01—Abstract
Summary
Summary of the 10-K filed January 20, 2004. Cited figures are marked; the original filing is the authoritative source.
Hewlett-Packard Company's annual report on Form 10-K for the fiscal year ended October 31, 2003 shows a return to profitability following fiscal 2002.
Net revenue rose to $73.06 billiona from $56.59 billion, driven primarily by the acquisition of Compaq (completed May 2002) and market share gains across most segments. Net earnings were $2.54 billion, compared with a net loss of $903 million in fiscal 2002. Earnings from operations were $2.90 billion, versus a loss of $1.01 billion a year earlier.
The filing notes that restructuring charges fell to $800 millionb from $1.78 billion, and that gross margin as a percentage of net revenue improved to 26.3% from 26.1%. Cash generation was strong. Net cash provided by operating activities was $6.06 billion, and cash and cash equivalents increased by $3.0 billion to $14.19 billion at year-end.
The company paid dividends of $977 millionc, repurchased $751 million of common stock, and invested $1.6 billion in net capital expenditures. Total assets were $74.71 billion, long-term debt was $6.49 billion, and total stockholders' equity was $37.75 billion. Research and development spending was $3.7 billion.
The filing also highlights ongoing risks. HP discloses a range of pending litigation, including consumer class actions over inkjet cartridges, patent suits with Cornell, EMC and Intergraph, a federal investigation tied to floppy disk controller allegations, and EU levy proceedings. Management states that HP believes it has valid defenses and adequate provisions, but that the outcome of any contingency could materially affect cash flows or results in a given period.
02—Key points
Key Highlights
- Net revenue of $73.06 billion, up from $56.59 billion in fiscal 2002, with the increase attributed mainly to the Compaq acquisition and market share gains
- Net earnings of $2.54 billion, a turnaround from a net loss of $903 million in fiscal 2002
- Earnings from operations of $2.90 billion versus a loss of $1.01 billion in fiscal 2002; restructuring charges declined to $800 million from $1.78 billion
- Net cash provided by operating activities of $6.06 billion; cash and cash equivalents rose $3.0 billion to $14.19 billion
- Shareholder returns in fiscal 2003 included $977 million in dividends and $751 million in stock repurchases; quarterly dividend rate of $0.08 per share
- Research and development expense of $3.7 billion, compared with $3.4 billion in fiscal 2002
- Imaging and Printing Group reported its highest-ever full-year revenue and profit, with revenue of $22.62 billion and earnings from operations of $3.57 billion
03—Questions
Frequently Asked Questions
How did Hewlett-Packard's financial performance change in fiscal 2003?
HP returned to profitability. Net revenue increased to $73.06 billion from $56.59 billion, and net earnings were $2.54 billion, compared with a net loss of $903 million in fiscal 2002. The filing attributes most of the revenue growth to the Compaq acquisition and market share gains in PSG, ESG and HPS.
What drove the improvement in profitability?
The filing cites cost savings from workforce reductions and expense control, lower restructuring charges ($800 million versus $1.78 billion), and a smaller acquisition-related and in-process R&D burden. Gross margin improved modestly to 26.3% of net revenue from 26.1%, supported by currency effects and cost management, partly offset by declining average selling prices.
How strong is HP's cash position and balance sheet?
Cash and cash equivalents reached $14.19 billion at October 31, 2003. Operating cash flow was $6.06 billion. Total assets were $74.71 billion and total stockholders' equity was $37.75 billion. Long-term debt was $6.49 billion, and total short- and long-term debt was $7.57 billion. The filing states that management expects fiscal 2004 operating cash flows to continue to exceed net income.
What significant legal risks does the filing disclose?
The filing describes several matters, including a consumer class action over inkjet cartridges, a nationwide class action in Texas over floppy disk controllers with a related federal investigation, patent litigation with Cornell, EMC and Intergraph, a suit seeking more than $200 billion in damages tied to apartheid-era sales in South Africa, and EU and other levy proceedings. HP states it believes it has valid defenses and adequate provisions, but notes that an unfavorable resolution could materially affect cash flows or results of operations in a particular period.
What did HP say about its capital allocation and outlook?
HP paid $977 million in dividends and repurchased $751 million of stock in fiscal 2003, and in September 2003 the board authorized an additional $1.0 billion for repurchases. As of January 8, 2004, about $953 million remained authorized. HP expects to contribute approximately $1.0 billion to pension and post-retirement plans in fiscal 2004 and expects gross margin to remain under pressure from price competition and mix shifts toward lower-margin products.
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