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•	Personal Systems net revenue was up 2% year over year (up 4% in constant currency) with a 6.7% operating margin. Commercial net revenue increased 7% and Consumer net revenue decreased 7%. Total units were up 4% with Notebooks units up 2% and Desktops units up 7%.

•	Printing net revenue was down 7% year over year (down 6% in constant currency) with a 16.0% operating margin. Total hardware units were down 10%. Commercial hardware revenue was down 1% and Consumer hardware revenue was down 13%. Supplies net revenue was down 7% (down 7% in constant currency).

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	HP INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited) (In millions, except per share amounts)

 

	Three months ended
	January 31, 2020				October 31, 2019				January 31, 2019
Net revenue	$	14,618			$	15,407			$	14,710
Costs and expenses:
Cost of revenue	11,746				12,483				12,098
Research and development	400				389				344
Selling, general and administrative	1,290				1,405				1,248
Restructuring and other charges	291				134				55
Acquisition-related charges	—				23				10
Amortization of intangible assets	26				29				29
Total costs and expenses	13,753				14,463				13,784
Earnings from operations	865				944				926
Interest and other, net	13				(452		)		(26		)
Earnings before taxes	878				492				900
Provision for taxes	(200		)		(104		)		(97		)
Net earnings	$	678			$	388			$	803
Net earnings per share:
Basic	$	0.47			$	0.26			$	0.52
Diluted	$	0.46			$	0.26			$	0.51
Cash dividends declared per share	$	0.35			$	—			$	0.32
Weighted-average shares used to compute net earnings per share:
Basic	1,454				1,476				1,556
Diluted	1,460				1,486				1,567

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	HP INC. AND SUBSIDIARIES ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS, OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE (Unaudited) (In millions, except per share amounts)

 

	Three months ended
	January 31, 2020								October 31, 2019								January 31, 2019
	Amounts				Diluted net earnings per share				Amounts				Diluted net earnings per share				Amounts				Diluted net earnings per share
GAAP net earnings	$	678			$	0.46			$	388			$	0.26			$	803			$	0.51
Non-GAAP adjustments:
Restructuring and other charges	291				0.20				134				0.09				55				0.04
Acquisition-related charges	—				—				23				0.02				10				0.01
Amortization of intangible assets	26				0.02				29				0.02				29				0.02
Non-operating retirement-related credits	(57		)		(0.04		)		(25		)		(0.02		)		(12		)		(0.01		)
Tax adjustments(a)	18				0.01				350				0.23				(76		)		(0.05		)
Non-GAAP net earnings	$	956			$	0.65			$	899			$	0.60			$	809			$	0.52
GAAP earnings from operations	$	865							$	944							$	926
Non-GAAP adjustments:
Restructuring and other charges	291								134								55
Acquisition-related charges	—								23								10
Amortization of intangible assets	26								29								29
Non-GAAP earnings from operations	$	1,182							$	1,130							$	1,020
GAAP operating margin	6		%						6		%						6		%
Non-GAAP adjustments	2		%						1		%						1		%
Non-GAAP operating margin	8		%						7		%						7		%

(a)	Includes tax impact on non-GAAP adjustments.

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	HP INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (In millions)

 

	As of
	January 31, 2020				October 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	4,205			$	4,537
Accounts receivable, net	4,857				6,031
Inventory	4,946				5,734
Other current assets	3,469				3,875
Total current assets	17,477				20,177
Property, plant and equipment, net	2,756				2,794
Goodwill	6,387				6,372
Other non-current assets	5,036				4,124
Total assets	$	31,656			$	33,467
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable and short-term borrowings	$	923			$	357
Accounts payable	12,808				14,793
Other current liabilities	10,136				10,143
Total current liabilities	23,867				25,293
Long-term debt	3,932				4,780
Other non-current liabilities	5,491				4,587
Stockholders' deficit	(1,634		)		(1,193		)
Total liabilities and stockholders' deficit	$	31,656			$	33,467

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	HP INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In millions)

