<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 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:
DELAWARE 94-1081436
State or other jurisdiction of I.R.S. Employer Identification
incorporation or organization: No.:
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
3000 Hanover Street, Palo Alto, California 94304
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(650) 857-1501
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------------------- --------------------------------
<S> <C>
Common Stock par value $0.01 per share New York Stock Exchange, Inc.
The Pacific Exchange, Inc.
</TABLE>
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. / /
The aggregate market value of the registrant's common stock held by
nonaffiliates as of December 28, 1998 was $55,781,546,732.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of December 28, 1998: 1,015,098,000 shares of $0.01 par value
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT DESCRIPTION 10-K PART
- ------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Pages 31-64 (excluding order data and "Statement of Management Responsibility") and the inside back
cover of the registrant's 1998 Annual Report to Stockholders I, II, IV
Pages 5-8 and 11-28 of the registrant's Notice of Annual Meeting of Stockholders and Proxy Statement
dated January 12, 1999 III
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FORWARD-LOOKING STATEMENTS
From time to time Hewlett-Packard Company, together with its consolidated
subsidiaries (the "Registrant" or the "Company"), and its representatives may
provide information, whether orally or in writing, including certain statements
incorporated by reference or included in this Form 10-K under "Management's
Discussion and Analysis of Results of Operations and Financial Condition," which
are deemed to be "forward-looking" within the meaning of the Private Securities
Litigation Reform Act of 1995 ("Litigation Reform Act"). These forward-looking
statements and other information relating to the Company are based on the
beliefs of management as well as assumptions made by and information currently
available to management.
The words "anticipate," "believe," "estimate," "expect," "intend," "will,"
and similar expressions, as they relate to the Company or the Company's
management, including such items discussed in "Factors that may affect future
results" set forth on pages 36-39 of the Company's 1998 Annual Report to
Stockholders, which pages are incorporated herein by reference, are intended to
identify forward-looking statements. Such statements reflect the current views
of the Registrant with respect to future events and are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Registrant does not intend to update these
forward-looking statements.
In accordance with the provisions of the Litigation Reform Act, we are
making investors aware that such "forward-looking" statements, because they
relate to future events, are by their very nature subject to many important
factors which could cause actual results to differ materially from those
contained in the "forward-looking" statements.
<PAGE>
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. Effective May 20, 1998, Hewlett-Packard Company
changed its state of incorporation from California to Delaware.
On a worldwide basis, Hewlett-Packard Company, together with its
consolidated subsidiaries, designs, manufactures and services equipment 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, selective-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
is found on page 63 of the Company's 1998 Annual Report to Stockholders, 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 Corp., 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 (1), the Company's
implementation of the UNIX -Registered Trademark- (2) operating system, and
comprises multiuser computers for both technical and commercial applications and
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 1998, the Company introduced a wide
variety of new products and systems, including HP 9000 A- and R-Class servers,
which are targeted at Internet Service Providers (ISPs), HP 9000 K-Class
midrange servers; and the HP NetServer LH3 midrange system, which uses Intel's
Pentium -Registered Trademark- (3) Pro 350MHz and 400MHz microprocessors.
This year the Company also introduced new HP Brio 7000 business PCs, which
feature an industry-first, subcompact "microtower" design; HP Brio 8000 business
PCs, which offer an Intel 400MHz Pentium processor; the HP Jornada handheld PC,
which weighs less than 3 pounds and has twelve-hour battery life; and the HP
Kayak XU and XW PC workstations, which deliver advanced 2-D and 3-D graphics
capabilities for software developers, design engineers, financial analysts and
multimedia-authoring professionals.
In addition to services such as systems integration, networked systems
management outsourcing, consulting, education, product financing and rentals,
the Company provides service for its equipment, systems, and hardcopy and
imaging products, including support and maintenance services, parts and supplies
for design and manufacturing systems, office and information systems,
general-purpose instruments, computers and computer systems, networking,
hardcopy and imaging products. In fiscal 1998, the Company derived 15 percent of
its revenue from such services. Key service introductions in fiscal 1998
<PAGE>
included a range of offerings for SAP/R3 computing environments and for Windows
NT -Registered Trademark- (4) environments, as well as the HP Customer Care
Promise, a program in which the Company guarantees an answer to all HP Pavilion
PC support calls in three minutes or less, 24 hours a day, 365 days a year.
Key software events in fiscal 1998 included more than 40 new and enhanced HP
OpenView IT management solutions; HP Changengine 2.0 Admin Edition, which
enables organizations to streamline business processes without rewriting
applications; Chai software products that enable devices such as printers and
cellular phones to communicate more intelligently via the World Wide Web; and HP
OpenPix ImageIgniter, which enables users to zoom in on, pan across and share
Internet photos.
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 1998 included the HP Color
LaserJet 4500 workgroup printer, which offers speed and cost-per-page on a par
with leading monochrome workgroup printers; the HP Color LaserJet 8500, which
prints at 6 pages per minute on paper ranging in size from that of postcards to
11" X 17"; the HP 9100C Digital Sender, a compact, desktop sending device that
converts color paper documents into digital information that can be sent via
e-mail, network fax, network PC or network printer; the HP 2000C Professional
Series color inkjet printer, which incorporates the Company's Modular Ink
Delivery System; the HP OfficeJet Series 700 all-in-one product, which combines
printing, copying and faxing capabilities; and the HP DeskJet 895C printer,
which comes with HP Instant Delivery publishing software.
In the information-storage business, the Company brought out a number of
CD-ReWritable read/write CD-based solutions, which enable people to write,
erase, rewrite and update large files on CD-RW media.
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 1998 included the HP 95000 High
Speed Memory Series for high-volume production testing of high-speed RDRAM
semiconductors; the HP 3070 Series 3 family of board-test systems; and the HP
Service Advisor, a "tablet" test platform for testing a wide range of
telecommunications services. In the Company's medical business, the Company
acquired Heartstream, Inc. during fiscal 1998. The Heartstream ForeRunner is an
automatic, portable external defibrillator that delivers therapy to victims of
sudden cardiac arrest. In the chemical-analysis business, the Company acquired
MTI Analytical Instruments, a manufacturer of high-speed, portable, laboratory
and continuous-measurement gas chromatographs.
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 1998, the Company introduced the
MT-RJ transceiver, which supports advanced fiber-optic cabling systems and helps
make "fiber-to-the-desk" more practical.
MARKETING
CUSTOMERS. The Company has approximately 600 sales and support offices and
distributorships in more than 130 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.
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
2
<PAGE>
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 financial health of
these resellers, and the Company's continuing relationships with such resellers,
are 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
supply by the Company and its competitors 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 54
percent in fiscal 1998 and 56 percent in fiscal 1997 and 1996, 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, other countries in Asia Pacific, Latin America and Canada.
Most of the Company's sales in international markets are made by foreign
sales subsidiaries. In countries with low sales volumes, sales are made through
various representatives and distributors. However, the Company makes certain
sales in international markets 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 foreign currency and
interest rate exposures. As of October 31, 1998 and 1997, a sensitivity analysis
performed by the Company indicated that adverse movements in foreign exchange
rates and interest rates applied to hedging contracts and underlying exposures
described above would not have a material effect on the Company's consolidated
financial position, results of operations or cash flows. Annual 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.
In 1997, the Company established a dedicated task force to address the
issues raised by the introduction of a European single currency (the Euro) for
initial implementation as of January 1, 1999 and during the transition period
through January 1, 2002. The Company's primary focus has been on the changes
needed to deal with a mix of Euro and local denomination transactions from the
first day of changeover--January 1, 1999. A detailed discussion of the adoption
of the Euro is set forth on page 43 of the Company's 1998 Annual Report to
Stockholders which page is incorporated herein by reference.
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 is
set forth on page 61 of the Company's 1998 Annual Report to Stockholders, which
page is incorporated herein by reference.
3
<PAGE>
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.
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 thus effectively manage financial returns with correspondingly
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.
YEAR 2000
The Year 2000 problem arises from the use of a two-digit field to identify
years in computer programs, e.g., 85=1985, and the assumption of a single
century, the 1900s. Any program so created may read, or attempt to read, "00" as
the year 1900. There are two other related issues which could also lead to
incorrect calculations or failure, such as (i) some systems' programming assigns
special meaning to certain dates, such as 9/9/99, and (ii) the year 2000 is a
leap year. Accordingly, some computer hardware and software, including programs
embedded within machinery and parts, will need to be modified prior to the year
2000 in order to remain functional. The Company's Year 2000 initiatives are
focused primarily on four areas of potential impact: internal information
technology (IT) systems; internal non-IT systems, including services and
embedded chips (controllers); The Company's products and services; and the
readiness of significant third parties with whom the Company has material
business relationships. The Company expects to implement successfully the
systems and programming changes necessary to address Year 2000 internal IT and
non-IT readiness issues. Based on current estimates, the Company does not
believe that the costs associated with 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. In addition, failure to
achieve Year 2000 readiness for the Company's internal systems could delay its
ability to manufacture and ship products and deliver services, disrupt its
customer service and technical support facilities, and interrupt customer access
to its online products and services. The Company's inability to perform these
functions could have an adverse effect on future results of operations or
financial condition. A detailed discussion of the Year 2000
4
<PAGE>
problem is set forth on pages 40-43 of the Company's 1998 Annual Report to
Stockholders, which pages are incorporated herein by reference.
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
non-cancelable 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 sources could 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
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 9 percent in fiscal 1998
to $3.4 billion, compared with 13 percent growth and expenditures of $3.1
billion in fiscal 1997 and 18 percent growth and expenditures of $2.7 billion in
fiscal 1996. In fiscal 1998, research and development expenditures were 7.1
percent of net revenue, compared with 7.2 percent in fiscal 1997 and 7.1 percent
in fiscal 1996. 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.
5
<PAGE>
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.
EMPLOYEES
The Company had approximately 124,600 employees worldwide at October 31,
1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the executive officers of the Company is set forth in
Part III below.
(1) HP-UX Release 10.20 and later and HP-UX release 11.00 and later on all HP
9000 computers are Open Group UNIX 95 branded products.
(2) UNIX is a registered trademark of The Open Group.
(3) Pentium is a U.S. registered trademark of Intel Corp.
(4) Windows is a U.S. registered trademark of Microsoft Corporation.
Windows NT is a U.S. registered trademark of Microsoft Corporation
6
<PAGE>
ITEM 2. PROPERTIES.
The principal executive offices of the Company are located at 3000 Hanover
Street, Palo Alto, California 94304. As of October 31, 1998, the Company owned
or leased a total of approximately 53.1 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 1998, the Company was productively utilizing
the vast majority of the space in its facilities, while actively disposing of
space determined to be excess.
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 $2.0 billion in fiscal 1998, $2.3
billion in fiscal 1997 and $2.2 billion in fiscal 1996.
As of October 31, 1998, the Company's marketing operations occupied
approximately 13.1 million square feet, of which 5.5 million square feet were
located within the United States. The Company owns 49% of the space used for
marketing activities and leases the remaining 51%.
The Company's manufacturing plants, research and development facilities and
warehouse and administrative facilities occupied 40.0 million square feet, of
which 27.3 million square feet were located within the United States. The
Company owns 73% of its manufacturing, research and development, warehouse and
administrative space and leases the remaining 27%. 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 1998 Annual Report to Stockholders, which
page is incorporated herein by reference. The
7
<PAGE>
locations of the Company's major product development and manufacturing
facilities and the Hewlett-Packard Laboratories are listed below:
PRODUCT DEVELOPMENT
AND MANUFACTURING
<TABLE>
<S> <C> <C>
AMERICAS Lake Stevens, Seattle, ASIA PACIFIC
Cupertino, Costa Mesa, Spokane and Vancouver, Melbourne, Australia
Fremont, Mountain Washington Beijing, Qingdao and
View, Newark, Palo Alto, Sao Paulo, Brazil Shanghai, China
Rohnert Park, Roseville, San Calgary, Canada Bangalore, India
Diego, San Jose, Santa Clara, Guadalajara, Mexico Hachioji and Kobe, Japan
Santa Rosa, Sunnyvale and EUROPE Seoul, Korea
Westlake Village, California Grenoble, France Penang, Malaysia
Colorado Springs, Fort Boblingen and Waldbonn, Singapore
Collins, Greeley and Germany Taiwan
Loveland, Colorado Dublin, Ireland HEWLETT-PACKARD LABORATORIES
Wilmington, Delaware Bergamo, Italy Palo Alto, California
Boise, Idaho Amersfoort, The Netherlands Haifa, Israel
Andover, Massachusetts Barcelona, Spain Tokyo, Japan
Rockaway, New Jersey Bristol, Ipswich and South Bristol, United Kingdom
Corvallis, Oregon Queensferry, United Kingdom
Aguadilla, Puerto Rico
Richardson, Texas
Salt Lake City, Utah
</TABLE>
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.
8
<PAGE>
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 may be found on page 64 and the inside back cover,
respectively, of the Company's 1998 Annual Report to Stockholders. The number of
stockholders 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
may be found on pages 31, 46, 47 and 64 of the Company's 1998 Annual Report to
Stockholders. Such pages (excluding order data) are incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for the Company is set forth on page 31 of the
Company's 1998 Annual Report to Stockholders, 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" found on
pages 32-43 of the Company's 1998 Annual Report to Stockholders. Such pages 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" found on page 38 of the Company's 1998 Annual
Report to Stockholders. 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 PricewaterhouseCoopers LLP, independent accountants, and the
unaudited "Quarterly Summary" are set forth on pages 44-62 and 64 of the
Company's 1998 Annual Report to Stockholders, 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.
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 6-8 of the
Company's Notice of Annual Meeting of Stockholders and Proxy Statement, dated
January 12, 1999 (the "Notice and Proxy Statement"), which pages are
incorporated herein by reference.
The names of the executive officers of the Company, and their ages, titles
and biographies as of December 28, 1998, are set forth below. All officers are
elected for one-year terms.
