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HPE Reports Fiscal 2018 Third Quarter Results

PALO ALTO, Calif., Aug. 28, 2018 (GLOBE NEWSWIRE) -- Hewlett Packard Enterprise (NYSE: HPE) today announced financial results for its fiscal 2018 third quarter, ended July 31, 2018.

Third Quarter Fiscal Year 2018 Results
Third quarter net revenue of $7.8 billion was up 4% from the prior-year period and up 1% when adjusted for currency.

Third quarter GAAP diluted net earnings per share (“EPS”) from continuing operations was $0.29, up from GAAP diluted net EPS from continuing operations of $0.17 in the prior-year period. Third quarter non-GAAP diluted net EPS from continuing operations was $0.44, up from non-GAAP diluted net EPS from continuing operations of $0.22 in the prior-year period. Third quarter non-GAAP net earnings from continuing operations and non-GAAP diluted net EPS from continuing operations exclude after-tax adjustments of $218 million and $0.15 per diluted share, respectively, primarily related to the impact of transformation costs, amortization of intangible assets, acquisition and other related charges, an adjustment to earnings from equity interests, excess tax benefits from stock based compensation, the impact of U.S. tax reform, and income tax valuation allowances and separation taxes.

“HPE has delivered a strong Q3 and our results prove we have the right strategy to deliver in the areas of highest value for our customers,” said Antonio Neri, President and CEO, HPE. “Solid execution across each of our business segments, combined with market momentum, will enable us to deliver FY18 revenue and earnings well beyond our original outlook provided at our Securities Analyst Meeting last year.”

HPE fiscal 2018 third quarter continuing operations financial performance

 Q3 FY18Q3 FY17Y/Y
GAAP net revenue ($B)$7.8$7.53.5%
GAAP operating margin6.6%2.7%3.9 pts.
GAAP net earnings ($B)$0.5$0.358.6%
GAAP diluted net earnings per share$0.29$0.1770.6%
Non-GAAP operating margin9.6%6.9%2.7 pts.
Non-GAAP net earnings ($B)$0.7$0.478.7%
Non-GAAP diluted net earnings per share$0.44$0.22100.0%
Cash flow from operations ($B)$1.2$1.0$0.3

Information about HPE’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below.

Outlook
For the fiscal 2018 fourth quarter, Hewlett Packard Enterprise estimates GAAP diluted net EPS to be in the range of $0.16 to $0.21 and non-GAAP diluted net EPS to be in the range of $0.39 to $0.44. Fiscal 2018 fourth quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.23 per diluted share, primarily related to transformation costs and the amortization of intangible assets.

For fiscal 2018, Hewlett Packard Enterprise now estimates GAAP diluted net EPS to be in the range of $1.85 to $1.90 and non-GAAP diluted net EPS to be in the range of $1.50 to $1.55. Fiscal 2018 non-GAAP diluted net EPS estimates exclude the after-tax impact of approximately $0.35 per diluted share, primarily related to the benefit from the impact of U.S. tax reform, partially offset by transformation costs and the amortization of intangible assets.

Fiscal 2018 third quarter segment results

About Hewlett Packard Enterprise
Hewlett Packard Enterprise is a global technology leader focused on developing intelligent solutions that allow customers to capture, analyze and act upon data seamlessly from edge to cloud. HPE enables customers to accelerate business outcomes by driving new business models, creating new customer and employee experiences, and increasing operational efficiency today and into the future.

Use of non-GAAP financial information

To supplement Hewlett Packard Enterprise’s condensed consolidated financial statement information presented on a generally accepted accounting principles (GAAP) basis, Hewlett Packard Enterprise provides revenue on a constant currency basis and revenue adjusted for divestitures and currency, as well as non-GAAP operating expense, non-GAAP operating profit, non-GAAP operating margin, non-GAAP income tax rate, non-GAAP net earnings from continuing operations, non-GAAP net (loss) earnings from discontinued operations, non-GAAP diluted net earnings per share from continuing operations, non-GAAP diluted net (loss) earnings per share from discontinued operations, gross cash, free cash flow, net capital expenditures, net debt, net cash, operating company net debt and operating company net cash financial measures. Hewlett Packard Enterprise also provides forecasts of non-GAAP diluted net earnings per share and free cash flow. A reconciliation of adjustments to GAAP financial measures 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 Hewlett Packard Enterprise’s management uses these non-GAAP measures to evaluate its business, the substance behind Hewlett Packard Enterprise’s decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which Hewlett Packard Enterprise’s management compensates for those limitations, and the substantive reasons why Hewlett Packard Enterprise’s management believes that these non-GAAP measures provide useful information to investors is included under “Use of non-GAAP financial measures” further 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 from continuing operations, net (loss) earnings from discontinued operations, diluted net earnings per share from continuing operations, diluted net (loss) earnings per share from discontinued operations, cash and cash equivalents, cash flow from operations, investments in property, plant and equipment, or total company debt prepared in accordance with GAAP.

Forward-looking statements

This press 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 Hewlett Packard Enterprise 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; statements regarding the estimated impact of the changes in U.S. tax law; 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 transformation and 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 Hewlett Packard Enterprise and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing.

