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HP Reports Fiscal 2015 Second Quarter Results

PALO ALTO, CA -- (Marketwired) -- May 21, 2015 -- HP (NYSE: HPQ)

                                                                            
             HP fiscal 2015 second quarter financial performance            
============================================================================
                                             Q2 FY15      Q2 FY14        Y/Y
GAAP net revenue ($B)                         $25.5        $27.3        (7%)
                                                                        (1.1
GAAP operating margin                           5.6%         6.7%      pts.)
GAAP net earnings ($B)                          $1.0         $1.3      (21%)
GAAP diluted net earnings per share           $0.55         $0.66      (17%)
Non-GAAP operating margin                       8.6%         8.6%   0.0 pts.
Non-GAAP net earnings ($B)                     $1.6         $1.7        (6%)
Non-GAAP diluted net earnings per share       $0.87        $0.88        (1%)
Cash flow from operations ($B)                 $1.5         $3.0       (51%)
                                                                            

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 2015 second quarter ended April 30, 2015.

Second quarter net revenue of $25.5 billion was down 7% from the prior-year period and down 2% on a constant currency basis.

Second quarter GAAP diluted net earnings per share (EPS) was $0.55, down from $0.66 in the prior-year period and below its previously provided outlook of $0.57 to $0.61. Second quarter non-GAAP diluted net EPS was $0.87, down from $0.88 in the prior-year period and within its previously provided outlook of $0.84 to $0.88. Second quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $585 million and $0.32 per diluted share, respectively, related to separation costs, restructuring charges, the amortization of intangible assets and acquisition-related charges.

Separation update
HP provided an update on its planned separation into two independent, Fortune 50 companies. The separation remains on track and the company expects associated dis-synergies of approximately $400 to $450 million.

The company also announced new future leadership appointments for both companies: Cathie Lesjak will become Chief Financial Officer of HP Inc. Lesjak's deep expertise will best serve Dion and his team as they embark on creating a new company. With Lesjak's move to HP Inc., Tim Stonesifer will become CFO of Hewlett Packard Enterprise. Stonesifer currently serves as CFO of HP's Enterprise Group. Prior to joining HP, Stonesifer served as CFO for General Motors International Operations based in Shanghai, and held a number of finance leadership positions during his twenty-year tenure at General Electric Company.

Chris Hsu has been selected to become Chief Operating Officer at Hewlett Packard Enterprise. Hsu has proven strength in driving performance optimization across a number of key business areas, including real estate, indirect procurement, and business process improvement. As Chief Operating Officer, Hsu will expand his duties to oversee and manage the continued separation execution, as well as HP Financial Services.

Alan May will join Hewlett Packard Enterprise as Head of Human Resources. Most recently, May worked for the Boeing Company as head of HR for their commercial airplanes division. He also led HR for Boeing Defense, Space and Security and served as head of Strategy, Compensation and Benefits for the Company. Prior to Boeing, May spent many years at PepsiCo. in various global HR and business integration leadership roles.

"I'm pleased with where we ended the quarter, the continued success of our turnaround, and the progress we're making on separation," said Meg Whitman, chairman, president and chief executive officer, HP. "Despite some tough challenges, we executed well across many parts of our portfolio, sustained our commitment to innovation, and delivered the results we said we would. HP is becoming stronger as we head into the second half of our fiscal year and separation in November."

Outlook
For the fiscal 2015 third quarter, HP estimates non-GAAP diluted net EPS to be in the range of $0.83 to $0.87 and GAAP diluted net EPS to be in the range of $0.50 to $0.54. Fiscal 2015 third quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.33 per share, related to separation costs, the amortization of intangible assets, restructuring charges, defined benefit plans settlement charges and acquisition-related charges.

For fiscal 2015, HP estimates non-GAAP diluted net EPS to be in the range of $3.53 to $3.73 and GAAP diluted net EPS to be in the range of $2.03 to $2.23. Fiscal 2015 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $1.50 per share, related to separation costs, the amortization of intangible assets, restructuring charges, defined benefit plans settlement charges and acquisition-related charges.

Asset management
HP generated $1.5 billion in cash flow from operations in the second quarter, down 51% from the prior-year period. Inventory ended the quarter at $6.2 billion, up 4 days year over year to 29 days. Accounts receivable ended the quarter at $12.3 billion, down 3 days year over year to 44 days. Accounts payable ended the quarter at $14.9 billion, up 10 days year over year to 69 days. HP's dividend payment of $0.16 per share in the second quarter resulted in cash usage of $291 million. HP also utilized $659 million of cash during the quarter to repurchase approximately 19.0 million shares of common stock in the open market. HP exited the quarter with $15.1 billion in gross cash, where gross cash includes cash and cash equivalents, short-term investments, and certain long-term investments.

