-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BZq6PZFFxTghWCuzjWUjjmgPhLRWwMpJb/gfWIblorsJlFTCX1JteU2gdrJ4TI/G TSuFRWYgMC9cp9tTds1Smw== 0000912057-01-539603.txt : 20020410 0000912057-01-539603.hdr.sgml : 20020410 ACCESSION NUMBER: 0000912057-01-539603 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011114 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEWLETT PACKARD CO CENTRAL INDEX KEY: 0000047217 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER & OFFICE EQUIPMENT [3570] IRS NUMBER: 941081436 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04423 FILM NUMBER: 1788088 BUSINESS ADDRESS: STREET 1: 3000 HANOVER ST CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4158571501 MAIL ADDRESS: STREET 1: 3000 HANOVER ST STREET 2: MS 20BL CITY: PALO ALTO STATE: CA ZIP: 94304 8-K 1 a2063765z8-k.txt 8-K =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 NOVEMBER 14, 2001 Date of Report (Date of Earliest Event Reported) HEWLETT-PACKARD COMPANY - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 1-4423 94-1081436 - ------------------------------------------------------------------------------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) 3000 HANOVER STREET, PALO ALTO, CA 94304 (Address of principal executive offices) (Zip code) (650) 857-1501 ---------------------------------------------------- (Registrant's telephone number, including area code) =============================================================================== ITEM 5. OTHER EVENTS. On November 14, 2001, Hewlett-Packard Company ("HP") issued a press release relating to its fiscal 2001 fourth quarter and 2002 guidance. The press release, entitled "HP Reports Fourth Quarter Results" dated November 14, 2001 is attached hereto as Exhibit 99.1 and incorporated by reference herein. On November 14 at 5:00 a.m. PST, in connection with HP's issuance of the foregoing press release, HP held a conference call to discuss the contents of the press release. Scripts prepared for use by Stephen J. Pavlovich, Carleton S. Fiorina and Robert P. Wayman on this conference call are furnished herewith as Exhibit 99.2 and incorporated by reference in this Item 5. The furnishing of these scripts is not intended to constitute a representation that such furnishing is required by Regulation FD or that the materials they contain include material investor information that is not otherwise publicly available. In addition, all of the information in the presentations is presented as of November 14, 2001, and HP does not assume any obligation to update such information in the future. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. Exhibit 99.1 Press release dated November 14, 2001 entitled "HP Reports Fourth Quarter Results." Exhibit 99.2 Scripts prepared for use by Stephen J. Pavlovich, Carleton S. Fiorina and Robert P. Wayman for conference call at 5:00 a.m. PST, November 14, 2001, discussing fiscal 2001 fourth quarter and 2002 guidance. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HEWLETT-PACKARD COMPANY Date: November 14, 2001 By: /s/ Charles N. Charnas ----------------------------------- Name: Charles N. Charnas Title: Assistant Secretary and Senior Managing Counsel INDEX TO EXHIBITS FILED WITH THE CURRENT REPORT ON FORM 8-K DATED JANUARY 11, 2001
Exhibit Description - ----------- ---------------------------------------------------------------- 99.1 Press release dated November 14, 2001 entitled "HP Reports Fourth Quarter Results." 99.2 Scripts prepared for use by Stephen J. Pavlovich, Carleton S. Fiorina and Robert P. Wayman for conference call at 5:00 a.m. PST, November 14, 2001, discussing fiscal 2001 fourth quarter and 2002 guidance.
EX-99.1 3 a2063765zex-99_1.txt EXHIBIT 99.1 EXHIBIT 99.1 [HEWLETT-PACKARD LETTERHEAD] Editorial Contact: HP REPORTS FOURTH QUARTER RESULTS PR111401GP50 Dave Berman, HP +1 650 857 7277 dave_berman@hp.com - ------------------ - Sequential Revenue and Pro Forma EPS Growth - Sequential Pro Forma Expense Reduction Rebeca Robboy, HP - Operating Cash Flow of $1.8 Billion +1 650 857 2064 rebeca_robboy@hp.com - -------------------- PALO ALTO, Calif., Nov. 14, 2001 -- Hewlett-Packard Company (NYSE:HWP) today reported financial results for its fourth fiscal quarter ended Oct. 31, 2001. Fourth quarter results met or slightly exceeded guidance for revenue, gross margin and expenses provided on the Aug. 16 third quarter earnings call. The company achieved 6% sequential revenue growth, 4% sequential pro forma expense reduction, pro forma earnings per share (EPS) of 19 cents and operating cash flow of $1.8 billion. The company reported fourth quarter revenue of $10.9 billion compared with $10.3 billion in the third quarter and $13.3 billion in last year's fourth quarter. Revenues were down 18% year-over-year, 15% excluding currency effects. Gross margin this quarter was 25.7%, essentially flat with 26.0% last quarter on a pro forma basis. Operating expenses declined 4% sequentially and 11% year-over-year on a pro forma basis. Operating expenses were 21.4% of net revenue, down from 23.6% last quarter on a pro forma basis. Pro forma EPS on a diluted basis was 19 cents (compared with the consensus analyst estimate of 8 cents), up from pro forma EPS of 12 cents in the third quarter and down from pro forma EPS of 41 cents in the year-ago quarter. Pro forma earnings this quarter excluded a $282 million pre-tax restructuring charge for headcount reduction, as well as several other items. Nov. 14, 2001 Page 2 Including these items, GAAP total EPS was 5 cents per diluted share on approximately 2 billion shares of common stock and equivalents outstanding. GAAP total EPS on a diluted basis for the same period last year was 45 cents. "In a tough environment, we stayed focused on customers and business fundamentals. We generated sequential revenue growth, expense reductions and pro forma EPS improvements, as well as $1.8 billion in operating cash flow in the fourth quarter. Results were driven by excellent execution in imaging and printing and good performance in services. While overall computing systems results remain weak, we saw improvement in certain segments including storage and PCs. We reduced our cost structure, improved our operational effectiveness and managed inventory aggressively," said Carly Fiorina, chairman and chief executive officer. "While executing well, we continue to focus on our long-term objectives. We are convinced that the Compaq transaction is a unique opportunity to move HP into the future and benefit our shareowners, customers and employees. We expect this transaction to create substantial earnings accretion soon after the merger closes. With Compaq's customer base and complementary products and services, we will materially strengthen key HP businesses. "HP has always stood for a willingness to innovate and evolve in the face of changing markets. The company has successfully reinvented itself many times in the past, and we must continue to do so to deliver sustainable shareowner value. "In 2001, we met many of the major objectives we set for HP and we thank our employees for staying the course and making sacrifices during a year of unprecedented challenges. They enabled HP to be among the select few technology companies to remain profitable throughout 2001. In recognition of their efforts, we have awarded all employees and managers, other than the Executive Council, a special cash bonus equivalent to two days' salary, with a total cost of approximately $45 million." Nov. 14, 2001 Page 3 Business Segment Results - ------------------------ Imaging and Printing Systems - ---------------------------- The imaging and printing systems segment includes laser and inkjet printers, imaging devices and associated supplies. Revenues increased 16% sequentially and declined 9% year-over-year (7% in local currency) against the highest revenue quarter in IPS history last year. Operating margin was 10.5%, compared to 8.7% last quarter and 12.6% in the fourth quarter of last year. The sequential operating margin increase reflects a strong seasonal increase in revenues and solid expense management. The company made excellent progress during the year on key objectives. These include increasing share in low-end printers and developing new products to improve profitability, winning new business in high-end commercial printing, building on strength in the growing all-in-one market, creating new markets for digital imaging and driving usage of HP supplies. During the fourth quarter, supplies revenues grew 16% sequentially and 6% year-over-year against a strong compare. HP LaserJet hardware revenue increased 4% sequentially and declined 18% year-over-year. Inkjet printer revenue increased 17% sequentially and declined 35% year-over-year. HP gained or maintained share in all printer hardware categories. Imaging revenue, which includes digital cameras, photo printers, scanners and all-in-one