Risks, uncertainties and assumptions include the need to address the many challenges facing Hewlett Packard Enterprise’s businesses; the competitive pressures faced by Hewlett Packard Enterprise’s businesses; risks associated with executing Hewlett Packard Enterprise’s strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of Hewlett Packard Enterprise’s products and the delivery of Hewlett Packard Enterprise’s services effectively; the protection of Hewlett Packard Enterprise’s intellectual property assets, including intellectual property licensed from third parties and intellectual property shared with HP Inc.; risks associated with Hewlett Packard Enterprise’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 Hewlett Packard Enterprise 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 any transformation or restructuring plans, including estimates and assumptions related to the costs and the anticipated benefits of implementing the transformation and restructuring plans; the effects of the U.S. Tax Cuts and Jobs Act and related guidance and regulations that may be implemented; the resolution of pending investigations, claims and disputes; and other risks that are described in Hewlett Packard Enterprise’s Annual Report on Form 10-K for the fiscal year ended October 31, 2017 and subsequent Quarterly Reports on Form 10-Q.

As in prior periods, the financial information set forth in this press release, including tax-related items, reflects estimates based on information available at this time. While Hewlett Packard Enterprise believes these estimates to be reasonable, these amounts could differ materially from reported amounts in the Hewlett Packard Enterprise Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2018. Hewlett Packard Enterprise assumes no obligation and does not intend to update these forward-looking statements.


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)
  
 Three months ended
 July 31,
 2018
 April 30,
 2018
 July 31,
 2017
Net revenue$7,764  $7,468  $7,501 
Costs and expenses:     
Cost of sales5,384  5,196  5,306 
Research and development434  402  390 
Selling, general and administrative1,203  1,227  1,285 
Amortization of intangible assets72  72  97 
Restructuring charges2  9  152 
Transformation costs(a)131  123  31 
Acquisition and other related charges24  16  56 
Separation costs(2) 26  5 
Defined benefit plan settlement charges and remeasurement (benefit)(b)    (22)
Total costs and expenses7,248  7,071  7,300 
Earnings from continuing operations516  397  201 
Interest and other, net(64) (78) (87)
Tax indemnification adjustments(c)2  (425) 10 
Earnings (loss) from equity interests11  (10) 1 
Earnings (loss) from continuing operations before taxes465  (116) 125 
(Provision) benefit for taxes(d)(13) 966  160 
Net earnings from continuing operations452  850  285 
Net loss from discontinued operations(1) (72) (120)
Net earnings$451  $778  $165 
Net earnings (loss) per share:     
Basic     
Continuing operations$0.30  $0.55  $0.17 
Discontinued operations  (0.05) (0.07)
Total basic net earnings per share$0.30  $0.50  $0.10 
Diluted     
Continuing operations$0.29  $0.54  $0.17 
Discontinued operations  (0.05) (0.07)
Total diluted net earnings per share$0.29  $0.49  $0.10 
Cash dividends declared per share$0.1125  $0.1125  $0.0650 
Weighted-average shares used to compute net earnings per share:     
Basic1,513  1,552  1,641 
Diluted1,531  1,582  1,667 

(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.

(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.

For the three months ended April 30, 2018, this amount primarily includes a $1.1 billion benefit following the closure of pre-separation Hewlett-Packard Company audits for fiscal years 2009 through 2012 in connection with the settlement of certain pre-separation Hewlett-Packard Company income tax liabilities indemnified through the Tax Matters Agreement with HP Inc., and $28 million of excess tax benefits from stock-based compensation, partially offset by $140 million of tax expense as a result of U.S. tax reform.

In connection with the spin-off of the enterprise services business, Everett SpinCo, Inc., for the three months ended July 31, 2017, this amount includes a $189 million benefit primarily from income tax benefits on deferred losses.


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)
  
 Nine Months Ended July 31,
 2018 2017
Net revenue$22,906  $21,211 
Costs and expenses:   
Cost of sales16,071  14,794 
Research and development1,224  1,122 
Selling, general and administrative3,632  3,718 
Amortization of intangible assets222  235 
Restructuring charges14  304 
Transformation costs(a)499  31 
Acquisition and other related charges70  150 
Separation costs  46 
Defined benefit plan settlement charges and remeasurement (benefit)(b)  (38)
Total costs and expenses21,732  20,362 
Earnings from continuing operations1,174  849 
Interest and other, net(163) (251)
Tax indemnification adjustments(c)(1,342) (1)
Earnings (loss) from equity interests23  (24)
(Loss) earnings from continuing operations before taxes(308) 573 
Benefit (provision) for taxes(d)3,092  (515)
Net earnings from continuing operations2,784  58 
Net loss from discontinued operations(119) (238)
Net earnings (loss)$2,665  $(180)
Net earnings (loss) per share:   
Basic   
Continuing operations$1.79  $0.04 
Discontinued operations(0.07) (0.15)
Total basic net earnings (loss) per share$1.72  $(0.11)
Diluted   
Continuing operations$1.76  $0.03 
Discontinued operations(0.07) (0.14)
Total diluted net earnings (loss) per share$1.69  $(0.11)
Cash dividends declared per share$0.3750  $0.2600 
Weighted-average shares used to compute net earnings (loss) per share:   
Basic1,552  1,656 
Diluted1,578  1,683 

(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.

(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.