9
<PAGE>
EXECUTIVE OFFICERS:
EDWARD W. BARNHOLT; AGE 55; EXECUTIVE VICE PRESIDENT AND GENERAL MANAGER,
MEASUREMENT ORGANIZATION.
Mr. Barnholt was elected a Vice President of the Company in 1988, a Senior
Vice President in 1993 and an Executive Vice President in 1996. He assumed his
current position in 1998, when the Company's Medical Products, Chemical Analysis
and Component Groups from the former Measurement Systems Organization were added
to the Test and Measurement Organization to form the Measurement Organization.
He was General Manager of the Test and Measurement Organization from 1990 to
1998. He is a director of KLA-Tencor Instruments Corporation.
JOEL S. BIRNBAUM; AGE 61; SENIOR VICE PRESIDENT, RESEARCH AND DEVELOPMENT AND
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 1991. He
was elected a Vice President in 1984. He is a director of the Corporation for
National Research Initiatives, the Monterey Bay Aquarium Research Institute and
Multimedia Medical Systems.
SUSAN D. BOWICK; AGE 50; 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.
S.T. JACK BRIGHAM III; AGE 59; 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.
RAYMOND W. COOKINGHAM; AGE 55; VICE PRESIDENT AND CONTROLLER.
Mr. Cookingham was elected a Vice President in 1993. He has served as
Controller since 1986.
ANN M. LIVERMORE; AGE 40; VICE PRESIDENT AND GENERAL MANAGER, ENTERPRISE
COMPUTING SOLUTIONS ORGANIZATION.
Ms. Livermore was elected a Vice President in 1995 and became General
Manager of Worldwide Customer Support Operations in 1996. From 1993 to 1995, she
was a Sales and Marketing Manager of Worldwide Customer Support. She assumed her
current position with the Enterprise Computing Solutions Organization in 1998.
Ms. Livermore is a director of United Parcel Service.
ANTONIO M. PEREZ; AGE 53; VICE PRESIDENT AND GENERAL MANAGER, INKJET PRODUCTS
GROUP.
Mr. Perez was elected a Vice President and named General Manager of the
Inkjet Products Group in 1995 and has held those positions since then. From 1993
to 1995, he was General Manager of the Hardcopy Imaging Group.
LEWIS E. PLATT; AGE 57; 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 1992 and has served as Chairman since 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
10
<PAGE>
managing the Computer Systems Organization from 1990 to 1992. He is a director
of the David and Lucile Packard Foundation and serves on the Wharton School
Board of Overseers and the Cornell University Council.
WILLIAM V. RUSSELL; AGE 46; VICE PRESIDENT AND GENERAL MANAGER, ENTERPRISE
SYSTEMS AND SOFTWARE GROUP.
Mr. Russell was elected a Vice President and assumed his current post in
1998. In 1993, he was General Manager of the Computer Systems Organization in
the U.K. He was General Manager of Europe, Africa and the Middle East for the
Computer Systems Organization from 1994 to 1996, and became General Manager of
the Enterprise Systems Group in 1997.
CAROLYN M. TICKNOR; AGE 51; VICE PRESIDENT AND GENERAL MANAGER, LASERJET
SOLUTIONS GROUP.
Ms. Ticknor was named General Manager of the LaserJet Printer Group in 1994.
She was elected a Vice President in 1995 when the group reorganized and was
renamed the LaserJet Solutions Group. Ms. Ticknor is a director of FileNET
Corporation.
LEE S. TING; AGE 56; VICE PRESIDENT AND MANAGING DIRECTOR, GEOGRAPHIC
OPERATIONS, MANAGING DIRECTOR, AMERICAS OPERATIONS.
Mr. Ting assumed his current position as Vice President and Managing
Director, Geographic Operations in 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. He is a
director of Structured InterNetworks, Inc.
ROBERT P. WAYMAN; AGE 53; 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.
DUANE E. ZITZNER; AGE 51; VICE PRESIDENT AND GENERAL MANAGER, PERSONAL SYSTEMS
GROUP.
Mr. Zitzner was elected a Vice President and named General Manager of the
Personal Information Products Group in 1996. In 1993, he was General Manager of
the Network Server Division. From 1994 to 1996, he was General Manager of the
Networked Systems Business Unit. He continued as General Manager when the
Personal System Group became a group within the Computer Organization in 1997.
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is set forth on page 15 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 16-28 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 page 5 of the Notice and Proxy
Statement, which pages are incorporated herein by reference.
11
<PAGE>
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 11-15 of the Notice and Proxy Statement, which
pages are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
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:
<TABLE>
<CAPTION>
PAGE IN
ANNUAL REPORT
TO STOCKHOLDERS(*)
-------------------
<S> <C>
Report of Independent Accountants.......................................... 62
Consolidated Statement of Earnings for the three years ended October 31,
1998..................................................................... 44
Consolidated Balance Sheet at October 31, 1998 and 1997.................... 45
Consolidated Statement of Cash Flows for the three years ended October 31,
1998..................................................................... 46
Consolidated Statement of Stockholders' Equity for the three years ended
October 31, 1998......................................................... 47
Notes to Consolidated Financial Statements................................. 48-61
</TABLE>
- ------------------------
* Incorporated by reference from the indicated pages of the Company's 1998
Annual Report to Stockholders (excluding "Statement of Management
Responsibility" on page 62).
12
<PAGE>
2. Financial Statement Schedules:
None.
3. Exhibits:
<TABLE>
<S> <C>
1. Not applicable.
2. None.
3(a). Registrant's Amended and Restated Articles of Incorporation, which appears as
Exhibit 3(a) to Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 30, 1998, 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 Form 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.*
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
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.*
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 appear 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 appear 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.*
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
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 99.1 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.*
10(dd). Registrant's 1999 Variable Pay Plan which appears as Appendix A to
Registrant's Proxy Statement dated January 12, 1999, which appendix is
incorporated herein by reference.*
11. Statement of computation of per share earnings.
12. Statement of computation of ratio of earnings to fixed charges.
13. Pages 31-64 (excluding order data and "Statement of Management
Responsibility") and the inside back cover of Registrant's 1998 Annual Report
to Stockholders.
14-17. Not applicable.
18. None.
19-20. Not applicable.
21. Subsidiaries of Registrant as of January 14, 1999.
22. None.
23. Consent of Independent Accountants.
24. Powers of Attorney. Contained in page 17 of this Annual Report on Form 10-K
and incorporated herein by reference.
25-26. Not applicable.
27. Financial Data Schedule.
28. None.
99. 1998 Employee Stock Purchase Plan Annual Report on Form 11-K.
</TABLE>
- ------------------------
* 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
None
15
<PAGE>
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.
<TABLE>
<S> <C> <C>
HEWLETT-PACKARD COMPANY
Date: January 15, 1999
By /s/ D. CRAIG NORDLUND
-----------------------------------------
D. Craig Nordlund
Associate General Counsel and Secretary
</TABLE>
16
<PAGE>
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------------------------- -------------------
<S> <C> <C>
/s/ RAYMOND W. COOKINGHAM Vice President and Controller January 14, 1999
----------------------------------- (Principal Accounting Officer)
Raymond W. Cookingham
/s/ PHILIP M. CONDIT Director January 14, 1999
-----------------------------------
Philip M. Condit
/s/ PATRICIA C. DUNN Director January 14, 1999
-----------------------------------
Patricia C. Dunn
/s/ THOMAS E. EVERHART Director January 14, 1999
-----------------------------------
Thomas E. Everhart
/s/ JOHN B. FERY Director January 14, 1999
-----------------------------------
John B. Fery
/s/ JEAN-PAUL G. GIMON Director January 14, 1999
-----------------------------------
Jean-Paul G. Gimon
Director January , 1999
-----------------------------------
Sam Ginn
/s/ RICHARD A. HACKBORN Director January 14, 1999
-----------------------------------
Richard A. Hackborn
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------------------------- -------------------
<S> <C> <C>
/s/ WALTER B. HEWLETT Director January 14, 1999
-----------------------------------
Walter B. Hewlett
/s/ GEORGE A. KEYWORTH II Director January 14, 1999
-----------------------------------
George A. Keyworth II
/s/ DAVID M. LAWRENCE Director January 14, 1999
-----------------------------------
David M. Lawrence
/s/ SUSAN P. ORR Director January 14, 1999
-----------------------------------
Susan P. Orr
/s/ DAVID W. PACKARD Director January 14, 1999
-----------------------------------
David W. Packard
/s/ LEWIS E. PLATT Chairman, President and January 14, 1999
----------------------------------- Chief Executive Officer and
Lewis E. Platt Director (Principal Executive Officer)
/s/ ROBERT P. WAYMAN Executive Vice President January 14, 1999
----------------------------------- Finance and Administration,
Robert P. Wayman Chief Financial Officer and
Director (Principal Financial Officer)
</TABLE>
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
1. Not applicable.
2. None.
3(a). Registrant's Amended and Restated Articles of Incorporation, which appears as Exhibit 3(a) to
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1998, 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 appear 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 appear as Exhibit 10(e) 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(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.*
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
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.*
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 appear 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 appear 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.*
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
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 99.1 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.*
10(dd). Registrant's 1999 Variable Pay Plan which appears as Appendix A to Registrant's Proxy Statement dated
January 12, 1999, which appendix is incorporated herein by reference.*
11. Statement of computation of per share earnings.
12. Statement of computation of ratio of earnings to fixed charges.
13. Pages 31-64 (excluding order data and "Statement of Management Responsibility") and the inside back
cover of Registrant's 1998 Annual Report to Stockholders.
14-17. Not applicable.
18. None.
19-20. Not applicable.
21. Subsidiaries of Registrant as of January 14, 1999.
22. None.
23. Consent of Independent Accountants.
24. Powers of Attorney. Contained in page 17 of this Annual Report on Form 10-K and incorporated herein by
reference.
25-26. Not applicable.
27. Financial Data Schedule.
28. None.
99. 1998 Employee Stock Purchase Plan Annual Report on Form 11-K.
</TABLE>
- ------------------------
* Indicates management contract or compensatory plan, contract or arrangement.
21
<PAGE>
BYLAWS
OF
HEWLETT-PACKARD COMPANY
(A DELAWARE CORPORATION)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE. The registered office of the corporation shall
be fixed in the Certificate of Incorporation of the corporation.
1.2 OTHER OFFICES. The board of directors may at any time establish
branch or subordinate offices at any place or places where the corporation is
qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any
place within or outside the State of Delaware designated by the board of
directors. In the absence of any such designation, stockholders' meetings
shall be held at the registered office of the corporation.
2.2 ANNUAL MEETING.
(a) The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. At the meeting,
directors shall be elected, and any other proper business may be
transacted.
(b) At an annual meeting of the stockholders, 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:
(A) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the board of directors, (B)
otherwise properly brought before the meeting by or at the
direction of the board of directors, or (C) otherwise properly
brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the
secretary of the corporation. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal
executive offices of the corporation not less than one hundred
twenty (120) calendar days in advance of the date specified in the
corporation's proxy statement released to stockholders in
connection with the previous year's annual meeting of stockholders;
provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has
been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement,
notice by the stockholder to be timely must be so received not
later than the close of business on the later of one hundred twenty
(120) calendar days in advance of such annual meeting or ten (10)
calendar days following the date on which public announcement of
the date of the meeting is first made. A stockholder's notice to
the secretary shall set forth as to each matter the stockholder
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 stockholder proposing such business,
(iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest
of the stockholder in such business, and (v) any
1
<PAGE>
other information that is required to be provided by the
stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity
as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required
by the regulations promulgated under the 1934 Act. Notwithstanding
anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). 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 paragraph
(b), 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.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the board of
directors of the corporation may be made at a meeting of
stockholders by or at the direction of the board of directors or by
any stockholder of the corporation entitled to vote in the election
of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other
than those made by or at the direction of the board of directors,
shall be made pursuant to timely notice in writing to the secretary
of the corporation in accordance with the provisions of paragraph
(b) of this Section 2.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director: (A) the name,
age, business address and residence address of such person, (B) the
principal occupation or employment of such person, (C) the class
and number of shares of the corporation which are beneficially
owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to
which the nominations are to be made by the stockholder, and (E)
any other information relating to such person that is required to
be disclosed in solicitations of proxies for elections of
directors, or is otherwise required, in each case pursuant to
Regulation 14A under the 1934 Act (including without limitation
such person's written consent to being named in the proxy
statement, if any, as a nominee and to serving as a director if
elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of
this Section 2.2. At the request of the board of directors, any
person nominated by a stockholder for election as a director shall
furnish to the secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in
accordance with the procedures set forth in this paragraph (c). The
chairman of the meeting shall, if the facts warrants, determine
and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if
he should so determine, he shall so declare at the meeting, and the
defective nomination shall be disregarded.
2.3 SPECIAL MEETING. A special meeting of the stockholders may be
called at any time by the board of directors, the chairman of the board, the
vice chairman of the board, the chairman of the executive committee, or the
president, but such special meetings may not be called by any other person or
persons. Only such business shall be considered at a special meeting of
stockholders as shall have been stated in the notice for such meeting.
2.4 ORGANIZATION. Meetings of stockholders shall be presided over by
the chairman of the board, if any, or in his or her absence by the vice
chairman of the board, if any, or in his or her absence by the chairman of
the executive committee, if any, or in his or her absence by the president,
if any, or in his or her absence by an executive vice president, if any, or
in his her absence by a senior vice president, if any, or in his or her
absence by a vice president, or in the absence of the foregoing persons by a
chairman designated by the board of directors, or in the absence of such
designation by a chairman chosen at the meeting by the vote of a majority in
interest of the stockholders present in person or represented by proxy and
entitled to vote thereat. The secretary or in his or her absence an assistant
secretary or in the absence of the
2
<PAGE>
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 corporation shall be entitled to make such
rules or regulations for the conduct of meetings of stockholders 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 stockholders of record of the corporation 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 and 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 stockholders shall not be required to be held in
accordance with rules of parliamentary procedure.
