01—Abstract
Summary
Summary of the 10-K filed December 17, 2009. Cited figures are marked; the original filing is the authoritative source.
Hewlett-Packard Company reported fiscal 2009 (year ended October 31, 2009) net revenue of $114.55 billiona, down 3.2% from $118.36 billion in fiscal 2008, with earnings from operations of $10.14 billion (8.8% of net revenue) and net earnings of $7.66 billion, or $3.14 per diluted share, versus $8.33 billion and $3.25 per diluted share a year earlier.
The filing attributes the revenue decline to a global slowdown in IT and consumer spending, with the Services segment growing 65.4% due primarily to the August 2008 acquisition of Electronic Data Systems Corporation (EDS). Enterprise Storage and Servers revenue fell 20.8% and Personal Systems Group revenue fell 16.5%, while Imaging and Printing Group revenue declined 18.9%. Restructuring charges rose to $640 millionb, and net earnings were reduced by $1.73 billion of after-tax charges including amortization of purchased intangibles.
Cash flow remained strong, with net cash provided by operating activities of $13.38 billionc and cash and cash equivalents of $13.28 billion at year end. Management used cash primarily for $5.14 billion of share repurchases, $3.70 billion of capital expenditures and $766 million of dividends, and total debt declined to $15.8 billion from $17.9 billion. Long-term debt rose to $13.98 billion as short-term borrowings were refinanced.
The filing also discloses a pending agreement, announced in November 2009, to acquire 3Com Corporation at $7.90d per share, an enterprise value of about $2.7 billion, expected to close in the second fiscal quarter of 2010, and a new $8.0 billion share repurchase authorization approved on November 19, 2009. The filing highlights several risks, including aggressive price competition in personal computers and printing, a 64% share of net revenue from outside the United States, exposure to foreign currency movements, and a $6.9 billion increase in the deferred tax valuation allowance during fiscal 2009.
Ongoing litigation includes copyright levy proceedings in Europe, inkjet printer class actions and a False Claims Act complaint filed by the U.S. Department of Justice. Shareholders received $0.32 per share in dividends for the year.
02—Key points
Key Highlights
- Net revenue declined 3.2% to $114.55 billion in fiscal 2009 from $118.36 billion, with the filing citing a global slowdown in IT and consumer spending.
- Services net revenue rose 65.4% to $34.69 billion, primarily reflecting the EDS acquisition completed August 26, 2008.
- Net earnings fell to $7.66 billion ($3.14 diluted EPS) from $8.33 billion ($3.25 diluted EPS) in fiscal 2008.
- Personal Systems Group revenue fell 16.5% to $35.31 billion, and Enterprise Storage and Servers revenue fell 20.8% to $15.36 billion.
- Operating cash flow was $13.38 billion, and the company repurchased $5.14 billion of common stock during the year.
- Total debt decreased to $15.8 billion from $17.9 billion, and cash and cash equivalents rose to $13.28 billion.
- In November 2009 HP agreed to acquire 3Com Corporation at $7.90 per share (about $2.7 billion enterprise value) and authorized an additional $8.0 billion in share repurchases.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, HP kept $0.07.
- Revenue$114.55B100.0%
- Cost of revenue−$56.50B49.3%
- Gross profit$58.05B50.7%
- Operating costs−$47.91B41.8%
- Operating income$10.14B8.8%
- Interest, other & tax−$2.48B2.2%
- Net income$7.66B6.7%
Where FY2009 revenue went
$114.55B- Cost of revenue: $56.50B, 49% of revenue
- Other operating costs: $33.45B, 29% of revenue
- Net income: $7.66B, 6.7% of revenue
- R&D: $2.82B, 2.5% of revenue
- SG&A: $11.65B, 10% of revenue
- Interest, other & tax: $2.48B, 2.2% of revenue
Kept 6.7% as net incomeNet income $7.66B · 6.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed December 17, 2009Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $114.55B$118.36B | −3.2% |
| Cost of Revenue | $56.50B$69.34B | −18.5% |
| Gross Profit | $58.05B$49.02B | +18.4% |
| R&D Expenses | $2.82B$3.54B | −20.4% |
| SG&A Expenses | $11.65B$13.33B | −12.6% |
| Operating Expenses | $104.42B$107.89B | −3.2% |
| Operating Income | $10.14B$10.47B | −3.2% |
| Interest Expense | $597.00M$467.00M | +27.8% |
| Net Income | $7.66B$8.34B | −8.1% |
| EPS (Basic) | $3.21$3.35 | −4.2% |
| EPS (Diluted) | $3.14$3.25 | −3.4% |
| Shares Outstanding (Basic) | 2.39B2.48B | −3.8% |
| Shares Outstanding (Diluted) | 2.44B2.57B | −5.1% |
05—Questions
Frequently Asked Questions
How did HP's revenue and profitability change in fiscal 2009?
Net revenue decreased 3.2% to $114.55 billion from $118.36 billion, and net earnings decreased to $7.66 billion from $8.33 billion. Earnings from operations were $10.14 billion, or 8.8% of net revenue, compared with $10.47 billion in fiscal 2008. The filing states that the revenue decline reflected the global economic slowdown, partly offset by the EDS acquisition in Services.
Which business segments drove the revenue decline?
Personal Systems Group revenue fell 16.5% to $35.31 billion, Imaging and Printing Group fell 18.9% to $24.01 billion, and Enterprise Storage and Servers fell 20.8% to $15.36 billion. The filing attributes these declines to weak demand, lower average selling prices and reduced unit volumes, particularly in commercial hardware and industry standard servers.
How did HP use its cash in fiscal 2009?
Operating activities provided $13.38 billion. The company used cash for $5.14 billion of share repurchases, $3.70 billion of investments in property, plant and equipment, $766 million of dividends and a net $2.8 billion of debt payments, and ended the year with $13.28 billion in cash and cash equivalents.
What is the pending 3Com acquisition?
In November 2009, HP entered into a definitive agreement to acquire 3Com Corporation, a provider of networking switching, routing and security solutions, at $7.90 per share in cash, or an enterprise value of approximately $2.7 billion. The transaction is subject to regulatory and stockholder approvals and is expected to close in HP's second fiscal quarter of 2010.
What are the main risks identified in the filing?
The filing highlights intense price competition in personal computers and printing, dependence on third-party suppliers and single-source components such as Intel processors, approximately 64% of net revenue generated outside the United States, currency exposure, and integration risks from acquisitions including EDS. It also notes ongoing litigation, including European copyright levy proceedings and a False Claims Act complaint brought by the U.S. Department of Justice.
06—Continue