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 assets72  0.05  72  0.05  97  0.06 
Restructuring charges2    9  0.01  152  0.09 
Transformation costs(a)131  0.09  123  0.08  31  0.02 
Acquisition and other related charges24  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 assets72    72    97   
Restructuring charges2    9    152   
Transformation costs(a)131    123    31   
Acquisition and other related charges24    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 operations7%   5%   3%  
Non-GAAP adjustments from continuing operations3%   4%   4%  
Non-GAAP operating margin from continuing operations10%   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 taxes1        (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.

(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) Represents the amortization of basis difference adjustments related to the H3C divestiture.

(e) 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.

For the three months ended April 30, 2018, this amount primarily includes a $1.1 billion benefit following the closure of pre-separation Hewlett-Packard Company audits for fiscal years 2009 through 2012 in connection with the settlement of certain pre-separation Hewlett-Packard Company income tax liabilities indemnified through the Tax Matters Agreement with HP Inc., and $28 million of excess tax benefits from stock-based compensation, partially offset by $140 million of tax expense as a result of U.S. tax reform.

In connection with the spin-off of the enterprise services business, Everett SpinCo, Inc., for the three months ended July 31, 2017, this amount includes a $189 million benefit primarily from income tax benefits on deferred losses.


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)
        
 Nine months
ended July
31, 2018
 Diluted net
earnings per
share
 Nine months
ended July
31, 2017
 Diluted net
earnings per
share
GAAP net earnings from continuing operations$2,784  $1.76  $58  $0.03 
        
Non-GAAP adjustments:       
Amortization of intangible assets222  0.14  235  0.14 
Restructuring charges14  0.01  304  0.18 
Transformation costs(a)499  0.32  31  0.02 
Acquisition and other related charges70  0.04  150  0.09 
Separation costs    46  0.03 
Defined benefit plan settlement charges and remeasurement (benefit)(b)    (38) (0.02)
Tax indemnification adjustments(c)1,342  0.85  1   
Loss from equity interests(d)113  0.07  112  0.07 
Adjustments for taxes(e)(3,291) (2.08) 236  0.13 
Non-GAAP net earnings from continuing operations$1,753  $1.11  $1,135  $0.67 
        
GAAP earnings from continuing operations$1,174    $849   
        
Non-GAAP adjustments related to continuing operations:       
Amortization of intangible assets222    235   
Restructuring charges14    304   
Transformation costs(a)499    31   
Acquisition and other related charges70    150   
Separation costs    46   
Defined benefit plan settlement charges and remeasurement (benefit)(b)    (38)  
Non-GAAP earnings from continuing operations$1,979    $1,577   
        
GAAP operating margin from continuing operations5%   4%  
Non-GAAP adjustments from continuing operations4%   3%  
Non-GAAP operating margin from continuing operations9%   7%  
        
GAAP net loss from discontinued operations$(119) $(0.07) $(238) $(0.14)
        
Non-GAAP adjustments related to discontinued operations:       
Amortization of intangible assets    106  0.06 
Restructuring charges    253  0.15 
Acquisition and other related charges    1   
Separation costs51  0.03  967  0.57 
Defined benefit plan settlement charges and remeasurement (benefit)(b)    (8)  
Interest expense on Seattle debt    11  0.01 
Tax indemnification adjustments(c)68  0.04     
Adjustments for taxes    (371) (0.22)
Non-GAAP net earnings from discontinued operations$  $  $721  $0.43 
        
Total GAAP net earnings (loss)$2,665  $1.69  $(180) $(0.11)
Total Non-GAAP net earnings$1,753  $1.11  $1,856  $1.10 

(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.

(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) Represents the amortization of basis difference adjustments related to the H3C divestiture.

(e) 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.


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except par value)
  
 As of
 July 31, 2018 October 31, 2017
ASSETS   
Current assets:   
Cash and cash equivalents$5,193  $9,579 
Accounts receivable, net of allowance for doubtful accounts2,906  3,073 
Financing receivables3,435  3,378 
Inventory2,771  2,315 
Assets held for sale(a)6  14 
Other current assets3,156  3,085 
Total current assets17,467  21,444 
Property, plant and equipment6,184  6,269 
Long-term financing receivables and other assets12,863  12,600 
Investments in equity interests2,513  2,535 
Goodwill and intangible assets18,486  18,558 
Total assets$57,513  $61,406 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Notes payable and short-term borrowings$2,326  $3,850 
Accounts payable6,143  6,072 
Employee compensation and benefits1,187  1,156 
Taxes on earnings484  429 
Deferred revenue3,168  3,128 
Accrued restructuring256  445 
Other accrued liabilities3,843  3,844 
Total current liabilities17,407  18,924 
Long-term debt9,963  10,182 
Other non-current liabilities6,681  8,795 
Stockholders’ equity   
HPE stockholders’ equity:   
Preferred stock, $0.01 par value (300 shares authorized; none issued and outstanding at July 31, 2018)   
Common stock, $0.01 par value (9,600 shares authorized; 1,482 and 1,595 shares issued and outstanding at July 31, 2018 and October 31, 2017, respectively)15  16 
Additional paid-in capital31,338  33,583 
Accumulated deficit(5,021) (7,238)
Accumulated other comprehensive loss(2,906) (2,895)
Total HPE stockholders’ equity23,426  23,466 
Non-controlling interests36  39 
Total stockholders’ equity23,462  23,505 
Total liabilities and stockholders’ equity$57,513  $61,406 

(a) In connection with the HPE Next initiative, the Company determined that certain properties within its real estate portfolio met the criteria to be classified as Assets held for sale. The Company expects these properties to be sold within the next twelve months.