2.5 NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 2.6
of these Bylaws not less than ten (10) nor more than sixty (60) days before
the date of the meeting. The notice shall specify the place, date, and hour
of the meeting and (i) in the case of a special meeting, the general nature
of the business to be transacted (no business other than that specified in
the notice may be transacted) or (ii) in the case of the annual meeting,
those matters which the board of directors, at the time of giving the notice,
intends to present for action by the stockholders (but any proper matter may
be presented at the meeting for such action). The notice of any meeting at
which directors are to be elected shall include the name of any nominee or
nominees who, at the time of the notice, the board intends to present for
election.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting
of stockholders shall be given either personally or by mail, telecopy,
telegram or other electronic or wireless means. Notices not personally
delivered shall be sent charges prepaid and shall be addressed to the
stockholder at the address of that stockholder appearing on the books of the
corporation or given by the stockholder to the corporation for the purpose of
notice. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telecopy, telegram or other
electronic or wireless means.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice or report.
2.7 QUORUM. The holders of a majority in voting power of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, such quorum is
not present or represented at any meeting of the stockholders, then either
(i) the chairman of the meeting or (ii) the stockholders by the vote of the
holders of a majority of the stock, present in person or represented by proxy
shall have power to adjourn the meeting in accordance with Section 2.8 of
these Bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the laws of the State of
Delaware or of the Certificate of Incorporation or these Bylaws, a vote of a
greater number or voting by classes is required, in which case such express
provision shall govern and control the decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment,
3
<PAGE>
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum, if any action taken is approved by a majority of the stockholders
initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE. Any stockholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to
time by the vote of the majority of the voting power of the shares
represented at that meeting, either in person or by proxy. In the absence of
a quorum, no other business may be transacted at that meeting except as
provided in Section 2.7 of these Bylaws.
When any meeting of stockholders, either annual or special, is adjourned
to another time or place, notice need not be given of the adjourned meeting
if the time and place are announced at the meeting at which the adjournment
is taken. However, if a new record date for the adjourned meeting is fixed or
if the adjournment is for more than thirty (30) days from the date set for
the original meeting, then notice of the adjourned meeting shall be given.
Notice of any such adjourned meeting shall be given to each stockholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.5 and 2.6 of these Bylaws. At any adjourned meeting
the corporation may transact any business which might have been transacted at
the original meeting.
2.9 VOTING. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.12 of these Bylaws, subject to the provisions of Sections 217 and 218 of
the General Corporation Law of Delaware (relating to voting rights of
fiduciaries, pledgers and joint owners, and to voting trusts and other voting
agreements).
Except as may be otherwise provided in the Certificate of Incorporation,
by these Bylaws or required by law, each stockholder shall be entitled to one
vote for each share of capital stock held by such stockholder.
Any stockholder 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, except when the matter is the election of directors, may vote them
against the proposal; but if the stockholder fails to specify the number of
shares which the stockholder is voting affirmatively, it will be conclusively
presumed that the stockholder's approving vote is with respect to all shares
which the stockholder is entitled to vote.
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT. The transactions
of any meeting of stockholders, either annual or special, however called and
noticed, and wherever held, shall be as valid as though they had been taken
at a meeting duly held after regular call and notice, if a quorum be present
either in person or by proxy.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that 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. Attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by law
to be included in the notice of the meeting but not so included, if that
objection is expressly made at the meeting.
2.11 ACTION BY WRITTEN CONSENT. Subject to the rights of the holders of
the shares of any series of Preferred Stock or any other class of stock or
series thereof having a preference over the Common Stock as dividend or upon
liquidation, any action required or permitted to be taken by the stockholders
of the corporation must be effected at a duly called annual or special
meeting of stockholders of the corporation and may not be effected by any
consent in writing by such stockholders.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. For
purposes of determining the stockholders entitled to notice of any meeting or
to vote thereat, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days
before the date of any such meeting, and in such event only stockholders of
record on the date so fixed are entitled to notice and to vote,
notwithstanding any transfer of any shares on the books of the corporation
after the record date, except as otherwise provided in the Certificate of
Incorporation,
4
<PAGE>
by these Bylaws, by agreement or by applicable law.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders 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.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting unless the board of directors fixes a new record date for the
adjourned meeting, but the board of directors shall fix a new record date if
the meeting is adjourned for more than thirty (30) days from the date set for
the original meeting.
The record date for any other purpose shall be as provided in Section
8.1 of these Bylaws.
2.13 PROXIES. Every person entitled to vote for directors, or on any
other matter, shall have the right to do so either in person or by one or
more agents authorized by a written proxy, which may be in the form of a
telegram, cablegram, or other means of electronic transmission, signed by the
person and filed with the secretary of the corporation, but no such proxy
shall be voted or acted upon after three (3) years from its date, unless the
proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. A duly executed proxy shall be irrevocable if
it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking
the proxy or by filing another duly executed proxy bearing a later date with
the secretary of the corporation.
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.
2.14 INSPECTORS OF ELECTION. Before any meeting of stockholders, the
board of directors shall appoint an inspector or inspectors of election to
act at the meeting or its adjournment. The number of inspectors shall be
either one (1) or three (3). If any person appointed as inspector fails to
appear or fails or refuses to act, then the chairman of the meeting may, and
upon the request of any stockholder or a stockholder's proxy shall, appoint a
person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence
of a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or vote
with fairness to all stockholders.
The inspectors of election shall perform their duties impartially, in
good faith, to the best of their ability and as
5
<PAGE>
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.
ARTICLE III
DIRECTORS
3.1 POWERS. Subject to the provisions of the General Corporation Law of
Delaware and to any limitations in the Certificate of Incorporation or these
Bylaws relating to action required to be approved by the stockholders or by
the outstanding shares, 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.
3.2 NUMBER AND TERM OF OFFICE. The authorized number of directors shall
be not less than eleven (11) nor more than twenty-one (21). Within such
limits, the exact number of directors shall be fourteen (14). An indefinite
number of directors may be fixed, or the definite number of directors may be
changed, by a duly adopted amendment to the Certificate of Incorporation or
by an amendment to this bylaw duly adopted by the stockholders or board of
directors.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires. If
for any cause, the directors shall not have been elected at an annual
meeting, they may be elected as soon thereafter as convenient at a special
meeting of the stockholders called for that purpose in the manner provided in
these Bylaws.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS. Except as provided in
Section 3.4 of these Bylaws, directors shall be elected at each annual
meeting of stockholders to hold office until the next annual meeting. Each
director, including a director elected or appointed to fill a vacancy, shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Directors need not be stockholders unless so required by the Certificate
of Incorporation or by these Bylaws; wherein other qualifications for
directors may be prescribed.
3.4 RESIGNATION AND VACANCIES. Any director may resign effective on
giving written notice to the chairman of the board, the president, the
secretary or the board of directors, unless the notice specifies a later time
for that resignation to become effective. If the resignation of a director is
effective at a future time, the board of directors may elect a successor to
take office when the resignation becomes effective.
Unless otherwise provided in the Certificate of Incorporation or by
these Bylaws, vacancies in the board of directors may be filled by a majority
of the remaining directors, even if less than a quorum, or by a sole
remaining director; however, a vacancy created by the removal of a director
by the vote of the stockholders or by court order may be filled only by the
affirmative vote of a majority of the voting power of shares represented and
voting at a duly held meeting at which a quorum is present (which shares
voting affirmatively also constitute a majority of the required quorum). Each
director so elected shall hold office until the next annual meeting of the
stockholders and until a successor has been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled
by a majority of the directors then in office, although less than a
quorum, or by a sole remaining director.
6
<PAGE>
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions
of the Certificate of Incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a
majority of the directors elected by such class or classes or series
thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the Certificate of Incorporation or
these Bylaws, or may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation
Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
then outstanding shares having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors
then in office as aforesaid, which election shall be governed by the
provisions of Section 211 of the General Corporation Law of Delaware as far
as applicable.
3.5 REMOVAL. Unless otherwise restricted by statute, by the Certificate
of Incorporation or by these Bylaws, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors; provided,
however, that, if and so long as stockholders of the corporation are entitled
to cumulative voting, if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire board of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. Regular meetings of the
board of directors may be held at any place within or outside the State of
Delaware that has been designated from time to time by resolution of the
board of directors. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board of directors may be held at any place within or outside
the State of Delaware that has been designated in the notice of the meeting
or, if not stated in the notice or if there is no notice, at the principal
executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in
the meeting can hear one another; and all such directors shall be deemed to
be present in person at the meeting.
3.7 REGULAR MEETINGS. Regular meetings of the board of directors may be
held without notice if the times of such meetings are fixed by the board of
directors.
3.8 SPECIAL MEETINGS; NOTICE. Special meetings of the board of
directors for any purpose or purposes 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.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by mail, telecopy,
telegram or other electronic or wireless means, charges prepaid, addressed to
each director at that director's address as it is shown on the records of the
corporation or if the address is not readily ascertainable, notice shall be
addressed to the director at the city or place in which the meetings of
directors are regularly held. If the notice is mailed, it shall be deposited
in the United States mail at least four (4) days before the time of the
holding of the meeting. If the
7
<PAGE>
notice is delivered personally or by telephone, telecopy, telegram or other
electronic or wireless means, it shall be delivered personally or by
telephone or other electronic or wireless means or to the telegraph company
at least twenty-four (24) hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it
to the director. If the meeting is to be held at the principal executive
office of the corporation, the notice need not specify the place of the
meeting. Moreover, a notice of special meeting need not state the purpose of
such meeting, and, unless indicated in the notice thereof, any and all
business may be transacted at a special meeting.
3.9 QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to fill vacancies
in the board of directors as provided in Section 3.4 and to adjourn as
provided in Section 3.11 of these Bylaws. Every act or decision done or made
by a majority of the directors present at a duly held meeting at which a
quorum is present shall be regarded as the act of the board of directors,
subject to the provisions of the Certificate of Incorporation and applicable
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 that
meeting.
3.10 WAIVER OF NOTICE. Notice of a meeting need not be given to any
director (i) who signs a waiver of notice or a consent to holding the meeting
or an approval of the minutes thereof, whether before or after the meeting,
or (ii) who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such directors. 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. All such waivers
shall be filed with the corporate records or made part of the minutes of the
meeting. A waiver of notice need not specify the purpose of any regular or
special meeting of the board of directors.
3.11 ADJOURNMENT. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
3.12 NOTICE OF ADJOURNMENT. Notice of the time and place of holding an
adjourned meeting need not be given if announced unless the meeting is
adjourned for more than twenty-four (24) hours. If the meeting is adjourned
for more than twenty-four (24) hours, then notice of the time and place of
the adjourned meeting shall be given before the adjourned meeting takes
place, in the manner specified in Section 3.8 of these Bylaws, to the
directors who were not present at the time of the adjournment.
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
required or permitted to be taken by the board of directors may be taken
without a meeting, provided that all members of the board of directors
individually or collectively consent in writing to that action. Such action
by written consent shall have the same force and effect as a unanimous vote
of the board of directors. Such written consent and any counterparts thereof
shall be filed with the minutes of the proceedings of the board.
3.14 ORGANIZATION. Meetings of the board of directors shall be presided
over by the chairman of the board, if any, or in his or her absence by the
vice chairman of the board, if any, or in his or her absence by the chairman
of the executive committee, if any, or in his or her absence by the
president, if any, or in his or her absence by the 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. The secretary
shall act as secretary of the meeting, but in his or her absence the chairman
of the meeting may appoint any person to act as secretary of the meeting.
3.15 FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution
8
<PAGE>
of the board of directors. This Section 3.15 shall not be construed to
preclude any director from serving the corporation in any other capacity as
an officer, agent, employee or otherwise and receiving compensation for those
services.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS. The board of directors may designate one
(1) or more committees, each consisting of two or more directors, to serve at
the pleasure of the board of directors. The board of directors 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. Any committee, to
the extent provided in the resolution of the board, shall have all the
authority of the board, but no such committee shall have the power or
authority to (i) approve or adopt or recommend to the stockholders any action
or matter that requires the approval of the stockholders or (ii) adopt, amend
or repeal any Bylaw of the corporation.
4.2 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these Bylaws, Section 3.6 (place of meetings),
Section 3.7 (regular meetings), Section 3.8 (special meetings and notice),
Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11
(adjournment), Section 3.12 (notice of adjournment), and Section 3.13 (action
without meeting), with such changes in the context of those Bylaws as are
necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular
meetings of committees may be determined either by resolution of the board of
directors or by resolution of the committee, that special meetings of
committees may also be called by resolution of the board of directors, and
that notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
4.3 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 4.1 hereof) in such manner as the
executive committee may deem in the best interests of the corporation.
ARTICLE V
OFFICERS
5.1 OFFICERS. The officers of this corporation shall consist of a
president, one or more vice presidents, a secretary and a chief financial
officer who shall be chosen by the Board of Directors and such other
officers, 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 Bylaws or the board of directors.
5.2 ELECTION OF OFFICERS. In addition to officers elected by the board
of directors in accordance with Sections 5.1 and 5.3, the corporation may
have one or more appointed vice presidents. Such vice presidents may be
appointed by
9
<PAGE>
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 5.2 may be removed in accordance with
Section 5.4.
5.3 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.
5.4 REMOVAL; RESIGNATION OF OFFICERS 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 stockholders 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.
5.5 CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer be elected, shall have general supervision, direction and control of
the corporation's business and its officers, and, if present, preside at
meetings of the stockholders and the board of directors and exercise and
perform such other powers and duties as may from time to time be assigned to
him by the board of directors or as may be prescribed by these Bylaws. The
chairman of the board shall report to the board of directors.
