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, 1994
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, 1994
- - ------------------------------ ----------------------------
Common Stock, $1 par value 254.2 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
July 31, 1994 and October 31, 1993 2
Consolidated Condensed Statement of Earnings
Three months and nine months ended July 31, 1994 and 1993 3
Consolidated Condensed Statement of Cash Flows
Nine months ended July 31, 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
------------------------------------
(Millions except par value and number of shares)
<CAPTION>
July 31 October 31
1994 1993
---------- ----------
Assets (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,616 $ 889
Short-term investments 859 755
Accounts and notes receivable 4,471 4,208
Inventories:
Finished goods 2,570 2,121
Purchased parts and fabricated assemblies 1,731 1,570
Other current assets 662 693
------- -------
Total current assets 11,909 10,236
------- -------
Property, plant and equipment (less accumulated
depreciation: July 31, 1994 - $3,521;
October 31, 1993 - $3,347) 4,186 4,180
Long-term receivables and other assets 2,408 2,320
------- -------
$18,503 $16,736
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Notes payable and short-term borrowings $ 2,547 $ 2,190
Accounts payable 1,272 1,223
Employee compensation and benefits 1,048 1,048
Taxes on earnings 1,051 922
Deferred revenues 637 507
Other accrued liabilities 1,114 978
------- -------
Total current liabilities 7,669 6,868
------- -------
Long-term debt 572 667
Other liabilities 841 690
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: 254,229,000 at July 31, 1994 and
252,713,000 at October 31, 1993) 1,004 937
Retained earnings 8,417 7,574
------- -------
Total shareholders' equity 9,421 8,511
------- -------
$18,503 $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
--------------------------------------------
(Unaudited)
(Millions except per share amounts)
<CAPTION>
Three months ended Nine months ended
July 31 July 31
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue:
Equipment $4,656 $3,766 $13,887 $11,103
Services 1,397 1,195 4,102 3,527
------ ------ ------- -------
6,053 4,961 17,989 14,630
------ ------ ------- -------
Costs and expenses:
Cost of equipment sold and services 3,774 2,968 11,134 8,629
Research and development 517 446 1,485 1,276
Selling, general and administrative 1,219 1,120 3,591 3,323
------ ------ ------- ------
5,510 4,534 16,210 13,228
------ ------ ------- -------
Earnings from operations 543 427 1,779 1,402
Interest income and other income (expense) 24 1 33 21
Interest expense 41 31 110 91
------ ------ ------- -------
Earnings before taxes 526 397 1,702 1,332
Provision for taxes 179 126 579 453
------- ------ ------- -------
Net earnings $ 347 $ 271 $ 1,123 $ 879
======= ====== ======= =======
Net earnings per share $ 1.33 $ 1.06 $ 4.31 $ 3.47
======= ====== ======= =======
Cash dividends declared per share $ .60 $ .50 $ 1.10 $ .90
====== ====== ======= =======
Average Shares used in computing net
earnings per share 261 254 260 253
====== ====== ======= =======
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
----------------------------------------------
(Unaudited)
(Millions)
<CAPTION>
Nine months ended
July 31
------------------
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $1,123 $ 879
Adjustments to reconcile net earnings to cash
provided by (used for) operating activities:
Depreciation and amortization 724 610
Deferred taxes on earnings (42) (123)
Change in assets and liabilities:
Accounts and notes receivable (288) (40)
Inventories (610) (824)
Accounts payable 49 55
Taxes on earnings 123 361
Other current assets and liabilities 248 29
Other, net 88 56
------ ------
1,415 1,003
------ ------
Cash flows from investing activities:
Investment in property, plant and equipment (817) (962)
Disposition of property, plant and equipment 224 175
Purchase of short-term investments (1,785) (1,136)
Maturities of short-term investments 1,681 838
Purchase of long-term investments (87) (16)
Other, net 40 (37)
------ ------
(744) (1,064)
------ ------
Cash flows from financing activities:
Increase in notes payable and
short-term borrowings 347 498
Issuance of long-term debt 43 96
Payment of current maturities of long-term debt (128) (135)
Issuance of common stock under employee stock plans 217 228
Repurchase of common stock (219) (137)
Dividends (204) (165)
Other, net -- (19)
------ ------
56 366
------ ------
Increase in cash and cash equivalents 727 305
Cash and cash equivalents at beginning of period 889 641
------ ------
Cash and cash equivalents at end of period $1,616 $ 946
====== ======
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 only normal and recurring accruals) necessary to
present fairly the financial position as of July 31, 1994 and October
31, 1993, the results of operations for the three months and nine
months ended July 31, 1994 and 1993, and the cash flows for the nine
months ended July 31, 1994 and 1993.