Fiscal 2015 second quarter segment results

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 FY15 Q2 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2015Q2Webcast.

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, as well as 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 financial measures. 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 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, 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, including the previously announced separation transaction and the future performances of the post-separation companies if the separation is completed, as well as 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 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, including the planned separation transaction; 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 execution, timing and results of the separation transaction or restructuring plans, including estimates and assumptions related to the cost (including any possible disruption of HP's business) and the anticipated benefits of implementing the separation transaction and restructuring plans; the resolution of pending investigations, claims and disputes; and other risks that are described in HP's Annual Report on Form 10-K for the fiscal year ended October 31, 2014, 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, 2015.

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 April 30, 2015. 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,   January 31,   April 30,  
                                          2015         2015         2014    
                                      -----------  -----------  ----------- 
                                                                            
Net revenue                           $    25,453  $    26,839  $    27,309 
                                                                            
Costs and expenses:                                                         
  Cost of sales                            19,345       20,571       20,704 
  Research and development                    850          825          873 
  Selling, general and administrative       3,063        3,071        3,391 
  Amortization of intangible assets           221          222          264 
  Restructuring charges                       255          146          252 
  Acquisition-related charges                  19            4            3 
  Separation costs                            269           80            - 
                                      -----------  -----------  ----------- 
    Total costs and expenses               24,022       24,919       25,487 
                                      -----------  -----------  ----------- 
                                                                            
Earnings from operations                    1,431        1,920        1,822 
                                                                            
Interest and other, net                      (139)        (174)        (174)
                                      -----------  -----------  ----------- 
                                                                            
Earnings before taxes                       1,292        1,746        1,648 
                                                                            
Provision for taxes                          (281)        (380)        (375)
                                      -----------  -----------  ----------- 
                                                                            
Net earnings                          $     1,011  $     1,366  $     1,273 
                                      ===========  ===========  =========== 
                                                                            
Net earnings per share:                                                     
  Basic                               $      0.56  $      0.75  $      0.67 
  Diluted                             $      0.55  $      0.73  $      0.66 
                                                                            
Cash dividends declared per share     $         -  $      0.32  $         - 
                                                                            
                                                                            
Weighted-average shares used to                                             
 compute net earnings per share:                                            
  Basic                                     1,814        1,833        1,890 
  Diluted                                   1,836        1,861        1,916 
                                                                            
                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
               CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS                
                                (Unaudited)                                 
                  (In millions, except per share amounts)                   
                                                                            
                                                       Six months ended     
                                                           April 30,        
                                                   ------------------------ 
                                                       2015         2014    
                                                   -----------  ----------- 
                                                                            
Net revenue                                        $    52,292  $    55,463 
                                                                            
Costs and expenses:                                                         
  Cost of sales                                         39,916       42,440 
  Research and development                               1,675        1,684 
  Selling, general and administrative                    6,134        6,601 
  Amortization of intangible assets                        443          547 
  Restructuring charges                                    401          366 
  Acquisition-related charges                               23            6 
  Separation costs                                         349            - 
                                                   -----------  ----------- 
    Total costs and expenses                            48,941       51,644 
                                                   -----------  ----------- 
                                                                            
Earnings from operations                                 3,351        3,819 
                                                                            
Interest and other, net                                   (313)        (337)
                                                   -----------  ----------- 
                                                                            
Earnings before taxes                                    3,038        3,482 
                                                                            
Provision for taxes                                       (661)        (784)
                                                   -----------  ----------- 
                                                                            
Net earnings                                       $     2,377  $     2,698 
                                                   ===========  =========== 
                                                                            
Net earnings per share:                                                     
  Basic                                            $      1.30  $      1.42 
  Diluted                                          $      1.29  $      1.40 
                                                                            
Cash dividends declared per share                  $      0.32  $      0.29 
                                                                            
                                                                            
Weighted-average shares used to compute net                                 
 earnings per share:                                                        
  Basic                                                  1,824        1,898 
  Diluted                                                1,848        1,922 
                                                                            
                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
        ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,         
            OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE             
                                (Unaudited)                                 
                  (In millions, except per share amounts)                   
                                                                            