5.6 VICE CHAIRMAN OF THE BOARD. 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.
5.7 CHAIRMAN OF EXECUTIVE COMMITTEE. The chairman of the executive
committee, if there be one, shall have the power to call meetings of the
stockholders and also of the board of directors to be held subject to the
limitations prescribed by law or by these Bylaws, 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.
5.8 PRESIDENT. The powers and duties of the president are:
(a) To call meetings of the stockholders and also of the board of
directors to be held, subject to the limitations prescribed by law
or by these Bylaws, 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
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.
5.9 VICE PRESIDENTS. In case of the absence, disability or death of the
president, the elected vice president, or one of the elected vice presidents,
shall exercise all the powers and perform all the duties of the president. If
there is more than one elected vice president, the order in which the elected
vice presidents shall succeed to the powers and duties of the president shall
be as fixed by the board of directors. The elected vice president or elected
vice presidents shall have such
10
<PAGE>
other powers and perform such other duties as may be granted or prescribed by
the board of directors.
Vice presidents appointed pursuant to Section 5.2 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.
5.10 Secretary. 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 stockholders 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
stockholders' meetings and the proceedings thereof.
(b) To keep the seal of the corporation and affix the same to all
instruments which may require it.
(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 stockholders and their addresses, the number of 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 8.5 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.
5.11 CHIEF FINANCIAL OFFICER. 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
11
<PAGE>
the corporation and, at the chief financial officer's discretion, to
cause any or all thereof to be deposited for 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 VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall,
to the maximum extent and in the manner permitted by the General Corporation
Law of Delaware, indemnify each of its directors and officers against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the
corporation; provided, however, that the corporation may modify the extent of
such indemnification by individual contracts with its directors and executive
officers and, provided, further, that the corporation shall not be required
to indemnify any director or officer in connection with any proceeding (or
part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized in
advance by the board of directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion,
pursuant to the powers vested in the corporation under the General
Corporation Law of Delaware or (iv) such indemnification is required to be
made pursuant to an individual contract. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at
the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, or (iii)
who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of
such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS. The corporation shall have the power, to
the maximum extent and in the manner permitted by the General Corporation Law
of Delaware, to indemnify each of its employees and agents (other than
directors and officers) against expenses (including attorneys' fees),
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding, arising by reason of the fact
that such person is or was an agent of the corporation. For purposes of this
Section 6.2, an "employee" or "agent" of the corporation (other than a
director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or (iii) who was an employee or
agent of a corporation which was a predecessor corporation of the corporation
or of another enterprise at the request of such predecessor corporation.
6.3 INSURANCE. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such,
12
<PAGE>
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.4 EXPENSES. The corporation shall advance to any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he or she is or was a director
or officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, prior to the final disposition of
the proceeding, promptly following request therefor, all expenses incurred by
any director or officer in connection with such proceeding, upon receipt of
an undertaking by or on behalf of such person to repay said amounts if it
should be determined ultimately that such person is not entitled to be
indemnified under this Bylaw or otherwise; provided, however, that the
corporation shall not be required to advance expenses to any director or
officer in connection with any proceeding (or part thereof) initiated by such
person unless the proceeding was authorized in advance by the board of
directors of the corporation.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 6.5, no advance shall be made by the corporation to an officer of the
corporation (except by reason of the fact that such officer is or was a
director of the corporation in which event this paragraph shall not apply) in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner
that such person did not believe to be in or not opposed to the best
interests of the corporation.
6.5 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the General Corporation Law
of Delaware.
6.6 SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
6.7 AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS. The corporation shall,
either at its principal executive office or at such place or places as
designated by the board of directors, keep a record of its stockholders
listing their names and addresses and the number and class of shares held by
each stockholder, a copy of these Bylaws as amended to date, accounting books
and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose
the corporation's
13
<PAGE>
stock ledger, a list of its stockholders, and its other books and records and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right
to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business.
7.2 INSPECTION BY DIRECTORY. Any director shall have the right to
examine the corporation's stock ledger, a list of its stockholders and its
other books and records for a purpose reasonably related to his or her
position as a director. The Court of Chancery is hereby vested with the
exclusive jurisdiction to determine whether a director is entitled to the
inspection sought. The Court may summarily order the corporation to permit
the director to inspect any and all books and records, the stock ledger, and
the stock list and to make copies or extracts therefrom. The Court may, in
its discretion, prescribe any limitations or conditions with reference to the
inspection, or award such other and further relief as the Court may deem just
and proper.
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The president or
any other officer of this corporation authorized by the board of directors is
authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or
corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other
person authorized to do so by proxy or power of attorney duly executed by
such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes
of determining the stockholders entitled to receive payment of any dividend
or other distribution or allotment of any rights or the stockholders 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) days before any such action. In that case, only stockholders of
record at the close of business on the date so fixed are entitled to receive
the dividend, distribution or allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date so fixed, except as otherwise
provided in the Certificate of Incorporation, by these Bylaws, by agreement
or by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close
of business on the day on which the board adopts the applicable resolution or
the sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS. From time to time, the
board of directors shall determine by resolution which person or persons may
sign or endorse all checks, drafts, other orders for payment of money, notes
or other evidences of indebtedness that are issued in the name of or payable
to the corporation, and only the persons so authorized shall sign or endorse
those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of
directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or
execute any instrument in the name of and on behalf of the corporation; such
authority may be general or confined to specific instances. Unless so
authorized or ratified by the board of directors or within the agency power
of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
8.4 FISCAL YEAR. The fiscal year of this corporation shall begin on the
first day of November of each year and
14
<PAGE>
end on the last day of October of the following year.
8.5 STOCK CERTIFICATES. 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 of the corporation shall
be entitled to have a certificate signed by, or in the name of the
corporation by, the chairman or vice chairman of the board of directors, or
the president or a vice president, and by the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of such corporation
representing the number of shares registered in certificate form. Any or all
of the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate has 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 he or she were such officer, transfer
agent or registrar at the date of issue.
8.6 SPECIAL DESIGNATION ON CERTIFICATES. If the corporation is
authorized to issue more than one class of stock or more than one series of
any class, then the powers, the designations, the preferences, and the
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights shall be set forth in full or summarized on
the face or back of the certificate that the corporation shall issue to
represent such class or series of stock; provided, however, that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements there may be set forth on the face or
back of the certificate that the corporation shall issue to represent such
class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the
designations, the preferences, and the relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
8.7 LOST CERTIFICATES. The corporation may issue a new share
certificate or new certificate for any other security in the place of any
certificate theretofore issued by it, alleged 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.
8.8 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise,
the general provisions, rules of construction, and definitions in the General
Corporation Law of Delaware shall govern the construction of these Bylaws.
Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
8.9 PROVISIONS ADDITIONAL TO PROVISIONS OF LAW. All restrictions,
limitations, requirements and other provisions of these Bylaws 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.
8.10 PROVISIONS CONTRARY TO PROVISIONS OF LAW. Any article, section,
subsection, subdivision, sentence, clause or phrase of these Bylaws which
upon being construed in the manner provided in Section 8.9 hereof, shall be
contrary to or inconsistent with any applicable provisions 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 Bylaws, it being hereby declared that these Bylaws 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.
8.11 NOTICES. Any reference in these Bylaws to the time a notice is
given or sent means, unless otherwise
15
<PAGE>
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.
ARTICLE IX
AMENDMENTS
Subject to Section 6.7 hereof, the original or other bylaws of the
corporation may be adopted, amended or repealed by the stockholders entitled
to vote; provided, however, that the corporation may, in its certificate of
incorporation, confer the power to adopt, amend or repeal bylaws upon the
directors. The fact that such power has been so conferred upon the directors
shall not divest the stockholders of the power, nor limit their power to
adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any
bylaw is repealed, the fact of repeal with the date of the meeting at which
the repeal was enacted or the filing of the operative written consent(s)
shall be stated in said book.
16
<PAGE>
EXHIBIT 11
Registrant's Basic and Diluted Earnings Per Share (in millions except
per share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------
Oct. 31, Oct. 31, Oct. 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Basic earnings per share
Net earnings $2,945 $3,119 $2,586
Number of shares on which basic earnings per earnings per share is based:
Weighted average common shares outstanding during
the period 1,034 1,026 1,019
------ ------ ------
Basic earnings per share $ 2.85 $ 3.04 $ 2.54
------ ------ ------
------ ------ ------
Diluted earnings per share
Net earnings $2,945 $3,119 $2,586
Adjustment for interest expense, net of tax 26 -- --
------ ------ ------
Net earnings, adjusted $2,971 $3,119 $2,586
Number of shares on which diluted earnings per share is based:
Weighted average common shares outstanding
during the period 1,034 1,026 1,019
Weighted average dilutive potential common shares:
Stock options 28 31 33
Convertible zero-coupon notes due 2017 10 -- --
------ ------ ------
Number of shares and equivalents on which diluted
earnings per share is based 1,072 1,057 1,052
Diluted earnings per share $ 2.77 $ 2.95 $ 2.46
------ ------ ------
------ ------ ------
</TABLE>
<PAGE>
EXHIBIT 12
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Statement of Computation of Ratio of Earnings to Fixed Charges (1)
(in millions, except ratios)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
----------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Pre-tax income from continuing operations ........... $ 4,091 $ 4,455 $ 3,694 $ 3,632 $ 2,423
Minority interest in the income of subsidiaries
with fixed charges ............................... 8 39 38 29 17
Undistributed (earnings) or loss of equity
investees ....................................... 10 (6) (62) (47) 4
Fixed charges:
Interest expense and amortization of debt
discount and premium on all indebtedness ....... 235 215 327 206 155
Interest included in rent ....................... 158 139 126 111 104
------- ------- ------- ------- -------
Total fixed charges ............... 393 354 453 317 259
Earnings before income taxes, minority interest,
undistributed earnings or loss of equity investees
and fixed charges ................................ $ 4,502 $ 4,842 $ 4,123 $ 3,931 $ 2,703
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of earnings to fixed charges ................ 11.5 13.7 9.1 12.4 10.4
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
(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.
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Selected Financial Data
UNAUDITED
<TABLE>
<CAPTION>
For the years ended October 31
In millions except per share amounts
and employees 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. orders $ 21,338 $ 18,837 $ 17,181 $ 14,686 $ 11,692
International orders 25,166 24,316 21,708 17,999 13,658
- ---------------------------------------------------------------------------------------------------
Total orders $ 46,504 $ 43,153 $ 38,889 $ 32,685 $ 25,350
- ---------------------------------------------------------------------------------------------------
Net revenue $ 47,061 $ 42,895 $ 38,420 $ 31,519 $ 24,991
Earnings from operations $ 3,841 $ 4,339 $ 3,726 $ 3,568 $ 2,549
Net earnings $ 2,945 $ 3,119 $ 2,586 $ 2,433 $ 1,599
Per share amounts:
Net earnings - Basic $ 2.85 $ 3.04 $ 2.54 $ 2.38 $ 1.58
Net earnings - Diluted $ 2.77 $ 2.95 $ 2.46 $ 2.31 $ 1.54
Cash dividends $ .60 $ .52 $ .44 $ .35 $ .275
At year-end:
Total assets $ 33,673 $ 31,749 $ 27,699 $ 24,427 $ 19,567
Long-term debt $ 2,063 $ 3,158 $ 2,579 $ 663 $ 547
Employees 124,600 121,900 112,000 102,300 98,400
- ---------------------------------------------------------------------------------------------------
</TABLE>
EARNINGS FROM OPERATIONS
(IN MILLIONS)
A bar chart entitled "Earnings from Operations (In millions)" at the bottom
left of page 31 of the Annual Report shows that for the fiscal years 1994,
1995, 1996, 1997 and 1998 (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.
EMPLOYEES AND NET
REVENUE PER EMPLOYEE
(IN THOUSANDS)
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 1994, 1995, 1996, 1997 and 1998 (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 years 1994, 1995,
1996, 1997 and 1998 (shown on the x-axis) the Company had net revenue per
employee (shown on the y-axis) of $256,900, $314,100, $358,600, $366,900 and
$382,000, respectively.
31
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW
UNAUDITED
NET REVENUE
(IN BILLIONS)
A graph entitled "Net Revenue (In billions)" at the top left of page 32 of the
Annual Report shows that for the fiscal years 1994, 1995, 1996, 1997 and 1998
(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 $13.5 billion, $17.6 billion, $21.4 billion, $23.8 billion and $25.6
billion, respectively. In addition, the graph shows that for the fiscal years
1994 and 1995 (shown on the x-axis) the company had U.S. net revenue (shown on
the y-axis) of $11.5 billion and $13.9 billion, respectively; and U.S. net
revenue for the fiscal years 1996, 1997 and 1998 (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 61 of the Annual Report.
RESULTS OF OPERATIONS
In 1998, HP reported net revenue growth of 10 percent. The company experienced
favorable market acceptance of its new products; however, continued pricing
pressure on personal computer and printer products, as well as the impact of the
economic downturn in Asia and other areas of the world as the year progressed,
adversely impacted revenue growth and related operating margins. Revenue growth
was 16 percent during the first half of 1998, but slowed to 4 percent growth in
the second half, reflecting the weakening macroeconomic environment. Controls on
costs and expenses implemented by the company during the second half of 1998
favorably impacted operating results, but did not fully offset the impact of the
slowdown in revenue growth. As a result, full-year operating- and net-profit
margins were lower than in 1997 and net earnings declined 6 percent, compared
with a 21 percent increase in 1997.
Net revenue grew 10 percent in 1998 following 12 percent growth in 1997.
Currency unfavorably impacted net revenue growth approximately 4 percentage
points in both years. U.S. revenue grew 13 percent to $21.5 billion and
international revenue grew 7 percent to $25.6 billion in 1998, following
increases of 12 percent in the U.S. and 11 percent internationally in 1997.
