01—Abstract
Summary
Summary of the 10-K/A filed September 11, 2023. Cited figures are marked; the original filing is the authoritative source.
HP Inc. filed this amended annual report to revise its fiscal 2022 Form 10-K (fiscal year ended October 31, 2022).
The amendment revises prior-period financial statements to correct an accounting error in a Personal Systems revenue contract and other immaterial errors, and it reports that the company did not maintain effective internal control over financial reporting as of October 31, 2022. Management identified two material weaknesses in revenue controls: recognition of revenue for a Personal Systems customer's transactions involving third-party financing, and undue reliance on a payment application for certain EMEA sales incentive programs, which relate to variable consideration of approximately 4%a of total consolidated revenues. Ernst & Young LLP issued an adverse opinion on internal control over financial reporting.
The filing states that the revenue error affected a contract comprising less than 1% of total consolidated revenues for the impacted periods, and that the errors did not result in a material misstatement of previously filed financials. After revision, fiscal 2022 net revenue was $62.91 billionb, compared with $63.46 billion in fiscal 2021, and net earnings were $3.13 billion, compared with $6.54 billion in fiscal 2021. Net earnings as originally reported for fiscal 2022 were $3.20 billion, so the revision reduced them by $71 million.
Diluted earnings per share were $2.98c, versus $3.05 as originally reported. Cash provided by operating activities was $4.46 billion, and the company repurchased $4.30 billion of common stock and paid $1.04 billion in dividends. The stockholders' deficit was $3.03 billion at year end.
Management states that remediation is in progress, including designing preventive and detective controls and enhancing review of a SOC-1 report and related complementary user entity controls. The material weaknesses will not be considered remediated until the enhanced controls operate for a sufficient period and testing concludes they are effective.
02—Key points
Key Highlights
- Internal control over financial reporting was not effective as of October 31, 2022. Ernst & Young LLP issued an adverse opinion on internal control.
- Two material weaknesses were identified: revenue recognition for a Personal Systems customer's third-party financing transactions, and reliance on a payment application for certain EMEA sales incentive programs (variable consideration of approximately 4% of total consolidated revenues).
- Prior-period financial statements were revised for an accounting error in a Personal Systems revenue contract (less than 1% of total consolidated revenues) and other immaterial errors. The filing states these did not cause a material misstatement of previously filed financials.
- Fiscal 2022 net revenue was $62.91 billion (revised), versus $62.98 billion as originally reported; net earnings were $3.13 billion (revised), versus $3.20 billion as originally reported.
- Fiscal 2022 earnings from operations were $4.56 billion, compared with $5.36 billion in fiscal 2021.
- The Poly acquisition, completed August 29, 2022, had a total enterprise value of $3.3 billion. Poly's results are included in the Personal Systems segment.
- The Fiscal 2023 Plan targets a reduction of 4,000 to 6,000 employees and pre-tax charges of approximately $1.0 billion.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, HP kept $0.05.
- Revenue$62.91B100.0%
- Cost of revenue−$50.65B80.5%
- Gross profit$12.26B19.5%
- Operating costs−$7.70B12.2%
- Operating income$4.56B7.2%
- Interest, other & tax−$1.43B2.3%
- Net income$3.13B5.0%
Where FY2022 revenue went
$62.91B- Cost of revenue: $50.65B, 81% of revenue
- Net income: $3.13B, 5.0% of revenue
- R&D: $1.65B, 2.6% of revenue
- SG&A: $5.26B, 8.4% of revenue
- Other operating costs: $787.0M, 1.3% of revenue
- Interest, other & tax: $1.43B, 2.3% of revenue
Kept 5.0% as net incomeNet income $3.13B · 5.0%Other operating costs $787.0M · 1.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-K/AFY2022filed September 11, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $62.91B$63.46B | −0.9% |
| Cost of Revenue | $50.65B$50.05B | +1.2% |
| Gross Profit | $12.26B$13.41B | −8.5% |
| R&D Expenses | $1.65B$1.85B | −10.6% |
| SG&A Expenses | $5.26B$5.73B | −8.1% |
| Operating Expenses | $7.70B$58.10B | −86.7% |
| Operating Income | $4.56B$5.36B | −14.9% |
| Interest Expense | $359.00M$254.00M | +41.3% |
| Net Income | $3.13B$6.54B | −52.1% |
| EPS (Basic) | $3.02$5.41 | −44.2% |
| EPS (Diluted) | $2.98$5.36 | −44.4% |
| Shares Outstanding (Basic) | 1.04B1.21B | −14.1% |
| Shares Outstanding (Diluted) | 1.05B1.22B | −13.9% |
05—Questions
Frequently Asked Questions
Why did HP file this amended annual report?
The filing states that HP revised its prior-period consolidated financial statements to correct an accounting error related to a Personal Systems revenue contract and other immaterial errors. Management also revised its conclusion on internal control over financial reporting, determining that material weaknesses existed as of October 31, 2022.
What were the material weaknesses in internal control?
The filing identifies two design deficiencies: (i) recognition of revenue for a Personal Systems customer's transactions involving third-party financing, and (ii) undue reliance on a payment application for certain sales incentive programs in EMEA, associated with variable consideration of approximately 4% of total consolidated revenues. The payment application issue involved a System and Organization Controls Type 1 (SOC-1) report that management did not receive timely, and ineffective complementary user entity controls.
How did the revisions affect fiscal 2022 results?
Revised fiscal 2022 net revenue was $62.91 billion, versus $62.98 billion as originally reported. Revised net earnings were $3.13 billion, versus $3.20 billion as originally reported, and diluted earnings per share were $2.98, versus $3.05. Revised total stockholders' deficit was $(3.03) billion, versus $(2.92) billion as originally reported.
What is management doing to fix the control weaknesses?
The filing states that management, under Audit Committee oversight, is designing preventive and detective controls specific to the affected business activity. It is also enhancing processes to ensure timely review of the SOC-1 report and designing effective complementary user entity controls for the sales incentive payment processing application. The material weaknesses will not be considered remediated until these controls operate for a sufficient period and testing shows they are effective.
06—Continue