<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
</TABLE>
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 1-4423
------------------------
HEWLETT-PACKARD COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-1081436
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3000 HANOVER STREET, PALO ALTO, CALIFORNIA 94304
(Address of principal executive offices) (Zip Code)
</TABLE>
(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. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT APRIL 30, 2000
------------------------------
<S> <C>
Common Stock, $0.01 par value 997 million shares
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C> <C>
Part I. Financial Information
Item 1. Financial Statements.
Consolidated Condensed Statement of Earnings
Three and six months ended April 30, 2000 and 1999
(Unaudited)................................................. 3
Consolidated Condensed Balance Sheet
April 30, 2000 (Unaudited) and October 31, 1999............. 4
Consolidated Condensed Statement of Cash Flows
Six months ended April 30, 2000 and 1999 (Unaudited)........ 5
Notes to Consolidated Condensed Financial Statements
(Unaudited)................................................. 6-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited)....................... 14-24
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 24
Part II. Other Information...................................................... 25
Item 4. Submission of Matters to a Vote of Security Holders......... 25
Item 6. Exhibits and Reports on Form 8-K............................ 25
Signature...................................................................................... 26
Exhibit Index.................................................................................. 27
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue:
Products.............................................. $10,232 $ 8,899 $20,193 $17,601
Services.............................................. 1,796 1,556 3,508 3,089
------- ------- ------- -------
Total net revenue................................... 12,028 10,455 23,701 20,690
------- ------- ------- -------
Costs and expenses:
Cost of products sold and services.................... 8,595 7,299 16,944 14,367
Research and development.............................. 671 633 1,278 1,209
Selling, general and administrative................... 1,872 1,628 3,637 3,122
------- ------- ------- -------
Total costs and expenses............................ 11,138 9,560 21,859 18,698
------- ------- ------- -------
Earnings from operations................................ 890 895 1,842 1,992
Interest income and other, net.......................... 210 194 373 343
Interest expense........................................ 40 45 96 92
------- ------- ------- -------
Earnings from continuing operations before taxes........ 1,060 1,044 2,119 2,243
Provision for taxes..................................... 244 278 509 595
------- ------- ------- -------
Net earnings from continuing operations................. 816 766 1,610 1,648
Net earnings from discontinued operations............... 119 152 119 230
------- ------- ------- -------
Net earnings............................................ $ 935 $ 918 $ 1,729 $ 1,878
======= ======= ======= =======
Net earnings per share--Continuing operations:
Basic................................................. $ 0.82 $ 0.76 $ 1.62 $ 1.63
Diluted............................................... $ 0.79 $ 0.73 $ 1.56 $ 1.58
Net earnings per share--Discontinued operations:
Basic................................................. $ 0.12 $ 0.15 $ 0.12 $ 0.23
Diluted............................................... $ 0.11 $ 0.15 $ 0.11 $ 0.22
Net earnings per share--Total:
Basic................................................. $ 0.94 $ 0.91 $ 1.74 $ 1.86
Diluted............................................... $ 0.90 $ 0.88 $ 1.67 $ 1.80
Cash dividends declared per share....................... $ 0.00 $ 0.00 $ 0.32 $ 0.32
Average number of shares and equivalents:
Basic................................................. 994 1,010 996 1,010
Diluted............................................... 1,042 1,051 1,042 1,050
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(IN MILLIONS EXCEPT PAR VALUE AND NUMBER OF SHARES)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,678 $ 5,411
Short-term investments.................................... 225 179
Accounts receivable....................................... 5,509 5,958
Financing receivables..................................... 1,996 1,889
Inventory................................................. 4,985 4,863
Other current assets...................................... 3,609 3,342
------- -------
Total current assets.................................... 20,002 21,642
------- -------
Property, plant and equipment (less accumulated depreciation
of $4,810 at April 30, 2000 and $4,587 at October 31,
1999)..................................................... 4,347 4,333
Long-term investments and other assets...................... 5,970 5,789
Net assets of discontinued operations....................... 3,789 3,533
------- -------
Total assets............................................ $34,108 $35,297
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings................... $ 647 $ 3,105
Accounts payable.......................................... 3,873 3,517
Employee compensation and benefits........................ 1,570 1,287
Taxes on earnings......................................... 1,490 2,152
Deferred revenues......................................... 1,534 1,437
Other accrued liabilities................................. 2,916 2,823
------- -------
Total current liabilities............................... 12,030 14,321
------- -------
Long-term debt.............................................. 1,855 1,764
Other liabilities........................................... 774 917
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; 997,230,869 issued and outstanding at
April 30, 2000, and 1,004,569,000 shares issued and
outstanding at October 31, 1999......................... 10 10
Additional paid-in capital................................ 786 --
Retained earnings......................................... 18,529 18,285
Accumulated other comprehensive income.................... 124 --
------- -------
Total stockholders' equity.............................. 19,449 18,295
------- -------
Total liabilities and stockholders' equity.............. $34,108 $35,297
======= =======
</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>
SIX MONTHS ENDED
APRIL 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations................... $1,610 $1,648
Adjustments to reconcile net earnings from continuing
operations to net cash provided by operating activities:
Depreciation and amortization........................... 673 626
Deferred taxes on earnings.............................. (128) 340
Change in assets and liabilities:
Accounts and financing receivables.................... 18 (181)
Inventory............................................. (131) (152)
Accounts payable...................................... 356 (43)
Taxes on earnings..................................... (428) (884)
Other current assets and liabilities.................. 146 363
Other, net............................................ (103) 82
------ ------
Net cash provided by operating activities............. 2,013 1,799
------ ------
Cash flows from investing activities:
Investment in property, plant and equipment............... (763) (429)
Disposition of property, plant and equipment.............. 219 190
Purchases of investments.................................. (650) (713)
Maturities and sales of investments....................... 751 726
Other, net................................................ 32 54
------ ------
Net cash used in investing activities................. (411) (172)
------ ------
Cash flows from financing activities:
Increase (decrease) in notes payable and short-term
borrowings.............................................. (2,315) 171
Issuance of long-term debt................................ 324 227
Payment of long-term debt................................. (342) (531)
Issuance of common stock under employee stock plans....... 504 330
Repurchase of common stock................................ (2,254) (728)
Dividends................................................. (321) (325)
------ ------
Net cash used in financing activities................. (4,404) (856)
------ ------
Net cash provided by discontinued operations................ 1,069 77
------ ------
Increase (decrease) in cash and cash equivalents............ (1,733) 848
Cash and cash equivalents at beginning of period............ 5,411 4,046
------ ------
Cash and cash equivalents at end of period.................. $3,678 $4,894
====== ======
</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
April 30, 2000 and October 31, 1999, the results of operations for the three-
and six-month periods ended April 30, 2000 and 1999, and the cash flows for the
six-month periods ended April 30, 2000 and 1999.
