(b) Represents adjustment to net periodic pension cost resulting from remeasurements of the Hewlett Packard Enterprise pension plans in connection with the spin-off of the software business, Seattle SpinCo, Inc., and the merger of Seattle SpinCo, Inc. with Micro Focus International plc and the spin-off of the enterprise services business, Everett SpinCo, Inc., and the merger of Everett SpinCo, Inc. with Computer Sciences Corporation.
(c) Represents the settlement of certain pre-separation Hewlett-Packard Company income tax liabilities indemnified through the Tax Matters Agreement with HP Inc.
(d) Includes tax amounts in connection with the spin-off of the enterprise services business, Everett SpinCo, Inc. and the software business, Seattle SpinCo, Inc., tax amounts related to U.S. tax reform, tax amounts related to the settlement of certain pre-separation Hewlett-Packard Company income tax liabilities indemnified through the Tax Matters Agreement with HP Inc., and excess tax benefits associated with stock-based compensation, following the adoption of ASU 2016-09 in the first quarter of fiscal 2018.
In connection with the spin-off of the enterprise services business, Everett SpinCo, Inc., for the nine months ended July 31, 2018, this amount includes a $228 million benefit primarily from foreign tax credits and from the release of non U.S. valuation allowances on deferred taxes established in connection with the Everett Transaction, following changes in foreign tax laws. For the nine months ended July 31, 2017, this amount primarily includes $404 million of income tax expense from valuation allowances on certain U.S. deferred tax assets and other divestiture related taxes.
For the nine months ended July 31, 2018, the amount includes $2.0 billion benefit in connection with the settlement of certain pre-separation Hewlett-Packard Company income tax liabilities indemnified through the Tax Matters Agreement with HP Inc. It also includes an estimated tax benefit of $1.8 billion from the provisional application of the new tax rules including a lower federal tax rate to deferred tax assets and liabilities, partially offset by a provisional estimate of $1.1 billion of transition tax expense on accumulated non U.S. earnings, and a $203 million benefit as a result of the liquidation of an insolvent non U.S. subsidiary, as a result of U.S. tax reform. The nine months ended July 31, 2018 also includes $68 million of net excess tax benefits from stock-based compensation.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS, OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE (Unaudited) (In millions, except percentages and per share amounts) | |||||||||||||||||||||||
|
Three months
ended July 31, 2018 |
Diluted net
earnings per share |
Three months
ended April 30, 2018 |
Diluted net
earnings per share |
Three months
ended July 31, 2017 |
Diluted net
earnings per share | ||||||||||||||||||
| GAAP net earnings from continuing operations | $ | 452 | $ | 0.29 | $ | 850 | $ | 0.54 | $ | 285 | $ | 0.17 | |||||||||||
| Non-GAAP adjustments: | |||||||||||||||||||||||
| Amortization of intangible assets | 72 | 0.05 | 72 | 0.05 | 97 | 0.06 | |||||||||||||||||
| Restructuring charges | 2 | — | 9 | 0.01 | 152 | 0.09 | |||||||||||||||||
| Transformation costs(a) | 131 | 0.09 | 123 | 0.08 | 31 | 0.02 | |||||||||||||||||
| Acquisition and other related charges | 24 | 0.02 | 16 | 0.01 | 56 | 0.03 | |||||||||||||||||
| Separation costs | (2 | ) | — | 26 | 0.02 | 5 | — | ||||||||||||||||
| Defined benefit plan settlement charges and remeasurement (benefit) (b) | — | — | — | — | (22 | ) | (0.01 | ) | |||||||||||||||
| Tax indemnification adjustments (c) | (2 | ) | — | 425 | 0.27 | (10 | ) | (0.01 | ) | ||||||||||||||
| Loss from equity interests (d) | 38 | 0.02 | 38 | 0.02 | 39 | 0.02 | |||||||||||||||||
| Adjustments for taxes (e) | (45 | ) | (0.03 | ) | (1,023 | ) | (0.66 | ) | (258 | ) | (0.15 | ) | |||||||||||
| Non-GAAP net earnings from continuing operations | $ | 670 | $ | 0.44 | $ | 536 | $ | 0.34 | $ | 375 | $ | 0.22 | |||||||||||
| GAAP earnings from continuing operations | $ | 516 | $ | 397 | $ | 201 | |||||||||||||||||
| Non-GAAP adjustments related to continuing operations: | |||||||||||||||||||||||
| Amortization of intangible assets | 72 | 72 | 97 | ||||||||||||||||||||
| Restructuring charges | 2 | 9 | 152 | ||||||||||||||||||||
| Transformation costs (a) | 131 | 123 | 31 | ||||||||||||||||||||
| Acquisition and other related charges | 24 | 16 | 56 | ||||||||||||||||||||
| Separation costs | (2 | ) | 26 | 5 | |||||||||||||||||||
| Defined benefit plan settlement charges and remeasurement (benefit) (b) | — | — | (22 | ) | |||||||||||||||||||
| Non-GAAP earnings from continuing operations | $ | 743 | $ | 643 | $ | 520 | |||||||||||||||||
| GAAP operating margin from continuing operations | 7 | % | 5 | % | 3 | % | |||||||||||||||||
| Non-GAAP adjustments from continuing operations | 3 | % | 4 | % | 4 | % | |||||||||||||||||
| Non-GAAP operating margin from continuing operations | 10 | % | 9 | % | 7 | % | |||||||||||||||||
| GAAP net loss from discontinued operations | $ | (1 | ) | $ | — | $ | (72 | ) | $ | (0.05 | ) | $ | (120 | ) | $ | (0.07 | ) | ||||||
| Non-GAAP adjustments related to discontinued operations: | |||||||||||||||||||||||
| Amortization of intangible assets | — | — | — | — | 35 | 0.02 | |||||||||||||||||
| Restructuring charges | — | — | — | — | 13 | 0.01 | |||||||||||||||||
| Separation costs | — | — | — | — | 254 | 0.15 | |||||||||||||||||
| Defined benefit plan settlement charges and remeasurement (benefit) (b) | — | — | — | — | (2 | ) | — | ||||||||||||||||
| Interest expense on Seattle debt | — | — | — | — | 11 | 0.01 | |||||||||||||||||
| Tax indemnification adjustments (c) | — | — | 72 | 0.05 | — | — | |||||||||||||||||
| Adjustments for taxes | 1 | — | — | — | (69 | ) | (0.04 | ) | |||||||||||||||
| Non-GAAP net earnings from discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | 122 | $ | 0.08 | |||||||||||
| Total GAAP net earnings | $ | 451 | $ | 0.29 | $ | 778 | $ | 0.49 | $ | 165 | $ | 0.10 | |||||||||||
| Total Non-GAAP net earnings | $ | 670 | $ | 0.44 | $ | 536 | $ | 0.34 | $ | 497 | $ | 0.30 | |||||||||||
(a) Represents amounts in connection with the HPE Next initiative and primarily includes costs related to labor and non-labor restructuring, program management and IT charges, partially offset by the gain on sale of real estate.
