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HP Inc. Reports First Quarter 2016 Results

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

HP Inc.'s fiscal 2016 first quarter financial performance

                                                  Q1 FY16 Q1 FY15        Y/Y
GAAP net revenue ($B)                               $12.2   $13.9      (12%)
GAAP operating margin from continuing operations     7.6%    8.1% (0.5 pts.)
GAAP net earnings from continuing operations ($B)    $0.7    $0.8      (16%)
GAAP diluted net earnings per share from                                    
 continuing operations                              $0.36   $0.41      (12%)
Non-GAAP operating margin from continuing                                   
 operations                                          7.5%    7.9% (0.4 pts.)
Non-GAAP net earnings from continuing operations                            
 ($B)                                                $0.6    $0.8      (16%)
Non-GAAP diluted net earnings per share from                                
 continuing operations                              $0.36   $0.41      (12%)
Net Cash (used in) / provided by operating                                  
 activities ($M)(1)                                $(108)    $744        N/M

Notes to table

(1)  The consolidated condensed statement of cash flows for the three months
     ended January 31, 2015 represents the combined cash flows of HP prior  
     to separation, as previously filed, and has not been adjusted to       
     reflect the effect of the separation of Hewlett Packard Enterprise     
     Company.                                                               
N/M  Not meaningful                                                         

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

HP Inc. (HP) announced first quarter net revenue of $12.2 billion, down 12% from the prior-year period and down 5% in constant currency.

First quarter GAAP diluted net earnings per share (EPS) from continuing operations was $0.36, down from $0.41 in the prior-year period and above the previously provided outlook of $0.27 to $0.32. First quarter non-GAAP diluted net EPS from continuing operations was $0.36, down from $0.41 in the prior-year period and within its previously provided outlook of $0.33 to $0.38. First quarter non-GAAP net earnings from continuing operations and non-GAAP diluted net EPS from continuing operations exclude after-tax costs of $5 million, rounding to $0.00 per diluted share, respectively, related to non-operating retirement-related credits, restructuring charges, and the amortization of intangible assets.

"We have a clear strategy that leverages our strengths, and we are focused on execution, taking cost out of the business and delivering innovations that will amaze our customers and partners," said Dion Weisler, HP's President and CEO. "Although we have some tough quarters ahead, I am confident in the future."

Asset management
HP's net cash used in operating activities in the first quarter was $108 million. Inventory ended the quarter at $4.1 billion, down 2 days quarter over quarter to 37 days. Accounts receivable ended the quarter at $4.1 billion, down 5 days quarter over quarter to 30 days. Accounts payable ended the quarter at $9.0 billion, down 11 days quarter over quarter to 82 days. HP's dividend payment of $0.124 per share in the first quarter resulted in cash usage of $0.2 billion. HP also utilized $0.8 billion of cash during the quarter to repurchase approximately 67.0 million shares of common stock in the open market. HP exited the quarter with $3.7 billion in gross cash.

Fiscal 2016 first quarter segment results

Outlook
For the fiscal 2016 second quarter, HP estimates non-GAAP diluted net EPS from continuing operations to be in the range of $0.35 to $0.40 and GAAP diluted net EPS from continuing operations to be in the range of $0.33 to $0.38. Fiscal 2016 second quarter non-GAAP diluted net EPS from continuing operations estimates exclude $0.02 per diluted share, respectively related to non-operating retirement-related credits, restructuring charges, and the amortization of intangible assets.

For fiscal 2016, HP estimates non-GAAP diluted net EPS from continuing operations to be in the range of $1.59 to $1.69 and GAAP diluted net EPS from continuing operations to be in the range of $1.52 to $1.62. Fiscal 2016 non-GAAP diluted net EPS from continuing operations estimates exclude $0.07 per diluted share, respectively, related to non-operating retirement-related credits, restructuring charges, and the amortization of intangible assets.

More information on HP's earnings, including additional financial analysis and an earnings overview presentation, is available on HP's Investor Relations website at www.hp.com/investor/home.

HP's FY16 Q1 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2016Q1Webcast.

About HP Inc.
HP Inc. creates technology that makes life better for everyone, everywhere. Through our portfolio of printers, PCs, mobile devices, solutions, and services, we engineer experiences that amaze. More information about HP Inc. is available at http://www.hp.com.