The results of operations for the three- and six-month periods ended
April 30, 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: 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. In the second quarter of fiscal 2000, the cumulative net
earnings of Agilent Technologies since the July 31, 1999 measurement date began
to exceed the total estimated net costs to effect the spin-off. Net earnings of
Agilent Technologies for the period from July 31, 1999 through April 30, 2000
totaled $287 million (net of related tax expense of $174 million), and the
estimated net costs to effect the spin-off were $168 million (net of related tax
benefit of $32 million). Accordingly, the net of these two amounts, or $119
million, was recognized in the second quarter of fiscal year 2000. The net
earnings of Agilent Technologies for the period from May 1, 2000 through the
spin-off date of June 2, 2000, and any true-up of the estimated net costs to
effect the spin-off, will be reflected as net earnings from discontinued
operations in HP's results for the third quarter of fiscal 2000. Net earnings
from discontinued operations for the second quarter and first six months of
fiscal 1999 consisted only of the net earnings of Agilent Technologies.
6
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Net assets of discontinued operations are summarized below:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
---------- ------------
(IN MILLIONS)
<S> <C> <C>
Current assets........................................... $ 4,957 $ 3,538
Property, plant and equipment, net....................... 1,453 1,387
Other assets............................................. 811 619
Current liabilities...................................... (2,213) (1,681)
Other liabilities........................................ (1,219) (330)
------- -------
Net assets of discontinued operations.................... $ 3,789 $ 3,533
======= =======
</TABLE>
In the first quarter of fiscal 2000, HP provided net funding of
approximately $1.1 billion to Agilent Technologies. In November 1999, Agilent
Technologies completed 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 in 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.
In April 2000, HP's Board of Directors declared a stock dividend of HP's
remaining interest in Agilent Technologies to HP's stockholders of record as of
5:00 p.m. Eastern Daylight Time on May 2, 2000. On June 2, 2000, this
distribution was made on the basis of 0.3814 of a share of Agilent Technologies
common stock on each outstanding share of HP common stock. The decrease in the
intrinsic value of HP's employee stock plans attributable to the distribution of
Agilent Technologies was restored in accordance with the methodology set forth
in the Financial Accounting Standards Board (FASB) Emerging Issues Task Force
Issue 90-9, "Changes to Fixed Employee Stock Option Plans as a Result of Equity
Restructuring."
NOTE 3: ENHANCED EARLY RETIREMENT PROGRAM
In March 2000, HP offered 2,500 United States employees the opportunity to
retire early and receive an enhanced payout. The purpose of the enhanced early
retirement program was to balance the work force based on HP's long-term
business strategy. All employees who were offered the program were required to
accept the offer by April 20, 2000, and approximately 1,300 employees accepted
the offer. The cost of the enhanced payout of approximately $100 million was
recorded in the second quarter of fiscal 2000 upon employee acceptance of the
offer. Approximately $37 million was classified as cost of products sold and
services and approximately $63 million was classified as operating expenses
($16 million in research and development expense and $47 million in selling,
general and administrative expense). HP expects to realize related pension
settlement gains of approximately $25 million in the second half of fiscal 2000
as payments to the retirees are made from the pension plan assets.
NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
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
7
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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.
In March 2000, the FASB issued Interpretation No. 44 (FIN 44) "Accounting
for Certain Transactions involving Stock Compensation--an Interpretation of
Accounting Principles Board (APB) Opinion No. 25." FIN 44 clarifies the
application of APB Opinion No. 25. FIN 44 is effective July 1, 2000. Management
believes that FIN 44 will not have a material effect on the financial position
or results of operation of HP.