                   Three    Diluted    Three    Diluted    Three   Diluted  
                  months      net     months      net     months      net   
                  ended    earnings   ended    earnings   ended    earnings 
                   April      per     January     per      April      per   
                 30, 2015    share   31, 2015    share   30, 2014    share  
                 --------  --------  --------  --------  --------  -------- 
                                                                            
GAAP net                                                                    
 earnings        $  1,011  $   0.55  $  1,366  $   0.73  $  1,273  $   0.66 
                                                                            
Non-GAAP                                                                    
 adjustments:                                                               
  Amortization                                                              
   of intangible                                                            
   assets             221      0.12       222      0.12       264      0.14 
  Restructuring                                                             
   charges            255      0.14       146      0.08       252      0.13 
  Acquisition-                                                              
   related                                                                  
   charges             19      0.01         4         -         3         - 
  Separation                                                                
   costs              269      0.15        80      0.04         -         - 
  Adjustments                                                               
   for taxes         (179)    (0.10)     (113)    (0.05)     (101)    (0.05)
                 --------  --------  --------  --------  --------  -------- 
Non-GAAP net                                                                
 earnings        $  1,596  $   0.87  $  1,705  $   0.92  $  1,691  $   0.88 
                 ========  ========  ========  ========  ========  ======== 
                                                                            
                                                                            
GAAP earnings                                                               
 from operations $  1,431            $  1,920            $  1,822           
                                                                            
Non-GAAP                                                                    
 adjustments:                                                               
  Amortization                                                              
   of intangible                                                            
   assets             221                 222                 264           
  Restructuring                                                             
   charges            255                 146                 252           
  Acquisition-                                                              
   related                                                                  
   charges             19                   4                   3           
  Separation                                                                
   costs              269                  80                   -           
                 --------            --------            --------           
Non-GAAP                                                                    
 earnings from                                                              
 operations      $  2,195            $  2,372            $  2,341           
                 ========            ========            ========           
                                                                            
GAAP operating                                                              
 margin                 6%                  7%                  7%          
Non-GAAP                                                                    
 adjustments            3%                  2%                  2%          
                 --------            --------            --------           
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    Diluted     Six months    Diluted   
                            ended         net         ended         net     
                          April 30,     earnings    April 30,    earnings   
                             2015      per share       2014      per share  
                         -----------  -----------  -----------  ----------- 
                                                                            
GAAP net earnings        $     2,377  $      1.29  $     2,698  $      1.40 
                                                                            
Non-GAAP adjustments:                                                       
  Amortization of                                                           
   intangible assets             443         0.24          547         0.28 
  Restructuring charges          401         0.22          366         0.19 
  Acquisition-related                                                       
   charges                        23         0.01            6            - 
  Separation costs               349         0.19            -            - 
  Adjustments for taxes         (292)       (0.16)        (184)       (0.08)
                         -----------  -----------  -----------  ----------- 
Non-GAAP net earnings    $     3,301  $      1.79  $     3,433  $      1.79 
                         ===========  ===========  ===========  =========== 
                                                                            
                                                                            
GAAP earnings from                                                          
 operations              $     3,351               $     3,819              
                                                                            
Non-GAAP adjustments:                                                       
  Amortization of                                                           
   intangible assets             443                       547              
  Restructuring charges          401                       366              
  Acquisition-related                                                       
   charges                        23                         6              
  Separation costs               349                         -              
                         -----------               -----------              
Non-GAAP earnings from                                                      
 operations              $     4,567               $     4,738              
                         ===========               ===========              
                                                                            
GAAP operating margin              6%                        7%             
Non-GAAP adjustments               3%                        2%             
                         -----------               -----------              
Non-GAAP operating                                                          
 margin                            9%                        9%             
                         ===========               ===========              
                                                                            
                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
                    CONSOLIDATED CONDENSED BALANCE SHEETS                   
                                (In millions)                               
                                                                            
                                                              As of         
                                                     -----------------------
                                                      April 30,  October 31,
                                                         2015        2014   
                                                     ----------- -----------
                                                     (Unaudited)            
ASSETS                                                                      
                                                                            
Current assets:                                                             
  Cash and cash equivalents                          $    14,768 $    15,133
  Accounts receivable                                     12,320      13,832
  Financing receivables                                    2,842       2,946
  Inventory                                                6,227       6,415
  Other current assets                                    12,726      11,819
                                                     ----------- -----------
                                                                            
    Total current assets                                  48,883      50,145
                                                     ----------- -----------
                                                                            
