FOOL CONFERENCE CALL
SYNOPSIS*
By Debora Tidwell (MF
Debit)
Hewlett-Packard
3000 Hanover Street
Palo Alto, CA 94304
http://www.hp.com/
UNION CITY, Ca., November 21, 1996/FOOLWIRE/ --- Hewlett-Packard released their fourth quarter 1996 results on Monday evening. As was the case in Q3 they believe the story is a little more complex than it might first appear. One major difference this quarter is that they feel better about where they are and what some of the underlying trends are than they did last quarter.
Revenues (in thousands): Q4 '96 $10,147,000 (up 12%) Q4 '95 $9,048,000 Earnings (net charges): Q4 '96 $0.62 EPS (down 3%) Est. $0.64 EPS (missed by 3%) Q4 '95 $0.64 EPS
RESULTS. Overall they are encouraged by this quarter's improvement in order growth as well as by their results on operating expense growth. However, they can't be happy about earnings that are lower than last year's and below both consensus expectations and their own goals. The main reason their earnings were down was lower than expected revenue growth. This quarter's 12% increase is the lowest they have recorded in 5 years. Another factor to consider in comparing this quarter to last year's Q4 is the difficult comparison they face. Last year, earnings grew 42% in Q4.
They believe they are making progress on some of the issues they talked about last quarter including reseller order patterns and their exit from disk mechanism manufacturing, and that they are now better positioned for profitable growth. This quarter, once again, the stronger dollar reduced order and revenue growth by about 3%. This was about the same as Q3.
ORDERS. Here they think the news is quite good. Order growth of 15% is a nice recovery from last quarter's 8% increase. Growth accelerated in both the US and international. Their 15% increase supports the analysis of Q3 orders they gave in August. At that time they said that 8% probably understated the strength of their business, but that the 20%+ growth they had achieved for a long time probably wouldn't continue indefinitely. Factoring in currency effect yields an order growth rate for the quarter in the high teens. Also keep in mind the difficult comparison with last year when orders in Q4 increased 27%. The pickup in order growth occurred despite some areas of real softness. Test and Measurement orders were down 1% compared with the strong year-ago quarter. A key factor within T&M was weak demand for semiconductor test equipment. In addition, orders in Components declined by 11%, while growth in Chemical Analysis and Medical remained quite weak. On the computer side they are very pleased with order growth of 20%. This number would have been better by about a point without the impact of their decision to exit disk mechanisms.
REVENUE. On the revenue side the story isn't quite so positive. Revenue was below their expectations. Their ship-to-order ratio this quarter was 1.01. Typically they are at about 1.03 in Q4. This lower ratio may have been foreshadowed by last quarter's sluggish order growth. In addition, October was the strongest order month within the quarter, so they had less time to ship some of those orders. However, they encouraged people to interpret their strong October orders quite cautiously because sales force incentives can cause distortions, particularly around year end.
COST OF SALES. The story on cost of sales is similar to recent quarters. Cost of sales was 67.2% of revenue compared to 65.3% a year ago and 68.0% last quarter. All of these numbers include the impact of their disk mechanism business without which this quarter's figure would be 66.8% and Q3 would have been 66.0%. This quarter's outcome is within the normal range for HP. Within cost of sales they are working on a number of supply chain management issues such as product obsolescence, returns, and the management of price protection exposure. These issues are inherent in businesses such as printers and PCs. They constitute a significant cost of doing business and are a key factor in achieving HP's profit goals. They are making progress on supply chain issues and they continue to get a lot of attention within the company.
EXPENSES. They are pleased with this quarter's progress on operating expenses which rose 11%. This represents significant slowing from earlier in the year and reflects an excellent response within the company to their emphasis on managing these expenses. R&D spending rose slightly faster than SG&A expenses. Within SG&A, marketing expenses rose most rapidly, while admin growth was considerably less. Their progress on operating expenses comes with some caveats. They did get some help from currency, and 11% growth is still too high when revenue increased by just 12%.
