<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended January 31, 1998
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 (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 (650) 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 January 31, 1998
- -------------------------- -------------------------------
Common Stock, $1 par value 1.03 billion shares
<PAGE>
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
January 31, 1998 (Unaudited) and October 31, 1997 2
Consolidated Condensed Statement of Earnings (Unaudited)
Three months ended January 31, 1998 and 1997 3
Consolidated Condensed Statement of Cash Flows (Unaudited)
Three months ended January 31, 1998 and 1997 4
Notes to Consolidated Condensed Financial Statements
(Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition, Results of Operations and Factors That May
Affect Future Results (Unaudited). 6-10
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 11
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders. 11
Item 6. Exhibits and Reports on Form 8-K. 11
Signature 12
Exhibit Index 13
<PAGE>
Item 1. Financial Statements.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
------------------------------------
(Millions except par value and number of shares)
<TABLE>
<CAPTION>
January 31 October 31
1998 1997
----------- ----------
(Unaudited)
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,733 $ 3,072
Short-term investments 2,177 1,497
Accounts and notes receivable 8,401 8,173
Inventories:
Finished goods 4,501 4,136
Purchased parts and fabricated assemblies 2,592 2,627
Other current assets 1,448 1,442
------- -------
Total current assets 21,852 20,947
------- -------
Property, plant and equipment (less accumulated
depreciation: January 31, 1998 - $5,529;
October 31, 1997 - $5,464) 6,275 6,312
Long-term investments and other assets 4,580 4,490
------- -------
$32,707 $31,749
======= =======
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Notes payable and short-term borrowings $ 1,959 $ 1,226
Accounts payable 2,992 3,185
Employee compensation and benefits 1,679 1,723
Taxes on earnings 1,990 1,515
Deferred revenues 1,273 1,152
Other accrued liabilities 2,612 2,418
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Total current liabilities 12,505 11,219
------- -------
Long-term debt 2,581 3,158
Other liabilities 1,237 1,217
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;
1,033,799,000 and 1,041,042,000 shares
issued and outstanding at January 31, 1998
and October 31, 1997, respectively 1,034 1,187
Retained earnings 15,350 14,968
------- -------
Total shareholders' equity 16,384 16,155
------- -------
$32,707 $31,749
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
--------------------------------------------
(Unaudited)
(Millions except per share amounts)
<TABLE>
<CAPTION>
Three months ended
January 31
------------------
1998 1997
---- ----
<S> <C> <C>
Net revenue:
Products $10,158 $ 8,825
Services 1,658 1,470
------- -------
11,816 10,295
Costs and expenses:
Cost of products sold and
services 7,837 6,694
Research and development 803 699
Selling, general and
administrative 1,872 1,621
------- -------
10,512 9,014
------- -------
Earnings from operations 1,304 1,281
Interest income and other, net 90 76
Interest expense 67 54
------- -------
Earnings before taxes 1,327 1,303
Provision for taxes 398 391
------- -------
Net earnings $ 929 $ 912
======= =======
Net earnings per share:
Basic $ .89 $ .90
======= =======
Diluted $ .86 $ .87
======= =======
Cash dividends declared per share $ .28 $ .24
======= =======
Average shares used in computing
basic net earnings per share 1,038 1,017
======= =======
Average shares and equivalents
used in computing diluted net
earnings per share 1,076 1,047
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
----------------------------------------------
(Unaudited)
(Millions)
<TABLE>
<CAPTION>
Three months ended
January 31
------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 929 $ 912
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 411 335
Deferred taxes on earnings (108) (195)
Change in current assets and liabilities:
Accounts and notes receivable (198) 314
Inventories (326) 169
Accounts payable (210) (152)
Taxes on earnings 495 509
Other current assets and liabilities 168 (102)
Other, net (17) 20
------ ------
Net cash provided by operating activities 1,144 1,810
------ ------
Cash flows from investing activities:
Investment in property, plant and equipment (450) (513)
Disposition of property, plant and equipment 152 146
Purchase of short-term investments (1,605) (412)
Maturities of short-term investments 925 784
Other, net (21) 18
------ ------
Net cash (used in) provided by (999) 23
investing activities ------ ------
Cash flows from financing activities:
Change in notes payable and short-term borrowings 462 (1,760)
Issuance of long-term debt 139 34
Payment of long-term debt (446) (14)
Issuance of common stock under employee stock plans 96 106
Repurchase of common stock (589) (172)
Dividends (146) (122)
Other, net - (1)
------ ------
Net cash (used in) financing activities (484) (1,929)
------ ------
Decrease in cash and cash equivalents (339) (96)
Cash and cash equivalents at beginning of period 3,072 2,885
------ ------
Cash and cash equivalents at end of period $2,733 $2,789
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
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 January 31, 1998 and October 31, 1997, the
results of operations for the three months ended January 31, 1998 and
1997, and the cash flows for the three months ended January 31, 1998 and
1997.
