-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MQIAs3dC4CfjBveSDA/4cigxhhxK+j0kv5pzdad4J/qUhzzKrNe/YK0yPGs8Fto5 rOsls8RLpvX0ozbLMPp5/Q== 0000891618-98-000244.txt : 19980128 0000891618-98-000244.hdr.sgml : 19980128 ACCESSION NUMBER: 0000891618-98-000244 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980127 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEWLETT PACKARD CO CENTRAL INDEX KEY: 0000047217 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER & OFFICE EQUIPMENT [3570] IRS NUMBER: 941081436 STATE OF INCORPORATION: CA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-04423 FILM NUMBER: 98514491 BUSINESS ADDRESS: STREET 1: 3000 HANOVER ST CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4158571501 MAIL ADDRESS: STREET 1: 3000 HANOVER ST STREET 2: MS 20BQ CITY: PALO ALTO STATE: CA ZIP: 94304 10-K405 1 FORM 10-K FOR FISCAL YEAR ENDED OCTOBER 31, 1997 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM --------------- TO --------------- COMMISSION FILE NUMBER: 1-4423 HEWLETT-PACKARD COMPANY EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER CALIFORNIA 94-1081436 STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION IDENTIFICATION NO.
3000 HANOVER STREET, PALO ALTO, CALIFORNIA 94304 ADDRESS OF PRINCIPAL EXECUTIVE OFFICES REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 857-1501 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ------------------------------------------------------------------------------------------------------------------ Common Stock New York Stock Exchange, Inc. par value $1 per share The Pacific Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's common stock held by nonaffiliates as of December 26, 1997 was $50,290,256,964. Indicate the number of shares outstanding of each of the issuer's classes of common stock as of December 26, 1997: 1,040,113,000 shares of $1 par value common stock. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT DESCRIPTION 10-K PART ------------------------------------------------------------------- ---------- Pages 31 - 56 (excluding order data and "Statement of Management Responsibility") and the inside back cover of the registrant's 1997 Annual Report to Shareholders............................... I, II, IV Pages 2 - 16 and 22 of the registrant's Notice of Annual Meeting of Shareholders and Proxy Statement dated January 12, 1998.......... III
================================================================================ 2 PART I ITEM 1. BUSINESS PRODUCTS AND SERVICES Hewlett-Packard Company was incorporated in 1947 under the laws of the State of California as the successor to a partnership founded in 1939 by William R. Hewlett and David Packard. On a worldwide basis, Hewlett-Packard Company, together with its consolidated subsidiaries (the "Company"), designs, manufactures and services products and systems for measurement, computation and communications. The Company offers a wide variety of systems and standalone products, including computer systems, personal computers ("PCs"), printers and other hardcopy and imaging products, calculators and other personal information products, electronic test equipment and systems, medical electronic equipment, components based on optoelectronic, silicon and compound semiconductor technologies, and instrumentation for chemical analysis. Services such as systems integration, network systems outsourcing management, consulting, education, product financing and rentals, as well as customer support and maintenance, are also an integral part of the Company's offerings. These products and services are used in industry, business, engineering, science, medicine and education. A summary of the Company's net revenue as contributed by its major groupings of similar products and services appears on page 55 of the Company's 1997 Annual Report to Shareholders, which page (excluding order data) is incorporated herein by reference. The Company's computer systems, computers, personal information products and hardcopy and imaging products are used in a variety of applications, including scientific and engineering computation and analysis, instrument control and business information management. The Company's core computing products and technologies include its PA-RISC architecture for systems and workstations, its Explicitly Parallel Instruction Computing technology, jointly developed with Intel Corporation, that will provide the foundation for next- generation, 64-bit high-end systems; and software infrastructure for open systems. The Company's general-purpose computers and computer systems include scalable families of PCs, servers and systems for use in homes, home offices and small offices, small workgroups, larger departments and entire enterprises. Key product families include the HP 9000 series, which runs HP-UX, the Company's implementation of the UNIX(R)(1) operating system, and comprises multiuser computers for both technical and commercial applications as well as workstations with powerful computational and graphics capabilities; the HP NetServer series of PC servers; the HP Vectra series of PCs for use in business, engineering, manufacturing and chemical analysis; and the HP Pavilion multimedia home PCs. The Company offers associated services in software programming, networking, distributed systems and data management. Customers of the Company's computers, computer systems, and software infrastructure products include original equipment manufacturers, dealers, value-added resellers and retailers, as well as end users for a variety of applications. In the field of computing during fiscal 1997, the Company introduced a wide variety of new products and systems, including the HP 9000 V-Class enterprise server for use in decision-support, data-warehousing, transaction-processing, engineering and scientific applications; new HP 9000 D-Class enterprise servers for superior entry-level performance; new HP NetServer LX and LXr systems that integrate Intel Corporation's Pentium(R)(2) Pro 200MHz microprocessor; and the PA-8500 microprocessor, the most recent addition to the Company's family of HP-PA microprocessors that are currently commercially available. This year the Company also introduced new HP Vectra PCs, including the HP Vectra XA, the HP Vectra VL and the HP Vectra VA models, and a next-generation family of HP Pavilion multimedia PCs that deliver imaging and Internet capabilities for retail prices less than US$1,000. In early fiscal 1998, the Company also introduced HP Pavilion multimedia PCs with retail prices less than US$800. Other product introductions during fiscal 1997 included the HP Kayak PC workstation family of personal workstations that is - --------------- (1) UNIX is a registered trademark of The Open Group. (2) Pentium is a U.S. registered trademark of Intel Corporation. 2 3 based on Microsoft (R) Windows (R) NT(3) and Intel's Pentium II processor; and the HP Brio family of small-business PCs. In addition to services such as systems integration, network systems management outsourcing, consulting, education, product financing and rentals, the Company provides service for its equipment, systems, and hardcopy and imaging products. This service includes support and maintenance services, parts and supplies for the following: design and manufacturing systems, office and information systems, general-purpose instruments, computers and computer systems, networking, hardcopy and imaging products. In fiscal 1997, the Company derived 15 percent of its revenue from such services. Key service introductions in fiscal 1997 included HP Critical Systems Support, a package of hardware, applications and services that guarantees 99.95 percent system uptime in high-availability, UNIX system environments; and HP Scalable Services for Windows NT, under which the Company commits to resolving Windows NT system hardware issues within six hours of receiving a customer call. Key software events in fiscal 1997 included a number of enhancements to HP OpenView, the Company's suite of products and services for integrated network, system, application and database management, including HP OpenView Desktop Administrator, a set of tools and services for managing desktop networks; and the HP OpenView IT service-management program. During 1997, the Company also acquired VeriFone, Inc., a leader in the electronic-business marketplace. The Company's hardcopy and imaging products include a variety of system and desktop printers, such as the HP LaserJet family, and the HP DeskJet family, which is based on the Company's thermal inkjet technology. The Company also markets large-format printers, scanners, PC photography products and all-in-one products that perform copying, printing, scanning and faxing functions. Key introductions in these product families in fiscal 1997 included the HP LaserJet 4000 family, which prints at 17 pages per minute, and the HP DeskJet 722C/890C printers, which incorporate new HP technologies for photo-quality printing. This year the Company also introduced the HP ScanJet 5p, a desktop scanner, the HP6100C Professional Series family of scanners, and the HP OfficeJet 600 and OfficeJet Pro 1150Cse series of all-in-one products, as well as the PhotoSmart family of PC photography products. In the information-storage business, the Company introduced the HP SureStore CD-Writer Plus, which enables users to write and rewrite 650 Megabytes of data on a compact disk. The Company also produces systems that are used for a wide range of testing and measurement functions in electronics, medicine and chemical analysis. Key introductions in test and measurement in fiscal 1997 included the HP 83000 multimedia test series for semiconductor test, and the HP Infinium family of oscilloscopes. In the Company's medical business, the Company introduced the HP SONOS 5500 system for cardiovascular ultrasound. In the chemical-analysis business, the Company brought out the HP GeneArray Scanner, which can substantially reduce the time it takes to analyze targeted DNA mutations. The Company also makes electronic component products, consisting principally of microwave semiconductor, fiber-optic and optoelectronic devices, including light-emitting diodes (LEDs). These products are sold primarily to other manufacturers for use in their electronic products, but many of the Company's products incorporate them as well. In fiscal 1997, the Company announced a single-chip, interface controller integrated circuit that helps enable high-performance, mass-storage applications. MARKETING Customers. The Company has approximately 600 sales and support offices and distributorships in more than 120 countries. Sales are made to industrial and commercial customers, educational and scientific institutions, healthcare providers (including individual doctors, hospitals, clinics and research laboratories), and, in the case of its PCs, hardcopy, imaging and other personal-information products, to individuals for personal use. - --------------- (3) Windows is a U.S. registered trademark of Microsoft Corporation. Windows NT is a U.S. registered trademark of Microsoft Corporation. 3 4 Sales Organization. More than half of the Company's net revenue is derived through reseller channels, including retailers, dealers and original equipment manufacturers. The remaining revenue results from the efforts of its own sales organization. These direct sales operations are supported by field service engineers, sales representatives, service personnel and administrative support staff. The Company generated a higher proportion of its net revenue in fiscal 1997 than in fiscal 1996 from its PCs, printers and other personal-information products, which are sold through resellers. The financial health of these resellers, and the Company's continuing relationships with such resellers, are becoming more important to the Company's success. Some of these companies are thinly capitalized and may be unable to withstand changes in business conditions. The Company's financial results could be adversely affected if the financial condition of certain of these resellers substantially weakens or if the Company's relationship with such resellers deteriorates. Resellers constantly adjust their ordering patterns in response to the Company's and its competitors' supply into the channel, and in response to the timing of their new product introductions and relative feature sets, as well as seasonal fluctuations in end-user demand, such as the back-to-school and holiday selling periods. Resellers may increase orders during times of shortages, cancel orders if the channel is filled with currently available products, or delay orders in anticipation of new products. International. The Company's net revenue originating outside the United States, as a percentage of the Company's total net revenue, was approximately 56 percent in each of fiscal 1997, 1996 and 1995, the majority of which was from customers other than foreign governments. Approximately two-thirds of the Company's international revenue in each of the last three fiscal years was derived from Europe, with most of the balance coming from Japan and other countries in Asia Pacific, Latin America and Canada. Foreign sales subsidiaries make most of the Company's sales in international markets. In countries with low sales volumes, various representatives and distributors make most of the Company's sales. However, certain sales in international markets are made directly from the United States. The Company's international business is subject to risks customarily encountered in foreign operations, including changes in a specific country's or region's political or economic conditions, trade protection measures, import or export licensing requirements, the overlap of different tax structures, unexpected changes in regulatory requirements and natural disasters. The Company is also exposed to foreign currency exchange rate risk inherent in its sales commitments, anticipated sales and assets and liabilities denominated in currencies other than the U.S. dollar, as well as interest rate risk inherent in the Company's debt, investment and finance receivable portfolios. The Company's risk management strategy utilizes derivative financial instruments, including forwards, swaps and purchased options to hedge certain of these foreign currency and interest rate exposures. As of October 31, 1997, a sensitivity analysis performed by the Company indicated that adverse movements in foreign exchange rates and interest rates applied to hedging contracts and the underlying exposures described above would not have a material effect on the Company's consolidated financial position, results of operations or cash flows. Actual gains and losses in the future may differ materially from that analysis, however, based on changes in the timing and amount of interest rate and foreign currency exchange rate movements and the Company's actual exposures and hedges. The Company believes that its international diversification provides stability to its worldwide operations and reduces the impact on the Company of adverse economic changes in any single country. A summary of the Company's net revenue, earnings from operations and identifiable assets by geographic area appears on page 53 of the Company's 1997 Annual Report to Shareholders, which page is incorporated herein by reference. COMPETITION The Company encounters aggressive competition in all areas of its business activity. The Company's competitors are numerous, ranging from some of the world's largest corporations to many relatively small and highly specialized firms. The Company competes primarily on the basis of technology, performance, price, quality, reliability, distribution and customer service and support. The Company's reputation, the ease of use of its products and the ready availability of multiple software applications and customer training are also important competitive factors. 4 5 The computer market is characterized by vigorous competition among major corporations with long-established positions and a large number of new and rapidly growing firms. Product life cycles are short, and, to remain competitive, the Company must develop new products and services, periodically enhance its existing products and services and compete effectively on the basis of the factors listed above. In particular, the Company anticipates that it will have to continue to adjust prices of many of its products and services to stay competitive, and will have to effectively manage financial returns with reduced gross margins. While the absence of reliable statistics makes it difficult to state the Company's relative position with certainty, the Company believes that it is the second-largest U.S.-based manufacturer of general-purpose computers, personal-information, hardcopy and imaging products such as printers for industrial, scientific and business applications. The markets for test-and-measurement equipment are influenced by specialized manufacturers that often have great strength in narrow market niches. In general, however, the Company believes that it is one of the principal suppliers in these markets. BACKLOG The Company believes that backlog is not a meaningful indicator of future business prospects due to the large volume of products delivered from shelf inventories, the shortening of product life cycles and the portion of revenue related to its service and support business. Therefore, the Company believes that backlog information is not material to an understanding of its business. PATENTS The Company's general policy has been to seek patent protection for those inventions and improvements likely to be incorporated into its products and services or to give the Company a competitive advantage. While the Company believes that its patents and applications have value, in general no single patent is in itself essential. In addition, there can be no assurance that any of the Company's proprietary rights will not be challenged, invalidated or circumvented, or that any such rights will provide significant competitive advantages. MATERIALS The Company's manufacturing operations employ a wide variety of semiconductors, electromechanical components and assemblies, and raw materials such as plastic resins and sheet metal. The Company believes that the materials and supplies necessary for its manufacturing operations are presently available in the quantities required. The Company purchases materials, supplies and product subassemblies from a substantial number of vendors. For many of its products, the Company has existing alternate sources of supply, or such sources are readily available. In certain instances, however, the Company enters into noncancelable purchase commitments with, or makes advance payments to, certain suppliers to ensure supply. Portions of the Company's manufacturing operations are dependent on the ability of suppliers to deliver quality components, subassemblies and completed products in time to meet critical manufacturing and distribution schedules. The failure of suppliers to deliver these components, subassemblies and products in a timely manner may adversely affect the Company's operating results until alternate sourcing can be developed. In addition, the Company periodically experiences constrained supply of certain component parts in some product lines as a result of strong demand in the industry for those parts. Such constraints, if persistent, may adversely affect the Company's operating results. However, the Company believes that alternate suppliers or design solutions could be arranged within a reasonable time so that material long-term adverse impacts would be minimized. RESEARCH AND DEVELOPMENT The process of developing new high-technology products and solutions is inherently complex and uncertain. It requires, among other things, innovation and accurate anticipation of customers' changing needs and emerging technological trends. Without the introduction of new products, services and enhancements, the Company's products and services are likely to become technologically obsolete over time, in which case revenues would be materially and adversely affected. There can be no assurance that such new products and 5 6 services, if and when introduced, will achieve market acceptance. After the products and services are developed, the Company must quickly manufacture and deliver such products and services in sufficient volumes at acceptable costs to meet demand. Expenditures for research and development increased 13 percent in fiscal 1997 to $3.1 billion, compared with 18 percent growth and expenditures of $2.7 billion in fiscal 1996 and 14 percent growth and expenditures of $2.3 billion in fiscal 1995. In fiscal 1997, research and development expenditures were 7.2 percent of net revenue, compared with 7.1 percent in fiscal 1996 and 7.3 percent in fiscal 1995. The Company anticipates that it will continue to have significant research and development expenditures in order to maintain its competitive position with a continuing flow of innovative, high-quality products and services. ENVIRONMENT Certain of the Company's operations involve the use of substances regulated under various federal, state and international laws governing the environment. It is the Company's policy to apply strict standards for environmental protection to sites inside and outside the U.S., even if not subject to regulations imposed by local governments. The liability for environmental remediation and related costs is accrued when it is considered probable and the costs can be reasonably estimated. Environmental costs are presently not material to the Company's operations or financial position. YEAR 2000 Many computer systems experience problems handling dates beyond the year 1999. Therefore, some computer hardware and software will need to be modified prior to the year 2000 in order to remain functional. The Company is assessing both the internal readiness of its computer systems and the compliance of its computer products and software sold to customers for handling the year 2000. The Company expects to implement successfully the systems and programming changes necessary to address year 2000 issues, and does not believe that the cost of such actions will have a material effect on the Company's results of operations or financial condition. There can be no assurance, however, that there will not be a delay in, or increased costs associated with, the implementation of such changes, and the Company's inability to implement such changes could have an adverse effect on future results of operations. The Company is also assessing the possible effects on the Company's operations of the year 2000 readiness of key suppliers and subcontractors. The Company's reliance on suppliers and subcontractors, and, therefore, on the proper functioning of their information systems and software, means that failure to address year 2000 issues could have a material impact on the Company's operations and financial results; however, the potential impact and related costs are not known at this time. EMPLOYEES The Company had approximately 121,900 employees worldwide at October 31, 1997. EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the executive officers of the Company is set forth in Part III below. ITEM 2. PROPERTIES The principal executive offices of the Company are located at 3000 Hanover Street, Palo Alto, California 94304. As of October 31, 1997, the Company owned or leased a total of approximately 51.0 million square feet of space worldwide. The Company believes that its existing properties are in good condition and suitable for the conduct of its business. The Company's plants are equipped with machinery, most of which is owned by the Company and is in part developed by it to meet the special requirements for manufacturing computers, peripherals, precision electronic instruments and systems. At the end of fiscal year 1997, the Company was productively utilizing the vast majority of the space in its facilities, while actively disposing of space determined to be excess. 6 7 The Company anticipates that most of the capital necessary for expansion will continue to be obtained from internally generated funds. Investment in new property, plant and equipment amounted to $2.3 billion in fiscal 1997, $2.2 billion in fiscal 1996 and $1.6 billion in fiscal 1995. As of October 31, 1997, the Company's marketing operations occupied approximately 12.8 million square feet, of which 5.2 million square feet were located within the United States. The Company owns 52% of the space used for marketing activities and leases the remaining 48%. The Company's manufacturing plants, research and development facilities and warehouse and administrative facilities occupied 38.2 million square feet, of which 28.6 million square feet were located within the United States. The Company owns 75% of its manufacturing, research and development, warehouse and administrative space and leases the remaining 25%. None of the property owned by the Company is held subject to any major encumbrances. The locations of the Company's geographic operations are listed on the inside back cover of the Company's 1997 Annual Report to Shareholders, which page is incorporated herein by reference. The locations of the Company's major product development and manufacturing facilities and the Hewlett-Packard Laboratories are listed below: PRODUCT DEVELOPMENT AND MANUFACTURING Americas Lake Stevens, Spokane and Asia Pacific Cupertino, Folsom, Mountain Vancouver, Washington Melbourne, Australia View, Newark, Palo Alto, Rohnert Park, Roseville, San Brasilia, Brazil Beijing, Qingdao and Diego, San Jose, Santa Clara, Shanghai, China Santa Rosa, Sunnyvale and Edmonton, Calgary, and Westlake Village, California Waterloo, Canada Bangalore, India Colorado Springs, Fort Guadalajara, Mexico Hachioji and Kobe, Japan Collins, Greeley and Loveland, Colorado Europe Seoul, Korea Grenoble and L'Isle Wilmington, Delaware d'Abeau, France Penang, Malaysia Boise, Idaho Boblingen and Waldbonn, Singapore Germany Andover, Massachusetts HEWLETT-PACKARD Dublin, Ireland LABORATORIES Rockaway, New Jersey Bergamo, Italy Palo Alto, California Corvallis, Oregon Amersfoort, The Netherlands Tokyo, Japan Richardson, Texas Barcelona, Spain Bristol, United Kingdom Bristol, Ipswich and South Queensferry, United Kingdom