PEOPLE COSTS. People costs were the main driver of operating expenses. This quarter they added about 1200 people which reflects a continuing slowdown in headcount growth since the middle of the year. Of these new people, some 700 were in cost of sales and the remaining 500 were in operating expenses. This quarter, the number of temporary workers used was down from last quarter's level and are now the equivalent of about 12% of HP's total workforce.
TAX RATE/EARNINGS. This quarter they also adjusted their full-year tax rate from the 31% estimated in Q3 to a final reported rate of 30% due to an increasing share of their earnings coming from low tax environments. Net earnings were $648 million or $0.62 per share compared with $0.64 per share in the year ago quarter and $0.40 per share reported with several significant qualifiers last quarter.
They achieved very good profitability in many of their businesses. Profitability in Medical and Chemical Analysis was below plan and, of course, their Information Storage business fell short due to disk mechanisms.
CASH & SHORT TERM INVESTMENTS. There were some events that affected how cash and debt look on the balance sheet this quarter. A recent change in the tax laws in Puerto Rico has reduced the benefits to HP and other companies of maintaining a short-term cash portfolio on the island. As a result, HP has been moving virtually all of this short term portfolio from Puerto Rico to the mainland. This is in addition to the normal year-end profit movement for tax purposes. These moves began in Q4 and are continuing in Q1. They affect short term investments, cash, and ultimately notes payable and commercial paper as they pay down these balances with the repatriated cash. As you see and will continue to see, cash and short term investments taken together declined as will notes payable. This decision has not affected their long-term portfolio in Puerto Rico which continues to grow. They are taking on more long-term debts to finance both these investments in Puerto Rico as well as their growing portfolio of customer leases and rentals. All of these events are well within the normal operations of their treasury function and they are prudent ways to manage their cash, investments, and debt. They have no impact on HP's ability to fund ongoing operations or to make a wide range of investments in the company's growth.
SHARE BUYBACK. This quarter HP also bought back shares aggressively. They spent approximately $287 million to repurchase about 6.4 million shares and they reduced the number of shares outstanding.
THE YEAR AS A WHOLE. For FY 1996 HP's earnings increased 6% from $2.31 per share to $2.46 this year. Orders rose 19%. Revenue was up 22%. This was another really strong growth year for a company of their size with order and revenue increments in the $6-7 billion range. However, their operating and net profit margins both were lower than in 1995. That is a pretty mixed result overall and they can't deny that they are a little disappointed. While they are pleased with their overall order and revenue growth, the severity of the slowdown in the third quarter was unanticipated. After 1995, a year in which the company was firing on all cylinders and had the results to match, 1996 turned out to be a more trying year.
SOME OF THE FORCES THAT MADE 1996 TRYING. Coming out of 1995, they had an aggressive plan for order growth but they fell a little short. Their problems in the disk mechanism business as well as weakness in workstations, components, and semiconductor test were the main causes of this shortfall. On cost of sales some of the same factors intensified the normal pressures in their businesses. Disk mechansims, workstations, and severe pricing pressures in inkjet printers contributed to significant deviations from their plan. On the expense side, they achieved a 6% spread between operating expense growth and revenue growth. They decided at the start of 1996 to add people to support their strong business growth. But, as they moved through 1996 they had to, and did, adjust these plans. So, their EPS of $2.46 for the year reflects these and other factors. Note that disk mechanism losses cost them about $0.22 per share in 1996.
ASSET MANAGEMENT PERFORMANCE FOR THE FULL YEAR. This was considerably improved over their 1995 outcome. They increased their capital spending quite a bit and they think these investments will serve them well going forward. The major progress they achieved was in working capital, both inventory and receivables. They have added about $6.5-7 billion in incremental revenue in FY 96 and 95. In FY 1995 they needed a $1.7 billion increment in both inventory and receivables to support this growth. For FY 1996 they added just $400 million more in inventory and receivables. Thus both of these significant assets are down more than 2 points as a percent of revenue compared to the year ago. They are very pleased with this result. However, despite this progress, both ROA and ROE declined due to their weak profit outcome in the second half of the year.
