SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
___
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended July 31, 1997
OR
___
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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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 (IRS Employer
incorporation or organization) Identification No.)
3000 Hanover Street, Palo Alto, California 94304
- ------------------------------------------ ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 857-1501
--------------
__________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at July 31, 1997
- -------------------------- ----------------------------
Common Stock, $1 par value 1.04 billion shares
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
INDEX
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Page No.
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Part I. Financial Information
Item 1. Financial Statements.
Consolidated Condensed Balance Sheet
July 31, 1997 (Unaudited) and October 31, 1996 2
Consolidated Condensed Statement of Earnings (Unaudited)
Three months and nine months ended
July 31, 1997 and 1996 3
Consolidated Condensed Statement of Cash Flows (Unaudited)
Nine months ended July 31, 1997 and 1996 4
Notes to Consolidated Condensed Financial Statements
(Unaudited) 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition, Results of Operations and Factors That May
Affect Future Results (Unaudited). 7-11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K. 12
Signature 13
Exhibit Index 14
<PAGE> 1
Item 1. Financial Statements.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
------------------------------------
(Millions except par value and number of shares)
July 31 October 31
1997 1996
----------- ----------
(Unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 2,680 $ 2,885
Short-term investments 115 442
Accounts and notes receivable 7,217 7,126
Inventories:
Finished goods 3,962 3,956
Purchased parts and fabricated assemblies 2,485 2,445
Other current assets 1,399 1,137
------- -------
Total current assets 17,858 17,991
------- -------
Property, plant and equipment (less accumulated
depreciation: July 31, 1997 - $5,342;
October 31, 1996 - $4,662) 6,027 5,536
Long-term investments and other assets 4,597 4,172
------- -------
$28,482 $27,699
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Notes payable and short-term borrowings $ 340 $ 2,125
Accounts payable 2,579 2,375
Employee compensation and benefits 1,743 1,675
Taxes on earnings 1,698 1,514
Deferred revenues 1,135 951
Other accrued liabilities 2,194 1,983
------- -------
Total current liabilities 9,689 10,623
------- -------
Long-term debt 2,495 2,579
Other liabilities 1,071 1,059
Shareholders' equity:
Preferred stock, $1 par value; 300,000,000
shares authorized; none issued
Common stock and capital in excess of $1 par
value; 2,400,000,000 shares authorized;
1,038,898,000 and 1,014,123,000 shares issued
and outstanding at July 31, 1997 and October
31, 1996, respectively 1,061 1,014
Retained earnings 14,166 12,424
------- -------
Total shareholders' equity 15,227 13,438
------- -------
$28,482 $27,699
======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE> 2
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
--------------------------------------------
(Unaudited)
(Millions except per share amounts)
Three months ended Nine months ended
July 31 July 31
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
Net revenue:
Products $ 8,900 $ 7,783 $26,558 $24,404
Services 1,571 1,322 4,548 3,869
------- ------- ------- -------
10,471 9,105 31,106 28,273
Costs and expenses:
Cost of products sold and
services 7,053 6,194 20,490 18,680
Research and development 777 708 2,220 2,011
Selling, general and
administrative 1,816 1,592 5,188 4,735
------- ------- ------- -------
9,646 8,494 27,898 25,426
------- ------- ------- -------
Earnings from operations 825 611 3,208 2,847
Interest income and other, net 109 89 254 188
Interest expense 53 84 158 227
------- ------- ------- -------
Earnings before taxes 881 616 3,304 2,808
Provision for taxes 264 191 991 870
------- ------- ------- -------
Net earnings $ 617 $ 425 $ 2,313 $ 1,938
======= ======= ======= =======
Net earnings per share $ .58 $ .40 $ 2.20 $ 1.84
======= ======= ======= =======
Cash dividends declared per share $ .28 $ .24 $ .52 $ .44
======= ======= ======= =======
Average shares and equivalents
used in computing net earnings
per share 1,060 1,053 1,051 1,053
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE> 3
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
----------------------------------------------
(Unaudited)
(Millions)
Nine months ended
July 31
-----------------
1997 1996
---- ----
Cash flows from operating activities:
Net earnings $2,313 $1,938
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,105 931
Deferred taxes on earnings (371) (146)
Change in assets and liabilities:
Accounts and notes receivable 128 198
Inventories 37 (848)
Accounts payable 169 (321)
Taxes on earnings 157 60
Other current assets and liabilities 254 213
