SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
___
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended July 31, 1995
OR
___
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ___________ to __________
Commission file number: 1-4423
HEWLETT-PACKARD COMPANY
----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-1081436
------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3000 Hanover Street, Palo Alto, California 94304
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 857-1501
--------------
______________________________________________________
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at July 31, 1995
------------------- -------------------------------
Common Stock, $1 par value 511.8 million shares
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
INDEX
-----
Page No.
________
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet
July 31, 1995 and October 31, 1994 2
Consolidated Condensed Statement of Earnings
Three months and nine months ended July 31, 1995 and 1994 3
Consolidated Condensed Statement of Cash Flows
Nine months ended July 31, 1995 and 1994 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Results of
Operations, Financial Condition and Factors
That May Affect Future Results 6-7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 8
Signature 9
Exhibit Index 10
1
Item 1. Financial Statements.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
------------------------------------
(Millions except par value and number of shares)
July 31 October 31
1995 1994
---------- ----------
Assets (Unaudited)
------
Current assets:
Cash and cash equivalents $ 2,079 $ 1,357
Short-term investments 746 1,121
Accounts and notes receivable 5,698 5,028
Inventories:
Finished goods 3,108 2,466
Purchased parts and
fabricated assemblies 2,380 1,807
Other current assets 861 730
------- -------
Total current assets 14,872 12,509
------- -------
Property, plant and equipment (less accumulated
depreciation: July 31, 1995 - $3,944;
October 31, 1994 - $3,610) 4,495 4,328
Long-term receivables and other assets 3,259 2,730
------- -------
$22,626 $19,567
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Notes payable and short-term
borrowings $ 2,735 $ 2,469
Accounts payable 1,941 1,466
Employee compensation and benefits 1,329 1,256
Taxes on earnings 1,389 1,245
Deferred revenues 791 598
Other accrued liabilities 1,493 1,196
------- -------
Total current liabilities 9,678 8,230
------- -------
Long-term debt 665 547
Other liabilities 980 864
Shareholders' equity:
Preferred stock, $1 par value;
300,000,000 shares authorized;
none issued and outstanding
Common stock and capital in excess,
$1 par value; 1,200,000,000 shares
authorized; 511,838,000 and
254,827,000 shares issued and
outstanding at July 31, 1995 and
October 31, 1994, respectively* 1,013 1,033
Retained earnings 10,290 8,893
------- -------
Total shareholders' equity 11,303 9,926
------- -------
$22,626 $19,567
======= =======
The accompanying notes are an integral part of these consolidated
condensed financial statements.
* See Note 6 for a discussion of the March 1995 2-for-1 stock split.
2
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
--------------------------------------------
(Unaudited)
(Millions except per share amounts)
Three months ended Nine months ended
July 31 July 31
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
Net revenue:
Products $6,606 $5,139 $19,230 $15,383
Services 1,133 914 3,241 2,606
------ ------ ------- -------
7,739 6,053 22,471 17,989
------ ------ ------- -------
Costs and expenses:
Cost of products sold and
services 4,907 3,774 14,108 11,134
Research and development 587 517 1,678 1,485
Selling, general and
administrative 1,421 1,219 4,054 3,591
------ ------ ------- -------
6,915 5,510 19,840 16,210
------ ------ ------- -------
Earnings from operations 824 543 2,631 1,779
Interest income and other, net 96 24 155 33
Interest expense 53 41 146 110
------ ------ ------- -------
Earnings before taxes 867 526 2,640 1,702
Provision for taxes 291 179 885 579
------ ------ ------- -------
Net earnings $ 576 $ 347 $ 1,755 $ 1,123
====== ====== ======= =======
Net earnings per share * $ 1.09 $ .66 $ 3.34 $ 2.15
====== ====== ======= =======
Cash dividends declared
per share * $ .20 $ .30 $ .70 $ .55
====== ====== ======= =======
Average shares and equivalents
used in computing net earnings
per share * 527 522 526 520
====== ====== ======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Certain amounts have been reclassified to conform to the 1995 presentation.
* 1994 amounts have been restated to reflect the retroactive effect of the
March 1995 2-for-1 stock split. See Note 6 for a discussion of the stock
split.
3
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
----------------------------------------------
(Unaudited)
(Millions)
Nine months ended
July 31
-----------------
1995 1994
---- ----
Cash flows from operating activities:
Net earnings $1,755 $1,123
Adjustments to reconcile net earnings to cash
provided by (used for) operating activities:
Depreciation and amortization 822 724
Deferred taxes on earnings (99) (42)
Change in assets and liabilities:
Accounts and notes receivable (643) (288)
Inventories (1,215) (610)
Accounts payable 475 49
Taxes on earnings 97 123
Deferred revenues 193 130
Other current assets and liabilities 181 118
Other, net (125) 88
------ ------
1,441 1,415
------ ------
Cash flows from investing activities:
Investment in property, plant and equipment (1,050) (817)
Disposition of property, plant and equipment 218 224
Purchases of short-term investments (2,293) (1,785)
Maturities of short-term investments 2,668 1,681
Purchases of long-term investments (206) (87)
Other, net (58) 40
------ ------
(721) (744)
------ ------
Cash flows from financing activities:
Change in notes payable and
short-term borrowings 244 347
Issuance of long-term debt 406 43
Payment of current maturities of long-term debt (266) (128)
Issuance of common stock under employee stock plans 258 217
Repurchase of common stock (384) (219)
Dividends (256) (204)
------ ------
2 56
------ ------
Increase in cash and cash equivalents 722 727
Cash and cash equivalents at beginning of period 1,357 889
------ ------
Cash and cash equivalents at end of period $2,079 $1,616
====== ======
The accompanying notes are an integral part of these consolidated
condensed financial statements.