NOTE 5: 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 reporting 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.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
APRIL 30, APRIL 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Numerator:
Net earnings from continuing operations................... $ 816 $ 766 $1,610 $1,648
Adjustment for interest expense, net of income tax
effect.................................................. 8 4 15 11
------ ------ ------ ------
Net earnings from continuing operations, adjusted......... 824 770 1,625 1,659
Net earnings from discontinued operations................. 119 152 119 230
------ ------ ------ ------
Net earnings, adjusted.................................... $ 943 $ 922 $1,744 $1,889
====== ====== ====== ======
Denominator:
Weighted-average shares outstanding....................... 994 1,010 996 1,010
Effect of dilutive securities:
Dilutive options........................................ 37 30 35 29
Zero-coupon subordinated convertible notes due 2017..... 11 11 11 11
------ ------ ------ ------
Dilutive potential common shares........................ 48 41 46 40
------ ------ ------ ------
Weighted-average shares and dilutive potential common
shares.................................................. 1,042 1,051 1,042 1,050
====== ====== ====== ======
Net earnings per share--Continuing operations:
Basic..................................................... $ 0.82 $ 0.76 $ 1.62 $ 1.63
Diluted................................................... $ 0.79 $ 0.73 $ 1.56 $ 1.58
Net earnings per share--Discontinued operations:
Basic..................................................... $ 0.12 $ 0.15 $ 0.12 $ 0.23
Diluted................................................... $ 0.11 $ 0.15 $ 0.11 $ 0.22
Net earnings per share--Total:
Basic..................................................... $ 0.94 $ 0.91 $ 1.74 $ 1.86
Diluted................................................... $ 0.90 $ 0.88 $ 1.67 $ 1.80
Average number of shares and equivalents:
Basic..................................................... 994 1,010 996 1,010
Diluted................................................... 1,042 1,051 1,042 1,050
</TABLE>
8
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6: 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.
NOTE 7: MARKETABLE EQUITY INVESTMENTS
Investments in marketable corporate equity securities are considered
available-for-sale and are carried at market value, with unrealized gains and
losses, net of tax, included in other comprehensive income as a component of
stockholders' equity. Marketable equity securities totaling $232 million were
included in long-term investments and other assets at April 30, 2000. Proceeds
from sales of marketable equities were $47 million in the second quarter and
first half of fiscal 2000, and realized gains on sales of marketable equities
were $45 million in the same periods. The specific identification method is used
to account for gains and losses on marketable equity securities.
NOTE 8: INVENTORY
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
---------- ------------
(IN MILLIONS)
<S> <C> <C>
Finished goods........................................... $3,643 $3,581
Purchased parts and fabricated assemblies................ 1,342 1,282
------ ------
$4,985 $4,863
====== ======
</TABLE>
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 a
separate incremental plan authorizing purchases in the open market or in private
transactions. During the second quarter of fiscal 2000, 9.8 million shares were
repurchased under these plans for an aggregate price of $1.3 billion. In the
first half of fiscal 2000, 18.7 million shares were repurchased for an aggregate
price of $2.3 billion. In fiscal 1999, 6.7 million shares were repurchased for
an aggregate price of $463 million in the second quarter, and 10.9 million
shares were repurchased for an aggregate price of $728 million in the first half
of the year. The Board of Directors authorized an additional $2.0 billion in
repurchases under these two programs in the aggregate in November 1999, and an
additional $2.0 billion in May 2000. As of May 31, 2000, HP had remaining
authorization for future repurchases under the two programs of approximately
$3.2 billion.
10
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 10: COMPREHENSIVE INCOME
Comprehensive income consists of net earnings as well as other comprehensive
income. HP's other comprehensive income consists of unrealized gains and losses
on available-for-sale securities. Comprehensive income for the periods ended
April 30, 2000 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, 2000 APRIL 30, 2000
------------------ ----------------
(IN MILLIONS)
<S> <C> <C>
Net earnings................................ $935 $1,729
Net unrealized gain (loss) on
available-for-sale securities, net of
taxes..................................... (19) 124
---- ------
Comprehensive income........................ $916 $1,853
==== ======
</TABLE>
Comprehensive income for the three- and six-month periods ended April 30,
1999 consisted of net earnings only.
NOTE 11: SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
-------------------
2000 1999
-------- --------
(IN MILLIONS)
<S> <C> <C>
Cash paid for income taxes, net............................. $ 594 $ 1,013
Cash paid for interest...................................... 115 121
Non-cash transactions--issuance of common stock for employee
benefit plans:
Restricted stock.......................................... (73) (4)
Employer matching contributions for TAXCAP and employee
stock benefit plans..................................... 47 28
</TABLE>
NOTE 12: 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 emergence of next-generation appliances,
e-services and infrastructure. As of April 30, 2000, HP organized its operations
into four major businesses: Imaging and Printing Systems, Computing Systems, IT
Services, and Measurement Systems, each of which comprised a reportable segment.
The Measurement Systems business, now named Agilent Technologies, is reported in
these financial statements as a discontinued operation. For further discussion,
see Note 2 to the consolidated condensed financial statements.
In the second quarter of fiscal 2000, HP made certain strategic changes to
its organizational structure. These changes included the movement of our
appliances business from the Computing Systems segment to a separate operating
segment, and the movement of the majority of our services business related to
imaging and printing from the Imaging and Printing Systems segment to our IT
Services segment. The appliances operating segment is now included in "All
Other" as it does not meet
11
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
the materiality threshold for a reportable segment. Segment financial data for
all prior periods has been restated to reflect these organizational changes.
