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HP: Earnings down if merger OK'd in 2001

Hewlett-Packard would have seen its revenue nearly double in fiscal 2001 had the company already closed its merger with Compaq Computer.

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Hewlett-Packard would have seen its revenue nearly double in fiscal 2001 had the company already closed its merger with Compaq Computer, but its earnings would have declined, according to documents filed by HP.

A combined HP-Compaq would have pulled in $67.3 billion in revenue for the fiscal year ending Oct. 31, 2001, nearly double the $37.5 billion in revenue actually reported by HP for the same period, according to a document filed by the company with the Securities and Exchange Commission on Friday.

Net earnings, however, would have sagged, primarily because of the costs associated with the merger and extraordinary investment losses on the part of Compaq. In reality, HP reported net earnings of $624 million, while the combined companies would have seen a loss of $981 million for fiscal 2001, according to the document.

Earnings per share would have decreased even further because of a 52 percent increase in the number of outstanding shares. HP reported 32 cents in earnings per share for the same period, while the combined company would have reported a loss of 33 cents per share.

For the quarter ended Jan. 1, HP reported $478 million in net earnings, while the combined company hypothetically would have squeezed out $482 million in earnings. However, in earnings per share, HP would have reported 25 cents in earnings per share while the combined company would have only seen 16 cents a share in earnings.

The swing in imaginary earnings was largely caused by two factors. In its calculations, HP assumed that it would have had to spend $700 million in closing Compaq facilities, paying severance packages and relocating employees. The company estimates that it will spend between $450 million to $700 million on closing facilities and adjusting the Compaq work force and another $450 million to $700 million to make adjustments on the HP side. HP, however, did not include the $700 million it could spend through adjusting its own work force in the hypothetical calculations.

Compaq also had a difficult year when it came to investments in 2001. The company reported $2.1 billion in losses from interest and other income for the period ending Dec. 31, 2001. Still, the operating profit, which excludes investment gains or losses, was higher for HP alone for the year than for HP-Compaq combined. HP reported $1.4 billion for the fiscal period, while operating profit for HP-Compaq, including the mentioned acquisition costs, would have come to $1.2 billion.

The hypothetical comparison of the annual figures assumes that the transaction closed Nov. 1, 2000, while the quarterly comparison assumes the transaction was completed on Nov. 1, 2001. The hypothetical comparison combines the two companies' most recent fiscal years--HP's ending October 2001 and Compaq's ending in December 2001--and the most recent quarters. HP's most recent quarter ended in January, while Compaq's ended in December.

HP shareholders will vote on the merger March 19, while Compaq shareholders follow suit the next day. The results may not be known for days, say experts.

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