Use of non-GAAP financial information
To supplement HP's consolidated condensed financial statements presented on a generally accepted accounting principles (GAAP) basis, HP provides net revenue on a constant currency basis, as well as non-GAAP operating margin from continuing operations, non-GAAP net earnings from continuing operations, non-GAAP diluted net earnings per share from continuing operations and gross cash financial measures. HP also provides forecasts of non-GAAP diluted net earnings per share from continuing operations. A reconciliation of the adjustments to GAAP results for this quarter and prior periods is included in the tables below or elsewhere in the materials accompanying this news release. In addition, an explanation of the ways in which HP's management uses these non-GAAP measures to evaluate its business, the substance behind HP's decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which HP's management compensates for those limitations, and the substantive reasons why HP's management believes that these non-GAAP measures provide useful information to investors is included under "Use of non-GAAP financial measures" after the tables below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for net revenue, operating profit, operating margin, net earnings from continuing operations, diluted net earnings per share from continuing operations or cash and cash equivalents prepared in accordance with GAAP.

Forward-looking statements

This news release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP may differ materially from those expressed or implied by such forward-looking statements and assumptions.

All statements other than statements of historical fact are forward-looking statements, including but not limited to any projections of net revenue, margins, expenses, effective tax rates, net earnings, net earnings per share, cash flows, benefit plan funding, 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, as well as the execution of the restructuring plan 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 or assumptions underlying any of the foregoing.

Risks, uncertainties and assumptions include the need to address the many challenges facing HP's businesses; the competitive pressures faced by HP's businesses; risks associated with executing HP's strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of HP's products and the delivery of HP's services effectively; the protection of HP's intellectual property assets, including intellectual property licensed from third parties; risks associated with HP's international operations; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers and partners; the hiring and retention of key employees; integration and other risks associated with business combination and investment transactions; the results of the restructuring plan, including estimates and assumptions related to the cost (including any possible disruption of HP's business) and the anticipated benefits of the restructuring plan; the resolution of pending investigations, claims and disputes; and other risks that are described in HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2015, 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 reported amounts in HP's Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2016. HP assumes no obligation and does not intend to update these forward-looking statements. HP's Investor Relations website at www.hp.com/investor/home contains a significant amount of information about HP, including financial and other information for investors. HP encourages investors to visit our website from time to time, as information is updated and new information is posted.

                                                                            
                                                                            
                          HP INC. AND SUBSIDIARIES                          
               CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS                
                                (Unaudited)                                 
                  (In millions, except per share amounts)                   
                                                                            
                                              Three months ended            
                                   ---------------------------------------- 
                                    January 31,   October 31,   January 31, 
                                       2016          2015          2015     
                                   ------------  ------------  ------------ 
                                                                            
Net revenue                        $     12,246  $     12,266  $     13,858 
                                                                            
Costs and expenses:                                                         
  Cost of products and services           9,961         9,900        11,173 
  Research and development                  292           282           304 
  Selling, general and                                                      
   administrative                         1,037         1,212         1,222 
  Amortization of intangible                                                
   assets                                     8            26            27 
  Restructuring charges                      20            41            14 
  Defined benefit plan settlement                                           
   charges                                    -             7             - 
                                   ------------  ------------  ------------ 
    Total costs and expenses             11,318        11,468        12,740 
                                   ------------  ------------  ------------ 
                                                                            
Earnings from continuing                                                    
 operations before interest and                                             
 taxes                                      928           798         1,118 
                                                                            
Interest and other, net                     (94)          (99)         (121)
                                   ------------  ------------  ------------ 
                                                                            
Earnings from continuing                                                    
 operations before taxes                    834           699           997 
                                                                            
(Provision) benefit for taxes              (184)          816          (227)
                                   ------------  ------------  ------------ 
                                                                            
Earnings from continuing                                                    
 operations                                 650         1,515           770 
(Loss) earnings from discontinued                                           
 operations, net of taxes                   (58)         (192)          596 
                                   ------------  ------------  ------------ 
                                                                            
Net earnings                       $        592  $      1,323  $      1,366 
                                   ============  ============  ============ 
                                                                            