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 APRIL 30, 2000:
Net revenue from external customers............ $ 5,127 $4,988 $1,773 $302 $12,190
Intersegment net revenue....................... 2 99 24 46 171
------- ------ ------ ---- -------
Total net revenue............................ 5,129 5,087 1,797 348 12,361
======= ====== ====== ==== =======
Earnings (loss) from operations................ $ 694 $ 190 $ 149 $(11) $ 1,022
======= ====== ====== ==== =======
FOR THE THREE MONTHS ENDED APRIL 30, 1999:
Net revenue from external customers............ $ 4,683 $4,148 $1,582 $216 $10,629
Intersegment net revenue....................... 13 134 17 2 166
------- ------ ------ ---- -------
Total net revenue............................ 4,696 4,282 1,599 218 10,795
======= ====== ====== ==== =======
Earnings (loss) from operations................ $ 608 $ 119 $ 133 $(22) $ 838
======= ====== ====== ==== =======
FOR THE SIX MONTHS ENDED APRIL 30, 2000:
Net revenue from external customers............ $10,161 $9,834 $3,478 $544 $24,017
Intersegment net revenue....................... 3 164 42 70 279
------- ------ ------ ---- -------
Total net revenue............................ 10,164 9,998 3,520 614 24,296
======= ====== ====== ==== =======
Earnings (loss) from operations................ $ 1,389 $ 369 $ 323 $(23) $ 2,058
======= ====== ====== ==== =======
FOR THE SIX MONTHS ENDED APRIL 30, 1999:
Net revenue from external customers............ $ 9,120 $8,303 $3,138 $443 $21,004
Intersegment net revenue....................... 21 258 33 3 315
------- ------ ------ ---- -------
Total net revenue............................ 9,141 8,561 3,171 446 21,319
======= ====== ====== ==== =======
Earnings (loss) from operations................ $ 1,272 $ 351 $ 347 $(24) $ 1,946
======= ====== ====== ==== =======
ASSETS:
As of April 30, 2000........................... $ 6,524 $5,587 $7,626 $327 $20,064
======= ====== ====== ==== =======
As of October 31, 1999......................... $ 7,130 $5,846 $7,120 $250 $20,346
======= ====== ====== ==== =======
</TABLE>
12
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following is a reconciliation of segment information to HP consolidated
totals:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
NET REVENUE:
Total segments.......................................... $12,361 $10,795 $24,296 $21,319
Financing interest income reclassification.............. (89) (74) (171) (143)
Elimination of intersegment net revenue and other....... (244) (266) (424) (486)
------- ------- ------- -------
Total HP consolidated................................. $12,028 $10,455 $23,701 $20,690
======= ======= ======= =======
EARNINGS FROM CONTINUING OPERATIONS BEFORE TAXES:
Total segment earnings from operations.................. $ 1,022 $ 838 $ 2,058 $ 1,946
Net financing interest reclassification................. (39) (32) (78) (62)
Interest income and other, net.......................... 210 194 373 343
Interest expense........................................ (40) (45) (96) (92)
Corporate and unallocated costs, and eliminations....... (93) 89 (138) 108
------- ------- ------- -------
Total HP consolidated................................. $ 1,060 $ 1,044 $ 2,119 $ 2,243
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
---------- ------------
(IN MILLIONS)
<S> <C> <C>
ASSETS:
Total segments.............................................. $20,064 $20,346
Assets not allocated to segments:
Cash and cash equivalents................................. 3,678 5,411
Short-term investments and long-term investments in debt
securities.............................................. 1,138 1,192
Other corporate........................................... 5,439 4,815
------- -------
Total assets from continuing operations..................... 30,319 31,764
Net assets of discontinued operations....................... 3,789 3,533
------- -------
Total HP consolidated..................................... $34,108 $35,297
======= =======
</TABLE>
13
<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 REFLECT THE CURRENT
VIEW OF HP WITH RESPECT TO FUTURE EVENTS. THESE STATEMENTS ARE SUBJECT TO RISKS,
UNCERTAINTIES AND ASSUMPTIONS THAT ARE 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 AND SUBSEQUENTLY
FILED QUARTERLY REPORTS. IF ANY OF THESE RISKS OR UNCERTAINTIES MATERIALIZE OR
ANY OF THESE ASSUMPTIONS PROVE INCORRECT, HP'S RESULTS COULD DIFFER MATERIALLY
FROM HP'S EXPECTATIONS IN THESE STATEMENTS. HP DOES NOT INTEND TO UPDATE THESE
FORWARD-LOOKING STATEMENTS.
As more fully discussed in Note 2 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 the former HP 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
completed an initial public offering (IPO) of approximately 16% of its common
stock. On April 7, 2000, HP's Board of Directors declared a stock dividend of
HP's remaining interest in Agilent Technologies to HP's stockholders of record
as of 5:00 p.m. Eastern Daylight Time on May 2, 2000. On June 2, 2000, this
distribution was made on the basis of 0.3814 of a share of Agilent Technologies'
common stock on each outstanding share of HP common stock. 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
Net revenue for the second quarter ended April 30, 2000, was $12.0 billion,
an increase of 15% 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 19% in the second quarter of 2000,
compared with a year ago, while the IT Services segment grew 12%, and the
Imaging and Printing Systems segment grew 9%. Overall, product sales for the
second quarter increased 15%, and service revenue grew 16% over the
corresponding period in fiscal 1999. International revenue grew 14% over the
prior year to $6.7 billion, and U.S. revenue increased 17% to $5.3 billion.
Strong international growth was fueled primarily by the economic improvement in
Asia. Fluctuations in foreign currency rates adversely impacted year-over-year
revenue growth for the company as a whole by approximately two percentage
points.
