SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
___
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended JulyJanuary 31, 19961997
OR
___
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ___________ to __________
Commission file number: 1-4423
HEWLETT-PACKARD COMPANY
----------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-1081436
- ------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3000 Hanover Street, Palo Alto, California 94304
- ------------------------------------------ --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 857-1501
--------------
__________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at JulyJanuary 31, 19961997
- ------------------- ------------------------------------------------------- -------------------------------
Common Stock, $1 par value 1.02 billion shares
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
INDEX
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Page No.
________
Part I. Financial Information
Item 1. Financial Statements.
Consolidated Condensed Balance Sheet
JulyJanuary 31, 19961997 (Unaudited) and October 31, 19951996 2
Consolidated Condensed Statement of Earnings (Unaudited)
Three months ended January 31, 1997 and nine months ended July 31, 1996 and 1995 3
Consolidated Condensed Statement of Cash Flows (Unaudited)
NineThree months ended JulyJanuary 31, 19961997 and 19951996 4
Notes to Consolidated Condensed Financial Statements
(Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations and Factors That May Affect Future
Results (Unaudited). 6-10
Part II. Other Information
Item 5. Other Information.4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K. 11
Signature 12
Exhibit Index 13
1
Item 1. Financial Statements.
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
------------------------------------
(Millions except par value and number of shares)
JulyJanuary 31 October 31
1997 1996
1995
--------------------- ----------
Assets (Unaudited)
------
Current assets:
Cash and cash equivalents $ 1,8572,789 $ 1,9732,885
Short-term investments 1,857 64370 442
Accounts and notes receivable 6,546 6,7356,841 7,126
Inventories:
Finished goods 4,136 3,3683,958 3,956
Purchased parts and fabricated assemblies 2,757 2,6452,274 2,445
Other current assets 1,100 8751,254 1,137
------- -------
Total current assets 18,253 16,23917,186 17,991
------- -------
Property, plant and equipment (less accumulated
depreciation: JulyJanuary 31, 1997 - $4,831;
October 31, 1996 - $4,556;
October 31, 1995 - $4,036) 5,213 4,711$4,662) 5,634 5,536
Long-term investments and other assets 3,858 3,4774,336 4,172
------- -------
$27,324 $24,427$27,156 $27,699
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Notes payable and short-term borrowings $ 3,303380 $ 3,2142,125
Accounts payable 2,109 2,4222,223 2,375
Employee compensation and benefits 1,525 1,5681,563 1,675
Taxes on earnings 1,517 1,4942,050 1,514
Deferred revenues 982 7821,100 951
Other accrued liabilities 1,981 1,4642,082 1,983
------- -------
Total current liabilities 11,417 10,9449,398 10,623
------- -------
Long-term debt 1,971 6632,584 2,579
Other liabilities 1,047 9811,062 1,059
Shareholders' equity:
Preferred stock, $1 par value; 300,000,000
shares authorized; none issued
Common stock and capital in excess of $1 par
value; 2,400,000,000 shares authorized;
1,016,814,0001,016,182,000 and 1,019,910,0001,014,123,000 shares issued
and outstanding at JulyJanuary 31, 19961997 and October
31, 1995, respectively* 1,105 1,3811996, respectively 1,020 1,014
Retained earnings* 11,784 10,458earnings 13,092 12,424
------- -------
Total shareholders' equity 12,889 11,83914,112 13,438
------- -------
$27,324 $24,427$27,156 $27,699
======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
* 1995 amounts have been restated to reflect the retroactive effect of the
July 1996 2-for-1 stock split. See Note 5 for a discussion of the stock
split.
2
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
--------------------------------------------
(Unaudited)
(Millions except per share amounts)
Three months ended
Nine months ended
July 31 JulyJanuary 31
------------------
-----------------
1997 1996 1995 1996 1995
---- ----
---- ----
Net revenue:
Products $7,783 $6,606 $24,404 $19,230$ 8,825 $ 8,040
Services 1,322 1,133 3,869 3,241
------ ------1,470 1,248
------- -------
9,105 7,739 28,273 22,471
------ ------10,295 9,288
------- -------
Costs and expenses:
Cost of products sold and
services 6,194 4,907 18,680 14,1086,694 5,988
Research and development 708 587 2,011 1,678699 612
Selling, general and
administrative 1,592 1,421 4,735 4,054
------ ------1,621 1,493
------- -------
8,494 6,915 25,426 19,840
------ ------9,014 8,093
------- -------
Earnings from operations 611 824 2,847 2,6311,281 1,195
Interest income and other, net 89 96 188 15576 37
Interest expense 84 53 227 146
------ ------54 70
------- -------
Earnings before taxes 616 867 2,808 2,6401,303 1,162
Provision for taxes 191 291 870 885
------ ------391 372
------- -------
Net earnings $ 425912 $ 576 $ 1,938 $ 1,755
====== ======790
======= =======
Net earnings per share* $ .40.87 $ .55 $ 1.84 $ 1.67
====== ======.75
======= =======
Cash dividends declared per share* $ .24 $ .10 $ .44 $ .35
====== ======.20
======= =======
Average shares and equivalents
used in computing net earnings
per share* 1,053 1,054 1,0531,047 1,052
====== ======
======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
* 19951996 amounts have been restated to reflect the retroactive effect of the
July 1996 2-for-1 stock split. See Note 5 for a discussion of the stock
split.