Net earnings (loss) per share:                                              
Basic                                                                       
  Continuing operations            $       0.37  $       0.84  $       0.42 
  Discontinued operations                 (0.04)        (0.11)         0.33 
                                   ------------  ------------  ------------ 
    Total basic net earnings per                                            
     share                         $       0.33  $       0.73  $       0.75 
                                   ============  ============  ============ 
                                                                            
Diluted                                                                     
  Continuing operations            $       0.36  $       0.83  $       0.41 
  Discontinued operations                 (0.03)        (0.10)         0.32 
                                   ------------  ------------  ------------ 
    Total diluted net earnings per                                          
     share                         $       0.33  $       0.73  $       0.73 
                                   ============  ============  ============ 
                                                                            
Cash dividends declared per share  $       0.25  $          -  $       0.32 
                                                                            
Weighted-average shares used to                                             
 compute net earnings per share:                                            
  Basic                                   1,776         1,802         1,833 
  Diluted                                 1,785         1,821         1,861 
                                                                            
                                                                            
                                                                            
                          HP INC. AND SUBSIDIARIES                          
        ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,         
            OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE             
                                (Unaudited)                                 
                  (In millions, except per share amounts)                   
                                                                            
                       Three    Diluted   Three   Diluted   Three  Diluted  
                      months      net    months     net    months     net   
                      ended    earnings  ended   earnings  ended   earnings 
                      January     per    October    per    January    per   
                     31, 2016    share  31, 2015   share  31, 2015   share  
                     --------  -------- -------- -------- -------- -------- 
                                                                            
GAAP net earnings                                                           
 from continuing                                                            
 operations          $    650  $   0.36 $  1,515 $   0.83 $    770 $   0.41 
                                                                            
Non-GAAP                                                                    
 adjustments:                                                               
  Amortization of                                                           
   intangible assets        8      0.01       26     0.01       27     0.01 
  Restructuring                                                             
   charges                 20      0.01       41     0.02       14     0.01 
  Non-operating                                                             
   retirement-                                                              
   related credits        (40)    (0.02)     (58)   (0.03)     (58)   (0.03)
  Defined benefit                                                           
   plan settlement                                                          
   charges                  -         -        7        -        -        - 
  Adjustments for                                                           
   taxes                    7         -        9     0.01       12     0.01 
  Valuation                                                                 
   allowances, net                                                          
   and separation                                                           
   taxes and                                                                
   adjustments              -         -     (992)   (0.54)       -        - 
                     --------  -------- -------- -------- -------- -------- 
Non-GAAP net                                                                
 earnings from                                                              
 continuing                                                                 
 operations          $    645  $   0.36 $    548 $   0.30 $    765 $   0.41 
                     ========  ======== ======== ======== ======== ======== 
                                                                            
                                                                            
GAAP earnings from                                                          
 continuing                                                                 
 operations before                                                          
 interest and taxes  $    928           $    798          $  1,118          
                                                                            
Non-GAAP                                                                    
 adjustments:                                                               
  Amortization of                                                           
   intangible assets        8                 26                27          
  Restructuring                                                             
   charges                 20                 41                14          
  Non-operating                                                             
   retirement-                                                              
   related credits        (40)               (58)              (58)         
  Defined benefit                                                           
   plan settlement                                                          
   charges                  -                  7                 -          
                     --------           --------          --------          
Non-GAAP earnings                                                           
 from continuing                                                            
 operations before                                                          
 interest and taxes  $    916           $    814          $  1,101          
                     ========           ========          ========          
                                                                            
GAAP operating                                                              
 margin from                                                                
 continuing                                                                 
 operations                 8%                 7%                8%         
Non-GAAP adjustments       (1%)                0%                0%         
                     --------           --------          --------          
Non-GAAP operating                                                          
 margin from                                                                
 continuing                                                                 
 operations                 7%                 7%                8%         
                     ========           ========          ========          
                                                                            
                                                                            
                                                                            
                          HP INC. AND SUBSIDIARIES                          
                    CONSOLIDATED CONDENSED BALANCE SHEETS                   
                                 (Unaudited)                                
                                (In millions)                               
                                                                            
                                                            As of           
                                                 ---------------------------
                                                  January 31,   October 31, 
                                                     2016           2015    
                                                 ------------  -------------
ASSETS                                                                      
                                                                            
