<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended January 31, 2000
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)
<TABLE>
<CAPTION>
Delaware 94-1081436
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3000 Hanover Street, 94304
Palo Alto, California (Zip Code)
(Address of principal executive offices)
(650) 857-1501
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [_] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 31, 2000
----- -------------------------------
<S> <C>
Common Stock, $0.01 par value 1.000 billion shares
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet
January 31, 2000 (Unaudited) and October 31, 1999....... 3
Consolidated Condensed Statement of Earnings
Three months ended January 31, 2000 and 1999
(Unaudited)............................................ 4
Consolidated Condensed Statement of Cash Flows
Three months ended January 31, 2000 and 1999
(Unaudited)............................................ 5
Notes to Consolidated Condensed Financial Statements
(Unaudited)............................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited)........ 11
Item 3. Quantitative and Qualitative Disclosures About Market
Risk................................................... 19
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K........................ 20
Signature........................................................... 21
Exhibit Index....................................................... 22
</TABLE>
2
<PAGE>
Item 1. Financial Statements.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In millions except par value and number of shares)
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 2,985 $ 5,411
Short-term investments............................... 255 179
Accounts receivable.................................. 5,435 5,958
Financing receivables................................ 1,839 1,889
Inventory............................................ 5,100 4,863
Other current assets................................. 3,717 3,342
------- -------
Total current assets............................... 19,331 21,642
------- -------
Property, plant and equipment (less accumulated
depreciation
of $4,714 at January 31, 2000 and $4,587 at October
31, 1999)............................................. 4,336 4,333
Long-term investments and other assets................. 5,983 5,789
Net assets of discontinued operations.................. 4,261 3,533
------- -------
Total assets....................................... $33,911 $35,297
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings.............. $ 515 $ 3,105
Accounts payable..................................... 3,850 3,517
Employee compensation and benefits................... 1,210 1,287
Taxes on earnings.................................... 2,092 2,152
Deferred revenues.................................... 1,534 1,437
Other accrued liabilities............................ 3,089 2,823
------- -------
Total current liabilities.......................... 12,290 14,321
------- -------
Long-term debt......................................... 1,535 1,764
Other liabilities...................................... 780 917
Stockholders' equity:
Preferred stock, $0.01 par value (300,000,000 shares
authorized; none issued)............................ -- --
Common stock, $0.01 par value (4,800,000,000 shares
authorized; 1,000,112,000 shares issued and
outstanding at January 31, 2000 and 1,004,569,000
shares issued and outstanding at October 31, 1999).. 10 10
Additional paid-in capital........................... 881 --
Retained earnings.................................... 18,272 18,285
Accumulated comprehensive income..................... 143 --
------- -------
Total stockholders' equity......................... 19,306 18,295
------- -------
Total liabilities and stockholders' equity......... $33,911 $35,297
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(Unaudited)
(In millions except per share amounts)
<TABLE>
<CAPTION>
Three months ended
January 31,
-------------------
2000 1999
--------- ---------
<S> <C> <C>
Net revenue:
Products................................................. $ 9,961 $ 8,773
Services................................................. 1,712 1,462
--------- ---------
Total net revenue...................................... 11,673 10,235
--------- ---------
Costs and expenses:
Cost of products sold and services....................... 8,349 7,068
Research and development................................. 607 576
Selling, general and administrative...................... 1,765 1,494
--------- ---------
Total costs and expenses............................... 10,721 9,138
--------- ---------
Earnings from operations................................... 952 1,097
Interest income and other, net............................. 163 149
Interest expense........................................... 56 47
--------- ---------
Earnings from continuing operations before taxes........... 1,059 1,199
Provision for taxes........................................ 265 317
--------- ---------
Net earnings from continuing operations.................... 794 882
Net earnings from discontinued operations.................. -- 78
--------- ---------
Net earnings............................................... $ 794 $ 960
========= =========
Net earnings per share: Continuing operations
Basic.................................................... $ 0.80 $ 0.87
Diluted.................................................. $ 0.77 $ 0.85
Net earnings per share: Discontinued operations
Basic.................................................... $ -- $ 0.08
Diluted.................................................. $ -- $ 0.07
Net earnings per share: Total
Basic.................................................... $ 0.80 $ 0.95
Diluted.................................................. $ 0.77 $ 0.92
Cash dividends declared per share.......................... $ 0.32 $ 0.32
Average number of shares and equivalents
Basic.................................................... 999 1,011
Diluted.................................................. 1,043 1,049
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
Three months
ended
January 31,
--------------
2000 1999
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations...................... $ 794 $ 882
Adjustments to reconcile net earnings from continuing
operations to net cash provided by operating activities:
Depreciation and amortization.............................. 346 300
Deferred taxes on earnings................................. (413) 403
Change in assets and liabilities:
Accounts and financing receivables....................... 404 (25)
Inventory................................................ (237) (145)
Accounts payable......................................... 333 (335)
Taxes on earnings........................................ 217 (885)
Other current assets and liabilities..................... (110) (35)
Other, net............................................... (199) 72
------ ------
Net cash provided by operating activities................ 1,135 232
------ ------
Cash flows from investing activities:
Investment in property, plant and equipment.................. (339) (217)
Disposition of property, plant and equipment................. 76 144
Purchases of short-term investments.......................... (462) (475)
Maturities of short-term investments......................... 472 492
Other, net................................................... -- 23
------ ------
Net cash used in investing activities.................... (253) (33)
------ ------
Cash flows from financing activities:
Increase (decrease) in notes payable and short-term
borrowings.................................................. (2,495) 175
Issuance of long-term debt................................... 30 28
Payment of long-term debt.................................... (337) (529)
Issuance of common stock under employee stock plans.......... 216 179
Repurchase of common stock................................... (929) (265)
Dividends.................................................... (161) (162)
------ ------
Net cash used in financing activities.................... (3,676) (574)
------ ------
Net cash provided by discontinued operations................... 368 23
------ ------
Decrease in cash and cash equivalents.......................... (2,426) (352)
Cash and cash equivalents at beginning of period............... 5,411 4,046
------ ------
Cash and cash equivalents at end of period..................... $2,985 $3,694
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation
In the opinion of management, the accompanying consolidated condensed financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position as of January
31, 2000 and October 31, 1999, the results of operations for the three-month
periods ended January 31, 2000 and 1999, and the cash flows for the three-month
periods ended January 31, 2000 and 1999.
