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- Sequential Revenue and Pro Forma EPS Growth
- Sequential Pro Forma Expense Reduction
- Operating Cash Flow of $1.8 Billion
PALO ALTO, Calif., Nov. 14, 2001 -- Hewlett-Packard
Company (NYSE:HWP) today reported financial results for its fourth fiscal
quarter ended Oct. 31, 2001.
Fourth quarter results met or slightly exceeded guidance for revenue,
gross margin and expenses provided on the Aug. 16 third quarter earnings
call. The company achieved 6% sequential revenue growth, 4% sequential
pro forma expense reduction, pro forma earnings per share (EPS) of 19
cents and operating cash flow of $1.8 billion.
The company reported fourth quarter revenue of $10.9 billion compared
with $10.3 billion in the third quarter and $13.3 billion in last year's
fourth quarter. Revenues were down 18% year-over-year, 15% excluding currency
Gross margin this quarter was 25.7%, essentially flat with 26.0% last
quarter on a pro forma basis. Operating expenses declined 4% sequentially
and 11% year-over-year on a pro forma basis. Operating expenses were 21.4%
of net revenue, down from 23.6% last quarter on a pro forma basis.
Pro forma EPS on a diluted basis was 19 cents (compared with the consensus
analyst estimate of 8 cents), up from pro forma EPS of 12 cents in the
third quarter and down from pro forma EPS of 41 cents in the year-ago
quarter. Pro forma earnings this quarter excluded a $282 million pre-tax
restructuring charge for workforce reduction, as well as several other
Including these items, GAAP total EPS was 5 cents per diluted share
on approximately 2 billion shares of common stock and equivalents outstanding.
GAAP total EPS on a diluted basis for the same period last year was 45
"In a tough environment, we stayed focused on customers and business
fundamentals. We generated sequential revenue growth, expense reductions
and pro forma EPS improvements, as well as $1.8 billion in operating cash
flow in the fourth quarter. Results were driven by excellent execution
in imaging and printing and good performance in services. While overall
computing systems results remain weak, we saw improvement in certain segments
including storage and PCs. We reduced our cost structure, improved our
operational effectiveness and managed inventory aggressively," said Carly
Fiorina, chairman and chief executive officer.
"While executing well, we continue to focus on our long-term objectives.
We are convinced that the Compaq transaction is a unique opportunity to
move HP into the future and benefit
our shareowners, customers and employees. We expect this transaction to
create substantial earnings accretion soon after the merger closes. With
Compaq's customer base and complementary products and services, we will
materially strengthen key HP businesses.
"HP has always stood for a willingness
to innovate and evolve in the face of changing markets. The company has
successfully reinvented itself many times in the past, and we must continue
to do so to deliver sustainable shareowner value.
"In 2001, we met many of the major objectives we set for HP
and we thank our employees for staying the course and making sacrifices
during a year of unprecedented challenges. They enabled HP
to be among the select few technology companies to remain profitable throughout
2001. In recognition of their efforts, we have awarded all employees and
managers, other than the Executive Council, a special cash bonus equivalent
to two days' salary, with a total cost of approximately $45 million."
Business Segment Results
Imaging and Printing Systems
The imaging and printing systems segment includes laser and inkjet printers,
imaging devices and associated supplies. Revenues increased 16% sequentially
and declined 9% year-over-year (7% in local currency) against the highest
revenue quarter in IPS history last year.
Operating margin was 10.5%, compared to 8.7% last quarter and 12.6%
in the fourth quarter of last year. The sequential operating margin increase
reflects a strong seasonal increase in revenues and solid expense management.
The company made excellent progress during the year on key objectives.
These include increasing share in low-end printers and developing new
products to improve profitability, winning new business in high-end commercial
printing, building on strength in the growing all-in-one market, creating
new markets for digital imaging and driving usage of HP
During the fourth quarter, supplies revenues grew 16% sequentially and
6% year-over-year against a strong compare. HP
LaserJet hardware revenue increased 4% sequentially and declined 18% year-over-year.