Current assets:                                                             
  Cash and cash equivalents                      $      3,688  $       7,584
  Accounts receivable                                   4,114          4,825
  Inventory                                             4,052          4,288
  Other current assets                                  3,301          4,498
  Current assets of discontinued operations                 -         30,592
                                                 ------------  -------------
                                                                            
    Total current assets                               15,155         51,787
                                                 ------------  -------------
                                                                            
Property, plant and equipment                           1,529          1,492
Other non-current assets                                3,873          1,508
Goodwill and intangible assets                          5,756          5,764
Non-current assets of discontinued operations               -         46,331
                                                 ------------  -------------
                                                                            
Total assets                                     $     26,313  $     106,882
                                                 ============  =============
                                                                            
                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
                                                                            
Current liabilities:                                                        
  Notes payable and short-term borrowings        $         49  $       2,194
  Accounts payable                                      9,041         10,194
  Employee compensation and benefits                      553            747
  Taxes on earnings                                       182            243
  Deferred revenue                                        863          1,051
  Other accrued liabilities                             6,073          6,241
  Current liabilities of discontinued operations            -         21,521
                                                 ------------  -------------
                                                                            
    Total current liabilities                          16,761         42,191
                                                 ------------  -------------
                                                                            
Long-term debt                                          6,683          6,677
Other non-current liabilities                           8,644          7,414
Non-current liabilities of discontinued                                     
 operations                                                 -         22,449
                                                                            
Stockholders' (deficit) equity:                                             
  HP stockholders' (deficit) equity                    (5,775)        27,768
  Non-controlling interests                                 -            383
                                                 ------------  -------------
    Total stockholders' (deficit) equity               (5,775)        28,151
                                                 ------------  -------------
                                                                            
Total liabilities and stockholder's equity       $     26,313  $     106,882
                                                 ============  =============
                                                                            
                                                                            
                                                                            
                          HP INC. AND SUBSIDIARIES                          
              CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS               
                                (Unaudited)                                 
                               (In millions)                                
                                                                            
                                                     Three months ended     
                                                         January 31,        
                                                 -------------------------- 
                                                     2016         2015(a)   
                                                 ------------  ------------ 
Cash flows from operating activities:                                       
  Net earnings                                   $        592  $      1,366 
  Adjustments to reconcile net earnings to net                              
   cash (used in) provided by operating                                     
   activities:                                                              
    Depreciation and amortization                          79         1,028 
    Stock-based compensation expense                       61           187 
    Provision for doubtful accounts and                                     
     inventory                                             45            62 
    Restructuring charges                                  20           146 
    Deferred taxes on earnings                            526          (173)
    Excess tax benefit from stock-based                                     
     compensation                                          (1)         (109)
    Other, net                                            (18)          138 
                                                                            
    Changes in operating assets and liabilities                             
     (net of acquisitions):                                                 
      Accounts receivable                                 704         1,540 
      Financing receivable                                  -           222 
      Inventory                                           202          (224)
      Accounts payable                                 (1,104)         (852)
      Taxes on earnings                                  (534)          293 
      Restructuring                                       (31)         (483)
      Other assets and liabilities                       (649)       (2,397)
                                                 ------------  ------------ 
        Net cash (used in) provided by operating                            
         activities                                      (108)          744 
                                                 ------------  ------------ 
                                                                            
Cash flows from investing activities:                                       
    Investment in property, plant and equipment          (120)         (947)
    Proceeds from sale of property, plant and                               
     equipment                                              -           130 
    Purchases of available-for-sale securities                              
     and other investments                                  -           (50)
    Maturities and sales of available-for-sale                              
     securities and other investments                       9            30 
    Payments made in connection with business                               
     acquisitions                                           -            (1)
                                                 ------------  ------------ 
        Net cash used in investing activities            (111)         (838)
                                                 ------------  ------------ 
                                                                            
Cash flows from financing activities:                                       
    Short-term borrowings with original                                     
     maturities less than 90 days, net                     26            77 
    Proceeds from debt, net of issuance costs               4           299 
    Payment of debt                                    (2,155)         (911)
    Settlement of cash flow hedge                         (11)            - 
    Net transfer of cash and cash equivalents to                            
     Hewlett Packard Enterprise Company               (10,375)            - 
    Issuance of common stock under employee                                 
     stock plans                                            2           181 
    Repurchase of common stock                           (797)       (1,571)
    Excess tax benefit from stock-based                                     
     compensation                                           1           109 
    Cash dividends paid                                  (221)         (304)
                                                 ------------  ------------ 
        Net cash used in financing activities         (13,526)       (2,120)
                                                 ------------  ------------ 
                                                                            