devices, increased 49% sequentially and 7% year-over-year. Computing Systems - ----------------- The computing systems segment includes a broad range of Internet infrastructure systems and solutions for businesses and professionals, including workstations, desktops, notebooks, mobile devices, UNIX -Registered Trademark- and PC servers, storage and software solutions. Revenues declined 1% sequentially and declined 31% year-over-year (28% in local currency). Nov. 14, 2001 Page 4 Operating margin was a negative 4.7%, compared to a negative 3.8% last quarter and positive 4.0% a year ago, reflecting a highly competitive market and weakening demand. For the fourth quarter, UNIX server revenue was down 11% sequentially and 30% year-over-year, but remained a profitable business amid difficult market conditions. Superdome continued to gain increased customer acceptance and HP's low-end UNIX products continued to perform well versus competitors. Enterprise storage revenues increased 10% sequentially and declined 22% year-over-year. High-end arrays were up 16% sequentially, driven by new products and margins stabilized in a difficult market. While software revenues declined 7% sequentially and 12% year-over-year, the HP OpenView product showed growth both sequentially and year-over-year. PC server revenues declined 11% sequentially and 44% year-over-year. Commercial desktops declined 11% sequentially and 39% year-over-year. Home PC revenues increased 23% sequentially and declined 37% year-over-year. HP retained its leading position in home PCs and generated profits in North America while breaking even globally. Notebooks experienced sequential revenue growth of 10% and declined 12% year-over-year, significantly increasing HP's market share in the United States following the release of Windows XP. IT Services - ----------- The IT Services segment includes mission-critical, outsourcing, consulting and customer financing services. Support revenues grew 3% sequentially and 9% year-over-year (6% in dollars). Outsourcing revenues were up 4% sequentially and up 22% year-over-year (19% in dollars). Consulting revenues declined 5% sequentially and grew 2% year-over-year (a 2% decline in dollars). Overall revenues for the IT Services segment, including HP's financing business, grew 2% sequentially and 5% year-over-year (2% in dollars). Operating margin was 4.5%, compared to 2.0% for the last quarter and 4.5% for the same period last year. Nov. 14, 2001 Page 5 Asset Management - ---------------- Net cash generated from operations for the quarter was $1.8 billion. Inventory declined by $600 million and was 11.5% of revenue, down from 12.2% last quarter. Trade receivables were 9.9% of revenue compared to 9.2% in the previous quarter. Net property, plant and equipment was 9.7% of revenue, unchanged from last quarter. Workforce Reduction - ------------------- As announced in July, HP has undertaken a workforce reduction program to eliminate 6,000 jobs and result in an annualized savings of $500 million. HP took a pre-tax restructuring charge of $282 million in the fourth quarter of this fiscal year, covering substantially all of the planned headcount reduction. Approximately 4,000 of the 6,000 reductions have taken place as of Oct. 31, 2001. The remaining job cuts are expected to be completed in the first half of fiscal 2002. 2002 Outlook - ------------ Market conditions continue to be difficult and the company is not counting on an economic recovery in 2002. For the first fiscal quarter of 2002, revenues are expected to be down slightly from the fourth quarter due to normal seasonal effects. Gross margins are expected to be approximately flat with the fourth quarter, reflecting an intensely competitive environment. The company expects to hold expenses approximately flat with the fourth quarter on a pro forma basis. Accounting Changes - ------------------ During the fourth quarter, HP adopted Securities and Exchange Commission Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements," and has restated 2001 quarterly results for the first three quarters accordingly. HP also made several other minor reporting changes for all periods presented, including a reclassification of leasing-related interest income and expense. Nov. 14, 2001 Page 6 About HP - -------- Hewlett-Packard Company -- a leading global provider of computing and imaging solutions and services -- is focused on making technology and its benefits accessible to all. HP had total revenue of $45.2 billion in its 2001 fiscal year. Information about HP and its products can be found on the World Wide Web at http://www.hp.com. # # # UNIX is a registered trademark of the Open Group. This news release 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. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of earnings, revenues, synergies, accretion or other financial items; any statements of the plans, strategies, and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings, approvals and closings relating to planned acquisitions; any statements concerning proposed new products, services, developments or industry rankings; 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 the ability of HP to retain and motivate key employees; 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; the challenges of integration and restructuring associated with acquisitions and achieving anticipated synergies; the possibility that proposed acquisitions may not close or that modifications of some aspects of proposed acquisitions may be required in order to obtain regulatory approvals; the assumption of maintaining revenues on a combined company basis following acquisitions; and other risks that are described from time to time in HP's Securities and Exchange Commission reports, including but not limited to the annual report on Form 10-K for the year ended Oct. 31, 2000, and subsequently filed reports. HP assumes no obligation and does not intend to update these forward-looking statements. Nov. 14, 2001 Page 7 Additional Information about the Merger and Where to Find It - ------------------------------------------------------------ HP and Compaq intend to file with the SEC a joint proxy statement/prospectus and other relevant materials in connection with the merger. The joint proxy statement/prospectus will be mailed to the shareowners of HP and Compaq. Shareowners of HP and Compaq are urged to read the joint proxy statement/prospectus and the other relevant materials when they become available because they will contain important information about HP, Compaq and the merger. The joint proxy statement/prospectus and other relevant materials (when they become available), and any other documents filed by HP or Compaq with the SEC, may be obtained free of charge at the SEC's Web site at www.sec.gov. In addition, shareowners may obtain free copies of the documents filed with the SEC by HP by contacting HP Investor Relations, 3000 Hanover Street, Palo Alto, California 94304, 650-857-1501. Shareowners may obtain free copies of the documents filed with the SEC by Compaq by contacting Compaq Investor Relations, P.O. Box 692000, Houston, Texas 77269-2000, 800-433-2391. Shareowners are urged to read the joint proxy statement/prospectus and the other relevant materials when they become available before making any voting or investment decision with respect to the merger. HP, Carleton S. Fiorina, HP's chairman of the board and chief executive officer, Robert P. Wayman, HP's executive vice president and chief financial officer, and certain of HP's other executive officers and directors may be deemed to be participants in the solicitation of proxies from the shareowners of HP and Compaq in favor of the merger. The other executive officers and directors of HP who may be participants in the solicitation of proxies in connection with the merger have not been determined as of the date of this filing. A description of the interests in HP of HP, Ms. Fiorina, Mr. Wayman and HP's other executive officers and directors is set forth in the proxy statement for HP's 2001 Annual Meeting of Shareowners, which was filed with the SEC on January 25, 2001. Full participant information may be found in HP's Form 425 filed with the SEC on September 25, 2001. Shareowners may obtain more detailed information regarding the direct and indirect interests of Ms. Fiorina, Mr. Wayman and HP's other executive officers and directors in the merger by reading the joint proxy statement/prospectus when it becomes available. Nov. 14, 2001 Page 8 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF EARNINGS (Unaudited) (In millions except per share amounts)