3
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
----------------------------------------------
(Unaudited)
(Millions)
NineThree months ended
JulyJanuary 31
-----------------------------------
1997 1996 1995
---- ----
Cash flows from operating activities:
Net earnings $1,938 $1,755$ 912 $ 790
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 931 822335 289
Deferred taxes on earnings (146) (99)(195) (55)
Change in assets and liabilities:
Accounts and notes receivable 198 (643)314 263
Inventories (848) (1,215)169 (743)
Accounts payable (321) 475(152) (270)
Taxes on earnings 60 290509 198
Other current assets and liabilities 213 181(102) 73
Other, net 18 (125)20 73
------ ------
Net cash provided by operating activities 2,043 1,4411,810 618
------ ------
Cash flows from investing activities:
Investment in property, plant and equipment (1,500) (1,050)(513) (429)
Disposition of property, plant and equipment 249 218146 138
Purchases of short-term investments (5,842) (2,293)(412) (1,959)
Maturities of short-term investments 4,747 2,668
Purchases of long-term investments (344) (206)784 1,824
Other, net 17 (58)18 (6)
------ ------
Net cash used inprovided by (used in) investing 23 (432)
activities (2,673) (721) ------ ------
Cash flows from financing activities:
Change in notes payable and short-term borrowings 44 244(1,760) 186
Issuance of long-term debt 1,360 40634 441
Payment of current maturities of long-term debt (24) (266)(14) (2)
Issuance of common stock under employee stock plans 267 258106 86
Repurchase of common stock (802) (384)(172) (309)
Dividends (328) (256)(122) (103)
Other, net (3)(1) -
------ ------
Net cash (used in) provided by financing (1,929) 299
activities 514 2 ------ ------
(Decrease)/Increase in cash and cash equivalents (116) 722(96) 485
Cash and cash equivalents at beginning of period 2,885 1,973 1,357
------ ------
Cash and cash equivalents at end of period $1,857 $2,079$2,789 $2,458
====== ======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
4
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. In the opinion of the Company's management, the accompanying
consolidated condensed financial statements contain all adjustments
(which comprise only normal and recurring accruals) necessary to
present fairly the financial position as of JulyJanuary 31, 19961997 and
October 31, 1995,1996, the results of operations for the three months
ended January 31, 1997 and nine months ended July 31, 1996, and 1995, and the cash flows for the ninethree
months ended JulyJanuary 31, 19961997 and 1995.1996.
The results of operations for the three months and nine months
ended JulyJanuary 31, 19961997
are not necessarily indicative of the results to be expected for the
full year.
2. Net earnings per share are computed using the weighted-average
number of common shares and common share equivalents outstanding
during each period. Common share equivalents represent the dilutive
effect of outstanding stock options.
3. Income tax provisions for interim periods are based on estimated
effective annual income tax rates. The effective income tax rate
varies from the U.S. federal statutory income tax rate primarily
because of variations in the tax rates on foreign income.
4. The Company paid interest of $194$107 million and $132$58 million during
the ninethree months ended JulyJanuary 31, 19961997 and 1995,1996, respectively.
During the same periods, the Company paid income taxes of $899$47
million and $839$208 million, respectively. The effect of foreign
currency exchange rate fluctuations on cash balances held in foreign
currencies was not material.
5. On May 17, 1996, the Company's Board of Directors approved a 2-for-1
stock split of the Company's $1 par value common stock in the form
of a 100 percent distribution to shareholders of record as of June 21,
1996. As a result of the stock split, which took effect in July
1996, authorized, outstanding, and reserved common shares doubled
and retained earnings was reduced by the par value of the additional
common shares issued. The rights of the holders of these securities
were not otherwise modified. All sharereferences in the consolidated
statement of earnings for the period ended January 31, 1996 to number
of shares and per share amounts and
October 31, 1995 common stock and retained earnings balances, have
been restated to reflect the retroactive effect of the stock split.
6. In December 1995, the Company acquired all of the outstanding shares
of common stock of Convex Computer Corporation ("Convex") in exchange
for 3,056,000 shares of the Company's common stock. Convex designs,
manufactures, markets and supports high performance computersstock have
been restated.