Decrease in cash and cash equivalents                 (13,745)       (2,214)
Cash and cash equivalents at beginning of period       17,433        15,133 
                                                 ------------  ------------ 
Cash and cash equivalents at end of period       $      3,688  $     12,919 
                                                 ============  ============ 
                                                                            
(a) The consolidated condensed statement of cash flows for the three months 
ended January 31, 2015 represents the combined cash flows of HP prior to    
separation, as previously filed, and has not been adjusted to reflect the   
effect of the separation of Hewlett Packard Enterprise Company.             
                                                                            
                                                                            
                                                                            
                          HP INC. AND SUBSIDIARIES                          
                            SEGMENT INFORMATION                             
                                (Unaudited)                                 
                               (In millions)                                
                                                                            
                                              Three months ended            
                                   ---------------------------------------- 
                                    January 31,   October 31,   January 31, 
                                       2016          2015          2015     
                                   ------------  ------------  ------------ 
Net revenue:(a)                                                             
                                                                            
  Personal Systems                 $      7,467  $      7,694  $      8,562 
  Printing                                4,642         4,965         5,596 
  Corporate Investments                       3             4            12 
                                   ------------  ------------  ------------ 
    Total segments                       12,112        12,663        14,170 
  Intersegment net revenue                                                  
   eliminations and other                   134          (397)         (312)
                                   ------------  ------------  ------------ 
                                                                            
    Total net revenue              $     12,246  $     12,266  $     13,858 
                                   ============  ============  ============ 
                                                                            
Earnings from continuing                                                    
 operations before taxes:(a)                                                
                                                                            
  Personal Systems                 $        229  $        281  $        303 
  Printing                                  787           837         1,050 
  Corporate Investments                     (23)          (11)           (5)
                                   ------------  ------------  ------------ 
    Total segment earnings from                                             
     operations                             993         1,107         1,348 
                                                                            
  Corporate and unallocated costs                                           
   and eliminations                         (16)         (223)         (196)
  Stock-based compensation expense          (61)          (70)          (51)
  Amortization of intangible                                                
   assets                                    (8)          (26)          (27)
  Restructuring charges                     (20)          (41)          (14)
  Non-operating retirement-related                                          
   credits                                   40            58            58 
  Defined benefit plan settlement                                           
   charges                                    -            (7)            - 
  Interest and other, net                   (94)          (99)         (121)
                                   ------------  ------------  ------------ 
                                                                            
    Total earnings from continuing                                          
     operations before taxes       $        834  $        699  $        997 
                                   ============  ============  ============ 
                                                                            
(a) Effective at the beginning of its first quarter of fiscal 2016, HP      
    implemented an organizational change to align its segment financial     
    reporting more closely with its current business structure. In addition,
    HP implemented a reporting change to provide better transparency to its 
    segment operating results. This reporting change resulted in the        
    exclusion of certain market-related factors such as interest cost,      
    expected return on plan assets, amortized actuarial gains/losses, and   
    impacts from other market-related factors related to its defined benefit
    pension and post-retirement benefit plans from its segment operating    
    results ("Non-operating retirement-related credits"). This change also  
    resulted in the exclusion of certain plan curtailments, settlements and 
    special termination benefits related to its defined benefit pension and 
    post-retirement benefit plans from HP's segment operating results.      
    Segment operating results will continue to include service costs and    
    amortization of prior service costs associated with HP's defined benefit
    pension and post-retirement benefit plans. The organizational and       
    reporting changes had an immaterial impact to previously reported       
    segment net revenue and earnings from operations. These changes also had
    no impact on HP's previously reported consolidated net revenue, earnings
    from operations, net earnings or net earnings per share.                
                                                                            
                                                                            
                                                                            
                         HP INC. AND SUBSIDIARIES                           
                     SEGMENT/BUSINESS UNIT INFORMATION                      
                                (Unaudited)                                 
                               (In millions)                                
                                                                            
