Hewlett-Packard on Thursday sought to calm investors after it admitted an accounting error caused it to overstate cash flow from operations by US$144 million for its fiscal first quarter.
The news sent HP shares tumbling 57 cents to US$15 per share on a day the Dow was up nearly 270 points, its biggest gain in five months.
"As part of our normal controls process in preparation for our official 10-Q filing, we discovered an accounting classification error," said Bob Wayman, HP's CFO. "We are reviewing our procedures for preparing preliminary statements."
HP lowered its operating cash flow to US$647 million, 18 percent lower than the US$791 million it had previously reported, according to a Securities and Exchange Commission report filed Wednesday.
HP said it had erroneously classified some items as operating cash flow.
While analysts said HP's snafu was an honest, albeit embarrassing, mistake, they said the timing was bad, given investor uneasiness about even a hint of scandal.
"When investors hear restatement in this kind of environment, they sell first and ask questions later," said Megan Graham-Hackett, an analyst at Standard & Poor's. She said the mistake was minor and doesn't warrant the stock's Thursday decline.
Carl Hoagland, an analyst at State Street Global Advisors, said he understands why investors are reacting negatively to the restatement. "In a bear market, people don't sit around wondering what's going on. Companies shouldn't do things like that in this environment," he said.
The restated result doesn't change HP's total gross cash at the end of the quarter, which stood at US$13.2 billion, nor does it change HP's sales or earnings results.
"Our PC business performance also continues to be the subject of continued confusion," said Wayman. "In our latest Q1, we reported a profit of US$33 million in our Personal Systems business--a sequential improvement of US$101 million in operating performance from a loss of $68 million the preceding quarter. On a combined company basis, the PC business lost US$52 million a year ago. The improvement year over year was $85 million. By every measure, this represents real profitability and real performance improvement."
In response to continued speculation around revenue loss, the company reported that for the 2002 fourth calendar quarter period, in line with the reporting periods of many of its peers, revenue would have been up 9 percent sequentially. Added Wayman: "One month into the company's second fiscal quarter, revenue for the combined company is up 3 percent year over year."
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