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 April 30, 1994
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
- - ------------------------------- ------------------
(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
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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 April 30, 1994
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Common Stock, $1 par value 254.6 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
April 30, 1994 and October 31, 1993 2
Consolidated Condensed Statement of Earnings
Three months and six months ended April 30, 1994
and 1993 3
Consolidated Condensed Statement of Cash Flows
Six months ended April 30, 1994 and 1993 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 6-7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 8
Signature 9
Exhibit Index 10
1
<TABLE>
Item 1. Financial Statements.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
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(Millions except par value and number of shares)
<CAPTION>
April 30 October 31
1994 1993
----------- ----------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,551 $ 889
Short-term investments 863 755
Accounts and notes receivable 4,295 4,208
Inventories:
Finished goods 2,334 2,121
Purchased parts and fabricated assemblies 1,688 1,570
Other current assets 702 693
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Total current assets 11,433 10,236
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Property, plant and equipment (less accumulated
depreciation: April 30, 1994 - $3,400;
October 31, 1993 - $3,347) 4,168 4,180
Long-term receivables and other assets 2,349 2,320
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$17,950 $16,736
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Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Notes payable and short-term borrowings $ 2,234 $ 2,190
Accounts payable and accruals 2,902 2,708
Employee compensation and benefits 1,107 1,048
Taxes on earnings 1,007 922
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Total current liabilities 7,250 6,868
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Long-term debt 661 667
Other liabilities 782 690
Shareholders' equity:
Preferred stock, $1 par value (authorized:
300,000,000 shares; issued: none)
Common stock and capital in excess of $1 par value
(authorized: 600,000,000 shares; issued and
outstanding: 254,612,000 at April 30, 1994 and
252,713,000 at October 31, 1993) 1,034 937
Retained earnings 8,223 7,574
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Total shareholders' equity 9,257 8,511
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$17,950 $16,736
======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Certain amounts have been reclassified to conform to the 1994 presentation.
2
</TABLE>
<TABLE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
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(Unaudited)
(Millions except per share amounts)
<CAPTION>
Three months ended Six months ended
April 30 April 30
------------------ ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue:
Equipment $4,858 $3,875 $ 9,231 $7,337
Services 1,396 1,221 2,705 2,332
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6,254 5,096 11,936 9,669
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Costs and expenses:
Cost of equipment sold and services 3,890 2,997 7,360 5,661
Research and development 502 431 968 830
Selling, general and administrative 1,224 1,114 2,372 2,203
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5,616 4,542 10,700 8,694
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Earnings from operations 638 554 1,236 975
Interest income and other income (expense) 6 8 9 20
Interest expense 35 28 69 60
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Earnings before taxes 609 534 1,176 935
Provision for taxes 201 187 400 327
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Net earnings $ 408 $ 347 $ 776 $ 608
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Net earnings per share $ 1.56 $ 1.38 $ 2.98 $ 2.41
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Cash dividends declared per share --- --- $ .50 $ .40
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Average shares used in computing net
earnings per share 261 253 260 252
====== ====== ======= ======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
</TABLE>
<TABLE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
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(Unaudited)
(Millions)
<CAPTION>
Six months ended
April 30
------------------
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 776 $ 608
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 466 386
Deferred taxes on earnings (83) (118)
Change in assets and liabilities:
Accounts and notes receivable (101) 12
Inventories (331) (395)
Accounts payable 25 1
Taxes on earnings 84 267
Other current assets and liabilities 264 99
Other, net 52 (3)
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1,152 857
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Cash flows from investing activities:
Investment in property, plant and equipment (550) (567)
Disposition of property, plant and equipment 189 145
Purchase of short-term investments (1,058) (667)
Maturities of short-term investments 950 593
Purchase of long-term investments (15) (16)
Other, net 39 15
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(445) (497)
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Cash flows from financing activities:
Increase in notes payable and
short-term borrowings 34 221
Issuance of long-term debt 31 39
Payment of current maturities of long-term debt (27) (116)
Issuance of common stock under employee stock plans 170 144
Repurchase of common stock (126) (75)
Dividends (127) (101)
Other, net --- (9)
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(45) 103
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Increase in cash and cash equivalents 662 463
Cash and cash equivalents at beginning of period 889 641
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Cash and cash equivalents at end of period $1,551 $1,104
====== ======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
</TABLE>
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 on normal and recurring accruals) necessary to present
fairly the financial position as of April 30, 1994 and October 31,
1993, the results of operations for the three months and six months
ended April 30, 1994 and 1993, and the cash flows for the six months
ended April 30, 1994 and 1993.
The results of operations for the three month and six month periods
ended April 30, 1994 are not necessarily indicative of the results
to be expected for the full year.
2. In fiscal 1994, 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. In previous periods, common share equivalents were not
included as their effect was considered immaterial.
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 tax credits and variations in the tax rates on foreign
income.
4. In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," the Company has classified investments as
cash equivalents if the original maturity of such investments is three
months or less.
The Company paid interest of $65 million and $57 million for the six
months ended April 30, 1994 and 1993, respectively. For the same
periods, the Company paid income taxes of $398 million and $180
million, respectively. The effect of foreign currency exchange rate
fluctuations on cash balances held in foreign currencies was not
material.
