EXHIBIT 99.1
Hewlett-Packard Company
- ---- 3000 Hanover Street
NEWS [HP INVENT LOGO] Mail Stop 1048
- ---- Palo Alto, CA 94304
www.hp.com
Editorial Contacts: HP REPORTS SECOND QUARTER RESULTS PR051402GP67
Dave Berman, HP o Revenue Declines 7% Sequentially
+1 650 857 7277 o Pro Forma Gross Margin Increases 1.8 PPT
dave_berman@hp.com Sequentially
o Pro Forma EPS of $0.25
o Cash from Operations of $2.1 Billion
Rebeca Robboy, HP
+1 650 857 2064
rebeca_robboy@hp.com
PALO ALTO, Calif., May 14, 2002--HP (NYSE:HPQ) today reported its financial
results for its second fiscal quarter ended April 30, 2002, the company's last
pre-merger earnings report.
The company reported second quarter revenue of $10.6 billion compared to $11.4
billion in its first fiscal quarter. Sequentially, pro forma revenue declined
7%, while gross margin increased from 26.9% to 28.7%. The company generated cash
from operations of $2.1 billion for the quarter. Pro forma operating expenses
were essentially flat on a sequential basis and were 22.2% of net revenue.
Pro forma earnings per share (EPS) for the quarter was 25 cents, in line with
current consensus analyst estimates, compared to 29 cents in the first quarter
and 17 cents in the year-ago period, excluding acquisition-related charges,
in-process research and development charges, amortization of goodwill and
purchased intangibles, restructuring charges and investment losses.
Including these items, reported GAAP EPS before an extraordinary item was 12
cents per diluted share, compared to 25 cents last quarter and 2 cents in the
year-ago quarter.
May 14, 2002
Page 2
U.S. revenue for the second quarter was down 11% sequentially and 16%
year-over-year. Revenue from outside the U.S. was down 4% both sequentially and
year-over-year. In Europe, revenue was down 6% sequentially, but up 2%
year-over-year, the only region of the world to show year-over-year improvement.
Asia Pacific was down 2% sequentially and down 13% year-over-year. Latin America
was up 3% sequentially and down 12% year-over-year.
"We stayed focused and executed well during a difficult quarter," said Carly
Fiorina, HP chairman and chief executive officer. "The IT spending environment
remains tough around the world. On top of this, in the final weeks of the
quarter, 400 senior managers were named to their assignments in the new HP, and
we were involved in a highly visible lawsuit. While there was real potential for
distraction, HP delivered.
"Weakness in our computing systems business, embedded and personal systems
business and our consulting services business persisted in the second quarter,
but was offset by solid performance in our imaging and printing and IT
outsourcing and support businesses.
"Despite the tough enterprise spending environment, during the quarter HP held
its own relative to our competitors in key segments of the enterprise market,
including UNIX servers, storage and printing. While revenues in our consumer
business were down slightly, operating profit for the business was strong with
all regions of the world posting profitable results.
"Continued focus on cost structure and expense management resulted in
significant gross margin improvement led by our imaging and printing business.
"Meanwhile, our ongoing efforts to aggressively manage the balance sheet are
paying off. We again reduced inventory by almost $500 million in the quarter.
Cash flow from operations was a healthy $2.1 billion for the quarter, and we
exit the period with nearly $9 billion in cash and short-term investments.
"Today, we announced HP employees will receive a Company Performance Bonus for
the first time in 18 months. Looking back at our performance during the
first-half of our fiscal year, there is a lot to be proud of. Nevertheless, we
are realistic about the hard work ahead of us," said Fiorina.
May 14, 2002
Page 3
BUSINESS SEGMENT RESULTS
IMAGING AND PRINTING SYSTEMS
Revenue in HP's imaging and printing systems segment, which includes printer
hardware, digital imaging devices and associated supplies, decreased 4%
sequentially reflecting normal seasonal patterns. Demand continued to be strong
in the second quarter for All-in-one devices (AIOs), Photosmart printers and
low-end LaserJet printers resulting in supply constraints in these product
categories.
Supplies revenue grew 5% sequentially and 10% year-over-year driven by the
continuing increase in HP's installed base and growth in ink-intensive digital
imaging solutions and applications.