Other, net (357) 17
------ ------
Net cash provided by operating activities 3,435 2,042
------ ------
Cash flows from investing activities:
Investment in property, plant and equipment (1,599) (1,500)
Disposition of property, plant and equipment 255 249
Purchases of short-term investments (2,588) (5,842)
Maturities of short-term investments 2,915 4,747
Purchases of long-term investments - (344)
Other, net 17 17
------ ------
Net cash used in investing activities (1,000) (2,673)
------ ------
Cash flows from financing activities:
Change in notes payable and short-term borrowings (1,870) 41
Issuance of long-term debt 47 1,360
Payment of current maturities of long-term debt (112) (24)
Issuance of common stock under employee stock plans 280 267
Repurchase of common stock (598) (802)
Dividends (387) (327)
------ ------
Net cash (used in) provided by financing (2,640) 515
activities ------ ------
Decrease in cash and cash equivalents (205) (116)
Cash and cash equivalents at beginning of period 2,885 1,973
------ ------
Cash and cash equivalents at end of period $2,680 $1,857
====== ======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE> 4
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. In the opinion of the Company's management, the accompanying consolidated
condensed financial statements contain all adjustments (which comprise
only normal and recurring accruals) necessary to present fairly the
financial position as of July 31, 1997 and October 31, 1996, the results
of operations for the three months and nine months ended July 31, 1997
and 1996, and the cash flows for the nine months ended July 31, 1997 and
1996.
The results of operations for the three months and nine months ended July
31, 1997 are not necessarily indicative of the results to be expected for
the full year.
2. Net earnings per share are 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.
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 includes additional
dilution from potential common stock, such as stock issuable pursuant to
the exercise of stock options outstanding. If the provisions of SFAS 128
had been applied in fiscal 1996 and in the first three quarters of fiscal
1997, basic EPS would have been approximately 2 to 3 cents higher than,
and diluted EPS would have been approximately the same as, reported EPS
for each quarter.
3. Income tax provisions for interim periods are based on estimated
effective annual income tax rates. The effective income tax rate varies
from the U.S. federal statutory income tax rate primarily because of
variations in the tax rates on foreign income.
4. The Company paid interest of $223 million and $194 million during the
nine months ended July 31, 1997 and 1996, respectively. During the same
periods, the Company paid income taxes of $1,113 million and $899
million, respectively. The effect of foreign currency exchange rate
fluctuations on cash balances held in foreign currencies was not
material.
5. In June 1997, the Company acquired all of the outstanding shares of
common stock of VeriFone, Inc. ("VFI") in exchange for 23,590,000 shares
of the Company's common stock. VFI provides hardware and software
systems that allow secure electronic payments among consumers, merchants
and financial institutions around the world. The merger was accounted
for using the pooling-of-interests method. However, the accompanying
consolidated condensed financial statements have not been restated
because VFI's assets, liabilities, and results of operations were not
material to the Company. Instead, VFI has been included in the Company's
consolidated condensed financial statements commencing from the effective
date of the merger. VFI's stockholders' equity immediately preceding the
merger totaled $161 million.
<PAGE> 5
6. The Company accounts for its employee stock compensation plans using the
intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." In October 1995,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," which is effective for fiscal year 1997. Under SFAS 123
companies may elect, but are not required, to use a fair value
methodology to recognize compensation expense for all stock-based awards.
The Company will implement the disclosure-only provisions of SFAS 123
effective with its annual financial statements for fiscal year 1997.
7. The following disclosures on the Company's accounting policies for foreign
exchange contracts are in response to new rules issued by the Securities
and Exchange Commission in January 1997 that are effective for fiscal
periods ending after June 15, 1997.
The Company requires foreign exchange contracts to be designated at
inception to the related foreign exchange exposures being hedged, which
include foreign currency commitments for sales by subsidiaries and
assets and liabilities that are denominated in currencies other than
the U.S. dollar. Additionally, the hedging contracts must reduce the
foreign currency exchange rate risk otherwise inherent in the notional
amount and duration of the hedged exposures, and comply with established
Company risk management policies.
