UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
October 6, 2014
Date of Report (Date of Earliest Event Reported)
HEWLETT-PACKARD COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE |
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1-4423 |
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94-1081436 |
(State or other jurisdiction
of incorporation) |
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(Commission File Number) |
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(I.R.S. Employer
Identification No.) |
3000 HANOVER STREET, PALO ALTO, CA |
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94304 |
(Address of principal executive offices) |
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(Zip code) |
(650) 857-1501
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 7.01 Regulation FD Disclosure.
On October 6, 2014, Hewlett-Packard Company (HP) announced plans to separate into two new publicly traded companies: one comprising HPs enterprise technology infrastructure, software and services businesses, which will do business as Hewlett-Packard Enterprise, and one that will comprise HPs printing and personal systems businesses, which will do business as HP Inc. and retain the current logo. The transaction is subject to certain conditions, including, among others, obtaining final approval from HPs Board of Directors, receipt of a favorable opinion and/or rulings with respect to the tax-free nature of the transaction for federal income tax purposes and the effectiveness of a Form 10 filing with the Securities and Exchange Commission. HP issued a press release describing the plans entitled HP to Separate into Two New Industry-Leading Public Companies. The text of this press release is furnished herewith as Exhibit 99.1.
HP also updated the companys outlook for its 2014 fiscal year and released information about the companys outlook for its 2015 fiscal year. For the 2014 fiscal year, HP expects GAAP diluted net earnings per share in the range of $2.60 to $2.64, and non-GAAP diluted net earnings per share in the range of $3.70 to $3.74. This non-GAAP diluted net earnings per share estimate excludes after-tax costs of approximately $1.10 per share, related primarily to restructuring charges and amortization of intangible assets. For the 2015 fiscal year, HP expects GAAP diluted net earnings per share in the range of $3.23 to $3.43, and non-GAAP diluted net earnings per share in the range of $3.83 to $4.03. This non-GAAP diluted net earnings per share estimate excludes after-tax costs of approximately $0.60 per share, related primarily to the amortization of intangible assets and restructuring charges. Additional information about HPs outlook for its 2014 and 2015 fiscal years is included in the presentation materials furnished herewith as Exhibit 99.2.
The information reported in this report, including the materials attached as Exhibits 99.1 and 99.2, shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.
HP has included non-GAAP financial measures in this report to supplement HPs financial measures presented on a GAAP basis. Definitions of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are available at www.hp.com/investor/2014OctAnnouncement/.
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HPs management uses non-GAAP financial measures, including revenue on a constant currency basis, HPs non-GAAP tax rate and non-GAAP diluted net earnings per share, to evaluate and forecast HPs performance before gains, losses or other charges that are considered by HPs management to be outside of HPs core business segment operating results. Free cash flow is a liquidity measure that provides useful information to management about the amount of cash available for investment in HPs businesses, funding strategic acquisitions, repurchasing stock and other purposes. These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HPs results as reported under GAAP.
HP believes that providing these non-GAAP financial measures in addition to the related GAAP measures provides investors with greater transparency to the information used by HPs management in its financial and operational decision making and allows investors to see HPs results through the eyes of management. HP further believes that providing this information better enables HPs investors to understand HPs operating performance and to evaluate the efficacy of the methodology and information used by HPs management to evaluate and measure such performance. Disclosure of non-GAAP financial measures also facilitates comparisons of HPs operating performance with the performance of other companies in HPs industry that supplement their GAAP results with non-GAAP financial measures that may be calculated in a similar manner.
This report 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 statements of the plans, strategies and objectives of HP for future operations, including the separation transaction; the future performance of Hewlett-Packard Enterprise and HP Inc. if the separation is completed; the execution of restructuring plans and any resulting cost savings or revenue or profitability improvements; any projections of revenue, margins, expenses, HPs effective tax rate, net earnings, net earnings per share, cash flows, benefit plan funding, share repurchases, currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring charges; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the need to address the many challenges facing HPs businesses; the competitive pressures faced by
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HPs businesses; risks associated with executing HPs 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 HPs products and services effectively; the protection of HPs intellectual property assets, including intellectual property licensed from third parties; risks associated with HPs 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 HPs 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 HPs Annual Report on Form 10-K for the fiscal year ended October 31, 2013, and HPs other filings with the Securities and Exchange Commission, including HPs Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2014. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be reasonable, these amounts could differ materially from actual reported amounts in HPs Annual Report on Form 10-K for the fiscal year ended October 31, 2014. HP assumes no obligation and does not intend to update these forward-looking statements.