	Three months ended
	January 31, 2020				January 31, 2019
Cash flows from operating activities:
Net earnings	$	678			$	803
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	198				168
Stock-based compensation expense	109				107
Restructuring and other charges	291				55
Deferred taxes on earnings	117				103
Other, net	54				(5		)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	1,167				211
Inventory	761				191
Accounts payable	(1,919		)		(184		)
Net investment in leases	(34		)		—
Taxes on earnings	(27		)		11
Restructuring and other	(109		)		(46		)
Other assets and liabilities	(1		)		(552		)
Net cash provided by operating activities	1,285				862
Cash flows from investing activities:
Investment in property, plant and equipment	(198		)		(189		)
Purchases of available-for-sale securities and other investments	(311		)		(69		)
Maturities and sales of available-for-sale securities and other investments	11				344
Collateral posted for derivative instruments	—				(30		)
Collateral returned for derivative instruments	—				30
Payment made in connection with business acquisitions, net of cash acquired	—				(404		)
Net cash used in investing activities	(498		)		(318		)
Cash flows from financing activities:
Payment of short-term borrowings with original maturities less than 90 days, net	—				(855		)
Proceed from short-term borrowings with original maturities greater than 90 days	2				—
Proceeds from debt, net of issuance costs	9				40
Payment of debt	(67		)		(476		)
Stock-based award activities	(116		)		(83		)
Repurchase of common stock	(691		)		(720		)
Cash dividends paid	(256		)		(249		)
Net cash used in financing activities	(1,119		)		(2,343		)
Decrease in cash and cash equivalents	(332		)		(1,799		)
Cash and cash equivalents at beginning of period	4,537				5,166
Cash and cash equivalents at end of period	$	4,205			$	3,367

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	HP INC. AND SUBSIDIARIES SEGMENT/BUSINESS UNIT INFORMATION (Unaudited) (In millions)

 

	Three months ended												Change (%)
	January 31, 2020				October 31, 2019				January 31, 2019				Q/Q			Y/Y
Net revenue:
Notebooks	$	5,974			$	6,280			$	5,919			(5	)%		1	%
Desktops	2,923				3,138				2,857				(7	)%		2	%
Workstations	594				649				562				(8	)%		6	%
Other	401				359				319				12	%		26	%
Personal Systems	9,892				10,426				9,657				(5	)%		2	%
Supplies	3,041				3,159				3,267				(4	)%		(7	)%
Commercial Hardware	1,076				1,183				1,090				(9	)%		(1	)%
Consumer Hardware	607				640				699				(5	)%		(13	)%
Printing	4,724				4,982				5,056				(5	)%		(7	)%
Corporate Investments(a)	1				—				1				NM			NM
Total segments net revenue	14,617				15,408				14,714				(5	)%		(1	)%
Other(a)	1				(1		)		(4		)		NM			NM
Total net revenue	$	14,618			$	15,407			$	14,710			(5	)%		(1	)%
Earnings before taxes:
Personal Systems	$	662			$	556			$	410
Printing	754				777				821
Corporate Investments	(13		)		(25		)		(24		)
Total segment earnings from operations	1,403				1,308				1,207
Corporate and unallocated cost and other	(112		)		(114		)		(80		)
Stock-based compensation expense	(109		)		(64		)		(107		)
Restructuring and other charges	(291		)		(134		)		(55		)
Acquisition-related charges	—				(23		)		(10		)
Amortization of intangible assets	(26		)		(29		)		(29		)
Interest and other, net	13				(452		)		(26		)
Total earnings before taxes	$	878			$	492			$	900

(a)	"NM" represents not meaningful.

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	HP INC. AND SUBSIDIARIES SEGMENT OPERATING MARGIN SUMMARY (Unaudited)

 

	Three months ended									Change in Operating Margin (pts)
	January 31, 2020			October 31, 2019			January 31, 2019			Q/Q			Y/Y
Segment operating margin:
Personal Systems	6.7	%		5.3	%		4.2	%		1.4	pts		2.5	pts
Printing	16.0	%		15.6	%		16.2	%		0.4	pts		(0.2	)pts
Corporate Investments(a)	NM			NM			NM			NM			NM
Total segments	9.6	%		8.5	%		8.2	%		1.1	pts		1.4	pts

(a)	"NM" represents not meaningful.