Property, plant and equipment                             11,014      11,340
                                                                            
Long-term financing receivables and other assets           8,552       8,454
                                                                            
Goodwill and intangible assets                            32,947      33,267
                                                     ----------- -----------
                                                                            
Total assets                                         $   101,396 $   103,206
                                                     =========== ===========
                                                                            
                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
                                                                            
Current liabilities:                                                        
  Notes payable and short-term borrowings            $     5,594 $     3,486
  Accounts payable                                        14,923      15,903
  Employee compensation and benefits                       3,145       4,209
  Taxes on earnings                                        1,144       1,017
  Deferred revenue                                         6,055       6,143
  Other accrued liabilities                               12,325      12,977
                                                     ----------- -----------
                                                                            
    Total current liabilities                             43,186      43,735
                                                     ----------- -----------
                                                                            
Long-term debt                                            15,464      16,039
                                                                            
Other liabilities                                         15,577      16,305
                                                                            
Stockholders' equity:                                                       
  HP stockholders' equity                                 26,768      26,731
  Non-controlling interests                                  401         396
                                                     ----------- -----------
                                                                            
    Total stockholders' equity                            27,169      27,127
                                                     ----------- -----------
                                                                            
Total liabilities and stockholders' equity           $   101,396 $   103,206
                                                     =========== ===========
                                                                            
                                                                            
                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
              CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS               
                                (Unaudited)                                 
                               (In millions)                                
                                                                            
                                                      Three                 
                                                      months     Six months 
                                                      ended        ended    
                                                    April 30,    April 30,  
                                                       2015         2015    
                                                   -----------  ----------- 
Cash flows from operating activities:                                       
  Net earnings                                     $     1,011  $     2,377 
  Adjustments to reconcile net earnings to net                              
   cash provided by operating activities:                                   
    Depreciation and amortization                        1,003        2,031 
    Stock-based compensation expense                       129          316 
    Provision for doubtful accounts and inventory          102          164 
    Restructuring charges                                  255          401 
    Deferred taxes on earnings                             173            - 
    Excess tax benefit from stock-based                                     
     compensation                                           (9)        (118)
    Other, net                                             159          297 
                                                                            
    Changes in operating assets and liabilities                             
     (net of acquisitions):                                                 
      Accounts receivable                                  (46)       1,494 
      Financing receivables                                 23          245 
      Inventory                                            277           53 
      Accounts payable                                     (40)        (892)
      Taxes on earnings                                   (208)          85 
      Restructuring                                       (220)        (703)
      Other assets and liabilities                      (1,145)      (3,542)
                                                   -----------  ----------- 
        Net cash provided by operating activities        1,464        2,208 
                                                   -----------  ----------- 
                                                                            
Cash flows from investing activities:                                       
    Investment in property, plant and equipment           (779)      (1,726)
    Proceeds from sale of property, plant and                               
     equipment                                              81          211 
    Purchases of available-for-sale securities and                          
     other investments                                     (58)        (108)
    Maturities and sales of available-for-sale                              
     securities and other investments                       93          123 
    Payments made in connection with business                               
     acquisitions                                         (138)        (139)
                                                   -----------  ----------- 
        Net cash used in investing activities             (801)      (1,639)
                                                   -----------  ----------- 
                                                                            
Cash flows from financing activities:                                       
    Short-term borrowings with original maturities                          
     less than 90 days, net                              1,781        1,858 
    Issuance of debt                                     1,288        1,587 
    Payment of debt                                       (984)      (1,895)
    Issuance of common stock under employee stock                           
     plans                                                  42          223 
    Repurchase of common stock                            (659)      (2,230)
    Excess tax benefit from stock-based                                     
     compensation                                            9          118 
    Cash dividends paid                                   (291)        (595)
                                                   -----------  ----------- 
        Net cash provided by (used in) financing                            
         activities                                      1,186         (934)
                                                   -----------  ----------- 
                                                                            
Increase (decrease) in cash and cash equivalents         1,849         (365)
Cash and cash equivalents at beginning of period        12,919       15,133 
                                                   -----------  ----------- 
Cash and cash equivalents at end of period         $    14,768  $    14,768 
                                                   ===========  =========== 
                                                                            
                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
                            SEGMENT INFORMATION                             
                                (Unaudited)                                 
                               (In millions)                                
                                                                            
                                                Three months ended          
                                      ------------------------------------- 
                                       April 30,   January 31,   April 30,  
                                          2015         2015         2014    
                                      -----------  -----------  ----------- 
Net revenue:(a)                                                             
                                                                            