Three months ended October 31, Percent -------------------- increase/ 2001 2000(a) (decrease) --------- --------- ---------- Net revenue $ 10,876 $ 13,295 (18) Costs and expenses: Cost of products sold and services 8,081 9,677 Research and development 650 706 Selling, general and administrative 1,741 1,925 Restructuring charges 282 19 --------- --------- Total costs and expenses 10,754 12,327 (13) --------- --------- Earnings from operations 122 968 (87) Interest and other, net (7) 48 Net investment losses 90 13 Gains on divestitures 78 195 --------- --------- Earnings before extraordinary item and taxes 103 1,198 (91) Provision for taxes 19 276 --------- --------- Net earnings before extraordinary item 84 922 (91) Extraordinary item - gain on early extinguishment of debt, net of taxes 13 - --------- --------- Net earnings $ 97 $ 922 (89) ========= ========= Basic net earnings per share:(b) Net earnings before extraordinary item $ 0.04 $ 0.47 Extraordinary item - gain on early extinguishment of debt, net of taxes 0.01 - --------- --------- Net earnings $ 0.05 $ 0.47 ========= ========= Diluted net earnings per share:(b) Net earnings before extraordinary item $ 0.04 $ 0.45 Extraordinary item - gain on early extinguishment of debt, net of taxes 0.01 - --------- --------- Net earnings $ 0.05 $ 0.45 ========= ========= Cash dividends declared per share(b) $ - $ - Average number of shares and share equivalents:(b) Basic 1,936 1,955 Diluted 1,960 2,051
(a) Certain reclassifications have been made to previously reported results of operations for the three months ended October 31, 2000, to reflect the accounting changes more fully described in notes (b) and (c) to the Restated Consolidated Condensed Statement of Earnings. (b) The calculation of diluted earnings per share includes the effect of common stock equivalents, such as stock options, while the calculation of basic earnings per share does not. All share and per-share amounts reflect the two-for-one stock split effective October 27, 2000. Nov. 14, 2001 Page 9 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF EARNINGS (Unaudited) (In millions except per share amounts)
Twelve months ended October 31, (a)(b) Percent -------------------- increase/ 2001 2000(a) (decrease) --------- --------- ---------- Net revenue $ 45,226 $ 48,870 (7) Costs and expenses: Cost of products sold and services 33,474 35,046 Research and development 2,670 2,634 Selling, general and administrative 7,259 7,063 Restructuring charges 384 102 --------- --------- Total costs and expenses 43,787 44,845 (2) --------- --------- Earnings from operations 1,439 4,025 (64) Interest and other, net 171 356 Net investment losses (gains) 455 (41) Litigation settlement 400 - Losses (gains) on divestitures 53 (203) --------- --------- Earnings from continuing operations before extraordinary item, cumulative effect of change in accounting principle and taxes 702 4,625 (85) Provision for taxes 78 1,064 --------- --------- Net earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle 624 3,561 (82) Net earnings from discontinued operations - 136 --------- --------- Net earnings before extraordinary item and cumulative effect of change in accounting principle 624 3,697 (83) Extraordinary item - gain on early extinguishment of debt, net of taxes 56 - Cumulative effect of change in accounting principle, net of taxes (272) - --------- --------- Net earnings $ 408 $ 3,697 (89) ========= ========= Basic net earnings per share:(c) Net earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle $ 0.32 $ 1.80 Net earnings from discontinued operations - 0.07 Extraordinary item - gain on early extinguishment of debt, net of taxes 0.03 - Cumulative effect of change in accounting principle, net of taxes (0.14) - --------- --------- Net earnings $ 0.21 $ 1.87 ========= ========= Diluted net earnings per share:(c) Net earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle $ 0.32 $ 1.73 Net earnings from discontinued operations - 0.07 Extraordinary item - gain on early extinguishment of debt, net of taxes 0.03 - Cumulative effect of change in accounting principle, net of taxes (0.14) - --------- --------- Net earnings $ 0.21 $ 1.80 ========= ========= Cash dividends declared per share(c) $ 0.32 $ 0.32 Average number of shares and share equivalents:(c) Basic 1,936 1,979 Diluted 1,974 2,077
(a) As more fully described in note (a) to the Restated Consolidated Condensed Statement of Earnings, HP adopted SAB 101 in the fourth quarter of fiscal year 2001. The results of operations for the first three quarters of fiscal year 2001 have been restated to reflect this accounting change. (b) Certain reclassifications have been made to previously reported results of operations for the first three quarters of fiscal year 2001 and all four quarters of fiscal year 2000 to reflect the accounting changes more fully described in notes (b) and (c) to the Restate Consolidated Condensed Statement of Earnings. (c) The calculation of diluted earnings per share includes the effect of common stock equivalents, such as stock options, while the calculation of basic earnings per share does not. All share and per-share amounts reflect the two-for-one stock split effective October 27, 2000. Nov. 14, 2001 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)
Three months ended October 31, Percent -------------------- increase/ 2001 2000 (decrease) --------- --------- ---------- Net revenue $ 10,876 $ 13,295 (18) Costs and expenses: Cost of products sold and services 8,081 9,677 Research and development 632 704 Selling, general and administrative 1,693 1,904 --------- --------- Total costs and expenses 10,406 12,285 (15) --------- --------- Earnings from operations 470 1,010 (53) Interest and other, net (7) 48 --------- --------- Earnings before extraordinary item and taxes 463 1,058 (56) Provision for taxes 102 216 --------- --------- Net earnings before extraordinary item $ 361 $ 842 (57) ========= ========= Net earnings per share before extraordinary item: Basic $ 0.19 $ 0.43 Diluted $ 0.19 $ 0.41 Average number of shares and share equivalents: Basic 1,936 1,955 Diluted 1,960 2,051 The pro forma amounts above have been adjusted to exclude the following items: Costs and expenses: Amortization of goodwill and other intangible assets $ 50 $ 23 Acquisition-related charges 16 - Restructuring charges 282 19 --------- --------- Total adjustments to costs and expenses 348 42 Net investment losses 90 13 Gains on divestitures (78) (195) Income tax effect (83) 60 --------- --------- Total pro forma adjustments $ 277 $ (80) ========= =========
Nov. 14, 2001 Page 11 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF EARNINGS Excluding adjustments itemized below (Unaudited) (In millions except per share amounts)
Twelve months ended October 31, Percent -------------------- increase/ 2001 2000 (decrease) --------- --------- ---------- Net revenue $ 45,226 $ 48,870 (7) Costs and expenses: Cost of products sold and services 33,474 35,046 Research and development 2,629 2,627 Selling, general and administrative 7,066 6,928 --------- --------- Total costs and expenses 43,169 44,601 (3) --------- --------- Earnings from operations 2,057 4,269 (52) Interest and other, net 171 356 --------- --------- Earnings from continuing operations before extraordinary item, cumulative effect of change in accounting principle and taxes 2,228 4,625 (52) Provision for taxes 489 1,032 --------- --------- Net earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle $ 1,739 $ 3,593 (52) ========= ========= Net earnings per share from continuing operations before extraordinary item and cumulative effect of change in accounting principle: Basic $ 0.90 $ 1.82 Diluted $ 0.89 $ 1.74 Average number of shares and share equivalents: Basic 1,936 1,979 Diluted 1,974 2,077 The pro forma amounts above have been adjusted to exclude the following items: Costs and expenses: Amortization of goodwill and other intangible assets $ 174 $ 86 Acquisition-related charges 60 - Restructuring charges 384 102 Costs related to Agilent spin-off - 56 --------- --------- Total adjustments to costs and expenses 618 244 Net investment losses (gains) 455 (41) Litigation settlement 400 - Losses (gains) on divestitures 53 (203) Income tax effect (411) 32 --------- --------- Total pro forma adjustments $ 1,115 $ 32 ========= =========
Nov. 14, 2001 Page 12 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (In millions)
October 31, October 31, 2001 2000 ----------- ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 4,197 $ 3,415 Short-term investments 139 592 Accounts receivable, net 4,488 6,394 Financing receivables, net 2,183 2,174 Inventory 5,204 5,699 Other current assets 5,094 4,970 ----------- ----------- Total current assets 21,305 23,244 Property, plant and equipment, net 4,397 4,500 Long-term investments and other assets 6,882 6,265 ----------- ----------- Total assets $ 32,584 $ 34,009 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and short-term borrowings $ 1,722 $ 1,555 Accounts payable 3,791 5,049 Employee compensation and benefits 1,477 1,584 Taxes on earnings 1,818 2,046 Deferred revenues 1,867 1,759 Other accrued liabilities 3,289 3,204 ----------- ----------- Total current liabilities 13,964 15,197 Long-term debt 3,729 3,402 Other liabilities 938 1,201 Stockholders' equity 13,953 14,209 ----------- ----------- Total liabilities and stockholders' equity $ 32,584 $ 34,009 =========== ===========