Certain amounts have been reclassified to conform to the 1995
presentation.
4
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. In the opinion of the Company's management, the accompanying
consolidated condensed financial statements contain all
adjustments (which comprise only normal and recurring accruals)
necessary to present fairly the financial position as of July 31,
1995 and October 31, 1994, the results of operations for the three
months and nine months ended July 31, 1995 and 1994, and the cash
flows for the nine months ended July 31, 1995 and 1994.
The results of operations for the three months and nine months
ended July 31, 1995 are not necessarily indicative of the
results to be expected for the full year.
2. In fiscal 1995, sales of consumable supplies, consisting primarily
of supplies for the Company's printer products, are reported in
the consolidated condensed statement of earnings as product
revenue. In previous years, consumable supplies were reported as
service revenue. Prior year amounts have been reclassified to
reflect this change, which did not affect total revenue, earnings
from operations or net earnings.
3. The Company paid interest of $132 million and $97 million during
the nine months ended July 31, 1995 and 1994, respectively.
During the same periods, the Company paid income taxes of $839
million and $495 million, respectively. The effect of foreign
currency exchange rate fluctuations on cash balances held in
foreign currencies was not material.
4. Income tax provisions for interim periods are based on estimated
effective annual income tax rates. The effective income tax rate
varies from the U.S. federal statutory income tax rate primarily
because of variations in the tax rates on foreign income.
5. Net earnings per share are computed based on a method which
approximates the use of a weighted-average number of common shares
and common share equivalents outstanding during each period.
Common share equivalents represent the dilutive effect of
outstanding stock options.
6. On February 15, 1995, the Company's Board of Directors approved
a 2-for-1 stock split of the Company's $1 par value common stock
in the form of a 100% distribution to shareholders of record as of
March 24, 1995. As a result of the stock split, fiscal 1995
authorized, outstanding, and reserved common shares doubled and capital
in excess of par value was reduced by the par value of the
additional common shares issued. The rights of the holders of
these securities were not otherwise modified. All per share
amounts have been restated to reflect the retroactive effect
of the stock split.
7. On November 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 ("FAS 115"), Accounting for Certain
Investments in Debt and Equity Securities. FAS 115 requires
certain investments in debt and equity securities be classified
into one of three categories: held-to-maturity,
available-for-sale, or trading. The Company's investments are
primarily comprised of debt securities which are held-to-maturity.
Adoption of this statement did not have a material effect on the
Company's financial position or results of operations.
5
Item 2. Management's Discussion and Analysis of Results of Operations,
Financial Condition and Factors That May Affect Future Results
(Unaudited).
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
---------------------
Net Revenue - Net revenue for the third quarter ended July 31, 1995 was
$7.7 billion, an increase of 28 percent from the same period of fiscal
1994. Product sales increased 29 percent and service revenue grew 24
percent over the corresponding period of fiscal 1994. Net revenue grew
34 percent to $4.3 billion internationally and 21 percent to $3.4
billion in the U.S.
The third quarter growth in net revenue was principally due to strong
demand for the Company's printer products, personal computer and PC
networking products, servers and the related consulting and software
business, and test and measurement products.
Net revenue for the first nine months of fiscal 1995 was $22.5 billion,
an increase of 25 percent from the same period of fiscal 1994. Product
sales increased 25 percent and service revenue grew 24 percent over the
corresponding period of fiscal 1994. Net revenue grew 30 percent to
$12.8 billion internationally and 19 percent to $9.7 billion in the U.S.
In fiscal 1995, sales of consumable supplies, consisting primarily of
supplies for the Company's printer products, are reported in the
consolidated condensed statement of earnings as product revenue. In
previous years, consumable supplies were reported as service revenue.
Prior year amounts have been reclassified to reflect this change, which
did not affect total revenue, earnings from operations or net earnings.
Costs and Expenses - Cost of products sold and services as a percentage
of net revenue was 63.4 percent for the third quarter and 62.8 percent
for the first nine months of fiscal 1995, compared to 62.3 percent for
the third quarter and 61.9 percent for the first nine months of fiscal
1994. These increases over fiscal 1994 were the result of continued
competitive pricing pressures, an ongoing shift in revenue mix to
products with higher cost of sales as a percentage of revenue, and the
strength of the Yen, which resulted in higher prices on components
purchased from Japanese suppliers. These factors were partially offset
by the continued strength of the higher gross margin test and
measurement and server businesses. The Company believes that
competitive pricing pressures and the shift in revenue mix are likely to
continue to put upward pressure on cost of sales.
