges related to the wind-down of HP businesses recorded during the relevant period. Non-GAAP net earnings and non-GAAP diluted net earnings per share consist of net earnings or diluted net earnings per share excluding those same charges. In addition, non-GAAP net earnings and non-GAAP diluted net earnings per share are adjusted by the amount of additional taxes or tax benefit associated with each non-GAAP item. HP's management uses these non-GAAP financial measures for purposes of evaluating HP's historical and prospective financial performance, as well as HP's performance relative to its competitors. HP's management also uses these non-GAAP measures to further its own understanding of HP's segment operating performance. HP believes that excluding the items mentioned above 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:

  • HP incurs charges relating to the amortization of intangible assets, including acquired research and development projects. Those charges are included in HP's GAAP presentation of earnings from operations, operating margin, net earnings and diluted net earnings per share. 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.

  • Restructuring charges are costs associated with a formal restructuring plan and are primarily related to (i) employee termination costs and benefits and (ii) costs to vacate duplicative facilities. 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 costs related to its acquisitions. As acquisition-related expenses are inconsistent in amount and frequency and are significantly impacted by the timing and nature of HP's acquisitions, HP believes that eliminating these 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 operating performance in other periods.

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. Free cash flow is defined as cash flow from operations less net capital expenditures. HP's management uses gross cash and free cash flow for the purpose of determining the amount of cash available for investment in HP's businesses, funding acquisitions, repurchasing stock and other purposes. HP's management also uses gross cash and free cash flow 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 more accurate and complete assessment of HP's liquidity. Because free cash flow includes the effect of capital expenditures that are not reflected in GAAP cash flow from operations, HP believes that free cash flow provides a more accurate and complete assessment of HP's liquidity and capital resources.

Total company net debt consists of total debt (including the effects of hedging) less gross cash, which includes cash and cash equivalents, short-term investments, and certain liquid long-term investments. Total company net cash consists of gross cash less total debt. HP Financial Services (HPFS) net debt consists of HPFS debt, which includes primarily intercompany equity that is treated as debt for segment reporting purposes, intercompany debt, and borrowing and funding related activity associated with HPFS and its subsidiaries, less HPFS cash. Total company net debt and total company net cash provide useful information to HP's management about the state of HP's consolidated balance sheet. Operating company net debt is a non-GAAP measure that is defined as total company net debt less HPFS net debt. Operating company net cash is a non-GAAP measure that is defined as total company net cash less HPFS cash less HPFS debt. Operating company net debt and operating company net cash provide additional useful information to HP's management about the state of HP's consolidated condensed balance sheet by providing more transparency into the financial components of the operating company separate from HP's financing business, which has different capital structure requirements and requires much greater leverage to run effectively.

Material limitations associated with use of non-GAAP financial measures
These non-GAAP financial measures have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of 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 loss in value is not included in non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings or non-GAAP diluted net earnings per share, and therefore does not reflect the full economic effect of the loss in value of those intangible assets.

  • Items such as restructuring charges that are excluded from non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted net earnings per share can have a material impact on cash flows and earnings per share.

  • HP may not be able to liquidate immediately the long-term investments included in gross cash, which may limit the usefulness of gross cash as a liquidity measure.

  • Other companies may calculate revenue on a constant currency basis, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net debt, net cash, operating company net debt and operating company net cash differently than HP does, 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 carefully those reconciliations.

Usefulness of non-GAAP financial measures to investors
HP believes that providing revenue on a constant currency basis, non-GAAP operating profit, non-GAAP operating margin, non-GAAP net earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net debt, net cash, operating company net debt and operating company net 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 to evaluate the efficacy of the methodology and information used by HP's management to evaluate and measure such performance. 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.

© 2014 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.

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