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
    
 Three months ended
July 31, 2018
 Nine months ended
July 31, 2018
Cash flows from operating activities:   
Net earnings$451  $2,665 
Adjustments to reconcile net earnings to net cash provided by operating activities:   
Depreciation and amortization641  1,931 
Stock-based compensation expense56  242 
Provision for doubtful accounts and inventory56  137 
Restructuring charges131  399 
Deferred taxes on earnings(51) (1,215)
Earnings from equity interests(11) (23)
Dividends received from equity investees  47 
Other, net(42) 55 
Changes in operating assets and liabilities, net of acquisitions:   
Accounts receivable179  137 
Financing receivables44  (228)
Inventory42  (545)
Accounts payable(105) 72 
Taxes on earnings(54) (2,271)
Restructuring(126) (540)
Other assets and liabilities38  775 
Net cash provided by operating activities1,249  1,638 
Cash flows from investing activities:   
Investment in property, plant and equipment(767) (2,129)
Proceeds from sale of property, plant and equipment269  561 
Purchases of available-for-sale securities and other investments(24) (32)
Maturities and sales of available-for-sale securities and other investments11  96 
Financial collateral posted(127) (1,318)
Financial collateral returned402  1,333 
Payments made in connection with business acquisitions, net of cash acquired(178) (207)
Proceeds from business divestitures, net  13 
Net cash used in investing activities(414) (1,683)
Cash flows from financing activities:   
Short-term borrowings with original maturities less than 90 days, net109  84 
Proceeds from debt, net of issuance costs283  894 
Payment of debt(1,928) (2,538)
Net proceeds related to stock-based award activities(a)15  104 
Repurchase of common stock(936) (2,585)
Net transfer of cash and cash equivalents to Everett  (41)
Net transfer of cash and cash equivalents from Seattle  156 
Cash dividends paid to non-controlling interests(1) (9)
Cash dividends paid(170) (406)
Net cash used in financing activities(2,628) (4,341)
Decrease in cash and cash equivalents(1,793) (4,386)
Cash and cash equivalents at beginning of period6,986  9,579 
Cash and cash equivalents at end of period$5,193  $5,193 

(a) During the first quarter of fiscal 2018, the Company adopted ASU 2016-09, as a result of which, excess tax benefits from stock-based compensation is presented as an operating activity, rather than as a financing activity, and the payment of withholding taxes is presented as a financing activity, rather than as an operating activity. The Company adopted the standard retrospectively for the prior comparative periods. As such, prior period amounts have been reclassified to conform to the current presentation.


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
   
  Three months ended
  July 31,
 2018
 April 30,
 2018
 July 31,
 2017
Net revenue:(a)      
Hybrid IT $6,243  $6,023  $6,080 
Intelligent Edge 785  710  711 
Financial Services 928  916  897 
Corporate Investments      
Total segment net revenue 7,956  7,649  7,688 
Elimination of intersegment net revenue and other (192) (181) (187)
Total Hewlett Packard Enterprise consolidated net revenue $7,764  $7,468  $7,501 
       
Earnings from continuing operations before taxes:(a) (b)      
Hybrid IT $661  $621  $482 
Intelligent Edge 91  46  104 
Financial Services 73  72  69 
Corporate Investments (24) (22) (24)
Total segment earnings from operations 801  717  631 
       
Unallocated corporate costs and eliminations(b) (44) (54) (88)
Unallocated stock-based compensation expense(b) (14) (20) (23)
Amortization of intangible assets (72) (72) (97)
Restructuring charges (2) (9) (152)
Transformation costs(c) (131) (123) (31)
Acquisition and other related charges (24) (16) (56)
Separation costs 2  (26) (5)
Defined benefit plan settlement charges and remeasurement (benefit)(d)     22 
Interest and other, net (64) (78) (87)
Tax indemnification adjustments(e) 2  (425) 10 
Earnings (loss) from equity interests 11  (10) 1 
Total Hewlett Packard Enterprise consolidated earnings (loss) from continuing operations before taxes $465  $(116) $125 

(a) Effective at the beginning of the first quarter of fiscal 2018, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes primarily include: (i) the transfer of the former Servers and Storage business units, the HPE Pointnext and Communications and Media Solutions ("CMS") businesses within the former Technology Services business unit, and the data center networking business within the former Networking business unit, all of which were previously reported within the former Enterprise Group ("EG") segment, to the newly formed Hybrid IT segment; (ii) the transfer of the remaining networking products businesses, which include wireless LAN, campus and branch switching and edge compute within the former Networking business unit, and Aruba services within the former Technology Services business unit, all of which were previously reported within the former EG segment, to the newly formed Intelligent Edge segment; and (iii) the transfer of cloud-related activities previously reported within Corporate Investments to the Hybrid IT segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which primarily resulted in: (i) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the former Servers and Storage business units, the HPE Pointnext and CMS businesses within the former Technology Services business unit and the data center networking business within the former Networking business unit, all of which were previously reported within the former EG segment, to the Hybrid IT segment; (ii) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the remaining networking products businesses within the former Networking business unit, and Aruba services within the former Technology Services business unit, all of which were previously reported within the former EG segment, to the Intelligent Edge segment; and (iii) the transfer of the operating loss from cloud-related activities previously reported within Corporate Investments to the Hybrid IT segment.