  Personal Systems                    $     7,740  $     8,544  $     8,176 
  Printing                                  5,453        5,543        5,834 
                                      -----------  -----------  ----------- 
    Total Printing and Personal                                             
     Systems Group                         13,193       14,087       14,010 
  Enterprise Group                          6,561        6,981        6,633 
  Enterprise Services                       4,817        4,993        5,702 
  Software                                    892          871          971 
  HP Financial Services                       805          803          867 
  Corporate Investments                         2           16            6 
                                      -----------  -----------  ----------- 
    Total segments                         26,270       27,751       28,189 
  Elimination of intersegment net                                           
   revenue and other                         (817)        (912)        (880)
                                      -----------  -----------  ----------- 
                                                                            
    Total HP consolidated net revenue $    25,453  $    26,839  $    27,309 
                                      ===========  ===========  =========== 
                                                                            
Earnings before taxes:(a)                                                   
                                                                            
  Personal Systems                    $       235  $       313  $       290 
  Printing                                    996        1,067        1,140 
                                      -----------  -----------  ----------- 
    Total Printing and Personal                                             
     Systems Group                          1,231        1,380        1,430 
  Enterprise Group                            950        1,090          957 
  Enterprise Services                         194          148          148 
  Software                                    160          157          186 
  HP Financial Services                        85           90           99 
  Corporate Investments                      (144)        (124)         (98)
                                      -----------  -----------  ----------- 
    Total segment earnings from                                             
     operations                             2,476        2,741        2,722 
                                                                            
  Corporate and unallocated costs and                                       
   eliminations                              (152)        (182)        (251)
  Stock-based compensation expense           (129)        (187)        (130)
  Amortization of intangible assets          (221)        (222)        (264)
  Restructuring charges                      (255)        (146)        (252)
  Acquisition-related charges                 (19)          (4)          (3)
  Separation costs                           (269)         (80)           - 
  Interest and other, net                    (139)        (174)        (174)
                                      -----------  -----------  ----------- 
                                                                            
    Total HP consolidated earnings                                          
     before taxes                     $     1,292  $     1,746  $     1,648 
                                      ===========  ===========  =========== 
                                                                            
(a)  Effective at the beginning of its first quarter of fiscal 2015, HP     
     implemented an organizational change to align its segment financial    
     reporting more closely with its current business structure. This       
     organizational change resulted in the transfer of third party multi-   
     vendor support arrangements from the Technology Services business unit 
     within the Enterprise Group segment to the Infrastructure Technology   
     Outsourcing business unit within the Enterprise Services segment. HP   
     reflected this change to its segment information in prior reporting    
     periods on an as-if basis, which resulted in the removal of            
     intersegment revenue from the Technology Services business unit within 
     the Enterprise Group segment and the related corporate intersegment    
     revenue eliminations, and the transfer of operating profit from the    
     Technology Services business unit within the Enterprise Group segment  
     to the Infrastructure Technology Outsourcing business unit within the  
     Enterprise Services segment. This change 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,        
                                                   ------------------------ 
                                                       2015         2014    
                                                   -----------  ----------- 
Net revenue:(a)                                                             
                                                                            
  Personal Systems                                 $    16,284  $    16,706 
  Printing                                              10,996       11,649 
                                                   -----------  ----------- 
    Total Printing and Personal Systems Group           27,280       28,355 
  Enterprise Group                                      13,542       13,603 
  Enterprise Services                                    9,810       11,297 
  Software                                               1,763        1,887 
  HP Financial Services                                  1,608        1,737 
  Corporate Investments                                     18          294 
                                                   -----------  ----------- 
    Total segments                                      54,021       57,173 
  Elimination of intersegment net revenue and                               
   other                                                (1,729)      (1,710)
                                                   -----------  ----------- 
                                                                            
    Total HP consolidated net revenue              $    52,292  $    55,463 
                                                   ===========  =========== 
                                                                            
Earnings before taxes:(a)                                                   
                                                                            
  Personal Systems                                 $       548  $       569 
  Printing                                               2,063        2,119 
                                                   -----------  ----------- 
    Total Printing and Personal Systems Group            2,611        2,688 
  Enterprise Group                                       2,040        1,960 
  Enterprise Services                                      342          208 
  Software                                                 317          331 
  HP Financial Services                                    175          200 
  Corporate Investments                                   (268)          23 
                                                   -----------  ----------- 
    Total segment earnings from operations               5,217        5,410 
                                                                            