The results of operations for the three-month period ended January 31, 2000 are
not necessarily indicative of the results to be expected for the full year. The
information included in this Form 10-Q should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto included
in the Hewlett-Packard Company 1999 Annual Report on Form 10-K.
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 financial statements and accompanying
notes. Actual results could differ from those estimates.
Note 2: Accumulated Comprehensive Income
The accumulated comprehensive income line of stockholders' equity consists of
unrealized gains and losses on available-for-sale securities. Unrealized gains
and losses on available-for-sale securities were $143 million (net of taxes of
$92 million) for the three-month period ended January 31, 2000.
Note 3: Discontinued Operations
On March 2, 1999, Hewlett-Packard Company (HP) announced its intention to
launch a new company, subsequently named Agilent Technologies, Inc. (Agilent
Technologies), through a distribution of Agilent Technologies' common stock to
HP's stockholders in the form of a tax-free spin-off. Agilent Technologies is
composed of HP's Measurement Systems Organization, which includes its test and
measurement, semiconductor products, chemical analysis and healthcare solutions
businesses.
Effective July 31, 1999, HP's management and Board of Directors completed the
plan of disposition for Agilent Technologies. HP's consolidated condensed
financial statements for all periods present Agilent Technologies as a
discontinued business segment in accordance with Accounting Principles Board
Opinion No. 30. For the period from the July 31, 1999 measurement date through
the spin-off, net earnings from Agilent Technologies are expected to exceed the
estimated costs to effect the spin-off. The excess net earnings over these
costs will be recognized once the net earnings realized exceed the total
estimated costs of the spin-off. The net earnings are expected to exceed the
total estimated costs in the second quarter of fiscal 2000.
Net assets of discontinued operations are summarized below:
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
----------- -----------
(In millions)
<S> <C> <C>
Current assets.................................... $ 5,093 $ 3,538
Property, plant and equipment, net................ 1,408 1,387
Other assets...................................... 717 619
Current liabilities............................... (1,727) (1,681)
Other liabilities................................. (1,230) (330)
------- -------
Net assets of discontinued operations............. $ 4,261 $ 3,533
======= =======
</TABLE>
6
<PAGE>
In the first quarter of fiscal 2000, HP provided net funding of approximately
$1.1 billion to Agilent Technologies. In November 1999, Agilent Technologies
closed an initial public offering of approximately 16% of its common stock and
distributed the net proceeds of approximately $2.1 billion to HP. These
transactions resulted in an increase to cash of approximately $1.0 billion, net
assets of discontinued operations of approximately $0.4 billion and additional
paid-in capital of approximately $1.4 billion. HP plans to distribute its
remaining 84% interest in Agilent Technologies to HP's stockholders by July 31,
2000.
Note 4: Earnings Per Share
HP's basic earnings per share (EPS) is calculated based on net earnings
available to common stockholders 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 or the conversion of debt.
<TABLE>
<CAPTION>
Three months ended
January 31,
-------------------
2000 1999
--------- ---------
(In millions except
per share data)
<S> <C> <C>
Numerator:
Net earnings from continuing operations.............. $ 794 $ 882
Adjustment for interest expense, net of income tax
effect.............................................. 6 6
--------- ---------
Net earnings from continuing operations, adjusted.... 800 888
Net earnings from discontinued operations............ -- 78
--------- ---------
Net earnings, adjusted............................. $ 800 $ 966
========= =========
Denominator:
Weighted-average shares outstanding.................. 999 1,011
Effect of dilutive securities:
Dilutive options.................................... 33 27
Zero-coupon subordinated convertible notes due
2017............................................... 11 11
--------- ---------
Dilutive potential common shares..................... 44 38
--------- ---------
Weighted-average shares and dilutive potential common
shares.............................................. 1,043 1,049
========= =========
Net earnings per share: Continuing operations
Basic................................................ $ 0.80 $ 0.87
Diluted.............................................. $ 0.77 $ 0.85
Net earnings per share: Discontinued operations
Basic................................................ $ -- $ 0.08
Diluted.............................................. $ -- $ 0.07
Net earnings per share: Total
Basic................................................ $ 0.80 $0.95
Diluted.............................................. $ 0.77 $0.92
Average number of shares and equivalents
Basic................................................ 999 1,011
Diluted.............................................. 1,043 1,049
</TABLE>
Note 5: Income Taxes
Income tax provisions for interim periods are based on estimated effective
annual income tax rates. The effective income tax rate varies from the U.S.
federal statutory income tax rate primarily because of variations in the tax
rates on foreign income.
7
<PAGE>
Note 6: Inventory
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
----------- -----------
(In millions)
<S> <C> <C>
Finished goods....................................... $ 3,661 $3,581
Purchased parts and fabricated assemblies............ 1,439 1,282
------- ------
$ 5,100 $4,863
======= ======
</TABLE>
Note 7: Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Three months ended
January 31,
--------------------
2000 1999
--------- ---------
(In millions)
<S> <C> <C>
Cash paid for income taxes, net...................... $ 315 $ 774
Cash paid for interest............................... 45 99
Non-cash transactions--issuance of common stock for
employee benefit plans:
Restricted stock................................... (73) (10)
Employer matching contributions for TAXCAP and
employee stock benefit plans...................... 26 31
</TABLE>
Note 8: Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (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, as amended, is
effective for fiscal years beginning after June 15, 2000. HP will adopt the
standard no later than the first quarter of fiscal year 2001 and is in the
process of determining the impact that adoption will have on its consolidated
financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The
staff accounting bulletin is effective no later than the first quarter of HP's
fiscal year 2001. HP is in the process of determining the impact that adoption
will have on its consolidated financial statements.
