01—Abstract
Summary
Summary of the 10-K filed December 27, 2012. Cited figures are marked; the original filing is the authoritative source.
Hewlett-Packard Company reported a net loss of $12.65 billiona for fiscal 2012 (ended October 31, 2012) on net revenue of $120.36 billion, down from $127.25 billion in fiscal 2011.
The loss was driven by an $18.04 billionb impairment of goodwill and purchased intangible assets, including an $8.8 billion charge tied to the Autonomy reporting unit within the Software segment, an $8.0 billion goodwill charge for the enterprise services reporting unit within Services, and a $1.2 billion charge on the "Compaq" trade name. Restructuring charges rose to $2.27 billion, reflecting a company-wide plan announced in May 2012 that is expected to eliminate about 29,000 positions through fiscal 2014. Earnings from operations were a loss of $11.06 billion, compared with earnings of $9.68 billion in fiscal 2011.
Revenue declined in most segments, with Personal Systems down 9.9% and Printing down 6.5%, while Software grew 20.6% on acquired businesses. Liquidity remained substantial, with cash and cash equivalents of $11.3 billionc and cash provided by operations of $10.6 billion in fiscal 2012. Total debt was $28.4 billion, and the company repurchased $1.6 billion of stock and paid $1.0 billion in dividends during the year.
Credit ratings were downgraded by all three agencies during fiscal 2011 and 2012, and Moody's maintains a negative outlook. The filing also discloses ongoing securities class actions, investigations related to Autonomy and to Russia-related Foreign Corrupt Practices Act matters, and an Indian customs dispute with potential additional deposits of up to $367 milliond.
02—Key points
Key Highlights
- Net loss of $12.65 billion in fiscal 2012 versus net earnings of $7.07 billion in fiscal 2011; diluted loss per share of $6.41.
- Impairment of goodwill and purchased intangible assets totaled $18.04 billion, including $8.8 billion for Autonomy, $8.0 billion for the enterprise services unit and $1.2 billion for the "Compaq" trade name.
- Net revenue fell 5.4% to $120.36 billion, with Personal Systems down 9.9%, Printing down 6.5%, Services down 2.2% and ESSN down 7.1%; Software rose 20.6% on acquisitions.
- Restructuring charges of $2.27 billion; the May 2012 plan is expected to eliminate approximately 29,000 positions through fiscal 2014, with total expected charges of about $3.7 billion.
- Cash and cash equivalents of $11.3 billion, operating cash flow of $10.6 billion, and total debt of $28.4 billion; $9.2 billion remains authorized for share repurchases.
- Credit ratings were downgraded by Standard & Poor's, Fitch and Moody's during fiscal 2011–2012, increasing borrowing costs; Moody's rating remains under negative outlook.
- Ongoing legal exposure includes securities class actions tied to Autonomy and webOS, U.S. Department of Justice and SEC investigations into Russia-related FCPA matters, and an Indian customs dispute with duties and penalties of roughly $386 million assessed on the products order.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2012, HP lost $0.11.
- Revenue$120.36B100.0%
- Cost of revenue−$59.47B49.4%
- Gross profit$60.89B50.6%
- Operating costs−$71.95B59.8%
- Operating income−$11.06B9.2%
- Interest, other & tax−$1.59B1.3%
- Net income−$12.65B10.5%
04—Financials
Financial Highlights
Figures from 10-KFY2012filed December 27, 2012Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $120.36B$127.25B | −5.4% |
| Cost of Revenue | $59.47B$65.17B | −8.7% |
| Gross Profit | $60.89B$62.08B | −1.9% |
| R&D Expenses | $3.40B$3.25B | +4.5% |
| SG&A Expenses | $13.50B$13.58B | −0.6% |
| Operating Expenses | $131.41B$117.57B | +11.8% |
| Operating Income | -$11.06B$9.68B | −214.3% |
| Interest Expense | $514.00M$522.00M | −1.5% |
| Net Income | -$12.65B$7.07B | −278.8% |
| EPS (Basic) | $-6.41$3.38 | −289.6% |
| EPS (Diluted) | $-6.41$3.32 | −293.1% |
| Shares Outstanding (Basic) | 1.97B2.09B | −5.7% |
| Shares Outstanding (Diluted) | 1.97B2.13B | −7.2% |
05—Questions
Frequently Asked Questions
What caused HP's swing to a large loss in fiscal 2012?
The loss was driven mainly by $18.04 billion of impairment charges on goodwill and purchased intangible assets. The largest were $8.8 billion for the Autonomy reporting unit in Software, $8.0 billion of goodwill for the enterprise services unit in Services, and $1.2 billion for the "Compaq" trade name in Personal Systems. The filing states that the Autonomy charge reflects accounting improprieties, misrepresentations and disclosure failures at Autonomy before the acquisition, as identified in HP's ongoing investigation.
How much of the revenue decline came from each segment?
Personal Systems net revenue decreased 9.9%, largely due to unit volume down 11%. Printing decreased 6.5%, with printer unit volume down 15% and Supplies down 6%. Services decreased 2.2%, and ESSN decreased 7.1%. Software was the only segment to grow, up 20.6%, primarily from the Autonomy acquisition in October 2011.
What is HP's restructuring plan and what does it cost?
HP adopted a multi-year restructuring plan on May 23, 2012, to eliminate approximately 29,000 positions through fiscal 2014, including voluntary enhanced early retirement programs. The company expects aggregate charges of about $3.7 billion, of which about $2.1 billion was recorded in fiscal 2012. The company expects future cash expenditures of approximately $2.7 billion for approved restructuring plans, with about $1.6 billion to be paid in fiscal 2013.
How strong is HP's liquidity and debt position?
At October 31, 2012, HP had $11.3 billion of cash and cash equivalents, up from $8.0 billion a year earlier, and total debt of $28.4 billion, down from $30.6 billion. Available borrowing resources were $17.4 billion, and management stated that cash balances, operating cash flow and capital market access are expected to cover fiscal 2013 cash outlays. The company also disclosed that $5.5 billion of U.S. Dollar Global Notes mature in fiscal 2013.
What legal and regulatory risks does HP face?
The filing describes numerous securities class actions and derivative suits related to Autonomy and webOS, investigations by the U.K. Serious Fraud Office, the U.S. Department of Justice and the SEC into Autonomy, and an investigation by the German Public Prosecutor, the DOJ and the SEC into the Russia GPO transaction under the Foreign Corrupt Practices Act. In India, customs authorities issued orders affirming duties and penalties of about $386 million on products, and the appeal may require additional deposits of between zero and $367 million plus interest.
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