01—Abstract
Summary
Summary of the 10-K filed December 30, 2013. Cited figures are marked; the original filing is the authoritative source.
Hewlett-Packard Company reported fiscal 2013 (year ended October 31, 2013) net revenue of $112.3 billiona, down 6.7% from $120.4 billion in fiscal 2012, with net revenue declining 5.5% on a constant currency basis.
Earnings from operations were $7.13 billionb, compared with a loss of $11.06 billion in fiscal 2012, which included $18.0 billion of goodwill and intangible asset impairment charges. Net earnings were $5.11 billion, or $2.62 per diluted share, versus a net loss of $12.65 billion in fiscal 2012. Management attributed the revenue decline to a contraction in the PC market, weak public sector and enterprise IT demand in Europe, competitive pricing pressure, and unfavorable currency effects in Printing.
Approximately 64% of net revenue came from outside the United States. Cash flow remained strong, with net cash provided by operating activities of $11.6 billionc. The company repaid $5.7 billion of debt, paid $1.1 billion in dividends, repurchased $1.5 billion of common stock, and invested $3.2 billion in capital assets.
Total debt fell to $22.6 billiond from $28.4 billion, and the debt-equity ratio improved to 0.82x. Credit ratings remain under pressure: Moody's downgraded HP's long-term rating to Baa1 in November 2012 and keeps a negative outlook, and the company says prior downgrades raised borrowing costs and reduced commercial paper market capacity.
The filing also describes ongoing risks, including a restructuring plan from May 2012 that HP now expects to involve approximately 34,000 position eliminations and about $4.1 billion in aggregate charges. It also reports multiple government investigations under the FCPA, including Russia and Poland matters, an India customs dispute of roughly $370 million in claimed duties and penalties, an ongoing South Carolina contract dispute seeking about $275 million, and Autonomy-related investigations and securities litigation.
02—Key points
Key Highlights
- Net revenue fell 6.7% to $112.3 billion, with declines in all seven segments; Personal Systems revenue dropped 10.2% and Enterprise Services fell 8.2%.
- Earnings from operations rebounded to $7.13 billion from a $11.06 billion loss in fiscal 2012, which included $18.0 billion of impairment charges; the filing says operating margin improved 15.6 percentage points, mainly from the absence of impairments and lower restructuring charges.
- Net earnings were $5.11 billion, or $2.62 per diluted share, compared with a net loss of $12.65 billion in fiscal 2012.
- Operating cash flow was $11.6 billion; HP repaid $5.7 billion of debt, paid $1.1 billion in dividends, and repurchased $1.5 billion of stock, with $7.6 billion of repurchase authorization remaining.
- Total debt declined to $22.6 billion from $28.4 billion, and the debt-equity ratio fell to 0.82x from 1.25x.
- Restructuring plan expected to eliminate approximately 34,000 positions, with about $4.1 billion in aggregate charges, through fiscal 2014.
- Moody's long-term rating is Baa1 with a negative outlook, and prior downgrades increased borrowing costs and reduced commercial paper capacity.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, HP kept $0.05.
- Revenue$112.30B100.0%
- Cost of revenue−$44.75B39.9%
- Gross profit$67.54B60.1%
- Operating costs−$60.41B53.8%
- Operating income$7.13B6.4%
- Interest, other & tax−$2.02B1.8%
- Net income$5.11B4.6%
Where FY2013 revenue went
$112.30B- Cost of revenue: $44.75B, 40% of revenue
- Other operating costs: $44.01B, 39% of revenue
- Net income: $5.11B, 4.6% of revenue
- R&D: $3.13B, 2.8% of revenue
- SG&A: $13.27B, 12% of revenue
- Interest, other & tax: $2.02B, 1.8% of revenue
Kept 4.6% as net incomeNet income $5.11B · 4.6%Interest, other & tax $2.02B · 1.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed December 30, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $112.30B$120.36B | −6.7% |
| Cost of Revenue | $44.75B$59.47B | −24.7% |
| Gross Profit | $67.54B$60.89B | +10.9% |
| R&D Expenses | $3.13B$3.40B | −7.8% |
| SG&A Expenses | $13.27B$13.50B | −1.7% |
| Operating Expenses | $105.17B$131.41B | −20.0% |
| Operating Income | $7.13B-$11.06B | +164.5% |
| Interest Expense | $426.00M$514.00M | −17.1% |
| Net Income | $5.11B-$12.65B | +140.4% |
| EPS (Basic) | $2.64$-6.41 | +141.2% |
| EPS (Diluted) | $2.62$-6.41 | +140.9% |
| Shares Outstanding (Basic) | 1.93B1.97B | −2.0% |
| Shares Outstanding (Diluted) | 1.95B1.97B | −1.2% |
05—Questions
Frequently Asked Questions
Why did HP's revenue decline in fiscal 2013?
The filing attributes the 6.7% decline primarily to a significant contraction in the overall PC market, which hurt Personal Systems, and to weak public sector spending and enterprise IT demand, particularly in Europe, which affected Enterprise Services and Enterprise Group. Competitive pricing pressure in enterprise and PC markets and unfavorable currency effects and supply volume declines in Printing also contributed.
How did HP's profitability change compared with fiscal 2012?
Earnings from operations were $7.13 billion in fiscal 2013 versus a $11.06 billion loss in fiscal 2012. The swing mainly reflects the absence of fiscal 2012 goodwill and intangible asset impairment charges of $18.0 billion and lower restructuring charges of $990 million, compared with $2.27 billion in fiscal 2012. Gross margin was 23.1%, down slightly from 23.2%.
What is HP's restructuring plan and what does it cost?
HP adopted a multi-year restructuring plan in May 2012. As of October 31, 2013, HP expects to eliminate approximately 34,000 positions, up from an earlier estimate of 29,000, and to record approximately $4.1 billion in aggregate charges through the end of fiscal 2014, including about $3.5 billion for workforce reductions and $0.6 billion for infrastructure and other items.
What legal and regulatory risks does HP disclose?
HP discloses ongoing investigations by the U.S. Department of Justice, the SEC, and other authorities into potential FCPA violations, including the Russia GPO transaction and public-sector deals in Poland, Russia, and other countries. It also discloses an India customs dispute with proposed duties and penalties of about $370 million, a South Carolina contract dispute seeking roughly $275 million in damages, Autonomy-related investigations, and multiple securities and derivative lawsuits.
06—Continue