Note 9: Stockholders' Equity
HP repurchases shares of its common stock under a systematic program to manage
the dilution created by shares issued under employee stock plans and under a
separate incremental plan authorizing purchases in the open market or in
private transactions. During the first quarter of fiscal 2000, 8.9 million
shares were repurchased under these plans for an aggregate price of $929
million. In the first quarter of fiscal 1999, 4.2 million shares were
repurchased under these plans for $265 million. In November 1999, the Board of
Directors authorized an additional $2.0 billion in repurchases under these two
programs in the aggregate. As of January 31, 2000, HP had remaining
authorization for future repurchases under the two programs of approximately
$2.5 billion.
Note 10: Segment Information
HP is a leading global provider of computing and imaging solutions and services
for business and home, and is focused on capitalizing on the opportunities of
the Internet and the proliferation of electronic services. HP organizes its
operations into four major businesses: Imaging and Printing Systems, Computing
Systems, IT Services, and Measurement Systems, each of which comprises a
reportable segment. The Measurement Systems business, now named Agilent
Technologies, is reported as a discontinued operation. For further discussion,
see Note 3 to the consolidated condensed financial statements.
8
<PAGE>
The results of the reportable segments are derived directly from HP's
management reporting system. These results are based on HP's method of internal
reporting and are not necessarily in conformity with generally accepted
accounting principles. Management measures the performance of each segment
based on several metrics, including earnings from operations. These results are
used, in part, to evaluate the performance of, and allocate resources to, each
of the segments.
The table below presents selected financial information for each continuing
reportable segment:
<TABLE>
<CAPTION>
Imaging and
Printing Computing IT All Total
Systems Systems Services Other Segments
----------- --------- -------- ----- --------
(In millions)
<S> <C> <C> <C> <C> <C>
For the three months ended
January 31, 2000:
Net revenue from external
customers..................... $5,138 $5,062 $1,601 $ 26 $11,827
Intersegment net revenue....... 2 70 18 9 99
------ ------ ------ ---- -------
Total net revenue............ 5,140 5,132 1,619 35 11,926
====== ====== ====== ==== =======
Earnings (loss) from
operations.................... $ 677 $ 177 $ 183 $ (1) $ 1,036
====== ====== ====== ==== =======
For the three months ended
January 31, 1999:
Net revenue from external
customers..................... $4,528 $4,348 $1,405 $ 23 $10,304
Intersegment net revenue....... 10 122 13 -- 145
------ ------ ------ ---- -------
Total net revenue............ $4,538 $4,470 $1,418 $ 23 $10,449
====== ====== ====== ==== =======
Earnings (loss) from
operations.................... $ 643 $ 243 $ 227 $ (1) $ 1,112
====== ====== ====== ==== =======
Assets:
As of January 31, 2000......... $6,914 $6,217 $7,045 $ 14 $20,190
====== ====== ====== ==== =======
As of October 31, 1999......... $7,304 $6,049 $6,976 $ 17 $20,346
====== ====== ====== ==== =======
</TABLE>
9
<PAGE>
The following is a reconciliation of segment information to HP consolidated
totals:
<TABLE>
<CAPTION>
Three months ended
January 31,
------------------------
2000 1999
----------- ------------
(In millions)
<S> <C> <C>
Net revenue:
Total segments........................................ $11,926 $10,449
Financing interest income reclassification............ (82) (69)
Elimination of intersegment net revenue and other..... (171) (145)
------- -------
Total HP consolidated............................. $11,673 $10,235
======= =======
Earnings from continuing operations before taxes:
Total segment earnings from operations................ $ 1,036 $ 1,112
Net financing interest reclassification............... (39) (30)
Interest income and other, net........................ 163 149
Interest expense...................................... (56) (47)
Corporate and unallocated costs, and eliminations..... (45) 15
------- -------
Total HP consolidated............................. $ 1,059 $ 1,199
======= =======
<CAPTION>
January 31, October 31,
2000 1999
----------- ------------
(In millions)
<S> <C> <C>
Assets:
Total segments........................................ $20,190 $20,346
Assets not allocated to segments:
Cash and cash equivalents........................... 2,985 5,411
Short-term investments and long-term investments in
debt securities.................................... 1,184 1,192
Other corporate..................................... 5,291 4,815
------- -------
Total assets from continuing operations............... 29,650 31,764
Net assets of discontinued operations................. 4,261 3,533
------- -------
Total HP consolidated............................. $33,911 $35,297
======= =======
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Unaudited).
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
The following discussion should be read in conjunction with the consolidated
condensed financial statements and the related notes that appear elsewhere in
this document.
This document contains forward-looking statements that involve risks and
uncertainties that could cause the results of HP and its consolidated
subsidiaries to differ materially from those expressed or implied by such
forward-looking statements. These risks include the timely development,
production and acceptance of new products and services and their feature sets;
the challenge of managing asset levels, including inventory; the flow of
products into third-party distribution channels; the difficulty of keeping
expense growth at modest levels while increasing revenues; risks associated
with the proposed spin-off of Agilent Technologies, Inc. and the distribution
of Agilent Technologies' shares; and other risks described from time to time in
HP's Securities and Exchange Commission filings, including but not limited to
the Annual Report on Form 10-K for the year ended October 31, 1999.
Forward-looking statements reflect the current views of HP 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. HP does
not intend to update these forward-looking statements.
As more fully discussed in Note 3 to the consolidated condensed financial
statements, on March 2, 1999, HP announced its intention to launch a new
company, subsequently named Agilent Technologies, through a distribution of
Agilent Technologies' common stock to HP's stockholders in the form of a tax-
free spin-off. Agilent Technologies is composed of HP's Measurement Systems
Organization, which includes its test and measurement, semiconductor products,
chemical analysis and healthcare solutions businesses. Effective July 31, 1999,
HP's management and Board of Directors completed the plan of disposition for
Agilent Technologies. On November 23, 1999, Agilent Technologies closed an
initial public offering (IPO) of approximately 16% of its common stock. HP
plans to distribute its remaining 84% interest in Agilent Technologies to HP's
stockholders by July 31, 2000. HP's consolidated financial statements for all
periods present Agilent Technologies as a discontinued business segment in
accordance with Accounting Principles Board Opinion No. 30. Unless otherwise
indicated, the following discussion relates to HP's continuing operations.