Operating margin for the segment was 15.7%, compared to 14.6% last quarter and
7.4% in the second quarter of last year. The sequential operating margin
increase reflects a higher mix of supplies revenue, a favorable Yen and strong
market demand for home and digital imaging products.
EMBEDDED AND PERSONAL SYSTEMS
The embedded and personal systems segment includes commercial desktop PCs, home
PCs, notebooks and personal appliances (smart handhelds and DVD+RW drives).
While revenue in this segment declined 13% sequentially overall, sequential
commercial and consumer notebook revenue was up 17% and 10%, respectively, and
HP's consumer PC business posted another profitable quarter.
Operating margin was negative 4.9%, compared to breakeven last quarter and
negative 3.4% a year ago, reflecting tough competition, lower volumes and rising
component costs.
COMPUTING SYSTEMS
The computing systems segment includes workstations and a broad range of
Internet infrastructure systems and solutions for business, including UNIX(R)
and IA-32 based servers, storage and software solutions.
May 14, 2002
Page 4
Revenue in this segment declined 6% sequentially. Operating margin was negative
12.7%, compared to negative 8.0% last quarter and negative 5.2% a year ago,
continuing to reflect a highly competitive market and weak global demand.
During the quarter, HP gained share in UNIX servers, even as revenue was down 4%
sequentially. The company lost share in industry standard servers, where revenue
declined 13% sequentially in anticipation of changes to HP's industry standard
server product line-up going forward.
IT SERVICES
The IT services segment includes support, outsourcing and consulting services.
Revenue for the segment declined 6% sequentially.
Support revenue was down 3% sequentially. Even so, support continues to generate
its strong, historic levels of operating profit for the IT services segment.
Outsourcing revenue was flat sequentially and up 19% year-over-year, outpacing
market growth. Outsourcing continues to be the fastest growing category in IT
Services.
Consulting was down 15% sequentially and continues to be impacted by a slowdown
in IT project spending as customers focus on integrating and optimizing existing
IT investments rather than embarking on new initiatives.
Operating margin for the IT Services segment was 11.1%, compared to 13.0% for
the last quarter and 11.3% for the same period last year.
FINANCING
Revenue was down 7% sequentially, reflecting lower hardware sales and
conservative financing policies. The financing business posted a negative 2.5%
operating margin this quarter, compared to negative 2.0% last quarter and
negative 7.4% in the same period a year ago.
May 14, 2002
Page 5
ASSET MANAGEMENT
Cash generated from operations for the quarter was $2.1 billion. Inventory
declined by almost $500 million during the quarter and was 9.3% of revenue, down
from 10.1% last quarter and down from 12.3% a year ago. Trade receivables were
9.1% of revenue compared to 9.4% in the previous quarter and 10.4% a year ago.
Net property, plant and equipment was 10.0% of revenue compared to 9.9% last
quarter and 9.3% a year ago.
OUTLOOK
"While a muted recovery in the second half is still possible, we are not
counting on meaningful improvement in IT spending until 2003," said Fiorina.
Guidance for the combined company will be provided at HP's Security Analyst
Meeting on Tuesday, June 4, 2002.
More information on this quarter's earnings is available on HP's Investor
Relations site at http://www.hp.com/hpinfo/investor/quarters/quarters.html
ABOUT HP
HP is a leading global provider of products, technologies, solutions and
services to consumers and businesses. The company's offerings span IT
infrastructure, personal computing and access devices, global services and
imaging and printing. HP merged with Compaq Computer Corp. on May 3, 2002. The
merged company had combined revenue of approximately $81.7 billion in fiscal
2001 and operations in more than 160 countries. More information about HP is
available at http://www.hp.com.