OUTLOOK FOR 1997. First, they see plenty of opportunities for growth across their businesses. In the Computer business, for example, they believe they are in a great position to continue to capitalize on growth opportunities in printers, PCs, servers, and support. They are also working hard to achieve good growth in their Components and Semiconductor Test businesses. They feel they have the products and technologies to make that happen when conditions improve in these cyclical businesses. Another factor to consider is that in 1997 their exit from the disk mechanism business will be complete. The first half of 1997 will still be comparing to a period when they were booking orders and revenue, but the negative impact on profitability will be behind them. It is also possible that the extreme pricing pressures they saw this year in inkjets will ease up a bit in 1997. This past year, the decline in average inkjet platform prices accelerated compared with prior years. If they see some easing of that pressure and if they can maintain their strong market share, the financial impact could be significant.
CHANGES IN PROFIT SHARING FORMULA. Finally another factor that should be considered is that HP has recently announced a change to the formula they use to determine their twice a year profit sharing. Under the old formula, they allocated 12% of pre-tax, pre- retirement profits to a profit sharing pool. In recent years as pre-tax profits increased strongly while the number of eligible employees grew slowly, this formula led to a large increase in profit sharing that didn't necessarily align well with the company's performance. Starting in 1997, the new formula utilizes revenue growth and ROA as the variables. To determine the percentage payout applied to an employee's eligible earnings, they divide revenue growth by 5 and add to that number the ROA divided by 2.5. Some FY 1996 facts that will put this change into perspective -- profit sharing payout in 1996 amounted to $540 million and represented about 10.7% of eligible earnings. The new formula, if it were in place would have yielded about 8% eligible earnings or about $400 million.
POSSIBLE OFFSETS FOR 1997. In addition to the potential upside factors for 1997, there are a list of possible offsets that start with economic risks. The economic environment in countries such as Japan and Germany is not robust and the near-term outlook is uncertain. These are major markets for HP and sustained weakness in one or both could be a drag on their growth. Regarding HP specific factors, they need to rekindle growth in several businesses that had been sluggish for some time. They are refining their strategies in Chemical Analysis and Medical, two businesses that are not performing to their historical levels. At the same time they are examining their business model and organizational structure in workstations in light of changing market conditions and technologies. They have announced that they are exiting some parts of their medical business and consolidating some operations. There may be additional actions of this kind that may result in some charges in Q1 and Q2. Finally, they will face very tough comparisons in the first two quarters of the new year.
STRONG POSITION GOING FORWARD. As they start 1997 they remain confident that their businesses are well positioned for profitable growth. Nothing that has happened in the second half of 1996 has altered this view. They feel they have the technologies, partners, and channel presence to not only succeed in high growth markets, but to identify areas where they can address unmet needs and create new business opportunities. They have shown over many years that they can achieve profitable growth in markets that are high growth and very competitive as well as those that are growing moderately. They will continue to focus on improving their cost and expense structures while they work to develop compelling solutions in order to extend this record. Finally, they will make appropriate investments in technologies and people in order to improve their competitiveness, their speed and their flexibility. They feel there is still plenty of room to sharpen many processes and achieve greater efficiencies.
ORDER PERFORMANCE. Total orders grew 15% and were $10 billion. There are other considerations that favorably impact HP's view of underlying comparable growth rates. Currency reduced their order growth rates by about 3%. Their withdrawal from the disk mechanism business negatively impacted orders by 1%. And extraordinary big deals booked by TMO in Q4 1995 but not in this year's fourth quarter had another 1% impact. All this leads them to believe that this quarter's underlying growth rate is actually higher than the order growth rate reported and is a respectable outcome given the 27% growth in Q4 last year.