International revenue growth slowed significantly in 1997 and further in 1998
primarily as a result of weakness in the Japanese environment in 1997 followed
by widespread economic weakness in Asia which became significant in mid-1998.
U.S. DOLLAR RELATIVE
TO MAJOR FOREIGN
CURRENCIES
(FISCAL 1980 EQUALS 1.00)
A graph entitled "U.S. Dollar Relative to Major Foreign Currencies (Fiscal 1980
equals 1.00)" at the bottom right of page 32 of the Annual Report shows that in
the months running consecutively from November 1993 through October 1998 (shown
on the x-axis) the U.S. Dollar was equal to (shown on the y-axis) 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, 1.21, 1.20, 1.22, 1.25, 1.25,
1.25, 1.25, 1.23, 1.25, 1.25, 1.26, 1.20 and 1.16, 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.
Revenue in the company's computer product, service and support business
increased 11 percent in 1998 compared with growth of 13 percent in 1997. Strong
growth in unit shipments of the company's computers, printers and storage
products continued, especially HP Pavilion and Vectra PC's, CD ROM storage
products, Unix servers and HP's families of DeskJet and LaserJet printers. This
growth was driven primarily by increased market penetration and new product
introductions in 1998 and 1997. 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
PC's and Deskjet printers, resulting in unit volume growth that significantly
outpaced revenue growth. Continued strong sales growth in consumable supplies
for the company's printer products, reflected increased printer usage and a
larger installed base.
Revenue in the company's measurement businesses increased 1 percent in 1998 from
1997, compared with revenue growth of 7 percent from 1996 to 1997. This revenue
trend was primarily attributable to the company's test and measurement business,
which experienced a decline in net revenue of 4 percent during 1998, compared
with a 11 percent increase during 1997. The decline in test and measurement
revenue in 1998 reflected the economic weakness in Asia and the worldwide
semiconductor industry slowdown that began in the second half of the year.
32
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
COSTS AND EXPENSES
(AS A PERCENTAGE OF
NET REVENUE)
A graph entitled "Costs and Expenses (As a percentage of net revenue)" at the
top left of page 33 of the Annual Report shows that for the fiscal years 1994
and 1995 (shown on the x-axis) the Company had (shown on the y-axis) cost of
products sold and services of 62.0% and 63.5%, respectively, of net revenue;
selling, general and administrative expenses of 19.7% and 17.9%, respectively,
of net revenue; and research and development expenses of 8.1% and 7.3%,
respectively, of net revenue. In addition, the graph shows that for the fiscal
years 1996, 1997 and 1998 (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
middle of page 33 of the Annual Report.
Services such as hardware and software support and maintenance, product
financing, rentals, consulting, and education, as well as systems integration
and selective-outsourcing management, are an integral part of the company's
offerings. Net revenue from services grew 12 percent in 1998, compared with 17
percent in 1997. The decline in revenue growth in 1998 was primarily
attributable to moderating growth in the company's leasing business. Increases
in the company's installed base and continued growth in the professional
services business also contributed to the increase in service and support
revenue in both years.
The company anticipates that net revenue growth for the full-year 1999 will be
similar to the revenue growth rate experienced in 1998. Revenue growth is likely
to be impacted by continuing economic uncertainties in Asia and other regions
around the world and by ongoing competitive pricing pressures, particularly in
the PC and printer businesses. The company anticipates that revenue growth will
be slower during the first half of 1999, reflecting the current economic
weakness in Asia and other areas and will increase later in the year when
compared to the weaker revenue growth in the second half of 1998.
Information on orders and net revenue by groupings of similar products and
services is presented on page 63 of this report.
Costs, expenses and earnings as a percentage of net revenue were as follows:
<TABLE>
<CAPTION>
For the years ended October 31 1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of products sold and services 68.1% 66.0% 66.4%
Research and development 7.1% 7.2% 7.1%
Selling, general and administrative 16.6% 16.7% 16.8%
Earnings from operations 8.2% 10.1% 9.7%
Net earnings 6.3% 7.3% 6.7%
- -------------------------------------------------------------------------------------------
</TABLE>
NET EARNINGS
(IN MILLIONS)
A bar chart entitled "Net Earnings (In millions)" at the bottom left of page 33
of the Annual Report shows that for the fiscal years 1994, 1995, 1996, 1997 and
1998 (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.
Cost of products sold and services as a percentage of net revenue was 68.1
percent in 1998 and increased 2.1 percentage points, compared with a 0.4
percentage point decrease in 1997. The cost of products sold and services in
1998 included $260 million of charges primarily for voluntary employee
severance programs and fixed-asset writedowns related to outsourcing of
certain production operations. In 1996, the company exited its disk-mechanism
manufacturing business. Excluding the effect of these charges in 1998 and the
exit costs in 1996, cost of products sold and services as a percentage of net
revenue would have increased 1.6 percentage points in 1998 after a 0.5
percentage point increase in 1997.
33
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
FINANCIAL REVIEW
UNAUDITED
SELECTED CASH FLOWS
(IN MILLIONS)
A bar chart entitled "Selected Cash Flows (In millions)" at the top right of
page 34 of the Annual Report shows that for the fiscal years 1994 and 1995
(shown on the x-axis) the Company had cash flows from operating activities
(shown on the y-axis) of $2,224 and $1,604 million, respectively; capital
expenditures of $1,257 million and $1,601 million, respectively; and dividends
paid of $280 million and $358 million, respectively. In addition, the bar chart
shows that for the fiscal years 1996, 1997 and 1998 (shown on the x-axis) the
Company had cash flows from operating activities and dividends paid (shown on
the y-axis) in the respective amounts provided in the table entitled
"Consolidated Statement of Cash Flows" on page 46 of the Annual Report.
Finally, the bar chart shows that for the fiscal years 1996, 1997 and 1998
(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 46 of the Annual Report.
Intense price competition particularly in the PC and printer markets continued
to adversely impact product revenues and gross profit margins in 1998 and 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 both 1998 and 1997, these factors were partially offset by
improving supply chain management and lower product return costs. The company
expects continued upward pressure on cost of sales as a result of ongoing
competitive pricing pressures and continued shifts in the mix of its business.
Research and development expenditures increased 9 percent in 1998 to $3.4
billion, versus 13 percent growth and expenditures of $3.1 billion in 1997. The
ongoing increase in spending on research and development primarily reflects the
company's continued investments in new microchip architectures and hardware
design and development in enterprise computing products as well as new
technologies for printing and imaging. Selling, general and administrative
expenses grew 9 percent in 1998 and 11 percent in 1997. 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. The growth rate in operating expenses slowed significantly in the
second half of 1998. This decline was attributable to company-wide cost
reduction programs that resulted in significant decreases in certain variable
costs such as travel and discretionary marketing programs. As a percentage of
net revenue, both research and development and selling, general and
administrative expenses were substantially unchanged from 1997. Reducing the
rate of operating expense growth below the rate of net revenue growth remains a
major focus of the company.
OPERATING ASSETS
(AS A PERCENTAGE OF
NET REVENUE)
A graph entitled "Operating Assets (As a percentage of net revenue)" at the
bottom right of page 34 of the Annual Report shows that for the fiscal years
1994, 1995, 1996, 1997 and 1998 (shown on the x-axis) the Company had (shown on
the y-axis) net property, plant and equipment of 17.3%, 14.9%, 14.4%, 14.7% and
13.5%, respectively, of net revenue; accounts and financing receivables of
18.6%, 19.3%, 16.7%, 16.9% and 16.5%, respectively, of net revenue; and
inventories of 17.1%, 19.1%, 16.7%, 15.8% and 13.1%, respectively, of net
revenue.
The company's effective tax rate decreased from 30 percent in 1997 and 1996 to
28 percent in 1998 as a result of a change in the mix of earnings in different
tax jurisdictions around the world. As reported, net earnings decreased 6
percent to $2.9 billion in 1998, compared with a 21 percent increase in 1997.
Adjusted for the charges recorded to cost of products sold and services in 1998
and the company's exit from disk-mechanism manufacturing in 1996, net earnings
would have been essentially flat in 1998 compared with 11% growth in 1997. As a
percentage of net revenue, adjusted net earnings were 6.7 percent in 1998,
compared with 7.3 and 7.4 percent in 1997 and 1996.
FINANCIAL CONDITION AND LIQUIDITY
HP's financial position continued strong throughout 1998, as cash and cash
equivalents and short-term investments were $4.1 billion at October 31, 1998
compared to $4.6 billion at October 31, 1997. During 1998, cash from operations
funded $1.3 billion reductions in total borrowings and $2.4 billion in
repurchases of common stock. Additionally, the company increased dividends paid
per share in both 1998 and 1997.
34
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Operating activities generated $5.4 billion in cash in 1998, compared with $4.3
billion and $3.5 billion in 1997 and 1996, respectively. The increase in cash
generated in 1998 compared with 1997 primarily reflected the significant
decrease in the company's inventory levels during the year. The increase in cash
generated in 1997 compared with 1996 primarily reflected improved net earnings
before depreciation and amortization. Inventory as a percentage of net revenue
declined to 13.1 percent, a decrease of 2.7 percentage points in 1998 following
the 0.9 percentage point reduction achieved in 1997. The decline in the
inventory ratio in both years is attributable to continued progress in supply
chain management. Accounts and financing receivables as a percentage of net
revenue were 16.5 percent in 1998, 16.9 percent in 1997 and 16.7 percent in
1996.
Capital expenditures in 1998 were $2.0 billion, compared with $2.3 billion and
$2.2 billion in 1997 and 1996, respectively. The company's capital expenditures
declined in 1998 reflecting increased outsourcing of certain production
processes, slowing capacity requirements and the company's increased spending
controls. Capital expenditures in 1997 and 1996 related primarily to expansion
of production capacity to accommodate higher volumes and the introduction of new
products, and also included increased investments to support growth in the
company's leasing business.
Long-term borrowings of $223 million in 1998 and $1.2 billion 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. With the
company's strong cash position during 1998, the company repaid approximately
$580 million in long-term debt. At October 31, 1998, 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 1998, the company
repaid approximately $734 million in short-term borrowings primarily using
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
July 1998, the company announced a new authorization for beyond-zero dilution
repurchases of up to $2 billion of the company's common stock in the open market
or in private transactions. In 1998, 43 million shares were repurchased under
both of these plans for $2.4 billion. In 1997, 13.2 million shares were
repurchased at an aggregate price of $724 million under the systematic program.
As of October 31, 1998, the company has remaining authorization from the Board
of Directors for future repurchases under these programs of approximately $2.1
billion.
35
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
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 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 commercial and retail distribution channels. Channel
partners 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. Channel
partners 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.
36
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
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
introductions by suppliers and competitors of new products and services may
negatively affect future operating results of the company, especially when
competitive product 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.
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 noncancellable 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.
37
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
The company continues to expand into third-party distribution channels to
accommodate changing customer preferences. As a result, the financial health of
commercial and retail distribution channels, and the company's continuing
relationships with them, 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 third parties
substantially weakens or if the company's relationship with them 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 conditions or changes or continued weakness in 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,
1998 and 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
results differing from the investment community's expectation in a given
quarter. Divestitures may result in the cancellation of orders
38
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
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 uninsured 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.
The profit margins realized by the company vary somewhat among its products, its
customer segments and its geographic markets. Consequently, the overall
profitability of the company's operations in any given period is partially
dependent on the product, customer and geographic mix reflected in that period's
net sales.
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
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
YEAR 2000
The information provided below constitutes a "Year 2000 Readiness Disclosure"
for purposes of the Year 2000 Information and Readiness Disclosure Act.
The Year 2000 ("Y2K") problem arises from the use of a two-digit field to
identify years in computer programs, e.g., 85=1985, and the assumption of a
single century, the 1900s. Any program so created may read, or attempt to read,
"00" as the year 1900. There are two other related issues which could also lead
to incorrect calculations or failure, such as (i) some systems' programming
assigns special meaning to certain dates, such as 9/9/99, and (ii) the year 2000
is a leap year. Accordingly, some computer hardware and software, including
programs embedded within machinery and parts, will need to be modified prior to
the year 2000 in order to remain functional. The company's Y2K initiatives are
focusing primarily on four areas of potential impact: internal information
technology ("IT") systems, internal non-IT systems, including services and
embedded chips (controllers), the company's products and services, and the
readiness of significant third parties with whom the company has material
business relationships.
The company expects to implement successfully the systems and programming
changes necessary to address Y2K internal IT and non-IT readiness issues and,
based on current estimates, does not believe that the costs associated with
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. In addition, failure to achieve Y2K readiness
for the company's internal systems could delay its ability to manufacture and
ship products and deliver services, disrupt its customer service and
technical support facilities, and interrupt customer access to its online
products and services. The company's inability to perform these functions
could have an adverse effect on future results of operations or financial
condition.
INTERNAL IT SYSTEMS. The company has established a dedicated Y2K Internal
Readiness Program Office to oversee the company's worldwide Y2K internal IT
application and infrastructure readiness activities. The Internal Readiness
Program Office has senior executive sponsorship and provides monthly progress
reports to the company's senior management. The Internal Readiness Program
Office is charged with raising awareness throughout the company, developing
tools and methodologies for addressing the Y2K issue, monitoring the development
and implementation of business and infrastructure plans to bring non-compliant
applications into compliance on a timely basis and identifying and assisting in
resolving high risk issues.
The company is approaching its Y2K internal readiness program in the following
four phases: (1) assessment, (2) planning, (3) preparation and (4)
implementation. The assessment phase involves taking an inventory of the
company's internal IT applications to prioritize risk, identifying failure
dates,
40
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
defining a solution strategy, estimating repair costs and communicating
across and within business units regarding the magnitude of the problem and
the need to address Y2K issues. The planning phase consists of identifying
the tasks necessary to ensure readiness, scheduling remediation plans for
applications and infrastructure, and determining resource requirements and
allocations. The third phase, preparation, involves readying the development
and testing environments, and piloting the remediation process.
