HP Reports Fiscal 2014 Second Quarter Results

PALO ALTO, CA--(Marketwired - May 22, 2014) -  HP (NYSE: HPQ)

• Second quarter non-GAAP diluted net earnings per share of $0.88, up 1% from the prior-year period, versus the previously provided outlook of $0.85 to $0.89 per share
• Second quarter GAAP diluted net earnings per share of $0.66, up 20% from the prior-year period, versus the previously provided outlook of $0.62 to $0.66 per share
• Second quarter net revenue of $27.3 billion, down 1% from the prior-year period and flat on a constant currency basis
• Second quarter cash flow from operations of $3.0 billion
• Returned $1.1 billion to shareholders in the form of dividends and share repurchases in the second quarter
• Improved operating company net cash by $1.0 billion, the ninth consecutive quarterly improvement of approximately $1 billion or more

HP fiscal 2014 second quarter financial performance

		Q2 FY14				Q2 FY13				Y/Y
GAAP net revenue ($B)		$	27.3			$	27.6			(1	%)
GAAP operating margin			6.7	%			5.8	%		0.9 pts.
GAAP net earnings ($B)		$	1.3			$	1.1			18	%
GAAP diluted net earnings per share		$	0.66			$	0.55			20	%
Non-GAAP operating margin			8.6	%			8.6	%		0.0 pts.
Non-GAAP net earnings ($B)		$	1.7			$	1.7			0	%
Non-GAAP diluted net earnings per share		$	0.88			$	0.87			1	%
Cash flow from operations ($B)		$	3.0			$	3.6			(16	%)

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 second quarter ended April 30, 2014. 

Second quarter GAAP diluted net earnings per share (EPS) was $0.66, up from $0.55 in the prior-year period and within its previously provided outlook of $0.62 to $0.66. Second quarter non-GAAP diluted net EPS was $0.88, up from $0.87 in the prior-year period and within its previously provided outlook of $0.85 to $0.89. Second quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $418 million and $0.22 per diluted share, respectively, related to the amortization of intangible assets, restructuring charges and acquisition-related charges.

Second quarter net revenue of $27.3 billion was down 1% from the prior-year period and flat on a constant currency basis.

"With the first half of our fiscal year completed, I'm pleased to report that HP's turnaround remains on track," said Meg Whitman, president and chief executive officer, HP. "With each passing quarter, HP is improving its systems, structures and core go-to-market capabilities. We're gradually shaping HP into a more nimble, lower-cost, more customer- and partner-centric company that can successfully compete across a rapidly changing IT landscape."

In May 2012, HP adopted a multi-year restructuring plan designed to simplify business processes, accelerate innovation, lower costs and deliver better results. HP previously estimated that 34,000 positions would be eliminated in connection with the plan. As HP continues to reengineer the workforce to be more competitive and meet its objectives, the previously estimated number of eliminated positions will increase by between 11,000 to 16,000.

Outlook
For the fiscal 2014 third quarter, HP estimates non-GAAP diluted net EPS to be in the range of $0.86 to $0.90 and GAAP diluted net EPS to be in the range of $0.59 to $0.63. Fiscal 2014 third quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.27 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 $3.63 to $3.75 and GAAP diluted net EPS to be in the range of $2.68 to $2.80. Fiscal 2014 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.95 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 second quarter, down 16% from the prior-year period. Inventory ended the quarter at $5.8 billion, down 1 day year over year to 25 days. Accounts receivable ended the quarter at $14.3 billion, down 1 day year over year at 47 days. Accounts payable ended the quarter at $13.5 billion, up 6 days year over year to 59 days. HP's dividend payment of $0.1452 per share in the second quarter resulted in cash usage of $298 million. HP also utilized $831 million of cash during the quarter to repurchase approximately 26.7 million shares of common stock in the open market. HP exited the quarter with $15.4 billion in gross cash.