6. The Company accounts for engineering, scientific and technical users. The merger has been
accounted forits employee stock compensation plans using
the pooling-of-interests method. However, the
accompanying consolidated condensed financial statements have not
been restated dueintrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to immateriality. Convex's accumulated deficit
and results of operations have been included in the Company's
consolidated condensed financial statements commencing from the
effective date of the merger.
7.Employees." In October
1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("FAS 123")(SFAS 123), "Accounting for
Stock-Based Compensation.Compensation," which is effective for fiscal year 1997.
Under SFAS 123 companies may elect, but are not required, to use a
fair value methodology to recognize compensation expense for all
stock-based awards. The Company is required
to adopt FASwill implement the disclosure-only
provisions of SFAS 123 byeffective with its annual financial statements
for fiscal 1997, and upon adoption will elect to
continue to measure compensation cost for its employee stock
compensation plans using the intrinsic value-based method of
accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Pro forma
disclosure of net earnings and net earnings per share will reflect
the difference between compensation cost included in net earnings
and the related cost measured by the fair-value based method
defined in FAS 123, including tax effects, that would have been
recognized in the consolidated statement of earnings if the fair
value-based method had been used.year 1997.
5
Item 2. Management's Discussion and Analysis of Financial Condition,
Results of Operations and Factors That May Affect Future Results
(Unaudited).
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
- ---------------------
Net Revenue - Net revenue for the third quarter ended July 31, 1996first three months of fiscal 1997 was
$9.1$10.3 billion, an increase of 1811 percent from the same period of fiscal
1995.1996. Product sales increased 1810 percent and service revenue grew 1718
percent over the corresponding period of fiscal 1995.1996. Net revenue grew
9 percent to $6.0 billion internationally and 14 percent to $4.9 billion internationally and 23 percent to $4.2 billion
in the U.S.
Net revenue for the first nine months of fiscal 1996 was $28.3 billion,
an increase of 26 percent from the same period of fiscal 1995. Product
sales increased 27 percent and service revenue grew 19 percent over the
corresponding period of fiscal 1995. Net revenue grew 25 percent to
$16.0 billion internationally and 27 percent to $12.3$4.3 billion
in the U.S.
The first quarter growth in net revenue for the third quarter and first nine months of
fiscal 1996 was due principally due to strong demand for thegrowth
in home and desktop PCs, PC servers, UNIX(R) systems, and service and
support. The Company's printer products groups grew moderately, with
supplies leading growth. The Company's slower revenue growth, as compared
to the same period in the prior year, is attributable to slower market
growth in some geographies, intensified competitive pricing pressures, and
related supplies, personal computer products, PC and UNIX
servers, test and measurement products, and professional services and
consulting.declines in average selling prices for some of the Company's products.
Fluctuations in foreign currency exchange rates also unfavorably impacted
the Company's net revenue growth.
Costs and Expenses - Cost of products sold and services as a percentage
of net revenue was 68.0 percent for the third quarter and 66.165.0 percent for the first nine monthsquarter of fiscal 1996,1997,
compared to 63.4 percent for
the third quarter and 62.864.5 percent for the first nine monthsquarter of fiscal 1995. These increases over1996, a .5
percentage point increase. This compares to a 2.2 percentage point
year-over-year increase experienced in the year-ago periods werefirst quarter of fiscal 1996.
The decline in the resultrate of continuedincrease is due to a lessening in competitive
pricing pressures an ongoingin the PC businesses, favorable component pricing in the
PC and printer businesses, and a favorable shift in the Company's product
sales mix of
products sold towards lower gross margin product families, and transition
costs for continued introductions of newto higher-gross-margin products. Specifically in the
third quarter, excess supply in the channel exacerbated pricing pressures
on inkjet printers, causing the Company to reduce prices significantly.
In addition, the general slowdown in certain businesses such as components
and semiconductor test contributed to the increase in the costImproved supply-chain management
was also a key factor. Cost of sales ratio as fixed costs were spread over lower volumes than expected. These
types of factors are likelyis expected, however, to continue to cause the cost of sales ratio to
trend upward in the future. Pretax chargesfuture as the benefit of approximately $135 million
related tosome of the exit from disk-mechanism manufacturing and the related
operating losses in that business also contributed to the overall increase
in the cost of sales ratio over the year-ago period. Cost of products sold
and services as a percentage of net revenue would have been 66.0 percent
for the third quarter without these factors and 65.1 percent for the nine
months ended July 31, 1996.above is
considered temporary.
Operating expenses as a percentage of net revenue were 25.3 percent for
the third quarter and 23.822.6 percent for
the first nine monthsquarter of fiscal 1996, compared to 26.0 percent for the third quarter1997 and 25.5 percent for
the first nine months of fiscal 1995. These decreases from fiscal 1995
reflect1996. This reflects ongoing efforts
to achieve expense structures appropriate for the Company's changing
business and expansion of the net revenue base in fiscal 1996.1997. Operating
expenses increased 15 percent for the third
quarter and 1810 percent for the first nine monthsquarter of fiscal 19961997 over
the corresponding year-ago periods. These increases resulted primarily
from increased marketing and selling expenses as a result of increased
advertising and commissions, and increasedperiod. Within this category, the largest
expense growth occurred in research and development expenses, reflecting the
Company's commitment to ensuring a continuing flow of high quality products.