ITEM 3. LEGAL PROCEEDINGS There are presently pending no legal proceedings, other than routine litigation incidental to the Company's business, to which the Company is a party or to which any of its property is subject. The Company is a party to, or otherwise involved in, proceedings brought by federal or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), known as "Superfund," or state laws similar to CERCLA. The Company is also conducting environmental investigations or remediations at several of its current or former operating sites pursuant to administrative orders or consent agreements with state environmental agencies. Any liability from such proceedings, in the aggregate, is not expected to be material to the operations or financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 7 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Information regarding the market prices of the Company's Common Stock and the markets for that stock appears on page 56 and the inside back cover, respectively, of the Company's 1997 Annual Report to Shareholders. The number of shareholders and information concerning the Company's current dividend rate are set forth in the section entitled "Common Stock and Dividends" found on the inside back cover of that report. Additional information concerning dividends appears on pages 31, 40, 41 and 56 of the Company's 1997 Annual Report to Shareholders. Such pages (excluding order data) are incorporated herein by reference. On October 14, 1997, the Company sold $2.0 billion aggregate principal amount at maturity of convertible zero-coupon subordinated notes due 2017 (the "Notes"). The Notes were offered to qualified institutional buyers, as defined in, and in reliance on, Rule 144A under the Securities Act of 1933 (the "Securities Act"), through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and to investors outside the United States pursuant to the requirements of Regulation S under the Securities Act. The Notes were sold for cash. The aggregate offering price of the Notes was $1,075,700,000 (excluding accrued interest), and the aggregate underwriting commissions were $24,200,000. The Notes are convertible into shares of the Company's Common Stock, $1.00 par value per share (the "Common Stock"), at the option of the holders thereof at any time on or prior to maturity, unless previously redeemed or otherwise purchased. Upon conversion, the Company may elect to deliver the Common Stock at a conversion rate of 5.430 shares per $1,000 principal amount at maturity or cash in an amount based upon the value of the shares of Common Stock into which the Notes are convertible. ITEM 6. SELECTED FINANCIAL DATA Selected financial data for the Company is set forth on page 31 of the Company's 1997 Annual Report to Shareholders, which page (excluding order data) is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A discussion of the Company's financial condition, changes in financial condition and results of operations appears in the "Financial Review" on pages 33-35 and 37-39 of the Company's 1997 Annual Report to Shareholders. Such pages (excluding order data) are incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A discussion of the Company's exposure to, and management of, market risk appears in the "Financial Review" on page 38 of the Company's 1997 Annual Report to Shareholders. Such page is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company, together with the report thereon of Price Waterhouse LLP, independent accountants, and the unaudited "Quarterly Summary" are set forth on pages 32, 36, 40-54 and 56 of the Company's 1997 Annual Report to Shareholders, which pages (excluding order data and "Statement of Management Responsibility") are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 8 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors of the Company who are standing for reelection is set forth under "Election of Directors" on pages 4-6 of the Company's Notice of Annual Meeting of Shareholders and Proxy Statement, dated January 12, 1998 (the "Notice and Proxy Statement"), which pages are incorporated herein by reference. Information regarding a director of the Company who is retiring on February 24, 1998 is set forth below: DIRECTOR WHO IS RETIRING: PAUL F. MILLER, JR.; AGE 70; RETIRED PARTNER, MILLER, ANDERSON & SHERRERD, LLP Mr. Miller was elected a director in 1984. In 1995, he retired as a limited partner of the investment management firm of Miller, Anderson & Sherrerd, LLP. He was a general partner of Miller, Anderson & Sherrerd, LLP from 1969 to 1991 and a limited partner of that firm from 1991 to 1995. Mr. Miller is a director of The Mead Corporation and Rohm and Haas Company. He also serves as a trustee of the University of Pennsylvania, a member of the Board of Overseers of the Wharton School, a trustee of the Colonial Williamsburg Foundation and director of the World Wildlife Fund. The names of the executive officers of the Company, and their ages, titles and biographies as of December 26, 1997, are set forth below. All officers are elected for one-year terms. EXECUTIVE OFFICERS: EDWARD W. BARNHOLT; AGE 54; EXECUTIVE VICE PRESIDENT AND GENERAL MANAGER, TEST AND MEASUREMENT ORGANIZATION. Mr. Barnholt was elected an Executive Vice President in 1996 and a Senior Vice President in 1993. He became Vice President and General Manager, Test and Measurement Organization, with responsibility for the Company's Electronic Instrument, Automatic Test, Microwave and Communications and Communications Test Solutions Groups in 1990. Mr. Barnholt was elected a Vice President of the Company in 1988. He is a director of KLA-Tencor Corporation. RICHARD E. BELLUZZO; AGE 44; EXECUTIVE VICE PRESIDENT AND GENERAL MANAGER, COMPUTER ORGANIZATION. Mr. Belluzzo assumed management responsibility for the Computer Organization and was elected an Executive Vice President in 1995. He was General Manager of the Computer Products Organization from 1993 to August 1995, and he served as General Manager of the InkJet Products Group from 1991 to 1993. He was elected a Vice President in 1992 and a Senior Vice President in January 1995. He is a director of Specialty Laboratories and Proxima Corporation. Mr. Belluzzo resigned from his current position effective January 23, 1998. JOEL S. BIRNBAUM; AGE 60; SENIOR VICE PRESIDENT, RESEARCH AND DEVELOPMENT DIRECTOR, HP LABORATORIES. Dr. Birnbaum was elected a Senior Vice President in 1993. He became Vice President, Research and Development and Director, HP Laboratories in September 1991. Additionally, he served as General Manager, Information Architecture Group from 1988 until 1991. He was elected a Vice President in 1984. He is a director of the Corporation for National Research Initiatives and the Monterey Bay Aquarium Research Institute. SUSAN D. BOWICK; AGE 49; VICE PRESIDENT, HUMAN RESOURCES. Ms. Bowick was appointed a Vice President in 1997. She previously held positions as Business Personnel Manager for the Computer Organization in 1995 and Personnel Manager for the San Diego Site in 1993. 9 10 S.T. JACK BRIGHAM III; AGE 58; SENIOR VICE PRESIDENT, CORPORATE AFFAIRS AND GENERAL COUNSEL. Mr. Brigham was elected a Senior Vice President in 1995 and a Vice President in 1982. He became Vice President, Corporate Affairs in 1992. He has served as General Counsel since 1976. DOUGLAS K. CARNAHAN; AGE 56; SENIOR VICE PRESIDENT AND GENERAL MANAGER, MEASUREMENT SYSTEMS ORGANIZATION. Mr. Carnahan was elected a Senior Vice President in 1995 and has been in his current position since 1993. He was General Manager of the Printing Systems Group from 1991 to 1993, and he was elected a Vice President in 1992. RAYMOND W. COOKINGHAM; AGE 54; VICE PRESIDENT AND CONTROLLER. Mr. Cookingham was elected a Vice President in 1993. He has served as Controller since 1986. LEWIS E. PLATT; AGE 56; CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AND CHAIRMAN OF THE EXECUTIVE COMMITTEE. Mr. Platt has served as a director of the Company, President and Chief Executive Officer since November 1992 and has served as Chairman since September 1993. He was an Executive Vice President from 1987 to 1992. Mr. Platt held a number of management positions in the Company prior to becoming its President, including managing the Computer Systems Organization from 1990 to 1992. He also serves on the Wharton School Board of Overseers and the Cornell University Council. LEE S. TING; AGE 55; VICE PRESIDENT AND MANAGING DIRECTOR, GEOGRAPHIC OPERATIONS. Mr. Ting assumed his current position as Vice President and Managing Director, Geographic Operations on November 1, 1996. He had been Managing Director of the Company's Asia Pacific region since 1993 and a Vice President since 1995. He was Managing Director of Northeast Asia Operations from 1991 to 1993. ROBERT P. WAYMAN; AGE 52; EXECUTIVE VICE PRESIDENT, FINANCE AND ADMINISTRATION AND CHIEF FINANCIAL OFFICER. Mr. Wayman has served as a director of the Company since December 1993. He has been an Executive Vice President responsible for finance and administration since 1992. He has held a number of financial management positions in the Company and was elected a Vice President and Chief Financial Officer in 1984. He is a director of CNF Transportation, Inc. and Sybase Inc. He also serves as a member of the Kellogg Advisory Board to Northwestern University School of Business, and is Chairman of the Private Sector Council. Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 is set forth on page 9 of the Notice and Proxy Statement, which page is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information regarding the Company's compensation of its named executive officers is set forth on pages 10-13 of the Notice and Proxy Statement, which pages are incorporated herein by reference. Information regarding the Company's compensation of its directors is set forth on pages 2-3 and 22 of the Notice and Proxy Statement, which pages are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management is set forth on pages 6-9 of the Notice and Proxy Statement, which pages are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 10 11 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements:
PAGE IN ANNUAL REPORT TO SHAREHOLDERS(*) ------------------ Report of Independent Accountants........................... 54 Consolidated Statement of Earnings for the three years ended October 31, 1997.......................................... 32 Consolidated Balance Sheet at October 31, 1997 and 1996..... 36 Consolidated Statement of Cash Flows for the three years ended October 31, 1997.................................... 40 Consolidated Statement of Shareholders' Equity for the three years ended October 31, 1997.............................. 41 Notes to Consolidated Financial Statements.................. 42 - 53
- --------------- * Incorporated by reference from the indicated pages of the Company's 1997 Annual Report to Shareholders (excluding "Statement of Management Responsibility" on page 54). 2. Financial Statement Schedules: None. 3. Exhibits:
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------------------ 1. Not applicable. 2. None. 3(a). Registrant's Amended and Restated Articles of Incorporation, which appears as Exhibit 3(a) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1996, which Exhibit is incorporated herein by reference. 3(b). Registrant's Amended By-Laws. 4. None. 5 - 8. Not applicable. 9. None. 10(a). Registrant's 1979 Incentive Stock Option Plan, which appears as Exhibit 10(a) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1983, which Exhibit is incorporated herein by reference.* 10(b). Registrant's 1979 Incentive Stock Option Plan Agreements, which appear as Exhibit 10(b) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1983, which Exhibit is incorporated herein by reference.* 10(c). Letter dated September 24, 1984 to optionees advising them of amendment to 1979 Incentive Stock Option Plan Agreements (Exhibit 10(b) above), which appears as Exhibit 10(c) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1984, which Exhibit is incorporated herein by reference.* 10(d). Registrant's Officers Early Retirement Plan, amended and restated as of January 1, 1996, and First Amendment effective December 1, 1996 to the Officers Early Retirement Plan, which appears as Exhibit 10(d) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1996, which Exhibit is incorporated herein by reference.*
11 12
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------------------ 10(e). Registrant's 1985 Incentive Compensation Plan, which appears as Exhibit 10(e) to Registrant's Annual Report on 10-K for the fiscal year ended October 31, 1984, which Exhibit is incorporated herein by reference.* 10(f). Registrant's 1985 Incentive Compensation Plan Stock Option Agreements, which appear as Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1984, which Exhibit is incorporated herein by reference.* 10(g). Registrant's Excess Benefit Retirement Plan, amended and restated as of November 1, 1994, which appears as Exhibit 10(g) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1996, which Exhibit is incorporated herein by reference.* 10(h). Registrant's 1985 Incentive Compensation Plan restricted stock agreements, which appear as Exhibit 10(h) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1985, which Exhibit is incorporated herein by reference.* 10(i). Registrant's 1987 Director Option Plan, which appears as Appendix A to Registrant's Proxy Statement dated January 16, 1987, which Appendix is incorporated herein by reference.* 10(j). Registrant's 1989 Independent Director Deferred Compensation Program, which appears as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1989, which Exhibit is incorporated herein by reference.* 10(k). Registrant's 1990 Incentive Stock Plan, which appears as Appendix A to Registrant's Proxy Statement dated January 11, 1990, which Appendix is incorporated herein by reference.* 10(l). Registrant's 1990 Incentive Stock Plan stock option and restricted stock agreements, which appear as Exhibit 10(l) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1990, which Exhibit is incorporated herein by reference.* 10(m). Resolution dated July 17, 1991 adopting amendment to Registrant's 1979 Incentive Stock Option Plan, which appears as Exhibit 10(m) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1991, which Exhibit is incorporated herein by reference.* 10(n). Resolution dated July 17, 1991 adopting amendment to Registrant's 1985 Incentive Compensation Plan, which appears as Exhibit 10(n) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1991, which Exhibit is incorporated herein by reference.* 10(o). Resolution dated July 17, 1991 adopting amendment to Registrant's 1987 Director Option Plan, which appears as Exhibit 10(o) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1991, which Exhibit is incorporated herein by reference.* 10(p). Resolution dated July 17, 1991 adopting amendment to Registrant's 1990 Incentive Stock Plan, which appears as Exhibit 10(p) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1991, which Exhibit is incorporated herein by reference.* 10(q). Registrant's 1995 Incentive Stock Plan, which appears as Appendix A to Registrant's Proxy Statement dated January 13, 1995, which Appendix is incorporated herein by reference.*
12 13
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------------------ 10(r). Executive Severance Package dated January 10, 1996 between the Registrant and Willem P. Roelandts, which appears as Exhibit 10(r) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1995, which exhibit is incorporated herein by reference.* 10(s). Registrant's 1995 Incentive Stock Plan stock option and restricted stock agreements, which appears as Exhibit 10(s) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1996, which Exhibit is incorporated herein by reference.* 10(t). Amendment dated November 21, 1996 adopting amendment to Registrant's 1995 Incentive Stock Plan, 1990 Incentive Stock Option Plan, 1987 Director Option Plan, 1985 Incentive Compensation Plan, 1979 Incentive Stock Option Plan, which appears as Exhibit 10(t) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1996, which Exhibit is incorporated herein by reference.* 10(u). Registrant's Executive Deferred Compensation Plan, Amended and Restated as of November 21, 1996, which appears as Exhibit 10(u) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1996, which Exhibit is incorporated herein by reference.* 10(v). Registrant's 1997 Director Stock Plan which appears as Exhibit 99 to Registrant's Form S-8 filed on March 7, 1997, which Exhibit is incorporated herein by reference.* 10(w). VeriFone, Inc. Amended and Restated 1992 Non-Employee Directors' Stock Option Plan which appears as Exhibit 99.1 to Registrant's Form S-8 filed on July 1, 1997, which Exhibit is incorporated herein by reference.* 10(x). VeriFone, Inc. Amended and Restated Incentive Stock Option Plan and form of agreement which appears as Exhibit 99.2 to Registrant's Form S-8 filed on July 1, 1997, which Exhibit is incorporated herein by reference.* 10(y). VeriFone, Inc. Amended and Restated 1987 Supplemental Stock Option Plan and form of agreement which appears as Exhibit 99.3 to Registrant's Form S-8 filed on July 1, 1997, which Exhibit is incorporated herein by reference.* 10(z). Enterprise Integration Technologies Corporation 1991 Stock Plan and form of agreement which appears as Exhibit 99.4 to Registrant's Form S-8 filed on July 1, 1997, which Exhibit is incorporated herein by reference.* 10(aa). VeriFone, Inc. Amended and Restated Employee Stock Purchase Plan which appears as Exhibit 99.5 to Registrant's Form S-8 filed on July 1, 1997, which Exhibit is incorporated herein by reference.* 10(bb). Registrant's Variable Pay Plan which appears as Appendix D to Registrant's Proxy Statement dated January 12, 1998, which Appendix is incorporated herein by reference.* 10(cc). Registrant's 1998 Subsidiary Employee Stock Purchase Plan and the Subscription Agreement which appear as Appendices E and E-1 to Registrant's Proxy Statement dated January 12, 1998, respectively, which Appendices are incorporated herein by reference.* 11. Statement re computation of per share earnings. 12. Statement re computation of ratios. 13. Pages 31-56 (excluding order data and "Statement of Management Responsibility") and the inside back cover of Registrant's 1997 Annual Report to Shareholders. 14 - 17. Not applicable.
13 14
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------------------ 18. None. 19 - 20. Not applicable. 21. Subsidiaries of Registrant as of January 19, 1998. 22. None. 23. Consent of Independent Accountants. 24. Powers of Attorney. Contained in pages 15 and 16 of this Annual Report on Form 10-K and incorporated herein by reference. 25 - 26. Not applicable. 27. Financial Data Schedule. 28. None. 99. 1997 Employee Stock Purchase Plan Annual Report on Form 11-K.
- --------------- * Indicates management contract or compensatory plan, contract or arrangement. Exhibit numbers may not correspond in all cases to those numbers in Item 601 of Regulation S-K because of special requirements applicable to EDGAR filers. (b) Reports on Form 8-K On October 9, 1997, the Registrant filed a report on Form 8-K, which reported under Item 5 the Registrant's offering of up to $2 billion (principal amount at maturity) of 20-year convertible zero-coupon subordinated notes due 2017, including a $200 million face amount over-allotment option. The issue was placed pursuant to Rule 144A under the Securities Act of 1933. Neither the notes nor the shares of HP common stock that may be issued upon conversion of the notes have been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. 14 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: January 27, 1998 HEWLETT-PACKARD COMPANY By: /s/ D. CRAIG NORDLUND ------------------------------------ D. Craig Nordlund Associate General Counsel and Secretary POWER OF ATTORNEY Know All Persons By These Presents, that each person whose signature appears below constitutes and appoints D. Craig Nordlund and Ann O. Baskins, or either of them, his or her attorneys-in-fact, for such person in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE - --------------------------------------------- -------------------------- ----------------- /s/ RAYMOND W. COOKINGHAM Vice President and January 27, 1998 - --------------------------------------------- Controller Raymond W. Cookingham (Principal Accounting Officer) /s/ THOMAS E. EVERHART Director January 27, 1998 - --------------------------------------------- Thomas E. Everhart /s/ JOHN B. FERY Director January 27, 1998 - --------------------------------------------- John B. Fery /s/ JEAN-PAUL G. GIMON Director January 27, 1998 - --------------------------------------------- Jean-Paul G. Gimon /s/ SAM GINN Director January 27, 1998 - --------------------------------------------- Sam Ginn /s/ RICHARD A. HACKBORN Director January 27, 1998 - --------------------------------------------- Richard A. Hackborn /s/ WALTER B. HEWLETT Director January 27, 1998 - --------------------------------------------- Walter B. Hewlett /s/ GEORGE A. KEYWORTH II Director January 27, 1998 - --------------------------------------------- George A. Keyworth II /s/ DAVID M. LAWRENCE, M.D. Director January 27, 1998 - --------------------------------------------- David M. Lawrence, M.D.