Fiscal 2014 second quarter segment results

• Personal Systems revenue was up 7% year over year with a 3.5% operating margin. Commercial revenue increased 12% and Consumer revenue declined 2%. Total units were up 10% with Desktops units up 6% and Notebooks units up 6%.
• Printing revenue was down 4% year over year with a 19.5% operating margin. Total hardware units were up 1% with Commercial hardware units up 3% and Consumer hardware units flat. Supplies revenue was down 6%.
• Enterprise Group revenue was down 2% year over year with a 14.4% operating margin. Industry Standard Servers revenue was up 1%, Storage revenue was down 6%, Business Critical Systems revenue was down 14%, Networking revenue was up 6% and Technology Services revenue was down 5%. 
• Enterprise Services revenue was down 7% year over year with a 2.5% operating margin. Application and Business Services revenue was down 8%, and Infrastructure Technology Outsourcing revenue declined 7%. 
• Software revenue was flat year over year with a 19.2% operating margin. License revenue was up 8%, support revenue was down 4%, professional services revenue was up 1% and software-as-a-service (SaaS) revenue was up 6%. 
• HP Financial Services revenue was down 2% year over year with a 2% decrease in net portfolio assets and a 12% increase in financing volume. The business delivered an operating margin of 11.4%.

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 Q2 FY14 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2014Q2webcast.

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 capital expenditures, 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, capital expenditures, 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, including HP's Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2014. 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 April 30, 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
				April 30, 2014				January 31, 2014				April 30, 2013
Net revenue				$	27,309			$	28,154			$	27,582
Costs and expenses:
	Cost of sales				20,704				21,736				21,055
	Research and development				873				811				815
	Selling, general and administrative				3,391				3,210				3,342
	Amortization of intangible assets				264				283				350
	Restructuring charges				252				114				408
	Acquisition-related charges				3				3				11
		Total costs and expenses			25,487				26,157				25,981
Earnings from operations					1,822				1,997				1,601
Interest and other, net					(174	)			(163	)			(193	)
Earnings before taxes					1,648				1,834				1,408
Provision for taxes					(375	)			(409	)			(331	)
Net earnings				$	1,273			$	1,425			$	1,077
Net earnings per share:
	Basic			$	0.67			$	0.75			$	0.56
	Diluted			$	0.66			$	0.74			$	0.55
Cash dividends declared per share				$	-			$	0.29			$	-
Weighted-average shares used to compute net earnings per share:
	Basic				1,890				1,907				1,935
	Diluted				1,916				1,935				1,947

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share amounts)
				Six months ended
				April 30,
				2014				2013
Net revenue				$	55,463			$	55,941
Costs and expenses:
	Cost of sales				42,440				43,084
	Research and development				1,684				1,609
	Selling, general and administrative				6,601				6,642
	Amortization of intangible assets				547				700
	Restructuring charges				366				538
	Acquisition-related charges				6				15
		Total costs and expenses			51,644				52,588
Earnings from operations					3,819				3,353
Interest and other, net					(337	)			(372	)
Earnings before taxes					3,482				2,981
Provision for taxes					(784	)			(672	)
Net earnings				$	2,698			$	2,309
Net earnings per share:
	Basic			$	1.42			$	1.19
	Diluted			$	1.40			$	1.18
Cash dividends declared per share				$	0.29			$	0.26
Weighted-average shares used to compute net earnings per share:
	Basic				1,898				1,944
	Diluted				1,922				1,952

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 months ended April 30, 2014				Diluted net earnings per share				Three months ended January 31, 2014				Diluted net earnings per share				Three months ended April 30, 2013				Diluted net earnings per share
GAAP net earnings			$	1,273			$	0.66			$	1,425			$	0.74			$	1,077			$	0.55
Non-GAAP adjustments:
	Amortization of intangible assets			264				0.14				283				0.15				350				0.17
	Restructuring charges			252				0.13				114				0.06				408				0.21
	Acquisition-related charges			3				-				3				-				11				0.01
	Adjustments for taxes			(101	)			(0.05	)			(83	)			(0.05	)			(148	)			(0.07	)
Non-GAAP net earnings			$	1,691			$	0.88			$	1,742			$	0.90			$	1,698			$	0.87
GAAP earnings from operations			$	1,822							$	1,997							$	1,601
Non-GAAP adjustments:
	Amortization of intangible assets			264								283								350
	Restructuring charges			252								114								408
	Acquisition-related charges			3								3								11
Non-GAAP earnings from operations			$	2,341							$	2,397							$	2,370
GAAP operating margin				7	%							7	%							6	%
Non-GAAP adjustments				2	%							2	%							3	%
Non-GAAP operating margin				9	%							9	%							9	%