Implementation, the last phase, consists of executing the company's plans to
fix, test and implement critical applications and associated infrastructure,
and putting in place contingency plans for processes that have a high impact
on the company's businesses.
The company is targeting its efforts to ensure that its IT applications will be
Y2K compliant by July 31, 1999. The assessment, planning and preparation phases
are substantially complete. As of November 30, 1998, the implementation phase is
approximately 40 percent complete.
INTERNAL NON-IT SYSTEMS. As the company is progressing on its internal IT and
product readiness efforts, it has also focused on internal non-IT systems.
Non-IT systems include, but are not limited to, those systems that are not
commonly thought of as IT systems, such as telephone/PBX systems, fax
machines, facilities systems regulating alarms, building access and
sprinklers, manufacturing equipment, and other miscellaneous systems. Y2K
readiness for these internal non-IT systems is the responsibility of the
company's worldwide operating units and their respective functions, e.g.,
facilities and manufacturing. The company's Y2K Program Office provides
standardized tools and monitors the progress of these readiness efforts to
ensure business continuity.
PRODUCTS. The company's newly introduced products are Y2K compliant. However,
certain hardware and software products currently installed at customer sites
will require upgrade or other remediation. Some of these products are used in
critical applications where the impact of non-performance to these customers and
other parties could be significant. The company believes that its customers are
responsible for costs to achieve their Y2K compliance. The company, however, is
taking steps to preserve customer satisfaction and brand reputation. In 1997,
the company established a dedicated Y2K Product Compliance Program Office to
coordinate the company's worldwide Y2K product compliance activities. The
Product Compliance Program Office is charged with developing and overseeing
implementation of plans to identify all standard products delivered since
January 1, 1995; test those products for compliance; identify an appropriate
path to compliance for non-compliant standard products; and communicate the
status and necessary customer action for non-compliant standard products. The
company has an internet website dedicated to communicating Y2K issues to a broad
customer base. This website includes a product compliance search page that
allows customers to look up the status of the HP products they have installed.
In certain areas, the company is taking additional steps to identify affected
customers, raise customer awareness related to non-compliance of certain HP
products and assist the customer base to assess their risks.
41
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
The costs of the readiness program for products are primarily costs of existing
internal resources largely absorbed within existing engineering spending levels.
These costs were incurred primarily in 1998 and earlier years and were not
broken out from other product engineering costs. Historical Y2K customer
satisfaction costs were not material. Future product readiness costs, including
those for customer satisfaction, are not anticipated to be material. In
addition, while the company is aware of the potential for legal claims against
it and other companies for damages arising from products that are not Y2K
compliant, management believes that reasonable customer satisfaction steps are
under way so that any such claims against the company would be without merit.
It is unknown how Y2K issues may affect customer spending patterns. As customers
focus their attention and capital budgets in the near term on preparing their
own businesses for the Year 2000, they may either delay or accelerate purchases
of new applications, services and systems from the company. Many of the
company's products run custom software or connect to other systems or peripheral
products that may be adversely affected by operating system or hardware
upgrades. Although these factors may increase demand for certain of the
company's products and services, it could also soften the demand for other
offerings. As a result, these events may affect the company's future revenues
and revenue patterns.
MATERIAL THIRD-PARTY RELATIONSHIPS. The company has developed a Y2K process for
dealing with its key suppliers, contract manufacturers, distributors, vendors
and partners. The process generally involves the following steps: (i) initial
supplier survey, (ii) risk assessment and contingency planning, (iii) follow-up
supplier reviews and escalation, if necessary, and where relevant, (iv) testing.
To date, the company has received responses from a majority of its critical
suppliers, most of whom have responded that they expect to address all their
significant Y2K issues on a timely basis. The company is following up with those
significant vendors and service providers that either did not respond initially
or whose responses were unsatisfactory. In some cases, to meet Y2K readiness the
company has replaced suppliers or eliminated suppliers from consideration for
new business. The company has also contracted with multiple transportation
companies to provide product delivery alternatives.
The company is working to identify and analyze the most reasonably likely worst
case scenarios for third party relationships affected by Y2K. These scenarios
could include possible infrastructure collapse, the failure of power and water
supplies, major transportation disruptions, unforeseen product shortages due to
hoarding of products and sub-assemblies and failures of communications and
financial systems -- any one of which could have a major and material effect on
the company's ability to build its products and deliver services to its
customers. While the company has contingency plans in place to address most
issues under its control, an infrastructure problem outside of its control could
result in a delay in product shipments depending on the nature and severity of
the problems. The company would expect that most utilities and service providers
would be able to restore service within days although more pervasive system
problems involving multiple providers could last two to four weeks or more
depending on the complexity of the systems and the effectiveness of their
contingency plans.
42
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Although the company is dedicating substantial resources towards attaining Y2K
readiness, there is no assurance it will be successful in its efforts to
identify and address all Y2K issues. Even if the company acts in a timely manner
to complete all of its assessments, identify, develop and implement remediation
plans believed to be adequate, and develop contingency plans believed to be
adequate, some problems may not be identified or corrected in time to prevent
material adverse consequences to the company. The discussion above regarding
estimated completion dates, costs, risks and other forward-looking statements
regarding Y2K is based on the company's best estimates given information that is
currently available and is subject to change. As the company continues to
progress with its Y2K initiatives, it may discover that actual results will
differ materially from these estimates.
ADOPTION OF THE EURO
In 1997, the company established a dedicated task force to address the issues
raised by the introduction of a European single currency (the Euro) for initial
implementation as of January 1, 1999 and during the transition period through
January 1, 2002. The company's primary focus has been on the changes needed to
deal with a mix of Euro and local denomination transactions from the first day
of changeover - January 1, 1999. At the beginning of the transition period,
product prices in local currencies will be converted to Euros as required. At an
appropriate point during the transition period, product prices in participating
countries will be established and stored in Euros, and converted to local
denominations. During the transition period, the company's financial systems
located in the participating countries will be converted from local
denominations to Euros.
The company has developed plans to support display and printing of the Euro
character by impacted Hewlett-Packard products. Some products are currently able
to perform these functions while plans are still in process for other products.
Current information about the impact of the adoption of the Euro on the
company's products and businesses is available at the Hewlett-Packard Euro Web
site.
The company does not presently expect that introduction and use of the Euro will
materially affect the company's foreign exchange and hedging activities or the
company's use of derivative instruments. Management does not expect that the
introduction of the Euro will result in any material increase in costs to the
company and all costs associated with the introduction of the Euro will be
expensed to operations as incurred. While the company will continue to evaluate
the impact of the Euro introduction over time, based on currently available
information, management does not believe that the introduction of the Euro
currency will have a material adverse impact on the company's financial
condition or overall trends in results of operations.
43
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Consolidated Statement of Earnings
<TABLE>
<CAPTION>
For the years ended October 31
In millions except per share amounts 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue:
Products $40,105 $36,672 $33,114
Services 6,956 6,223 5,306
- -------------------------------------------------------------------------------------------------------------------
Total net revenue 47,061 42,895 38,420
- -------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of products sold 27,477 24,217 22,013
Cost of services 4,595 4,102 3,486
Research and development 3,355 3,078 2,718
Selling, general and administrative 7,793 7,159 6,477
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 43,220 38,556 34,694
- -------------------------------------------------------------------------------------------------------------------
Earnings from operations 3,841 4,339 3,726
Interest income and other, net 485 331 295
Interest expense 235 215 327
- -------------------------------------------------------------------------------------------------------------------
Earnings before taxes 4,091 4,455 3,694
Provision for taxes 1,146 1,336 1,108
- -------------------------------------------------------------------------------------------------------------------
Net earnings $ 2,945 $ 3,119 $ 2,586
- -------------------------------------------------------------------------------------------------------------------
Net earnings per share:
Basic $ 2.85 $ 3.04 $ 2.54
Diluted $ 2.77 $ 2.95 $ 2.46
- -------------------------------------------------------------------------------------------------------------------
Average shares used in computing basic net earnings per share 1,034 1,026 1,019
Average shares and equivalents used in computing diluted net earnings per share 1,072 1,057 1,052
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
October 31
In millions except par value and number of shares 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,046 $ 3,072
Short-term investments 21 1,497
Accounts receivable 6,232 6,142
Financing receivables 1,520 1,123
Inventory 6,184 6,763
Other current assets 3,581 2,350
- --------------------------------------------------------------------------------------------
Total current assets 21,584 20,947
- --------------------------------------------------------------------------------------------
Property, plant and equipment, net 6,358 6,312
Long-term investments and other assets 5,731 4,490
- --------------------------------------------------------------------------------------------
Total assets $33,673 $31,749
- --------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings $ 1,245 $ 1,226
Accounts payable 3,203 3,185
Employee compensation and benefits 1,768 1,723
Taxes on earnings 2,796 1,515
Deferred revenues 1,453 1,152
Other accrued liabilities 3,008 2,418
- --------------------------------------------------------------------------------------------
Total current liabilities 13,473 11,219
- --------------------------------------------------------------------------------------------
Long-term debt 2,063 3,158
Other liabilities 1,218 1,217
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1 par value(authorized: 300,000,000 shares;
issued: none) -- --
Common stock and capital in excess of $0.01 par value(authorized:
4,800,000,000 shares; issued and outstanding:1,015,403,000 in
1998 and 1,041,042,000 in 1997) 10 1,187
Retained earnings 16,909 14,968
- --------------------------------------------------------------------------------------------
Total shareholders' equity 16,919 16,155
- --------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $33,673 $31,749
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the years ended October 31
In millions 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,945 $ 3,119 $ 2,586
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,869 1,556 1,297
Deferred taxes on earnings (1,263) (232) (284)
Changes in assets and liabilities:
Accounts and financing receivables (1,019) (993) (492)
Inventory 563 (279) (356)
Accounts payable 1 775 (55)
Taxes on earnings 1,216 (63) 102
Other current assets and liabilities 788 237 520
Other, net 342 201 138
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,442 4,321 3,456
- ---------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment in property, plant and equipment (1,997) (2,338) (2,201)
Disposition of property, plant and equipment 413 333 316
Purchase of short-term investments (3,297) (5,213) (6,652)
Maturities of short-term investments 4,773 4,158 7,074
Purchase of long-term investments (762) -- (734)
Other, net 75 48 22
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (795) (3,012) (2,175)
- ---------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Change in notes payable and short-term borrowings (734) (1,194) (1,137)
Issuance of long-term debt 223 1,182 1,989
Payment of long-term debt (580) (273) (41)
Issuance of common stock under employee stock plans 467 419 363
Repurchase of common stock (2,424) (724) (1,089)
Dividends (625) (532) (450)
Other, net -- -- (4)
- ---------------------------------------------------------------------------------------------------------
Net cash used in financing activities (3,673) (1,122) (369)
- ---------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 974 187 912
Cash and cash equivalents at beginning of year 3,072 2,885 1,973
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,046 $ 3,072 $ 2,885
- ---------------------------------------------------------------------------------------------------------
Supplemental cash flow disclosures:
Income taxes paid, net $ 1,039 $ 1,488 $ 1,159
Interest paid $ 205 $ 325 $ 267
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Common stock
----------------------------
Par value
Number of and capital in Retained
In millions except number of shares in thousands shares excess of par earnings Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance October 31, 1995 1,019,910 $1,381 $ 10,458 $ 11,839
Acquisition via immaterial pooling 3,056 137 (162) (25)
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
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
Shares issued 17,384 868 -- 868
Shares repurchased (43,023) (2,045) (379) (2,424)
Dividends -- -- (625) (625)
Net earnings -- -- 2,945 2,945
- --------------------------------------------------------------------------------------------------------------------------
BALANCE OCTOBER 31, 1998 1,015,403 $ 10 $16,909 $16,919
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
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.
In July 1997, the Financial Accounting Standards Board (FASB) Emerging Issues
Task force (EITF) reached a final consensus on Issue 96-16, "Investor's
Accounting for an Investee When the Investor Has a Majority of the Voting
Interest but the Minority Shareholder or Shareholders Have Certain Approval or
Veto Rights." This consensus precludes investors from consolidating
majority-owned investees when a minority shareholder or shareholders hold
substantive participating rights, which, individually or in the aggregate, would
allow such minority shareholders to participate in significant decisions made in
the ordinary course of business. The company has followed the guidance in EITF
96-16 with respect to all investments made after July 24, 1997 and intends to
adopt this guidance with respect to its previously existing majority-owned
subsidiaries no later than the fourth quarter of fiscal year 1999. The company
has not yet determined what, if any, impact this adoption will have on its
financial statements.
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 $1,214
million in 1998, $1,131 million in 1997 and $999 million in 1996.
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 The company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share," in the first quarter of
fiscal year 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.
48
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
In millions except per share data 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net earnings $2,945 $3,119 $2,586
Adjustments for interest, net of income tax effect 26 -- --
- -----------------------------------------------------------------------------------------------
Net earnings, adjusted $2,971 $3,119 $2,586
Denominator:
Weighted-average shares outstanding 1,034 1,026 1,019
Effect of dilutive securities:
Dilutive options 28 31 33
Convertible zero-coupon notes due 2017 10 -- --
- -----------------------------------------------------------------------------------------------
Dilutive potential common shares 38 31 33
- -----------------------------------------------------------------------------------------------
Weighted-average shares and dilutive potential common shares 1,072 1,057 1,052
- -----------------------------------------------------------------------------------------------
Basic earnings per share $ 2.85 $ 3.04 $ 2.54
Diluted earnings per share $ 2.77 $ 2.95 $ 2.46
- -----------------------------------------------------------------------------------------------
</TABLE>
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 time deposits and temporary money-market instruments. Cash
equivalents and short-term investments are stated at cost, which approximates
market.
INVENTORY Inventory is valued at standard cost that approximates actual cost
computed on a first-in, first-out basis, not in excess of market value.
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.