The results of operations for the three months ended January 31, 1998
are not necessarily indicative of the results to be expected for the
full year. The information included in this Form 10-Q should be read
in conjunction with Management's Discussion and Analysis and the
financial statements and notes thereto included in the Hewlett-Packard
Company 1997 Form 10-K.
2. The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings per Share," in the first quarter of fiscal 1998.
Under SFAS 128, the Company presents two earnings per share (EPS) amounts.
Basic EPS is calculated based on net earnings 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 and the conversion of debt. All
prior period EPS amounts have been presented to conform to the provisions
of the statement.
<TABLE>
<CAPTION>
Three months ended
January 31
(in millions except
per share data)
------------------
1998 1997
----- -----
<S> <C> <C>
Numerator:
Net earnings $929 $912
Adjustment for interest expense,
net of income tax effect 6 -
----- -----
Net earnings, adjusted 935 912
Denominator:
Weighted-average shares outstanding 1,038 1,017
Effect of dilutive securities:
Dilutive options outstanding 28 30
Convertible zero-coupon notes due 2017 10 -
----- -----
Dilutive potential common shares 38 30
Weighted-average shares and dilutive
potential common shares 1,076 1,047
Basic earnings per share $0.89 $0.90
Diluted earnings per share $0.86 $0.87
</TABLE>
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 $96 million and $107 million during the
three months ended January 31, 1998 and 1997, respectively. The Company
received an income tax refund, net of income taxes paid, in the amount
of $40 million during the three months ended January 31, 1998 and paid
income taxes of $47 million during the three months ended January 31,
1997. The effect of foreign currency exchange rate fluctuations on
cash balances held in foreign currencies was not material.
5. On February 24, 1998, the Company's shareholders approved the
proposed reincorporation of the Company under the laws of the
state of Delaware. The Company expects to effect the reincorporation
as soon as practicable. Upon reincorporation, the par value of the
Company's stock will be decreased from $1.00 per share to $0.01 per
share. The shareholders also approved an increase in the number of
shares of Common Stock authorized to 4.8 billion shares. These
shareholder actions are not expected to have a material impact on
the Company's financial condition or results of operations.
5
<PAGE>
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 first quarter ended January 31, 1998 was
$11.8 billion, an increase of 15 percent from the same period of fiscal 1997.
Product sales increased 15 percent and service revenue grew 13 percent over
the corresponding period of fiscal 1997. Net revenue grew 10 percent to
$6.6 billion internationally and 21 percent to $5.2 billion in the U.S.
The first quarter growth in net revenue was principally due to strong
demand for the Company's personal computer products driven by HP Pavilion
multimedia home PCs, HP Vectra corporate PCs, and HP Omnibook mobile PCs,
the continued strength of UNIX(R) system servers and HP Kayak PC workstation
products. In the service and support business, net revenue growth was
driven by customer financing and consulting. Net revenue from the Company's
family of Deskjet and LaserJet printers grew moderately, with supplies leading
growth. Without the unfavorable impact of currency, the Company's net revenue
growth would have been approximately 22 percent. Declining average selling
prices and intensified competitive pricing pressures for many of the Company's
products negatively impacted revenue.
Costs and Expenses - Cost of products sold and services as a percentage
of net revenue was 66.3 percent for the first quarter of fiscal 1998,
compared to 65.0 percent for the first quarter of fiscal 1997, a 1.3
percentage point increase. The increase reflects stronger competitive
pricing pressures, leading to declines in the average selling prices of
many PC and printer products, and the continued shift in the Company's
product sales mix to lower-gross-margin products. These were somewhat
offset by improved supply-chain management and lower component pricing
in some businesses. Cost of sales is expected to continue its upward
trend 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 22.7 percent for the first quarter of fiscal 1998, compared to
22.6 percent for the first quarter of fiscal 1997, a .1 percentage point
increase. Despite remaining virtually flat as a percentage of net revenue,
operating expenses increased 15 percent for the first quarter of fiscal
1998 over the corresponding year-ago period. Year-over-year growth
resulted primarily from higher marketing expenses as a result of increased
advertising and higher administrative expenses driven by continued hiring
to support the Company's growth. Acquisitions contributed an additional
4 percentage points to overall operating expense growth which was mostly
offset by the positive impact of changes in foreign currency exchange rates.
The reduction of operating expense ratios and optimization of manufacturing
processes in order to improve profitability remain major focuses of the
Company.
To improve it's overall cost and expense structure, the Company will
consolidate and restructure some North American production activities in
the inkjet business. The Company believes this will result in a future
cost savings of more than $100 million per year. The consolidation and
other actions will require one-time charges that will reduce earnings per
share by about 7 cents during the remainder of fiscal 1998. The charges
6
<PAGE>
will cover costs associated with both people and assets.