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)
			Six months ended April 30, 2014				Diluted net earnings per share				Six months ended April 30, 2013				Diluted net earnings per share
GAAP net earnings			$	2,698			$	1.40			$	2,309			$	1.18
Non-GAAP adjustments:
	Amortization of intangible assets			547				0.28				700				0.35
	Restructuring charges			366				0.19				538				0.28
	Acquisition-related charges			6				-				15				0.01
	Adjustments for taxes			(184	)			(0.08	)			(259	)			(0.13	)
Non-GAAP net earnings			$	3,433			$	1.79			$	3,303			$	1.69
GAAP earnings from operations			$	3,819							$	3,353
Non-GAAP adjustments:
	Amortization of intangible assets			547								700
	Restructuring charges			366								538
	Acquisition-related charges			6								15
Non-GAAP earnings from operations			$	4,738							$	4,606
GAAP operating margin				7	%							6	%
Non-GAAP adjustments				2	%							2	%
Non-GAAP operating margin				9	%							8	%

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
				As of
				April 30, 2014			October 31, 2013
				(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	15,096		$	12,163
	Accounts receivable				14,288			15,876
	Financing receivables				3,112			3,144
	Inventory				5,840			6,046
	Other current assets				11,547			13,135
		Total current assets			49,883			50,364
Property, plant and equipment					11,350			11,463
Long-term financing receivables and other assets					9,043			9,556
Goodwill and intangible assets					33,696			34,293
Total assets				$	103,972		$	105,676
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Notes payable and short-term borrowings			$	5,396		$	5,979
	Accounts payable				13,521			14,019
	Employee compensation and benefits				3,662			4,436
	Taxes on earnings				1,263			1,203
	Deferred revenue				6,416			6,477
	Other accrued liabilities				13,022			13,407
		Total current liabilities			43,280			45,521
Long-term debt					17,190			16,608
Other liabilities					14,920			15,891
Stockholders' equity:
	HP stockholders' equity				28,185			27,269
	Non-controlling interests				397			387
		Total stockholders' equity			28,582			27,656
Total liabilities and stockholders' equity				$	103,972		$	105,676

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
						Three months ended				Six months ended
						April 30, 2014				April 30, 2014
Cash flows from operating activities:
	Net earnings					$	1,273			$	2,698
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation and amortization					1,087				2,204
		Stock-based compensation expense					130				300
		Provision for doubtful accounts and inventory					55				112
		Restructuring charges					252				366
		Deferred taxes on earnings					(99	)			(90	)
		Excess tax benefit from stock-based compensation					(6	)			(33	)
		Other, net					47				14
		Changes in operating assets and liabilities (net of acquisitions):
			Accounts receivable				(801	)			1,590
			Financing receivables				(42	)			254
			Inventory				126				107
			Accounts payable				765				(400	)
			Taxes on earnings				(17	)			153
			Restructuring				(300	)			(681	)
			Other assets and liabilities				525				(609	)
				Net cash provided by operating activities			2,995				5,985
Cash flows from investing activities:
		Investment in property, plant and equipment					(840	)			(1,837	)
		Proceeds from sale of property, plant and equipment					120				570
		Purchases of available-for-sale securities and other investments					(316	)			(451	)
		Proceeds from sale of available-for-sale securities and other investments					79				544
		Payments made in connection with business acquisitions					(20	)			(20	)
			Net cash used in investing activities				(977	)			(1,194	)
Cash flows from financing activities:
		Issuance of commercial paper and notes payable, net					58				60
		Issuance of debt					-				2,005
		Payment of debt					(2,070	)			(2,115	)
		Issuance of common stock under employee stock plans					48				131
		Repurchase of common stock					(831	)			(1,396	)
		Excess tax benefit from stock-based compensation					6				33
		Cash dividends paid					(298	)			(576	)
			Net cash used in financing activities				(3,087	)			(1,858	)
(Decrease) increase in cash and cash equivalents							(1,069	)			2,933
Cash and cash equivalents at beginning of period							16,165				12,163
Cash and cash equivalents at end of period						$	15,096			$	15,096

