01—Abstract
Summary
Summary of the 10-K filed December 18, 2008. Cited figures are marked; the original filing is the authoritative source.
Hewlett-Packard Company (HP) reported fiscal 2008 (year ended October 31, 2008) net revenue of $118.4 billiona, up from $104.3 billion in fiscal 2007, with earnings from operations of $10.5 billion (8.8% of net revenue) and net earnings of $8.3 billion, or $3.25 per diluted share.
The growth was driven by the August 26, 2008 acquisition of Electronic Data Systems Corporation (EDS), which was purchased for a total preliminary estimated price of approximately $13.0 billionb and is included in the HP Services segment. Net revenue growth was 13.5% as reported (8% on a constant currency basis per the filing), with PSG (Personal Systems Group) and HP Services the largest contributors. Gross margin was 24.0%, down slightly from 24.4% in fiscal 2007, and the filing attributes the HPS margin decline primarily to the EDS acquisition.
Balance sheet and cash flow changed materially. Total assets rose to $113.3 billionc from $88.7 billion, goodwill increased to $32.3 billion, and outstanding debt grew to $17.9 billion from $8.2 billion, with short-term borrowings of $10.2 billion. Net cash provided by operating activities was $14.6 billion, while $11.2 billion was paid for business acquisitions and $9.6 billion was used to repurchase common stock.
Cash and cash equivalents declined to $10.2 billiond. HP had approximately $9.1 billion of remaining share repurchase authorization at October 31, 2008.
The filing also discloses a restructuring plan tied to the EDS acquisition, targeting the elimination of approximately 24,700 positions over four years, with HP recording $1.8 billion in restructuring liabilities in the fourth quarter ($1.5 billion booked to goodwill and $0.3 billion as a charge). Key risks disclosed include competitive pricing pressure in PCs and printing, integration of EDS, international exposure (approximately 69% of net revenue from outside the United States), and a jury verdict of $184 million in the Cornell University patent case, which the court had not yet entered as final judgment.
02—Key points
Key Highlights
- Net revenue of $118.4 billion, up 13.5% from $104.3 billion in fiscal 2007 (8% on a constant currency basis).
- Earnings from operations of $10.5 billion (8.8% of net revenue) and net earnings of $8.3 billion, with diluted EPS of $3.25 versus $2.68 in fiscal 2007.
- Acquisition of EDS completed August 26, 2008 for a preliminary estimated purchase price of approximately $13.0 billion; goodwill rose to $32.3 billion from $21.8 billion.
- Total debt increased to $17.9 billion from $8.2 billion; short-term borrowings reached $10.2 billion, including $9.9 billion of commercial paper issued to fund the EDS acquisition.
- Share repurchases of $9.6 billion in fiscal 2008; approximately $9.1 billion of repurchase authorization remained as of October 31, 2008.
- Restructuring plan to eliminate approximately 24,700 positions over four years, with a $1.8 billion liability recorded in the fourth quarter of fiscal 2008.
- Approximately 69% of fiscal 2008 net revenue came from outside the United States, and the filing notes a $184 million jury verdict in the Cornell University patent case that is subject to post-trial motions.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, HP kept $0.07.
- Revenue$118.36B100.0%
- Cost of revenue−$69.34B58.6%
- Gross profit$49.02B41.4%
- Operating costs−$38.55B32.6%
- Operating income$10.47B8.8%
- Interest, other & tax−$2.13B1.8%
- Net income$8.34B7.0%
Where FY2008 revenue went
$118.36B- Cost of revenue: $69.34B, 59% of revenue
- Other operating costs: $21.68B, 18% of revenue
- Net income: $8.34B, 7.0% of revenue
- R&D: $3.54B, 3.0% of revenue
- SG&A: $13.33B, 11% of revenue
- Interest, other & tax: $2.13B, 1.8% of revenue
Kept 7.0% as net incomeInterest, other & tax $2.13B · 1.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed December 18, 2008Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $118.36B$104.29B | +13.5% |
| Cost of Revenue | $69.34B$63.44B | +9.3% |
| Gross Profit | $49.02B$40.85B | +20.0% |
| R&D Expenses | $3.54B$3.61B | −1.9% |
| SG&A Expenses | $13.33B$12.43B | +7.2% |
| Operating Expenses | $107.89B$95.57B | +12.9% |
| Operating Income | $10.47B$8.72B | +20.1% |
| Interest Expense | $467.00M— | — |
| Net Income | $8.34B$7.26B | +14.8% |
| EPS (Basic) | $3.35$2.76 | +21.4% |
| EPS (Diluted) | $3.25$2.68 | +21.3% |
| Shares Outstanding (Basic) | 2.48B2.63B | −5.6% |
| Shares Outstanding (Diluted) | 2.57B2.72B | −5.5% |
05—Questions
Frequently Asked Questions
How did the EDS acquisition affect HP's fiscal 2008 results?
EDS was acquired on August 26, 2008 and its results were included from that date as a business unit within HP Services. HP Services net revenue rose to $22.4 billion from $16.6 billion, with the EDS business contributing $3.9 billion of revenue for the period, and the filing states that HPS gross margin declined primarily due to the EDS acquisition.
What is HP's cash position and how was cash used in fiscal 2008?
Cash and cash equivalents declined to $10.2 billion from $11.3 billion. The decrease was related primarily to $11.2 billion of net cash paid for business acquisitions and $9.6 billion paid to repurchase common stock, partially offset by $14.6 billion of cash provided by operations and a $6.3 billion net increase in debt and commercial paper.
What risks does HP highlight for its future results?
The filing highlights aggressive competitive pricing in personal computers and printing, the difficulty of integrating EDS and achieving projected synergies, exposure to international economic and currency conditions with about 69% of revenue from outside the United States, dependence on single-source and third-party suppliers, and ongoing litigation and copyright levy proceedings in Europe.
What is the status of the Cornell University patent litigation?
A jury returned a verdict in favor of the plaintiffs for $184 million on May 30, 2008 relating to HP's PA-RISC 8000 processors. The court had not yet entered final judgment as of the filing, and HP's equitable defenses and post-trial motions to vacate or reduce the award remained pending, with a possible appeal to the Federal Circuit.
What dividend and share repurchase activity did HP report?
HP paid $0.32 per share in dividends in each of fiscal 2008, 2007 and 2006, at $0.08 per quarter with a $0.16 payment in the first and third quarters. In fiscal 2008 HP completed share repurchases of approximately 230 million shares, with about 216 million shares settled for $9.6 billion.
06—Continue