ORDER GROWTH RATES. Sequential growth was a strong 15% with especially strong growth in the month of October. For the full year, they show order growth of 19%, adding $6.2 billion in orders this year. This quarter has a tough compare. In Q4 1995 they had a 27% order growth rate. They had strong European and Japanese currency, incredible PC and UNIX server business, exceptional TMO strength and very strong US orders. US orders were $4.7 billion, an increase of 10% over the same period last year and 21% over Q3. Orders from outside the US totalled $5.3 billion, up 20% from a year ago and 11% from last quarter. Latin America achieved very strong order growth rate quarter over quarter reflecting strength in Argentina and strong comebacks in Mexico and Venezuela. Canada also reported good growth. Once again, currency hurt their growth results. Orders from Europe rose 28% in local currency and 22% in dollars. In Asia/Pacific they posted 20% in local currency and 12% in dollars. In Japan, orders were up 14% in local currency, but declined 5% in US dollars. Orders in computer products, services, and support grew 20% year over year and 18% sequentially.
Breakdown by Business
Monochrome LaserJet Printers. The LaserJet business had a strong quarter capping off a successful year. Overall they saw moderate growth in the US and strong growth in Europe, Asia/Pacific without Japan, and Latin America. Monochrome LaserJets achieved moderate growth quarter to quarter but showed strong sequential gains returning to typical levels. Strong growth in the high-end Laserjet 5SI network printer and the newly introduced LaserJet 6P (their individual office printer) were highlights. Growth was somewhat offset by the order spike last year with the LaserJet 5L introduction in Q4 1995.
Color LaserJet Printers. Color LaserJets, supplies, and scanners posted extraordinary gains. The color LaserJet 5 continued with excellent growth over the prior year in all regions. Color printing in the office has continued to increase as printing speeds accelerate and prices decline. LaserJet supplies also continued their strong growth in all regions on a quarter to quarter and full year basis. They have already announced plans to triple production of toner cartridges for the 5SI family to meet duty cycle demand for the network printer. The low-cost ScanJet 4P introduced this year and high resolution color flatbed scanner the ScanJet 4C led the way for a very strong quarter over quarter. LaserJet revenue growth was strong and ship-to-order ratio was slightly better than Q4 last year. Strong performers here were the Color LaserJet, the ScanJet 4C and 4P, the LaserJet 5L and 5SI printers, and of course the LaserJet supplies business.
InkJet Products. InkJet products also posted very strong order growth with orders and shipments hitting record levels in this quarter. Sequential growth is due to resellers stocking the channel for the holidays, but the seasonality is more pronounced this year. With inkjet's solid order rebound in Q4 after the slowdown they reported in the third quarter, they were convinced that Q3's order slowdown was the result of their joint efforts with channel partners to reduce their inventory levels and may not have been an indication of end user demand. In fact, sell through has remained relatively stable in the second half and that leads them to believe that shipments are a better indication of true demand than reseller orders. There was wide acceptance of DeskJet 870C which was introduced in several regions during the last quarter. Another new introduction, the DeskJet 690, their first photo-quality printer, is showing strong initial acceptance. Again, they find InkJet supplies growing at high historical levels. Revenue growth was very strong but considerably less than the excellent order growth described. The ship-to-order ratio for inkjet products was significantly below Q4 1995, mainly because of large order volume which is great news, and the order timing pattern during the quarter that was skewed towards October. If order patterns are any indication, channel inventory clearing that occurred in Q3 seemed to continue into Q4. The order pickup in the latter part of the quarter gives some comfort that HP channel inventory levels may have normalized. Regarding specific products, inkjet supplies was, again, a stellar performer. The DeskJet 890 and the 870C did well as did the CopyJet and the 1600C shared office products.