Provision for Taxes - The provision for taxes as a percentage of earnings
before taxes was 30 percent for the first quarter of fiscal 1998 and 1997.
Net Earnings - Net earnings for the first quarter of fiscal 1998 were $929
million, compared to net earnings of $912 million for the first quarter of
fiscal 1997. Earnings per share for the first quarter of fiscal 1998 on a
diluted basis were 86 cents per share on 1.08 billion weighted-average shares
and equivalents, compared to 87 cents per share on an average of 1.05 billion
shares for the first quarter of fiscal 1997. Basic earnings per share for the
first quarter of fiscal 1998 were 89 cents per share on an average of 1.04
billion shares, compared to 90 cents per share on an average of 1.02 billion
shares for the first quarter of fiscal 1997.
FINANCIAL CONDITION
- -------------------
Liquidity and Capital Resources - The Company's financial position remains
strong, with cash and cash equivalents and short-term investments of $4.9
billion at January 31, 1998, compared with $4.6 billion at October 31, 1997.
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 $1.1 billion during the first three
months of fiscal 1998, compared to $1.8 billion for the corresponding period of
fiscal 1997. The decrease in cash flows from operating activities in fiscal 1998
was attributable primarily to changes in inventory and accounts and notes
receivable levels during fiscal 1998 and 1997. Inventory increased 14 percent
from the same period last year on 15 percent revenue growth during the first
three months of fiscal 1998. This compares to an inventory decline of 8
percent on revenue growth of 11 percent during the comparable period of fiscal
1997. The increase during fiscal 1998, as well as the resulting increase in
inventory as a percentage of net revenue, from 15.8 percent in fiscal 1997 to
16.0 percent in fiscal 1998, is attributable primarily to increased production
of inkjet supplies to support new product families as well as growth of new
inkjet printer products. Accounts and notes receivable at January 31, 1998
increased 23 percent from January 31, 1997 compared to an increase of 6
percent in the same period of fiscal 1997. This resulted in an increase in
accounts and notes receivable as a percentage of net revenue, from 17.4
percent in fiscal 1997 to 18.9 percent in fiscal 1998.
Capital expenditures for the first three months of fiscal 1998 were $450
million, compared to $513 million for the corresponding period in fiscal
1997. The decrease in capital expenditures was concentrated in the inkjet
printer business and also resulted from continued outsourcing to third-
party contractors in the components business.
The changes in short-term investment and borrowing activities during the first
three months of fiscal 1998 compared to the same period in fiscal 1997 resulted
from a program of repatriation of short-term investments from Puerto Rico in
1997 due to changes in tax laws. Cash from the liquidation of those investments
was used to pay down notes payable and short-term borrowings.
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.
During the three months ended January 31, 1998, the Company purchased and
retired approximately 9.4 million shares for an aggregate price of $589 million.
During the three months ended January 31, 1997 the Company purchased and retired
approximately 3.3 million shares for an aggregate price of $172 million.
7
<PAGE>
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 would 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.
8
<PAGE>
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 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.
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 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.
Derivative Financial Instruments. 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 portfolio. As more fully described in the notes to the
Company's 1997 annual report to shareholders, 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
January 31, 1998, 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.
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 most transactions 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.
9
<PAGE>
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.
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 readiness of its internal 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 or
financial condition.
Certain hardware and software products currently installed at customer sites
will require upgrade or other remediation to become year 2000 compliant. The
Company believes that it is not legally responsible for costs incurred by its
customers to achieve their year 2000 compliance. However, the Company is taking
steps to identify affected customers, raise customer awareness related to non-
compliance of the Company's older products, and assist the customer base to
assess their risks. The Company may see increasing customer satisfaction costs
related to these actions over the next few years. Since customer satisfaction
programs are on-going, year 2000 complications are not fully known, and
potential liability issues in certain countries are unclear, the potential
impact on the Company's financial condition and results of operations is not
known at this time.
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.
Quarterly Fluctuations and Volatility of Stock Price. 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.
10
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
A discussion of the Company's exposure to, and management of, market
risk appears in Item 2 of this Form 10-Q under the heading "Factors
That May Affect Future Results".
PART II. OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on
February 24, 1998.
(b) At the Annual Meeting, the following proposals were voted upon
by the shareholders as indicated below:
1. To elect a board of 13 directors to serve until the next annual meeting
and until their successors have been elected and qualified.
