SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
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| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended January 31, 1996
OR
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| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ___________ to __________
Commission file number: 1-4423
HEWLETT-PACKARD COMPANY
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(Exact name of registrant as specified in its charter)
California 94-1081436
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3000 Hanover Street, Palo Alto, California 94304
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 857-1501
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(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 January 31, 1996
-------------------------- -------------------------------
Common Stock, $1 par value 509.9 million shares
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
INDEX
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Page No.
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Part I. Financial Information
Item 1. Financial Statements.
Consolidated Condensed Balance Sheet
January 31, 1996 (Unaudited)
and October 31, 1995 2
Consolidated Condensed Statement of Earnings
(Unaudited) Three months ended January 31,
1996 and 1995 3
Consolidated Condensed Statement of Cash Flows
(Unaudited) Three months ended January 31,
1996 and 1995 4
Notes to Consolidated Condensed Financial
Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition, Results of Operations and Factors That
May Affect Future Results (Unaudited). 6-8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders. 9
Item 6. Exhibits and Reports on Form 8-K. 9
Signature 10
Exhibit Index 11
Item 1. Financial Statements.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
------------------------------------
(Millions except par value and number of shares)
January 31 October 31
1996 1995
---------- ----------
(Unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 2,458 $ 1,973
Short-term investments 838 643
Accounts and notes receivable 6,479 6,735
Inventories:
Finished goods 3,871 3,368
Purchased parts and fabricated assemblies 2,917 2,645
Other current assets 933 875
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Total current assets 17,496 16,239
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Property, plant and equipment (less accumulated
depreciation: January 31, 1996 - $4,232;
October 31, 1995 - $4,036) 4,791 4,711
Long-term investments and other assets 3,466 3,477
------ ------
25,753 24,427
====== ======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Notes payable and short-term borrowings $ 3,437 $ 3,214
Accounts payable 2,160 2,422
Employee compensation and benefits 1,468 1,568
Taxes on earnings 1,671 1,494
Deferred revenues 925 782
Other accrued liabilities 1,763 1,464
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Total current liabilities 11,424 10,944
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Long-term debt 1,094 663
Other liabilities 993 981
Shareholders' equity:
Preferred stock, $1 par value
(300,000,000 shares authorized; none
issued)
Common stock and capital in excess of
$1 par value (1,200,000,000 shares
authorized; 509,932,000 and 509,955,000
shares issued and outstanding at January
31, 1996 and October 31,1995,
respectively) 850 871
Retained earnings 11,392 10,968
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Total shareholders' equity 12,242 11,839
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$25,753 $24,427
======= =======
The accompanying notes are an integral part of these consolidated
condensed financial statements.
2
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
--------------------------------------------
(Unaudited)
(Millions except per share amounts)
Three months ended
January 31
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1996 1995
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Net revenue:
Products $8,040 $6,285
Services 1,248 1,019
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9,288 7,304
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Costs and expenses:
Cost of products sold and services 5,988 4,547
Research and development 612 535
Selling, general and administrative 1,493 1,290
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8,093 6,372
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Earnings from operations 1,195 932
Interest income and other, net 37 33
Interest expense 70 46
------ ------
Earnings before taxes 1,162 919
Provision for taxes 372 317
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Net earnings $ 790 $ 602
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Net earnings per share* $ 1.50 $ 1.15
====== ======
Cash dividends declared per share* $ .40 $ .30
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Average shares and equivalents used
in computing net earnings per share* 526 524
====== ======
The accompanying notes are an integral part of these consolidated
condensed financial statements.
* 1995 amounts have been restated to reflect the retroactive effect of
the March 1995 2-for-1 stock split. See Note 5 for a discussion of the
stock split.
3
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
----------------------------------------------
(Unaudited)
(Millions)
Three months ended
January 31
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1996 1995
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Cash flows from operating activities:
Net earnings $ 790 $ 602
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 289 273
Deferred taxes on earnings (55) (88)
Changes in assets and liabilities:
Accounts and notes receivable 263 24
Inventories (743) (128)
Accounts payable (270) 4
Taxes on earnings 198 98
Other current assets and liabilities 73 150
Other, net 73 (5)
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Net cash provided by operating activities 618 930
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Cash flows from investing activities:
Investment in property, plant and equipment (429) (386)
Disposition of property, plant and equipment 138 118
Purchase of short-term investments (1,959) (671)
Maturities of short-term investments 1,824 621
Other, net (6) ---
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Net cash used in investing activities (432) (318)
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Cash flows from financing activities:
Change in notes payable and short-term
borrowings 186 (413)
Issuance of long-term debt 441 289
Payment of current maturities of long-term debt (2) (19)
Issuance of common stock under employee
stock plans 86 93
Repurchase of common stock (309) (177)
Dividends (103) (76)
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Net cash provided by (used in)
financing activities 299 (303)
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Increase in cash and cash equivalents 485 309
Cash and cash equivalents at beginning of period 1,973 1,357
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Cash and cash equivalents at end of period $2,458 $1,666
====== ======
The accompanying notes are an integral part of these consolidated
condensed financial statements.