  Corporate and unallocated costs and eliminations        (334)        (372)
  Stock-based compensation expense                        (316)        (300)
  Amortization of intangible assets                       (443)        (547)
  Restructuring charges                                   (401)        (366)
  Acquisition-related charges                              (23)          (6)
  Separation costs                                        (349)           - 
  Interest and other, net                                 (313)        (337)
                                                   -----------  ----------- 
                                                                            
    Total HP consolidated earnings before taxes    $     3,038  $     3,482 
                                                   ===========  =========== 
                                                                            
(a)  Effective at the beginning of its first quarter of fiscal 2015, HP     
     implemented an organizational change to align its segment financial    
     reporting more closely with its current business structure. This       
     organizational change resulted in the transfer of third party multi-   
     vendor support arrangements from the Technology Services business unit 
     within the Enterprise Group segment to the Infrastructure Technology   
     Outsourcing business unit within the Enterprise Services segment. HP   
     reflected this change to its segment information in prior reporting    
     periods on an as-if basis, which resulted in the removal of            
     intersegment revenue from the Technology Services business unit within 
     the Enterprise Group segment and the related corporate intersegment    
     revenue eliminations, and the transfer of operating profit from the    
     Technology Services business unit within the Enterprise Group segment  
     to the Infrastructure Technology Outsourcing business unit within the  
     Enterprise Services segment. This change 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            Change (%)  
                        -------------------------------------  -----------  
                         April 30,   January 31,   April 30,                
                            2015         2015         2014      Q/Q    Y/Y  
                        -----------  -----------  -----------  ----   ----  
Net revenue:(a)                                                             
                                                                            
  Printing and Personal                                                     
   Systems Group                                                            
    Personal Systems                                                        
      Notebooks         $     4,170  $     4,724  $     3,977   (12%)    5% 
      Desktops                2,762        2,949        3,343    (6%)  (17%)
      Workstations              513          526          548    (2%)   (6%)
      Other                     295          345          308   (14%)   (4%)
                        -----------  -----------  -----------               
        Total Personal                                                      
         Systems              7,740        8,544        8,176    (9%)   (5%)
                        -----------  -----------  -----------               
                                                                            
    Printing                                                                
      Supplies                3,684        3,601        3,866     2%    (5%)
      Commercial                                                            
       Hardware               1,304        1,316        1,402    (1%)   (7%)
      Consumer Hardware         465          626          566   (26%)  (18%)
                        -----------  -----------  -----------               
        Total Printing        5,453        5,543        5,834    (2%)   (7%)
                        -----------  -----------  -----------               
          Total                                                             
           Printing and                                                     
           Personal                                                         
           Systems                                                          
           Group             13,193       14,087       14,010    (6%)   (6%)
                        -----------  -----------  -----------               
                                                                            
    Enterprise Group                                                        
      Industry Standard                                                     
       Servers                3,138        3,387        2,829    (7%)   11% 
      Technology                                                            
       Services               1,932        1,987        2,108    (3%)   (8%)
      Storage                   740          837          808   (12%)   (8%)
      Networking                556          562          658    (1%)  (16%)
      Business Critical                                                     
       Systems                  195          208          230    (6%)  (15%)
                        -----------  -----------  -----------               
        Total                                                               
         Enterprise                                                         
         Group                6,561        6,981        6,633    (6%)   (1%)
                        -----------  -----------  -----------               
                                                                            
    Enterprise Services                                                     
      Infrastructure                                                        
       Technology                                                           
       Outsourcing            2,871        3,132        3,597    (8%)  (20%)
      Application and                                                       
       Business                                                             
       Services               1,946        1,861        2,105     5%    (8%)
                        -----------  -----------  -----------               
        Total                                                               
         Enterprise                                                         
         Services             4,817        4,993        5,702    (4%)  (16%)
                        -----------  -----------  -----------               
                                                                            
    Software                    892          871          971     2%    (8%)
                        -----------  -----------  -----------               
                                                                            
    HP Financial                                                            
     Services                   805          803          867     0%    (7%)
                        -----------  -----------  -----------               
                                                                            
    Corporate                                                               
     Investments                  2           16            6   (88%)  (67%)
                        -----------  -----------  -----------               
        Total segments       26,270       27,751       28,189    (5%)   (7%)
                        -----------  -----------  -----------               
                                                                            
    Elimination of                                                          
     intersegment net                                                       
     revenue and other         (817)        (912)        (880)  (10%)   (7%)
                        -----------  -----------  -----------               
                                                                            