When hedging sales commitments exposure, foreign exchange contract
expirations are set so as to occur in the same month the hedged shipments
occur, causing 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 "interest income
and other, net" in the same period as the realized gains and losses on
translation 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
condensed statement of cash flows.
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations and Factors That May Affect Future Results
(Unaudited).
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
- ---------------------
Net Revenue - Net revenue for the third quarter ended July 31, 1997 was $10.5
billion, an increase of 15 percent from the same period of fiscal 1996.
Product sales increased 14 percent and service revenue grew 19 percent over
the corresponding period of fiscal 1996. Net revenue grew 15 percent to
$5.7 billion internationally and 15 percent to $4.8 billion in the U.S.
Net revenue for the first nine months of fiscal 1997 was $31.1 billion, an
increase of 10 percent from the same period of fiscal 1996. Product sales
increased 9 percent and service revenue grew 18 percent over the corresponding
period of fiscal 1996. Net revenue grew 10 percent to $17.6 billion
internationally and 10 percent to $13.5 billion in the U.S.
The growth in net revenue for the third quarter and first nine months of
fiscal 1997 was principally due to strong demand for the Company's personal
computer products, including third quarter shipments of HP Vectra corporate
PCs and the HP Pavilion multimedia home PCs, and continued strength in
hardcopy supplies, PC servers and UNIX servers. Net revenue for professional
services was strong, driven by consulting, education, and software support.
These increases were partially offset by decreased revenue in medical
products in the third quarter due to shipment delays associated with some
products. Geographic distribution of net revenue growth was well balanced,
and solid international net revenue growth was achieved despite continued
unfavorable fluctuations in foreign currency exchange rates.
Costs and Expenses - Cost of products sold and services as a percentage of
net revenue was 67.4 percent for the third quarter and 65.9 percent for the
first nine months of fiscal 1997, compared to 68.0 percent for the third
quarter and 66.1 percent for the first nine months of fiscal 1996. Without
the effect of charges related to the exit from disk-mechanism manufacturing
and the related operating losses in that business, cost of products sold and
services as a percentage of net revenue would have been 66.0 percent for the
third quarter of 1996, and 65.1 percent for the nine months ended July 31,
1996. The cost of sales ratio increase in the third quarter drove the
increase for the nine months, overcoming the flat year-over-year trend
experienced in the first half. The increase in the third quarter over the
year-ago period adjusted cost of sales ratio was primarily the result of
competitive pricing pressures in the PC and UNIX workstation businesses and
an ongoing shift in the mix of products sold towards lower gross margin
product families such as PCs. Additionally, in the third quarter, the
shipment delays in the medical business contributed to the increase in the
cost of sales ratio. Cost of sales is expected to trend upward over time,
with some variability around that trend, as competitive pricing pressures
and mix shifts continue.
Operating Expenses - Operating expenses as a percentage of net revenue were
24.7 percent for the third quarter and 23.8 percent for the first nine months
of fiscal 1997, compared to 25.3 percent for the third quarter and 23.8
percent for the first nine months of fiscal 1996. Although not increasing
as a percentage of net revenue, operating expenses increased 13 percent over
the year-ago quarter and 10 percent year-over-year for the nine month period.
Without the positive impact of changes in foreign currency exchange rates,
underlying operating expense growth would have been approximately 3 percentage
points higher for each period. Year-over year growth resulted primarily
from higher marketing and selling expenses as a result of increased
advertising, distribution costs, and commissions. In addition, expenses
recognized for stock appreciation rights granted to employees increased
operating expense growth by approximately one percentage point, driven
primarily by a sharp increase in the Company's stock price during the third
quarter of fiscal 1997. Finally, employment in selected operating areas
continued to increase during the third quarter to support the Company's
growth.
Provision for Taxes - The provision for taxes as a percentage of earnings
before taxes was 30 percent for the third quarter and first nine months of
fiscal 1997. The tax rate was 31 percent for the third quarter and first
nine months of fiscal 1996. The lower tax rates in fiscal 1997 resulted from
changes in the geographic mix of the Company's earnings and resolution of
certain issues related to tax returns filed in previous years.