May 14, 2002
Page 6
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(Unaudited)
(In millions except per share amounts)
Three months ended
April 30, Percent
------------------- increase/
2002 2001(a) (decrease)
------ ------- ----------
Net revenue $ 10,621 $ 11,668 (9)
Cost of sales 7,583 8,738
-------- --------
Gross margin 3,038 2,930
Operating expenses:
Research and development 742 706
Selling, general and administrative 1,864 1,881
Restructuring charges 18 -
-------- --------
Total operating expenses 2,624 2,587 1
-------- --------
Earnings from operations 414 343 21
Interest and other, net (45) 39
Net investment losses 16 -
Litigation settlement - 400
-------- --------
Earnings before extraordinary item and taxes 353 (18) NM
Provision (benefit) for taxes 115 (53)
-------- --------
Net earnings before extraordinary item 238 35 580
Extraordinary item - gain on early
extinguishment of debt, net of taxes 14 12
-------- --------
Net earnings $ 252 $ 47 436
======== ========
Basic net earnings per share:
Net earnings before extraordinary item $ 0.12 $ 0.02
Extraordinary item - gain on early
extinguishment of debt, net of taxes 0.01 -
-------- --------
Net earnings $ 0.13 $ 0.02
======== ========
Diluted net earnings per share:(b)
Net earnings before extraordinary item $ 0.12 $ 0.02
Extraordinary item - gain on early
extinguishment of debt, net of taxes 0.01 -
-------- --------
Net earnings $ 0.13 $ 0.02
======== ========
Cash dividends declared per share $ - $ -
Weighted-average shares used to compute net
earnings per share:
Basic 1,955 1,935
Diluted(b) 1,973 1,987
NM - Not meaningful
(a) Certain reclassifications have been made to prior year balances in
order to conform to the current year presentation.
(b) The calculation of diluted net earnings per share includes additional
dilution from potential issuance of common stock, such as stock
issuable pursuant to the exercise of stock options and the conversion
of debt.
May 14, 2002
Page 7
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(Unaudited)
(In millions except per share amounts)
Six months ended
April 30, Percent
------------------- increase/
2002 2001(a) (decrease)
------ ------- ----------
Net revenue $ 22,004 $ 24,066 (9)
Cost of sales 15,913 17,797
-------- --------
Gross margin 6,091 6,269
Operating expenses:
Research and development 1,420 1,410
Selling, general and administrative 3,614 3,644
Restructuring charges 18 102
-------- --------
Total operating expenses 5,052 5,156 (2)
-------- --------
Earnings from operations 1,039 1,113 (7)
Interest and other, net (35) 136
Net investment losses 16 365
Litigation settlement - 400
-------- --------
Earnings before extraordinary item,
cumulative effect of change in
accounting principle and taxes 988 484 104
Provision for taxes 272 59
-------- --------
Net earnings before extraordinary item and
cumulative effect of change in
accounting principle 716 425 68
Extraordinary item - gain on early
extinguishment of debt, net of taxes 20 35
Cumulative effect of change in accounting
principle, net of taxes(b) - (272)
-------- --------
Net earnings $ 736 $ 188 291
======== ========
Basic net earnings per share:
Net earnings before extraordinary item
and cumulative effect of change in
accounting principle $ 0.37 $ 0.22
Extraordinary item - gain on early
extinguishment of debt, net of taxes 0.01 0.02
Cumulative effect of change in accounting
principle, net of taxes(b) - (0.14)
-------- --------
Net earnings $ 0.38 $ 0.10
======== ========
Diluted net earnings per share:(c)
Net earnings before extraordinary item
and cumulative effect of change in
accounting principle $ 0.37 $ 0.22
Extraordinary item - gain on early
extinguishment of debt, net of taxes 0.01 0.02
Cumulative effect of change in accounting
principle, net of taxes(b) - (0.14)
-------- --------
Net earnings $ 0.38 $ 0.10
======== ========
Cash dividends declared per share $ 0.16 $ 0.16
May 14, 2002
Page 8
Weighted-average shares used to compute net
earnings per share:
Basic 1,948 1,934
Diluted(c) 1,968 1,996
(a) Certain reclassifications have been made to prior year balances in
order to conform to the current year presentation.
(b) HP adopted Securities and Exchange Commission Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements" in the fourth quarter of fiscal 2001, retroactive to
November 1, 2000.
(c) The calculation of diluted net earnings per share includes additional
dilution from potential issuance of common stock, such as stock
issuable pursuant to the exercise of stock options and the conversion
of debt.