PCs. For the full year the PC line achieved excellent growth and very good growth for Q4. HP gained market share in the desktop, server, and home PC segment but dropped in ranking to Dell and Toshiba because of limited notebook distribution. They also suffered in global ranking due to their limited Pavilion distribution in Europe and Asia/Pacific. Growth was particularly strong in the international environment compared to last year. Desktops grew very well due to strong performance across all products, particularly the VE line. Servers grew nicely compared to phenomenal growth rates last year. Strong gains were experienced at the high end and they benefitted from new low end product introductions. The Pavilion became one of the top 5 consumer PCs in the US. Sequentially, they saw rapid growth for this product as ramping for the retail holiday selling season begins in North America. Mobile orders declined year over year and sequentially due to product transitions and pricing pressures. Hand-held products grew slightly but personal digital assistants achieved robust growth. Network orders also grew nicely quarter over quarter. Drivers of growth were the switching business which grew at a phenomenal rate and network attachment orders which had good growth due to US demand for external and print servers. PC revenue growth is pretty much in line with order growth and has an acceptable ship-to-order ratio comparable with historical patterns. Servers led the way with strong revenue growth with desktops, corporate desktops, and small business PCs doing very well.
Information Storage. Within the information storage business, the closure of their disk mechanism business has driven year on year decline, but sequentially they have seen improvement as they cancelled $39 million in orders in Q3 and only $2 million in Q4. For the full year, their digital audio tape products have posted good growth and they are happy with the extensions in the HP Sure Store family of network backup solutions -- the Travan-based tape and the digital linear tape. The CD Writer and newly announced CD rewriteable are also showing encouraging customer acceptance as evidenced by excellent sequential growth. Finally, as expected, information storage revenues were down significantly year over year due to their exit from the disk manufacturing business. ISG revenues did increase however over the very weak Q3 results.
UNIX. Their overall UNIX business currency adjusted growth rate was slower than last year's results. Server growth remains strong, at about the same rate as last quarter at above market growth rates. Low-end and mid-range servers led the way, more than offsetting the high-end decline. Above average growth by industry occurred in manufacturing, telecom, and financial services. Workstations continued to be below last year's levels as customers cautiously evaluate ISV applications and competing NT technology offerings. They continued to see strength in OpenView, disk arrays, and their TSO businesses. Revenue-wise, the story is similar to last quarter. UNIX servers, mass storage, middleware, and consulting services had good revenue growth against a very tough compare while workstation revenues declined versus the same quarter last year but increased versus a very weak Q3. Workstation revenues are being driven by order slowness as they work to regain momentum in this changing business. Ship-to-order ratio for computer systems overall is about 100%, which is a bit light but not significantly.
Worldwide Customer Service Organization. Their worldwide service and support organization has shown very strong growth quarter over quarter, driven by Q4 1996 big deals and double-digit growth in their multi-vendor, software, and outsourcing services.
Test and Measurement. Overall orders were slightly down over a year ago. It is a tough compare because Q4 1995 order growth was 30% due to phenomenal big deal activity and strong growth in IC test equipment. Japan continues to be slow relative to last year, impacted by the semiconductor test equipment business cycle, the strengthening dollar, and an August 1st price increase which pulled business into Q3 1996. Europe is also down, again driven by their major wireless communication customers. Orders for semiconductor test equipment continue to reflect ongoing industry decline. The quarter ended with record performance in the Americas. Asia/Pacific without Japan also had good growth primarily driven from strength in Korea. The downturn in their semiconductor related businesses was offset by strong order performance in their communications segment. Test and measurement revenues were up 8% over Q4 1995 but down from the high growth rate they have seen in recent quarters. Sequentially revenues were up 11%. Clearly, slowness in the semiconductor test market is hurting revenue growth. The rest of T&M is doing fine. It is very encouraging to see the communication test market begin to come back. Ship-to-order was good in T&M this quarter as they actually reduced backlog.
Components. Orders for electronic components declined 11% when compared to Q4 1995 but were up sequentially due to resumed US and Japan channel purchases. They saw strong growth in fiber and excellent growth in infrared both quarter over quarter and sequentially. Component revenue was down 4% compared to last year and down 1% sequentially.