LONG-TERM INVESTMENTS The company's long-term investments are primarily
comprised of debt securities which are held-to-maturity.
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 inventory, 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.
49
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
RECENT PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information." The statement changes
standards for the way that public business enterprises identify and report
operating segments in annual and interim financial statements. This statement
requires selected information about an enterprise's operating segments and
related disclosure about products and services, geographic areas and major
customers. The company expects to report multiple segments when it adopts the
standard for fiscal year-end 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. The statement is effective for
fiscal years beginning after June 15, 1999. The company will adopt the standard
no later than the first quarter of fiscal year 2000 and is in the process of
determining the impact that adoption will have on its consolidated financial
statements.
RECLASSIFICATIONS Certain reclassifications of the 1997 and 1996 financial
statements and related notes amounts have been made to conform with the 1998
presentation.
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 5 years. At October 31, 1998 and 1997, the net book value
of goodwill associated with acquisitions was $174 million and $165 million,
respectively.
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.
50
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
The notional amount of foreign exchange contracts outstanding at October 31,
1998 and 1997 was $12.1 billion and $9.5 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 $63 million and $292 million,
respectively, at October 31, 1998 and $103 million and $86 million,
respectively, at October 31, 1997. Unamortized premiums and realized gains
deferred under currency options are not material.
CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject
the company to significant concentrations of credit risk consist principally
of cash, investments, accounts receivable, financing receivables, 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 23 percent and 19 percent of total accounts receivable
at October 31, 1998 and 1997, respectively. Credit risk with respect to other
accounts receivable and financing receivables are 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 receivable, financing receivables, 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 equity investments and time deposits 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, 1998 and 1997, the estimated
fair value of foreign exchange contracts amounted to $(229) million and $17
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.
51
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
FINANCING RECEIVABLES AND INVESTMENT IN OPERATING LEASES
Financing 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 typically have terms
from two to five years and are usually collateralized by a security interest
in the underlying assets. The components of financing receivables, net, which
are included in financing receivables and long-term investments and other
assets at October 31, are:
<TABLE>
<CAPTION>
In millions 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Gross financing receivables $ 3,446 $ 2,478
Unearned income (340) (253)
- -------------------------------------------------------------------------------
Financing receivables, net 3,106 2,225
Less current portion (1,520) (1,123)
- -------------------------------------------------------------------------------
Amounts due after one year, net $1,586 $1,102
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Contractual maturities of the company's gross financing receivables at
October 31, 1998 are $1,721 million in 1999, $1,025 million in 2000, $572
million in 2001, $102 million in 2002 and $26 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 $1,377 million and $1,138 million at
October 31, 1998 and 1997, respectively, and is included in machinery and
equipment. Accumulated depreciation on equipment on operating leases was $606
million and $489 million at October 31, 1998 and 1997, respectively. Minimum
future rentals on noncancelable operating leases with original terms of one
year or longer are $608 million in 1999, $319 million in 2000, $117 million
in 2001, $34 million in 2002 and $7 million thereafter.
INVENTORY
<TABLE>
<CAPTION>
October 31,
In millions 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 4,170 $ 4,136
Purchased parts and fabricated assemblies 2,014 2,627
- -------------------------------------------------------------------------------
$ 6,184 $ 6,763
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
October 31,
In millions 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Land $ 450 $ 468
Buildings and leasehold improvements 4,997 4,672
Machinery and equipment 7,123 6,636
- -------------------------------------------------------------------------------
12,570 11,776
Accumulated depreciation (6,212) (5,464)
- -------------------------------------------------------------------------------
$ 6,358 $ 6,312
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
TAXES ON EARNINGS
The provision for income taxes is comprised of:
<TABLE>
<CAPTION>
In millions 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal taxes:
Current $ 1,051 $ 544 $ 614
Deferred (1,086) (257) (115)
Non-U.S. taxes:
Current 1,153 965 716
Deferred (46) 52 (169)
State taxes 74 32 62
- -------------------------------------------------------------------------------
$1,146 $ 1,336 $ 1,108
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
In millions ASSETS LIABILITIES ASSETS LIABILITIES
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inventory $ 639 $ 24 $ 563 $ 16
Fixed assets 123 -- 90 17
Warranty 367 -- 224 15
Leasing activities 51 63 16 78
Retiree medical benefits 253 -- 257 --
Other retirement benefits -- 111 -- 113
Employee benefits, other than
retirement 354 47 242 42
Intracompany sales 825 -- -- --
Other 182 89 228 140
- -------------------------------------------------------------------------------
$2,794 $ 334 $1,620 $ 421
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The current portion of the deferred tax asset is $2,082 million and $1,042
million at October 31, 1998 and 1997, respectively, and is included in other
current assets.
Tax benefits of $157 million, $150 million and $123 million associated with
the exercise of employee stock options were allocated to equity in 1998, 1997
and 1996, respectively.
53
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
The differences between the U.S. federal statutory income tax rate and the
company's effective tax rate are:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 1.2 0.5 1.1
Lower rates in other jurisdictions, net (9.7) (5.9) (6.9)
Other, net 1.5 0.4 0.8
- -------------------------------------------------------------------------------
28.0% 30.0% 30.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The domestic and foreign components of earnings before taxes are:
<TABLE>
<CAPTION>
In millions 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. operations including Puerto Rico $ 727 $1,433 $1,535
Non-U.S 3,364 3,022 2,159
- -------------------------------------------------------------------------------
$4,091 $4,455 $3,694
- -------------------------------------------------------------------------------
</TABLE>
The company has not provided for U.S. federal income and foreign withholding
taxes on $7.1 billion of non-U.S. subsidiaries' undistributed earnings as of
October 31, 1998, 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 $435 million, $226 million
and $212 million for 1998, 1997 and 1996, respectively.
The Internal Revenue Service (IRS) has completed its examination of the
company's federal income tax returns filed through 1992. The IRS has
commenced its examination of returns for years 1993 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:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
AVERAGE AVERAGE
INTEREST INTEREST
In millions RATE RATE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current portion of long-term debt $1,007 5.7% $ 254 7.5%
Notes payable to banks 72 8.5% 834 6.7%
Other short-term borrowings 166 4.9% 138 5.9%
- -------------------------------------------------------------------------------
$1,245 $ 1,226
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
At October 31, 1998, the company had a committed borrowing facility in place
with unused borrowing capacity totaling $1 billion.
54
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Long-term debt and related maturities and interest rates at October 31 are:
<TABLE>
<CAPTION>
In millions 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. dollar zero-coupon subordinated convertible notes, due 2017 at 3.13% $ 1,111 $ 968
U.S. dollar notes, due 1999-2012 at 5.25%-7.90% 1,104 1,500
Deutschemark notes, due 2000-2002 at 4.75%-5.63% 372 352
Yen notes, due 1999-2002 at 1.80%-5.03% 265 377
British pound note, due 1999 at 7.13% 170 162
Other 48 53
Less current portion (1,007) (254)
- --------------------------------------------------------------------------------------------------
$ 2,063 $ 3,158
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
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 November 1997 and October 1997, the company issued $200 million and $1.8
billion face value of zero-coupon subordinated convertible notes,
respectively, due 2017 for proceeds of $108 million and $968 million,
respectively. 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, 1998
are $1,007 million in 1999, $500 million in 2000, $208 million in 2001, $77
million in 2002, $6 million in 2003 and $1,272 million thereafter. The
company occasionally repurchases its debt prior to maturity based on its
assessment of current market conditions and financing alternatives.
SHAREHOLDERS' EQUITY
REINCORPORATION Effective May 20, 1998, the company changed its state of
incorporation from California to Delaware. As a result of the change, the par
value of the company's stock was decreased from $1.00 to $0.01 per share.
There was no impact on the company's financial condition or results of
operations as a result of the reincorporation. The reincorporation proposal
had been approved by the company's shareholders at the company's annual
meeting of shareholders on February 24, 1998. An increase in the number of
authorized shares of the company's common stock from 2.4 billion to 4.8
billion was also approved by the shareholders.
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
55
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
generally vest over two years. At October 31, 1998, approximately 107,000
employees were eligible to participate and approximately 64,000 employees
were participants in the plan. During 1998, 1997 and 1996, the company
contributed 2,173,000, 2,327,000 and 2,311,000 matching shares at weighted
average prices of $63, $54 and $46 per share, respectively, and recognized
compensation expense of $100 million, $96 million and $72 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 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 1998, 1997 and 1996, discounted options totaling
1,050,000, 780,000 and 1,165,000 shares, respectively, were granted. Stock
compensation expense related to the discounted options was not material in
each of these years. 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 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 51,250 $26 49,344 $20 49,616 $15
Granted 10,648 60 8,000 51 7,237 43
Assumed via acquisitions -- -- 3,179 30 639 40
Exercised (8,245) 16 (8,689) 14 (7,214) 12
Cancelled (1,580) 44 (584) 33 (934) 22
- -----------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 52,073 $33 51,250 $26 49,344 $20
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 29,140 $21 27,471 $17 25,649 $13
Weighted-average fair value of
options granted during the year $21.67 $20.16 $17.82
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about options outstanding at
October 31, 1998:
<TABLE>
<CAPTION>
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
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0-25 25,789 4.0 YEARS $16 22,461 $15
$26-50 10,701 7.3 43 4,489 43
$51 & OVER 15,583 8.6 58 2,190 55
- ----------------------------------------------------------------------------------------------------------------------
52,073 $33 29,140 $21
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
Shares available for option grants at October 31, 1998 and 1997 were 50,168,000
and 59,012,000, respectively. Approximately 65,000 employees were considered
eligible to receive stock options in fiscal year 1998. There were approximately
37,000 employees holding options under one or more of the option plans as of
October 31, 1998.
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, 1998 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 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 1998, 1997 or 1996. At October 31, 1998 and 1997,
the company had 4,380,000 and 4,300,000 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 SFAS
No. 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 1998, 1997 and 1996, respectively: risk-free interest
rates of 5.38, 6.21 and 6.29 percent; dividend yield of 1.0 percent; expected
option life of 7 years for 1998 and 6 years for 1997 and 1996; 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 1998, 1997 and 1996 were $2,891
million, $3,078 million and $2,570 million, and pro forma diluted net earnings
per share were $2.70, $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, 1998 and 1997, the company has reserved
116,168,000 and 131,761,000 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 21,573,000
shares in 1998, 13,207,000 shares in 1997 and 24,580,000 shares in 1996 for
an aggregate purchase price of $1,292 million, $724 million and $1,089
million, respectively. At October 31, 1998, the company had authorization for
an aggregate of $1,214 million in future repurchases under this program based
on certain price and volume criteria. During July 1998, the company's Board
of Directors authorized a new incremental repurchase program under which up
to $2 billion of the company's common stock can be repurchased in the open
market or in private transactions. Under this program, the company
repurchased 21,450,000 shares for an aggregate purchase price of $1,132
million. These repurchases are in addition to the company's existing
systematic share-repurchase program.
57
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
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 $349
million in 1998, $320 million in 1997, and $281 million in 1996.
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.
The combined status of the Retirement Plan and DPS follows:
<TABLE>
<CAPTION>
In millions 1998 1997
- ---------------------------------------------------
<S> <C> <C>
Fair value of plan assets $3,666 $3,284
Retirement benefit obligation $3,845 $3,329
</TABLE>
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. Beginning February 1, 1998, enrollment in the TAXCAP is
automatic for employees who meet eligibility requirements unless they decline
participation. 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
25 percent of an employee's annual base compensation subject to certain
regulatory and plan limitations. At October 31, 1998, 63,000 employees were
participating in TAXCAP out of 69,000 who were eligible.
NET PERIODIC COST The company's net pension and retiree medical costs are
comprised of:
<TABLE>
<CAPTION>
Pension
---------------------------------------------
U.S. plan Non-U.S. plans U.S. retiree medical plan
------------------ ------------------- -------------------------
In millions 1998 1997 1996 1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned
during the period $189 $ 159 $137 $114 $ 104 $ 86 $ 27 $ 25 $23
Interest cost on benefit obligation 54 40 27 88 82 74 35 34 32
Actual return on plan assets (87) (107) (61) (251) (341) (120) (56) (82) (55)
Net amortization and deferral 17 58 25 112 234 36 (9) 27 8
- ------------------------------------------------------------------------------------------------------------------
Net plan cost $173 $ 150 $128 $ 63 $ 79 $ 76 $ (3) $ 4 $ 8
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
FUNDED STATUS The funded status of the defined benefit and retiree medical
plans is:
<TABLE>
<CAPTION>
U.S. defined benefit plan Non-U.S. defined benefit plans U.S. retiree medical plan
------------------------- ------------------------------ -------------------------
In millions 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fair value of plan assets $ 936 $ 733 $ 1,919 $ 1,530 $ 503 $ 448
Benefit obligation (1,115) (778) (1,983) (1,443) (543) (475)
- ------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess (less than)
benefit obligation (179) (45) (64) 87 (40) (27)
Unrecognized net experience (gain) loss 77 (23) 73 (80) (255) (268)
Unrecognized prior service cost(benefit)
related to plan changes 39 43 33 37 (144) (154)
Unrecognized net transition asset* (15) (23) (1) (3) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) costs (78) $ (48) $ 41 $ 41 $ (439) $ (449)
- ------------------------------------------------------------------------------------------------------------------------------
Vested benefit obligation $ (507) $ (327) $(1,476) $(1,059)
Accumulated benefit obligation $ (507) $ (327) $(1,540) $(1,105)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*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. It is the company's
practice to fund these costs to the extent they are tax-deductible.