Results of Operations
For the first quarter ended January 31, 2000, HP reported net revenue of $11.7
billion, an increase of 14% from the same period in fiscal 1999. The increase
in net revenue was a result of solid growth across all business segments. Net
revenue for the Computing Systems segment grew 15% in the first quarter of 2000
compared with a year ago, while the IT Services segment grew 14% and the
Imaging and Printing Systems segment grew 13%. Overall, product sales for the
first quarter increased 14%, while service revenue grew 17% over the
corresponding period in fiscal 1999. International revenue grew 16% to $6.7
billion and U.S. revenue increased 12% to $5.0 billion from a year ago. Strong
international growth was fueled primarily by the economic improvement in Asia.
Fluctuations in currency rates had minimal impact on year-over-year revenue
growth.
Costs, expenses and earnings as a percentage of net revenue for the three
months ended January 31 were as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cost of products sold and services............................. 71.5% 69.1%
Research and development....................................... 5.2% 5.6%
Selling, general and administrative............................ 15.1% 14.6%
Earnings from operations....................................... 8.2% 10.7%
Net earnings from continuing operations........................ 6.8% 8.6%
</TABLE>
11
<PAGE>
Cost of products sold and services as a percentage of net revenue was 71.5% in
the first quarter of fiscal 2000 compared with 69.1% in the same period for
fiscal 1999. The 2.4 percentage point increase in the cost of sales ratio was
driven primarily by the Computing Systems and Imaging and Printing Systems
segments.
Total operating expenses, composed of research and development and selling,
general and administrative expenses, were $2.4 billion, an increase of 15% for
the first quarter of fiscal 2000 over the first quarter of fiscal 1999.
Research and development expense increased 5% due primarily to an increase in
spending related to new technologies in imaging and printing systems. Selling,
general and administrative expenses increased 18% in the first quarter of
fiscal 2000 over the corresponding period in fiscal 1999. This growth was
attributable to higher selling expenses to support business growth, increased
marketing expenses to support our corporate branding initiative and e-services
strategy, and increased stock appreciation rights expense due to a 46% increase
in HP stock price during the quarter. In addition, the increase reflected costs
incurred to effect the spin-off of Agilent Technologies. These spin-off costs
consisted primarily of retention incentives given to continuing HP employees
involved in effecting the transaction.
Interest income and other, net, increased $14 million in the first quarter of
fiscal 2000 compared with the same period in fiscal 1999. The increase was
attributable primarily to lower net currency losses, as well as higher interest
income associated with investment balances.
HP's tax rate was 25% in the first quarter of fiscal 2000, down from a tax rate
of 26% for all of fiscal 1999. This decline was primarily the result of changes
in the mix of our pre-tax earnings in various tax jurisdictions throughout the
world. The tax rate was 26.5% for the first quarter of fiscal 1999.
Net earnings from continuing operations decreased 10% to $794 million in the
first quarter of fiscal 2000 compared with the same period in fiscal 1999. As a
percentage of net revenue, net earnings from continuing operations were 6.8% in
the first quarter of fiscal 2000, compared with 8.6% in the same quarter in
fiscal 1999.
Earnings from discontinued operations include the results of the businesses
that comprise Agilent Technologies. For the period from the July 31, 1999
measurement date through the spin-off, net earnings from Agilent Technologies
are expected to exceed the estimated costs to effect the spin-off. The excess
net earnings over these costs will be recognized once the net earnings realized
exceed the total estimated costs of the spin-off. The net earnings are expected
to exceed the total estimated costs in the second quarter of fiscal 2000.
Segment Information
The following is a discussion of operating results for each of HP's business
segments. A description of products and services for each segment can be found
in the notes to the consolidated financial statements in the Hewlett-Packard
Company 1999 Annual Report on Form 10-K. Quarterly financial data for each
segment can be found in Note 10 to these consolidated condensed financial
statements. The reportable segments disclosed in this Form 10-Q are based on
HP's management organizational structure as of January 31, 2000. Future changes
to this organizational structure may result in changes to the reportable
segments disclosed.
Imaging and Printing
<TABLE>
<CAPTION>
Three months ended
January 31,
-------------------
2000 1999
--------- ---------
(In millions)
<S> <C> <C>
Net revenue................................................ $ 5,140 $ 4,538
Earnings from operations................................... $ 677 $ 643
</TABLE>
12
<PAGE>
Imaging and Printing Systems' net revenue grew 13% for the quarter ended
January 31, 2000 compared with the same period in 1999. Net revenue growth was
driven primarily by strong sales of printer supplies. Despite strong printer
hardware unit growth, revenue growth was constrained by declines in average
selling prices and a shift to low-end products.
Net revenue growth in printer supplies reflected continued growth in the
installed base, growth in printing from the Internet and increased usage of
newly introduced products. Net revenue growth in printer hardware was driven
primarily by the solid performance of home printers, personal/workgroup office
printers and scanning devices. HP Photosmart and all-in-one products
contributed to revenue growth in the home printer category and
personal/workgroup office printers benefited from strong performance in the
personal and color laser platforms.
Earnings from operations as a percentage of net revenue were 13.2% for the
quarter ended January 31, 2000 compared with 14.2% for the same period in 1999.
The 1.0 percentage point decrease was attributable primarily to higher
component costs related to the strengthening Japanese Yen and a shift toward
low-end home printers. These factors were partially offset by strong sales of
higher-margin printer supplies. The decline in the earnings from operations
ratio was also slightly impacted by investments made to develop next generation
technologies and additional selling and marketing expenses to promote new
imaging and printing products.