Item 9.01. |
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Financial Statements and Exhibits. |
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Exhibit |
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Number |
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Description |
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99.1 |
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HPs press release, dated October 6, 2014, entitled HP to Separate into Two New Industry-Leading Public Companies (furnished herewith). |
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99.2 |
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Presentation materials (furnished herewith). |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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HEWLETT-PACKARD COMPANY |
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DATE: October 6, 2014 |
By: |
/s/ Rishi Varma |
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Name: |
Rishi Varma |
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Title: |
Senior Vice President, Deputy General Counsel and Assistant Secretary |
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EXHIBIT INDEX
Item 9.01. |
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Financial Statements and Exhibits. |
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Exhibit Number |
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Description |
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99.1 |
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HPs press release, dated October 6, 2014, entitled HP to Separate into Two New Industry-Leading Public Companies (furnished herewith). |
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99.2 |
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Presentation materials (furnished herewith). |
Exhibit 99.1
Hewlett-Packard Company
3000 Hanover Street
Palo Alto, CA 94304
hp.com
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Editorial contacts
Sarah Pompei
+1 650 518 9896
sarah.pompei@hp.com
www.hpannouncement.com
www.hp.com/go/newsroom
News Release
HP To Separate Into Two New Industry-Leading Public Companies
Hewlett-Packard Enterprise will define the next generation of technology infrastructure, software and services for the New Style of IT
HP Inc. will be the leading personal systems and printing company delivering innovations that will empower people to create, interact and inspire like never before
Strategic step provides each new company with the focus, financial resources and flexibility to adapt quickly to market and customer dynamics while generating long-term value for shareholders
Highlights:
· Hewlett-Packard Enterprise will build upon HPs leading position in servers, storage, networking, converged systems, services and software as well as its OpenStack Helion cloud platform
· Meg Whitman to be President and Chief Executive Officer of Hewlett-Packard Enterprise; Pat Russo to be Chairman of Hewlett-Packard Enterprise Board
· HP Inc. will be the leading personal systems and printing company with a strong roadmap into the most exciting new technologies like 3D printing and new computing experiences
· Dion Weisler to be President and Chief Executive Officer of HP Inc.; Meg Whitman to be Chairman of the HP Inc. Board
· Company reiterates fiscal 2014 non-GAAP diluted net earnings per share (EPS) outlook of $3.70 to $3.74 and updates GAAP diluted net EPS outlook to $2.60 to $2.64
· Company issues fiscal 2015 non-GAAP diluted net EPS outlook of $3.83 to $4.03 and GAAP diluted net EPS outlook of $3.23 to $3.43
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Palo Alto, Calif., October 6, 2014 HP (NYSE: HPQ) today announced plans to separate into two new publicly traded Fortune 50 companies: one comprising HPs market-leading enterprise technology infrastructure, software and services businesses, which will do business as Hewlett-Packard Enterprise, and one that will comprise HPs market-leading personal systems and printing businesses, which will do business as HP Inc. and retain the current logo. Immediately following the transaction, which is expected to be completed by the end of fiscal 2015, HP shareholders will own shares of both Hewlett-Packard Enterprise and HP Inc. The transaction is intended to be tax-free to HPs shareholders for federal income tax purposes.
Todays announcement comes as HP approaches the fourth year of its five-year turnaround plan. Over this time, the company has executed successfully against its turnaround objectives, keeping customers and partners at the forefront. HP has reignited its innovation pipeline, strengthened its go-to-market capabilities, rebuilt its balance sheet, and inspired its workforce and management teams. The company is now positioned to accelerate performance, drive sustained growth and demonstrate clear industry leadership in key areas.
Our work during the past three years has significantly strengthened our core businesses to the point where we can more aggressively go after the opportunities created by a rapidly changing market, said Meg Whitman, Chairman, President and Chief Executive Officer of HP. The decision to separate into two market-leading companies underscores our commitment to the turnaround plan. It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders. In short, by transitioning now from one HP to two new companies, created out of our successful turnaround efforts, we will be in an even better position to compete in the market, support our customers and partners, and deliver maximum value to our shareholders.
