01—Abstract
Summary
Summary of the 10-K filed December 16, 2015. Cited figures are marked; the original filing is the authoritative source.
HP Inc. (formerly Hewlett-Packard Company) filed this Form 10-K for fiscal 2015 (year ended October 31, 2015) following the November 1, 2015 separation of Hewlett Packard Enterprise, which took its enterprise technology infrastructure, software, services and financing businesses.
Going forward, HP Inc. reports three segments: Personal Systems, Printing and Corporate Investments. Fiscal 2015 consolidated net revenue was $103.36 billiona, down 7.3% from $111.45 billion, with earnings from operations of $5.47 billion versus $7.19 billion and net earnings of $4.55 billion ($2.48 diluted EPS) versus $5.01 billion. The company recorded $1.26 billion of separation costs, $1.02 billion of restructuring charges and a $1.8 billion tax benefit from releasing U.S. valuation allowances tied to the Enterprise Services business, which lifted the effective tax rate to 3.8%.
The balance sheet and cash flow picture shifted noticeably. Cash and cash equivalents rose to $17.43 billion, while total debt increased to $24.67 billionb, driven by the Separation and the Aruba acquisition. Operating cash flow fell to $6.49 billion from $12.33 billion, and the company repurchased $2.9 billion of stock and paid $1.25 billion in dividends.
Management cites continued soft PC demand, competitive printing pricing and revenue runoff in Enterprise Services as key headwinds, and a new 2015 restructuring plan targets up to about 33,300 employee exits through 2018. For investors, the filing is primarily a transition document: the historical figures include Hewlett Packard Enterprise, which is now reported as discontinued operations beginning in fiscal 2016, so future results will look materially different. The company also disclosed $3.7 billionc of uncertain tax liabilities, ongoing copyright levy proceedings in Europe, and several major legal matters including Autonomy-related litigation and an Indian customs dispute seeking about $370 million.
02—Key points
Key Highlights
- Net revenue declined 7.3% to $103.36 billion in fiscal 2015, or 2.1% on a constant currency basis, with Personal Systems and Printing both down and Enterprise Group up on ISS server growth.
- Net earnings fell to $4.55 billion ($2.48 diluted EPS) from $5.01 billion, while the effective tax rate dropped to 3.8% from 23.5% after a $1.8 billion release of U.S. valuation allowances.
- Separation costs of $1.26 billion and restructuring charges of $1.02 billion weighed on operating results; a new 2015 restructuring plan targets up to about 33,300 workforce exits through fiscal 2018.
- Cash and cash equivalents increased to $17.43 billion, but operating cash flow fell to $6.49 billion from $12.33 billion, driven by lower working capital management and separation payments.
- Total debt rose to $24.67 billion from $19.53 billion, reflecting the Separation-related notes issued by Hewlett Packard Enterprise and $18.2 billion of commercial paper issued during the year.
- Going forward, HP Inc. reports three segments (Personal Systems, Printing and Corporate Investments) after Hewlett Packard Enterprise is reported as discontinued operations starting in fiscal 2016.
- Shareholders received $1.25 billion in dividends and the company repurchased $2.9 billion of stock; $2.0 billion remained under the repurchase authorization at October 31, 2015.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, HP kept $0.09.
- Revenue$51.46B100.0%
- Cost of revenue−$41.52B80.7%
- Gross profit$9.94B19.3%
- Operating costs−$6.02B11.7%
- Operating income$3.92B7.6%
- Interest, other & tax$634.0M1.2%
- Net income$4.55B8.8%
Where FY2015 revenue went
$51.46B- Cost of revenue: $41.52B, 81% of revenue
- Operating income: $3.92B, 7.6% of revenue
- R&D: $1.19B, 2.3% of revenue
- SG&A: $4.72B, 9.2% of revenue
Kept 7.6% as operating incomeOperating income $3.92B · 7.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed December 16, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $51.46B$56.65B | −9.2% |
| Cost of Revenue | $41.52B$45.43B | −8.6% |
| Gross Profit | $9.94B$11.22B | −11.4% |
| R&D Expenses | $1.19B$1.30B | −8.2% |
| SG&A Expenses | $4.72B$5.36B | −12.0% |
| Operating Expenses | $47.54B$52.40B | −9.3% |
| Operating Income | $3.92B$4.26B | −7.9% |
| Interest Expense | $167.00M$167.00M | 0.0% |
| Net Income | $4.55B$5.01B | −9.2% |
| EPS (Basic) | $2.51$2.66 | −5.6% |
| EPS (Diluted) | $2.48$2.62 | −5.3% |
| Shares Outstanding (Basic) | 1.81B1.88B | −3.6% |
| Shares Outstanding (Diluted) | 1.84B1.91B | −4.0% |
05—Questions
Frequently Asked Questions
What did HP Inc. look like after the separation from Hewlett Packard Enterprise?
On November 1, 2015, Hewlett-Packard Company completed the separation of Hewlett Packard Enterprise and changed its name to HP Inc. HP Inc. retains Personal Systems, Printing and Corporate Investments as its continuing segments, while enterprise technology infrastructure, software, services and financing businesses moved to Hewlett Packard Enterprise.
Why did net earnings and operating income decline in fiscal 2015?
Earnings from operations fell to $5.47 billion from $7.19 billion, driven by $1.26 billion of separation costs, $168 million of pension settlement charges, a $136 million data center impairment and a 7.3% revenue decline. Management attributes the revenue decline mainly to unfavorable currency impacts, weak PC and printer demand and runoff in Enterprise Services key accounts.
Why was the effective tax rate so low in fiscal 2015?
The effective tax rate was 3.8%, compared with 23.5% in fiscal 2014. The main driver was a $1.8 billion tax benefit from releasing valuation allowances on certain U.S. deferred tax assets tied to Enterprise Services, partly offset by a $486 million charge for foreign valuation allowances.
How much debt does HP Inc. carry, and what drove the increase?
Total debt was $24.67 billion at October 31, 2015, up from $19.53 billion. The increase was due primarily to $14.6 billion of senior unsecured notes issued by Hewlett Packard Enterprise in October 2015, net commercial paper issuance and a $5.0 billion term loan partly used for separation costs and the Aruba acquisition, partly offset by early debt extinguishment of $6.6 billion.
What are the main risks to future results disclosed in the filing?
The filing highlights continued soft PC demand and mobility shifts, intense price competition in printing, the risk of unsuccessful restructuring and separation benefits, dependence on third-party suppliers and single-source components, European copyright levy proceedings, and significant legal matters including Autonomy-related stockholder litigation and an Indian customs dispute seeking about $370 million.
06—Continue