These changes had no impact on Hewlett Packard Enterprise's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.

(b) Effective at the beginning of the first quarter of fiscal 2018, the Company implemented certain changes to its allocation methodology for stock-based compensation expense and certain corporate costs, which align to its segment financial reporting and are consistent with the manner in which the operating segments will be evaluated for performance on a prospective basis.

The Company reflected these changes retrospectively to the earliest period presented, which resulted in: (i) the transfer of a portion of stock-based compensation expense, which under the prior allocation methodology was not allocated to the segments, to the Hybrid IT, Intelligent Edge and Financial Services segments; and (ii) the transfer of certain corporate function costs previously allocated to the segments to unallocated corporate costs.

These changes had no impact on Hewlett Packard Enterprise's previously reported consolidated and combined earnings from operations, net earnings or net earnings per share.

(c) 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.

(d) 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.

(e) Represents the settlement of certain pre-separation Hewlett-Packard Company income tax liabilities indemnified through the Tax Matters Agreement with HP Inc.


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
   
  Nine Months Ended July 31,
  2018 2017
Net revenue:(a)    
Hybrid IT $18,597  $17,472 
Intelligent Edge 2,115  1,887 
Financial Services 2,732  2,592 
Corporate Investments (1)  
Total segment net revenue 23,443  21,951 
Elimination of intersegment net revenue and other (537) (740)
Total Hewlett Packard Enterprise consolidated net revenue $22,906  $21,211 
     
Earnings from continuing operations before taxes:(a) (b)    
Hybrid IT $1,890  $1,672 
Intelligent Edge 155  166 
Financial Services 217  222 
Corporate Investments (67) (85)
Total segment earnings from operations 2,195  1,975 
     
Unallocated corporate costs and eliminations(b) (152) (308)
Unallocated stock-based compensation expense(b) (64) (90)
Amortization of intangible assets (222) (235)
Restructuring charges (14) (304)
Transformation costs(c) (499) (31)
Acquisition and other related charges (70) (150)
Separation costs   (46)
Defined benefit plan settlement charges and remeasurement (benefit)(d)   38 
Interest and other, net (163) (251)
Tax indemnification adjustments(e) (1,342) (1)
Earnings (loss) from equity interests 23  (24)
Total Hewlett Packard Enterprise consolidated (loss) earnings from continuing operations before taxes $(308) $573 

(a) Effective at the beginning of the first quarter of fiscal 2018, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes primarily include: (i) the transfer of the former Servers and Storage business units, the HPE Pointnext and Communications and Media Solutions ("CMS") businesses within the former Technology Services business unit, and the data center networking business within the former Networking business unit, all of which were previously reported within the former Enterprise Group ("EG") segment, to the newly formed Hybrid IT segment; (ii) the transfer of the remaining networking products businesses, which include wireless LAN, campus and branch switching and edge compute within the former Networking business unit, and Aruba services within the former Technology Services business unit, all of which were previously reported within the former EG segment, to the newly formed Intelligent Edge segment; and (iii) the transfer of cloud-related activities previously reported within Corporate Investments to the Hybrid IT segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which primarily resulted in: (i) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the former Servers and Storage business units, the HPE Pointnext and CMS businesses within the former Technology Services business unit and the data center networking business within the former Networking business unit, all of which were previously reported within the former EG segment, to the Hybrid IT segment; (ii) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the remaining networking products businesses within the former Networking business unit, and Aruba services within the former Technology Services business unit, all of which were previously reported within the former EG segment, to the Intelligent Edge segment; and (iii) the transfer of the operating loss from cloud-related activities previously reported within Corporate Investments to the Hybrid IT segment.

These changes had no impact on Hewlett Packard Enterprise's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.

(b) Effective at the beginning of the first quarter of fiscal 2018, the Company implemented certain changes to its allocation methodology for stock-based compensation expense and certain corporate costs, which align to its segment financial reporting and are consistent with the manner in which the operating segments will be evaluated for performance on a prospective basis.

The Company reflected these changes retrospectively to the earliest period presented, which resulted in: (i) the transfer of a portion of stock-based compensation expense, which under the prior allocation methodology was not allocated to the segments, to the Hybrid IT, Intelligent Edge and Financial Services segments; and (ii) the transfer of certain corporate function costs previously allocated to the segments to unallocated corporate costs.

These changes had no impact on Hewlett Packard Enterprise's previously reported consolidated and combined earnings from operations, net earnings or net earnings per share.

(c) 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.

(d) 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.

(e) Represents the settlement of certain pre-separation Hewlett-Packard Company income tax liabilities indemnified through the Tax Matters Agreement with HP Inc.