For the first half of fiscal 2000, net revenue was $23.7 billion, an
increase of 15% over the first half of 1999, reflecting revenue growth across
all the business segments. Net revenue for Computing Systems grew 17% over the
prior year, and net revenue for each of the Imaging and Printing Systems and the
IT Services segments increased 11%. Product sales for the first half of 2000
increased 15% over the same period in 1999, while service revenue grew 14%. U.S.
revenue increased 15% over 1999 to $10.3 billion. International revenue grew 15%
to $13.4 billion. On a year-to-date basis, fluctuations in currency rates had a
minimal impact on revenue growth for the company as a whole.
14
<PAGE>
Costs, expenses and earnings as a percentage of net revenue were as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
APRIL 30, APRIL 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cost of products sold and services.......... 71.5% 69.8% 71.5% 69.4%
Research and development.................... 5.6% 6.1% 5.4% 5.8%
Selling, general and administrative......... 15.6% 15.6% 15.3% 15.1%
Earnings from operations.................... 7.4% 8.6% 7.8% 9.6%
Net earnings from continuing operations..... 6.8% 7.3% 6.8% 8.0%
</TABLE>
In March 2000, HP offered 2,500 United States employees the opportunity to
retire early and receive an enhanced payout. The purpose of the enhanced early
retirement program was to balance the work force based on HP's long-term
business strategy. All employees who were offered the program were required to
accept the offer by April 20, 2000, and approximately 1,300 employees accepted
the offer. The cost of the enhanced payout of approximately $100 million was
recorded in the second quarter of fiscal 2000. This charge consisted of
approximately $37 million classified as cost of products sold and services and
approximately $63 million classified as operating expenses ($16 million in
research and development expense, and $47 million in selling, general and
administrative expense). HP expects to realize related pension settlement gains
of approximately $25 million in the second half of fiscal 2000 as payments to
the retirees are made from the pension plan assets.
Cost of products sold and services as a percentage of net revenue was 71.5%
in both the second quarter and first half of fiscal 2000, compared with 69.8% in
the second quarter of 1999 and 69.4% in the first half of 1999. As discussed
above, a portion of the charges related to our enhanced early retirement program
were included in cost of products sold and services in the second quarter of
fiscal 2000. These charges had an unfavorable impact of 0.3 percentage points on
the ratio in the second quarter, and a 0.2 percentage point impact in the first
half of fiscal 2000. The remaining percentage point increases in the ratio in
both the quarter and year-to-date periods were driven primarily by the Computing
Systems and Imaging and Printing Systems segments. HP expects cost of products
sold and services as a percentage of net revenue to remain at the same level or
improve slightly in the second half of fiscal 2000. Favorable projected impacts
of product mix changes and supply chain improvements are expected to be offset
at least partially by continued competitive pricing pressures.
Total operating expenses, composed of research and development and selling,
general and administrative expenses, were $2.5 billion for the second quarter of
2000, an increase of 12% over the second quarter of fiscal 1999. Operating
expenses were $4.9 billion for the first half of 2000, a 13% increase over the
first half of 1999. The early retirement program discussed above, in addition to
higher stock appreciation rights expense and costs incurred to effect the
spin-off of Agilent Technologies, contributed approximately 4 percentage points
to the operating expense growth in the second quarter of 2000 and approximately
3 percentage points for the first half of 2000. The higher stock appreciation
rights expense resulted from an increase in HP's stock price of 25% during the
second quarter and 82% in the first half of fiscal 2000. The spin-off costs
consisted primarily of retention incentives given to continuing HP employees
involved in effecting the transaction.
Research and development expense grew 6% in both the second quarter and
first half of fiscal 2000 over the prior year due primarily to an increase in
spending that reflects our continuing investment in design and development of
new technologies in computing systems, imaging and printing systems and digital
media. Selling, general and administrative expenses increased 15% in the second
quarter and 16% in the first half of fiscal 2000 over the corresponding periods
in fiscal 1999. Adjusted for the costs of the early retirement program, the
incremental effect of stock appreciation rights and costs to effect the Agilent
Technologies spin-off, selling, general and administrative expenses increased
15
<PAGE>
9% in the second quarter and 12% in the first half of fiscal 2000. The adjusted
growth for both the three- and six-month periods was attributable to higher
selling expenses to support business growth and increased marketing expenses to
support our corporate branding initiative and e-services strategy.
HP's effective tax rate was 24% for the first half of fiscal 2000,
reflecting the tax rate expected for the full fiscal year. The tax rate was 23%
in the second quarter of 2000. In 1999, the full-year effective tax rate was
26%, and the rate was 26.5% in both the second quarter and first half of the
year. The year-to-year decrease in HP's effective tax rate was primarily the
result of changes in the mix of our pre-tax earnings in various tax
jurisdictions throughout the world.
Net earnings from continuing operations increased 7% to $816 million in the
second quarter of fiscal 2000 compared with the same period in fiscal 1999. As a
percentage of net revenue, net earnings from continuing operations was 6.8% in
the second quarter of 2000, compared with 7.3% in the same quarter in fiscal
1999. For the first six months of 2000, net earnings from operations decreased
2% to $1,610 million from $1,648 million in 1999. As a percentage of net
revenue, net earnings from continuing operations for the six-month period
decreased to 6.8% in 2000 from 8.0% in the same period in 1999.