Both companies will be well capitalized and expect to have investment grade credit ratings and capital structures optimized to reflect their distinct growth opportunities and cash flow profiles. The separation into independent publicly traded companies will provide each company with its own, more focused equity currency, and investors with the opportunity to invest in two companies with compelling and unique financial profiles well suited to their respective businesses.
Management Structure
Meg Whitman, President and Chief Executive Officer of HP, and Cathie Lesjak, Chief Financial Officer of HP, will hold these positions with Hewlett-Packard Enterprise. When the separation is complete, Whitman will also serve on the Board of Directors of Hewlett-Packard Enterprise, and Pat Russo will move from Lead Independent Director of HP to Chairman of Hewlett-Packard Enterprise. Dion Weisler, Executive Vice President of HPs Printing and Personal Systems business, will lead HP Inc. as President and Chief Executive Officer. Whitman will serve as non-executive Chairman of HP Inc.s Board of Directors.
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Hewlett-Packard Enterprise
Hewlett-Packard Enterprise will have a unique portfolio and strong multi-year innovation roadmap across technology infrastructure, software and services to allow customers to take full advantage of the opportunities presented by cloud, big data, security and mobility in the New Style of IT. By leveraging its HP Financial Services capability, the company will be well positioned to create unique technology deployment models for customers and partners based on their specific business needs. Additionally, the company intends for HP Financial Services to continue to provide financing and business model innovation for customers and partners of HP Inc.
Customers will have the same unmatched choice of how to deploy and consume technology, and with a simpler, more nimble partner. The separation will provide additional resources, and a reduction of debt at the operating company level, to support investments across key areas of the portfolio. The separation will also allow for greater flexibility in completing the turnaround of Enterprise Services and strengthening the companys go-to-market capabilities.
Over the past three years, we have reignited our innovation engine with breakthrough offerings for the enterprise like Apollo, Gen 9 and Moonshot servers, our 3PAR storage platform, our HP OneView management platform, our HP Helion Cloud and a host of software and services offerings in security, analytics and application transformation, continued Whitman. Hewlett-Packard Enterprise will accelerate innovation across key next-generation areas of the portfolio.
HP Inc.
HP Inc. will be a proven leader in the personal systems and printing markets with exciting new technologies on the horizon. The new companys strong profitability and free cash flow will enable investments in growth markets such as 3-D printing and new computing experiences. At the same time, HP Inc. will continue to execute against a well-defined and established strategic plan, ensuring continuity for customers and consistent value to shareholders.
Since assuming responsibility for the Printing and Personal Systems Group, Dion and his leadership team have done an excellent job of building our relationships with customers and channel partners, segmenting the market and driving product innovation, added Whitman. The creation of HP Inc. will only accelerate the progress the team has made.
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This is a defining moment in our industry as customers are looking for innovation to enable workforces that are more mobile, connected and productive while at the same time allowing a seamless experience across work and play, said Weisler. As the market leader in printing and personal systems, an independent HP Inc. will be extremely well positioned to deliver that innovation across our traditional markets as well as extend our leadership into new markets like 3-D printing and new computing experiences inventing technology that empowers people to create, interact and inspire like never before.
Transaction Details
The separation transaction is intended to be tax-free to HP shareholders for federal income tax purposes. The transaction is currently targeted to be completed by the end of fiscal 2015, subject to certain conditions, including, among others, obtaining final approval from the HP Board of Directors, receipt of a favorable opinion and/or rulings with respect to the tax-free nature of the transaction for federal income tax purposes and the effectiveness of a Form 10 filing with the Securities and Exchange Commission.
Goldman Sachs & Co. is serving as financial advisor and Wachtell, Lipton, Rosen and Katz is serving as legal advisor to HP.
For more information, please see here.
Financial Outlook
For fiscal 2014, HP reaffirms its non-GAAP diluted net EPS outlook range of $3.70 to $3.74, and updates its fiscal 2014 GAAP diluted net EPS outlook to be in the range of $2.60 to $2.64.
For fiscal 2015, HP estimates non-GAAP diluted net EPS outlook to be in the range of $3.83 to $4.03 and GAAP diluted net EPS outlook to be in the range of $3.23 to $3.43.
HPs outlook does not include one-time GAAP charges the company is expected to incur in connection with the separation, including advisory and tax costs which will be quantified at a later date.
Investment Community Conference Call
For webcast details, go to www.hp.com/investor/2014OctAnnouncement/.