15 16
NAME TITLE DATE - --------------------------------------------- -------------------------- ----------------- /s/ PAUL F. MILLER, JR. Director January 27, 1998 - --------------------------------------------- Paul F. Miller, Jr. /s/ SUSAN P. ORR Director January 27, 1998 - --------------------------------------------- Susan P. Orr Director January , 1998 - --------------------------------------------- David W. Packard /s/ LEWIS E. PLATT Chairman, President and January 27, 1998 - --------------------------------------------- Chief Executive Officer Lewis E. Platt and Director (Principal Executive Officer) /s/ ROBERT P. WAYMAN Executive Vice President, January 27, 1998 - --------------------------------------------- Finance and Robert P. Wayman Administration, Chief Financial Officer and Director (Principal Financial Officer)
16 17 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - -------- --------------------------------------------------------------------------------- 1. Not applicable. 2. None. 3(a). Registrant's Amended and Restated Articles of Incorporation, which appears as Exhibit 3(a) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1996, which Exhibit is incorporated herein by reference. 3(b). Registrant's Amended By-Laws. 4. None. 5 - 8. Not applicable. 9. None. 10(a). Registrant's 1979 Incentive Stock Option Plan, which appears as Exhibit 10(a) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1983, which Exhibit is incorporated herein by reference.* 10(b). Registrant's 1979 Incentive Stock Option Plan Agreements, which appear as Exhibit 10(b) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1983, which Exhibit is incorporated herein by reference.* 10(c). Letter dated September 24, 1984 to optionees advising them of amendment to 1979 Incentive Stock Option Plan Agreements (Exhibit 10(b) above), which appears as Exhibit 10(c) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1984, which Exhibit is incorporated herein by reference.* 10(d). Registrant's Officers Early Retirement Plan, amended and restated as of January 1, 1996, and First Amendment effective December 1, 1996 to the Officers Early Retirement Plan, which appears as Exhibit 10(d) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1996, which Exhibit is incorporated herein by reference.* 10(e). Registrant's 1985 Incentive Compensation Plan, which appears as Exhibit 10(e) to Registrant's Annual Report on 10-K for the fiscal year ended October 31, 1984, which Exhibit is incorporated herein by reference.* 10(f). Registrant's 1985 Incentive Compensation Plan Stock Option Agreements, which appear as Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1984, which Exhibit is incorporated herein by reference.* 10(g). Registrant's Excess Benefit Retirement Plan, amended and restated as of November 1, 1994, which appears as Exhibit 10(g) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1996, which Exhibit is incorporated herein by reference.* 10(h). Registrant's 1985 Incentive Compensation Plan restricted stock agreements, which appear as Exhibit 10(h) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1985, which Exhibit is incorporated herein by reference.* 10(i). Registrant's 1987 Director Option Plan, which appears as Appendix A to Registrant's Proxy Statement dated January 16, 1987, which Appendix is incorporated herein by reference.* 10(j). Registrant's 1989 Independent Director Deferred Compensation Program, which appears as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1989, which Exhibit is incorporated herein by reference.* 10(k). Registrant's 1990 Incentive Stock Plan, which appears as Appendix A to Registrant's Proxy Statement dated January 11, 1990, which Appendix is incorporated herein by reference.*
17 18
EXHIBIT NUMBER DESCRIPTION - -------- --------------------------------------------------------------------------------- 10(l). Registrant's 1990 Incentive Stock Plan stock option and restricted stock agreements, which appear as Exhibit 10(l) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1990, which Exhibit is incorporated herein by reference.* 10(m). Resolution dated July 17, 1991 adopting amendment to Registrant's 1979 Incentive Stock Option Plan, which appears as Exhibit 10(m) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1991, which Exhibit is incorporated herein by reference.* 10(n). Resolution dated July 17, 1991 adopting amendment to Registrant's 1985 Incentive Compensation Plan, which appears as Exhibit 10(n) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1991, which Exhibit is incorporated herein by reference.* 10(o). Resolution dated July 17, 1991 adopting amendment to Registrant's 1987 Director Option Plan, which appears as Exhibit 10(o) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1991, which Exhibit is incorporated herein by reference.* 10(p). Resolution dated July 17, 1991 adopting amendment to Registrant's 1990 Incentive Stock Plan, which appears as Exhibit 10(p) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1991, which Exhibit is incorporated herein by reference.* 10(q). Registrant's 1995 Incentive Stock Plan, which appears as Appendix A to Registrant's Proxy Statement dated January 13, 1995, which Appendix is incorporated herein by reference.* 10(r). Executive Severance Package dated January 10, 1996 between the Registrant and Willem P. Roelandts, which appears as Exhibit 10(r) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1995, which exhibit is incorporated herein by reference.* 10(s). Registrant's 1995 Incentive Stock Plan stock option and restricted stock agreements, which appears as Exhibit 10(s) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1996, which Exhibit is incorporated herein by reference.* 10(t). Amendment dated November 21, 1996 adopting amendment to Registrant's 1995 Incentive Stock Plan, 1990 Incentive Stock Option Plan, 1987 Director Option Plan, 1985 Incentive Compensation Plan, 1979 Incentive Stock Option Plan, which appears as Exhibit 10(t) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1996, which Exhibit is incorporated herein by reference.* 10(u). Registrant's Executive Deferred Compensation Plan, Amended and Restated as of November 21, 1996, which appears as Exhibit 10(u) to Registrant's Annual Report on Form 10-K for the fiscal year ended October 31, 1996, which Exhibit is incorporated herein by reference.* 10(v). Registrant's 1997 Director Stock Plan which appears as Exhibit 99 to Registrant's Form S-8 filed on March 7, 1997, which Exhibit is incorporated herein by reference.* 10(w). VeriFone, Inc. Amended and Restated 1992 Non-Employee Directors' Stock Option Plan which appears as Exhibit 99.1 to Registrant's Form S-8 filed on July 1, 1997, which Exhibit is incorporated herein by reference.* 10(x). VeriFone, Inc. Amended and Restated Incentive Stock Option Plan and form of agreement which appears as Exhibit 99.2 to Registrant's Form S-8 filed on July 1, 1997, which Exhibit is incorporated herein by reference.* 10(y). VeriFone, Inc. Amended and Restated 1987 Supplemental Stock Option Plan and form of agreement which appears as Exhibit 99.3 to Registrant's Form S-8 filed on July 1, 1997, which Exhibit is incorporated herein by reference.* 10(z). Enterprise Integration Technologies Corporation 1991 Stock Plan and form of agreement which appears as Exhibit 99.4 to Registrant's Form S-8 filed on July 1, 1997, which Exhibit is incorporated herein by reference.*
18 19
EXHIBIT NUMBER DESCRIPTION - -------- --------------------------------------------------------------------------------- 10(aa). VeriFone, Inc. Amended and Restated Employee Stock Purchase Plan which appears as Exhibit 99.5 to Registrant's Form S-8 filed on July 1, 1997, which Exhibit is incorporated herein by reference.* 10(bb). Registrant's Variable Pay Plan which appears as Appendix D to Registrant's Proxy Statement dated January 12, 1998, which Appendix is incorporated herein by reference.* 10(cc). Registrant's 1998 Subsidiary Employee Stock Purchase Plan and the Subscription Agreement which appear as Appendices E and E-1 to Registrant's Proxy Statement dated January 12, 1998, respectively, which Appendices are incorporated herein by reference.* 11. Statement re computation of per share earnings. 12. Statement re computation of ratios. 13. Pages 31-56 (excluding order data and "Statement of Management Responsibility") and the inside back cover of Registrant's 1997 Annual Report to Shareholders. 14 - 17. Not applicable. 18. None. 19 - 20. Not applicable. 21. Subsidiaries of Registrant as of January 19, 1998. 22. None. 23. Consent of Independent Accountants. 24. Powers of Attorney. Contained in pages 15 and 16 of this Annual Report on Form 10-K and incorporated herein by reference. 25 - 26. Not applicable. 27. Financial Data Schedule. 28. None. 99. 1997 Employee Stock Purchase Plan Annual Report on Form 11-K.
- --------------- * Indicates management contract or compensatory plan, contract or arrangement. 19 EX-3.(B) 2 REGISTRANT'S AMENDED BY-LAWS 1 EXHIBIT 3(b) BY-LAWS of HEWLETT-PACKARD COMPANY (a California Corporation) ----------------- 1 2 ARTICLE I OFFICES Section 1.1 PRINCIPAL OFFICE. The principal office for the transaction of the business of the corporation is hereby fixed and located at 3000 Hanover Street, in the city of Palo Alto, State of California. The Board of Directors is hereby granted full power and authority to change said principal office to another location within or without the State of California. Section 1.2 OTHER OFFICES. One or more branch or other subordinate offices may at any time be fixed and located by the Board of Directors at such place or places within or without the State of California as it deems appropriate. ARTICLE II DIRECTORS Section 2.1 EXERCISE OF CORPORATE POWERS. Except as otherwise provided by the Articles of Incorporation of the corporation or by the laws of the State of California now or hereafter in force, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-to-day operation of the business of the corporation as permitted by law provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Section 2.2 NUMBER. The number of the Corporation's directors shall be not less than eleven (11) nor more than twenty-one (21) until changed by an amendment of this Section 2.2 adopted by the Shareholders or Board of Directors. Within such limits the exact number of directors shall be thirteen (13) until changed by an amendment to this Section 2.2 adopted by the shareholders or by the Board of Directors. Section 2.3 NEED NOT BE SHAREHOLDERS. The directors of the corporation need not be shareholders of the corporation. Section 2.4 COMPENSATION. Directors shall receive for their services as directors such stated fees or other compensation and allowances for expenses of attendance as may from time to time be fixed by the Board of Directors. The directors may also serve the corporation in other capacities and receive compensation therefor. 2 3 Section 2.5 ELECTION AND TERM OF OFFICE. At each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting, provided, that if for any reason, said annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall begin immediately after their election and shall continue until the expiration of the term for which elected and until their respective successors have been elected and qualified. Section 2.6 VACANCIES. A vacancy or vacancies in the Board of Directors shall exist when any authorized position of director is not then filled by a duly elected director, whether caused by death, resignation, removal, change in the authorized number of directors (by the Board or the shareholders) or otherwise. The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony. Except for a vacancy created by the removal of a director, vacancies on the Board may be filled by a majority of the directors then in office, whether or not less than a quorum, or by a sole remaining director. A vacancy created by the removal of a director may be filled only by the approval of the shareholders. The shareholders may elect a director at any time to fill any vacancy not filled by the directors, but any such election requires the affirmative vote of a majority of the outstanding shares entitled to vote and must be made at a meeting duly called and held in accordance with Article X. Any director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Section 2.7 REMOVAL. (a) Any and all of the directors may be removed without cause if such removal is approved by the affirmative vote of a majority of the outstanding shares entitled to vote at an election of directors, subject to the following: (1) No director may be removed (unless the entire Board is removed) when the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the 3 4 director's most recent election were then being elected; and (2) When by the provisions of the Articles the holders of the shares of any class or series, voting as a class or series, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the holders of the shares of that class or series. (b) Any reduction of the authorized number of directors does not remove any director prior to the expiration of such director's term of office. Section 2.8 NOTIFICATION OF NOMINATIONS. Nominations for the election of directors may be made by the Board of Directors or by any shareholder entitled to vote for the election of directors. Any shareholder entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if written notice of such shareholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company not later than (i) with respect to an election to be held at an annual meeting of shareholders, 90 days in advance of such meeting, and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated, (b) a representation that such shareholder is a holder of record of stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (c) a description of all arrangements or understandings between such shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such shareholder, (d) Such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated by the Board of Directors, and (e) the consent of each nominee to serve as a director of the Company if so elected. The chairman of a shareholder meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. (As amended November 21, 1985.) 4 5 ARTICLE III OFFICERS Section 3.1 ELECTION AND QUALIFICATIONS OF CORPORATE OFFICERS. The Corporate officers of this corporation shall consist of a President, one or more Vice Presidents, a Secretary and a Chief Financial Officer who shall be including but not limited to a Chairman of the Board, a Vice Chairman of the Board, a Chairman of the Executive Committee and a Treasurer as the Board of Directors shall deem expedient, who shall be chosen in such manner and hold their offices for such terms as the Board of Directors may prescribe. Any two or more of such offices may be held by the same person. The Board of Directors may designate one or more Vice Presidents as Executive Vice Presidents or Senior Vice Presidents. Either the Chairman of the Board, the Vice Chairman of the Board, the Chairman of the Executive Committee, or the President, as the Board of Directors may designate from time to time, shall be the Chief Executive Officer of the corporation. The Board of Directors may from time to time designate the President or any Executive Vice President as the Chief Operating Officer of the corporation. Any Vice President, Treasurer or Assistant Treasurer, or Assistant Secretary respectively may exercise any of the powers of the President, the Chief Financial Officer, or the Secretary, respectively, as directed by the Board of Directors and shall perform such other duties as are imposed upon such officer by the By-Laws or the Board of Directors. Section 3.2 TERMS OF OFFICE AND COMPENSATION. The term of office and salary of each of said officers and the manner and time of the payment of such salaries shall be fixed and determined by the Board of Directors and may be altered by said Board from time to time at its pleasure, subject to the rights, if any, of said officers under any contract of employment. Section 3.3 REMOVAL AND VACANCIES. Any officer of the corporation may be removed at the pleasure of the Board of Directors at any meeting or by vote of shareholders entitled to exercise the majority of voting power of the corporation at any meeting or at the pleasure of any officer who may be granted such power by a resolution of the Board of Directors. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. If any vacancy occurs in any office of the corporation, the Board of Directors may elect a successor to fill such vacancy for the remainder of the unexpired term and until a successor is duly chosen and qualified. 5 6 Section 3.4 APPOINTED OFFICERS. In addition to officers elected by the Board of Directors in accordance with Sections 3.1 and 3.2 the corporation may have one or more appointed vice presidents. Such vice presidents may be appointed by the Chairman of the Board or the President and shall have such duties as may be established by the Chairman or President. Vice presidents appointed pursuant to this Section 3.4 may be removed in accordance with Section 3.3. ARTICLE IV CHAIRMAN OF THE BOARD The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the shareholders and of the Board of Directors, and shall have the power to call meetings of the shareholders and the Board of Directors to be held within the limitations prescribed by law or by these By-Laws, at such times and at such places as the Chairman of the Board shall deem proper. The Chairman of the Board shall have such other powers and shall be subject to such other duties as the Board of Directors may from time to time prescribe. ARTICLE IVa VICE CHAIRMAN OF THE BOARD Section 4.1a POWERS AND DUTIES. The Vice Chairman of the Board of Directors, if there shall be one, shall, in the case of the absence, disability or death of the Chairman, exercise all the powers and perform all the duties of the Chairman of the Board. The Vice Chairman shall have such other powers and perform such other duties as may be granted or prescribed by the Board of Directors. ARTICLE IVb CHAIRMAN OF THE EXECUTIVE COMMITTEE Section 4.1b POWERS AND DUTIES. The Chairman of the Executive Committee, if there be one, shall have the power to call meetings of the shareholders and also of the Board of Directors to be held subject to the limitations prescribed by law or by these By-Laws, at such times and at such places as the Chairman of the Executive Committee shall deem proper. The Chairman of the Executive Committee shall have such other powers and be subject to such other duties as the Board of Directors may from time to time prescribe. (As amended January 20, 1978.) ARTICLE V PRESIDENT Section 5.1 POWERS AND DUTIES. The powers and duties of the President are: (a) To call meetings of the shareholders and also of the Board of Directors to be held, subject to the limitations prescribed by law or by these By-Laws, at such times and at such places as the President shall deem proper. (b) To affix the signature of the corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been 6 7 authorized by the Board of Directors or which, in the judgment of the President, should be executed on behalf of the corporation, and to sign certificates for shares of stock of the corporation. (c) To have such other powers and be subject to such other duties as the Board of Directors may from time to time prescribe. ARTICLE VI VICE PRESIDENT Section 6.1 POWERS AND DUTIES OF ELECTED VICE PRESIDENTS. In case of the absence, disability or death of the President, the Vice President, or one of the Vice Presidents, shall exercise all the powers and perform all the duties of the President. If there is more than one Vice President, the order in which the Vice Presidents shall succeed to the powers and duties of the President shall be as fixed by the Board of Directors. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be granted or prescribed by the Board of Directors. Section 6.2 POWERS AND DUTIES OF APPOINTED VICE PRESIDENTS. Vice Presidents appointed pursuant to Section 3.4 shall have such powers and duties as may be fixed by the Chairman or President, except that such appointed vice presidents may not exercise the powers and duties of the President. ARTICLE VII SECRETARY Section 7.1 POWERS AND DUTIES. The powers and duties of the Secretary are: (a) To keep a book of minutes at the principal office of the corporation, or such other place as the Board of Directors may order, of all meetings of its directors and shareholders with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at shareholders' meetings and the proceedings thereof. (b) To keep the Seal of the Corporation and to affix the same to all instruments which may require it. 7 8 (c) To keep or cause to be kept at the principal office of the corporation, or at the office of the transfer agent or agents, a share register, or duplicate share registers, showing the names of the shareholders and their addresses, the number and classes of shares, and the number and date of cancellation of every certificate surrendered for cancellation. (d) To keep a supply of certificates for shares of the corporation, to fill in all certificates issued, and to make a proper record of each such issuance; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents. (e) To transfer upon the share books of the corporation any and all shares of the corporation; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents, and the method of transfer of each certificate shall be subject to the reasonable regulations of the transfer agent to which the certificate is presented for transfer, and also, if the corporation then has one or more duly appointed and acting registrars, to the reasonable regulations of the registrar to which the new certificate is presented for registration; and provided, further that no certificate for shares of stock shall be issued or delivered or, if issued or delivered, shall have any validity whatsoever until and unless it has been signed or authenticated in the manner provided in Section 12.4 hereof. (f) To make service and publication of all notices that may be necessary or proper, and without command or direction from anyone. In case of the absence, disability, refusal, or neglect of the Secretary to make service or publication of any notices, then such notices may be served and/or published by the President or a Vice President, or by any person thereunto authorized by either of them or by the Board of Directors or by the holders of a majority of the outstanding shares of the corporation. (g) Generally to do and perform all such duties as pertain to the office of Secretary and as may be required by the Board of Directors. ARTICLE VIII CHIEF FINANCIAL OFFICER 8 9 Section 8.1 POWERS AND DUTIES. The powers and duties of the Chief Financial Officer are: (a) To supervise the corporate-wide treasury functions and financial reporting to external bodies. (b) To have the custody of all funds, securities, evidence of indebtedness and other valuable documents of the corporation and, at the Chief Financial Officer's discretion, to cause any or all thereof to be deposited for the account of the corporation at such depositary as may be designated from time to time by the Board of Directors. (c) To receive or cause to be received, and to give or cause to be given, receipts and acquittances for monies paid in for the account of the corporation. (d) To disburse, or cause to be disbursed, all funds of the corporation as may be directed by the Board of Directors, taking proper vouchers for such disbursements. (e) To render to the President and to the Board Of Directors, whenever they may require, accounts of all transactions and of the financial condition of the corporation. (f) Generally to do and perform all such duties as pertain to the office of Chief Financial Officer and as may be required by the Board of Directors. ARTICLE IX COMMITTEES OF THE BOARD Section 9.1 APPOINTMENT AND PROCEDURE. The Board Of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board. The Board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Section 9.2 POWERS. Any committee appointed by the Board of Directors, to the extent provided in the resolution of the Board or in these By-Laws, shall have all the authority of the Board except with respect to: (a) the approval of any action which requires the approval or vote of the shareholders; 9 10 (b) the filling of vacancies on the Board or on any committee; (c) the fixing of compensation of the director for serving on the Board or on any committee; (d) the amendment or repeal of By-Laws or the adoption of new By-Laws ; (e) the amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the Board; (g) the appointment of other committees of the Board Or the members thereof. Section 9.3 EXECUTIVE COMMITTEE. In the event that the Board of Directors appoints an Executive Committee, such Executive Committee, in all cases in which specific directions to the contrary shall not have been given by the Board of Directors, shall have and may exercise, during the intervals between the meetings of the Board of Directors, all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation (except as provided in Section 9.2 hereof) in such manner as the Executive Committee may deem in the best interests of the corporation. ARTICLE X MEETINGS OF SHAREHOLDERS Section 10.1 PLACE OF MEETINGS. Meetings (whether regular, special or adjourned) of the shareholders of the corporation shall be held at the principal office for the transaction of business as specified in accordance with Section 1.1 hereof, or any place within or without the State which may be designated by written consent of all the shareholders entitled to vote thereat, or which may be designated by the Board of Directors. Section 10.2 TIME OF ANNUAL MEETINGS. The annual meeting of the shareholders shall be held at the hour of 2:00 o'clock in the afternoon on the fourth Tuesday in February of each year, if not a legal holiday, and if a legal holiday, then on the next succeeding business day not a legal holiday. 