01—Abstract
Summary
Summary of the 10-K filed December 18, 2014. Cited figures are marked; the original filing is the authoritative source.
Hewlett-Packard Company reported net revenue of $111.45 billiona for fiscal 2014 (ended October 31, 2014), down 0.8% from $112.30 billion in fiscal 2013, with earnings from operations of $7.19 billion and net earnings of $5.01 billion, or $2.62 per diluted share.
Net revenue declined mainly due to key account runoff in Enterprise Services and lower Printing supplies volume, partly offset by growth in Personal Systems commercial PCs. Gross margin rose 0.8 percentage points, helped by service delivery efficiencies in Enterprise Services and improved Printing cost structure, while restructuring charges increased to $1.62 billionb as the 2012 Plan's target grew from 34,000 to 55,000 positions. The company generated $12.3 billion in operating cash flow, invested $3.0 billion in property, plant and equipment net of sales proceeds, repurchased $2.7 billion of common stock and paid $1.2 billion in dividends.
Cash and cash equivalents rose to $15.1 billion, while total debt fell to $19.5 billionc from $22.6 billion. Segment results were mixed: Personal Systems and Printing improved operating margins, while Enterprise Group and Enterprise Services revenue and profit declined. The filing's most significant item for investors is the October 6, 2014 announcement that HP will separate into two publicly traded companies: Hewlett-Packard Enterprise, comprising enterprise technology, software, services and financing, and HP Inc., comprising printing and personal systems.
The separation is targeted for completion by the end of fiscal 2015 and is subject to Board approval, regulatory conditions and tax opinions or rulings. The filing also notes credit ratings under negative outlook from some agencies after the announcement, and ongoing investigations and litigation, including Autonomy-related matters and copyright levies in Europe.
02—Key points
Key Highlights
- Net revenue of $111.45 billion in fiscal 2014, down 0.8% (0.4% on a constant currency basis) from $112.30 billion in fiscal 2013
- Net earnings of $5.01 billion ($2.62 diluted EPS) versus $5.11 billion ($2.62 diluted EPS) in fiscal 2013
- Gross margin increased 0.8 percentage points, driven by Enterprise Services delivery efficiencies and Printing cost improvements
- Restructuring charges rose to $1.62 billion; the 2012 Plan's expected eliminated positions increased from 34,000 to 55,000
- Operating cash flow of $12.3 billion; $2.7 billion used for share repurchases and $1.2 billion for dividends
- Total debt reduced to $19.5 billion from $22.6 billion, with cash and cash equivalents rising to $15.1 billion
- Planned separation into Hewlett-Packard Enterprise and HP Inc., targeted for completion by the end of fiscal 2015, subject to conditions including tax opinions and a Form 10 filing
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, HP kept $0.09.
- Revenue$56.65B100.0%
- Cost of revenue−$45.43B80.2%
- Gross profit$11.22B19.8%
- Operating costs−$6.96B12.3%
- Operating income$4.26B7.5%
- Interest, other & tax$757.0M1.3%
- Net income$5.01B8.8%
Where FY2014 revenue went
$56.65B- Cost of revenue: $45.43B, 80% of revenue
- Operating income: $4.26B, 7.5% of revenue
- R&D: $1.30B, 2.3% of revenue
- SG&A: $5.36B, 9.5% of revenue
- Other operating costs: $305.0M, 0.5% of revenue
Kept 7.5% as operating incomeOperating income $4.26B · 7.5%Other operating costs $305.0M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed December 18, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $56.65B$112.30B | −49.6% |
| Cost of Revenue | $45.43B$44.75B | +1.5% |
| Gross Profit | $11.22B$67.54B | −83.4% |
| R&D Expenses | $1.30B$3.13B | −58.6% |
| SG&A Expenses | $5.36B$13.27B | −59.6% |
| Operating Expenses | $52.40B$105.17B | −50.2% |
| Operating Income | $4.26B$7.13B | −40.3% |
| Interest Expense | $167.00M$426.00M | −60.8% |
| Net Income | $5.01B$5.11B | −2.0% |
| EPS (Basic) | $2.66$2.64 | +0.8% |
| EPS (Diluted) | $2.62$2.62 | 0.0% |
| Shares Outstanding (Basic) | 1.88B1.93B | −2.7% |
| Shares Outstanding (Diluted) | 1.91B1.95B | −1.9% |
05—Questions
Frequently Asked Questions
Why did HP's net revenue decline in fiscal 2014?
The filing attributes the 0.8% decline mainly to key account runoff in Enterprise Services and lower Printing supplies volume. Growth in commercial PCs and consumer notebooks in Personal Systems partly offset the decline.
What is the planned separation, and when is it expected?
On October 6, 2014, HP announced plans to split into Hewlett-Packard Enterprise, covering enterprise technology infrastructure, software, services and financing, and HP Inc., covering printing and personal systems. The separation is expected to be completed by the end of fiscal 2015 and is subject to Board approval, favorable tax opinions or rulings, and an effective Form 10 filing.
How did segment performance differ across the business?
Printing earnings from operations rose to $4.19 billion (18.2% of net revenue) and Personal Systems rose to $1.27 billion (3.7%). Enterprise Group's earnings fell to $4.01 billion from $4.26 billion, and Enterprise Services' margin improved to 3.6% although its net revenue declined 6.9%.
How strong is HP's liquidity and capital position?
Cash and cash equivalents reached $15.1 billion at October 31, 2014, and operating cash flow was $12.3 billion. Total debt declined to $19.5 billion, and the debt-to-equity ratio fell to 0.72x. Credit ratings were A-2/Prime-2/F2 for short-term debt and BBB+/Baa1/A- for long-term debt, with negative outlooks noted after the separation announcement.
What legal and regulatory matters could affect HP's results?
The filing describes Autonomy-related investigations by the U.S. DOJ, SEC and U.K. Serious Fraud Office, along with stockholder litigation. It also discusses European copyright levy proceedings, an India customs duty dispute seeking about $370 million plus penalties, a South Carolina contract dispute, and an April 2014 resolution of DOJ and SEC FCPA investigations. Management states it has recorded adequate provisions and that it is not reasonably possible a material loss exceeds recorded amounts.
06—Continue