HP Securities Analyst Meeting 2014
HP also announced today that, as a result of the announcement of this separation, its October 8, 2014 Securities Analyst Meeting has been postponed.
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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 HPs historical and forecasted financial results presented on a GAAP basis, HP provides non-GAAP diluted net earnings per share. Non-GAAP diluted net earnings per share is defined to exclude the effects of any restructuring charges, charges relating to the amortization of intangible assets and certain other acquisition-related charges recorded or expected to be recorded during the relevant period. In addition, non-GAAP diluted net earnings per share are adjusted by the amount of additional taxes or tax benefit associated with each non-GAAP item. Fiscal 2014 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $1.10 per share, related primarily to restructuring charges and amortization of intangible assets. Fiscal 2015 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.60 per share, related primarily to amortization of intangible assets and restructuring charges.
HPs management uses non-GAAP financial measures, including HPs non-GAAP diluted net earnings per share, to evaluate and forecast HPs performance before gains, losses or other charges that are considered by HPs management to be outside of HPs core business segment operating results. These non-GAAP financial measures may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HPs results as reported under GAAP. For example, items such as the amortization of intangible assets, though not directly affecting HPs cash position, represent the loss in value of intangible assets over time. The expense associated with this loss in value is not included in HPs non-GAAP diluted net earnings per share and therefore does not reflect the full economic effect of the loss in value of those intangible assets. In addition, items such as restructuring charges that are excluded from HPs non-GAAP diluted net earnings per share can have a material impact on HPs GAAP diluted net earnings per share. Other companies may calculate non-GAAP diluted net earnings per share differently than HP does, which limits the usefulness of that measure for comparative purposes.
Compensation for limitations associated with use of non-GAAP financial measures
HP compensates for the limitations on its use of non-GAAP financial measures by relying primarily on its GAAP results and using non-GAAP financial measures only supplementally. HP also provides robust and detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this news release and in other written materials available at www.hp.com/investor/2014OctAnnouncement/ that include these non-GAAP financial measures, and HP encourages investors to review carefully those reconciliations.
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Usefulness of non-GAAP financial measures to investors
HP believes that providing non-GAAP financial measures to investors in addition to the related GAAP financial measures provides investors with greater transparency to the information used by HPs management in its financial and operational decision making and allows investors to see HPs results through the eyes of management. HP further believes that providing this information better enables HPs investors to understand HPs operating performance and to evaluate the efficacy of the methodology and information used by HPs management to evaluate and measure such performance. Disclosure of non-GAAP financial measures also facilitates comparisons of HPs operating performance with the performance of other companies in HPs industry that supplement their GAAP results with non-GAAP financial measures that may be calculated in a similar manner.
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 statements of the plans, strategies and objectives of HP for future operations, including the separation transaction; the future performance of Hewlett-Packard Enterprise and HP Inc. if the separation is completed; the execution of restructuring plans and any resulting cost savings or revenue or profitability improvements; any projections of revenue, margins, expenses, HPs effective tax rate, net earnings, net earnings per share, cash flows, benefit plan funding, share repurchases, currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring charges; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the need to address the many challenges facing HPs businesses; the competitive pressures faced by HPs businesses; risks associated with executing HPs 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 HPs products and
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services effectively; the protection of HPs intellectual property assets, including intellectual property licensed from third parties; risks associated with HPs 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 HPs 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 HPs Annual Report on Form 10-K for the fiscal year ended October 31, 2013, and HPs other filings with the Securities and Exchange Commission, including HPs Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2014. As in prior periods, the financial information set forth in this release, including tax-related items, reflects estimates based on information available at this time. While HP believes these estimates to be reasonable, these amounts could differ materially from actual reported amounts in HPs Annual Report on Form 10-K for the fiscal year ended October 31, 2014. HP assumes no obligation and does not intend to update these forward-looking statements.