Computing Systems
<TABLE>
<CAPTION>
Three months ended
January 31,
-------------------
2000 1999
--------- ---------
(In millions)
<S> <C> <C>
Net revenue................................................ $ 5,132 $ 4,470
Earnings from operations................................... $ 177 $ 243
</TABLE>
Computing Systems' net revenue increased 15% for the quarter ended January 31,
2000 when compared with the same period in 1999. Solid performance in certain
PC and server products drove the overall growth. This performance was partially
offset by a continued shift to low-margin products, declines in PC average
selling prices, and the transition to a new enterprise storage strategy.
Computing Systems' net revenue benefited from strong unit shipments of home and
notebook PCs. Growth in home PCs was driven by the strong acceptance of new
products launched during the quarter aided by the exit of two major competitors
from the retail market. Notebook PCs continued to benefit from growth in the
retail notebook line as well as strong sales of its base product portfolio.
Very strong performance in entry-level UNIX(R)(/1/) servers and solid sales of
high-end UNIX(R) servers favorably impacted revenue. PC servers also aided
revenue growth over the prior year. Revenue growth was partially offset by the
continued effects of the transition to a new high-end enterprise storage
strategy and a slight decrease in business desktop PC revenue due to declining
average selling prices.
Earnings from operations as a percentage of net revenue were 3.4% for the
quarter ended January 31, 2000 compared with 5.4% for the same period in 1999.
The 2.0 percentage point decrease was attributable to higher memory costs for
business desktop PCs and PC servers, as well as a continued shift to low-margin
products and declines in average selling prices. The decline in the earnings
from operations ratio was partially offset by a shift towards higher-margin
enterprise storage products and lower operating expenses as a percentage of net
revenue due to improved operational efficiencies.
IT Services
<TABLE>
<CAPTION>
Three months ended
January 31,
-------------------
2000 1999
--------- ---------
(In millions)
<S> <C> <C>
Net revenue................................................ $ 1,619 $ 1,418
Earnings from operations................................... $ 183 $ 227
</TABLE>
- ------------
(/1/)UNIX(R) is a registered trademark of the Open Group
13
<PAGE>
IT Services net revenue increased 14% for the quarter ended January 31, 2000
compared with the same period in 1999. Strong growth in several support and
service programs as well as solid performance in financing contributed to the
overall growth.
The 14% growth in net revenue was driven primarily by strong performance in
mission-critical, networking and customer services, as well as outsourcing
services such as systems managment and enterprise resource planning (ERP).
Financing revenue also grew reflecting strength in the UNIX(R) business.
Earnings from operations as a percentage of net revenue were 11.3% for the
quarter ended January 31, 2000 compared with 16.0% for the same period in 1999.
The 4.7 percentage point decrease was attributable primarily to lower margins
on our desktop financing business, competitive pricing and an increase in
consulting hiring to support future growth. Additional investments in service
and support technologies and marketing expenses related to our e-services
initiatives also contributed to the decline in earnings from operations as a
percentage of net revenue.
Liquidity and Capital Resources.
HP's financial position remained strong in the first quarter of fiscal 2000.
Cash and cash equivalents and short-term investments were $3.2 billion at
January 31, 2000 compared with $5.6 billion at October 31, 1999. During the
first quarter of fiscal 2000, cash flows from operating activities were used to
pay down short- and long-term debt, fund repurchases of HP's common stock and
purchase property, plant and equipment.
Operating activities generated $1.1 billion of cash in the first quarter of
fiscal 2000 compared with $232 million in the corresponding period in fiscal
1999. The increase in cash generated in 2000 resulted primarily from the
collection of receivables, favorable fluctuations in accounts payable and
timing of tax payments.
Inventory as a percentage of net revenue was 11.6% as of January 31, 2000
compared with 12.2% at the end of the first quarter of fiscal 1999 and 11.5% as
of October 31, 1999, as progress in supply-chain management continued. Trade
and financing receivables as a percentage of net revenue were 16.6% at January
31, 2000 compared with 16.1% in the corresponding period of fiscal 1999 and
18.5% as of October 31, 1999. The ratio at year-end reflected a relatively high
level of receivables due to seasonal fluctuations.
Capital expenditures were $339 million in the first three months of fiscal 2000
compared with $217 million for the corresponding period in fiscal 1999. Net
property, plant and equipment as a percentage of net revenue was 9.9% as of
January 31, 2000 compared with 11.8% at the end of the first quarter of fiscal
1999 and 10.2% at October 31, 1999. This result reflected the streamlining of
operations through outsourcing and consolidating activities, improving space
utilization and reducing asset intensity to build flexibility into our balance
sheet.
HP invests excess cash in short- and long-term investments, depending on our
projected cash needs for operations, capital expenditures and other business
purposes. We also supplement our internally generated cash flow with a
combination of short- and long-term borrowings. Short- and long-term borrowings
in the first quarter of fiscal 2000 decreased by $2.8 billion, as cash and net
receipts from maturities of short-term investments were used to pay down short-
and long-term debt. Long-term debt totaling $337 million matured as scheduled
in the first quarter of fiscal 2000. At January 31, 2000, HP had an unused
committed borrowing facility in place totaling $1.0 billion.
HP repurchases shares of its common stock under a systematic program to manage
the dilution created by shares issued under employee stock plans and under a
separate incremental plan authorizing purchases in the open market or in
private transactions. During the first quarter of fiscal 2000, 8.9 million
shares were repurchased under these plans for an aggregate price of $929
million. In the first quarter of fiscal 1999, 4.2 million shares were
repurchased under these plans for $265 million. In November 1999, the Board of
Directors authorized an additional $2.0 billion in repurchases under these two
programs in the aggregate. As of January 31, 2000, HP had remaining
authorization for future repurchases under the two programs of approximately
$2.5 billion.
14
<PAGE>
In the first quarter of fiscal 2000, HP provided net funding of approximately
$1.1 billion to Agilent Technologies. In November 1999, Agilent Technologies
closed an initial public offering of approximately 16% of its common stock and
distributed the net proceeds of approximately $2.1 billion to HP.
Factors That Could Affect Future Results
Competition. We encounter aggressive competition in all areas of our business.