Directors Voted For Withheld
Philip M. Condit 876,603,385 4,284,933
Thomas E. Everhart 876,721,851 4,166,467
John B. Fery 876,576,790 4,311,528
Jean-Paul G. Gimon 876,480,769 4,407,549
Sam Ginn 876,717,619 4,170,699
Richard A. Hackborn 876,726,584 4,161,734
Walter B. Hewlett 876,494,391 4,393,927
George A. Keyworth II 876,716,357 4,171,961
David M. Lawrence, M.D. 876,677,361 4,210,957
Susan P. Orr 876,513,162 4,375,156
David W. Packard 876,383,388 4,504,930
Lewis E. Platt 876,447,305 4,441,013
Robert P. Wayman 876,537,815 4,350,503
2. To ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the 1998 fiscal year.
Voted
Voted For Against Abstained Non-Vote
876,528,934 1,009,457 3,349,924 3
3. To change the Company's state of incorporation from California to Delaware.
Voted
Voted For Against Abstained Non-Vote
596,219,234 157,405,509 5,968,587 121,294,988
4. To increase the number of authorized shares of Common Stock from
2,400,000,000 to 4,800,000,000 subject to the change in the Company's
state of incorporation from California to Delaware.
Voted
Voted For Against Abstained Non-Vote
700,204,516 53,666,782 5,722,024 121,294,996
5. To approve the Company's Variable Pay Plan for the purpose of qualifying
compensation paid pursuant to the plan as deductible for U.S. federal
income tax purposes.
Voted
Voted For Against Abstained Non-Vote
862,323,548 8,464,965 6,528,481 3,571,324
6. To reserve an additional 285,000 shares of the Company's Common Stock for
issuance under the VeriFone, Inc. Amended and Restated Employee Stock
Purchase Plan.
Voted
Voted For Against Abstained Non-Vote
865,555,297 9,345,819 5,986,997 205
7. To approve the Company's 1998 Subsidiary Employee Stock Purchase Plan.
Voted
Voted For Against Abstained Non-Vote
782,517,875 92,928,780 5,441,455 208
8. Shareholder proposal concerning confidential voting.
Voted
Voted For Against Abstained Non-Vote
278,687,492 468,574,301 12,327,490 121,299,035
9. Shareholder proposal regarding international environmental standards for
electronics industry subcontractor/suppliers.
Voted
Voted For Against Abstained Non-Vote
55,459,485 669,183,163 34,945,057 121,300,613
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 13 of this report.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months
ended January 31, 1998.
11
<PAGE>
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: March 16, 1998 By: /s/ Robert P. Wayman
--------------------
Robert P. Wayman
Executive Vice President,
Finance and Administration
(Chief Financial Officer)
12
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
-------------
Exhibits:
1. Not applicable.
2. None.
3. None.
4. None.
5-9. Not applicable.
10. None.
11. Statement re computation of per share earnings.
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.
13
<PAGE>
Statement Regarding Computation of Per Share Earnings
Registrant's Basic and Diluted Earnings Per Share (in millions except
per share amounts)
EXHIBIT 11
----------
<TABLE>
<CAPTION>
Three months ended,
January 31
-------------------
1998 1997
<S> <C> <C>
Basic earnings per share
Net earnings $929 $912
Number of shares on which basic earnings
per share is based:
Weighted-average common shares outstanding
during the period 1,038 1,017
Basic earnings per share $.89 $.90
===== =====
Diluted earnings per share
Net earnings $929 $912
Adjustment for interest expense, net of tax 6 -
----- -----
Net earnings, adjusted 935 912
Number of shares on which diluted earnings
per share is based:
Weighted-average common shares outstanding
during the period 1,038 1,017
Weighted-average dilutive potential common shares:
Stock options 28 30
Convertible zero-coupon notes due 2017 10 -
Number of shares and equivalents on which
diluted earnings per share is based 1,076 1,047
Diluted earnings per share $.86 $.87
===== =====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
CONSOLIDATED CONDENSEDBALANCE SHEET AND CONSOLIDATED CONDENSED STATEMENT OF
ERNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> DEC-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 2,733
<SECURITIES> 2,177
<RECEIVABLES> 8,401
<ALLOWANCES> 0
<INVENTORY> 7,093
<CURRENT-ASSETS> 21,852
<PP&E> 11,804
<DEPRECIATION> 5,529
<TOTAL-ASSETS> 32,707
<CURRENT-LIABILITIES> 12,505
<BONDS> 2,581
0
0
<COMMON> 1,034
<OTHER-SE> 15,350
<TOTAL-LIABILITY-AND-EQUITY> 32,707
<SALES> 10,158
<TOTAL-REVENUES> 11,816
<CGS> 0
<TOTAL-COSTS> 7,837
<OTHER-EXPENSES> 2,675
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67
<INCOME-PRETAX> 1,327
<INCOME-TAX> 398
<INCOME-CONTINUING> 929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 929
<EPS-PRIMARY> .89
<EPS-DILUTED> .86
</TABLE>