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
SEGMENT/BUSINESS UNIT INFORMATION
(Unaudited)
(In millions, except percentages)
    
 Three months ended Change (%)
 July 31,
 2018
 April 30,
 2018
 July 31,
 2017
 Q/Q Y/Y
Net revenue:(a)         
Hybrid IT         
Hybrid IT Product         
Compute$3,510  $3,213  $3,340  9% 5%
Storage887  912  877  (3%) 1%
DC Networking59  46  63  28% (6%)
Total Hybrid IT Product4,456  4,171  4,280  7% 4%
HPE Pointnext1,787  1,852  1,800  (4%) (1%)
Total Hybrid IT6,243  6,023  6,080  4% 3%
Intelligent Edge         
HPE Aruba Product706  635  642  11% 10%
HPE Aruba Services79  75  69  5% 14%
Total Intelligent Edge785  710  711  11% 10%
          
Financial Services928  916  897  1% 3%
Corporate Investments      NM  NM 
Total segment net revenue7,956  7,649  7,688  4% 3%
          
Elimination of intersegment net revenue and other(192) (181) (187) 6% 3%
Total Hewlett Packard Enterprise consolidated net revenue$7,764  $7,468  $7,501  4% 4%

(a) Effective at the beginning of the first quarter of fiscal 2018, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes primarily include: (i) the transfer of the former Servers and Storage business units, the HPE Pointnext and CMS businesses within the former Technology Services business unit, and the data center networking business within the former Networking business unit, all of which were previously reported within the former EG segment, to the newly formed Hybrid IT segment; (ii) the transfer of the remaining networking products businesses, which include wireless LAN, campus and branch switching and edge compute within the former Networking business unit, and Aruba services within the former Technology Services business unit, all of which were previously reported within the former EG segment, to the newly formed Intelligent Edge segment; and (iii) the transfer of cloud-related activities previously reported within Corporate Investments to the Hybrid IT segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which primarily resulted in: (i) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the former Servers and Storage business units, the HPE Pointnext and CMS businesses within the former Technology Services business unit and the data center networking business within the former Networking business unit, all of which were previously reported within the former EG segment, to the Hybrid IT segment; (ii) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the remaining networking products businesses within the former Networking business unit, and Aruba services within the former Technology Services business unit, all of which were previously reported within the former EG segment, to the Intelligent Edge segment; and (iii) the transfer of the operating loss from cloud-related activities previously reported within Corporate Investments to the Hybrid IT segment.

These changes had no impact on Hewlett Packard Enterprise's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
SEGMENT/BUSINESS UNIT INFORMATION
(Unaudited)
(In millions, except percentages)
   
 Nine Months Ended July 31,
 2018 2017 Y/Y
Net revenue:(a)     
Hybrid IT     
Hybrid IT Product     
Compute$10,215  $9,516  7%
Storage2,747  2,375  16%
DC Networking167  157  6%
Total Hybrid IT Product13,129  12,048  9%
HPE Pointnext5,468  5,424  1%
Total Hybrid IT18,597  17,472  6%
Intelligent Edge     
HPE Aruba Product1,890  1,683  12%
HPE Aruba Services225  204  10%
Total Intelligent Edge2,115  1,887  12%
      
Financial Services2,732  2,592  5%
Corporate Investments(1)   NM 
Total segment net revenue23,443  21,951  7%
      
Elimination of intersegment net revenue and other(537) (740) (27%)
Total Hewlett Packard Enterprise consolidated net revenue$22,906  $21,211  8%

(a) Effective at the beginning of the first quarter of fiscal 2018, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes primarily include: (i) the transfer of the former Servers and Storage business units, the HPE Pointnext and CMS businesses within the former Technology Services business unit, and the data center networking business within the former Networking business unit, all of which were previously reported within the former EG segment, to the newly formed Hybrid IT segment; (ii) the transfer of the remaining networking products businesses, which include wireless LAN, campus and branch switching and edge compute within the former Networking business unit, and Aruba services within the former Technology Services business unit, all of which were previously reported within the former EG segment, to the newly formed Intelligent Edge segment; and (iii) the transfer of cloud-related activities previously reported within Corporate Investments to the Hybrid IT segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which primarily resulted in: (i) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the former Servers and Storage business units, the HPE Pointnext and CMS businesses within the former Technology Services business unit and the data center networking business within the former Networking business unit, all of which were previously reported within the former EG segment, to the Hybrid IT segment; (ii) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the remaining networking products businesses within the former Networking business unit, and Aruba services within the former Technology Services business unit, all of which were previously reported within the former EG segment, to the Intelligent Edge segment; and (iii) the transfer of the operating loss from cloud-related activities previously reported within Corporate Investments to the Hybrid IT segment.

These changes had no impact on Hewlett Packard Enterprise's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
SEGMENT OPERATING MARGIN SUMMARY DATA
(Unaudited)
     
  Three months ended Change in Operating
Margin (pts)
  July 31, 2018 Q/Q Y/Y
Segment operating margin:(a)      
Hybrid IT 10.6% 0.3 pts 2.7 pts
Intelligent Edge 11.6% 5.1 pts (3.0) pts
Financial Services 7.9% 0 pts 0.2 pts
Corporate Investments(b) NM NM NM
Total segment operating margin 10.1% 0.7 pts 1.9 pts

(a) Effective at the beginning of the first quarter of fiscal 2018, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes primarily include: (i) the transfer of the former Servers and Storage business units, the HPE Pointnext and CMS businesses within the former Technology Services business unit, and the data center networking business within the former Networking business unit, all of which were previously reported within the former EG segment, to the newly formed Hybrid IT segment; (ii) the transfer of the remaining networking products businesses, which include wireless LAN, campus and branch switching and edge compute within the former Networking business unit, and Aruba services within the former Technology Services business unit, all of which were previously reported within the former EG segment, to the newly formed Intelligent Edge segment; and (iii) the transfer of cloud-related activities previously reported within Corporate Investments to the Hybrid IT segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which primarily resulted in: (i) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the former Servers and Storage business units, the HPE Pointnext and CMS businesses within the former Technology Services business unit and the data center networking business within the former Networking business unit, all of which were previously reported within the former EG segment, to the Hybrid IT segment; (ii) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the remaining networking products businesses within the former Networking business unit, and Aruba services within the former Technology Services business unit, all of which were previously reported within the former EG segment, to the Intelligent Edge segment; and (iii) the transfer of the operating loss from cloud-related activities previously reported within Corporate Investments to the Hybrid IT segment.