Nov. 14, 2001 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:
Three months ended October 31, Percent ---------------------- increase/ 2001 2000 (decrease) --------- --------- ---------- Net revenue: Imaging and Printing Systems $ 4,989 $ 5,487 (9) Computing Systems 3,961 5,748 (31) IT Services 1,914 1,885 2 Other 149 450 (67) --------- --------- Total Segments 11,013 13,570 --------- --------- Eliminations / Other (137) (275) Total HP Consolidated $ 10,876 $ 13,295 (18) ========= ========= Earnings from operations: Imaging and Printing Systems $ 524 $ 690 (24) Computing Systems (188) 229 (182) IT Services 86 84 2 Other (52) (46) (13) --------- --------- Total Segments 370 957 --------- --------- Eliminations / Other (248) 11 Total HP Consolidated $ 122 $ 968 (87) ========= =========
Nov. 14, 2001 Page 14 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:
Twelve months ended October 31, Percent ---------------------- increase/ 2001 2000 (decrease) --------- --------- ---------- Net revenue: Imaging and Printing Systems $ 19,447 $ 20,468 (5) Computing Systems 17,771 20,653 (14) IT Services 7,599 7,150 6 Other 1,010 1,556 (35) --------- --------- Total Segments 45,827 49,827 --------- --------- Eliminations / Other (601) (957) Total HP Consolidated $ 45,226 $ 48,870 (7) ========= ========= Earnings from operations: Imaging and Printing Systems $ 1,987 $ 2,666 (25) Computing Systems (450) 1,007 (145) IT Services 342 474 (28) Other (321) (92) (249) --------- --------- Total Segments 1,558 4,055 --------- --------- Eliminations / Other (119) (30) Total HP Consolidated $ 1,439 $ 4,025 (64) ========= =========
Nov. 14, 2001 Page 15 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES RESTATED CONSOLIDATED CONDENSED STATEMENT OF EARNINGS (Unaudited) (In millions except per share amounts)
Jan. 31, 2001 April 30, 2001 July 31, 2001 (Restated) (Restated) (Restated) ------------- --------------- ------------- Net revenue $ 12,398 $ 11,668 $ 10,284 Costs and expenses: Cost of products sold and services 9,060 8,724 7,609 Research and development 673 685 662 Selling, general and administrative 1,793 1,916 1,809 Restructuring charges 102 - - ------------- --------------- ------------- Total costs and expenses 11,628 11,325 10,080 ------------- --------------- ------------- Earnings from operations 770 343 204 Interest and other, net 97 39 42 Litigation settlement - 400 - Net investment losses 365 - - Loss on divestiture - - 131 ------------- --------------- ------------- Earnings before extraordinary item, cumulative effect of change in accounting principle and taxes 502 (18) 115 Provision (benefit) for taxes 112 (53) - ------------- --------------- ------------- Net earnings before extraordinary item and cumulative effect of change in accounting principle 390 35 115 Extraordinary item - gain on early extinguishment of debt, net of taxes 23 12 8 Cumulative effect of change in accounting principle, net of taxes (272) - - ------------- --------------- ------------- Net earnings $ 141 $ 47 $ 123 ============= =============== ============= Basic net earnings per share: Net earnings before extraordinary item and cumulative effect of change in accounting principle $ 0.20 $ 0.02 $ 0.06 Extraordinary item - gain on early extinguishment of debt, net of taxes 0.01 - - Cumulative effect of change in accounting principle, net of taxes (0.14) - - ------------- --------------- ------------- Net earnings $ 0.07 $ 0.02 $ 0.06 ============= =============== ============= Diluted net earnings per share: Net earnings before extraordinary item and cumulative effect of change in accounting principle $ 0.20 $ 0.02 $ 0.06 Extraordinary item - gain on early extinguishment of debt, net of taxes 0.01 - - Cumulative effect of change in accounting principle, net of taxes (0.14) - - ------------- --------------- ------------- Net earnings $ 0.07 $ 0.02 $ 0.06 ============= =============== ============= Cash dividends declared per share $ 0.16 $ - $ 0.16 Average number of shares and share equivalents: Basic 1,930 1,935 1,936 Diluted 1,996 1,987 1,967 The amounts previously reported in HP's Quarterly Reports on Form 10-Q have been adjusted for the following items to reflect the restated amounts presented above: Net revenue: SAB 101 (a) $ 387 (23) 48 EITF 00-25 (b) (40) (15) (11) Financing interest income (c) 103 99 100 ------------- --------------- ------------- 450 61 137 Cost of products sold and services: SAB 101 (a) 280 2 33 Financing interest expense (c) 77 55 56 ------------- --------------- ------------- 357 57 89 Operating expense: EITF 00-25 (b) (40) (15) (11) Interest and other, net: Financing interest income (c) (103) (99) (100) Financing interest expense (c) 77 55 56 ------------- --------------- ------------- (26) (44) (44) Income tax effect 22 (5) 3 ------------- --------------- ------------- Total adjustments before cumulative effect of change in accounting principle 85 (20) 12 Cumulative effect of change in accounting principle, net of taxes (272) - - ------------- --------------- ------------- Total restatement adjustments $ (187) $ (20) $ 12 ============ =============== =============
(a) HP adopted Securities and Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements" in the fourth quarter of fiscal year 2001. This accounting change was adopted effective as of the first quarter of fiscal year 2001. Accordingly, HP has restated its consolidated results of operations for the first three quarters of fiscal year 2001, including a cumulative effect of change in accounting principle, which was recorded as a reduction of net income as of the beginning of the first quarter of fiscal year 2001. (b) HP adopted Emerging Issues Task Force Issue No. 00-25 ("EITF 00-25"), "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products" in the fourth quarter of fiscal year 2001. HP has restated its consolidated results of operations for all periods presented to reflect this accounting change. (c) HP adopted a new accounting policy in the fourth quarter of fiscal year 2001 related to the classification of financing interest income and expense. Previously, HP recorded financing interest and expense as non-operating interest income and expense, respectively. Under the new policy, financing interest income and expense are classified as revenue and costs of products sold and services, respectively. HP has restated its consolidated results of operations for all periods presented to reflect this change in accounting policy. Nov. 14, 2001 Page 16 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES RESTATED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF EARNINGS (Unaudited) (In millions except per share amounts)
Jan. 31, 2001 April 30, 2001 July 31, 2001 (Restated) (Restated) (Restated) ------------- --------------- ------------- Net revenue $ 12,398 $ 11,668 $ 10,284 Costs and expenses: Cost of products sold and services 9,060 8,724 7,609 Research and development 654 683 660 Selling, general and administrative 1,742 1,869 1,762 ------------- --------------- ------------- Total costs and expenses 11,456 11,276 10,031 ------------- --------------- ------------- Earnings from operations 942 392 253 Interest and other, net 97 39 42 ------------- --------------- ------------- Earnings before extraordinary item, cumulative effect of change in accounting principle and taxes 1,039 431 295 Provision for taxes 227 95 65 ------------- --------------- ------------- Net earnings from continuing operations before extraordinary item and cumulative effect of change in accounting principle $ 812 $ 336 $ 230 ============= =============== ============= Earnings per share before extraordinary item and cumulative effect of change in accounting principle: Basic $ 0.42 $ 0.17 $ 0.12 Diluted $ 0.41 $ 0.17 $ 0.12 Cash dividends declared per share $ 0.16 $ - $ 0.16 Average number of shares and share equivalents: Basic 1,930 1,935 1,936 Diluted 1,996 1,987 1,967 The amounts previously reported in HP's Quarterly Reports on Form 10-Q have been adjusted for the following items to reflect the restated amounts presented above: Net revenue: SAB 101 (a) $ 387 $ (23) $ 48 EITF 00-25 (b) (40) (15) (11) Financing interest income (c) 103 99 100 ------------- --------------- ------------- 450 61 137 Cost of products sold and services: SAB 101 (a) 280 2 33 Financing interest expense (c) 77 55 56 ------------- --------------- ------------- 357 57 89 Operating expense: EITF 00-25 (b) (40) (15) (11) Interest and other, net: Financing interest income (c) (103) (99) (100) Financing interest expense (c) 77 55 56 ------------- --------------- ------------- (26) (44) (44) Income tax effect 22 (5) 3 ------------- --------------- ------------- Total restatement adjustments before cumulative effect of change in accounting principle $ 85 $ (20) $ 12 ============= =============== =============