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Exhibit 99.2
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Hewlett-Packard
Separation Will Create Two New Industry-Leading Public Companies Investor
Presentation October 6, 2014
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Safe harbor 2
This presentation 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 statements of the plans, strategies and objectives of HP for
future operations, including the separation transaction; the future
performance of Hewlett-Packard Enterprise and HP Inc. if the separation is
completed; the execution of restructuring plans and any resulting cost
savings or revenue or profitability improvements; any projections of revenue,
margins, expenses, HPs effective tax rate, net earnings, net earnings per
share, cash flows, benefit plan funding, share repurchases, currency exchange
rates or other financial items; any projections of the amount, timing or
impact of cost savings or restructuring charges; any statements concerning
the expected development, performance, market share or competitive
performance relating to products or services; any statements regarding
current or future macroeconomic trends or events and the impact of those
trends and events on HP and its financial performance; any statements
regarding pending investigations, claims or disputes; any statements of
expectation or belief; and any statements of assumptions underlying any of
the foregoing. Risks, uncertainties and assumptions include the need to
address the many challenges facing HPs businesses; the competitive pressures
faced by HPs businesses; risks associated with executing HPs 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 HPs products and services effectively; the protection of
HPs intellectual property assets, including intellectual property licensed
from third parties; risks associated with HPs 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 HPs
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
HPs Annual Report on Form 10-K for the fiscal year ended October 31, 2013,
and HPs other filings with the Securities and Exchange Commission, including
HPs Quarterly Report on Form 10-Q for the fiscal quarter ended July 31,
2014. As in prior periods, the financial information set forth in this
presentation, including tax-related items, reflects estimates based on
information available at this time. While HP believes these estimates to be
reasonable, these amounts could differ materially from actual reported
amounts in HPs Annual Report on Form 10-K for the fiscal year ended October
31, 2014. HP assumes no obligation and does not intend to update these
forward-looking statements.
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Use of non-GAAP
financial information 3 To supplement HPs historical and forecasted
financial results presented on a GAAP basis, HP provides revenue on a
constant currency basis, HPs non-GAAP tax rate, non-GAAP diluted net
earnings per share and free cash flow. Definitions of these non-GAAP
financial measures and reconciliations of these non-GAAP financial measures
to the most directly comparable GAAP financial measures are included
elsewhere in this presentation and available in the supplemental information
provided at www.hp.com/investor/2014OctAnnouncement/. HPs management uses
revenue on a constant currency basis, HPs non-GAAP tax rate and non-GAAP
diluted net earnings per share to evaluate and forecast HPs performance
before gains, losses or other charges that are considered by HPs management
to be outside of HPs core business segment operating results. Free cash flow
is a liquidity measure that provides useful information to management about
the amount of cash available for investment in HPs businesses, funding
strategic acquisitions, repurchasing stock and other purposes. These non-GAAP
financial measures may have limitations as analytical tools, and these
measures should not be considered in isolation or as a substitute for
analysis of HPs results as reported under GAAP. Items such as amortization
of purchased intangible assets, though not directly affecting HPs cash
position, represent the loss in value of intangible assets over time. The
expense associated with this loss in value is not included in non-GAAP
diluted net earnings per share and HPs non-GAAP tax rate and therefore does
not reflect the full economic effect of the loss in value of those intangible
assets. In addition, items such as restructuring charges that are excluded
from non-GAAP diluted net earnings per share and HPs non-GAAP tax rate can
have a material impact on cash flows and earnings per share. Free cash flow
does not represent the total increase or decrease in the cash balance for the
period. The non-GAAP financial information that we provide also may differ
from the non-GAAP information provided by other companies. We compensate for
the limitations on our use of these non-GAAP financial measures by relying
primarily on our GAAP financial statements and using non-GAAP financial
measures only supplementally. We also provide robust and detailed
reconciliations of each non-GAAP financial measure to the most directly
comparable GAAP measure, and we encourage investors to review carefully those
reconciliations. We believe that providing these non-GAAP financial measures
in addition to the related GAAP measures provides investors with greater
transparency to the information used by HPs management in its financial and
operational decision-making and allows investors to see HPs results through
the eyes of management. We further believe that providing this information
better enables investors to understand HPs operating performance and to
evaluate the efficacy of the methodology and information used by management
to evaluate and measure such performance.
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Defining the
next generation of technology infrastructure, software and services for the
New Style of IT Build upon HPs leading position in servers, storage,
networking, converged systems, services and software as well as the companys
OpenStack Helion cloud platform Meg Whitman to be President and Chief
Executive Officer of Hewlett-Packard Enterprise; Pat Russo to be Chairman of
the Hewlett-Packard Enterprise board Leading personal systems and printing
company delivering innovation that will empower people to create, interact
and inspire like never before Strong roadmap into some of the most exciting
new technologies like 3D printing and new computing experiences Dion Weisler
to be President and Chief Executive Officer of HP Inc.; Meg Whitman to be Chairman
of the HP Inc. board HP to separate into two new industry-leading public
companies 4 Hewlett-Packard Enterprise HP Inc.