    Total HP                                                                
     consolidated net                                                       
     revenue            $    25,453  $    26,839  $    27,309    (5%)   (7%)
                        ===========  ===========  ===========               
                                                                            
(a)  Effective at the beginning of its first quarter of fiscal 2015, HP     
     implemented an organizational change to align its segment financial    
     reporting more closely with its current business structure. This       
     organizational change resulted in the transfer of third party multi-   
     vendor support arrangements from the Technology Services business unit 
     within the Enterprise Group segment to the Infrastructure Technology   
     Outsourcing business unit within the Enterprise Services segment. HP   
     reflected this change to its segment information in prior reporting    
     periods on an as-if basis, which resulted in the removal of            
     intersegment revenue from the Technology Services business unit within 
     the Enterprise Group segment and the related corporate intersegment    
     revenue eliminations. This change 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,        
                                                   ------------------------ 
                                                       2015         2014    
                                                   -----------  ----------- 
Net revenue:(a)                                                             
                                                                            
  Printing and Personal Systems Group                                       
    Personal Systems                                                        
      Notebooks                                    $     8,894  $     8,312 
      Desktops                                           5,711        6,617 
      Workstations                                       1,039        1,081 
      Other                                                640          696 
                                                   -----------  ----------- 
        Total Personal Systems                          16,284       16,706 
                                                   -----------  ----------- 
                                                                            
    Printing                                                                
      Supplies                                           7,285        7,661 
      Commercial Hardware                                2,620        2,749 
      Consumer Hardware                                  1,091        1,239 
                                                   -----------  ----------- 
        Total Printing                                  10,996       11,649 
                                                   -----------  ----------- 
          Total Printing and Personal Systems                               
           Group                                        27,280       28,355 
                                                   -----------  ----------- 
                                                                            
    Enterprise Group                                                        
      Industry Standard Servers                          6,525        6,007 
      Technology Services                                3,919        4,208 
      Storage                                            1,577        1,642 
      Networking                                         1,118        1,288 
      Business Critical Systems                            403          458 
                                                   -----------  ----------- 
        Total Enterprise Group                          13,542       13,603 
                                                   -----------  ----------- 
                                                                            
    Enterprise Services                                                     
      Infrastructure Technology Outsourcing              6,003        7,098 
      Application and Business Services                  3,807        4,199 
                                                   -----------  ----------- 
        Total Enterprise Services                        9,810       11,297 
                                                   -----------  ----------- 
                                                                            
    Software                                             1,763        1,887 
                                                   -----------  ----------- 
                                                                            
    HP Financial Services                                1,608        1,737 
                                                   -----------  ----------- 
                                                                            
    Corporate Investments                                   18          294 
                                                   -----------  ----------- 
        Total segments                                  54,021       57,173 
                                                   -----------  ----------- 
                                                                            
    Elimination of intersegment net revenue and                             
     other                                              (1,729)      (1,710)
                                                   -----------  ----------- 
                                                                            
    Total HP consolidated net revenue              $    52,292  $    55,463 
                                                   ===========  =========== 
                                                                            
(a)  Effective at the beginning of its first quarter of fiscal 2015, HP     
     implemented an organizational change to align its segment financial    
     reporting more closely with its current business structure. This       
     organizational change resulted in the transfer of third party multi-   
     vendor support arrangements from the Technology Services business unit 
     within the Enterprise Group segment to the Infrastructure Technology   
     Outsourcing business unit within the Enterprise Services segment. HP   
     reflected this change to its segment information in prior reporting    
     periods on an as-if basis, which resulted in the removal of            
     intersegment revenue from the Technology Services business unit within 
     the Enterprise Group segment and the related corporate intersegment    
     revenue eliminations. This change had no impact on HP's previously     
     reported consolidated net revenue, earnings from operations, net       
     earnings or net earnings per share.                                    
                                                                            
                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
                   SEGMENT OPERATING MARGIN SUMMARY DATA                    
                                (Unaudited)                                 
                                                                            
                                            Three                           
                                           months      Change in Operating  
                                            ended         Margin (pts)      
                                         ----------  ---------------------- 
                                         April 30,                          
                                            2015         Q/Q         Y/Y    
                                         ----------  ----------  ---------- 
                                                                            
Segment operating margin:(a)                                                
  Personal Systems                              3.0%   (0.7 pts)   (0.5 pts)
  Printing                                     18.3%   (0.9 pts)   (1.2 pts)
    Total Printing & Personal Systems                                       
     Group                                      9.3%   (0.5 pts)   (0.9 pts)
                                                                            