(a) HP adopted Securities and Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements" in the fourth quarter of fiscal year 2001. This accounting change was adopted effective as of the first quarter of fiscal year 2001. Accordingly, HP has restated its consolidated results of operations for the first three quarters of fiscal year 2001, including a cumulative effect of change in accounting principle, which was recorded as a reduction of net income as of the beginning of the first quarter of fiscal year 2001. (b) HP adopted Emerging Issues Task Force Issue No. 00-25 ("EITF 00-25"), "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products" in the fourth quarter of fiscal year 2001. HP has restated its consolidated results of operations for all periods presented to reflect this accounting change. (c) HP adopted a new accounting policy in the fourth quarter of fiscal year 2001 related to the classification of financing interest income and expense. Previously, HP recorded financing interest and expense as non-operating interest income and expense, respectively. Under the new policy, financing interest income and expense are classified as revenue and costs of products sold and services, respectively. HP has restated its consolidated results of operations for all periods presented to reflect this change in accounting policy. # # # EX-99.2 4 a2063765zex-99_2.txt EX-99.2 EXHIBIT 99.2 STEPHEN J. PAVLOVICH: Good Morning. I'd like to welcome all of you to our fourth quarter conference call. Joining me today is our Chairman and CEO Carly Fiorina and Bob Wayman our chief financial officer. Before we get started, I'd like to remind you that the call is being webcast on hp.com. Click on "Investor Relations" and then "Listen to Q4 earnings conference call". A replay will also be available shortly after the conclusion of the call through November 23rd. Next, it's my duty to inform you that the primary purpose of this call is to provide you with information regarding the quarter just ended. It's possible, however, that some of our comments and responses to your questions may include forward-looking statements. These statements are subject to a number of risks and uncertainties, and actual future results may vary materially. Again, I encourage you to read the risks described in the company's annual report on form 10-K for the year ended October 31, 2000 and any subsequently filed reports for an understanding of the factors that may affect the company's businesses and results. Now, before I turn things over to Carly and Bob, I'd like to take a few minutes to discuss several accounting and reporting changes that impacted this quarter's results. Overall these changes had no material impact on our results or how we view the business. It's also important to note that we have provided restated numbers for Q1 through Q3 to reflect these changes, in addition to reporting our Q4 numbers with the changes. Bob will be referring to these restated numbers as he takes you through the results. I would also add that you can find these restatements on hp.com under investor information. So, the first change is SAB101 which addresses revenue recognition. Revenue recognition now reflects the delays associated with shipping and title transfer. We have restated this year's quarterly results to reflect these changes. The implementation did not have a material effect on overall revenues, but there was some impact to quarterly revenue distribution. Second, we implemented an accounting change that clarifies the treatment of marketing discounts given to our channel and retail partners to generate product demand. These costs will now be recognized as an offset to revenue rather than as a marketing expense as in past quarters. Finally, we also decided to reclassify our lease-related interest income and expense. Leasing interest income is now reported in revenue and leasing interest expense is now reported in cost of goods sold, consistent with other tech companies. In prior quarters, these numbers had been reported in interest income and interest expense. So, with that, I'll turn things over to Carly for her remarks. ****************************************************************************** CARLETON S. FIORINA: Thank you Steve. This morning we announced our fourth quarter results. Given the difficult environment we're operating in, we're pleased with our performance. Our results met or slightly exceeded the guidance for revenue, gross margin and expenses we provided on the August 16th third quarter earnings call. We reported fourth quarter revenue of $10.9 billion, up 6% sequentially from $10.3 billion in the third quarter, down 18% from the $13.3 billion reported in the same period last year. Our pro forma gross margins were 25.7%, down slightly from 26% in the prior quarter and from 27.2% last year. We managed expenses down 4% sequentially, on a pro forma basis, and down 11% year over year. We implemented a painful, but necessary, workforce reduction program during the quarter, which resulted in a $282 million restructuring charge. As a result of these factors, we reported pro forma earnings per share of 19 cents, up from 12 cents in the preceding quarter, and down from 41 cents in the year-ago quarter. First call consensus estimates for this quarter were at 8 cents. We exit the fiscal year with a very solid balance sheet. We had a very strong quarter in terms of cash generation. Cash flow from operations was $1.8 billion during the quarter. Net cash for the quarter increased $1.3 billion to $567 million. This strong performance was helped by solid inventory management. Inventory was down $600 million in the quarter. All in all, I'm pleased with the team's execution against our stated objectives in a very tough environment - an environment made even more difficult in the immediate aftermath of September 11th. As this represents the end of our fiscal year, a year that is sure to be remembered as one of the toughest on record for the technology industry, it's worth spending a few minutes recapping our progress. As I've said before -- our focus in 2001 has been on transforming our business and improving our overall execution while making the longer-term strategic moves required to position us for growth so that we emerge a stronger competitor when the economy turns around. Specifically, we said that we would focus on: Reinvigorating our enterprise go-to-market engine and our channel relationships. - -------------------------------------------------------------------------------- At the outset of the year, we committed to doing a better job of delineating the rules of engagement for HP and our channel partners to avoid account conflict. Since we announced our Hard Deck channel program, HP's channel satisfaction levels are at an all-time high according to a recent CRN survey. We recruited 33 new channel partners in FY 01, with 37 more in the funnel. Today 70% of HP's worldwide enterprise sales are driven by the channel, up from 63% earlier in the year. An energized sales force and focused sales campaigns resulted in a series of significant customer wins during the quarter. $10.9 billion of revenue demonstrates we're maintaining our momentum and attracting new customers with our solutions. We also said we would invest in areas that represent strategic growth - --------------------------------------------------------------------- opportunities for the business, while simultaneously divesting non-strategic - ---------------------------------------------------------------------------- assets. - ------- We recently completed three software acquisitions aimed at improving our competitive position in the enterprise computing arena: Trinagy, StorageApps and Bluestone Software. We also announced the acquisition of Indigo Systems, a high-end printing technology company, to address the $400 billion commercial printing market. We continue to pursue the acquisition of Comdisco's Business Recovery Services unit to enhance our capabilities in providing mission-critical, business continuity services. And of course, we announced the merger with Compaq, which will accelerate our overall strategy and strengthen our position in virtually every category in which we compete, particularly in our enterprise computing business. I'll talk more about the benefits of the Compaq transaction later in the call today. In terms of divestitures in FY01: We sold OpenSkies to PRA Solutions. We completed the sale of VeriFone to Gores Technology Group. We sold our Cupertino ASIC development lab to Intel. And we sold our stake in the Ericsson-HP Technology joint-venture to Ericsson. In the imaging and printing systems business, we said that we would move - ------------------------------------------------------------------------ aggressively into the low-end, sub-$100 Inkjet printing market and invest in new - -------------------------------------------------------------------------------- and adjacent markets such as commercial printing and digital imaging. - --------------------------------------------------------------------- During the year we've made excellent progress in the low-end printer market increasing our share by 20 percentage points during the year. We completed the largest rollover ever in our LaserJet business with an award winning line-up that is gaining strong customer acceptance. We continue to win business in the emerging high-end printing and digital imaging markets. Our share of the digital camera market increased 11 points during the year giving us a top position in US retail according to NPD Intellect. We also said that we would focus on managing expenses and creating market - ------------------------------------------------------------------------- leading cost structures. - ------------------------ During the year, we reduced total headcount to 86,000 people, down from 91,000 at the beginning of the calendar year. At the same time, we added 2,400 services professionals to our growing services business in the fiscal year. In FY01, outsourcing and procurement programs yielded important benefits to operating results. Real estate management and workplace services outsourcing generated $120 million in savings this year. Travel expenses were down 34% for the year as employees found effective alternatives to get the job done. New HR programs, including HP's award-winning employee services portal, generated year-over-year savings of nearly $100 million. It's important to recognize the tremendous contribution and commitment our employees have demonstrated this past year in managing expenses. In addition to controlling discretionary spending, HP employees made personal sacrifices to support the cause. More than 80,000 employees voluntarily signed up to participate in a payroll savings program that included either taking additional vacation days or pay reductions through the end of the fiscal year. As a result of the cumulative efforts of HP employees, we are among the few technology companies that maintained profitability in 2001. In recognition of these efforts, today we announced a special, one-time performance bonus for employees to thank them for their accomplishments. The bonus is equivalent to two days' salary, with a total cost of approximately $45 million. Finally, we said that we would maintain our strong balance sheet. - ----------------------------------------------------------------- We exit the year with $5.8 billion of cash on the balance sheet. We've managed working capital extremely well, with inventory down 9% for the year and accounts receivable down 30%. We also improved our weeks of inventory with channel partners in all regions of the world. This past year has been a challenging one in a multi-year reinvention effort. While we've made solid progress on many fronts in an extraordinarily difficult environment, we know there is more work to do. Bob will go through the segment results in detail and talk about our outlook for the current quarter. After his remarks I'll make some closing comments to tie together where we've come and where we're headed. Now I'll turn it over to Bob. ROBERT P. WAYMAN: Thanks Carly, I am pleased with this quarter's results given the environment in which we had to perform. Before I get started let me reiterate the guidance I gave you at the beginning of the quarter. I stated that we expected top line growth to increase sequentially due to seasonality effects but year-over-year could be lower than the minus 14 percent that we saw in Q3. In fact, we grew revenues 6 percent over Q3, down 18 percent year-over-year in dollars and down 15 percent in local currency against a very tough compare. I indicated that gross margin would likely be flat sequentially -- we finished this quarter at 25.7 percent as compared to Q3's 26.0 percent. I also said to expect expenses to be flat sequentially -- in fact we exceeded our own expectations and decreased expenses 4 percent sequentially on a pro forma basis. This is really quite a good result given that expenses typically trend up 4-6 percent in Q4. Lastly, I guided you to a net interest income expectation of approximately $50 to $70 million -- we actually finished the quarter at $48 million, prior to several reporting changes that Steve discussed at the beginning of this call. All in all, a solid performance during a very tough quarter and a very positive sign that we are maintaining momentum during this important period prior to the closing of our merger with Compaq. So, now let's get to the results............... Looking at the year-over-year revenue picture on a geographic basis: US revenue was down 23 percent while Europe was down 13 percent in dollars and down 8 percent in local currency. Asia Pacific declined 16 percent in dollars and 8 percent in local currency. Latin America finished the quarter down 17 percent in dollars. Additional country detail that might be of interest to you: Canada was down 19 percent in dollars and 16 percent in local currency. Japan was down 21 percent in dollars, but only 7 percent in local currency. Korea declined 19 percent in dollars and while China was relatively strong, it was still down 4 percent in dollars versus the year ago quarter. India also continued to decline, down 20 percent. So, the slowdown is clearly global in scope and visibility remains very limited. Looking ahead to the 1st fiscal quarter of 2002, revenues are expected to be down slightly from the 4th quarter due to normal seasonal effects. Moving on to gross margin... Gross margin was 25.7 percent for the quarter, down just slightly compared to Q3 and in line with our guidance at the beginning of the quarter. Again this is a pretty good result given the overall soft revenue environment and the intensely competitive pricing pressure that exists in most of our major markets. In Computing Systems, gross margin was down slightly due to these pressures despite improvements in both home and business PC's. In Imaging and Printing Systems, gross margin remained flat with an improvement in LaserJet margins and a favorable Yen offset by slight deterioration in Inkjet margins where the shift to the low-end continues. IT Services' gross margin also remained flat with the individual business segments holding steady sequentially. Looking ahead to Q1, we expect gross margin pressure to continue and to remain essentially flat. Moving on to operating expenses... On the expense front, we continue to make substantial progress. Total pro forma operating expenses were down 11 percent year-over-year and down 4 percent sequentially. Overall headcount was down 4,100 people for the quarter as part of the workforce reduction initiative we announced in the third quarter, with more than 3,000 of those people departing in August. Ultimately, this program is expected to result in the elimination of 6,000 positions. Virtually all of the remaining reductions from this program will come in the first half of FY02. Associated with the 6,000 cuts, we are taking a one-time restructuring charge of $282 million this quarter. The charge consists primarily of severance payments and costs associated with implementing the reductions, with some offset from a credit to pension liabilities. Moving into Q1, we expect pro forma expenses to be flat sequentially. This is due to several factors. While expenses are typically down in Q1 from Q4, we did get a sizable benefit in our Q4 expense total through our voluntary pay reduction and vacation program and from the fact that we did not pay a normal company bonus to employees. We did pay a special bonus during Q4, but the amount was substantially lower than our targeted company performance bonus payout. So then, we expect these effects to offset one another leaving our expenses relatively unchanged in Q1 from Q4. At an operating profit level, our pro forma results of 4.3 percent showed improvement from the 2.5 percent we achieved in Q3, but was down from last year's 7.6 percent. Again, a good result driven primarily by our excellent expense management during the quarter. Finally, let me make a couple of comments regarding net interest income, which at first glance appears to be significantly below guidance. As discussed earlier, leasing interest income is now reported in revenue and leasing interest expense is now reported in cost of good sold. Had we not made these changes, net interest income would have been $48 million during the quarter, in line with our guidance, rather than the negative $7 million reported in our pro forma results. Going forward, net interest income will be impacted by our net cash balances, our debt levels, interest rates, currency fluctuations