In the second quarter of fiscal 2000, the cumulative net earnings of Agilent
Technologies since the July 31, 1999 measurement date began to exceed the total
estimated net costs to effect the spin-off. Net earnings of Agilent Technologies
for the period from July 31, 1999 through April 30, 2000 totaled $287 million
(net of related tax expense of $174 million), and the estimated net costs to
effect the spin-off were $168 million (net of related tax benefit of
$32 million). Accordingly, the net of these two amounts, or $119 million, was
recognized in the second quarter of fiscal year 2000. The net earnings of
Agilent Technologies for the period from May 1, 2000 through the spin-off date
of June 2, 2000, and any true-up of the estimated net costs to effect the
spin-off, will be reflected as net earnings from discontinued operations in HP's
results for the third quarter of fiscal 2000. Net earnings from discontinued
operations for the second quarter and first six months of fiscal 1999 consisted
only of the net earnings of Agilent Technologies. See Note 2 to the consolidated
condensed financial statements for further information.
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 12 to these consolidated condensed financial
statements. The financial data for the 1999 periods and the first quarter of
2000 have been restated to reflect changes in HP's organizational structure that
occurred during the second quarter of fiscal 2000 which are more fully described
in Note 10 to the consolidated condensed financial statements. The reportable
segments disclosed in this Form 10-Q are based on HP's management organizational
structure as of April 30, 2000. Future changes to this organizational structure
may result in changes to the reportable segments disclosed.
IMAGING AND PRINTING SYSTEMS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED APRIL 30, ENDED APRIL 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net revenue................................ $5,129 $4,696 $10,164 $9,141
Earnings from operations................... $ 694 $ 608 $ 1,389 $1,272
</TABLE>
Imaging and Printing Systems' net revenue grew 9% for the quarter ended
April 30, 2000 compared with the same period in 1999. For the first six months
of fiscal year 2000, Imaging and
16
<PAGE>
Printing's net revenue increased 11% over the 1999 period. Net revenue growth in
both the three- and six-month periods was driven primarily by strong sales of
printer supplies. Printer hardware, particularly in the home category, also
contributed to the increase. Despite strong printer hardware unit growth,
revenue growth was somewhat constrained by declines in average selling prices
and a shift to low-end products. In addition, unfavorable foreign currency
effects, particularly in Europe, moderated the segment's revenue growth in the
second quarter.
Net revenue growth in printer supplies in both the second quarter and first
half of fiscal 2000 reflected continued growth in the installed base and
increased usage of recently introduced products. Net revenue growth in printer
hardware was driven primarily by the performance of the home category and color
laser printers. Strong revenue growth in HP Photosmart and all-in-one products
contributed to growth in the home printer category, as did excellent unit growth
in DeskJet printers. Partially offsetting these revenue increases was a decline
in office products' revenue, reflecting slower monochrome laser sales. Strong
growth in color laser printers mitigated this result to some degree. A
contributing factor in the revenue decrease in office products was our recently
introduced automatic inventory replenishment program, which had the effect of
reducing channel inventory during the first half of fiscal 2000. This program is
designed to enhance our supply-chain strategy going forward.
Earnings from operations as a percentage of net revenue was 13.5% for the
quarter ended April 30, 2000, compared with 12.9% for the same period in 1999.
For the first six months of the year, earnings from operations was 13.7% in
fiscal 2000, compared with 13.9% in 1999. The ratios in the second quarter and
first half of fiscal 2000 were negatively impacted by a shift toward
lower-margin home printers and higher component costs related to the strong
Japanese yen, partially offset by strong sales of higher-margin printer
supplies. In the second quarter of 2000, these higher costs of products and
services were more than offset by lower operating expenses as a percentage of
revenue due to strong expense controls in all areas as well as improved
operational efficiencies in sales and marketing.
COMPUTING SYSTEMS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED APRIL 30, ENDED APRIL 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net revenue................................. $5,087 $4,282 $9,998 $8,561
Earnings from operations.................... $ 190 $ 119 $ 369 $ 351
</TABLE>
Computing Systems' net revenue increased 19% for the quarter ended
April 30, 2000 compared with the same period in 1999. For the first six months
of fiscal 2000, Computing Systems' net revenue increased 17% over the 1999
period. Strong performance in home and notebook PCs and
UNIX-Registered Trademark- server products drove the overall growth in both the
three- and six-month periods of 2000. This performance was partially offset by a
continued shift to low-end products, declines in PC average selling prices and
the continued effects of the transition to a new enterprise storage strategy.
Computing Systems' net revenue growth benefited from very strong unit
shipments of home and notebook PCs in both the three- and six-month periods of
fiscal 2000 compared with the 1999 periods. Growth in home PCs was driven by
favorable acceptance of new products launched in the first quarter of fiscal
2000 aided by the exit of two major competitors from the retail market. Notebook
PCs continued to benefit from strong sales of the base portfolio as well as
growth in the retail notebook line. In addition, excellent performance in
entry-level and mid-level UNIX-Registered Trademark-(1) servers favorably
impacted revenue in the second quarter of 2000. High-end
UNIX-Registered Trademark- servers posted good growth in the first quarter of
fiscal 2000, but sales declined in the second quarter compared with the second
quarter of 1999 which we believe is due to customer anticipation of the new
high-end server that we expect to
------------------------
(1) UNIX is a registered trademark of the Open Group.