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Operational
Improves alignment between rewards and results Simplifies organizational
structures to make decisions faster Compelling rationale for separation 5
This move will accelerate the turnaround Strategic Sharper, stronger, more
focused companies Better able to compete against a distinct set of
competitors Faster to respond to changing customer requirements and market dynamics
Financial Optimize the financial profiles of each company to enable distinct
investment and growth opportunities Enhance capital allocation efficiency and
investor clarity on future cash flow use The separation provides two
different and compelling investment opportunities
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Position of
Strength Rebuilt financial foundation stronger balance sheet, predictable
performance Right leadership team Very strong innovation pipeline Now is the
right time 6 After three years of work, we are now in a position of strength
Confidence Improved credibility with customers, investors, and employees
Enhanced channel relationships with industry leading programs and tools
Inspired workforce and management teams Speed of Market Transitions
Accelerating technology transitions require agility to respond to evolving
market conditions and customer demands Increasingly competitive markets
necessitate concentrated and distinctive responses for each of the new
companies
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Meg Whitman, Chief Executive Officer Two new
independent publicly traded companies 7 Hewlett-Packard Enterprise HP Inc.
Personal Systems 59% Printing 41% Enterprise Group 48% Enterprise Services
39% Software 7% Financial Services 6% Revenue Mix(1) Leadership Key Markets
Financial Metrics(1) Revenue: $58.4B Operating Profit: $6.0B Operating
Margin: 10.2% Revenue: $57.2B Operating Profit: $5.4B Operating Margin: 9.4%
Dion Weisler, Chief Executive Officer Based on reported HP segment revenue
and segment operating profit for the last twelve months from Q4 fiscal 2013
to Q3 fiscal 2014, totals do not include Corporate Investments segment or
intercompany eliminations
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Hewlett-Packard
Enterprise strategy 8 Enabling business outcomes for enterprise customers
with secure, market-leading infrastructure, software and services that help
run traditional IT better and seamlessly move to the New Style of IT
Infrastructure that is the foundation for the New Style of IT The Cloud that
delivers the New Style of IT for the enterprise We are the only company that
can deliver across these four essential elements at scale. Services that
manage and transform traditional to the new Software that provides insights
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Printing
Engineering Ink and laser-based solutions that provide a faster, more
affordable way to print & manage documents. Personal Systems Engineering
multi-OS devices and immersive computing experiences for business and
consumer HP Inc. strategy Empowering people to create, interact and inspire
like never before 9 Empowering people to create, interact and inspire like
never before 9 © Copyright 2014 Hewlett-Packard Development Company, L.P. The
information contained herein is subject to change without notice.
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Consistent and regular return of capital to
shareholders via dividends and share repurchases Key investments will be
largely organic to maintain durability of cash flows and to drive growth in
new technologies Increased organic investments combined with targeted M&A
that complements the existing portfolio Distributions to shareholders
weighted towards share repurchases to enable capital flexibility given
investment needs Capital structure and allocation principles 10 Capital
structures optimized to reflect different growth opportunities and cash flow
profiles of each company Investment grade credit ratings for both companies
Capital allocation strategy will remain returns-based for both companies
Hewlett-Packard Enterprise HP Inc. Guiding Principles
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Separation
transaction details 11 Transaction Structure Financial Implications Expected
tax-free distribution to shareholders for federal income tax purposes Stock
distribution ratio to be determined at a later date Timing Principal Closing
Conditions Transaction is targeted to be complete by the end of fiscal year
2015 subject to market, regulatory and certain other conditions Final
approval of HP Board of Directors of detailed separation agreements Receipt
of favorable opinion and/or rulings with respect to the tax-free nature of
the transaction for federal income tax purposes Effectiveness of a Form 10
filing with the Securities and Exchange Commission Expect to incur one-time
GAAP-only charges related to the transaction during the periods preceding the
closing Transaction does not impact fiscal year 2014 non-GAAP outlook Both
companies are expected to be well capitalized with investment-grade credit