Chemical Analysis. This business grew slightly quarter over quarter. For orders, Asia/Pacific and the Americas were the best geographies. In the Americas, there was good performance in the biopharmaceutical industry offset by the continued sluggishness in the environmental industry. Liquid chromatography products continued to gain market share. Order growth for these products was 27% over last year. Chemical analysis revenue decreased 1% over Q4 last year but increased 9% sequentially.
Medical. Orders in the company's medical products group declined 1% when compared to an exceptionally strong Q4 1995 but grew sequentially at 12% with Asia/Pacific growing at 21% and the Americas at 15%. The sequential growth in the clinical businesses was led by ultrasound equipment. For the full year, Latin America was a real bright spot due in part to economic recovery in the region. Japanese performance grew 14% in U.S. dollars and substantially better in local currency. Revenue from their medical products business increased by 7% over Q4 1995 and increased 9% sequentially.
INCOME STATEMENT. Shipment growth was a disappointment in Q4. Revenues for the quarter were $10.1 billion, an increase of 12% over Q4 1995. Sequentially, revenues were up 11%. Backlog decreased during the quarter by $142 million, but this compares to a $380 million increase in Q4 1995. They already discussed the various things like currency effect that impacted order growth and those things also apply to revenues. But whether you look at orders and revenues on a reported basis or normalized for these effects, the difference between the two certainly does not reflect typical Q4 patterns where they usually have a strong ship-to-order ratio. This ratio was 101% this quarter as compared to 104% in Q4 1995, quite a difference. The weak order picture in Q3 continued for much of Q4 before turning around in the second half of the quarter. Unfortunately the orders came in too late to convert them into shipments by the end of the quarter.
From a geographical perspective, US revenue grew by 10% while international grew 14% over Q4 1995. Revenue breakdown this quarter was 47% from the US and 53% international. Disappointing revenue growth compared to order growth was driven primarily by the timing and high volume of orders in the inkjet business. This explains virtually all the revenue shortfalls in the quarter. Their hope is that channel inventory levels have stabilized and orders will be spread more evenly in future reporting periods. By major business grouping their computer business grew 14% versus Q4 1995 and 12% sequentially.
COST OF SALES. Cost of sales as a percentage of revenue was 67.2% for the quarter compared to 65.3% in Q4 1995, up 1.9%. Sequentially the cost of sales ratio was down 0.8 points from 68% even which included DMD. Excluding the DMD effects from all periods, the cost of sales ratio comparisons are as follows: Q4 1996 was 66.8%, up 1.5 points from Q4 last year and up 0.8 points from an adjusted 66% last quarter. In addition, the cost of sales ratio was negatively affected by slower revenue growth and slightly higher than normal obsolescence write down this quarter. They are working very hard at improving their overall supply chain management, the objective being to lower their exposure to inventory writedowns and price protection expense which affects the cost of sales ratio. Notwithstanding these points, they still expect competitive pressures to squeeze gross margins, it is just a question of how much. They try to offset gross margin declines with lower operating expenses over time but, unfortunately, they didn't get it done this quarter.
OPERATING EXPENSES. As a percentage of revenue, operating expenses decreased 0.2 of a point from 24.3% in Q4 1995 to 24.1% this quarter, not enough to offset the increase in the cost of sales ratio even after DMD adjustments. Sequentially, this ratio decreased 1.2 points from 25.3% last quarter. A sequential decrease is expected however, since they typically see higher absolute revenues in Q4 versus Q3 due to the seasonal pattern. Overall, operating expenses grew 11% over Q4 1995 and increased 6% from Q3, basically a fine outcome if not for slower revenue growth. R&D spending was up 13% while SG&A expense was up 10%. Currency had about a 2% positive effect this time. However, it was offset by a 2% drag from a number of other small items such as acquisition effects that were not in last year's numbers. So the underlying expense growth was still in the 11% range. This means they achieved a 1% differential between revenue growth and expense growth, well below their goals and recent results. Of course, the main problem was disappointing revenue growth not expense growth. Expense management was really excellent, considering that only two quarters ago they reported adjusted expense growth of 21%. In addition to good expense management, they will most likely be paying out less in profit sharing in the future than they have in recent quarters as a result of the formula change. Again, their goal is to manage their costs and expenses to produce operating margins in the 10-12% range. So, as a result of all this, operating profits were down 6% from Q4 1995 and operating margin was 8.7% compared to 10.4% in Q4 last year. Adjusted for DMD effects, operating margin was 9.1%.