                                 Three months ended            Change (%)   
                       -------------------------------------  ------------  
                        January 31, October 31,  January 31,                
                           2016         2015         2015      Q/Q    Y/Y   
                       ------------ -----------  -----------  -----  -----  
Net revenue:(a)                                                             
                                                                            
  Personal Systems                                                          
    Notebooks          $      4,205 $     4,384  $     4,724     (4%)  (11%)
    Desktops                  2,527       2,530        2,949      0%   (14%)
    Workstations                444         472          526     (6%)  (16%)
    Other                       291         308          363     (6%)  (20%)
                       ------------ -----------  -----------                
      Total Personal                                                        
       Systems                7,467       7,694        8,562     (3%)  (13%)
                       ------------ -----------  -----------                
                                                                            
  Printing                                                                  
    Supplies                  3,101       3,239        3,601     (4%)  (14%)
    Commercial Hardware       1,219       1,366        1,394    (11%)  (13%)
    Consumer Hardware           322         360          601    (11%)  (46%)
                       ------------ -----------  -----------                
      Total Printing          4,642       4,965        5,596     (7%)  (17%)
                       ------------ -----------  -----------                
                                                                            
  Corporate Investments           3           4           12    (25%)  (75%)
                       ------------ -----------  -----------                
      Total segments         12,112      12,663       14,170     (4%)  (15%)
                       ------------ -----------  -----------                
                                                                            
  Elimination of                                                            
   intersegment net                                                         
   revenue and other(b)         134        (397)        (312)    NM     NM  
                       ------------ -----------  -----------                
                                                                            
    Total net revenue  $     12,246 $    12,266  $    13,858     (0%)  (12%)
                       ============ ===========  ===========                
                                                                            
(a) Effective at the beginning of its first quarter of fiscal 2016, HP      
    implemented an organizational change to align its segment financial     
    reporting more closely with its current business structure. This        
    organizational change had an immaterial impact to previously reported   
    segment net revenue and operating profit, and HP has reflected this     
    change to its segment information retrospectively to the earliest period
    presented. This change had no impact on HP's previously reported        
    consolidated net revenue, earnings from operations, net earnings or net 
    EPS.                                                                    
                                                                            
(b) "NM" represents not meaningful.                                         
                                                                            
                                                                            
                                                                            
                                                                            
                          HP INC. AND SUBSIDIARIES                          
                    SEGMENT OPERATING MARGIN SUMMARY DATA                   
                                 (Unaudited)                                
                                                                            
                                         Three months   Change in Operating 
                                             ended          Margin (pts)    
                                        -------------- ---------------------
                                         January 31,                        
                                             2016          Q/Q        Y/Y   
                                        -------------- ---------- ----------
                                                                            
Segment operating margin:(a)                                                
  Personal Systems                                3.1%  (0.6 pts)  (0.4 pts)
  Printing                                       17.0%    0.1 pts  (1.8 pts)
  Corporate Investments(b)                          NM         NM         NM
    Total segments                                8.2%  (0.5 pts)  (1.3 pts)
                                                                            
(a) Effective at the beginning of its first quarter of fiscal 2016, HP      
    implemented an organizational change to align its segment financial     
    reporting more closely with its current business structure. In addition,
    HP implemented a reporting change to provide better transparency to its 
    segment operating results. This reporting change resulted in the        
    exclusion of certain market-related factors such as interest cost,      
    expected return on plan assets, amortized actuarial gains/losses, and   
    impacts from other market-related factors related to its defined benefit
    pension and post-retirement benefit plans from its segment operating    
    results ("Non-operating retirement-related credits"). This change also  
    resulted in the exclusion of certain plan curtailments, settlements and 
    special termination benefits related to its defined benefit pension and 
    post-retirement benefit plans from HP's segment operating results.      
    Segment operating results will continue to include service costs and    
    amortization of prior service costs associated with HP's defined benefit
    pension and post-retirement benefit plans. The organizational and       
    reporting changes had an immaterial impact to previously reported       
    segment net revenue and earnings from operations. These changes also had
    no impact on HP's previously reported consolidated net revenue, earnings
    from operations, net earnings or net earnings per share.                
                                                                            
(b) "NM" represents not meaningful.                                         
                                                                            