17
<PAGE>
introduce later this calendar year. Revenue growth in the second quarter and
first six months of 2000 was partially offset by the continued effects of the
transition to our new high-end enterprise storage strategy, and by the flat
revenue performance of business desktop PCs compared with the prior year due to
declining average selling prices which offset growth in unit sales.
Earnings from operations as a percentage of net revenue was 3.7% for the
quarter ended April 30, 2000, compared with 2.8% for the same period in 1999.
Improved operating efficiencies resulted in lower operating expenses as a
percentage of net revenue. This favorable impact was partially offset by a
higher cost of sales percentage due to a continued shift to lower-margin
products and declines in average selling prices, moderated by favorable margins
on UNIX-Registered Trademark- servers. For the first six months of the year,
earnings from operations was 3.7% in 2000, compared with 4.1% in 1999. This
decrease in the earnings from operations ratio was attributable to higher memory
costs for business desktop PCs and PC servers experienced during the first
quarter, as well as the shift to lower-margin products and declines in average
selling prices. This decline 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 SIX MONTHS
ENDED APRIL 30, ENDED APRIL 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net revenue................................. $1,797 $1,599 $3,520 $3,171
Earnings from operations.................... $ 149 $ 133 $ 323 $ 347
</TABLE>
IT Services' net revenue increased 12% in the second quarter and 11% in the
first half of 2000 compared with the same periods in 1999. The growth in net
revenue was primarily driven by solid performances in customer support,
including mission-critical and networking services, as well as outsourcing
services such as systems and network management and enterprise resource planning
(ERP). Additionally, IT Services overall growth reflected strength in the
UNIX-Registered Trademark- business through an increase in support contracts and
customer financing arrangements.
Earnings from operations as a percentage of net revenue was 8.3% for the
second quarter of 2000, flat with the same period in 1999. For the first half of
2000, earnings from operations decreased to 9.2% from 10.9% in 1999. Both the
three-and six-month periods of fiscal 2000 were unfavorably impacted by lower
margins on our desktop financing business and an increase in consulting hiring
to support future growth. In addition, marketing expenses related to HP's
e-services and branding initiatives also contributed to the decline in earnings
from operations as a percentage of net revenue for these periods as compared
with 1999. However, cost of products and services improvements in our Services
and Support businesses offset these negative impacts in the second quarter of
fiscal 2000. These margin improvements resulted from improved consulting
engagement cost management and greater leverage in outsourcing.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.
Our financial position remained strong, with cash and cash equivalents and
short-term investments of $3.9 billion at April 30, 2000, compared with $5.6
billion at October 31, 1999. During the first six months of fiscal 2000, cash
flows from operating activities were used to pay down short- and long-term debt,
fund repurchases of our common stock and purchase property, plant and equipment.
Cash flows from operating activities were $2.1 billion during the first six
months of fiscal 2000 compared with $1.8 billion for the corresponding period of
fiscal 1999. The increase in cash flows from operating activities in the first
six months of fiscal 2000 resulted primarily from the collection of receivables
and favorable fluctuations in accounts payable.
Inventory as a percentage of net revenue declined to 11.0% at April 30,
2000, from 12.1% at April 30, 1999 and 11.5% at October 31, 1999. The decline in
the ratio is attributable to continued progress in supply-chain management.
Trade and financing receivables as a percentage of net revenue were 16.5%, up
slightly from 16.2% at April 30, 1999, but down significantly from 18.5% at
year-end. The ratio at year-end reflected a relatively high level of receivables
due to seasonal fluctuations.
Capital expenditures for the first six months of fiscal 2000 were $763
million, compared with $429 million for the corresponding period in fiscal 1999.
Net property, plant and equipment as a percentage of net revenue was 9.6% at
April 30, 2000 compared with 11.3% at April 30, 1999 and 10.2% at October 31,
1999. This decline reflects our continuing effort to streamline operations
through outsourcing and consolidating activities, improving space utilization
and reducing asset intensity to build flexibility into its balance sheet.
We invest 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 six months of fiscal 2000 decreased by $2.4 billion, as cash and
net receipts from maturities of short-term investments were used to pay down
short-term debt. Long-term debt totaling $342 million matured as scheduled in
the first six months of fiscal 2000. At April 30, 2000, we had an unused
committed borrowing facility in place totaling $1.0 billion.
In March 2000, we filed a shelf registration statement (the Shelf) with the
Securities and Exchange Commission to register $3.0 billion of debt securities,
common stock, preferred stock, depositary shares and warrants. The Shelf was
declared effective on March 17, 2000. On June 6, 2000, we offered under the
Shelf $1.5 billion of unsecured 7.15% Global Notes (the Notes) which mature
June 15, 2005, unless previously redeemed. This offering is expected to close on
June 9, 2000. The net proceeds from the sale of the Notes, estimated to be
approximately $1,489 million, will be used for general corporate purposes, which
may include repayment of existing indebtedness; acquisitions of products,
technology and businesses; capital expenditures and meeting working capital
needs. After the completion of this offering, we will have the capacity to issue
$1.5 billion of securities under the Shelf.