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	HP INC. AND SUBSIDIARIES CALCULATION OF DILUTED NET EARNINGS PER SHARE (Unaudited) (In millions, except per share amounts)

 

	Three months ended
	January 31, 2020				October 31, 2019				January 31, 2019
Numerator:
GAAP net earnings	$	678			$	388			$	803
Non-GAAP net earnings	$	956			$	899			$	809
Denominator:
Weighted-average shares used to compute basic net earnings per share	1,454				1,476				1,556
Dilutive effect of employee stock plans(a)	6				10				11
Weighted-average shares used to compute diluted net earnings per share	1,460				1,486				1,567
GAAP diluted net earnings per share	$	0.46			$	0.26			$	0.51
Non-GAAP diluted net earnings per share	$	0.65			$	0.60			$	0.52

(a)	Includes any dilutive effect of restricted stock units, stock options and performance-based awards.

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•

Restructuring and other charges are (i) costs associated with a formal restructuring plan and are primarily related to employee termination and early retirement costs and related benefits, costs of real estate consolidation and other non-labor charges; and (ii) other charges, which include non-recurring costs that are distinct from ongoing operational costs. HP excludes these restructuring and other charges (and any reversals of charges recorded in prior periods) for purposes of calculating these non-GAAP measures because HP believes that these costs do not reflect expected future operating expenses and do not contribute to a meaningful evaluation of HP's current operating performance or comparisons to HP's operating performance in other periods.

•

HP incurs cost related to its acquisitions, which it would not have otherwise incurred as part of its operations. The charges are direct expenses such as third-party professional and legal fees, and integration-related costs, as well as non-cash adjustments to the fair value of certain acquired assets such as inventory. These charges related to acquisitions are inconsistent in amount and frequency and are significantly impacted by the timing and nature of HP's acquisitions. HP believes that eliminating such expenses for purposes of calculating these non-GAAP measures facilitates a more meaningful evaluation of HP's current operating performance and comparisons to HP's past operating performance in other periods.

•

HP incurs charges relating to the amortization of intangible assets. Those charges are included in HP’s GAAP earnings, operating margin, net earnings and diluted net EPS. Such charges are significantly impacted by the timing and magnitude of HP’s acquisitions and any related impairment charges. Consequently, HP excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of HP’s current operating performance and comparisons to HP’s operating performance in other periods.

•

Non-operating retirement-related (credits)/charges includes certain market-related factors such as interest cost, expected return on plan assets, amortized actuarial gains or losses, and impacts from other market-related factors associated with HP’s defined benefit pension and post-retirement benefit plans. The market-driven retirement-related adjustments are primarily due to the changes in pension plan assets and liabilities which are tied to financial market performance and HP considers these adjustments to be outside the operational performance of the business. Non-operating retirement-related (credits)/charges also include certain plan curtailments, settlements and special termination benefits related to HP’s defined benefit pension and post-retirement benefit plans. HP believes that eliminating such adjustments for purposes of calculating non-GAAP

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•

HP incurred defined benefit plan settlement charges relating to the U.S. HP pension plan. The charges are associated with the net settlement and remeasurement resulting from voluntary lump sum payments offered to certain terminated vested participants. HP excludes these charges for the purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of HP’s current operating performance and comparisons to HP’s operating performance in other periods.

•	Tax adjustments include U.S. tax reform adjustment and net tax indemnification amounts.

•

HP recorded U.S. tax reform adjustments as one-time charges relating to the enactment of the Tax Cuts and Jobs Act of 2017 and has completed the accounting for the tax effects of the Tax Cuts and Jobs Act within the one year measurement period. Additional guidance is periodically issued by regulators and new positions taken or elections made by HP impact the income tax expense and effective tax rate in the period in which the adjustments are made.

•	HP also recorded other tax adjustment including tax benefits and expenses related to the realizability of certain deferred tax assets, various tax rate and regulatory changes and tax settlements across various jurisdictions.

•

Items such as amortization of intangible assets, though not directly affecting HP’s cash position, represent the loss in value of intangible assets over time. The expense associated with this change in value is not included in non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted net EPS, and therefore does not reflect the full economic effect of the change in value of those intangible assets.

•	Items such as restructuring and other charges, acquisition-related charges, non-operating retirement-related (credits)/charges, defined benefit plan settlement charges, and tax adjustments that are excluded from non-GAAP operating margin, non-GAAP net earnings and non-GAAP diluted net EPS can have a material impact on the equivalent GAAP earnings measure and cash flows.

•	HP may not be able to immediately liquidate the short-term and certain long-term investments included in gross cash, which may limit the usefulness of gross cash as a liquidity measure.

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