These changes had no impact on Hewlett Packard Enterprise's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share.

(b) “NM” represents not meaningful.


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS (LOSS) PER SHARE
(Unaudited)
(In millions, except per share amounts)
  
 Three months ended
 July 31,
 2018
 April 30,
 2018
 July 31,
 2017
Numerator:     
GAAP net earnings from continuing operations$452  $850  $285 
GAAP net loss from discontinued operations$(1) $(72) $(120)
Non-GAAP net earnings from continuing operations$670  $536  $375 
Non-GAAP net earnings from discontinued operations$  $  $122 
      
Denominator:     
Weighted-average shares used to compute basic net earnings per share and diluted net earnings (loss) per share1,513  1,552  1,641 
Dilutive effect of employee stock plans(a)18  30  26 
Weighted-average shares used to compute diluted net earnings (loss) per share1,531  1,582  1,667 
      
GAAP net earnings per share from continuing operations     
Basic$0.30  $0.55  $0.17 
Diluted(a)$0.29  $0.54  $0.17 
      
GAAP net loss per share from discontinued operations     
Basic$  $(0.05) $(0.07)
Diluted(a)$  $(0.05) $(0.07)
      
Non-GAAP net earnings per share from continuing operations     
Basic$0.44  $0.35  $0.23 
Diluted(b)$0.44  $0.34  $0.22 
      
Non-GAAP net earnings per share from discontinued operations     
Basic$  $  $0.07 
Diluted(b)$  $  $0.08 
      
Total Hewlett Packard Enterprise GAAP basic net earnings per share$0.30  $0.50  $0.10 
Total Hewlett Packard Enterprise GAAP diluted net earnings per share$0.29  $0.49  $0.10 
Total Hewlett Packard Enterprise Non-GAAP basic net earnings per share$0.44  $0.35  $0.30 
Total Hewlett Packard Enterprise Non-GAAP diluted net earnings per share$0.44  $0.34  $0.30 

(a) GAAP diluted net earnings per share reflects any dilutive effect of  restricted stock awards, stock options and performance-based stock awards, but the effect is excluded when there is a net (loss) from continuing operations and discontinued operations because it would be anti-dilutive.

(b) Non-GAAP diluted net earnings per share reflects any dilutive effect of restricted stock awards, stock options and performance-based awards.


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS (LOSS) PER SHARE
(Unaudited)
(In millions, except per share amounts)
  
 Nine Months Ended July 31,
 2018 2017
Numerator:   
GAAP net earnings from continuing operations$2,784  $58 
GAAP net loss from discontinued operations$(119) $(238)
Non-GAAP net earnings from continuing operations$1,753  $1,135 
Non-GAAP net earnings from discontinued operations$  $721 
    
Denominator:   
Weighted-average shares used to compute basic net earnings (loss) per share and diluted net earnings (loss) per share1,552  1,656 
Dilutive effect of employee stock plans(a)26  27 
Weighted-average shares used to compute diluted net earnings (loss) per share1,578  1,683 
    
GAAP net earnings per share from continuing operations   
Basic$1.79  $0.04 
Diluted(a)$1.76  $0.03 
    
GAAP net loss per share from discontinued operations   
Basic$(0.07) $(0.15)
Diluted(a)$(0.07) $(0.14)
    
Non-GAAP net earnings per share from continuing operations   
Basic$1.13  $0.69 
Diluted(b)$1.11  $0.67 
    
Non-GAAP net earnings per share from discontinued operations   
Basic$  $0.43 
Diluted(b)$  $0.43 
    
Total Hewlett Packard Enterprise GAAP basic net earnings (loss) per share$1.72  $(0.11)
Total Hewlett Packard Enterprise GAAP diluted net earnings (loss) per share$1.69  $(0.11)
Total Hewlett Packard Enterprise Non-GAAP basic net earnings per share$1.13  $1.12 
Total Hewlett Packard Enterprise Non-GAAP diluted net earnings per share$1.11  $1.10 

(a) GAAP diluted net earnings per share reflects any dilutive effect of  restricted stock awards, stock options and performance-based stock awards, but the effect is excluded when there is a net (loss) from continuing operations and discontinued operations because it would be anti-dilutive.

(b) Non-GAAP diluted net earnings per share reflects any dilutive effect of restricted stock awards, stock options and performance-based awards.