We have numerous competitors, ranging from some of the world's largest
corporations to many relatively small and highly specialized firms. We compete
primarily on the basis of technology, performance, price, quality, reliability,
distribution and customer service and support. Product life cycles are short.
To remain competitive, HP must be able to develop new products and periodically
enhance our existing products. In particular, we anticipate that we will have
to continue to lower the prices of many of our products to stay competitive and
effectively manage financial returns with resulting reduced gross margins. In
some of our markets, we may not be able to compete successfully against current
and future competitors, and the competitive pressures we face could harm our
business and prospects.
New Product Introductions. If we cannot continue to rapidly develop,
manufacture and market innovative products and services that meet customer
requirements for performance and reliability, we may lose market share and our
future revenue and earnings may suffer. The process of developing new high
technology products and services is complex and uncertain. We must accurately
anticipate customers' changing needs and emerging technological trends. We
consequently must make long-term investments and commit significant resources
before knowing whether our predictions will eventually result in products that
the market will accept. After a product is developed, we must be able to
manufacture sufficient volumes quickly at low enough costs. To do this we must
accurately forecast volumes, mix of products and configurations. Additionally,
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 that HP offers, the process of planning
production and managing inventory levels becomes increasingly difficult.
Reliance on Third Party Distribution Channels and Inventory Management. We use
third-party distributors to sell our products, especially printers and personal
computers, in order to accommodate changing customer preferences. As a result,
the financial soundness of our wholesale and retail distributors, and our
continuing relationships with these distributors, are important to HP's
success. Some of these distributors may have insufficient financial resources
and may not be able to withstand changes in business conditions. Our revenue
and earnings could suffer if our distributors' financial condition or
operations weaken or if our relationship with them deteriorates.
Additionally, inventory management becomes increasingly complex as we continue
to sell a significant mix of products through distributors. Third party
distributors constantly adjust their product orders from us in response to:
. The supply of our and our competitors' products available to the
distributor,
. The timing of new product introductions and relative features of the
products, and
. Seasonal fluctuations in end-user demand, such as back-to-school and
holiday buying.
Distributors may increase orders during times of product shortages, cancel
orders if their inventory is too high or delay orders in anticipation of new
products. If we have excess inventory, we may have to reduce our prices and
write down inventory, which in turn could result in lower gross margins.
Short Product Life Cycles. The short life cycles of many of our products pose a
challenge for us to manage effectively the transition from existing products to
new products. If we do not manage the transition effectively, our revenue and
earnings could suffer. Among the factors that make a smooth transition from
current products to new products difficult are delays in product development or
manufacturing, variations in product costs and
15
<PAGE>
delays in customer purchases of existing products in anticipation of new
product introductions. Our revenue and earnings could also suffer due to the
timing of product or service introductions by our suppliers and competitors.
This is especially true when a competitor introduces a new product just before
our own product introduction. Further, our new products may replace or compete
with certain of our own current products.
Intellectual Property. We generally rely upon patent, copyright, trademark and
trade secret laws in the United States and in certain other countries, and
agreements with our employees, customers and partners, to establish and
maintain our proprietary rights in our technology and products. However, any of
our intellectual proprietary rights could be challenged, invalidated or
circumvented. Our intellectual property may not necessarily provide significant
competitive advantages. Also, because of the rapid pace of technological change
in the information technology industry, many of our products rely on key
technologies developed by third parties, and we may not be able to continue to
obtain licenses from these third parties. Third parties may claim that we are
infringing their intellectual property. Even if we do not believe that our
products are infringing third parties' intellectual property rights, the claims
can be time-consuming and costly to defend and divert management's attention
and resources away from our business. Claims of intellectual property
infringement might also require us to enter into costly royalty or license
agreements. If we cannot or do not license the infringed technology or
substitute similar technology from another source, our business could suffer.
Reliance on Suppliers. Our manufacturing operations depend on our suppliers'
ability to deliver quality components and products in time for us to meet
critical manufacturing and distribution schedules. We sometimes experience a
short supply of certain component parts as a result of strong demand in the
industry for those parts. If shortages or delays persist, our operating results
could suffer until other sources can be developed. In order to secure
components for the production of new products, at times we make advance
payments to suppliers, or we may enter into noncancelable purchase commitments
with vendors. If the prices of these component parts then decrease after we
have entered into binding price agreements, our earnings could suffer. Further,
we may not be able to secure enough components at reasonable prices to build
new products in a timely manner in the quantities and configurations needed.
Conversely, a temporary oversupply of these parts could also affect our
operating results.
International. Sales outside the United States make up more than half of our
revenues. A portion of our product and component manufacturing, along with key
suppliers, are also located outside of the United States. Our future earnings
or financial position could be adversely affected by a variety of international
factors, including:
. Changes in a country 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,
. Differing technology standards,
. Problems caused by the conversion of various European currencies to the
Euro (see "Adoption of the Euro" section below), and
. Natural disasters.
Market Risk. We are exposed to foreign currency exchange rate risk inherent in
our sales commitments, anticipated sales and assets and liabilities denominated
in currencies other than the U.S. dollar. We are also exposed to interest rate
risk inherent in our debt and investment portfolios. Our risk management
strategy uses derivative financial instruments, including forwards, swaps and
purchased options, to hedge certain foreign currency and interest rate
exposures. Our intent is to offset gains and losses that occur on the
underlying exposures, with gains and losses on the derivative contracts hedging
these exposures. We do not enter into
16
<PAGE>
derivatives for trading purposes. See also the "Financial Instruments--Off-
Balance-Sheet Foreign Exchange Risk" and "Borrowings" notes to the consolidated
financial statements in the Hewlett-Packard Company 1999 Annual Report on Form
10-K for more detailed information.
We have performed a sensitivity analysis assuming a hypothetical 10% adverse
movement in foreign exchange rates applied to the hedging contracts and
underlying exposures described above, and a hypothetical 10% adverse movement
in interest rates applied to our debt and investment portfolios. As of January
31, 2000 and 1999, the analysis indicated that these hypothetical market
movements would not have a material effect on HP'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 HP's actual exposures and hedges.