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
				Three months ended
				April 30, 2014				January 31, 2014				April 30, 2013
Net revenue:(a)
	Personal Systems			$	8,176			$	8,530			$	7,610
	Printing				5,834				5,815				6,094
		Total Printing and Personal Systems Group			14,010				14,345				13,704
	Enterprise Group				6,657				6,993				6,794
	Enterprise Services				5,702				5,595				6,133
	Software				971				916				967
	HP Financial Services				867				870				881
	Corporate Investments				6				288				10
		Total segments			28,213				29,007				28,489
	Elimination of intersegment net revenue and other				(904	)			(853	)			(907	)
		Total HP consolidated net revenue		$	27,309			$	28,154			$	27,582
Earnings before taxes:(a)
	Personal Systems			$	290			$	279			$	244
	Printing				1,140				979				970
		Total Printing and Personal Systems Group			1,430				1,258				1,214
	Enterprise Group				961				1,006				1,074
	Enterprise Services				144				57				156
	Software				186				145				180
	HP Financial Services				99				101				97
	Corporate Investments				(98	)			121				(75	)
		Total segment earnings from operations			2,722				2,688				2,646
	Corporate and unallocated costs and eliminations				(251	)			(121	)			(169	)
	Stock-based compensation expense				(130	)			(170	)			(107	)
	Amortization of intangible assets				(264	)			(283	)			(350	)
	Restructuring charges				(252	)			(114	)			(408	)
	Acquisition-related charges				(3	)			(3	)			(11	)
	Interest and other, net				(174	)			(163	)			(193	)
		Total HP consolidated earnings before taxes		$	1,648			$	1,834			$	1,408

(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 INFORMATION
(Unaudited)
(In millions)
				Six months ended
				April 30,
				2014				2013
Net revenue:(a)
	Personal Systems			$	16,706			$	15,842
	Printing				11,649				12,040
		Total Printing and Personal Systems Group			28,355				27,882
	Enterprise Group				13,650				13,742
	Enterprise Services				11,297				12,171
	Software				1,887				1,918
	HP Financial Services				1,737				1,838
	Corporate Investments				294				14
		Total segments			57,220				57,565
	Elimination of intersegment net revenue and other				(1,757	)			(1,624	)
		Total HP consolidated net revenue		$	55,463			$	55,941
Earnings before taxes:(a)
	Personal Systems			$	569			$	477
	Printing				2,119				1,937
		Total Printing and Personal Systems Group			2,688				2,414
	Enterprise Group				1,967				2,144
	Enterprise Services				201				232
	Software				331				335
	HP Financial Services				200				198
	Corporate Investments				23				(148	)
		Total segment earnings from operations			5,410				5,175
	Corporate and unallocated costs and eliminations				(372	)			(278	)
	Stock-based compensation expense				(300	)			(291	)
	Amortization of intangible assets				(547	)			(700	)
	Restructuring charges				(366	)			(538	)
	Acquisition-related charges				(6	)			(15	)
	Interest and other, net				(337	)			(372	)
		Total HP consolidated earnings before taxes		$	3,482			$	2,981

(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)
							Three months ended												Growth rate (%)
							April 30, 2014				January 31, 2014				April 30, 2013				Q/Q			Y/Y
Net revenue:(a)
	Printing and Personal Systems Group
		Personal Systems
			Notebooks				$	3,977			$	4,335			$	3,718			(8	%)		7	%
			Desktops					3,343				3,274				3,103			2	%		8	%
			Workstations					548				533				521			3	%		5	%
			Other					308				388				268			(21	%)		15	%
				Total Personal Systems				8,176				8,530				7,610			(4	%)		7	%
		Printing
			Supplies					3,866				3,795				4,122			2	%		(6	%)
			Commercial Hardware					1,402				1,347				1,411			4	%		(1	%)
			Consumer Hardware					566				673				561			(16	%)		1	%
				Total Printing				5,834				5,815				6,094			0	%		(4	%)
					Total Printing and Personal Systems Group			14,010				14,345				13,704			(2	%)		2	%
		Enterprise Group
		Industry Standard Servers						2,829				3,178				2,806			(11	%)		1	%
		Technology Services						2,132				2,123				2,247			0	%		(5	%)
		Storage						808				834				857			(3	%)		(6	%)
		Networking						658				630				618			4	%		6	%
		Business Critical Systems						230				228				266			1	%		(14	%)
				Total Enterprise Group				6,657				6,993				6,794			(5	%)		(2	%)
		Enterprise Services
			Infrastructure Technology Outsourcing					3,597				3,501				3,855			3	%		(7	%)
			Application and Business Services					2,105				2,094				2,278			1	%		(8	%)
				Total Enterprise Services				5,702				5,595				6,133			2	%		(7	%)
		Software						971				916				967			6	%		0	%
		HP Financial Services						867				870				881			0	%		(2	%)
		Corporate Investments						6				288				10			(98	%)		(40	%)
				Total segments				28,213				29,007				28,489			(3	%)		(1	%)
		Elimination of intersegment net revenue and other						(904	)			(853	)			(907	)		6	%		0	%
		Total HP consolidated net revenue					$	27,309			$	28,154			$	27,582			(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 / BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
						Six months ended
						April 30,
						2014				2013
Net revenue:(a)
	Printing and Personal Systems Group
		Personal Systems
			Notebooks			$	8,312			$	7,846
			Desktops				6,617				6,424
			Workstations				1,081				1,056
			Other				696				516
				Total Personal Systems			16,706				15,842
	Printing
		Supplies					7,661				8,015
		Commercial Hardware					2,749				2,785
		Consumer Hardware					1,239				1,240
			Total Printing				11,649				12,040
				Total Printing and Personal Systems Group			28,355				27,882
	Enterprise Group
		Industry Standard Servers					6,007				5,800
		Technology Services					4,255				4,454
		Storage					1,642				1,690
		Networking					1,288				1,226
		Business Critical Systems					458				572
			Total Enterprise Group				13,650				13,742
	Enterprise Services
		Infrastructure Technology Outsourcing					7,098				7,710
		Application and Business Services					4,199				4,461
			Total Enterprise Services				11,297				12,171
	Software						1,887				1,918
	HP Financial Services						1,737				1,838
	Corporate Investments						294				14
			Total segments				57,220				57,565
	Elimination of intersegment net revenue and other						(1,757	)			(1,624	)
	Total HP consolidated net revenue					$	55,463			$	55,941