ratings and have disciplined, returns-based approaches to capital allocation
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Transaction
summary 12 Creates two powerful industry-leading, Fortune 50 companies with
strong financials and technology roadmaps Enables enhanced focus on distinct
opportunities for long-term growth and profitability Better positions the two
new companies to generate long-term shareholder value and accelerate
performance Partners and customers will have simpler and more nimble
organizations with which to conduct business Provides two distinct investment
opportunities with clarity on capital allocation priorities The turnaround
progress has significantly strengthened our core businesses making this the
optimal time for separation
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FY14 and FY15
outlook
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Outlook summary
14 As a result of this separation announcement, we will postpone our upcoming
Security Analyst Meeting, currently scheduled for October 8, 2014 The
separation transaction is expected to close by the end of fiscal year 2015
subject to certain conditions Clear plans are in place to manage the
separation and mitigate any potential business disruption The following
outlook does not include one-time GAAP-only charges for the costs associated
with the separation transaction We reiterate our fiscal 2014 non-GAAP(1)
diluted net earnings per share outlook of $3.70 to $3.74 and update our GAAP
diluted net earnings per share outlook of $2.60 to $2.64 We expect our full
year fiscal 2015 non-GAAP(2) diluted net earnings per share outlook to be in
the range of $3.83 to $4.03 We expect our full year fiscal 2015 GAAP diluted
net earnings per share outlook to be in the range of $3.23 to $3.43 Full year
fiscal 2014 non-GAAP diluted net EPS estimates exclude after-tax costs of
approximately $1.10 per share, related primarily to restructuring charges and
amortization of intangible assets Full year fiscal 2015 non-GAAP diluted net
EPS estimates exclude after-tax costs of approximately $0.60 per share,
related primarily to amortization of intangible assets and restructuring
charges
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Restructuring
update Net incremental savings from increasing the headcount reductions to
55,000 are planned to be used in FY15 to fund investment opportunities in
R&D and sales Restructuring plan continues As of Q314, approximately
36,000 employees had left the company as part of the program Total plan
expected to be higher than previously communicated Estimated employee
reductions were communicated during the Q214 earnings announcement at 45,000
to 50,000 with charge, savings and cash payment guidance provided at the low
end of the range Incremental opportunities for reductions have been
identified and we now anticipate a total of 55,000 reductions, independent of
the separation transaction Charges, savings and cash payments will increase
versus previous guidance 15
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FY14 outlook
Full year FY14 net EPS guidance GAAP diluted net EPS $2.60 $2.64 Non-GAAP
diluted net EPS(1) $3.70 $3.74 Full year fiscal 2014 non-GAAP diluted net
EPS estimates exclude after-tax costs of approximately $1.10 per share,
related primarily to restructuring charges and amortization of intangible
assets 16
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FY15 outlook
and assumptions 17 Key assumptions FY15 Revenue growth Approx. flat Y/Y in
constant currency Currency impact Approx. 2% headwind to revenue Operating
margin Y/Y increase Eliminations Approx. in-line with FY14 Restructuring
charge $0.6B (excluded from non-GAAP results) Restructuring benefit Approx.
$5.3B (+$1.8B incremental Y/Y) Non-operational assumptions OI&E Approx.
$0.6B Non-GAAP tax rate 22-23% Share count Moderate decline Enterprise
Services assumptions Revenue growth -3% to -5% Y/Y Operating margin 4.0% to
6.0% Outlook FY15 Non-GAAP EPS(1) $3.83 - $4.03 GAAP EPS $3.23 - $3.43 1. Full
year fiscal 2015 non-GAAP diluted net EPS estimates exclude after-tax costs
of approximately $0.60 per share, related primarily to amortization of
intangible assets and restructuring charges 17 © Copyright 2014
Hewlett-Packard Development Company, L.P. The information contained herein is
subject to change without notice.
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FY15 cash flow
model Select operating cash flow details Cash conversion cycle Approx. 10 -
12 days Restructuring cash impact Approx. $1.0B Cash flow FY15 Operating cash
flow $10B to $10.5B Net capital expenditures Approx. $3.5B Free cash flow(1)
$6.5B to $7B Capital allocation Expect to return at least 50% of FY15 free
cash flow to shareholders in addition to addressing the shortfall of not
returning the intended 50% of free cash flow in FY14 Free cash flow = cash
flow from operations less net capital expenditures; net capital expenditures
= investments in property, plant and equipment less proceeds from the sale of
property, plant and equipment 18
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