May 14, 2002
Page 9
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
Excluding adjustments itemized below
(Unaudited)
(In millions except per share amounts)
Three months ended
April 30, Percent
------------------- increase/
2002 2001 (decrease)
------ ------ ----------
Net revenue $ 10,621 $ 11,668 (9)
Cost of sales 7,575 8,738
-------- --------
Gross margin 3,046 2,930
Operating expenses:
Research and development 683 704
Selling, general and administrative 1,679 1,834
-------- --------
Total operating expenses 2,362 2,538 (7)
-------- --------
Earnings from operations 684 392
Interest and other, net (45) 39
-------- --------
Earnings before extraordinary item
and taxes 639 431 48
Provision for taxes 141 95
-------- --------
Net earnings before extraordinary item $ 498 $ 336 48
======== ========
Net earnings per share before extraordinary
item:
Basic $ 0.25 $ 0.17
Diluted $ 0.25 $ 0.17
Weighted-average shares used to compute net
earnings per share:
Basic 1,955 1,935
Diluted 1,973 1,987
The pro forma amounts above have been adjusted
to exclude the following items:
Cost of sales:
Amortization of purchased intangible assets $ 8 $ -
Operating expenses:
Amortization of goodwill and purchased
intangible assets 45 49
Acquisition-related charges 140 -
In-process research and development charges 59 -
Restructuring charges 18 -
-------- --------
Total adjustments to operating expenses 262 49
Net investment losses 16 -
Litigation settlement - 400
Income tax effect (26) (148)
-------- --------
Total pro forma adjustments $ 260 $ 301
======== ========
May 14, 2002
Page 10
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
Excluding adjustments itemized below
(Unaudited)
(In millions except per share amounts)
Six months ended
April 30, Percent
------------------- increase/
2002 2001 (decrease)
------ ------ ----------
Net revenue $ 22,004 $ 24,066 (9)
Cost of sales 15,900 17,797
-------- --------
Gross margin 6,104 6,269
Operating expenses:
Research and development 1,361 1,389
Selling, general and administrative 3,346 3,546
-------- --------
Total operating expenses 4,707 4,935 (5)
-------- --------
Earnings from operations 1,397 1,334 5
Interest and other, net (35) 136
-------- --------
Earnings before extraordinary item, cumulative
effect of change in accounting principle
and taxes 1,362 1,470 (7)
Provision for taxes 300 322
-------- --------
Net earnings before extraordinary item and
cumulative effect of change in accounting
principle $ 1,062 $ 1,148 (7)
======== ========
Net earnings per share before extraordinary
item and cumulative effect of change
in accounting principle:
Basic $ 0.55 $ 0.59
Diluted $ 0.54 $ 0.58
Weighted-average shares used to compute net
earnings per share:
Basic 1,948 1,934
Diluted 1,968 1,996
The pro forma amounts above have been
adjusted to exclude the following items:
Cost of sales:
Amortization of purchased intangible assets $ 13 $ -
Operating expenses:
Amortization of goodwill and purchased
intangible assets 90 75
Acquisition-related charges 178 25
In-process research and development charges 59 19
Restructuring charges 18 102
-------- --------
Total adjustments to operating expenses 345 221
Net investment losses 16 365
Litigation settlement - 400
Income tax effect (28) (263)
-------- --------
Total pro forma adjustments $ 346 $ 723
======== ========
May 14, 2002
Page 11
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In millions)
April 30, October 31,
2002 2001
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,741 $ 4,197
Short-term investments 147 139
Accounts receivable, net 3,936 4,488
Financing receivables, net 2,216 2,183
Inventory 4,017 5,204
Other current assets 4,798 5,094
-------- --------
Total current assets 23,855 21,305
Property, plant and equipment, net 4,305 4,397
Long-term investments and other assets 6,120 6,882
-------- --------
Total assets $ 34,280 $ 32,584
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings $ 1,618 $ 1,722
Accounts payable 3,584 3,791
Employee compensation and benefits 1,665 1,477
Taxes on earnings 1,688 1,818
Deferred revenues 1,943 1,867
Other accrued liabilities 3,334 3,289
-------- --------
Total current liabilities 13,832 13,964
Long-term debt 4,442 3,729
Other liabilities 1,045 938
Stockholders' equity 14,961 13,953
-------- --------