The results of operations for the three month and nine month periods
ended July 31, 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. The Company paid interest of $97 million and $92 million for the nine
months ended July 31, 1994 and 1993, respectively. For the same
periods, the Company paid income taxes of $495 million and $217
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
- - ---------------------
Net Revenue - Net revenue for the third quarter ended July 31, 1994 was $6.1
billion, an increase of 22 percent from the same period of fiscal 1993.
Equipment sales increased 24 percent and service revenue grew 17 percent over
the corresponding period of fiscal 1993. International net revenue grew 24
percent to $3.3 billion, while U.S. net revenue increased by 20 percent to
$2.8 billion.
The third 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, scanners and wide format printers, UNIX
servers and the related solutions integration consulting and professional
services business, electronic components products and test and measurement
products.
Net revenue for the first nine months of fiscal 1994 was $18.0 billion, an
increase of 23 percent from the same period of fiscal 1993. Equipment sales
increased 25 percent and service revenue grew 16 percent over the
corresponding period of fiscal 1993. International net revenue grew 22
percent to $9.8 billion, while U.S. net revenue grew 24 percent to $8.2
billion.
Costs and Expenses - Cost of equipment sold and services as a percentage of
net revenue was 62.3 percent for the third quarter and 61.9 percent for the
first nine months of fiscal 1994, compared to 59.8 percent for the third
quarter and 59.0 percent for the first nine months of fiscal 1993. These
increases over fiscal 1993 were the result of continued competitive pricing
pressures and an ongoing shift in revenue mix to products with higher cost
of sales as a percentage of revenue. 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 was 28.7 percent for the
third quarter and 28.2 percent for the first nine months of fiscal 1994,
compared to 31.6 percent of net revenue for the third quarter and 31.4
percent for the first nine months 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
11 percent for the third quarter and 10 percent for the first nine months of
1994 over the corresponding year-ago periods. These increases resulted
primarily from increased research and development and field selling expenses.
The increased investment in research and development reflects the Company's
belief that success in a global marketplace requires a continuing flow of
innovative, high-quality products. A strong incoming order performance this
quarter increased bonuses and commissions in field selling expenses.
Interest Income and Other Income (Expense) - Interest income and other income
(expense) increased to $24 million for the third quarter of fiscal 1994, from
$1 million in the same period of fiscal 1993. The increase is largely due
to gains realized on the sale of certain equity investments and interest
income on higher cash balances.
Provision for Taxes - The provision for taxes as a percentage of earnings
before taxes was 34 percent for both the third quarter and the first nine
months of fiscal 1994, compared to 32 percent for the third quarter and 34
percent for the first nine months of fiscal 1993. The lower third quarter
1993 tax rate resulted from a year-to-date adjustment to reduce the estimated
1993 tax rate from 35 percent to 34 percent to reflect changes in the
geographic mix of the Company's earnings.
6
Net Earnings - Net earnings for the third quarter of fiscal 1994 were $347
million, or $1.33 per share on an average of 261 million shares, compared to
net earnings of $271 million, or $1.06 per share, on an average of 254
million shares for the third quarter of fiscal 1993. For the nine months
ended July 31, 1994, net earnings were $1.1 billion, or $4.31 per share on
an average of 260 million shares, compared to net earnings of $879 million,
or $3.47 per share, on an average of 253 million shares for the first nine
months of fiscal 1993. In fiscal 1994, net earnings per share were 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 and nine months ended
July 31, 1994 by 3 and 11 cents, respectively.