INTEREST INCOME & OTHER. The Interest Income and Other category was down $8 million versus Q4 1995. Interest expense was up by $40 million over Q4 1995 and up $16 million sequentially due to higher debt levels. The provision for taxes as a percentage of earnings before taxes was reduced to 30% from 31% on a year to date basis as a result of the continuing favorable geographic earnings mix. As of now, this is also their best estimate for FY 1997. Net earnings were down 4% over Q4 1995 and up 52% compared to last quarter. Net margin was 6.4% compared to 7.5% last year and 4.7% last quarter. Return on assets was 9.7% in Q4 1996 compared to 10% last year and 9.6% last quarter. Return on equity was 20.3% versus 22.3% last year and 21.2% last quarter. Earnings per share was $0.62, down 3% from last year's $0.64 per share as restated on a post-split basis. Disk memory net losses reduced earnings per share by $0.03 this quarter while the change in the tax rate increase earnings per share by $0.03.
BALANCE SHEET. Net cash (cash, marketable securities, long-term cash less total debt) increased by $471 million during the quarter. The amount of cash in Puerto Rico, reported as Other Assets was $1.22 billion, up $288 million from last quarter. Even though they are bringing short term cash back from Puerto Rico, it is still advantageous to maintain certain long term fixed income investments there. Typically these investments are made opportunistically over the year. However, this year they decided to invest early before expected changes in the law mandated lower yields which explains the large increase this quarter. Net cash increased during the quarter as cash generated from earnings, decreases in inventory levels, depreciation and amortization, stock issuances exceeded cash used for increases in accounts receivable, PP&E, share repurchases, and dividends. The major sources of cash during the quarter were net earnings of $648 million, depreciation and amortization of $374 million, and stock issuance of $188 million. A decrease in inventory during the quarter contributed an additional $492 million. The major uses of cash were a net increase in PP&E of $634 million, an increase in accounts receivable of $580 million, stock repurchases of $287 million, a net increase in other balance sheet items of $392 million and $122 million in dividends. Accounts receivable grew by 6% from the fourth quarter last year on revenue growth of 12%. Sequentially, A/R increased by $580 million or 9% while revenues increased by 11%. Accounts receivable-to-sales ratio was 18.5% compared to 21.4% last year and 17.5% last quarter. This is the lowest this ratio has been at year end for quite some time. It is partially related to the slow revenue growth this quarter.
INVENTORY. Over Q4 1995 inventories were up 6% on 12% revenue growth. However, compared to Q3, inventories actually decreased by 7% while revenues were up 11%. Inventory-to-sales ratio was 16.7%, down significantly from the 18.5% last quarter and the 19.1% last year. Months supply of inventory was 2.94 in Q4 this year versus 3.21 in Q4 1995 and 3.5 last quarter. This is the first significant progress they've made on inventory levels in quite some time. Improved management of the overall supply chain, including sourcing method, HP internal inventory levels, and channel inventory levels continues to be one of their top priorities.
PROPERTY, PLANT & EQUIPMENT (PP&E). As a percentage of revenues, net PP&E fell from 14.9% last Q4 to 14.4% this year. However, it is probably more meaningful that after years of consistent decline, this ratio was up 0.4 points sequentially. This reflects the fact that recently they have had to add PP&E to accommodate the high growth in some of their businesses. However, if growth continues to moderate on a sustained basis, they will adjust their capital spending plans accordingly.
* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.