Inkjet printer revenue increased 17% sequentially and declined 35% year-over-year.
HP gained or maintained share in
all printer hardware categories.
Imaging revenue, which includes digital cameras, photo printers, scanners
and all-in-one devices, increased 49% sequentially and 7% year-over-year.
The computing systems segment includes a broad range of Internet infrastructure
systems and solutions for businesses and professionals, including workstations,
desktops, notebooks, mobile devices, UNIX and PC servers, storage and
software solutions. Revenues declined 1% sequentially and declined 31%
year-over-year (28% in local currency).
Operating margin was a negative 4.7%, compared to a negative 3.8% last
quarter and positive 4.0% a year ago, reflecting a highly competitive
market and weakening demand.
For the fourth quarter, UNIX server revenue was down 11% sequentially
and 30% year-over-year, but remained a profitable business amid difficult
market conditions. Superdome continued to gain increased customer acceptance
and HP's low-end UNIX products continued
to perform well versus competitors.
Enterprise storage revenues increased 10% sequentially and declined
22% year-over-year. High-end arrays were up 16% sequentially, driven by
new products and margins stabilized in a difficult market. While software
revenues declined 7% sequentially and 12% year-over-year, the HP
OpenView product showed growth both sequentially and year-over-year.
PC server revenues declined 11% sequentially and 44% year-over-year.
Commercial desktops declined 11% sequentially and 39% year-over-year.
Home PC revenues increased 23% sequentially and declined 37% year-over-year.
HP retained its leading position
in home PCs and generated profits in North America while breaking even
globally. Notebooks experienced sequential revenue growth of 10% and declined
12% year-over-year, significantly increasing HP's
market share in the United States following the release of Windows XP.
The IT Services segment includes mission-critical, outsourcing, consulting
and customer financing services. Support revenues grew 3% sequentially
and 9% year-over-year (6% in dollars). Outsourcing revenues were up 4%
sequentially and up 22% year-over-year (19% in dollars). Consulting revenues
declined 5% sequentially and grew 2% year-over-year (a 2% decline in dollars).
Overall revenues for the IT Services segment, including HP's
financing business, grew 2% sequentially and 5% year-over-year (2% in
Operating margin was 4.5%, compared to 2.0% for the last quarter and
4.5 % for the same period last year.
Net cash generated from operations for the quarter was $1.8 billion.
Inventory declined by $600 million and was 11.5% of revenue, down from
12.2% last quarter. Trade receivables were 9.9% of revenue compared to
9.2% in the previous quarter. Net property, plant and equipment was 9.7%
of revenue, unchanged from last quarter.
As announced in July, HP has undertaken
a workforce reduction program to eliminate 6,000 jobs and result in an
annualized savings of $500 million. HP
took a pre-tax restructuring charge of $282 million in the fourth quarter
of this fiscal year, covering substantially all of the planned headcount
reduction. Approximately 4,000 of the 6,000 reductions have taken place
as of Oct. 31, 2001. The remaining job cuts are expected to be completed
in the first half of fiscal 2002.
Market conditions continue to be difficult and the company is not counting
on an economic recovery in 2002. For the first fiscal quarter of 2002,
revenues are expected to be down slightly from the fourth quarter due
to normal seasonal effects. Gross margins are expected to be approximately
flat with the fourth quarter, reflecting an intensely competitive environment.
The company expects to hold expenses approximately flat with the fourth
quarter on a pro forma basis.
During the fourth quarter, HP adopted
Securities and Exchange Commission Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements," and has restated 2001 quarterly
results for the first three quarters accordingly. HP
also made several other minor reporting changes for all periods presented,
including a reclassification of leasing-related interest income and expense.
Hewlett-Packard Company -- a leading global provider of computing and
imaging solutions and services -- is focused on making technology and
its benefits accessible to all. HP
had total revenue of $45.2 billion in its 2001 fiscal year. Information
about HP and its products can be
found on the World Wide Web at http://www.hp.com.