10 11 Section 10.3 SPECIAL MEETINGS. Special meetings of the shareholders may be called by the Board of Directors, the Chairman of the Board, the Vice Chairman of the Board, the Chairman of the Executive Committee, the President or the holders of shares entitled to cast not less than 10% of the vote at the meeting. Section 10.4 NOTICE OF MEETINGS. (a) Whenever shareholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 nor more than 60 days before the day of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted, and that no other business may be transacted, or (2) in the case of the annual meeting, those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholders, but subject to the provisions of subdivision (b) any proper matter may be presented by or at the direction of the Board of Directors at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election. (b) Any shareholder approval at a meeting, other than unanimous approval by those entitled to vote, on any of the matters listed below shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting or in any written waiver of notice. (1) a proposal to approve a contract or other transaction between the corporation and one or more of its directors, or between the corporation and any corporation, firm or association in which one or more directors has a material financial interest; (2) a proposal to amend the Articles of Incorporation; (3) a proposal regarding a reorganization, merger or consolidation involving the corporation; (4) a proposal to wind up and dissolve the corporation; (5) a proposal to adopt a plan of distribution of the shares, obligations or securities of any other corporation, domestic or foreign, or assets other than money which is not in accordance with the liquidation rights of any preferred shares as specified in the Articles of Incorporation. (c) At an annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (1) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors in accordance with Section 10.4(a), (2) otherwise properly brought before the meeting by or at the direction of the Board of Directors in accordance with Section 10.4(a), or (3) otherwise properly brought before the meeting by a shareholder. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder's notice must be delivered or mailed to and received at the principal executive offices of the corporation not less than ninety (90) calendar days in advance of the annual meeting date determined in accordance with Section 10.2. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the shareholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the shareholder, (iv) any material interest of the shareholder in such business, and (v) any other information that is required to be provided by the 11 12 shareholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a shareholder proposal. Notwithstanding the foregoing, in order to include information with respect to a shareholder proposal in the proxy statement and form of proxy for a shareholder's meeting, shareholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 10.4. The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 10.4, and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. Section 10.5 DELIVERY OF NOTICE. Notice of a shareholders' meeting or any report shall be given either personally or by mail or other means of written communication, addressed to the share holder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. The notice or report shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. An affidavit of mailing of any notice or report in accordance with the provisions of this section, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report. If any notice or report addressed to the shareholders at the address of such shareholder appearing on the books of the corporation is returned to the corporation by United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice to all other shareholders. Section 10.6 ADJOURNED MEETINGS. When a shareholders' meeting is adjourned to another time or place, unless the By-Laws otherwise require and except as provided in this section, notice need not be 12 13 given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than forty-five (45) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 10.7 CONSENT TO SHAREHOLDERS' MEETING. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person objects at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the California General Corporation Law to be included in the notice but not so included in the notice if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, unless otherwise provided in the Articles of Incorporation or By-Laws, except as provided in subdivision (b) of Section 10.4. Section 10.8 QUORUM. (a) The presence in person or by proxy of the persons entitled to vote the majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. If a quorum is present, the affirmative vote of the majority of shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by law or the Articles of Incorporation or these By-Laws and except as provided in subdivision (b). (b) The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of the number of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 13 14 (c) In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted, except as provided in subdivision (b). Section 10.9 ACTION BY CONSENT. Subject to the rights of the holders of shares of any series of Preferred Stock or any other class of stock or series thereof having a preference over the Common Stock as to dividend or upon liquidation, any action required or permitted to be taken by the shareholders of the Company must be effected at a duly called annual or special meeting of shareholders of the Company and may not be effected by any consent in writing by such shareholders. (As amended November 21, 1985). Section 10.10 VOTING RIGHTS. Except as provided in Section 10.12 or in the Articles of Incorporation or in any statute relating to the election of directors or to other particular matters, each outstanding share, regardless of class, shall be entitled to one vote on any matter submitted to a vote of shareholders. Any holder of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. Section 10.11 DETERMINATION OF HOLDERS OF RECORD. (a) In order that the corporation may determine the shareholders entitled to notice of any meeting or to vote, or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days prior to any other action. (b) In the absence of any record date set by the Board of Directors pursuant to subdivision (a) above then: (1) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. 14 15 (2) The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. (c) A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. (d) Shareholders on the record date are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation of these By-Laws or by agreement or applicable law. Section 10.12 ELECTION FOR DIRECTORS. (a) Every shareholder complying with subdivision (b) and entitled to vote at any election of directors may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. (b) No shareholder shall be entitled to cumulate votes (i.e., cast for any one or more candidates a number of votes greater than the number of the shareholder's shares) unless such candidates or candidates' names have been placed in nomination prior to the voting and the shareholder has given written notice to the chairman of the meeting at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. (c) In any election of directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares are elected. (d) Elections for directors need not be by ballot unless a shareholder demands election by ballot at the meeting and before the voting begins or unless the By-Laws so require. 15 16 Section 10.13 PROXIES. (a) Every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares. Any proxy purporting to be executed in accordance with the provisions of the General Corporation Law of the State of California shall be presumptively valid. (b) No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in this section. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by, or by attendance at the meeting and voting in person by, the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. (c) A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted, written notice of such death or incapacity is received by the corporation. Section 10.14 INSPECTORS OF ELECTION. (a) In advance of any meeting of shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one (1) or three (3). If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one (1) or three (3) inspectors are to be appointed. (b) The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. (c) The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as 16 17 expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. Section 10.15 ORGANIZATION. The Chairman of the Board Of Directors shall preside at each meeting of shareholders. In the absence of the Chairman, the meeting shall be chaired by an officer of the corporation in accordance with the following order: Vice Chairman, Chairman of the Executive Committee, President, Executive Vice President, Senior Vice President and Vice President. In the absence of all such officers, the meeting shall be chaired by a person chosen by the vote of a majority in interest of the shareholders present in person or represented by proxy and entitled to vote thereat, shall act as chairman. The Secretary or in his or her absence an Assistant Secretary or in the absence of the Secretary and all Assistant Secretaries a person whom the chairman of the meeting shall appoint shall act as secretary of the meeting and keep a record of the proceedings thereof. The Board of Directors of the Company shall be entitled to make such rules or regulations for the conduct of meetings of shareholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to shareholders of record of the Company and their duly authorized and constituted proxies, and such other persons as the Chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot, unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure. (As amended November 21, 1985). ARTICLE XI MEETING OF DIRECTORS. Section 11.1 PLACE OF MEETINGS. Unless otherwise specified in the notice thereof, meetings (whether regular, special, or 17 18 adjourned) of the Board of Directors of this corporation shall be held at the principal office of the corporation for the transaction of business, as specified in accordance with Section 1.1 hereof, which is hereby designed as an office for such purpose in accordance with the laws of the State of California, or in any other place within or without the State which has been designated from time to time by resolution of the Board or by written consent of all members of the Board. Section 11.2 REGULAR MEETINGS. Regular meetings of the Board of Directors, of which no notice need be given except as required by the laws of the State of California, at such times as may be designated from time to time by the Board of Directors. Section 11.3 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the Vice Chairman of the Board, the President, the Chairman of the Executive Committee, any Vice President or the Secretary or by any two (2) or more of the directors. (As amended January 20, 1978.) Section 11.4 NOTICE OF MEETINGS. Except in the case of regular meetings, notice of which has been dispensed with, the meetings of the Board of Directors shall be held upon four (4) days' notice by mail or forty-eight (48) hours' notice delivered personally or by telephone, telegraph or other electronic or wireless means. If the address of a director is not shown on the records and is not readily ascertainable, notice shall be addressed to him at the city or place in which the meetings of the directors are regularly held. Except as set forth in Section 11.6, notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned. Section 11.5 QUORUM. A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, except as otherwise provided by law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. Section 11.6 ADJOURNED MEETINGS. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment to 18 19 another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. Section 11.7 WAIVER OF NOTICE AND CONSENT. (a) Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. (b) The transactions of any meeting of the Board, however called and noticed or wherever held, are as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 11.8 ACTION WITHOUT A MEETING. Any action required or permitted to be taken by the Board may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as an unanimous vote of such directors. Section 11.9 CONFERENCE TELEPHONE MEETINGS. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting pursuant to this section constitutes presence in person at such meeting. Section 11.10 ORGANIZATION. The Chairman of the Board shall preside at all meetings of the Board of Directors. In the absence of the Chairman, the meeting shall be chaired by one of the following directors in the order stated: Vice Chairman, Chairman of the Executive Committee, President and Executive Vice President. In the absence of all such directors, a President Pro Tem chosen by a majority of the directors present shall preside at the meeting. Section 11.11 MEETINGS OF COMMITTEES. The provisions of this Article, except for Section 11.10, apply also to committees of the Board and action by such committees. 19 20 ARTICLE XII SUNDRY PROVISIONS Section 12.1 INSTRUMENTS IN WRITING. All checks, drafts, demands for money and notes of the corporation, as all written contracts of the corporation, shall be signed by such officer or officers, agent or agents, as the Board of Directors may from time to time by resolution designate. No officer, agent, or employee of the corporation shall have power to bind the corporation by contract or otherwise unless authorized to do so by these By-Laws or by the Board of Directors. Section 12.2 FISCAL YEAR. The fiscal year of this corporation shall begin on the first day of November of each year and end on the last day of October of the following year. Section 12.3 SHARES HELD BY THE CORPORATION. Shares in other corporations standing in the name of this corporation may be voted or represented and all rights incident thereto may be exercised on behalf of this corporation by the President or by any other officer of this corporation authorized so to do by resolution of the Board of Directors. Section 12.4 CERTIFICATES OF STOCK. There shall be issued to each holder of fully paid shares of the capital stock of the corporation a certificate or certificates for such shares. Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or the Treasurer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. Section 12.5 LOST CERTIFICATES. The corporation may issue a new share certificate or a new certificate for any other security in the place of any certificate theretofore issued by it, alleged 20 21 to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate or the owner's legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. The Board of Directors may adopt such other provisions and restrictions with reference to lost certificates, not inconsistent with applicable law, as it shall in its discretion deem appropriate. Section 12.6 CERTIFICATION AND INSPECTION OF BY-LAWS. The corporation shall keep at its principal executive office in this state, or if its principal executive office is not in this state at its principal business office in this state, the original or a copy of these By-Laws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside this state and the corporation has no principal business office in this state, it shall upon the written request of any shareholder furnish to such shareholder a copy of the By-Laws as amended to date. Section 12.7 NOTICES. Any reference in these By-Laws to the time a notice is given or sent means, unless otherwise expressly provided, the time a written notice by mail is deposited in the United States mails, postage prepaid; or the time any other written notice is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient; or the time any oral notice is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient. Section 12.8 REPORTS TO SHAREHOLDERS. Except as may otherwise be required by law, the rendition of an annual report to the shareholders is waived so long as there are less than one hundred (100) holders of record of the shares of the corporation (determined as provided in Section 605 of the California General Corporation Law). At Such time or times, if any, that the corporation has one hundred (100) or more holders of record of its shares, the Board of Directors shall cause an annual report to be 21 22 sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year or within such shorter time period as may be required by applicable law, and such annual report shall contain such information and be accompanied by such other documents as may be required by applicable law. ARTICLE XIII CONSTRUCTION OF BY-LAWS WITH REFERENCE TO PROVISIONS OF LAW Section 13.1 DEFINITIONS. Unless defined Otherwise in these By-Laws or, unless the context otherwise requires, terms used herein shall have the same meaning, if any, ascribed thereto in the California General Corporation Law, as amended from time to time. Section 13.2 BY-LAW PROVISIONS ADDITIONAL AND SUPPLEMENTAL TO PROVISIONS OF LAW. All restrictions, limitations, requirements and other provisions of these By-Laws shall be construed, insofar as possible, as supplemental and additional to all provisions of law applicable to the subject matter thereof and shall be fully complied with in addition to the said provisions of law unless such compliance shall be illegal. Section 13.3 BY-LAW PROVISIONS CONTRARY TO OR INCONSISTENT WITH PROVISIONS OF LAW. Any article, section, subsection, subdivision, sentence, clause or phrase of these By-Laws which upon being construed in the manner provided in Section 13.2 hereof, shall be contrary to or inconsistent with any applicable provision of law, shall not apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability of any other portions of these By-Laws, it being hereby declared that these By-Laws would have been adopted and each article, section, subsection, subdivision, sentence, clause or phrase thereof, irrespective of the fact that any one or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal. ARTICLE XIV AMENDMENTS All by-laws of the Company shall be subject to alteration, amendment, or repeal, in whole or in part, and new By-Laws not inconsistent with the laws of the State of California or any 22 23 provision of the Certificate of Incorporation may be made, either by the affirmative vote of a majority of the whole Board of Directors at any regular or special meeting of the Board, or by the affirmative vote of the holders of a majority of the issued and outstanding stock of the Company entitled to vote in respect thereof, given at an annual meeting or at any special meeting at which a quorum shall be present, provided that, in each case of a proposed alteration, amendment, or repeal of the By-Laws of or the proposal of new By-Laws to be voted on at a meeting of shareholders notices thereof shall be included in the notice of the meeting of the shareholders. As amended Effective November 21, 1997 23 EX-11 3 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 Registrant's Primary and Fully Diluted Earnings Per Common and Common Equivalent Share (In millions except per share amounts)
For the Years Ended -------------------------------- Oct. 31, Oct. 31, Oct. 31, 1997 1996 1995 -------- -------- -------- Primary earnings per share Net earnings $3,119 $2,586 $2,433 -------- -------- -------- Number of shares on which primary earnings per share is based: Weighted average common shares outstanding during the period 1,026.5 1,019.0 1,022.5 Weighted average common share equivalents: Stock options 30.0 32.9 29.7 Convertible zero-coupon notes due 2017 0.4 -- -- -------- -------- -------- Number of shares and equivalents on which primary earnings per share is based 1,056.9 1,051.9 1,052.2 -------- -------- -------- Primary earnings per share $2.95 $2.46 $2.31 ======== ======== ======== Fully diluted earnings per share Net earnings $3,119 $2,586 $2,433 -------- -------- -------- Number of shares on which fully diluted earnings per share is based: Weighted average common shares outstanding during the period 1,026.5 1,019.0 1,022.5 Weighted average common share equivalents: Stock options 31.1 33.7 31.5 Convertible zero-coupon notes due 2017 0.4 -- -- -------- -------- -------- Number of shares and equivalents on which fully diluted earnings per share is based 1,058.0 1,052.7 1,054.0 -------- -------- -------- Fully diluted earnings per share $2.95 $2.46 $2.31 ======== ======== ========
EX-12 4 STATEMENT RE COMPUTATION OF RATIOS 1 EXHIBIT 12 HEWLETT-PACKARD COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1) (In millions, except ratios)
Year Ended October 31, ---------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Pre-tax income from continuing operations ....... $4,455 $3,694 $3,632 $2,423 $1,783 Minority interest in the income of subsidiaries with fixed charges ............................. 39 38 29 17 11 Undistributed (earnings) or loss of equity investees ...................................... (6) (62) (47) 4 6 Fixed charges: Interest expense and amortization of debt discount and premium on all indebtedness .... 215 327 206 155 121 Interest included in rent .................... 139 126 111 104 102 ----- ----- ----- ----- ----- Total fixed charges ................... 354 453 317 259 223 Earnings before income taxes, minority interest, undistributed earnings or loss of equity investees and fixed charges .................... $4,842 $4,123 $3,931 $2,703 $2,023 ====== ====== ====== ====== ====== Ratio of earnings to fixed charges .............. 13.7 9.1 12.4 10.4 9.1 ====== ====== ====== ====== ======
- --------- (1) The ratio of earnings to fixed charges was computed by dividing earnings (income from continuing operations before income taxes, adjusted for fixed charges, minority interest in the income of subsidiaries with fixed charges and equity in earnings or loss of equity investees) by fixed charges for the periods indicated. Fixed charges include (i) interest expense and amortization of debt discount or premium on all indebtedness, and (ii) a reasonable approximation of the interest factor deemed to be included in rental expense. EX-13 5 REGISTRANT'S 1997 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES SELECTED FINANCIAL DATA - ----------------------- Unaudited
For the years ended October 31 In millions except per share amounts and employees 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------- U.S. orders $ 18,837 $ 17,181 $ 14,686 $11,692 $ 9,462 International orders 24,316 21,708 17,999 13,658 11,310 - -------------------------------------------------------------------------------------------- Total orders $ 43,153 $ 38,889 $ 32,685 $25,350 $20,772 - -------------------------------------------------------------------------------------------- Net revenue $ 42,895 $ 38,420 $ 31,519 $24,991 $20,317 Earnings from operations $ 4,339 $ 3,726 $ 3,568 $ 2,549 $ 1,879 Net earnings $ 3,119 $ 2,586 $ 2,433 $ 1,599 $ 1,177 Per share amounts: Net earnings $ 2.95 $ 2.46 $ 2.31 $ 1.54 $ 1.16 Cash dividends $ .52 $ .44 $ .35 $ .275 $ .225 At year-end: Total assets $ 31,749 $ 27,699 $ 24,427 $19,567 $16,736 Long-term debt $ 3,158 $ 2,579 $ 663 $ 547 $ 667 Employees 121,900 112,000 102,300 98,400 96,200 - --------------------------------------------------------------------------------------------