and miscellaneous items that occur during the quarter. For this reason, there's quite a lot of volatility in the number. We expect the net number to be about zero, within a range of plus or minus $20 million. The pro forma tax rate was 22 percent, unchanged from last quarter. Pro forma net profit as a percentage of revenues was 3.3 percent, up from last quarter's 2.2 percent, but down from last year's 6.3 percent level. On a fully diluted EPS basis, pro forma earnings were 19 cents per share for the quarter, versus the 41 cents for last year. Fundamentally, this is a good performance in this environment, but a long way from our long-range, steady state goal for the business. Now let me make a few comments regarding segment performance. In Imaging and Printing, revenue increased 16 percent sequentially, but declined 9 percent year-over-year in dollars and 7 percent in local currency. Supplies continue to be a point of strength, growing 16 percent sequentially and 6 percent year-over-year. Inkjet printer revenue increased 17 percent sequentially but was down 35 percent year-over-year while Laser hardware increased 4 percent sequentially and declined 18 percent year-over-year. Lastly, Imaging Systems, which includes AiO's, digital cameras, photo printers and scanners, showed excellent growth, up 49 percent sequentially and 7 percent year-over-year. Imaging and Printing operating profit as a percentage of revenue was 10.5 percent compared to 12.6 percent a year ago, but rebounded nicely from Q3's 8.7 percent and Q2's 8.0 percent. While still below our long-term expectations, imaging and printing margins held up quite well in view of the continuing economic downturn. The year-over-year margin decline was driven by continued move to low-end Inkjet hardware, overall hardware unit declines and by a one-time European Union duty re-classification on AiO's from printers to copiers. On the positive side, sequential margin improvements were due to rigorous expense management and a favorable Yen. I know that many of you are very interested in how our supplies business is holding up. Supplies profitability is strong and more importantly continues to hold steady. These results are further proof that the IPS team continues to manage a very successful business in a very difficult environment. As I said last quarter, once the economy turns around we expect operating margins in imaging and printing to return to historical levels. In Computing Systems, revenues were down 1 percent sequentially and 31 percent year-over-year. In local currency terms, year-over-year decline was 28 percent. UNIX server revenue was down 11 percent sequentially and 30 percent year-over-year although Superdome continues to perform well. PC servers continue to be a problem with revenue down 11 percent sequentially and 44 percent year-over-year. Commercial desktop was down 11 percent sequentially, but home PC's and notebooks revenues were up 23 percent and 10 percent, respectively, over Q3. Enterprise Storage, while down 22 percent year-over-year, posted sequential growth of 10 percent. And high-end arrays were up 16 percent sequentially. Software revenues declined 7 percent sequentially and 12 percent year-over-year. OpenView revenues showed 4 percent year-over-year growth, up 7 percent from Q3. Computing Systems operating profit as a percentage of revenue was a negative 4.7 percent compared to positive 4 percent a year ago and a negative 3.8 percent last quarter. Due to the fixed cost structure of this business, the rapid fall off of revenue significantly impacted margins. As I mentioned earlier, the PC business showed margin improvements in the home and consumer lines and while still mildly unprofitable in aggregate, we were able to achieve profitability in our home PC business in both North America and Latin America. Our UNIX server business continues to be a solid profit contributor. Going forward, our introduction of the 16-way rp8400 box and our introduction of the next generation PA-8700 chip during the quarter positions us well in the UNIX market. Within IT Services, the support business showed strong performance with sequential growth of 3 percent and year-over-year growth of 6 percent. The economy has clearly hurt the consulting business, with revenues down 5 percent sequentially and year-over-year down 2 percent. On a more positive note, our outsourcing business grew 4 percent sequentially and 19 percent year-over-year. As a whole, IT Services revenue ended the quarter up 2 percent sequentially, and up 2 percent year-over-year in dollars, 5 percent year-over-year in local currency. IT Services operating profit margin as a percentage of revenues was 4.5 percent up from 2.0 percent last quarter and flat year-over-year. The primary drivers for the improvement were strong support margins driven by mission critical services, and better FCG margins. Support services continues to be an outstanding performer for us within ITS, with strong top and bottom line performance. This business continues to be valuable, not just for its reliable annuity performance, but because its daily customer interaction allows HP to demonstrate its capabilities throughout customer environments, ultimately leading to leveraged sales. In consulting, our margins were hurt by the revenue slowdown in that business. Moving on to the financing business, you may recall last quarter we took steps to assure the long-term health of the financing business and that effort continued this quarter. In Q4, we continued to aggressively review leasing receivables and took some additional charges which negatively impacted FCG margins. Next I'd like to spend a few minutes talking about our balance sheet, asset management and cash flow. Despite another tough quarter, I continue to be pleased with our progress in managing our financial fundamentals. Inventory ended the quarter down $601 million or 9 percent from Q3 levels. Imaging and Printing inventory declined $429 million during Q4 while Computing Systems inventory declined $140 million. The IPS inventory in particular was mostly Inkjet and LaserJet hardware. Inventory was 11.5 percent of revenues at the end of Q4, an improvement over last quarter's 12.2 percent and Q400's 11.7 percent. We continue to manage channel inventory aggressively and all key product lines are well within expectations. All in all, inventory, both HP-owned and channel, is in good shape. Trade receivables ended the quarter up $108 million, or about 2 percent, over Q3 driven by sequential revenue growth of 6 percent. Receivables as a percentage of revenues ended the quarter at 9.9 percent, above Q3's 9.2 percent and down substantially from Q400's 13.1 percent. Switching to cash flow, our net cash from operations this quarter was $1.8 billion for the quarter bringing our net cash position to $567 million, an improvement of $1.3 billion over the Q3 level. This result represents much stronger cash flow than we saw last quarter and a healthy improvement over the same period last year as a result of aggressive inventory and receivables management. Again, a very solid performance in a difficult economy. Property, plant, and equipment ended the quarter at 9.7 percent of revenue, down $216 million sequentially, still very much in line with our historical performance. I originally guided you to capital expenditures for FY01 of $2.4 billion. At the securities analyst meeting in June, I lowered guidance to $2 billion for the year. We actually finished the year at approximately $1.5 billion. The delta between my guidance and the final result was mainly due to reduced investment in Inkjet manufacturing as a result of the slowing economy, a decrease in rental leasing assets and a delay in corporate expenditures such as fleet cars. Going into FY02, our current expectation for CAPEX is $1.8 billion. In summary, our balance sheet remains solid, asset metrics are strong, and we continue to generate cash from operations. We believe we are making excellent progress on improving our cost structures, our go-to-market strategies, and our product programs. Our plan during this industry-wide slowdown has been to take the necessary actions to position HP for success when the recovery comes. We feel strongly we are doing just that. And now Carly will provide some concluding remarks. CARLETON S. FIORINA: We're in a business environment that is changing radically and rapidly. Customer requirements are changing and the structure and economics of our industry are changing with them. The question we ask ourselves is how should we address these changes? What is the best way to serve our customers and build sustainable value for shareowners and employees? During the past 2 1/2 years, the HP Board of Directors and I have focused on making the necessary changes to the company's strategy, structure, reward systems and culture to secure HP's future. After a careful review of the alternatives, and