Certain amounts have been reclassified to conform to the 1996
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 January 31, 1996 and
October 31, 1995, and the results of operations and cash flows for
the three months ended January 31, 1996 and 1995.
The results of operations for the three months ended January 31, 1996
are not necessarily indicative of the results to be expected for the
full year.
2. Net earnings per share are computed using the 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.
3. 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.
4. The Company paid interest of $58 million and $27 million during the
three months ended January 31, 1996 and 1995, respectively. During
the same periods, the Company paid income taxes of $208 million and
$258 million, respectively. The effect of foreign currency exchange
rate fluctuations on cash balances held in foreign currencies was
not material.
5. The Company made a 2-for-1 split of its $1 par value common stock in
the form of a 100 percent distribution to shareholders of record as
of March 24, 1995. As a result of the stock split, 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 references in the consolidated condensed
statement of earnings for the period ended January 31, 1995 to number
of shares and per share amounts of the Company's common stock have
been restated.
6. In December 1995, the Company acquired all of the outstanding shares
of common stock of Convex Computer Corporation ("Convex") in exchange
for 1,528,000 shares of the Company's common stock. Convex Computer
Corporation designs, manufactures, markets and supports high
performance computers for engineering, scientific and technical
users. The merger has been accounted for using the pooling-of
-interests method, however, the accompanying consolidated condensed
financial statements have not been restated due to immateriality.
Convex's accumulated deficit and results of operations have been
included in the Company's consolidated condensed financial
statements commencing from the effective date of the merger.
7. In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("FAS 123"),
"Accounting for Stock-Based Compensation." The Company is required
to adopt FAS 123 by fiscal 1997, and upon adoption will elect to
continue to measure compensation cost for its employee stock
compensation plans using the intrinsic value-based method of
accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Pro forma disclosure of
net earnings and net earnings per share will reflect the difference
between compensation cost included in net earnings and the related
cost measured by the fair-value based method defined in FAS 123,
including tax effects, that would have been recognized in the
consolidated statement of earnings if the fair value-based method
had been used.
5
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition, Results of Operations and Factors That May
Affect Future Results (Unaudited).
RESULTS OF OPERATIONS
Net Revenue - Net revenue for the first three months of fiscal 1996 was
$9.3 billion, an increase of 27 percent from the same period of fiscal
1995. Product sales increased 28 percent and service revenue grew 22
percent over the corresponding period of fiscal 1995. Net revenue grew
33 percent to $5.5 billion internationally and 20 percent to $3.8 billion
in the U.S.
The first quarter growth in net revenue was principally due to strong
demand for the Company's printer products and related supplies, personal
computer and PC networking products, PC and UNIX servers, and professional
services and consulting.
Costs and Expenses - Cost of products sold and services as a percentage
of net revenue was 64.5 percent for the first quarter of fiscal 1996,
compared to 62.3 percent for the first quarter of fiscal 1995. This
increase over fiscal 1995 was the result of continued competitive
pricing pressures, an ongoing shift in the mix of products sold towards
lower-margin, high-volume product families, and ramp-up costs for
continued introductions of new products. These factors are likely to
continue to cause the cost of sales ratio to trend upward in the future.
Operating expenses as a percentage of net revenue were 22.6 percent for
the first quarter of fiscal 1996, compared to 24.9 percent for the first
quarter of fiscal 1995, a decrease of 2.3 percentage points. This
decrease reflects ongoing efforts to achieve expense structures appropriate
for the Company's changing business. Operating expenses increased 15
percent for the first quarter of fiscal 1996 over the corresponding
year-ago period. This increase resulted primarily from increased marketing
and selling expenses, reflecting increased advertising and commissions,
and research and development expenses, reflecting the Company's commitment
to ensuring a continuing flow of high quality products. A part of the
increase is also attributable to increased employment in selected operating
areas.
Provision for Taxes - The provision for taxes as a percentage of earnings
before taxes was 32.0 percent for the first quarter of fiscal 1996,
compared to 34.5 percent for the first quarter of fiscal 1995. The lower
tax rate resulted from changes in the geographic mix of the Company's
earnings and resolution of certain issues related to tax returns filed
in previous years.
Net Earnings - Net earnings for the first quarter of fiscal 1996 were $790
million or $1.50 per share on an average of 526 million shares, compared
to net earnings of $602 million, or $1.15 per share on an average of 524
million shares for the first quarter of fiscal 1995, as restated to
reflect the retroactive effect of the March 1995 2-for-1 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 $3.3
billion at January 31, 1996, compared with $2.6 billion at October 31,
1995. Cash flows from operating activities were $618 million during the
first three months of fiscal 1996 compared to $930 million for the
corresponding period of fiscal 1995.