GRAPHS - ------ A bar chart entitled "Total Orders (In billions)" at the bottom left of page 31 of the Annual Report shows that for the fiscal years 1993, 1994, 1995, 1996 and 1997 (shown on the x-axis) the company had total orders (shown on the y-axis) in the respective amounts provided in the table entitled "Selected Financial Data (Unaudited)" on page 31 of the Annual Report. A bar chart entitled "Earnings from Operations (In millions)" at the bottom center of page 31 of the Annual Report shows that for the fiscal years 1993, 1994, 1995, 1996 and 1997 (shown on the x-axis) the company had earnings from operations (shown on the y-axis) in the respective amounts provided in the table entitled "Selected Financial Data (Unaudited)" on page 31 of the Annual Report. A bar chart entitled "Employees and Net Revenue Per Employee (In thousands)" at the bottom right of page 31 of the Annual Report shows that for the fiscal years 1993, 1994, 1995, 1996 and 1997 (shown on the x-axis) the company had employees in the respective amounts (shown on the y-axis) provided in the table entitled "Selected Financial Data (Unaudited)" on page 31 of the Annual Report. In addition, the graph shows that for the fiscal yeas 1993, 1994, 1995, 1996 and 1997 (shown on the x-axis) the company had net revenue per employee (shown on the y-axis) of $215,200, $256,900, $314,100, $358,600 and $366,900, respectively. 31 2 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS - ----------------------------------
For the years ended October 31 In millions except per share amounts 1997 1996 1995 - ------------------------------------------------------------------------------------------ Net revenue: Products $36,672 $33,114 $27,125 Services 6,223 5,306 4,394 - ------------------------------------------------------------------------------------------ Total net revenue 42,895 38,420 31,519 - ------------------------------------------------------------------------------------------ Costs and expenses: Cost of products sold 24,217 22,013 17,069 Cost of services 4,102 3,486 2,945 Research and development 3,078 2,718 2,302 Selling, general and administrative 7,159 6,477 5,635 - ------------------------------------------------------------------------------------------ Total costs and expenses 38,556 34,694 27,951 - ------------------------------------------------------------------------------------------ Earnings from operations 4,339 3,726 3,568 Interest income and other, net 331 295 270 Interest expense 215 327 206 - ------------------------------------------------------------------------------------------ Earnings before taxes 4,455 3,694 3,632 Provision for taxes 1,336 1,108 1,199 - ------------------------------------------------------------------------------------------ Net earnings $ 3,119 $ 2,586 $ 2,433 ========================================================================================== Net earnings per share $ 2.95 $ 2.46 $ 2.31 ========================================================================================== Weighted average shares and equivalents outstanding 1,057 1,052 1,052 ==========================================================================================
The accompanying notes are an integral part of these financial statements. 32 3 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES FINANCIAL REVIEW - ---------------- Unaudited RESULTS OF OPERATIONS - --------------------- In 1997, HP's net revenue grew by 12 percent and orders grew by 11 percent. These growth rates were healthy, but reflected notable slowing from the growth rates achieved in each of the last four years. Earnings from operations and net earnings were strong, but grew at a slightly slower rate than net revenue when the effects of the company's exit from disk-mechanism manufacturing in 1996 are taken into account. HP's orders for 1997 totaled $43.2 billion, up 11 percent compared with the prior year. In 1996, orders increased 19 percent. This slowing in growth rates was primarily attributable to the company's computer and peripherals businesses, which account for approximately 82 percent of the company's orders. Geographically, domestic and international orders grew 10 and 12 percent, respectively, compared with growth of 17 and 21 percent, respectively, in the prior year. Currency unfavorably impacted the international order growth rates, as the dollar strengthened during 1997 and 1996. Net revenue grew 12 percent to $19.1 billion in the U.S. and 11 percent to $23.8 billion internationally in 1997, following increases of 22 percent both in the U.S. and internationally in 1996. As compared with fiscal 1996, revenue growth was constrained in the first half of the year by slower market growth in the U.S. and macroeconomic weakness in Japan, Germany and France. Despite an increasingly unfavorable currency impact throughout 1997, growth rates accelerated in the second half, led by a rebound in growth in the U.S. and increased demand in Europe. With the exception of Japan, strong growth occurred in both years in the Asia Pacific and Latin America regions. Strong growth in unit shipments of the company's computers and peripherals, especially HP Vectra and Pavilion PCs, HP NetServer PC servers, UNIX system servers and HP's families of DeskJet and LaserJet printers continued, driven primarily by increased market penetration and new product introductions in 1997 and 1996. In both years, competitive actions designed to increase or maintain market share against intense competition contributed to declines in the average selling prices for many of these products, especially printers, resulting in unit volume growth significantly outpacing revenue growth. Sales of consumable supplies for the company's printer products continued to increase strongly, reflecting increased printer usage and a larger installed base. Revenue growth in the company's measurement businesses was comparable with growth achieved in 1996 and was again affected by various industry-specific factors. Growth in the test and measurement and components businesses was affected by cyclical weakness in those markets in 1996 and the first half of 1997, which was partially offset by increasing momentum in the second half of 1997. Medical revenue was impacted negatively in 1997 by new product transition issues that were largely resolved by the end of the year. Services such as systems integration, selective-outsourcing management, consulting, education, product financing and rentals, as well as hardware and software support and maintenance, are an integral part of the company's offerings. Net revenue from services grew 17 percent, compared with 21 percent in 1996. In both 1997 and 1996, service and support revenue grew largely as a result of increases in the installed base, higher leasing revenue and the continued growth of the professional services businesses. GRAPHS - ------ A graph entitled "Net Revenue (In billions)" at the top right of page 33 of the Annual Report shows that for the fiscal years 1993, 1994, 1995, 1996 and 1997 (shown on the x-axis) the company had total net revenue (shown on the y-axis) in the respective amounts provided in the table entitled "Selected Financial Data (Unaudited)" on page 31 of the Annual Report; and international net revenue of $11.0 billion, $13.5 billion, $17.6 billion, $21.4 billion and $23.8 billion, respectively. In addition, the graph shows that for the fiscal years 1993 and 1994 (shown on the x-axis) the company had U.S. net revenue (shown on the y-axis) of $9.3 billion and $11.5 billion, respectively; and U.S. net revenue for the fiscal yeas 1995, 1996 and 1997 (shown on the x-axis) in the respective amounts (shown on the y-axis) provided in the section entitled "Geographic Area Information" under the caption "United States: Unaffiliated customer sales" in the table on page 53 of the Annual Report. A graph entitled "U.S. Dollar Relative to Major Foreign Currencies (Fiscal 1980 equals 1.00)" at the bottom right of page 33 of the Annual Report shows that in the months running consecutively from November 1992 through October 1997 (shown on the x-axis) the U.S. Dollar was equal to (shown on the y-axis) 1.18, 1.21, 1.21, 1.22, 1.21, 1.20, 1.20, 1.17, 1.16, 1.13, 1.13, 1.12, 1.09, 1.11, 1.13, 1.12, 1.11, 1.07, 1.06, 1.06, 1.06, 1.05, 1.07, 1.08, 1.06, 1.06, 1.08, 1.08, 1.09, 1.09, 1.10, 1.11, 1.10, 1.09, 1.08, 1.09, 1.10, 1.08, 1.10, 1.13, 1.17, 1.19, 1.20, 1.19, 1.19, 1.22, 1.25, 1.23 and 1.21, respectively, multiplied by the currencies of the following foreign countries, with varying weights assigned to each of such currencies: Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Norway, Spain, Sweden, Switzerland and United Kingdom. 33 4 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES FINANCIAL REVIEW - ---------------- Unaudited Information on orders and net revenue by groupings of similar products and services is presented on page 55 of this report. Costs, expenses and earnings as a percentage of net revenue were as follows:
For the years ended October 31 1997 1996 1995 - ---------------------------------------------------------------------- Cost of products sold and services 66.0% 66.4% 63.5% Research and development 7.2% 7.1% 7.3% Selling, general and administrative 16.7% 16.8% 17.9% Earnings from operations 10.1% 9.7% 11.3% Net earnings 7.3% 6.7% 7.7% ======================================================================
Cost of products sold and services as a percentage of net revenue was 66.0 percent in 1997 and decreased 0.4 percentage points, compared with a 2.9 percentage point increase in 1996. Excluding the effect of the company's exit from disk-mechanism manufacturing in 1996, the ratios would have increased 0.5 percentage points in 1997 and 2.0 percentage points in 1996. Intense price competition, which was a major factor in the 1996 ratio increase, continued to affect product revenues and gross profit margins in 1997. Additionally, the continued shift in the mix of products sold towards lower gross-margin, high-volume product families, as well as costs associated with continuing new-product introductions, again put upward pressure on the cost of sales percentage. In 1997, these continuing factors were partially offset by favorable declines in component prices and lower costs related to inventory writedowns and product returns. While the company believes improvements in supply-chain management had a favorable impact on cost of sales in 1997, upward pressure on cost of sales is expected to continue. Research and development expenditures increased 13 percent in 1997 to $3.1 billion, versus 18 percent growth and expenditures of $2.7 billion in 1996. The ongoing increase in spending on research and development reflects the company's continued investments in new technologies for printing and imaging, new microchip architectures in partnership with Intel, and new software and hardware tools for network and communications testing and management. Selling, general and administrative expenses grew 11 percent in 1997 and 15 percent in 1996. The growth in both years was primarily due to increased selling costs related to order and revenue growth and increased marketing program costs associated with the company's continued introduction of new products and expansion of its distribution and support capabilities. Continued employment growth and acquisitions helped drive these increases, while currency exchange rates had an offsetting favorable effect in both years, helping more significantly in 1997. As a percentage of net revenue, both research and development and selling, general and administrative expenses were substantially unchanged from 1996. Reducing the rate of operating expense growth below the rate of net revenue growth remains a major focus of the company. The company's effective tax rate was 30 percent in 1997 and 1996, and 33 percent in 1995. The decreased rate from 1995 was due to a combination of factors, including shifts in the geographical composition of earnings and resolution of certain issues related to tax returns filed in previous years. As reported, net earnings increased 21 percent to $3.1 billion in 1997, compared with a 6 percent increase in 1996. Adjusted for the company's exit from disk-mechanism manufacturing in 1996, GRAPHS - ------ A graph entitled "Costs and Expenses (As a percentage of net revenue)" at the top left of page 34 of the Annual Report shows that for the fiscal years 1993 and 1994 (shown on the x-axis) the company had (shown on the y-axis) cost of products sold and services of 59.7% and 62.0%, respectively, of net revenue; selling, general and administrative expenses of 22.4% and 19.7%, respectively, of net revenue; and research and development expenses of 8.7% and 8.1%, respectively, of net revenue. In addition, the graph shows that for the fiscal years 1995, 1996 and 1997 (shown on the x-axis) the company had, as a percentage of net revenue (shown on the y-axis), cost of products sold and services, selling, general and administrative expenses and research and development expenses in the respective amounts provided in the table at the top of page 34 of the Annual Report. A bar chart entitled "Net Earnings (In millions)" at the bottom left of page 34 of the Annual Report shows that for the fiscal years 1993, 1994, 1995, 1996 and 1997 (shown on the x-axis) the company had net earnings (shown on the y-axis) in the respective amounts provided in the table entitled "Selected Financial Data (Unaudited)" on page 31 of the Annual Report. 34 5 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES growth would have been approximately 11 percent in 1997 and 14 percent in 1996. As a percentage of net revenue, net earnings were 7.3 percent in 1997, compared with an adjusted 7.4 percent in 1996 and 7.7 percent in 1995. FINANCIAL CONDITION AND LIQUIDITY - --------------------------------- HP's financial position strengthened further during 1997, as cash and cash equivalents and short-term investments increased to $4.6 billion at October 31, 1997 from $3.3 billion a year earlier, total borrowings declined $320 million and shareholders' equity increased over 20 percent. Additionally, the company increased dividends paid per share in both 1997 and 1996. Operating activities generated $4.3 billion in cash in 1997, compared with $3.5 billion and $1.6 billion in 1996 and 1995, respectively. The increase in cash generated in 1997 compared with 1996 primarily reflected improved net earnings before depreciation and amortization. This contrasts with the increase in 1996 that was driven primarily by slower inventory and receivables growth than in 1995. On a combined basis, accounts receivable and inventories as a percentage of net revenue decreased another 0.4 percentage points in 1997 after a 5.3 percentage point reduction achieved in 1996. Capital expenditures in 1997 were $2.3 billion, compared with $2.2 billion and $1.6 billion in 1996 and 1995, respectively. The growth in capital expenditures in both 1997 and 1996 related primarily to expansion of production capacity to accommodate higher volumes and the introduction of new products, but also reflected increasing expenditures to support growth in the company's leasing business. Net long-term borrowings of $909 million in 1997 continued the company's strategy of incurring debt to support increased investments in the company's lease finance portfolio and other interest-bearing assets. At October 31, 1997, the company had an unused committed borrowing facility in place totaling $1 billion. The company invests excess cash in short- and long-term investments, depending on its projected cash needs for operations, capital expenditures and other business purposes. The company also supplements its internally generated cash flow with a combination of short- and long-term borrowings. In 1997, the company repaid approximately $1.2 billion in short-term borrowings using primarily proceeds from short-term investments. Shares of the company's common stock are repurchased under a systematic program to manage the dilution created by shares issued under employee stock plans. In 1997, 13.2 million shares were repurchased at an aggregate price of $724 million. In 1996, 24.6 million shares were repurchased for $1,089 million. As of November 21, 1997, approximately $1.5 billion has been authorized by the Board of Directors for future repurchases under this program. FACTORS THAT MAY AFFECT FUTURE RESULTS - -------------------------------------- The company encounters aggressive competition in all areas of its business activity. The company's competitors are numerous, ranging from some of the world's largest corporations to many relatively small and highly specialized firms. The company competes primarily on the basis of technology, performance, price, quality, reliability, distribution and customer service and support. Product life cycles are short, and, to remain competitive, the company will be required to develop new products, periodically enhance its existing products and compete effectively on the basis of the factors described above. In particular, the company anticipates GRAPHS - ------ A bar chart entitled "Selected Cash Flows (In millions)" at the top right of page 35 of the Annual Report shows that for the fiscal years 1993 and 1994 (shown on the x-axis) the company had (shown on the y-axis) cash flows from operating activities of $1,142 and $2,224 million, respectively; capital expenditures of $1,405 million and $1,257 million, respectively; and dividends paid of $228 million and $280 million, respectively. In addition, the bar chart shows that for the fiscal years 1995, 1996 and 1997 (shown on the x-axis) the company had (shown on the y-axis) cash flows from operating activities and dividends paid in the respective amounts provided in the table entitled "Consolidated Statement of Cash Flows" on page 40 of the Annual Report. Finally, the bar chart shows that for the fiscal years 1995, 1996 and 1997 (shown on the x-axis) the company had capital expenditures (shown on the y-axis) in the respective amounts shown as "Investment in property, plant and equipment" provided in the table entitled "Consolidated Statement of Cash Flows" on page 40 of the Annual Report. A graph entitled "Operating Assets (As a percentage of net revenue)" at the bottom right of page 35 of the Annual Report shows that for the fiscal years 1993, 1994, 1995, 1996 and 1997 (shown on the x-axis) the company had (shown on the y-axis) net property, plant and equipment of 20.6%, 17.3%, 14.9%, 14.4% and 14.7%, respectively, of net revenue; accounts and notes receivable of 20.7%, 20.1%, 21.4%, 18.5% and 19.1%, respectively, of net revenue; and inventories of 18.2%, 17.1%, 19.1%, 16.7% and 15.8%, respectively, of net revenue. 35 6 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - --------------------------
October 31 In millions except par value and number of shares 1997 1996 - --------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 3,072 $ 2,885 Short-term investments 1,497 442 Accounts and notes receivable 8,173 7,126 Inventories: Finished goods 4,136 3,956 Purchased parts and fabricated assemblies 2,627 2,445 Other current assets 1,442 1,137 - --------------------------------------------------------------------------------------------- Total current assets 20,947 17,991 - --------------------------------------------------------------------------------------------- Property, plant and equipment: Land 468 475 Buildings and leasehold improvements 4,672 4,257 Machinery and equipment 6,636 5,466 - --------------------------------------------------------------------------------------------- 11,776 10,198 Accumulated depreciation (5,464) (4,662) - --------------------------------------------------------------------------------------------- 6,312 5,536 Long-term investments and other assets 4,490 4,172 - --------------------------------------------------------------------------------------------- Total assets $31,749 $27,699 ============================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable and short-term borrowings $ 1,226 $ 2,125 Accounts payable 3,185 2,375 Employee compensation and benefits 1,723 1,675 Taxes on earnings 1,515 1,514 Deferred revenues 1,152 951 Other accrued liabilities 2,418 1,983 - --------------------------------------------------------------------------------------------- Total current liabilities 11,219 10,623 - --------------------------------------------------------------------------------------------- Long-term debt 3,158 2,579 Other liabilities 1,217 1,059 Commitments and contingencies Shareholders' equity: Preferred stock, $1 par value (authorized: 300,000,000 shares; issued: none) -- -- Common stock and capital in excess of $1 par value (authorized: 2,400,000,000 shares; issued and outstanding: 1,041,042,000 in 1997 and 1,014,123,000 in 1996) 1,187 1,014 Retained earnings 14,968 12,424 - --------------------------------------------------------------------------------------------- Total shareholders' equity 16,155 13,438 - --------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $31,749 $27,699 =============================================================================================
The accompanying notes are an integral part of these financial statements. 36 7 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES that it will have to continue to adjust prices of many of its products to stay competitive, and it will have to effectively manage financial returns with reduced gross margins. The company's future operating results may be adversely affected if the company is unable to continue to develop, manufacture and market innovative products and services rapidly that meet customer requirements for performance and reliability. The process of developing new high technology products and solutions is inherently complex and uncertain. It requires accurate anticipation of customers' changing needs and emerging technological trends. The company consequently must make long-term investments and commit significant resources before knowing whether its predictions will eventually result in products that achieve market acceptance. After a product is developed, the company must quickly manufacture sufficient volumes at acceptable costs. This is a process that requires accurate forecasting of volumes, mix of products and configurations. Moreover, the supply and timing of a new product or service must match customers' demand and timing for the particular product or service. Given the wide variety of systems, products and services the company offers, the process of planning production and managing inventory levels becomes increasingly difficult. Inventory management has become increasingly complex as the company continues to sell a greater mix of products, especially printers and personal computers, through third-party distribution channels. Resellers constantly adjust their ordering patterns in response to the company's and its competitors' supply into the channel and the timing of their new product introductions and relative feature sets, as well as seasonal fluctuations in end-user demand such as the back-to-school and holiday selling periods. Resellers may increase orders during times of shortages, cancel orders if the channel is filled with currently available products, or delay orders in anticipation of new products. Any excess supply could result in price reductions and inventory writedowns, which in turn could adversely affect the company's gross margins. The short life cycles of many of the company's products pose a challenge for the effective management of the transition from existing products to new products and could adversely affect the company's future operating results. Product development or manufacturing delays, variations in product costs, and delays in customer purchases of existing products in anticipation of new product introductions are among the factors that make a smooth transition from current products to new products difficult. In addition, the timing of competitors' introductions of new products and services may negatively affect future operating results of the company, especially when these introductions coincide with periods leading up to the company's own introduction of new or enhanced products. Furthermore, some of the company's own new products may replace or compete with certain of the company's current products. The company generally relies upon patent, copyright, trademark and trade secret laws in the United States and in selected other countries to establish and maintain its proprietary rights in its technology and products. However, there can be no assurance that any of the company's proprietary rights will not be challenged, invalidated or circumvented, or that any such rights will provide significant competitive advantages. Moreover, because of the rapid pace of technological change in the information technology industry, many of the company's products rely on key technologies developed by others. There can be no assurance that the company will be able to continue to obtain licenses to such technologies. In addition, from time to time, the company receives notices from third parties regarding patent or copyright claims. Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert management's attention and resources and cause the company to incur significant expenses. In the event of a successful claim of infringement against the company and failure or inability of the company to license the infringed technology or to substitute similar non-infringing technology, the company's business could be adversely affected. 37 8 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Portions of the company's manufacturing operations are dependent on the ability of suppliers to deliver quality components, subassemblies and completed products in time to meet critical manufacturing and distribution schedules. The company periodically experiences constrained supply of certain component parts in some product lines as a result of strong demand in the industry for those parts. Such constraints, if persistent, may adversely affect the company's operating results until alternate sourcing can be developed. In order to secure components for production and introduction of new products, the company at times makes advance payments to certain suppliers and often enters into noncancelable purchase commitments with vendors for such components. Volatility in the prices of these component parts, the possible inability of the company to secure enough components at reasonable prices to build new products in a timely manner in the quantities and configurations demanded or, conversely, a temporary oversupply of these parts, could adversely affect the company's future operating results. The company continues to expand into third-party distribution channels to accommodate changing customer preferences. As a result, the financial health of resellers of the company's products, and the company's continuing relationships with such resellers, are becoming more important to the company's success. Some of these companies are thinly capitalized and may be unable to withstand changes in business conditions. The company's financial results could be adversely affected if the financial condition of certain of these resellers substantially weakens or if the company's relationship with such resellers deteriorates. Sales outside the United States make up more than half of the company's revenues. In addition, a portion of the company's product and component manufacturing, along with key suppliers, are located outside the United States. Accordingly, the company's future results could be adversely affected by a variety of factors, including changes in a specific country's or region's political or economic conditions, trade protection measures, import or export licensing requirements, the overlap of different tax structures, unexpected changes in regulatory requirements and natural disasters. The company is also exposed to foreign currency exchange rate risk inherent in its sales commitments, anticipated sales and assets and liabilities denominated in currencies other than the U.S. dollar, as well as interest rate risk inherent in the company's debt, investment and finance receivable portfolios. As more fully described in the "Off-balance-sheet foreign exchange risk" and "Borrowings" notes to the financial statements, the company's risk management strategy utilizes derivative financial instruments, including forwards, swaps and purchased options to hedge certain foreign currency and interest rate exposures, with the intent of offsetting gains and losses that occur on the underlying exposures with gains and losses on the derivative contracts hedging them. The company does not enter into derivatives for trading purposes. The company has performed a sensitivity analysis assuming a hypothetical 10% adverse movement in foreign exchange rates and interest rates applied to the hedging contracts and underlying exposures described above. As of October 31, 1997, the analysis indicated that such market movements would not have a material effect on the company's consolidated financial position, results of operations or cash flows. Actual gains and losses in the future may differ materially from that analysis, however, based on changes in the timing and amount of interest rate and foreign currency exchange rate movements and the company's actual exposures and hedges. As a matter of course, the company frequently engages in discussions with a variety of parties relating to possible acquisitions, strategic alliances, joint ventures and divestitures. Although consummation of any transaction is unlikely to have a material effect on the company's results as a whole, the implementation or integration of a transaction may contribute to the company's 38 9 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES results differing from the investment community's expectation in a given quarter. Divestitures may result in the cancellation of orders and charges to earnings. Acquisitions and strategic alliances may require, among other things, integration or coordination with a different company culture, management team organization and business infrastructure. They may also require the development, manufacture and marketing of product offerings with the company's products in a way that enhances the performance of the combined business or product line. Depending on the size and complexity of the transaction, successful integration depends on a variety of factors, including the hiring and retention of key employees, management of geographically separate facilities and the integration or coordination of different research and development and product manufacturing facilities. All of these efforts require varying levels of management resources, which may temporarily adversely impact other business operations. A portion of the company's research and development activities, its corporate headquarters, other critical business operations and certain of its suppliers are located near major earthquake faults. The ultimate impact on the company, its significant suppliers and the general infrastructure is unknown, but operating results could be materially affected in the event of a major earthquake. The company is predominantly self-insured for losses and interruptions caused by earthquakes. Certain of the company's operations involve the use of substances regulated under various federal, state and international laws governing the environment. It is the company's policy to apply strict standards for environmental protection to sites inside and outside the U.S., even if not subject to regulations imposed by local governments. The liability for environmental remediation and related costs is accrued when it is considered probable and the costs can be reasonably estimated. Environmental costs are presently not material to the company's operations or financial position. Many computer systems experience problems handling dates beyond the year 1999. Therefore, some computer hardware and software will need to be modified prior to the year 2000 in order to remain functional. The company is assessing both the internal readiness of its computer systems and the compliance of its computer products and software sold to customers for handling the year 2000. The company expects to implement successfully the systems and programming changes necessary to address year 2000 issues, and does not believe that the cost of such actions will have a material effect on the company's results of operations or financial condition. There can be no assurance, however, that there will not be a delay in, or increased costs associated with, the implementation of such changes, and the company's inability to implement such changes could have an adverse effect on future results of operations. Although the company believes that it has the product offerings and resources needed for continuing success, future revenue and margin trends cannot be reliably predicted and may cause the company to adjust its operations, which could cause period-to-period fluctuations in operating results. The company's stock price, like that of other technology companies, is subject to significant volatility. The announcement of new products, services or technological innovations by the company or its competitors, quarterly variations in the company's results of operations, changes in revenue or earnings estimates by the investment community and speculation in the press or investment community are among the factors affecting the company's stock price. In addition, the stock price may be affected by general market conditions and domestic and international macroeconomic factors unrelated to the company's performance. Because of the foregoing reasons, recent trends should not be considered reliable indicators of future stock prices or financial results. 39 10 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - ------------------------------------
For the years ended October 31 In millions 1997 1996 1995 - ------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 3,119 $ 2,586 $ 2,433 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,556 1,297 1,139 Deferred taxes on earnings (232) (284) (102) Changes in current assets and liabilities: Accounts and notes receivable (752) (293) (1,696) Inventories (279) (356) (1,740) Accounts payable 775 (55) 956 Taxes on earnings (63) 102 180 Other current assets and liabilities 446 553 663 Other, net (249) (94) (220) - ------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 4,321 3,456 1,613 - ------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Investment in property, plant and equipment (2,338) (2,201) (1,601) Disposition of property, plant and equipment 333 316 294 Purchase of short-term investments (5,213) (6,652) (3,191) Maturities of short-term investments 4,158 7,074 3,669 Purchase of long-term investments -- (734) (308) Other, net 48 22 (38) - ------------------------------------------------------------------------------------------------------- Net cash used in investing activities (3,012) (2,175) (1,175) - ------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Change in notes payable and short-term borrowings (1,194) (1,137) 755 Issuance of long-term debt 1,182 1,989 434 Payment of long-term debt (273) (41) (332) Issuance of common stock under employee stock plans 419 363 361 Repurchase of common stock (724) (1,089) (686) Dividends (532) (450) (358) Other, net -- (4) 4 - ------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (1,122) (369) 178 - ------------------------------------------------------------------------------------------------------- Increase in cash and cash equivalents 187 912 616 Cash and cash equivalents at beginning of year 2,885 1,973 1,357 - ------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 3,072 $ 2,885 $ 1,973 ======================================================================================================= Supplemental cash flow disclosures: Income taxes paid, net $ 1,488 $ 1,159 $ 1,058 Interest paid $ 325 $ 267 $ 187 =======================================================================================================
The accompanying notes are an integral part of these financial statements. 40 11 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - ----------------------------------------------
Common stock -------------------------- Par value Number of and capital in Retained In millions except number of shares in thousands shares excess of par earnings Total - ----------------------------------------------------------------------------------------------------------------- Balance October 31, 1994 1,019,308 $ 1,543 $ 8,383 $ 9,926 Employee stock plans: Shares issued 21,392 524 -- 524 Shares repurchased (20,790) (686) -- (686) Dividends -- -- (358) (358) Net earnings -- -- 2,433 2,433 - ----------------------------------------------------------------------------------------------------------------- Balance October 31, 1995 1,019,910 1,381 10,458 11,839 Acquisition via immaterial pooling 3,056 137 (162) (25) Employee stock plans: Shares issued 15,737 577 -- 577 Shares repurchased (24,580) (1,081) (8) (1,089) Dividends -- -- (450) (450) Net earnings -- -- 2,586 2,586 - ----------------------------------------------------------------------------------------------------------------- Balance October 31, 1996 1,014,123 1,014 12,424 13,438 Acquisition via immaterial pooling 23,590 43 118 161 Employee stock plans: Shares issued 16,536 693 -- 693 Shares repurchased (13,207) (563) (161) (724) Dividends -- -- (532) (532) Net earnings -- -- 3,119 3,119 - ----------------------------------------------------------------------------------------------------------------- Balance October 31, 1997 1,041,042 $ 1,187 $14,968 $16,155 =================================================================================================================
The accompanying notes are an integral part of these financial statements. 41 12 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ------------------------------------------ PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Hewlett-Packard Company and its wholly- and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the company's financial statements and accompanying notes. Actual results could differ from those estimates. REVENUE RECOGNITION Revenue from product sales is generally recognized at the time the product is shipped, with provisions established for price protection programs and for estimated product returns. Upon shipment, the company also provides for the estimated cost that may be incurred for product warranties and post-sales support. Service revenue is recognized over the contractual period or as services are rendered and accepted by the customer. ADVERTISING Advertising costs are expensed as incurred and amounted to $1,131 million in 1997, $999 million in 1996 and $830 million in 1995. TAXES ON EARNINGS Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. NET EARNINGS PER SHARE Net earnings per share is computed using the weighted-average number of common shares and common share equivalents outstanding during each period. Common share equivalents represent the dilutive effect of outstanding stock options and convertible debt. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share," which is effective for the company's first quarter of fiscal 1998. Under SFAS 128, the company will present two earnings per share (EPS) amounts. Basic EPS will be calculated based on income available to common shareholders and the weighted-average number of shares outstanding during the reported period. Diluted EPS will include additional dilution from potential common stock, such as stock issuable pursuant to the exercise of stock options outstanding and the conversion of debt. If the provisions of SFAS 128 had been applied in fiscal 1997, 1996 and 1995, basic EPS would have been approximately 9, 8 and 7 cents, respectively, higher than reported EPS. Diluted EPS in each of the years would have been approximately the same as reported EPS. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The company has classified investments as cash equivalents if the maturity of such investments is three months or less from the purchase date. Short-term investments are principally comprised of certificates of deposit and temporary money-market instruments, and are stated at cost, which approximates market. INVENTORIES Inventories are valued at standard costs that approximate actual costs computed on a first-in, first-out basis, not in excess of market values. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Additions, improvements and major renewals are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. Depreciation is provided using accelerated methods, principally over 15 to 40 years for buildings and improvements and 3 to 10 years for machinery and equipment. Depreciation of leasehold improvements is provided using the straight-line method over the life of the lease or the asset, whichever is shorter. 42 13 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES LONG-TERM INVESTMENTS The company's investments are primarily comprised of debt securities which are held-to-maturity. EMPLOYEE STOCK COMPENSATION The company accounts for its employee stock plans under the intrinsic-value-based method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." FOREIGN CURRENCY TRANSLATION The company uses the U.S. dollar as its functional currency. Foreign currency assets and liabilities are remeasured into U.S. dollars at end-of-period exchange rates except for inventories, property, plant and equipment, other assets and deferred revenues, which are remeasured at historical exchange rates. Revenues and expenses are remeasured at average exchange rates in effect during each period, except for those expenses related to balance sheet amounts that are remeasured at historical exchange rates. Gains or losses from foreign currency remeasurement are included in net earnings. The effect of foreign currency exchange rate fluctuations on cash and cash equivalents denominated in foreign currencies was not material. ACQUISITIONS - ------------ The company acquired several companies during the last three years that were not significant to its financial position or results of operations. During 1997 and 1996, two acquisitions were accounted for using the pooling-of-interests method; however, prior period consolidated financial statements were not restated because the retroactive effects were not material. All other acquisitions were accounted for using the purchase method. Under the purchase method, the results of operations of acquired companies are included prospectively from the date of acquisition, and the acquisition cost is allocated to the acquirees' tangible and identifiable intangible assets and liabilities based upon their fair market values at the date of the acquisition, with any residual being goodwill. The company amortizes goodwill on a straight-line basis over its estimated economic life, generally 2 to 10 years. At October 31, 1997, the net book value of goodwill associated with acquisitions was $165 million. FINANCIAL INSTRUMENTS - --------------------- OFF-BALANCE-SHEET FOREIGN EXCHANGE RISK The company enters into foreign exchange contracts, primarily forwards and purchased options, to hedge against exposure to changes in foreign currency exchange rates. Such contracts are designated at inception to the related foreign currency exposures being hedged, which include committed and anticipated sales by subsidiaries and assets and liabilities that are denominated in currencies other than the U.S. dollar. To achieve hedge accounting, contracts must reduce the foreign currency exchange rate risk otherwise inherent in the amount and duration of the hedged exposures and comply with established company risk management policies. Hedging contracts generally mature within six months. When hedging sales-related exposure, foreign exchange contract expirations are set so as to occur in the same month the hedged shipments occur, allowing realized gains and losses on the contracts to be recognized in net revenue in the same periods in which the related revenues are recognized. When hedging balance sheet exposure, realized gains and losses on foreign exchange contracts are recognized in other income and expense in the same period as the realized gains and losses on remeasurement of the foreign currency denominated assets and liabilities occur. All gains and losses related to foreign exchange contracts are included in cash flows from operating activities in the consolidated statement of cash flows. The notional amount of foreign exchange contracts outstanding at October 31, 1997 and 1996 was $7.2 billion and $9.7 billion, respectively, and related to exposures in approximately 35 foreign currencies. The notional amount represents the future cash flows under contracts to both purchase and sell foreign currencies. Unrealized gains and losses on hedging contracts deferred under the company's hedge accounting policies amounted to $103 million and $86 million, respectively, at October 31, 1997 and $76 million and $95 million, respectively, at October 31, 1996. Unamortized premiums and realized gains deferred under currency options are not material. 43 14 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the company to significant concentrations of credit risk consist principally of cash, investments, trade accounts and notes receivable, and certain other financial instruments. The company maintains cash and cash equivalents, short- and long-term investments and certain other financial instruments with various financial institutions. These financial institutions are located in many different geographies, and company policy is designed to limit exposure with any one institution. As part of its cash and risk management processes, the company performs periodic evaluations of the relative credit standing of the financial institutions. The company has not sustained material credit losses from these instruments. The company sells a significant portion of its products through third-party resellers and, as a result, maintains individually significant receivable balances with major distributors. If the financial condition or operations of these distributors deteriorate substantially, the company's operating results could be adversely affected. The ten largest distributor receivable balances collectively represent 12 percent and 13 percent of total accounts and notes receivable at October 31, 1997 and 1996, respectively. Credit risk with respect to other trade accounts and notes receivable is generally diversified due to the large number of entities comprising the company's customer base and their dispersion across many different industries and geographies. The company performs ongoing credit evaluations of its third-party resellers' and other customers' financial condition, and requires collateral, such as letters of credit and bank guarantees, in certain circumstances. FAIR VALUE OF FINANCIAL INSTRUMENTS For certain of the company's financial instruments, including cash and cash equivalents, short-term investments, accounts and notes receivable, notes payable and short-term borrowings, accounts payable and other accrued liabilities, the carrying amounts approximate fair value due to their short maturities. Long-term floating rate notes, long-term stock investments and certificates of deposit are carried at amounts that approximate fair value. The estimated fair value of fixed rate long-term debt is primarily based on quoted market prices, as well as borrowing rates currently available to the company for bank loans with similar terms and maturities. This fair value, when adjusted for unrealized gains and losses on related interest rate swap agreements, approximates the carrying amount of long-term debt. The estimated fair value for foreign exchange contracts is primarily based on quoted market prices for the same or similar instruments, adjusted where necessary for maturity differences. At October 31, 1997 and 1996, the estimated fair value of foreign exchange contracts amounted to $17 million and $(19) million, respectively. The estimated fair values may not be representative of actual values of the financial instruments that could have been realized as of year end or that will be realized in the future. FINANCE RECEIVABLES AND INVESTMENT IN OPERATING LEASES - ------------------------------------------------------ Finance receivables represent sales-type and direct-financing leases and installment sales resulting from the marketing of the company's and complementary third-party products. These receivables have terms from two to five years and are typically collateralized by a security interest in the underlying assets. The components of finance receivables, net, which are included in accounts and notes receivable and long-term investments and other assets at October 31, are:
In millions 1997 1996 - -------------------------------------------------------------------------------- Gross finance receivables $ 2,478 $ 2,004 Unearned income (253) (224) - -------------------------------------------------------------------------------- Finance receivables, net 2,225 1,780 Less current portion (1,123) (897) - -------------------------------------------------------------------------------- Amounts due after one year, net $ 1,102 $ 883 ================================================================================
44 15 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES Contractual maturities of the company's gross finance receivables at October 31, 1997 are $1,275 million in 1998, $593 million in 1999, $375 million in 2000, $168 million in 2001 and $67 million thereafter. Actual cash collections may differ primarily due to customer early buy-outs and refinancings. The company also leases its products to customers under operating leases. Equipment on operating leases was $1,138 million and $849 million at October 31, 1997 and 1996, respectively, and is included in machinery and equipment. Accumulated depreciation on equipment on operating leases was $489 million and $378 million at October 31, 1997 and 1996, respectively. Minimum future rentals on noncancelable operating leases with original terms of one year or longer are $605 million in 1998, $383 million in 1999, $154 million in 2000, $30 million in 2001 and $22 million thereafter. TAXES ON EARNINGS - ----------------- The provision for income taxes is comprised of:
In millions 1997 1996 1995 - -------------------------------------------------------------------------------- U.S. federal taxes: Current $ 544 $ 614 $ 642 Deferred (257) (115) (87) Non-U.S. taxes: Current 965 716 609 Deferred 52 (169) (15) State taxes 32 62 50 - -------------------------------------------------------------------------------- $1,336 $1,108 $1,199 ================================================================================
The significant components of deferred tax assets, which required no valuation allowance, and deferred tax liabilities included on the balance sheet at October 31 are:
1997 1996 ----------------------------------------------------- Deferred Deferred Deferred Deferred tax tax tax tax In millions assets liabilities assets liabilities - ----------------------------------------------------------------------------------------------------- Inventory $ 563 $ 16 $ 497 $ 13 Fixed assets 90 17 142 8 Warranty 224 15 86 10 Leasing activities 16 78 -- 84 Retiree medical benefits 257 -- 251 -- Other retirement benefits -- 113 -- 111 Employee benefits, other than retirement 242 42 178 34 Other 228 140 186 123 - ----------------------------------------------------------------------------------------------------- $1,620 $ 421 $1,340 $383 =====================================================================================================
Tax benefits of $150 million, $123 million and $91 million associated with the exercise of employee stock options were allocated to equity in 1997, 1996 and 1995, respectively. 45 16 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ The differences between the U.S. federal statutory income tax rate and the company's effective rate are:
1997 1996 1995 - ----------------------------------------------------------------------------------- U.S. federal statutory income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit 0.5 1.1 0.9 Lower rates in other jurisdictions, net (5.9) (6.9) (5.0) Other, net 0.4 0.8 2.1 - ----------------------------------------------------------------------------------- 30.0% 30.0% 33.0% ===================================================================================
The domestic and foreign components of earnings before taxes are:
In millions 1997 1996 1995 - -------------------------------------------------------------------------------- U.S. operations including Puerto Rico $1,433 $1,535 $1,548 Non-U.S 3,022 2,159 2,084 - -------------------------------------------------------------------------------- $4,455 $3,694 $3,632 ================================================================================
The company has not provided for U.S. federal income and foreign withholding taxes on $5.2 billion of non-U.S. subsidiaries' undistributed earnings as of October 31, 1997, because such earnings are intended to be reinvested indefinitely. If these earnings were distributed, foreign tax credits should become available under current law to reduce or eliminate the resulting U.S. income tax liability. Where excess cash has accumulated in the company's non-U.S. subsidiaries and it is advantageous for tax or foreign exchange reasons, subsidiary earnings are remitted. As a result of certain employment and capital investment actions undertaken by the company, income from manufacturing activities in certain countries is subject to reduced tax rates, and in some cases is wholly exempt from taxes, for years through 2012. The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $226 million, $212 million and $168 million for 1997, 1996 and 1995, respectively. The Internal Revenue Service (IRS) has completed its examination of the company's federal income tax returns filed through 1989. The IRS has not commenced its examination of returns for years subsequent to 1995. The company believes that adequate accruals have been provided for all years. BORROWINGS - ---------- Notes payable and short-term borrowings and the related average interest rates at October 31 are:
1997 1996 ----------------------------------------------------------- Average Average Interest Interest In millions rate rate - -------------------------------------------------------------------------------------------- Commercial paper $ -- -- $1,848 5.3% Notes payable to banks 1,088 6.9% 200 7.5% Other short-term borrowings 138 3.7% 77 6.2% - -------------------------------------------------------------------------------------------- $1,226 $2,125 ============================================================================================
46 17 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES At October 31, 1997, the company had a committed borrowing facility in place with unused borrowing capacity totaling $1 billion. Long-term debt and related maturities and interest rates at October 31 are:
In millions 1997 1996 - ---------------------------------------------------------------------------------------------------- U.S. dollar notes, due 1998-2017 at 5.25%-7.90% $1,500 $1,348 U.S. dollar zero-coupon subordinated convertible notes, due 2017 at 3.13% 968 -- Deutschemark notes, due 2000-2002 at 4.75%-5.63% 352 513 Yen notes, due 1999-2002 at 1.80%-5.00% 377 567 British pound note, due 1999 at 7.13% 162 149 Other 53 87 Less current portion (254) (85) - ---------------------------------------------------------------------------------------------------- Long-term debt $3,158 $2,579 ====================================================================================================
The company issues long-term debt in either U.S. dollars or foreign currencies based on market conditions at the time of financing. Interest rate and foreign currency swaps are then used to modify the market risk exposures under the debt to achieve primarily U.S. dollar LIBOR-based floating interest expense and to neutralize exposure to changes in foreign currency exchange rates. The swap transactions generally involve the exchange of fixed for floating interest payment obligations and, when the underlying debt is denominated in a foreign currency, exchange of the foreign currency principal and interest obligations for U.S. dollar-denominated amounts. Notional amounts and maturities under the swaps generally match those of the underlying debt. Unrealized gains and losses on currency swaps hedging foreign currency debt are recognized as other assets and other liabilities and are not material. In October 1997, the company issued $1.8 billion face value of zero-coupon subordinated convertible notes due 2017 for proceeds of $968 million. The notes are convertible at any time by the holders at the rate of 5.43 shares of the company's common stock for each $1,000 face value of the notes, payable in either cash or common stock at the option of the company. The notes may be redeemed by the holders on October 14, 2000 or by the company on or after that date at book value, payable in either cash or common stock at the option of the company. The notes are subordinated to all other existing and future senior indebtedness of the company. Aggregate future maturities of long-term debt outstanding at October 31, 1997 are $254 million in 1998, $1,115 million in 1999, $555 million in 2000, $200 million in 2001, $80 million in 2002 and $1,208 million thereafter. The company occasionally repurchases its debt prior to maturity based on its assessment of current market conditions and financing alternatives. SHAREHOLDERS' EQUITY - -------------------- EMPLOYEE STOCK PURCHASE PLAN Eligible company employees may generally contribute up to 10 percent of their base compensation to the quarterly purchase of shares of the company's common stock under the Employee Stock Purchase Plan. Under this plan, employee contributions to purchase shares are partially matched with shares contributed by the company, which generally vest over two years. At October 31, 1997, approximately 96,000 employees were eligible to participate and approximately 58,000 employees were participants in the plan. During 1997, 1996 and 1995, the company contributed 2,327,000, 2,311,000 and 3,176,000 matching shares at weighted average prices of $54, $46 and $30 per share, respectively, and recognized compensation expense of $96 million, $72 million and $73 million, respectively, under the plan. INCENTIVE COMPENSATION PLANS The company has four principal stock option plans, adopted in 1979, 1985, 1990 and 1995. All plans permit options granted to qualify as "Incentive Stock Options" under the Internal Revenue Code. The exercise 47 18 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ price of a stock option is generally equal to the fair market value of the company's common stock on the date the option is granted and its term is generally ten years. Under the 1990 and 1995 Incentive Stock Plans, the Compensation Committee, in certain cases, may choose to establish a discounted exercise price at no less than 75 percent of fair market value on the grant date. In 1997, 1996 and 1995, discounted options totaling 780,000, 1,165,000 and 1,536,000 shares, respectively, were granted. Stock compensation expense related to the discounted options was not material in 1997, 1996 or 1995. Options generally vest at a rate of 25 percent per year over a period of four years from the date of grant except for discounted options, which generally may not be exercised until the third or fifth anniversary of the option grant date, at which time such options become 100 percent vested. The plans also provide for the granting of stock appreciation rights with respect to options granted to officers. The company has not included stock appreciation rights with options granted to officers since October 31, 1991. The following table summarizes option activity during 1997, 1996 and 1995:
1997 1996 1995 ------------------------------------------------------------------------------------ Shares Weighted-Average Shares Weighted-Average Shares Weighted-Average (000) Exercise Price (000) Exercise Price (000) Exercise Price - ----------------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 49,344 $20 49,616 $15 51,344 $12 Granted 8,000 51 7,237 43 9,798 26 Assumed via acquisitions 3,179 30 639 40 -- -- Exercised (8,689) 14 (7,214) 12 (10,604) 10 Cancelled (584) 33 (934) 22 (922) 16 - ----------------------------------------------------------------------------------------------------------------------------- Outstanding at end of year 51,250 $26 49,344 $20 49,616 $15 ============================================================================================================================= Options exercisable at year-end 27,471 $17 25,649 $13 24,680 $11 Weighted-average fair value of options granted during the year $20.16 $17.82
The following table summarizes information about options outstanding at October 31, 1997:
Options Outstanding Options Exercisable --------------------------------------------------------------------------------------- Number Weighted-Average Number Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average Exercise Prices (000) Contractual Life Exercise Price (000) Exercise Price - ----------------------------------------------------------------------------------------------------------------- $ 0-25 33,297 4.7 years $15 24,432 $14 $26-50 10,896 8.1 42 2,756 43 $51 & over 7,057 9.0 53 283 53 - ----------------------------------------------------------------------------------------------------------------- 51,250 $26 27,471 $17 =================================================================================================================
Shares available for option grants at October 31, 1997 and 1996 were 59,012,000 and 65,531,000, respectively. Approximately 57,000 employees were considered eligible to receive stock options in fiscal 1997. There were approximately 33,000 employees holding options under one or more of the option plans as of October 31, 1997. Under the 1985 Incentive Compensation Plan and the 1990 and 1995 Incentive Stock Plans, certain key employees may be granted cash or restricted stock awards. Cash and restricted stock awards are independent of option grants and are subject to restrictions considered appropriate by the company's Compensation Committee. The majority of the shares of restricted stock outstanding at October 31, 1997 are subject to forfeiture if employment terminates prior to three years from the date of grant. During that period, ownership of the shares cannot be transferred. Restricted stock has the same dividend and voting rights as 48 19 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES other common stock and is considered to be currently issued and outstanding. The cost of the awards, determined to be the fair market value of the shares at the date of grant, is expensed ratably over the period the restrictions lapse. Such expense was not material in 1997, 1996 or 1995. At October 31, 1997 and 1996, the company had 4,300,000 and 3,926,000 shares, respectively, of restricted stock outstanding. PRO FORMA INFORMATION The company applies the intrinsic-value-based method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for employee stock options. Accordingly, compensation expense is recognized only when options are granted with a discounted exercise price. Any such compensation expense is recognized ratably over the associated service period, which is generally the option vesting term. Pro forma net earnings and earnings per share information, as required by Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," has been determined as if the company had accounted for employee stock options under SFAS 123's fair value method. The fair value of these options was estimated at grant date using a Black-Scholes option pricing model with the following weighted-average assumptions for fiscal 1997 and 1996, respectively: risk-free interest rates of 6.21 and 6.29 percent; dividend yield of 1.0 percent; expected option life of 6 years; and volatility of 30 percent. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the 4-year average vesting period of the options. The company's pro forma net earnings for 1997 and 1996 were $3,078 million and $2,570 million, and pro forma net earnings per share were $2.91 and $2.44, respectively. These pro forma amounts include amortized fair values attributable to options granted after October 31, 1995 only, and therefore are not representative of future pro forma amounts. SHARES RESERVED At October 31, 1997 and 1996, the company has reserved 131,761,000 and 145,622,000 shares, respectively, for future issuance under the employee stock plans. STOCK REPURCHASE PROGRAM Shares of the company's common stock are repurchased under a systematic program to manage the dilution created by shares issued under employee stock plans. The company repurchased 13,207,000 shares in 1997, 24,580,000 shares in 1996 and 20,790,000 shares in 1995 for an aggregate purchase price of $724 million, $1,089 million and $686 million, respectively. At October 31, 1997, the company had authorization for an aggregate of $506 million in future repurchases under this program based on certain price and volume criteria. During November 1997, the Board of Directors authorized an additional $1 billion in stock repurchases under the program. RETIREMENT PLANS AND RETIREE MEDICAL BENEFITS - --------------------------------------------- PENSION AND DEFERRED PROFIT-SHARING PLANS Substantially all of the company's employees are covered under various pension and deferred profit-sharing retirement plans. Worldwide pension and deferred profit-sharing costs were $320 million in 1997, $281 million in 1996, and $233 million in 1995. U.S. employees who meet certain minimum eligibility criteria are provided retirement benefits under the Hewlett-Packard Company Retirement Plan (Retirement Plan). Defined benefits are based upon an employee's highest average pay rate and length of service. For eligible service through October 31, 1993, the benefit payable under the Retirement Plan is reduced by any amounts due to the employee under the company's frozen defined contribution Deferred Profit-Sharing Plan (DPS), which has since been closed to new participants. 49 20 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ The combined status of the Retirement Plan and DPS follows:
In millions 1997 1996 - -------------------------------------------------------------------------------- Fair value of plan assets $3,284 $2,744 Retirement benefit obligation $3,329 $2,799 - --------------------------------------------------------------------------------
Employees outside the U.S. generally receive retirement benefits under various defined benefit and defined contribution plans based upon factors such as years of service and employee compensation levels. Eligibility is generally determined in accordance with local statutory requirements. RETIREE MEDICAL PLAN In addition to providing pension benefits, the company sponsors a medical plan that provides defined benefits to U.S. retired employees. Substantially all of the company's current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees. Once participating in the plan, retirees may choose from managed-care and indemnity options, with their contributions dependent on options chosen and length of service. 401(k) PLAN U.S. employees of the company may participate in the Tax Saving Capital Accumulation Plan (TAXCAP), which was established as a supplemental retirement program. Under the TAXCAP program, the company matches contributions by employees up to a maximum of 4 percent of an employee's annual compensation. The maximum combined contribution to the Employee Stock Purchase Plan and TAXCAP is 17 percent of an employee's annual base compensation subject to certain regulatory and plan limitations. At October 31, 1997, 56,000 employees were participating in TAXCAP out of 62,000 who were eligible. FUNDED STATUS The funded status of the defined benefit and retiree medical plans is:
U.S. defined Non-U.S. defined U.S. retiree benefit plan benefit plans medical plan ---------------- -------------------- ----------------- In millions 1997 1996 1997 1996 1997 1996 - ---------------------------------------------------------------------------------------------------------- Fair value of plan assets $ 733 $ 485 $ 1,530 $ 1,223 $ 448 $ 365 Benefit obligation (778) (540) (1,443) (1,246) (475) (429) - ---------------------------------------------------------------------------------------------------------- Plan assets in excess (less than) benefit obligation (45) (55) 87 (23) (27) (64) Unrecognized net experience (gain) loss (23) (19) (80) 50 (268) (225) Unrecognized prior service cost (benefit) related to plan changes 43 48 37 27 (154) (163) Unrecognized net transition asset* (23) (31) (3) -- -- -- - ---------------------------------------------------------------------------------------------------------- Prepaid (accrued) costs $ (48) $ (57) $ 41 $ 54 $(449) $(452) ========================================================================================================== Vested benefit obligation $(327) $(232) $(1,059) $ (893) Accumulated benefit obligation $(327) $(232) $(1,105) $ (944) ====================================================================================
*Amortized over 15 years for the U.S. plan and over periods ranging from 12 to 20 years for non-U.S. plans. Plan assets consist primarily of listed stocks and bonds for the U.S. plans and listed stocks, bonds and cash surrender value of life insurance policies for the non-U.S. plans. It is the company's practice to fund these costs to the extent they are tax-deductible. 50 21 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES NET PERIODIC COST The company's net pension and retiree medical costs are comprised of:
Pension ------------------------------------------------------ U.S. plan Non-U.S. plans U.S. retiree medical plan ------------------------- ------------------------ ------------------------- In millions 1997 1996 1995 1997 1996 1995 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Service cost--benefits earned during the period $ 159 $ 137 $ 108 $ 104 $ 86 $ 88 $ 25 $ 23 $ 21 Interest cost on benefit obligation 40 27 15 82 74 72 34 32 28 Actual return on plan assets (107) (61) (59) (341) (120) (26) (82) (55) (52) Net amortization and deferral 58 25 25 234 36 (52) 27 8 18 - ------------------------------------------------------------------------------------------------------------------------- Net plan cost $ 150 $ 128 $ 89 $ 79 $ 76 $ 82 $ 4 $ 8 $ 15 =========================================================================================================================
ASSUMPTIONS The assumptions used to measure the benefit obligations and to compute the expected long-term return on assets for the company's defined benefit and retiree medical plans are:
1997 1996 1995 - ---------------------------------------------------------------------------------------------------- U.S. defined benefit plan: Discount rate 7.0% 7.5% 7.5% Average increase in compensation levels 5.5% 5.5% 5.5% Expected long-term return on assets 9.0% 9.0% 9.0% Non-U.S. defined benefit plans: Discount rate 3.5 to 8.0% 4.0 to 8.5% 4.0 to 8.5% Average increase in compensation levels 3.5 to 5.5% 3.5 to 6.5% 3.5 to 6.5% Expected long-term return on assets 6.0 to 9.0% 5.8 to 10.0% 5.8 to 10.0% U.S. retiree medical plan: Discount rate 7.0% 7.5% 7.5% Expected long-term return on assets 9.0% 9.0% 9.0% Current medical cost trend rate 9.6% 10.0% 10.4% Ultimate medical cost trend rate 6.0% 6.0% 6.0% Medical cost trend rate decreases to ultimate rate in year 2007 2007 2007 Effect of a 1% increase in the medical cost trend rate (millions): Increase in benefit obligation $101 $90 $87 Increase in the annual retiree medical cost $ 15 $13 $12 - ----------------------------------------------------------------------------------------------------
COMMITMENTS - ----------- The company leases certain real and personal property under noncancelable operating leases. Future minimum lease payments at October 31, 1997 are $229 million for 1998, $191 million for 1999, $145 million for 2000, $101 million for 2001, $87 million for 2002 and $375 million thereafter. Certain leases require the company to pay property taxes, insurance and routine maintenance, and include escalation clauses. Rent expense was $388 million in 1997, $353 million in 1996 and $302 million in 1995. 51 22 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ CONTINGENCIES AND FACTORS THAT COULD AFFECT FUTURE RESULTS - ---------------------------------------------------------- CONTINGENCIES The company is involved in lawsuits, claims, investigations and proceedings, including patent, commercial, and environmental matters, which arise in the ordinary course of business. There are no such matters pending that the company expects to be material in relation to its business, financial condition, or results of operations. FACTORS THAT COULD AFFECT FUTURE RESULTS A substantial portion of the company's revenues each year are generated from the development, manufacture and rapid release to market of high technology products newly introduced during the year. In the extremely competitive industry environment in which the company operates, such product generation, manufacturing and marketing processes are uncertain and complex, requiring accurate prediction of market trends and demand as well as successful management of various manufacturing risks inherent in such products. Additionally, the company's production strategy relies on certain key suppliers' ability to deliver quality components, subassemblies and completed products in time to meet critical manufacturing and distribution schedules, and its sales strategy relies on the ability of certain third-party resellers to support sales channels to the mass market effectively. In light of these dependencies, it is reasonably possible that failure to successfully manage a significant product introduction, failure of certain key suppliers to deliver as needed, or failure of certain resellers to remain customers and channel partners could have a severe near-term impact on the company's order growth, revenue growth, or results of operations. 52 23 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES GEOGRAPHIC AREA INFORMATION - --------------------------- The company, operating in a single industry segment, designs, manufactures and services products and systems for measurement, computation and communications. Net revenue, earnings from operations and identifiable assets, classified by the major geographic areas in which the company operates, are:
In millions 1997 1996 1995 - --------------------------------------------------------------------------------------------- NET REVENUE United States: Unaffiliated customer sales $19,076 $17,041 $13,963 Interarea transfers 7,368 7,263 5,728 - -------------------------------------------------------------------------------------------- 26,444 24,304 19,691 - -------------------------------------------------------------------------------------------- Europe: Unaffiliated customer sales 14,332 13,252 11,142 Interarea transfers 1,768 1,643 1,432 - -------------------------------------------------------------------------------------------- 16,100 14,895 12,574 - -------------------------------------------------------------------------------------------- Japan, Other Asia Pacific, Canada, Latin America: Unaffiliated customer sales 9,487 8,127 6,414 Interarea transfers 5,198 5,470 3,783 - -------------------------------------------------------------------------------------------- 14,685 13,597 10,197 - -------------------------------------------------------------------------------------------- Eliminations (14,334) (14,376) (10,943) - -------------------------------------------------------------------------------------------- $42,895 $38,420 $31,519 ============================================================================================ EARNINGS FROM OPERATIONS United States $ 2,549 $ 2,470 $ 2,259 Europe 1,296 769 930 Japan, Other Asia Pacific, Canada, Latin America 1,278 1,173 1,240 Eliminations and corporate (784) (686) (861) - -------------------------------------------------------------------------------------------- $ 4,339 $ 3,726 $ 3,568 ============================================================================================ IDENTIFIABLE ASSETS United States $15,665 $14,321 $12,347 Europe 9,710 7,991 7,168 Japan, Other Asia Pacific, Canada, Latin America 8,549 7,200 5,854 Eliminations and corporate (2,175) (1,813) (942) - -------------------------------------------------------------------------------------------- $31,749 $27,699 $24,427 ============================================================================================
Net revenue from sales to unaffiliated customers is based on the location of the customer. Interarea transfers are sales among company affiliates principally made at market price, less an allowance primarily for subsequent manufacturing and/or marketing costs. Earnings from operations and identifiable assets are classified based on the location of the company's facilities. Identifiable corporate assets, which are net of eliminations, are comprised primarily of cash and cash equivalents, property, plant and equipment, and other assets, and aggregate $5,776 million in 1997, $4,810 million in 1996 and $4,343 million in 1995. 53 24 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES STATEMENT OF MANAGEMENT RESPONSIBILITY - -------------------------------------- The company's management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and other financial information presented in this report. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles and reflect the effects of certain estimates and judgments made by management. The company's management maintains an effective system of internal control that is designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded and executed in accordance with management's authorization. The system is continuously monitored by direct management review and by internal auditors who conduct an extensive program of audits throughout the company. The company selects and trains qualified people who are provided with and expected to adhere to the company's standards of business conduct. These standards, which set forth the highest principles of business ethics and conduct, are a key element of the company's control system. The company's consolidated financial statements have been audited by Price Waterhouse LLP, independent accountants. Their audits were conducted in accordance with generally accepted auditing standards, and included a review of financial controls and tests of accounting records and procedures as they considered necessary in the circumstances. The Audit Committee of the Board of Directors, which consists of outside directors, meets regularly with management, the internal auditors and the independent accountants to review accounting, reporting, auditing and internal control matters. The committee has direct and private access to both internal and external auditors. /s/ LEW PLATT /s/ ROBERT WAYMAN Lew Platt Robert Wayman Chairman of the Board, President and Executive Vice President, Chief Executive Officer Finance and Administration Chief Financial Officer REPORT OF INDEPENDENT ACCOUNTANTS - --------------------------------- TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF HEWLETT-PACKARD COMPANY In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of earnings, cash flows and shareholders' equity present fairly, in all material respects, the financial position of Hewlett-Packard Company and its subsidiaries at October 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP San Jose, California November 17, 1997 54 25 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES ORDERS AND NET REVENUE BY GROUPINGS OF SIMILAR PRODUCTS AND SERVICES - -------------------------------------------------------------------- Unaudited
For the years ended October 31 In millions 1997 1996 1995 - -------------------------------------------------------------------------------- ORDERS Computer products, service and support $35,453 $31,959 $26,108 Test and measurement products and service 4,432 3,912 3,499 Medical electronic equipment and service 1,339 1,292 1,257 Electronic components 989 831 966 Chemical analysis and service 940 895 855 - -------------------------------------------------------------------------------- $43,153 $38,889 $32,685 ================================================================================ NET REVENUE Computer products, service and support $35,449 $31,559 $25,400 Test and measurement products and service 4,297 3,798 3,288 Medical electronic equipment and service 1,265 1,287 1,169 Electronic components 975 918 856 Chemical analysis and service 909 858 806 - -------------------------------------------------------------------------------- $42,895 $38,420 $31,519 ================================================================================
The table above provides supplemental information showing orders and net revenue by groupings of similar products and services. In fiscal 1997, the company's Healthcare Information Systems business was transferred from the medical electronic equipment and service grouping to the computer products, service and support grouping. Fiscal 1996 and 1995 orders and net revenue have been restated to be consistent with the new presentation. The change did not affect the company's total orders or net revenue. The company reports orders when received. The groupings are as follows: COMPUTER PRODUCTS, SERVICE AND SUPPORT Computer equipment and systems (hardware and software), networking products, desktop and large-format printers, desktop scanners, all-in-one and digital photography products; extended-storage products; terminals and handheld calculators; consulting and integration services; support and maintenance services; and parts and supplies. TEST AND MEASUREMENT PRODUCTS AND SERVICE Instruments, systems and software to design and produce electronics; to test integrated circuits; and to test, synchronize and extract data from Internet, intranet and telephony networks; video servers; and manufacturing consultation. MEDICAL ELECTRONIC EQUIPMENT AND SERVICE Clinical measurement instrumentation and information systems used for patient monitoring; point-of-care diagnostics; ultrasound imaging and diagnostic cardiology; support systems integration and equipment maintenance services; and medical supplies. ELECTRONIC COMPONENTS Microwave semiconductor and optoelectronic devices. CHEMICAL ANALYSIS AND SERVICE Gas and liquid chromatographs; mass spectrometers and spectrophotometers used to analyze chemical compounds; bioscience instrument systems; laboratory data and information management systems; support and maintenance services; and consumables and supplies. 55 26 HEWLETT-PACKARD COMPANY AND SUBSIDIARIES QUARTERLY SUMMARY - ----------------- Unaudited
For the three months ended In millions except per share amounts January 31 April 30 July 31 October 31 - ------------------------------------------------------------------------------------------------------------- 1997 U.S. orders $ 4,215 $ 4,586 $ 4,853 $ 5,183 International orders 6,759 5,808 5,503 6,246 - ------------------------------------------------------------------------------------------------------------- Total orders $10,974 $10,394 $10,356 $11,429 - ------------------------------------------------------------------------------------------------------------- Net revenue $10,295 $10,340 $10,471 $11,789 Cost of products sold and services $ 6,694 $ 6,743 $ 7,053 $ 7,829 Earnings from operations $ 1,281 $ 1,102 $ 825 $ 1,131 Net earnings $ 912 $ 784 $ 617 $ 806 Per share amounts: Net earnings $ .87 $ .75 $ .58 $ .75 Cash dividends $ .12 $ .12 $ .14 $ .14 Range of stock prices $43-1/8 - 56-3/8 $ 49-59 $50-7/8 - 70 $59-1/2 - 71-9/16 ============================================================================================================= 1996 U.S. orders $ 3,923 $ 4,672 $ 3,888 $ 4,698 International orders 6,179 5,438 4,784 5,307 - ------------------------------------------------------------------------------------------------------------- Total orders $10,102 $10,110 $ 8,672 $10,005 - ------------------------------------------------------------------------------------------------------------- Net revenue $ 9,288 $ 9,880 $ 9,105 $10,147 Cost of products sold and services $ 5,988 $ 6,498 $ 6,194 $ 6,819 Earnings from operations $ 1,195 $ 1,041 $ 611 $ 879 Net earnings $ 790 $ 723 $ 425 $ 648 Per share amounts: Net earnings $ .75 $ .69 $ .40 $ .62 Cash dividends $ .10 $ .10 $ .12 $ .12 Range of stock prices $37-7/8 - 47-1/2 $43-1/8 - 55 $38-5/8 - 56-7/8 $40 - 49 =============================================================================================================
GRAPHS - ------ A bar chart entitled "Net Earnings Per Share (In dollars)" at the top right of page 56 of the Annual Report shows that for the fiscal quarters in the years 1996 and 1997 (shown on the x-axis) the company had net earnings per share (shown on the y-axis) in the respective amounts provided in the table entitled "Quarterly Summary (Unaudited)" on page 56 of the Annual Report. A bar chart entitled "Range of Common Stock Prices (In dollars per share)" at the bottom right of page 56 of the Annual Report shows that for the fiscal quarters in the years 1996 and 1997 (shown on the x-axis) the range of stock prices (shown on the y-axis) was in the respective amounts provided in the table entitled "Quarterly Summary (Unaudited)" on page 56 of the Annual Report. 56 27 SHAREHOLDER INFORMATION ANNUAL MEETING OF SHAREHOLDERS The annual meeting will be held on Tuesday, February 24, 1998 at the Flint Center for the Performing Arts. The address is 21250 Stevens Creek Boulevard, Cupertino, California 95015-1897. INVESTOR INFORMATION Current and prospective HP investors can receive the annual report, proxy statement, 10-K, earnings announcements, 10-Q's and other publications of interest at no cost by calling 800-TALK-HWP (825-5497). As a service to those with impaired vision, the 1997 annual report is available on audio cassette. This year's annual report and related financial information are also available on the World Wide Web. The Web address is: http://www.hp.com/go/financials. TRANSFER AGENT AND REGISTRAR Please contact HP's transfer agent, at the phone or address listed below, with questions concerning stock certificates, dividend checks, transfer of ownership or other matters pertaining to your stock account. Harris Trust and Savings Bank Corporate Trust Operations Division P.O. Box A3504 Chicago, Illinois 60690 If calling from anywhere within the U.S.: (800) 286-5977 From outside the U.S.: (312) 461-4061 COMMON STOCK AND DIVIDENDS The company's stock is listed on the New York and Pacific stock exchanges, with the ticker symbol HWP. Cash dividends have been paid each year since 1965. The current rate is $0.14 per share per quarter. At Nov. 30, 1997, there were 101,591 shareholders of record. DIVIDEND REINVESTMENT/STOCK PURCHASE Dividend reinvestment and stock purchase are available through Harris Bank, HP's transfer agent. Please contact Harris Bank at the address and phone numbers listed under Transfer Agent and Registrar for information on this program. CORPORATE INFORMATION HEADQUARTERS 3000 Hanover Street Palo Alto, California 94304 Telephone: (650) 857-1501 GEOGRAPHIC OPERATIONS Americas 19320 Pruneridge Avenue Cupertino, California 95014-0707 Telephone: (408) 343-7000 Europe, Africa, Middle East Route du Nant-d'Avril 150 CH-1217 Meyrin 2 Geneva, Switzerland Telephone: (41/22) 780-8111 Asia Pacific 17-21/F Shell Tower Times Square, 1 Matheson Street Causeway Bay, Hong Kong Telephone: (852)2 599-7777 A directory of sales and support locations can be obtained from the Corporate Communications Department at HP's offices in Palo Alto. Please call 800-825-5497 to request this information. [RECYCLING LOGO APPEARS HERE] Printed on recycled paper HP-UX 10.20 for HP 9000 Series 700 and 800 computers is an Open Group UNIX 95 branded product. UNIX is a registered trademark of The Open Group. Windows is a U.S. registered trademark of Microsoft Corporation. Windows NT is a U.S. registered trademark of Microsoft Corporation. Java is a U.S. trademark of Sun Microsystems, Inc. Netscape is a U.S. trademark of Netscape Communications Corporation. Oracle is a registered U.S. trademark of Oracle Corporation, Redwood City, California. MMX is a U.S. trademark of Intel Corporation. ENERGY STAR is a U.S. registered service mark of the United States Environmental Protection Agency. EX-21 6 SUBSIDIARIES OF REGISTRANT AS OF JANUARY 19, 1998 1 EXHIBIT 21 SUBSIDIARIES OF HEWLETT-PACKARD COMPANY January 1998
Organized Under Laws of U.S. SUBSIDIARIES OF HEWLETT-PACKARD COMPANY Hewlett-Packard Chesapeake Inc. Delaware Hewlett-Packard Delaware, Inc. Delaware Hewlett-Packard Delaware Capital, Inc. Delaware Hewlett-Packard Delaware Funding, Inc. Delaware Hewlett-Packard Delaware Holding, Inc. Delaware Hewlett-Packard Delaware Investment, Inc. Delaware Hewlett-Packard Finance Company California Hewlett-Packard Global Trading, Inc. California Hewlett-Packard Hellas California Hewlett-Packard Inter-Americas California Hewlett-Packard Laboratories Japan, Inc. Delaware Hewlett-Packard Little Falls, Inc. Delaware Hewlett-Packard Pipeline Company Colorado Hewlett-Packard World Trade, Inc. Delaware Apollo World Trade, Inc. Delaware Convex Computer Corporation Delaware ElseWare Corporation Washington Rockland Technologies, Inc. Delaware The Tall Tree Insurance Company Vermont Trellis Software & Controls, Inc. Michigan VeriFone, Inc. Delaware Versatest, Inc. California U.S. SUBSIDIARY OF HEWLETT-PACKARD CHESAPEAKE INC. Hewlett-Packard Puerto Rico California U.S. SUBSIDIARY OF HEWLETT-PACKARD LITTLE FALLS, INC. Fleet Systems, Inc. California U.S. SUBSIDIARY OF HEWLETT-PACKARD WORLD TRADE, INC. Hewlett-Packard Export Trade Co. California
1 2 U.S. SUBSIDIARIES OF CONVEX COMPUTER CORPORATION Convex Computer (China) Inc. Delaware Convex International, Inc. Delaware U.S. SUBSIDIARIES OF VERIFONE, INC. VeriFone Finance, Inc. Delaware VeriFone VeriGem, Inc. Delaware Enterprise Integration Technologies Corporation California TimeCorp Systems, Inc. Georgia NON-U.S. SUBSIDIARIES OF HEWLETT-PACKARD COMPANY Hewlett-Packard Asia Pacific Ltd. Hong Kong Hewlett-Packard Australia Ltd. Australia Hewlett-Packard Bilgisayar Ve Olcum Sistemleri Anonim Sirketi Turkey Hewlett-Packard do Brasil S.A. Brazil Hewlett-Packard Hong Kong Ltd. Hong Kong Hewlett-Packard Korea Ltd. Korea Hewlett-Packard Medical Products (Qingdao) Ltd. PRC Hewlett-Packard Penang Sdn. Bhd. Malaysia Hewlett-Packard Portugal-Sistemas De Informatica E De Medida S.A. Portugal Hewlett-Packard Sales (Malaysia) Sdn. Bhd. Malaysia Hewlett-Packard South Africa (Pty) Ltd. South Africa Hewlett-Packard Taiwan, Ltd. ROC Prolin Automation B.V. The Netherlands P.T. Hewlett-Packard Berca Servisindo Indonesia NON-U.S. SUBSIDIARIES OF HEWLETT-PACKARD DELAWARE, INC. Hewlett-Packard Chile, S.A. Chile Hewlett-Packard de Venezuela, C.A. Venezuela Hewlett-Packard Participacoes, S.A. Brazil Hewlett-Packard Malaysia Technology, Sdn. Bhd. Malaysia Hewlett-Packard (Thailand) Ltd. Thailand NON-U.S. SUBSIDIARY OF HEWLETT-PACKARD DELAWARE HOLDING, INC. Hewlett-Packard (India) Software Operation Pte. Ltd. India
2 3 NON-U.S. SUBSIDIARIES OF HEWLETT-PACKARD WORLD TRADE, INC. Hewlett-Packard AO Russia Hewlett-Packard del Peru S.A. Peru Hewlett-Packard Europe B.V. The Netherlands Hewlett-Packard International Sales Corporation B.V. The Netherlands Hewlett-Packard Magyarorszag Kft. Hungary Hewlett-Packard Polska spol.z.o.o. Poland Hewlett-Packard RE Ltd. Ireland Hewlett-Packard s.r.o. Czech Republic P.T. Hewlett-Packard Finance Indonesia Indonesia Servicios de Sistemas Hewlett-Packard S.A. Costa Rica Yokogawa Analytical Systems, Inc. Japan NON-U.S. SUBSIDIARIES OF CONVEX COMPUTER CORPORATION Convex Computer Australia Pty. Ltd. Australia Convex Computer S.p.A Italy Convex Computer Japan K.K. Japan Convex Computer Pte. Ltd. Singapore Convex Computer AG Switzerland Convex Computer B.V. The Netherlands Convex Computer Ltd. U.K. NON-U.S. SUBSIDIARIES OF VERIFONE, INC. VeriFone (Argentina) S.A. Argentina VeriFone (Australia) Pty. Ltd. Australia VeriFone do Brasil Ltda. Brazil VeriFone Ltd. Canada VeriFone S.A. France VeriFone GmbH Germany VeriFone Hong Kong Ltd. Hong Kong VeriFone North Asia Ltd. Hong Kong VeriFone India Private Ltd. India VeriFone S.r.l. Italy VeriFone S.A. de C.V. Mexico VeriFone B.V. The Netherlands VeriFone Spol.z o.o. Poland VeriFone Pte. Ltd. Singapore VeriFone Technology Pte. Ltd. Singapore VeriFone (South Africa) Pty. Ltd. South Africa VeriFone Espana, S.A. Spain
3 4 VeriFone (UK) Ltd. U.K. Nihon VeriFone K.K. Japan NON-U.S. SUBSIDIARY OF HEWLETT-PACKARD ASIA PACIFIC LTD. Hewlett-Packard Australia Finance Ltd. Australia NON-U.S. SUBSIDIARIES OF HEWLETT-PACKARD AUSTRALIA LTD. Hewlett-Packard New Zealand Ltd. New Zealand Telstra Hewlett-Packard (R&D) Pty. Inc. Australia NON-U.S. SUBSIDIARY OF HEWLETT-PACKARD DO BRASIL S.A. HP Computadores Brazil NON-U.S. SUBSIDIARY OF VERIFONE (AUSTRALIA) PTY. LTD. Transaction Technology Pty. Ltd. Australia NON-U.S. SUBSIDIARIES OF VERIFONE TECHNOLOGY PTY. LTD. VeriFone Electronics (Kushan) Co., Ltd. PRC VeriFone Taiwan Ltd. ROC NON-U.S. SUBSIDIARIES OF HEWLETT-PACKARD EUROPE B.V. Hewlett-Packard Belgium S.A./N.V. Belgium Hewlett-Packard (Canada) Ltd. Canada Hewlett-Packard Caribe B.V. The Netherlands Hewlett-Packard (China) Investment Co., Ltd. PRC Hewlett-Packard Colombia Limitada Columbia Hewlett-Packard Far East Pte. Ltd. Singapore Hewlett-Packard Holding GmbH Germany Hewlett-Packard Holding B.V. The Netherlands Hewlett-Packard India Ltd. India Hewlett-Packard Ireland Ltd. Ireland Hewlett-Packard Ireland (Holdings) Ltd. Ireland Hewlett-Packard Laboratories Israel, Ltd. Israel Hewlett-Packard Italiana S.p.A. Italy Hewlett-Packard Japan, Ltd. Japan Hewlett-Packard Leasing Ltd. PRC Hewlett-Packard Netherland B.V. The Netherlands
4 5 Hewlett-Packard Philippines Philippines Hewlett-Packard S.A. Switzerland Hewlett-Packard Singapore Holdings Pte. Ltd. Singapore Hewlett-Packard Singapore (Sales) Pte. Ltd. Singapore Hewlett-Packard Singapore Vision Operation Pte. Ltd. Singapore Hewlett-Packard Start B.V. The Netherlands Hewlett-Packard Vietnam, Ltd. Vietnam Grupo Hewlett-Packard Latin America S.A. de C.V. Mexico Technologies et Participations S.A. France NON-U.S. SUBSIDIARY OF HEWLETT-PACKARD (CANADA) LTD. Hewlett-Packard Canada Investment Inc. Canada NON-U.S. SUBSIDIARIES OF HEWLETT-PACKARD (CHINA) INVESTMENT CO., LTD. Hewlett-Packard Computer Products (Shanghai) Co., Ltd. PRC Hewlett-Packard Shanghai Analytical Products Co. Ltd. PRC China Hewlett-Packard Company, Ltd. PRC NON-U.S. SUBSIDIARIES OF HEWLETT-PACKARD HOLDING GMBH Hewlett-Packard GmbH Germany CoCreate Software GmbH Germany IDACOM Electronics GmbH Germany Leasametric GmbH Germany U.S. SUBSIDIARY OF COCREATE SOFTWARE GMBH CoCreate Software, Inc. California NON-U.S. SUBSIDIARY OF COCREATE SOFTWARE GMBH CoCreate Software Ltd. U.K. NON-U.S. SUBSIDIARY OF LEASAMETRIC GMBH Leasametric S.A. France NON-U.S. SUBSIDIARIES OF HEWLETT-PACKARD IRELAND (HOLDINGS) LTD. Hewlett-Packard (Manufacturing) Ltd. Ireland Hewlett-Packard Europe Finance Ltd. Ireland
5 6 NON-U.S. SUBSIDIARY OF HEWLETT-PACKARD ITALIANA S.P.A. Hewlett-Packard Servizi Finanziari S.p.A. Italy NON-U.S. SUBSIDIARY OF HEWLETT-PACKARD JAPAN, LTD. SYC Ltd. Japan NON-U.S. SUBSIDIARIES OF HEWLETT-PACKARD S.A. Hewlett-Packard Argentina S.A. Argentina Hewlett-Packard A/S Denmark Hewlett-Packard Ges.m.b.H Austria Hewlett-Packard Espanola, S.A. Spain Hewlett-Packard (Malaysia) Sdn. Bhd. Malaysia Hewlett-Packard Norge AS Norway Hewlett-Packard OY Finland Hewlett-Packard (Schweiz) AG Switzerland Hewlett-Packard Singapore Pte. Ltd. Singapore Hewlett-Packard Sverige AB Sweden Hewlett-Packard Technical B.V. The Netherlands Hewlett-Packard Trading S.A. Switzerland NON-U.S. SUBSIDIARY OF HEWLETT-PACKARD START B.V. Hewlett-Packard Ltd. U.K. NON-U.S. SUBSIDIARIES OF HEWLETT-PACKARD LTD. Hewlett-Packard Finance Ltd. U.K. Hewlett-Packard Product Leasing Ltd. U.K. Apollo Computer (UK) Ltd. U.K. BT&D Technologies Ltd. U.K. NON-U.S. SUBSIDIARIES OF GRUPO HEWLETT-PACKARD LATIN AMERICA S.A. DE C.V. Arrendadora Hewlett-Packard S.A. de C.V. Mexico Hewlett-Packard de Mexico S.A. de C.V. Mexico NON-U.S. SUBSIDIARIES OF HEWLETT-PACKARD SINGAPORE PTE. LTD. Hewlett-Packard Coordination Center SC Belgium Hewlett-Packard Investment Ltd. Liberia
6 7 Geneva Investments N.V. Netherlands Antilles W.W. Investment Holding Pte. Ltd. Singapore NON-U.S. SUBSIDIARY OF W.W. INVESTMENT HOLDING PTE. LTD. W.W. Real Estate and Development Pte. Ltd. Singapore NON-U.S. SUBSIDIARY OF W.W. REAL ESTATE AND DEVELOPMENT PTE. LTD. W-Wide Offshore Ventures Pte. Ltd. Singapore NON-U.S. SUBSIDIARIES OF TECHNOLOGIES ET PARTICIPATIONS S.A. Hewlett-Packard France France Technologies et Participations Immobilieres France NON-U.S. SUBSIDIARY OF HEWLETT-PACKARD FRANCE Hewlett-Packard France Finance France NON-U.S. SUBSIDIARIES OF PROLIN AUTOMATION B.V. Prolin Ltd. U.K. Prolin Software N.V. Belgium I-J Sight B.V. The Netherlands U.S. SUBSIDIARY OF I-J SIGHT B.V. Prolin Software Inc. Nevada
7 EX-23 7 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the following Registration Statements on Form S-3 and Form S-8 of our report dated November 17, 1997 which appears on page 54 of the 1997 Annual Report to Shareholders of Hewlett-Packard Company which is incorporated in this Annual Report on Form 10-K. Form S-3: Registration No. 333-44113 Form S-8: Registration No. 2-66780 through Post-Effective Amendment No. 6 Registration No. 2-90239 Registration No. 2-92331 through Post-Effective Amendment No. 3 Registration No. 2-96361 through Post-Effective Amendment No. 1 Registration No. 33-30769 Registration No. 33-31496 Registration No. 33-31500 Registration No. 33-38579 Registration No. 33-50699 Registration No. 33-52291 Registration No. 33-58447 Registration No. 33-65179 Registration No. 333-22947 Registration No. 333-30459 /s/ Price Waterhouse LLP - --------------------------- Price Waterhouse LLP San Jose, California January 21, 1998 EX-27 8 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheet and the consolidated statement of earnings and is qualified in its entirety by reference to such financial statements. 1,000,000 U.S. DOLLARS 12-MOS OCT-31-1997 NOV-01-1996 OCT-31-1997 1 3,072 1,497 8,173 0 6,763 20,947 11,776 5,464 31,749 11,219 3,158 0 0 1,187 14,968 31,749 36,672 42,895 24,217 28,319 10,237 0 215 4,455 1,336 3,119 0 0 0 3,119 2.95 0
EX-99 9 1997 EMPLOYEE STOCK PURCHASE PLAN ANNUAL REPORT 1 EXHIBIT 99 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 11-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended October 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to ------------- ------------- Commission File Number: 1-4423 A. Full title of the plan and address of the plan, if different from that of the issuer named below: HEWLETT-PACKARD COMPANY EMPLOYEE STOCK PURCHASE PLAN B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: HEWLETT-PACKARD COMPANY 3000 HANOVER STREET PALO ALTO, CALIFORNIA 94304 REQUIRED INFORMATION Not applicable. SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE ADMINISTRATOR OF THE PLAN HAS DULY CAUSED THIS ANNUAL REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. HEWLETT-PACKARD COMPANY EMPLOYEE STOCK PURCHASE PLAN By: /s/ Ann O. Baskins -------------------------------------- Ann O. Baskins Managing Counsel and Assistant Secretary Date: January 27, 1998 -----END PRIVACY-ENHANCED MESSAGE-----