We repurchase shares of our common stock under a systematic program to
manage the dilution created by shares issued under employee stock plans and a
separate incremental plan authorizing purchases in the open market or in private
transactions. During the second quarter of fiscal 2000, 9.8 million shares were
repurchased under these plans for an aggregate price of $1.3 billion. In the
first half of fiscal 2000, 18.7 million shares were repurchased for $2.3
billion. In fiscal 1999, 6.7 million shares were repurchased for $463 million in
the second quarter, and 10.9 million shares were repurchased for a total of $728
million in the first half of the year. The Board of Directors authorized an
additional $2.0 billion in repurchases under these two programs in the aggregate
in November 1999, and an additional $2.0 billion in May 2000. As of May 31,
2000, HP had remaining authorization for future repurchases under the two
programs of approximately $3.2 billion.
19
<PAGE>
In the first quarter of fiscal 2000, we provided net funding of
approximately $1.1 billion to Agilent Technologies. In November 1999, Agilent
Technologies completed an initial public offering of approximately 16% of its
common stock and distributed the net proceeds of approximately $2.1 billion to
us.
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, we 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
20
<PAGE>
transition from current products to new products difficult are delays in product
development or manufacturing, variations in product costs and 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 adversely 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.
21
<PAGE>
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 derivatives for trading purposes. We are also
exposed to equity securities price risk on our portfolio of marketable equity
securities. We typically do not attempt to reduce or eliminate our market
exposure on these securities. 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 April 30,
2000 and October 31, 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 adversely 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
22
<PAGE>
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,
- Changes in revenue or earnings estimates by the investment community, and
- Speculation in the press or investment community about our financial
condition or results of operations.
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.
SPIN-OFF OF AGILENT TECHNOLOGIES. On June 2, 2000, HP distributed to its
stockholders of record as of 5:00 p.m. Eastern Daylight Time on May 2, 2000,
substantially all of the common stock of Agilent Technologies owned by HP. 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.
ADOPTION OF THE EURO
HP had 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 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.
23
<PAGE>
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--Market Risk."
24
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 29, 2000 the Annual Meeting of Stockholders was held in
Cupertino, California. Of the 1,004,949,833 outstanding shares of HP common
stock which were entitled to a vote, 864,825,651 shares were represented at the
meeting or by proxy. The voting results are presented below.
An election of directors was held with the following individuals being
elected to the board of directors:
<TABLE>
<CAPTION>
NAME SHARES VOTED FOR VOTES WITHHELD
---- ---------------- --------------
<S> <C> <C>
Philip M. Condit................................ 858,058,620 6,399,479
Patricia C. Dunn................................ 858,479,575 5,978,524
Carleton S. Fiorina............................. 855,818,284 8,639,786
Sam Ginn........................................ 858,492,877 5,965,222
Richard A. Hackborn............................. 857,103,768 7,362,935
Walter B. Hewlett............................... 859,850,262 7,537,437
George A. Keyworth II........................... 858,317,408 6,140,691
Susan Packard Orr............................... 857,012,611 7,811,688
Robert P. Wayman................................ 856,387,929 8,073,770
</TABLE>
The nine individuals who received the highest number of votes (all of the
above individuals) were elected to the Board of Directors.
The stockholders ratified the appointment of PricewaterhouseCoopers LLP as
HP's independent accountants for the fiscal year ended October 31, 2000. There
were 858,510,163 votes cast for the ratification, 2,058,077 votes cast against,
4,257,411 abstentions, and no broker nonvotes.
The stockholders approved the Hewlett-Packard Company 2000 Stock Plan and
the reservation of shares for issuance under the plan. There were 483,099,776
votes cast to approve the plan, 262,443,911 votes cast against, 7,365,859
abstentions, and 111,916,105 broker nonvotes.
The stockholders approved the Hewlett-Packard Company 2000 Employee Stock
Purchase Plan and the reservation of shares for issuance under the plan. There
were 702,689,023 votes cast to approve the plan, 44,764,485 votes cast against,
5,502,660 abstentions, and 111,869,483 broker nonvotes.
The stockholders approved the Hewlett-Packard Company Pay-for-Results Plan.
There were 829,063,545 votes cast to approve the plan, 29,654,685 votes cast
against, 6,104,767 abstentions, and 2,654 broker nonvotes.
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 26 of
this report.
(b) Reports on Form 8-K:
On April 11, 2000, HP filed a Form 8-K reporting that a press release was
issued on April 7, 2000. The press release stated that the Board of Directors
approved the declaration of a dividend of all of HP's shares of Agilent
Technologies common stock, to be distributed on June 2, 2000 to HP stockholders
of record as of 5:00 p.m. Eastern Daylight Time on May 2, 2000.
On May 12, 2000, HP filed a Form 8-K reporting that an information statement
regarding the spin-off of Agilent Technologies was issued on May 11, 2000. The
information statement contained descriptions of the spin-off, certain tax
consequences of the spin-off, Agilent Technologies' business and Agilent
Technologies' common stock.
On June 5, 2000, HP filed a Form 8-K reporting that a press release was
issued on June 2, 2000. The press release stated that the distribution of
substantially all of HP's shares of Agilent Technologies common stock had been
completed.
25
<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.
<TABLE>
<S> <C> <C>
HEWLETT-PACKARD COMPANY
(Registrant)
By: /s/ ROBERT P. WAYMAN
------------------------------------------------
Robert P. Wayman
EXECUTIVE VICE PRESIDENT,
FINANCE AND ADMINISTRATION AND CHIEF FINANCIAL
OFFICER
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
Dated: June 8, 2000
26
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<S> <C>
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>
27
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<S> <C>
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.*
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<S> <C>
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.*
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 Not applicable.
12 Statement of Computation of Ratio of Earnings to Fixed
Charges.
13-17 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.
29
