How did HP's core businesses perform in fiscal 2000?

All three segments grew revenue. Computing Systems grew 18% to $21,095 million, driven by home and notebook PCs and UNIX servers, though its earnings from operations margin declined to 4.6% from 4.8%. Imaging and Printing Systems grew 10% to $20,476 million on printer supplies, and its operating margin rose to 13.4% from 12.6%. IT Services grew 14% to $7,129 million, but its operating margin fell to 8.9% from 9.2%.

What did the Agilent Technologies spin-off mean for HP's financials?

HP distributed substantially all of its remaining Agilent Technologies stock on June 2, 2000, which reduced retained earnings by $4.2 billion. Agilent is presented as a discontinued operation, contributing $136 million of net earnings from discontinued operations in fiscal 2000, and reported total assets of $34,009 million at year-end, with no net assets of discontinued operations remaining.

What are the main risks the filing highlights for future results?

The filing cites intense competition with continued price reductions and gross margin pressure, short product life cycles, reliance on third-party distributors and suppliers, international exposure (more than half of revenue is from outside the U.S.), and earthquake and power outage risks in California. It also flags worsening U.S. economic conditions and reduced IT spending, which HP said would slow revenue growth in the first half of fiscal 2001.

How strong is HP's balance sheet and cash position?

Cash and cash equivalents were $3,415 million and short-term investments $592 million at October 31, 2000. Long-term debt rose to $3,402 million, and notes payable and short-term borrowings fell to $1,555 million from $3,105 million. Total stockholders' equity fell to $14,209 million from $18,295 million, mainly due to share repurchases and the Agilent distribution. Operating activities generated $3,460 million of cash.

Did HP change its auditors, and why?

Yes. On September 21, 2000, HP's Audit Committee terminated PricewaterhouseCoopers and appointed Ernst & Young for the fiscal 2000 audit. The filing states this followed concerns about audit timing because of the potential loss of PwC's independence during discussions about HP acquiring PwC's global management and information technology consulting practice. HP later ended those acquisition discussions, and E&Y was extended on an interim basis for the fiscal 2001 audit.

HPQ 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed January 25, 2001. Cited figures are marked; the original filing is the authoritative source.

Hewlett-Packard Company's annual report for fiscal year ended October 31, 2000 shows net revenue of $48,782 million^a, up 15% from $42,370 million in 1999.

Earnings from operations were $3,889 million^b, and net earnings from continuing operations rose 15% to $3.6 billion ($3,561 million), or $1.73 per diluted share. Total net earnings were $3,697 million after $136 million from discontinued operations, which reflect Agilent Technologies, spun off June 2, 2000. Gross results were supported by strong home and notebook PC, printing supplies, and UNIX server sales, while the filing notes weakness in business desktop PCs and business printers, lower average selling prices, and unfavorable currency effects.

The balance sheet shows cash and cash equivalents of $3,415 million^c and short-term investments of $592 million, compared with $5,411 million and $179 million a year earlier. Long-term debt increased to $3,402 million from $1,764 million, reflecting the issuance of $1.5 billion of 7.15% Global Notes due 2005. Stockholders' equity declined to $14,209 million from $18,295 million, largely due to $5,570 million of share repurchases and the $4.2 billion retained earnings reduction from the Agilent spin-off.

Operating cash flow was $3,460 million^d. The filing also flags risks management highlighted: HP expects slower revenue growth in the first half of fiscal 2001 and first-quarter EPS below previous estimates due to weakening economic conditions and reduced IT spending, primarily in the U.S. The company also changed its independent auditor for the fiscal 2000 audit from PricewaterhouseCoopers to Ernst & Young, following the termination of a possible acquisition of PwC's consulting practice.

02—Key points

Key Highlights

Net revenue rose 15% to $48,782 million in fiscal 2000, following 7% growth in fiscal 1999.
Net earnings from continuing operations increased 15% to $3,561 million; diluted EPS from continuing operations was $1.73 versus $1.49 in 1999.
Imaging and Printing Systems revenue grew 10% to $20,476 million, and Computing Systems revenue grew 18% to $21,095 million; IT Services revenue grew 14% to $7,129 million.
Gross cost of products sold and services rose to 71.5% of net revenue from 70.1% in 1999, which the filing attributes mainly to Computing Systems.
Cash and short-term investments fell to $4.0 billion from $5.6 billion, while long-term debt rose to $3,402 million from $1,764 million after $1.5 billion of 7.15% Global Notes were issued in June 2000.
The company repurchased 96,978,000 shares for $5.6 billion in fiscal 2000, and in November 2000 its board authorized an additional $2.0 billion, bringing remaining authorization to $2.9 billion.
HP expects slower revenue growth in the first half of fiscal 2001 and first-quarter EPS below previous estimates due to weakening economic conditions and reduced IT spending, primarily in the U.S.

03—Questions

Frequently Asked Questions

How did HP's core businesses perform in fiscal 2000?
All three segments grew revenue. Computing Systems grew 18% to $21,095 million, driven by home and notebook PCs and UNIX servers, though its earnings from operations margin declined to 4.6% from 4.8%. Imaging and Printing Systems grew 10% to $20,476 million on printer supplies, and its operating margin rose to 13.4% from 12.6%. IT Services grew 14% to $7,129 million, but its operating margin fell to 8.9% from 9.2%.
What did the Agilent Technologies spin-off mean for HP's financials?
HP distributed substantially all of its remaining Agilent Technologies stock on June 2, 2000, which reduced retained earnings by $4.2 billion. Agilent is presented as a discontinued operation, contributing $136 million of net earnings from discontinued operations in fiscal 2000, and reported total assets of $34,009 million at year-end, with no net assets of discontinued operations remaining.
What are the main risks the filing highlights for future results?
The filing cites intense competition with continued price reductions and gross margin pressure, short product life cycles, reliance on third-party distributors and suppliers, international exposure (more than half of revenue is from outside the U.S.), and earthquake and power outage risks in California. It also flags worsening U.S. economic conditions and reduced IT spending, which HP said would slow revenue growth in the first half of fiscal 2001.
How strong is HP's balance sheet and cash position?
Cash and cash equivalents were $3,415 million and short-term investments $592 million at October 31, 2000. Long-term debt rose to $3,402 million, and notes payable and short-term borrowings fell to $1,555 million from $3,105 million. Total stockholders' equity fell to $14,209 million from $18,295 million, mainly due to share repurchases and the Agilent distribution. Operating activities generated $3,460 million of cash.
Did HP change its auditors, and why?
Yes. On September 21, 2000, HP's Audit Committee terminated PricewaterhouseCoopers and appointed Ernst & Young for the fiscal 2000 audit. The filing states this followed concerns about audit timing because of the potential loss of PwC's independence during discussions about HP acquiring PwC's global management and information technology consulting practice. HP later ended those acquisition discussions, and E&Y was extended on an interim basis for the fiscal 2001 audit.

04—Continue

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