01—Abstract
Summary
Summary of the 10-K filed December 15, 2016. Cited figures are marked; the original filing is the authoritative source.
HP Inc. (formerly Hewlett-Packard Company) reported fiscal 2016 net revenue of $48.24 billiona, down from $51.46 billion in fiscal 2015, as the company operated as a standalone entity following the November 1, 2015 separation of Hewlett Packard Enterprise.
Net earnings were $2.50 billionb, or $1.43 diluted EPS, compared with $4.55 billion in fiscal 2015. Earnings from continuing operations before interest and taxes were $3.55 billion, and the decline in net revenue was attributed to unfavorable currency impacts, weak market demand, competitive pricing pressures and the change in the Supplies sales model. Personal Systems net revenue fell 4.9% to $29.99 billion, while Printing net revenue fell 14.0% to $18.26 billion, with Supplies down 15.1%.
The balance sheet reflects the separation: total assets fell to $29.01 billionc from $106.88 billion, and total stockholders' deficit was $3.89 billion. Cash and cash equivalents were $6.29 billion and total debt was $6.84 billion. Operating cash flow was $3.23 billion, and the company returned cash through a $10.38 billion net transfer to Hewlett Packard Enterprise, $1.16 billion in share repurchases and $858 million in dividends.
The board authorized an additional $3.0 billiond of repurchases in October 2016, leaving about $3.8 billion remaining, and approved a Fiscal 2017 restructuring plan with estimated pre-tax charges of $350 million to $500 million. Key items for investors include a pending $1.05 billion acquisition of Samsung Electronics' printer business, a jury verdict of approximately $3.0 billion in HP's favor against Oracle Corporation (judgment entered, with Oracle stating it will appeal and no amount recorded), and uncertain tax positions of $10.9 billion in total unrecognized tax benefits. Approximately 63% of fiscal 2016 net revenue came from outside the United States.
02—Key points
Key Highlights
- Net revenue of $48.24 billion, down from $51.46 billion in fiscal 2015; net earnings of $2.50 billion ($1.43 diluted EPS) versus $4.55 billion a year earlier.
- Printing net revenue declined 14.0% to $18.26 billion, with Supplies down 15.1%; Personal Systems net revenue declined 4.9% to $29.99 billion.
- Total assets fell to $29.01 billion from $106.88 billion following the November 1, 2015 separation of Hewlett Packard Enterprise, and total stockholders' deficit was $3.89 billion.
- Operating cash flow was $3.23 billion; the company transferred $10.38 billion of cash to Hewlett Packard Enterprise and paid $858 million in dividends.
- Board authorized an additional $3.0 billion for share repurchases in October 2016, with approximately $3.8 billion remaining under the authorization.
- Fiscal 2017 Plan restructuring approved with expected pre-tax charges of $350 million to $500 million and 3,000 to 4,000 employee exits by fiscal 2019.
- Pending acquisition of Samsung Electronics' printer business for $1.05 billion; June 2016 jury verdict awarded approximately $3.0 billion against Oracle Corporation, with Oracle indicating it will appeal.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, HP kept $0.05.
- Revenue$48.24B100.0%
- Cost of revenue−$39.24B81.3%
- Gross profit$9.00B18.7%
- Operating costs−$5.45B11.3%
- Operating income$3.55B7.4%
- Interest, other & tax−$1.05B2.2%
- Net income$2.50B5.2%
Where FY2016 revenue went
$48.24B- Cost of revenue: $39.24B, 81% of revenue
- Net income: $2.50B, 5.2% of revenue
- R&D: $1.21B, 2.5% of revenue
- SG&A: $3.83B, 7.9% of revenue
- Other operating costs: $407.0M, 0.8% of revenue
- Interest, other & tax: $1.05B, 2.2% of revenue
Kept 5.2% as net incomeNet income $2.50B · 5.2%Other operating costs $407.0M · 0.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed December 15, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $48.24B$51.46B | −6.3% |
| Cost of Revenue | $39.24B$41.52B | −5.5% |
| Gross Profit | $9.00B$9.94B | −9.5% |
| R&D Expenses | $1.21B$1.19B | +1.5% |
| SG&A Expenses | $3.83B$4.72B | −18.8% |
| Operating Expenses | $44.69B$47.54B | −6.0% |
| Operating Income | $3.55B$3.92B | −9.5% |
| Interest Expense | $273.00M$167.00M | +63.5% |
| Net Income | $2.50B$4.55B | −45.2% |
| EPS (Basic) | $1.44$2.51 | −42.6% |
| EPS (Diluted) | $1.43$2.48 | −42.3% |
| Shares Outstanding (Basic) | 1.73B1.81B | −4.6% |
| Shares Outstanding (Diluted) | 1.74B1.84B | −5.1% |
05—Questions
Frequently Asked Questions
Why did revenue decline so sharply in fiscal 2016?
The filing attributes the net revenue decline of 6.3% to unfavorable currency impacts, weak market demand, competitive pricing pressures and the change in the Supplies sales model. Declines were concentrated in supplies, commercial and consumer printers, desktops and consumer notebooks, partially offset by growth in commercial notebooks.
How did the Separation of Hewlett Packard Enterprise affect the financial statements?
Results of Hewlett Packard Enterprise are presented as discontinued operations for periods before the November 1, 2015 Separation. Total assets fell from $106.88 billion to $29.01 billion, and the company transferred net assets of $32.5 billion and $10.38 billion of cash to Hewlett Packard Enterprise.
What legal and tax exposures could affect future results?
HP recorded a jury verdict of approximately $3.0 billion against Oracle, which the company has not recorded in its financials and which Oracle plans to appeal. HP also reported unrecognized tax benefits of $10.9 billion, of which up to $3.9 billion would affect the effective tax rate if realized, and it is reasonably possible these could decrease by up to $2.5 billion within 12 months.
What is the company's capital return and balance sheet position?
Cash and cash equivalents were $6.29 billion and total debt was $6.84 billion at October 31, 2016, with a debt-to-equity ratio that is negative due to the stockholders' deficit. The company repurchased $1.16 billion of common stock and paid $858 million in dividends during fiscal 2016, and it declared $0.50 per share in dividends for the year.
06—Continue