5
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (Unaudited).
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
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Net Revenue - Net revenue for the first six months of fiscal 1994 was $11.9
billion, an increase of 23 percent from the same period of fiscal 1993.
Equipment sales increased 26 percent, and service revenue grew 16 percent
over the corresponding period of fiscal 1993. International net revenue
grew 22 percent to $6.6 billion, while U.S. net revenue grew 26 percent to
$5.3 billion.
Net revenue for the second quarter ended April 30, 1994 was $6.2 billion, an
increase of 23 percent from the same period of fiscal 1993. Equipment sales
increased 25 percent, and service revenue grew 14 percent over the
corresponding period of fiscal 1993. International net revenue grew 20 percent
to $3.5 billion, while U.S. net revenue increased by 26 percent to $2.7 billion.
The second quarter growth in net revenue was principally due to strong demand
for the Company's personal computer and PC networking products, printer products
and related supplies, scanner and fax products, UNIX servers and the related
solutions integration consulting and professional services business, and test
and measurement products.
Costs and Expenses - Cost of equipment sold and services as a percentage of net
revenue was 62.2 percent for the second quarter and 61.7 percent for the first
half of fiscal 1994, compared to 58.8 percent for the second quarter and 58.5
percent for the first half of fiscal 1993. These increases over fiscal 1993
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 growth in the proportion of sales made through indirect channels. The
Company believes that competitive pricing pressures and the shift in revenue
mix as well as smaller shifts in distribution channels are likely to continue
to put upward pressure on cost of sales.
Operating expenses as a percentage of net revenue was 27.6 percent for the
second quarter and 27.9 percent for the first half of fiscal 1994, compared to
30.3 percent of net revenue for the second quarter and 31.4 percent for the
first half of fiscal 1993. These decreases reflect ongoing efforts to adjust
expense structures and the effects of the change in the mix of products sold,
as mentioned above. Operating expenses increased 12 percent for the second
quarter and 10 percent for the first half of 1994 over the corresponding
year-ago periods. These increases resulted primarily from increased investment
in research and development, which reflects the Company's belief that success
in a global marketplace requires a continuing flow of innovative, high-quality
products, and from marketing activities related to the introduction of new
products.
Provision for Taxes - The provision for taxes as a percentage of earnings
before taxes was 33 percent for the second quarter and 34 percent for the first
half of fiscal 1994, compared to 35 percent for both the second quarter and the
first half of fiscal 1993. The rate was reduced in the second quarter bringing
the percentage to 34 percent for the year-to-date, down from 35 percent for the
first quarter of fiscal 1994. A combination of factors led to this adjustment,
including increased levels of profitability in jurisdictions with lower tax
rates and more favorable resolution of certain issues relating to U.S. tax
returns filed in previous years.
Net Earnings - Net earnings for the second quarter of fiscal 1994 were $408
million, or $1.56 per share on an average of 261 million shares, compared
to net earnings of $347 million, or $1.38 per share on an average of 253
million shares for the second quarter of fiscal 1993. For the six months
6
ended April 30, 1994, net earnings were $776 million, or $2.98 per share
on an average of 260 million shares, compared to net earnings of $608
million, or $2.41 per share on an average of 252 million shares for the
first half of fiscal 1993. Beginning in fiscal 1994, 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. In previous periods, common share equivalents were not included
as their effect was considered immaterial. The inclusion of these equivalents
in fiscal 1994 reduced earnings per share for the three months and six months
ended April 30, 1994 by 4 cents and 8 cents, respectively.
FINANCIAL CONDITION
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Liquidity and Capital Resources - The Company's financial position remains
strong, with cash and cash equivalents and short-term investments of $2.4
billion at April 30, 1994. Cash flows from operations were $1.2 billion
during the first six months of fiscal 1994 compared to $857 million for
the corresponding period of fiscal 1993. The increase in cash flows from
operations for fiscal 1994 was primarily attributable to higher net earnings,
lower inventory growth and changes in miscellaneous other current assets and
liabilities. These factors were partially offset by increases in accounts
and notes receivable and taxes paid. While the Company experienced slower
inventory growth for the first six months of fiscal 1994, inventory
management remains an area of focus.
Capital expenditures for the first six months of fiscal 1994 were $552 million,
compared to $567 million for the corresponding period in the previous year.
The changes in investment and borrowing activities during the first six months
of fiscal 1994, when compared to the same period in 1993, 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
six months ended April 30, 1994, the Company purchased and retired
approximately 1.6 million shares for an aggregate price of $126 million.
During the six months ended April 30, 1993, the Company repurchased and
retired 1.0 million shares for an aggregate price of $75 million.
7
PART II. OTHER INFORMATION
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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 six months
ended April 30, 1994.
8
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SIGNATURE
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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: June 14, 1994 By: /s/ Robert P. Wayman
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Robert P. Wayman
Executive Vice President
Finance and Administration
(Chief Financial Officer)
9
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
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Exhibits:
1. Not applicable.
2. None.
3. Not applicable.
4. None.
5-10. Not applicable.
11. None.
12-14. Not applicable.
15. None.
16-17. Not applicable.
18-20. None.
21-22. Not applicable.
23-25. None.
26-27. Not applicable.
28. None.
29. Not applicable.
10