a thorough analysis of the Compaq opportunity in particular, the Board concluded this transaction helps us achieve our strategic and performance goals significantly faster than we could on our own. Our results this quarter and over the past year crystallize the challenges and opportunities in front of us: We clearly need to improve our position in enterprise computing. If we don't, we risk becoming marginalized in a business consolidating around fewer and fewer vendors. We need to address our position in industry standard servers. By adding Compaq's capabilities and substantial market presence, we can enhance our ability to participate in this pivotal and fast growing segment of the server market. We need to make faster progress in the enterprise storage market. With Compaq, we combine HP's leadership in high-end storage with Compaq's leading capability in mid-range storage systems to strengthen our storage offerings significantly. By joining forces, we create the #1 provider of storage area networks, the fastest growing segment of the storage market. We need to make our enterprise platforms more technically and financially compelling to systems integrators and application developers. With Compaq, we dramatically increase the size and importance of our installed base, compelling partners and ISVs to innovate around our platforms, thereby enhancing our ability to offer market-leading solutions to customers. It's clear that we need to improve our overall account coverage so that we can effectively compete for EVERY important customer engagement, all over the world. With Compaq, we double the size of our sales force. We have been talking consistently about the need to build up our services business. Compaq adds scale to our IT support business which provides a profitable annuity stream. It's like the supplies business where more is better. It also gives us a platform - a large installed base of relationships - on which to build our consulting and outsourcing capabilities so that we can compete for and win more major accounts. With Compaq, we double the size of services capacity with more than 65,000 skilled solution architects. We need to improve the overall economics of our PC business. We're in a consolidating industry with declining margins - a market where direct distribution capabilities have become essential to successfully competing. With Compaq, we gain sufficient PC volume along with a rapidly developing direct distribution capability so that we can take costs out of the business and begin to derive real value in a highly competitive market. Fundamentally, it's clear that we need to do more to ensure that our computing business is truly poised for leadership and growth. With Compaq, we gain the added technical and go-to-market breadth and depth required to be a formidable competitor, capable of playing a lead role in shaping the next era in computing. Perhaps we could address each of these challenges incrementally, step by step, over the months and years ahead. But in my view, and in the view of our Board of Directors, we don't have the luxury of an incremental approach. We need to take a bold step to address these challenges now. We need to lead the transformation of this industry now instead of responding to it later. We need to drive out cost, broaden and strengthen our product and service offering and provide our customers with a real, standards-based alternative. By merging we will fundamentally improve our earnings power through significant cost synergies and operating efficiencies - and expect to add more than $2.5 billion to the bottom line annually beginning in year two - irrespective of market conditions. This will enable us to achieve higher operating margins and profit growth than either company could achieve independently. By merging we create a company with leading market positions across the technology industry and a substantial presence in key regions of the world, improving our position as the vendor and partner of choice. By merging we accelerate the strategic, technical and cultural transformations underway at both companies to create a more powerful industry competitor capable of both expanding the market and capturing market leadership. By merging we create a stronger, more balanced operating model, with greater free cash flow and an even stronger balance sheet, which will enable us to invest in and drive innovation. Frankly, it represents the single best way to grow and deliver the value our shareowners, customers and employees expect and deserve. Having spent the last several months planning the integration of these two companies, we're even more convinced of the power of this combination. Innovation and reinvention are The HP Way. Change and risk-taking can be unsettling, even frightening, for some. But preserving the status quo and taking small steps to improve our competitive position will not serve anyone's interests - not customers, not shareowners and certainly not the highly motivated people that represent the best of HP and Compaq. Now I'd like to open up the call to take your questions. FORWARD-LOOKING STATEMENTS These scripts contain 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. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of earnings, revenues, synergies, accretion or other financial items; any statements of the plans, strategies, and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings, approvals and closings relating to planned acquisitions; any statements concerning proposed new products, services, developments or industry rankings; 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 the ability of HP to retain and motivate key employees; 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; the challenges of integration and restructuring associated with acquisitions and achieving anticipated synergies; the possibility that proposed acquisitions may not close or that modifications of some aspects of proposed acquisitions may be required in order to obtain regulatory approvals; the assumption of maintaining revenues on a combined company basis following acquisitions; and other risks that are described from time to time in HP's Securities and Exchange Commission reports, including but not limited to the annual report on Form 10-K for the year ended Oct. 31, 2000, and subsequently filed reports. HP assumes no obligation and does not intend to update these forward-looking statements. ADDITIONAL INFORMATION ABOUT THE MERGER AND WHERE TO FIND IT HP and Compaq intend to file with the SEC a joint proxy statement/prospectus and other relevant materials in connection with the merger. The joint proxy statement/prospectus will be mailed to the shareowners of HP and Compaq. Shareowners of HP and Compaq are urged to read the joint proxy statement/prospectus and the other relevant materials when they become available because they will contain important information about HP, Compaq and the merger. The joint proxy statement/prospectus and other relevant materials (when they become available), and any other documents filed by HP or Compaq with the SEC, may be obtained free of charge at the SEC's web site at www.sec.gov. In addition, shareowners may obtain free copies of the documents filed with the SEC by HP by contacting HP Investor Relations, 3000 Hanover Street, Palo Alto, California 94304, 650-857-1501. Shareowners may obtain free copies of the documents filed with the SEC by Compaq by contacting Compaq Investor Relations, P.O. Box 692000, Houston, Texas 77269-2000, 800-433-2391. Shareowners are urged to read the joint proxy statement/prospectus and the other relevant materials when they become available before making any voting or investment decision with respect to the merger. HP, Carleton S. Fiorina, HP's Chairman of the Board and Chief Executive Officer, Robert P. Wayman, HP's Executive Vice President and Chief Financial Officer, and certain of HP's other executive officers and directors may be deemed to be participants in the solicitation of proxies from the shareowners of HP and Compaq in favor of the merger. The other executive officers and directors of HP who may be participants in the solicitation of proxies in connection with the merger have not been determined as of the date of this filing. A description of the interests in HP of Ms. Fiorina, Mr. Wayman and HP's other executive officers and directors is set forth in the proxy statement for HP's 2001 Annual Meeting of Shareowners, which was filed with the SEC on January 25, 2001. Full participant information may be found in HP's Form 425 filed with the SEC on September 25, 2001. Shareowners may obtain more detailed information regarding the direct and indirect interests of Ms. Fiorina, Mr. Wayman and HP's other executive officers and directors in the merger by reading the joint proxy statement/prospectus when it becomes available. -----END PRIVACY-ENHANCED MESSAGE-----