FINANCIAL CONDITION
- - -------------------
Liquidity and Capital Resources - The Company's financial position remains
strong, with cash and cash equivalents and short-term investments of $2.5
billion at July 31, 1994. Cash flows from operations were $1.4 billion
during the first nine months of fiscal 1994 compared to $1.0 billion 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 other current assets and liabilities.
These factors were partially offset by increased growth in accounts and notes
receivable and taxes on earnings. While the Company experienced slower
inventory growth for the first nine months of fiscal 1994, inventory
management remains an area of focus.
Capital expenditures for the first nine months of fiscal 1994 were $817
million, compared to $962 million for the corresponding period in the
previous year. The decrease was primarily because certain major investments
have been deferred to future periods.
The changes in investment and borrowing activities during the first nine
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
nine months ended July 31, 1994, the Company purchased and retired
approximately 2.8 million shares for an aggregate price of $219 million.
During the nine months ended July 31, 1993, the Company repurchased and
retired 1.8 million shares for an aggregate price of $137 million.
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 nine months
ended July 31, 1994.
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 14, 1994 By: /s/ Robert P. Wayman
---------------------------
Robert P. Wayman
Executive Vice President and
Chief Financial Officer
9
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
-------------
Exhibits:
1. Not applicable.
2. None.
3. Not applicable.
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.
10
Exhibit 27
FINANCIAL DATA SCHEDULE
This Schedule contains summary financial information extracted from
(Consolidated Condensed Balance Sheet and Consolidated Condensed
Statement of Earnings) and is qualified in its entirety by reference
to such financial statements.
Item Number Item Description (Millions except
par value and
per share amounts
-----------------
July 31, 1994
5-02(1) cash and cash items 1,616
5-02(2) marketable securities 859
5-02(3)(a)(1) notes and accounts receivable-trade 4,471
5-02(4) allowances for doubtful accounts n/a
5-02(6) inventory 4,301
5-02(9) total current assets 11,909
5-02(13) property, plant and equipment 7,707
5-02(14) accumulated depreciation 3,521
5-02(18) total assets 18,503
5-02(21) total current liabilities 7,669
5-02(22) bonds, mortgages and similar debt 572
5-02(28) preferred stock-mandatory redemption n/a
5-02(29) preferred stock-no mandatory redemption n/a
5-02(30) common stock 1,004
5-02(31) other stockholders' equity 8,417
5-02(32) total liabilities and stockholders' 18,503
equity
Nine months
ended July 31, 1994
-------------------
5-03(b)1(a) net sales of tangible products 13,887
5-03(b)1 total revenues 17,989
5-03(b)2(a) cost of tangible goods sold n/a
5-03(b)2 total costs and expenses applicable to 11,134
sales and revenues
5-03(b)3 other costs and expenses 5,076
5-03(b)5 provision for doubtful accounts and notes n/a
5-03(b)(8) interest and amortization of debt discount 110
5-03(b)(10) income before taxes and other items 1,702
5-03(b)(11) income tax expense 579
5-03(b)(14) income/loss continuing operations 1,123
5-03(b)(15) discontinued operations n/a
5-03(b)(17) extraordinary items n/a
5-03(b)(18) cumulative effect-changes in accounting n/a
principles
5-03(b)(19) net income or loss 1,123
5-03(b)(20) earnings per share-primary 4.31
5-03(b)(20) earnings per share-fully diluted n/a
11
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<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> JUL-31-1994
<CASH> 1616
<SECURITIES> 859
<RECEIVABLES> 4471
<ALLOWANCES> 0
<INVENTORY> 4301
<CURRENT-ASSETS> 11909
<PP&E> 7707
<DEPRECIATION> 3521
<TOTAL-ASSETS> 18503
<CURRENT-LIABILITIES> 7669
<BONDS> 572
<COMMON> 1004
0
0
<OTHER-SE> 8417
<TOTAL-LIABILITY-AND-EQUITY> 18503
<SALES> 13887
<TOTAL-REVENUES> 17989
<CGS> 0
<TOTAL-COSTS> 11134
<OTHER-EXPENSES> 5076
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> 1702
<INCOME-TAX> 579
<INCOME-CONTINUING> 1123
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1123
<EPS-PRIMARY> 4.31
<EPS-DILUTED> 0
</TABLE>