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:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. defined benefit plan:
Discount rate 6.5% 7.0% 7.5%
Average increase in compensation levels 5.0% 5.5% 5.5%
Expected long-term return on assets 9.0% 9.0% 9.0%
Non-U.S. defined benefit plans:
Discount rate 3.0 TO 6.5% 3.5 to 8.0% 4.0 to 8.5%
Average increase in compensation levels 3.75 TO 5.0% 3.5 to 5.5% 3.5 to 6.5%
Expected long-term return on assets 6.5 TO 8.5% 6.0 to 9.0% 5.8 to 10.0%
U.S. retiree medical plan:
Discount rate 6.5% 7.0% 7.5%
Expected long-term return on assets 9.0% 9.0% 9.0%
Current medical cost trend rate 8.65% 9.6% 10.0%
Ultimate medical cost trend rate 5.5% 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 $ 116 $ 101 $ 90
Increase in the annual retiree medical cost $ 17 $ 15 $ 13
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
COMMITMENTS
The company leases certain real and personal property under noncancelable
operating leases. Future minimum lease payments at October 31, 1998 are $216
million for 1999, $175 million for 2000, $129 million for 2001, $94 million for
2002, $73 million for 2003 and $240 million thereafter. Certain leases require
the company to pay property taxes, insurance and routine maintenance, and
include escalation clauses. Rent expense was $465 million in 1998, $388 million
in 1997 and $353 million in 1996.
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.
The Company expects to implement successfully the changes necessary to address
its Year 2000 (Y2K) internal readiness, product compliance, and material
third-party relationship issues. Based on current estimates, the Company does
not believe that the incremental costs associated with 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, increased
costs associated with, or legal claims related to the implementation of such
changes. In addition, failure to achieve Y2K readiness could result in delays in
the Company's ability to manufacture and ship products and deliver services,
disrupt its customer service and technical support facilities, and interrupt
customer access to its online products and services. The Company's inability to
perform these functions could have an adverse effect on future results of
operations or financial condition.
60
<PAGE>
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:
<TABLE>
<CAPTION>
In millions 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUE
United States:
Unaffiliated customer sales $ 21,530 $ 19,076 $ 17,041
Interarea transfers 7,748 7,368 7,263
- ----------------------------------------------------------------------------------------------------------
29,278 26,444 24,304
- ----------------------------------------------------------------------------------------------------------
Europe:
Unaffiliated customer sales 16,056 14,332 13,252
Interarea transfers 1,814 1,768 1,643
- ----------------------------------------------------------------------------------------------------------
17,870 16,100 14,895
- ----------------------------------------------------------------------------------------------------------
Japan, Other Asia Pacific, Canada, Latin America:
Unaffiliated customer sales 9,475 9,487 8,127
Interarea transfers 5,091 5,198 5,470
- ----------------------------------------------------------------------------------------------------------
14,566 14,685 13,597
- ----------------------------------------------------------------------------------------------------------
Eliminations (14,653) (14,334) (14,376)
- ----------------------------------------------------------------------------------------------------------
$ 47,061 $ 42,895 $ 38,420
- ----------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS
United States $ 1,837 $ 2,549 $ 2,470
Europe 1,323 1,296 769
Japan, Other Asia Pacific, Canada, Latin America 1,337 1,278 1,173
Eliminations and corporate (656) (784) (686)
- ----------------------------------------------------------------------------------------------------------
$ 3,841 $ 4,339 $ 3,726
- ----------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
United States $ 16,079 $ 15,665 $ 14,321
Europe 11,169 9,710 7,991
Japan, Other Asia Pacific, Canada, Latin America 8,588 8,549 7,200
Eliminations and corporate (2,163) (2,175) (1,813)
- ----------------------------------------------------------------------------------------------------------
$ 33,673 $ 31,749 $ 27,699
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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 $4,838 million in 1998, $5,776 million in 1997 and $4,810 million in
1996.
61
<PAGE>
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
PricewaterhouseCoopers 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, Finance and
Chief Executive Officer 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended October 31, 1998, 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/ PricewaterhouseCoopers LLP
San Jose, California
November 16, 1998
62
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
ORDERS AND NET REVENUE BY GROUPINGS OF SIMILAR PRODUCTS AND SERVICES
UNAUDITED
<TABLE>
<CAPTION>
For the years ended October 31
In millions 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ORDERS
Computer products, service and support $ 38,780 $35,399 $31,853
Test and measurement products and service 4,234 4,486 4,018
Medical electronic equipment and service 1,444 1,339 1,292
Electronic components 1,054 989 831
Chemical analysis and service 992 940 895
- ------------------------------------------------------------------------------------------------------
$ 46,504 $43,153 $38,889
- ------------------------------------------------------------------------------------------------------
NET REVENUE
Computer products, service and support $ 39,466 $35,407 $31,447
Test and measurement products and service 4,169 4,339 3,910
Medical electronic equipment and service 1,408 1,265 1,287
Electronic components 1,052 975 918
Chemical analysis and service 966 909 858
- ------------------------------------------------------------------------------------------------------
$ 47,061 $42,895 $38,420
- ------------------------------------------------------------------------------------------------------
</TABLE>
The table above provides supplemental information showing orders and net revenue
by groupings of similar products and services. In fiscal year 1998, the
company's Integrated Systems Division was transferred from the computer
products, service and support grouping to the test and measurement products and
service grouping. Fiscal years 1997 and 1996 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; solutions implementation and
support and equipment maintenance services; and medical supplies.
ELECTRONIC COMPONENTS Advanced components for wireless and wired
communications, image capture and display, and power lighting.
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.
63
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
QUARTERLY SUMMARY
UNAUDITED
<TABLE>
<CAPTION>
For the three months ended
In millions except per share amounts January 31 April 30 July 31 October 31
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
U.S. orders $ 5,339 $ 5,338 $ 5,031 $ 5,630
International orders 7,052 6,276 5,423 6,415
- --------------------------------------------------------------------------------------------------------------
Total orders $ 12,391 $ 11,614 $ 10,454 $ 12,045
- --------------------------------------------------------------------------------------------------------------
Net revenue $ 11,816 $ 12,040 $ 10,979 $ 12,226
Cost of products sold and services $ 7,837 $ 8,224 $ 7,505 $ 8,506
Earnings from operations $ 1,304 $ 872 $ 774 $ 891
Net earnings $ 929 $ 685 $ 621 $ 710
Per share amounts:
Net earnings - Basic $ .89 $ .66 $ .60 $ .69
Net earnings - Diluted $ .86 $ .65 $ .58 $ .68
Cash dividends $ .14 $ .14 $ .16 $ .16
Range of stock prices $58 3/4-67 3/4 $60 1/4-75 3/8 $55 3/8-81 5/8 $48 9/16-60 1/4
- --------------------------------------------------------------------------------------------------------------
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 - Basic $ .90 $ .77 $ .60 $ .77
Net earnings - Diluted $ .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
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NET EARNINGS PER SHARE-
DILUTED
(IN DOLLARS)
A bar chart entitled "Net Earnings Per Share-Diluted (In dollars)" at the top
right of page 64 of the Annual Report shows that for the fiscal quarters in
the years 1997 and 1998 (shown on the x-axis) the Company had net earnings
per share-diluted (shown on the y-axis) in the respective amounts provided in
the table entitled "Quarterly Summary (Unaudited)" on page 64 of the Annual
Report.
RANGE OF STOCK PRICE
(IN DOLLARS PER SHARE)
A bar chart entitled "Range of Stock Price (In dollars per share)" at the
bottom right of page 64 of the Annual Report shows that for the fiscal quarters
in the years 1997 and 1998 (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 64 of the Annual Report.
64
<PAGE>
SHAREHOLDER INFORMATION
The annual meeting will be held on Tuesday, February 23, 1999 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 and other publications at no cost
by calling 800-TALK-HWP (825-5497). As a service to people with impaired
vision, the 1998 annual report is available on audio cassette.
HP's home page on the World Wide Web is at http://www.hp.com
The annual report and related financial information are also available on the
Web, and they can be accessed either from our home page or directly at
http://www.hp.com/go/financials
HP's Web site with Year 2000 information for customers is at
http://www.hp.com/year2000/index.html
TRANSFER AGENT AND REGISTRAR
Please contact HP's transfer agent, at the phone number 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
Shareholder Services
P.O. Box A3504
Chicago, Illinois 60690
If calling from anywhere within the United States: (800) 286-5977
From outside the United States: (312) 461-4061
COMMON STOCK AND DIVIDENDS
Hewlett-Packard is listed on the New York and Pacific stock exchanges, with the
ticker symbol HWP. We've paid cash dividends each year since 1965. The current
rate is $0.16 per share per quarter. As of November 30, 1998, there were
113,871 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, CA 94304
(650) 857-1501
GEOGRAPHIC OPERATIONS
Americas
19320 Pruneridge Avenue
Cupertino, CA 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 HEADQUARTERS IN PALO ALTO. PLEASE CALL
800-825-5497 TO REQUEST THIS INFORMATION.
[Recycle logo] Printed on recycled paper
(1)HP-UX RELEASE 10.20 AND LATER AND HP-UX RELEASE 11.00 AND LATER ON ALL HP
9000 COMPUTERS ARE OPEN GROUP UNIX 95 BRANDED PRODUCTS.
MICROSOFT IS A U.S. REGISTERED TRADEMARK OF MICROSOFT CORP.
ORACLE IS A REGISTERED U.S. TRADEMARK OF ORACLE CORPORATION, REDWOOD CITY,
CALIFORNIA.
PENTIUM IS A U.S. REGISTERED TRADEMARK OF INTEL CORPORATION.
UNIX IS A REGISTERED TRADEMARK OF THE OPEN GROUP.
WINDOWS IS A U.S. REGISTERED TRADEMARK OF MICROSOFT CORP.
WINDOWS NT IS A U.S. REGISTERED TRADEMARK OF MICROSOFT CORP.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Hewlett-Packard Company's principal affiliates as of January 14, 1999, are
listed below.
AFFILIATES OF REGISTRANT INCLUDED IN REGISTRANT'S FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
State or country
of incorporation
or organization
-----------------
<S> <C>
Hewlett-Packard Puerto Rico California
Hewlett-Packard World Trade, Inc. Delaware
Heartstream, Inc. Delaware
Microsensor Technology, Inc. California
VeriFone, Inc. Delaware
Hewlett-Packard Asia Pacific Ltd. Hong Kong
Hewlett-Packard Caribe Ltd. Cayman Islands
HP Computadores Brazil
Hewlett-Packard Computer Products (Shanghai) Co., Ltd. China
Hewlett-Packard de Mexico S.A. de C.V. Mexico
Hewlett-Packard Espanola, S.A. Spain
Hewlett-Packard Europe B.V. The Netherlands
Hewlett-Packard France France
Hewlett-Packard GmbH Germany
Hewlett-Packard Holding GmbH Germany
Hewlett-Packard (India) Software Operation Pte. Ltd. India
Hewlett-Packard Italiana S.p.A. Italy
Hewlett-Packard Japan, Ltd. Japan
Hewlett-Packard Korea Ltd. Korea
Hewlett-Packard Ltd. U.K.
Hewlett-Packard (Malaysia) Sdn. Bhd. Malaysia
Hewlett-Packard Malaysia Technology Sdn. Bhd. Malaysia
Hewlett-Packard (Manufacturing) Ltd. Ireland
Hewlett-Packard Medical Products (Qingdao) Ltd. China
Hewlett-Packard Microwave Products (M) Sdn. Bhd. Malaysia
Hewlett-Packard Penang Sdn. Bhd. Malaysia
Hewlett-Packard S.A. Switzerland
Hewlett-Packard Shanghai Analytical Products Co., Ltd. China
Hewlett-Packard Singapore Pte. Ltd. Singapore
Hewlett-Packard Singapore Vision Operation Pte. Ltd. Singapore
BT&D Technologies Ltd. U.K.
CoCreate Software GmbH Germany
Shanghai Hewlett-Packard Company China
Technologies et Participations S.A. France
</TABLE>
<PAGE>
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
16, 1998 which appears on page 62 of the 1998 Annual Report to Stockholders 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. 7
Registration No. 2-90239 through Post-Effective Amendment No. 1
Registration No. 2-92331 through Post-Effective Amendment No. 4
Registration No. 2-96361 through Post-Effective Amendment No. 2
Registration No. 33-30769 through Post-Effective Amendment No. 1
Registration No. 33-31496 through Post-Effective Amendment No. 1
Registration No. 33-31500 through Post-Effective Amendment No. 1
Registration No. 33-38579 through Post-Effective Amendment No. 1
Registration No. 33-50699 through Post-Effective Amendment No. 1
Registration No. 33-52291 through Post-Effective Amendment No. 1
Registration No. 33-58447 through Post-Effective Amendment No. 1
Registration No. 33-65179 through Post-Effective Amendment No. 1
Registration No. 333-22947 through Post-Effective Amendment No. 1
Registration No. 333-30459 through Post-Effective Amendment No. 1
Registration No. 333-45231 through Post-Effective Amendment No. 1
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
January 14, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF EARNINGS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<EXCHANGE-RATE> 1
<CASH> 4,046
<SECURITIES> 21
<RECEIVABLES> 7,752
<ALLOWANCES> 0
<INVENTORY> 6,184
<CURRENT-ASSETS> 21,584
<PP&E> 12,570
<DEPRECIATION> 6,212
<TOTAL-ASSETS> 33,673
<CURRENT-LIABILITIES> 13,473
<BONDS> 2,063
0
0
<COMMON> 10
<OTHER-SE> 16,909
<TOTAL-LIABILITY-AND-EQUITY> 33,673
<SALES> 40,105
<TOTAL-REVENUES> 47,061
<CGS> 27,477
<TOTAL-COSTS> 32,072
<OTHER-EXPENSES> 11,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 235
<INCOME-PRETAX> 4,091
<INCOME-TAX> 1,146
<INCOME-CONTINUING> 2,945
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,945
<EPS-PRIMARY> 2.85
<EPS-DILUTED> 2.77
</TABLE>
<PAGE>
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, 1998
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 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
Assistant Secretary and Senior Managing Counsel
Date: January 15, 1999
\