  Enterprise Group                             14.5%   (1.1 pts)    0.1 pts 
  Enterprise Services                           4.0%    1.0 pts     1.4 pts 
  Software                                     17.9%   (0.1 pts)   (1.3 pts)
  HP Financial Services                        10.6%   (0.6 pts)   (0.8 pts)
  Corporate Investments(b)                       NM          NM          NM 
    Total segments                              9.4%   (0.5 pts)   (0.3 pts)
                                                                            
                                                                            
(a)  Effective at the beginning of its first quarter of fiscal 2015, HP     
     implemented an organizational change to align its segment financial    
     reporting more closely with its current business structure. This       
     organizational change resulted in the transfer of third party multi-   
     vendor support arrangements from the Technology Services business unit 
     within the Enterprise Group segment to the Infrastructure Technology   
     Outsourcing business unit within the Enterprise Services segment. HP   
     reflected this change to its segment information in prior reporting    
     periods on an as-if basis, which resulted in the removal of            
     intersegment revenue from the Technology Services business unit within 
     the Enterprise Group segment and the related corporate intersegment    
     revenue eliminations, and the transfer of operating profit from the    
     Technology Services business unit within the Enterprise Group segment  
     to the Infrastructure Technology Outsourcing business unit within the  
     Enterprise Services segment. This change had no impact on HP's         
     previously reported consolidated net revenue, earnings from operations,
     net earnings or net earnings per share.                                
                                                                            
(b)  "NM" represents not meaningful.                                        
                                                                            
                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
                CALCULATION OF DILUTED NET EARNINGS PER SHARE               
                                 (Unaudited)                                
                   (In millions, except per share amounts)                  
                                                                            
                                                  Three months ended        
                                         -----------------------------------
                                          April 30,  January 31,  April 30, 
                                             2015        2015        2014   
                                         ----------- ----------- -----------
                                                                            
Numerator:                                                                  
  GAAP net earnings                      $     1,011 $     1,366 $     1,273
                                         =========== =========== ===========
  Non-GAAP net earnings                  $     1,596 $     1,705 $     1,691
                                         =========== =========== ===========
                                                                            
Denominator:                                                                
  Weighted-average shares outstanding                                       
   during the reporting period                 1,814       1,833       1,890
  Dilutive effect of employee stock                                         
   plans(a)                                       22          28          26
                                         ----------- ----------- -----------
    Weighted-average shares used to                                         
     compute diluted net earnings per                                       
     share                                     1,836       1,861       1,916
                                         =========== =========== ===========
                                                                            
GAAP diluted net earnings per share      $      0.55 $      0.73 $      0.66
                                         =========== =========== ===========
Non-GAAP diluted net earnings per share  $      0.87 $      0.92 $      0.88
                                         =========== =========== ===========
                                                                            
(a)  Includes any dilutive effect of restricted stock units, restricted     
     stock, stock options and performance-based restricted stock units.     
                                                                            

                                                                            
                  HEWLETT-PACKARD COMPANY AND SUBSIDIARIES                  
                CALCULATION OF DILUTED NET EARNINGS PER SHARE               
                                 (Unaudited)                                
                   (In millions, except per share amounts)                  
                                                                            
                                                        Six months ended    
                                                            April 30,       
                                                     -----------------------
                                                         2015        2014   
                                                     ----------- -----------
                                                                            
Numerator:                                                                  
  GAAP net earnings                                  $     2,377 $     2,698
                                                     =========== ===========
  Non-GAAP net earnings                              $     3,301 $     3,433
                                                     =========== ===========
                                                                            
Denominator:                                                                
  Weighted-average shares outstanding during the                            
   reporting period                                        1,824       1,898
  Dilutive effect of employee stock plans(a)                  24          24
                                                     ----------- -----------
    Weighted-average shares used to compute diluted                         
     net earnings per share                                1,848       1,922
                                                     =========== ===========
                                                                            
GAAP diluted net earnings per share                  $      1.29 $      1.40
                                                     =========== ===========
Non-GAAP diluted net earnings per share              $      1.79 $      1.79
                                                     =========== ===========
                                                                            
(a)  Includes any dilutive effect of restricted stock units, restricted     
     stock, stock options and performance-based restricted stock units.     
                                                                            

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 each of 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 charges relating to the amortization of intangible assets, restructuring charges, charges relating to the separation transaction and acquisition-related charges. 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 benefits 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:

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 net 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:

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.

© 2015 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. HP shall not be liable for technical or editorial errors or omissions contained herein.

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HP
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