                                                                            
                                                                            
                          HP INC. AND SUBSIDIARIES                          
                CALCULATION OF DILUTED NET EARNINGS PER SHARE               
                                 (Unaudited)                                
                   (In millions, except per share amounts)                  
                                                                            
                                               Three months ended           
                                   -----------------------------------------
                                    January 31,   October 31,   January 31, 
                                        2016          2015          2015    
                                   ------------- ------------- -------------
                                                                            
Numerator:                                                                  
  GAAP net earnings from                                                    
   continuing operations           $         650 $       1,515 $         770
                                   ============= ============= =============
  Non-GAAP net earnings from                                                
   continuing operations           $         645 $         548 $         765
                                   ============= ============= =============
                                                                            
Denominator:                                                                
  Weighted-average shares                                                   
   outstanding during the                                                   
   reporting period                        1,776         1,802         1,833
  Dilutive effect of employee                                               
   stock plans(a)                              9            19            28
                                   ------------- ------------- -------------
    Weighted-average shares used                                            
     to compute diluted net                                                 
     earnings per share                    1,785         1,821         1,861
                                   ============= ------------- =============
                                                                            
GAAP diluted net earnings per                                               
 share from continuing operations  $        0.36 $        0.83 $        0.41
                                   ============= ============= =============
Non-GAAP diluted net earnings per                                           
 share from continuing operations  $        0.36 $        0.30 $        0.41
                                   ============= ============= =============
                                                                            
(a) Includes any dilutive effect of restricted stock units, restricted      
    stock, stock options and performance-based awards.                      
                                                                            

Use of non-GAAP financial measures
To supplement HP's consolidated condensed financial statements presented on a generally accepted accounting principles ("GAAP") basis, HP provides net revenue on a constant currency basis, non-GAAP operating margin from continuing operations, non-GAAP net earnings, non-GAAP diluted net earnings per share and gross cash. HP also provides forecasts of non-GAAP diluted net earnings per share from continuing operations.

These non-GAAP financial measures are not computed in accordance with, or as an alternative to, generally accepted accounting principles in the United States. Reconciliations of each of these non-GAAP financial measures to GAAP information are included in the tables above or elsewhere in the materials accompanying this news release.

Use and economic substance of non-GAAP financial measures
Net revenue on a constant currency basis assumes no change in the foreign exchange rate from the prior-year period. Non-GAAP operating margin from continuing operations is defined to exclude the effects of any charges relating to amortization of intangible assets, restructuring charges, defined benefit plan settlement charges and non-operating retirement-related credits. Non-GAAP net earnings from continuing operations and non-GAAP diluted net earnings per share from continuing operations consist of net earnings from continuing operations or diluted net earnings per share from continuing operations excluding those same charges. In addition, non-GAAP net earnings from continuing operations and non-GAAP diluted net earnings per share from continuing operations are adjusted by the amount of additional taxes or tax benefits associated with each non-GAAP item and other tax benefits or charges as a consequence of the separation transaction. 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:

Gross cash is a non-GAAP measure that is defined as cash and cash equivalents plus short-term investments and certain long-term investments that may be liquidated within 90 days pursuant to the terms of existing put options or similar rights. HP's management uses gross cash for the purpose of determining the amount of cash available for investment in HP's businesses, repurchasing stock and other purposes. HP's management also uses gross cash to evaluate HP's historical and prospective liquidity. Because gross cash includes liquid assets that are not included in GAAP cash and cash equivalents, HP believes that gross cash provides a helpful assessment of HP's liquidity.

Material limitations associated with use of non-GAAP financial measures
These non-GAAP financial measures 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:

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 net revenue on a constant currency basis, non-GAAP operating margin from continuing operations, non-GAAP net earnings from continuing operations, non-GAAP diluted net earnings per share from continuing operations and gross cash to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by HP's management in its financial and operational decision making and allows investors to see HP's results "through the eyes" of management. HP further believes that providing this information better enables HP's investors to understand HP's operating performance and 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.

© 2015 HP Inc. The information contained herein is subject to change without notice. The only warranties for HP Inc. products and services are set forth in the express warranty statements accompanying such products and services. Nothing herein should be construed as constituting an additional warranty. HP Inc. shall not be liable for technical or editorial errors or omissions contained herein.

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