UNIX is a registered trademark of the Open Group.
This news release contains forward-looking statements that involve
risks and uncertainties, as well as assumptions that, if they never materialize
or prove incorrect, could cause the results of HP
and its consolidated subsidiaries to differ materially from those expressed
or implied by such forward-looking statements. All statements other than
statements of historical fact are statements that could be deemed forward-looking
statements, including any projections of earnings, revenues, synergies,
accretion or other financial items; any statements of the plans, strategies,
and objectives of management for future operations, including the execution
of integration and restructuring plans and the anticipated timing of filings,
approvals and closings relating to planned acquisitions; any statements
concerning proposed new products, services, developments or industry rankings;
any statements regarding future economic conditions or performance; statements
of belief and any statement of assumptions underlying any of the foregoing.
The risks, uncertainties and assumptions referred to above include the
ability of HP to retain and motivate
key employees; the timely development, production and acceptance of products
and services and their feature sets; the challenge of managing asset levels,
including inventory; the flow of products into third-party distribution
channels; the difficulty of keeping expense growth at modest levels while
increasing revenues; the challenges of integration and restructuring associated
with acquisitions and achieving anticipated synergies; the possibility
that proposed acquisitions may not close or that modifications of some
aspects of proposed acquisitions may be required in order to obtain regulatory
approvals; the assumption of maintaining revenues on a combined company
basis following acquisitions; and other risks that are described from
time to time in HP's Securities and
Exchange Commission reports, including but not limited to the annual report
on Form 10-K for the year ended Oct. 31, 2000, and subsequently filed
reports. HP assumes no obligation
and does not intend to update these forward-looking statements.
Additional Information about the Merger and Where to Find It
HP and Compaq intend to
file with the SEC a joint proxy statement/prospectus and other relevant
materials in connection with the merger. The joint proxy statement/prospectus
will be mailed to the shareowners of HP
and Compaq. Shareowners of HP and
Compaq are urged to read the joint proxy statement/prospectus and the
other relevant materials when they become available because they will
contain important information about HP,
Compaq and the merger. The joint proxy statement/prospectus and other
relevant materials (when they become available), and any other documents
filed by HP or Compaq with the SEC,
may be obtained free of charge at the SEC's Web site at www.sec.gov. In
addition, shareowners may obtain free copies of the documents filed with
the SEC by HP by contacting HP
Investor Relations, 3000 Hanover Street, Palo Alto, California 94304,
650-857-1501. Shareowners may obtain free copies of the documents filed
with the SEC by Compaq by contacting Compaq Investor Relations, P.O. Box
692000, Houston, Texas 77269-2000, 800-433-2391. Shareowners are urged
to read the joint proxy statement/prospectus and the other relevant materials
when they become available before making any voting or investment decision
with respect to the merger.
HP, Carleton S. Fiorina,
HP's chairman of the board and chief
executive officer, Robert P. Wayman, HP's
executive vice president and chief financial officer, and certain of HP's
other executive officers and directors may be deemed to be participants
in the solicitation of proxies from the shareowners of HP
and Compaq in favor of the merger. The other executive officers and directors
of HP who may be participants in
the solicitation of proxies in connection with the merger have not been
determined as of the date of this filing. A description of the interests
in HP of HP,
Ms. Fiorina, Mr. Wayman and HP's
other executive officers and directors is set forth in the proxy statement
for HP's 2001 Annual Meeting of Shareowners,
which was filed with the SEC on Jan. 25, 2001. Full participant information
may be found in HP's Form 425 filed
with the SEC on Sept. 25, 2001. Shareowners may obtain more detailed information
regarding the direct and indirect interests of Ms. Fiorina, Mr. Wayman
and HP's other executive officers
and directors in the merger by reading the joint proxy statement/prospectus
when it becomes available.