Acquisitions, Strategic Alliances, Joint Ventures and Divestitures. In the
normal course of business, HP frequently engages in discussions with third
parties relating to possible acquisitions, strategic alliances, joint ventures
and divestitures. Although completion of any one transaction is unlikely to
have a material effect on our financial position, results of operations or cash
flows taken as a whole, it may contribute to our financial results differing
from the investment community's expectations in a given quarter. Divestiture of
a part of our business may result in the cancellation of orders and charges to
earnings. Acquisitions and strategic alliances may require us to integrate with
a different company culture, management team and business infrastructure. We
may also have to develop, manufacture and market products with our products in
a way that enhances the performance of the combined business or product line.
Depending on the size and complexity of an acquisition, our successful
integration of the entity into HP depends on a variety of factors, including:
. The hiring and retention of key employees,
. Management of facilities in separate geographic areas, 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
divert our attention from other business operations.
Earthquake. Our corporate headquarters, a portion of our research and
development activities, other critical business operations and certain of our
suppliers are located near major earthquake faults. The ultimate impact on HP,
our significant suppliers and our general infrastructure is unknown, but
operating results could be materially affected in the event of a major
earthquake. We are predominantly uninsured for losses and interruptions caused
by earthquakes.
Environmental. Some of our operations use substances regulated under various
federal, state and international laws governing the environment. It is our
policy to apply strict standards for environmental protection to sites inside
and outside the U.S., even when not subject to local government regulations. We
record a liability for environmental remediation and related costs when we
consider the costs to be probable and the amount of the costs can be reasonably
estimated. Environmental costs are presently not material to our results of
operations or financial position.
Profit Margin. Our profit margins vary somewhat among our products, customer
groups and geographic markets. Consequently, our overall profitability in any
given period is partially dependent on the product, customer and geographic mix
reflected in that period's net revenue.
Stock Price. HP's stock price, like that of other technology companies, can be
volatile. Some of the factors that can affect our stock price are:
. Our, or a competitor's, announcement of new products, services or
technological innovations,
. Quarterly increases or decreases in our earnings,
17
<PAGE>
.Changes in revenue or earnings estimates by the investment community, and
.Speculation in the press or investment community.
General market conditions and domestic or international macroeconomic factors
unrelated to our performance may also affect HP's stock price. For these
reasons, investors should not rely on recent trends to predict future stock
prices or financial results. In addition, following periods of volatility in a
company's securities, securities class action litigation against a company is
sometimes instituted. This type of litigation could result in substantial costs
and the diversion of management time and resources.
Earnings Fluctuations. Although we believe that we have the products and
resources needed for continuing success, we cannot reliably predict future
revenue and margin trends. Actual trends may cause us to adjust our operations,
which could cause period-to-period fluctuations in our earnings.
Planned Spin-off of Agilent Technologies. HP has announced that it intends to
distribute to its stockholders all of the common stock of Agilent Technologies
that HP owns by July 31, 2000, although HP is not obligated to do so. This
distribution may not occur by that date or at all. Further, HP may not obtain
the benefits we expect as a result of this distribution, such as greater
strategic focus on our core computing and imaging and printing businesses. In
addition, HP's consolidated financial statements do not reflect what the
financial position, results of operations and cash flows of HP would have been
had Agilent Technologies been a separate stand-alone entity during the periods
presented.
Year 2000
The information provided below constitutes a "Year 2000 Readiness Disclosure"
for purposes of the Year 2000 Information and Readiness Disclosure Act.
HP passed a number of critical "Year 2000" dates (September 9, 1999; January 1,
2000; and February 29, 2000) with no significant issues anywhere in the world.
Our customer-support operations reported that HP customers did not call about
any consequential Year 2000 incidents. At HP sites, we did not experience any
significant Year 2000-related issues that would have affected our ability to
manufacture, ship, sell or service our products.
HP had established a Year 2000 Program Office to coordinate the Year 2000
efforts of all of our business units, geographic organizations and functional
departments around the world. This office also provided a single point of
contact for information about our Year 2000 programs. HP embarked on a massive
customer-outreach program to share information with millions of customers in
face-to-face meetings, in mailings and via a web site.
Our Year 2000 initiatives focused on four areas of potential impact: the
products and services we provide to customers, our own internal information
technology (IT) systems, our internal non-IT systems and processes, and the
readiness of third parties with whom we have material business relationships.
HP's Year 2000 program, at its peak, involved thousands of employees who worked
diligently to make sure that customers and our own operations did not
experience any significant Year 2000 problems.
While we are encouraged by the success of our Year 2000 efforts and that of our
customers and partners, we will continue to offer any needed Year 2000 support
to customers. Plans are in place to close the Year 2000 Program Office and
manage any outstanding Year 2000 support issues through our regular HP support
and service activities around the world.
Adoption of the Euro
HP has established a dedicated task force to address the issues raised by the
introduction of a European single currency, the Euro. The Euro's initial
implementation was effective as of January 1, 1999, and the transition
18
<PAGE>
period will continue through January 1, 2002. On January 1, 1999, we began
converting our product prices from local currencies to Euros as required. We
implemented system changes to give multi-currency capability to internal
applications and to ensure that external partners' systems processing Euro
conversions are compliant with the European Council regulations. In addition,
we have implemented design changes to support display and printing of the Euro
character by impacted HP products.
The introduction and use of the Euro has not had a material effect on our
foreign exchange and hedging activities or our use of derivative instruments,
and we do not presently expect that it will. All costs associated with the
conversion to the Euro are expensed to operations as incurred. While we will
continue to evaluate the impact of the Euro over time, based on currently
available information, we do not believe that the introduction of the Euro
currency will have a material adverse impact on our consolidated financial
condition, cash flows or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
A discussion of HP's exposure to, and management of, market risk appears in
Item 2 of this Form 10-Q under the heading "Factors That Could Affect Future
Results."
19
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
A list of exhibits is set forth in the Exhibit Index found on page 22 of
this report.
(b) Reports on Form 8-K:
None.