Despite higher net earnings, cash generated from operations declined
compared to the prior period primarily as a result of significant growth
in inventories, partially offset by a decline in accounts and notes
receivable. Inventories grew 54% compared to the year-ago quarter
versus revenue growth of 27% for the same period.
6
The Company believes that the majority of this increase was necessary to
meet increased demand and customer delivery expectations, due in part to
increasing presence in the retail channel. Inventory management, however,
continues to be an area of focus.
Capital expenditures for the first three months of fiscal 1996 were $429
million, compared to $386 million for the corresponding period in the
previous year. The increase in capital expenditures was primarily due
to expansion of capacity for increased levels of business.
The changes in investment and borrowing activities during the
first three months of fiscal 1996, when compared to the same period in
1995, 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 three months ended January 31, 1996, the Company purchased and retired
approximately 3.7 million shares for an aggregate price of $309 million.
During the three months ended January 31, 1995, the Company repurchased
and retired approximately 3.8 million shares for an aggregate price of
$177 million.
FACTORS THAT MAY AFFECT FUTURE RESULTS
HP's future operating results may be adversely affected if the Company
is unable to continue to rapidly develop, manufacture and market
innovative products that meet customers' needs. The process of developing
new high technology products is complex and uncertain and requires
accurate anticipation of customer needs and technological trends.
After the products are developed, the Company must quickly manufacture
them in sufficient volumes at acceptable costs to meet demand.
In addition, portions of the Company's manufacturing operations are
dependent on the ability of significant suppliers to deliver completed
products, integral subassemblies and components in time to meet critical
distribution and 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 adversely affect
the Company's operating results until alternate sourcing could be
developed.
The Company continues to expand into third-party distribution channels to
accommodate changing industry practices and customer preferences. As
more of the Company's products are distributed through resellers, these
resellers become more important to the Company's success. Some of these
companies are thinly capitalized and may be unable to withstand changes in
business conditions. The Company's financial results could be adversely
affected if the financial condition of these resellers substantially
weakens.
The operations of the Company involve the use of substances regulated
under various federal, state and international laws governing the
environment. It is the Company's policy to apply strict standards for
environmental protection to sites inside and outside the U.S., even if
not subject to regulations imposed by local governments. The liability
for environmental remediation and related costs is accrued when it is
considered probable and the costs can be estimated. Environmental costs
are presently not material to the Company's operations or financial
position.
7
A portion of the Company's research and development activities, its
corporate headquarters and other critical business operations are located
near major earthquake faults. The ultimate impact on the Company,
significant suppliers and the general infrastructure is unknown, but
operating results could be materially affected in the event of a major
earthquake. The Company is predominantly self-insured for losses and
interruptions caused by earthquakes.
Although the Company believes that it has the product offerings and
resources needed for continuing success, future revenue and margin trends
cannot be reliably predicted and may cause the Company to adjust its
operations. Factors external to the Company can result in volatility
of the Company's common stock price. Because of the foregoing factors,
recent trends should not be considered reliable indicators of future
stock prices or financial results.
8
PART II. OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company's Annual Meeting of Shareholders was held on
February 27, 1996.
(b) At said Annual Meeting, shareholders voted on two matters:
the election of directors and the appointment of Price
Waterhouse LLP as the Company's independent accountants.
The shareholders elected all members of the management
slate in an uncontested election and approved the
appointment of independent accountants, by the following
votes, respectively.
Directors
--------- Votes Withheld/
Director Votes For Abstentions
-------- --------- ---------------
Thomas E. Everhart 416,604,382 1,017,777
John B. Fery 416,549,193 1,072,966
Jean-Paul G. Gimon 416,608,421 1,013,738
Sam Ginn 416,582,504 1,039,655
Richard A. Hackborn 416,619,862 1,002,297
Walter B. Hewlett 416,608,767 1,013,392
George A. Keyworth II 416,607,509 1,014,650
David M. Lawrence, M.D. 416,545,752 1,076,407
Paul F. Miller, Jr. 416,608,977 1,013,182
Susan P. Orr 416,597,382 1,024,777
David W. Packard 416,600,506 1,021,653
Donald E. Petersen 416,597,498 1,024,661
Lewis E. Platt 416,624,124 998,035
Robert P. Wayman 416,599,350 1,022,809
Accountants
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Votes Withheld/
Votes for Votes Against Abstentions
--------- ------------- --------------
416,718,437 409,171 494,551
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 11 of this report.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the
three months ended January 31, 1996.
9
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: March 14, 1996 By: ROBERT P. WAYMAN
-------------------------
Robert P. Wayman
Executive Vice President,
Finance and Administration
(Chief Financial Officer)
10
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
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Exhibits:
1. Not applicable.
2. None.
3. Amended Bylaws.
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.