Total liabilities and stockholders' equity $ 34,280 $ 32,584
======== ========
May 14, 2002
Page 12
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Net revenue (which includes intersegment revenue) and earnings from operations
for each segment are provided in the tables below:
Three months ended
April 30, Percent
------------------- increase/
2002 2001(a) (decrease)
------ ------ ----------
Net revenue:
Imaging and Printing Systems $ 4,898 $ 4,938 (1)
Embedded and Personal Systems 2,150 2,537 (15)
Computing Systems 1,885 2,361 (20)
IT Services 1,472 1,541 (4)
Financing 318 365 (13)
Other (b) - 88 NM
-------- --------
Total Segments 10,723 11,830
-------- --------
Eliminations / Other (102) (162)
Total HP Consolidated $ 10,621 $ 11,668 (9)
======== ========
Earnings from operations:
Imaging and Printing Systems $ 768 $ 365 110
Embedded and Personal Systems (106) (85) (25)
Computing Systems (240) (122) (97)
IT Services 163 174 (6)
Financing (8) (27) 70
Other (b) - (13) NM
-------- --------
Total Segments 577 292
-------- --------
Eliminations / Other (163) 51
Total HP Consolidated $ 414 $ 343 21
======== ========
NM - Not meaningful
(a) Certain reclassifications have been made to prior year balances to
conform to the current year presentation.
(b) Other consisted of the results of VeriFone prior to its divestiture in
the third quarter of fiscal 2001.
May 14, 2002
Page 13
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Net revenue (which includes intersegment revenue) and earnings from operations
for each segment are provided in the tables below:
Six months ended
April 30, Percent
------------------- increase/
2002 2001(a) (decrease)
------ ------ ----------
Net revenue:
Imaging and Printing Systems $ 9,994 $ 10,123 (1)
Embedded and Personal Systems 4,616 5,368 (14)
Computing Systems 3,884 4,902 (21)
IT Services 3,030 3,067 (1)
Financing 660 728 (9)
Other (b) - 176 NM
-------- --------
Total Segments 22,184 24,364
-------- --------
Eliminations / Other (180) (298)
Total HP Consolidated $ 22,004 $ 24,066 (9)
======== ========
Earnings from operations:
Imaging and Printing Systems $ 1,510 $ 1,036 46
Embedded and Personal Systems (110) (151) 27
Computing Systems (400) (64) (525)
IT Services 366 329 11
Financing (15) (44) 66
Other (b) - (41) NM
-------- --------
Total Segments 1,351 1,065
-------- --------
Eliminations / Other (312) 48
Total HP Consolidated $ 1,039 $ 1,113 (7)
======== ========
NM - Not meaningful
(a) Certain reclassifications have been made to prior year balances to
conform to the current year presentation.
(b) Other consisted of the results of VeriFone prior to its divestiture in
the third quarter of fiscal 2001.
# # #
FORWARD-LOOKING STATEMENTS
This document 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. Further, these forward-looking statements do not constitute new or
amended overall financial guidance for HP, and any anticipated aggregate
contract values referred to in this document do not independently provide a
basis for determining the future timing or amount of revenue, gross margins or
earnings. Application of assumptions to management and analyst estimates are for
illustration only and do not provide guidance.
All statements other than statements of historical fact are statements that
could be deemed forward-looking statements, including any projections of
earnings, revenues (including where the
May 14, 2002
Page 14
underlying contract has already been signed), or other financial items; any
statements of the plans, strategies, and objectives of management for future
operations; any statements concerning proposed new products, services, or
developments; 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 performance of contracts by customers and partners; employee management
issues; 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; and other risks that are described from time to time in
HP's Securities and Exchange Commission reports, including but not limited to
HP's annual report on Form 10-K, as amended on January 30, 2002, for the fiscal
year ended October 31, 2001, HP's quarterly report on Form 10-Q for the quarter
ended January 31, 2002 (as filed with the SEC on March 12, 2002) and
subsequently filed reports.
HP assumes no obligation and does not intend to update these forward-looking
statements.