Use of non-GAAP financial measures

To supplement Hewlett Packard Enterprise’s condensed consolidated financial statement information presented on a GAAP basis, Hewlett Packard Enterprise provides revenue on a constant currency basis, revenue adjusted for divestitures and currency, non-GAAP operating expenses, non-GAAP operating profit, non-GAAP operating margin, non-GAAP income tax rate, non-GAAP net earnings from continuing operations, non-GAAP net (loss) earnings from discontinued operations, non-GAAP diluted net earnings per share from continuing operations, non-GAAP diluted net (loss) earnings per share from discontinued operations, gross cash, free cash flow, net capital expenditures, net debt, net cash, operating company net debt and operating company net cash financial measures. Hewlett Packard Enterprise also provides forecasts of non-GAAP diluted net earnings per share and free cash flow.

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 revenue adjusted for divestitures and currency is revenue. The GAAP measure most directly comparable to non-GAAP operating expense is total costs and expenses. 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 income tax rate is income tax rate. The GAAP measure most directly comparable to non-GAAP net earnings from continuing operations is net (loss) earnings from continuing operations. The GAAP measure most directly comparable to non-GAAP net (loss) earnings from discontinued operations is net (loss) earnings from discontinued operations. The GAAP measure most directly comparable to non-GAAP diluted net earnings per share from continuing operations is diluted net (loss) earnings per share from continuing operations. The GAAP measure most directly comparable to non-GAAP diluted net (loss) earnings per share from discontinued operations is diluted net (loss) earnings per share from discontinued operations. 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 investment in property, plant and equipment. 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 Hewlett Packard Enterprise

Revenue on a constant currency basis assumes no change in the foreign exchange rate from the prior-year period. Revenue adjusted for divestitures and currency excludes revenue resulting from business divestitures in fiscal 2017 and 2016 and also assumes no change in the foreign exchange rate from the prior-year period. Non-GAAP operating expenses, non-GAAP operating profit, and non-GAAP operating margin are defined to exclude any charges relating to the amortization of intangible assets, restructuring charges, charges relating to the separation transactions, transformation costs, acquisition and other related charges and defined benefit plan settlement and remeasurement charges. Non-GAAP net earnings from continuing operations and non-GAAP diluted net earnings per share from continuing operations consist of net (loss) earnings or diluted net (loss) earnings per share excluding those same charges, as well as an adjustment to earnings in equity interests, tax indemnification adjustments, income tax valuation allowances and separation taxes, the impact of U.S. tax reform and excess tax benefit from stock-based compensation. Non-GAAP net (loss) earnings from discontinued operations and non-GAAP diluted net (loss) earnings per share from discontinued operations consist of net (loss) earnings from discontinued operations or diluted net (loss) earnings per share from discontinued operations excluding those same charges, as applicable to discontinued operations. In addition, non-GAAP net earnings from continuing operations, non-GAAP net (loss) earnings from discontinued operations, non-GAAP diluted net earnings per share from continuing operations and non-GAAP diluted net (loss) earnings per share from discontinued operations are adjusted by the amount of additional taxes or tax benefits associated with each non-GAAP item.

Hewlett Packard Enterprise’s management uses these non-GAAP financial measures for purposes of evaluating Hewlett Packard Enterprise’s historical and prospective financial performance, as well as Hewlett Packard Enterprise’s performance relative to its competitors. Hewlett Packard Enterprise’s management also uses these non-GAAP measures to further its own understanding of Hewlett Packard Enterprise’s segment operating performance. Hewlett Packard Enterprise believes that excluding the items mentioned above from these non-GAAP financial measures allows Hewlett Packard Enterprise’s management to better understand Hewlett Packard Enterprise’s consolidated financial performance in relation to the operating results of Hewlett Packard Enterprise’s segments, as Hewlett Packard Enterprise’s management does not believe that the excluded items are reflective of ongoing operating results. More specifically, Hewlett Packard Enterprise’s management excludes each of those items mentioned above for the following reasons:

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 Hewlett Packard Enterprise’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

Hewlett Packard Enterprise 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 as supplement. Hewlett Packard Enterprise also provides a reconciliation 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 Hewlett Packard Enterprise encourages investors to review carefully those reconciliations.

Usefulness of non-GAAP financial measures to investors

Hewlett Packard Enterprise believes that providing revenue on a constant currency basis, revenue adjusted for divestitures and currency, non-GAAP operating expenses, non-GAAP operating profit, non-GAAP operating margin, non-GAAP income tax rate, non-GAAP net earnings from continuing operations, non-GAAP net (loss) earnings from discontinued operations, non-GAAP diluted net earnings per share from continuing operations and non-GAAP diluted net (loss) earnings per share from discontinued operations, gross cash, free cash flow, net capital expenditures, net debt, net cash, operating company net debt and operating company net cash financial measures to investors in addition to the related GAAP measures provides investors with greater transparency to the information used by Hewlett Packard Enterprise’s management in its financial and operational decision making and allows investors to see Hewlett Packard Enterprise’s results “through the eyes” of management. Hewlett Packard Enterprise further believes that providing this information better enables Hewlett Packard Enterprise’s investors to understand Hewlett Packard Enterprise’s operating performance and to evaluate the efficacy of the methodology and information used by Hewlett Packard Enterprise’s management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of Hewlett Packard Enterprise’s operating performance with the performance of other companies in Hewlett Packard Enterprise’s industry that supplement their GAAP results with non-GAAP financial measures that may be calculated in a similar manner.

Editorial contact
Jennifer Temple
corpmediarelations@hpe.com

HPE Investor Relations
Investor.relations@hpe.com

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