<PAGE> 7
Net Earnings - Net earnings for the third quarter of fiscal 1997 were $617
million, or 58 cents per share on an average of 1.06 billion shares, compared
to net earnings of $425 million, or 40 cents per share on an average of 1.05
billion shares for the third quarter of fiscal 1996. Net earnings growth for
the third quarter of 45 percent would have been 11 percent without the effects
of exiting the disk mechanism business in last year's third quarter. For the
nine months ended July 31, 1997, net earnings were $2.3 billion, or $2.20 per
share on an average of 1.05 billion shares, compared to net earnings of $1.9
billion, or $1.84 per share on an average of 1.05 billion shares for the
first nine months of 1996.
FINANCIAL CONDITION
- -------------------
Liquidity and Capital Resources - The Company's financial position remains
strong, with cash and cash equivalents and short-term investments of $2.8
billion at July 31, 1997, compared with $3.3 billion at October 31, 1996. In
addition, other long-term investments, relatively low levels of debt compared
to assets, and a large equity base contribute to the Company's financial
flexibility.
Cash flows from operating activities were $3.4 billion during the first nine
months of fiscal 1997, compared to $2.0 billion for the corresponding period
of fiscal 1996. The increase in cash flows from operating activities in
fiscal 1997 was attributable primarily to changes in inventory levels during
fiscal 1997 and 1996. Inventory declined 6 percent on 10 percent revenue
growth during the first nine months of fiscal 1997, as compared to an
increase of 26 percent on revenue growth of 26 percent in the same period
of fiscal 1996. The decline during fiscal 1997, as well as the resulting
improvement in inventory as a percentage of net revenue, from 18.5 percent
in fiscal 1996 to 15.6 percent in fiscal 1997, is attributable primarily to
improved supply-chain management, particularly of third-party distribution
channels.
Capital expenditures for the first nine months of fiscal 1997 were $1.6
billion, compared to $1.5 billion for the corresponding period in fiscal
1996. The increase in capital expenditures was due primarily to expansion
of capacity for increased levels of business and increased expenditures for
machinery and equipment to support growth in the Company's leasing and
printer businesses, partially offset by lower expenditures for facilities.
The changes in short-term investment and borrowing activities during the
first nine months of fiscal 1997 compared to the same period in fiscal 1996
resulted from a program of repatriation of short-term investments from
Puerto Rico. The program began in the fourth quarter of fiscal 1996 due
to changes in tax laws. Cash from the liquidation of those investments
was used to pay down notes payable and short-term borrowings. Under the
Company's ongoing stock repurchase program, shares were purchased to
meet employee stock plan requirements. During the nine months ended July 31,
1997, the Company purchased and retired approximately 11.3 million shares for
an aggregate price of $598 million. During the nine months ended July 31,
1996, the Company purchased and retired approximately 18.2 million shares for
an aggregate price of $802 million.
<PAGE> 8
FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------
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. 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 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.
New Product Introductions. 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. 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.
Short Product Life Cycles. 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.
Intellectual Property. 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.
<PAGE> 9
Reliance on Suppliers. 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 frequently 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.
Reliance on Third Party Distribution Channels. 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.
International. 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 foreign currency
exchange rates, 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.
Acquisitions, Strategic Alliances, Joint Ventures and Divestitures. 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 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.
Earthquake. 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.
<PAGE> 10
Environmental. 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.
Quarterly Fluctuations and Volatility of Stock Prices. 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.
<PAGE> 11
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
A list of exhibits is set forth in the Exhibit Index found on page 14
of this report.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months ended
July 31, 1997.
<PAGE> 12
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SIGNATURE
---------
Pursuant to the requirements 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.
HEWLETT-PACKARD COMPANY
(Registrant)
Dated: September 12, 1997 By: ROBERT P. WAYMAN
----------------
Robert P. Wayman
Executive Vice President,
Finance and Administration
(Chief Financial Officer)
<PAGE> 13
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
-------------
Exhibits:
1. Not applicable.
2. None.
3. None.
4. None.
5-9. Not applicable.
10-11. None.
12-14. Not applicable.
15. None.
16-17. Not applicable.
18-19. None.
20-21. Not applicable.
22-24. None.
25-26. Not applicable.
27. Financial Data Schedule.
28. Not applicable.
99. None.
<PAGE> 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AND CONSOLIDATED CONDENSED STATEMENT
OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
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0
0
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</TABLE>
