This excerpt taken from the HPQ 10-K filed Jan 14, 2005.
HP ServicesSupplemental Combined Company Information
We present a supplementary discussion of HPS combined company results below.
HPS' combined company net revenue was essentially flat in fiscal 2003 as compared to fiscal 2002. On a constant currency basis, net revenue decreased approximately 6% in fiscal 2003. The favorable currency impact in fiscal 2003 was due primarily to the weakening of the dollar against the euro.
The components of weighted average net revenue growth, by business unit were as follows for the fiscal year ended October 31:
A decline in core consulting and integration services drove the combined company net revenue decrease in the consulting and integration business in fiscal 2003. The decline in core consulting and integration net revenue reflected competitive pricing pressures and weak demand. An increase in new and existing large outsourcing deals, reflecting the ongoing mix shift toward larger comprehensive deals as customers outsourced substantial portions of their IT infrastructure to HP, as well as favorable currency impacts mentioned above, contributed to the growth in managed services net revenue in fiscal 2003. The growth in technology services net revenue in fiscal 2003 was due primarily to favorable currency impacts.
Combined company earnings from operations as a percentage of net revenue was 11.0% in fiscal 2003 compared to 11.1% in fiscal 2002. Although the operating profit ratio remained flat in fiscal 2003, operating expenses decreased as a percentage of net revenue through expense control measures and workforce reductions initiated in fiscal 2002, as well as reduced costs reflecting synergies associated with our acquisition of Compaq. A favorable business mix shift away from the consulting and integration business, which typically has an operating profit ratio lower than the segment average, further helped the overall segment operating profit ratio in the period. An operating profit ratio decline in the technology services business reduced fiscal 2003 operating margin. Competitive pricing pressures and reduced service levels had a negative impact on technology services operating margins. Higher pension and post-retirement costs resulting from fiscal 2003 changes in underlying assumptions, including a decrease in expected portfolio performance, a decrease in discount rates and an increase in medical cost trend rates, as well as the extension of participation in pension and post-retirement benefit
plans to eligible pre-acquisition Compaq employees in the United States not covered by such plans prior to January 1, 2003 also contributed to the overall segment operating profit ratio decline in fiscal 2003.