20
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hewlett-Packard Company
(Registrant)
/s/ Robert P. Wayman
By: _________________________________
Robert P. Wayman
Executive Vice President
Finance and Administration and
Chief Financial Officer
(Principal Financial Officer)
Dated: March 15, 2000
21
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1 Not applicable.
2 Master Separation and Distribution Agreement between Hewlett-Packard
Company and Agilent Technologies, Inc. effective as of August 12,
1999, which appears as exhibit 2 to Registrant's Annual Report on Form
10-K for the fiscal year ended October 31, 1999, which exhibit is
incorporated herein by reference.
3(a) Registrant's Amended and Restated Certificate 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, which appears as exhibit 3(b) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
October 31, 1999, which exhibit is incorporated herein by reference.
4 Indenture dated as of October 14, 1997 among Registrant and Chase
Trust Company of California regarding Liquid Yield Option Notes due
2017 which appears as exhibit 4.2 to Registrant's Registration
Statement on Form S-3 (Registration No. 333-44113), which exhibit is
incorporated herein by reference.
5-8 Not applicable.
9 None.
10(a) Registrant's 1985 Incentive Compensation Plan, as amended, which
appears as exhibit 10(a) to Registrant's Annual Report on Form 10-K
for the fiscal year ended October 31, 1999, which exhibit is
incorporated herein by reference.*
10(b) Registrant's 1985 Incentive Compensation Plan, as amended, stock
option agreement, which appears as exhibit 10(b) to Registrant's
Annual Report on Form 10-K for the fiscal year ended October 31, 1999,
which exhibit is incorporated herein by reference.*
10(c) 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(d) Registrant's 1990 Incentive Stock Option Plan, as amended, which
appears as exhibit 10(d) to Registrant's Annual Report on Form 10-K
for the fiscal year ended October 31, 1999, which exhibit is
incorporated herein by reference.*
10(e) Registrant's 1990 Incentive Stock Option Plan, as amended, stock
option agreement, which appears as exhibit 10(e) to Registrant's
Annual Report on Form 10-K for the fiscal year ended October 31, 1999,
which exhibit is incorporated herein by reference.*
10(f) Registrant's 1995 Incentive Stock Plan, as amended, which appears as
exhibit 10(f) to Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1999, which exhibit is incorporated
herein by reference.*
10(g) Registrant's 1995 Incentive Stock Plan, as amended, stock option and
restricted stock agreements, which appears as exhibit 10(g) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
October 31, 1999, which exhibit is incorporated herein by reference.*
10(h) 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>
22
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10(i) Registrant's Executive Deferred Compensation Plan, Amended and
Restated effective November 1, 1999, which appears as exhibit 10(i) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
October 31, 1999, which exhibit is incorporated herein by reference.*
10(j) 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(k) 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(l) 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(m) 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(n) 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(o) 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(p) Transition Agreement, dated May 20, 1999, between Registrant and Lewis
E. Platt which appears as exhibit 10(ee) to Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended July 31, 1999, which
exhibit is incorporated herein by reference.*
10(q) Employment Agreement, dated May 20, 1999, between Registrant and
Robert P. Wayman which appears as exhibit 10(ff) to Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended July 31,
1999, which exhibit is incorporated herein by reference.*
10(r) Employment Agreement, dated July 17, 1999, between Registrant and
Carleton S. Fiorina which appears as exhibit 10(gg) to Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended July 31,
1999, which exhibit is incorporated herein by reference.*
10(s) Executive Transition Program which appears as exhibit 10(hh) to
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 31, 1999, which exhibit is incorporated herein by
reference.*
10(t) Incentive Stock Plan Stock Option Agreement (Non-Qualified), dated
July 17, 1999, between Registrant and Carleton S. Fiorina which
appears as exhibit 10(ii) to Registrant's Quarterly Report on Form 10-
Q for the fiscal quarter ended July 31, 1999, which exhibit is
incorporated herein by reference.*
10(u) Restricted Stock Agreement, dated July 17, 1999, between Registrant
and Carleton S. Fiorina which appears as exhibit 10(jj) to
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 31, 1999, which exhibit is incorporated herein by
reference.*
10(v) Restricted Stock Unit Agreement, dated July 17, 1999, between
Registrant and Carleton S. Fiorina which appears as exhibit 10(kk) to
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 31, 1999, which exhibit is incorporated herein by
reference.*
10(w) Registrant's 2000 Stock Plan which appears as Appendix A to
Registrant's Proxy Statement dated January 18, 2000, which appendix is
incorporated herein by reference.*
10(x) Registrant's 2000 Employee Stock Purchase Plan which appears as
Appendix B to Registrant's Proxy Statement dated January 18, 2000,
which appendix is incorporated herein by reference.*
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10(y) Registrant's Pay-for-Results Plan which appears as Appendix C to
Registrant's Proxy Statement dated January 18, 2000, which appendix is
incorporated herein by reference.*
11-17 Not applicable.
18 None.
19-21 Not applicable.
22 None.
23-26 Not applicable.
27 Financial Data Schedule.
28 None.
99 Not applicable.
</TABLE>
- --------
* Indicates management contract or compensatory plan, contract or arrangement.
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AND CONSOLIDATED CONDENSED STATEMENT OF
EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 2,985
<SECURITIES> 255
<RECEIVABLES> 7,274
<ALLOWANCES> 0
<INVENTORY> 5,100
<CURRENT-ASSETS> 19,331
<PP&E> 9,050
<DEPRECIATION> 4,714
<TOTAL-ASSETS> 33,911
<CURRENT-LIABILITIES> 12,290
<BONDS> 1,535
0
0
<COMMON> 891
<OTHER-SE> 18,415
<TOTAL-LIABILITY-AND-EQUITY> 33,911
<SALES> 9,961
<TOTAL-REVENUES> 11,673
<CGS> 0
<TOTAL-COSTS> 8,349
<OTHER-EXPENSES> 2,372
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 1,059
<INCOME-TAX> 265
<INCOME-CONTINUING> 794
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 794
<EPS-BASIC> 0.80
<EPS-DILUTED> 0.77
</TABLE>