(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 usiness 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 ended			Change in Operating Margin (pts)
				April 30, 2014			Q/Q			Y/Y
Segment operating margin:(a)
	Personal Systems			3.5	%		0.2 pts			0.3 pts
	Printing			19.5	%		2.7 pts			3.6 pts
		Printing and Personal Systems Group		10.2	%		1.4 pts			1.3 pts
	Enterprise Group			14.4	%		-			(1.4 pts	)
	Enterprise Services			2.5	%		1.5 pts			-
	Software			19.2	%		3.4 pts			0.6 pts
	HP Financial Services			11.4	%		(0.2 pts	)		0.4 pts
	Corporate Investments (b)			NM			NM			NM
		Total segments		9.6	%		0.3 pts			0.3 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.
(b)	"NM" represents not meaningful.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
				Three months ended
				April 30, 2014			January 31, 2014			April 30, 2013
Numerator:
	GAAP net earnings			$	1,273		$	1,425		$	1,077
	Non-GAAP net earnings			$	1,691		$	1,742		$	1,698
Denominator:
	Weighted-average number of shares outstanding during the reporting period				1,890			1,907			1,935
	Dilutive effect of employee stock plans(a)				26			28			12
		Weighted-average number of shares used to compute diluted net earnings per share			1,916			1,935			1,947
GAAP diluted net earnings per share				$	0.66		$	0.74		$	0.55
Non-GAAP diluted net earnings per share				$	0.88		$	0.90		$	0.87

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

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions except per share amounts)
				Six months ended
				April 30,
				2014			2013
Numerator:
	GAAP net earnings			$	2,698		$	2,309
	Non-GAAP net earnings			$	3,433		$	3,303
Denominator:
	Weighted-average number of shares outstanding during the reporting period				1,898			1,944
	Dilutive effect of employee stock plans(a)				24			8
		Weighted-average number of shares used to compute diluted net earnings per share			1,922			1,952
GAAP diluted net earnings per share				$	1.40		$	1.18
Non-GAAP diluted net earnings per share				$	1.79		$	1.69

(a)	Includes any dilutive effect of outstanding stock options, performance-based restricted stock 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 capital expenditures, 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 capital expenditures is capital expenditures. 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. Net capital expenditures is defined as investments in property plant and equipment less proceeds from the sale of property, plant and equipment. 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 net capital expenditures includes proceeds from the sale of property, plant and equipment, HP believes that net capital expenditures provides a more accurate and complete assessment of HP's liquidity. Because free cash flow includes the effect of net 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 condensed 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 the equivalent GAAP earnings measure and cash flows.
• HP may not be able to liquidate immediately 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 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 capital expenditures, 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 capital expenditures, 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.