Operating expenses as a percentage of net revenue were 26.0 percent for
the third quarter and 25.5 percent for the first nine months of fiscal
1995, compared to 28.7 percent for the third quarter and 28.2 percent
for the first nine months of fiscal 1994. These decreases from fiscal
1994 reflect ongoing efforts to achieve expense structures appropriate
for the Company's changing businesses. Operating expenses increased 16
percent for the third quarter and 13 percent for the first nine months
of fiscal 1995 over the corresponding year-ago periods. These increases
resulted primarily from increased research and development expenses and
marketing and selling expenses, which reflect the Company's belief that
success in a global marketplace requires a continuing flow of
innovative, high-quality products.
Interest Income and Other, Net - During the third quarter and first nine
months of fiscal 1995, interest income and other, net increased to $96
million and $155 million, respectively, compared to $24 million and $33
million in the corresponding periods of fiscal 1994. These increases
are largely due to gains realized on the sale of certain equity
investments, increased income from equity investments and interest
income on higher cash balances, as well as interest rate changes during
the respective periods.
6
Provision for Taxes - The provision for taxes as a percentage of
earnings before taxes was 33.5 percent for the third quarter and for the
first nine months of fiscal 1995, compared to 34 percent for both the
third quarter and first nine months of fiscal 1994.
Net Earnings - Net earnings for the third quarter of fiscal 1995 were
$576 million, or $1.09 per share on an average of 527 million shares,
compared to net earnings of $347 million, or $0.66 per share on an
average of 522 million shares for the third quarter of fiscal 1994. For
the nine months ended July 31, 1995, net earnings were $1.8 billion,
or $3.34 per share on an average of 526 million shares, compared to net
earnings of $1.1 billion, or $2.15 per share on an average of 520
million shares for the same period in fiscal 1994. The 1994 per share
amounts and average shares have been restated to reflect the retroactive
effect of the March 1995 stock split.
FINANCIAL CONDITION
-------------------
Liquidity and Capital Resources - The Company's financial position
remains strong, with cash and cash equivalents and short-term
investments of $2.8 billion at July 31, 1995, compared with $2.5 billion
at October 31, 1994. Cash flows from operating activities were $1.4
billion during the first nine months of fiscal 1995 and for the
corresponding period of fiscal 1994. Liquidity from increased net
earnings in fiscal 1995 was offset by growth in inventories. Inventory
grew 28% year over year, consistent with revenue growth experienced for
the quarter. Inventory growth was incurred to accommodate product
introductions and higher order growth, but remains an area of management
focus.
Capital expenditures for the first nine months of fiscal 1995 were
$1.1 billion, compared to $817 million for the corresponding period in
the previous year. The capital expenditures in 1995 relate mainly to
expansion of production capacity and to accommodate the introduction of
new products. The changes in investment and borrowing activities during
the first nine months of fiscal 1995, when compared to the same period
in 1994, resulted from changes in the Company's liquidity requirements
to meet short-term working capital needs.
Under the Company's ongoing stock repurchase program, shares have been
purchased periodically to meet employee stock plan requirements. During
the nine months ended July 31, 1995, the Company purchased and retired
approximately 6.8 million shares (on a post-split basis) for an
aggregate price of $384 million. During the nine months ended July 31,
1994, the Company repurchased and retired approximately 2.8 million
shares (on a pre-split basis) for an aggregate price of $219 million.
FACTORS THAT MAY AFFECT FUTURE RESULTS
---------------------------------------
The Company's operations are dependent on the ability of significant
suppliers to deliver integral sub-assemblies and components in time to
meet critical manufacturing schedules. The Company periodically
experiences constrained supply of certain component parts in some
product lines, as a result of strong demand in those product lines as
well as strong demand in the industry. Continued constraints may result
in moderated revenue growth until alternate sourcing is developed. The
Company believes that alternate suppliers or design solutions can be
arranged within a reasonable time in order to minimize material
long-term adverse impacts.
7
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
A list of exhibits is set forth in the Exhibit Index
found on page 10 of this report.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the
three months ended July 31, 1995.
8
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEWLETT-PACKARD COMPANY
(Registrant)
Dated: September 13, 1995 By: ROBERT P. WAYMAN
------------------------
Robert P. Wayman
Executive Vice President,
Finance and Administration
(Chief Financial Officer)
9
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
-------------
Exhibits:
1. Not applicable.
2. None.
3. None.
4. None.
5-9 . Not applicable.
10-11. None.
12-14. Not applicable.
15. None.
16-17. Not applicable.
18-19. None.
20-21. Not applicable.
22-24. None.
25-26. Not applicable.
27. Financial Data Schedule.
28. Not applicable.
99. None.
10