A part of these increases is also
attributable to increased employment in operating areas. Additionally,
acquisitions of Convex Computer Corporation and certain of the assets of
DP-TEK Development Company LLC contributed to the third quarter increase
in operating expenses. However, that increase was substantially offset by
unrelated favorable currency impacts.
6
Provision for Taxes - The provision for taxes as a percentage of earnings
before taxes was 31.030.0 percent for the thirdfirst quarter and first nine
months of fiscal 1996,1997, compared
to 33.532.0 percent for the thirdfirst quarter
and first nine months of fiscal 1995.1996. The lower tax ratesrate in
fiscal 19961997 resulted from changes in the geographic mix of the Company's
earnings and resolution of certain issues related to tax returns filed in
previous years.
Net Earnings - Net earnings for the thirdfirst quarter of fiscal 19961997 were
$425$912 million, or 4087 cents per share on an average of 1.05 billion shares,
compared to net earnings of $576$790 million, or 5575 cents per share on an
average of 1.05 billion shares for the thirdfirst quarter of fiscal 1995. For
the nine months ended July 31, 1996, net earnings were $1.9 billion, or
$1.84 per share on an average of 1.05 billion shares, compared to net
earnings of $1.8 billion or $1.67 per share on an average of 1.05 billion
shares for the first nine months of fiscal 1995. The 1995 per share amounts
have beenas
restated to reflect the retroactive effect of the July 1996 2-for-1 stock
split.
The decrease in third quarter net earnings is primarily attributable to
charges to exit disk-mechanism manufacturing and the related operating
losses in that business. Without these, third quarter net earnings would
have been 53 cents, a 4 percent decline from the same period of fiscal
1995. The remaining decline was due to the Company's inability to offset
increases in the cost of products sold and services as a percentage of net
revenue with decreases in the operating expense ratio during the quarter,
which adversely affected third quarter operating profits as compared to
the same period in fiscal 1995. The third quarter decline also decreased
the growth in net earnings for the nine months ended July 31, 1996.
FINANCIAL CONDITION
- -------------------
Liquidity and Capital Resources - The Company's financial position remains
strong, with cash and cash equivalents and short-term investments of $3.7$2.9
billion at JulyJanuary 31, 1996,1997, compared with $2.8to $3.3 billion at October 31, 1995.1996.
In addition, other long-term investments, relatively low levels of debt
compared to assets, and a large equity base continue to demonstrate the
Company's financial flexibility.
Cash flows from operating activities were $2.0$1.8 billion during the first
ninethree months of fiscal 1996,1997, compared to $1.4 billion$618 million for the corresponding
period of fiscal 1995.1996.
The increase in cash flows from operating activities in fiscal 19961997 was
attributable primarily attributable to a declinechanges in accountsinventory levels during fiscal 1997
and notes receivable
since1996. Inventory declined 8 percent on 11 percent revenue growth during
the endfirst quarter of fiscal 19951997, as compared to significantan increase of 54 percent
on revenue growth of 27 percent in the comparablesame period of fiscal 1995. Additionally,1996. The
decline during fiscal 1997, as well as the Company experienced
slowerresulting improvement in inventory
growth and higheras a percentage of net earningsrevenue, from 20.3 percent in fiscal 1996 thanto 15.8
percent in the comparable period of fiscal 1995. Partially offsetting these factors
were a decline in accounts payable since the end of fiscal 1995 as compared
to significant growth in the comparable period of fiscal 1995.
Inventories grew 26 percent over the year versus revenue growth of 18
percent for the same period. The Company believes that the majority of
the increase in inventories was necessary to meet increased demand and
customer delivery expectations, due1997, is attributable primarily to heavy new product
introductions, ramping up for back-to-schoolimproved supply-chain
management, particularly of order inflows and holiday seasons, and
an increasing presence in the retail channel. Inventory management,
however, continuesshipments to be an area of focus.third-party
distribution channels.
7
Capital expenditures for the first ninethree months of fiscal 19961997 were $1.5
billion,$513
million, compared to $1.1 billion$429 million for the corresponding period in fiscal
1995.1996. The increase in capital expenditures was primarily due to expansion of capacity
for increased levels of business and increased expenditures to support growth
in the Company's leasing business.
The changes in short-term investment and borrowing activities during the
first nine
monthsquarter continue a program of repatriation of short-term investments
from Puerto Rico that the Company began in the fourth quarter of fiscal 1996
when compareddue to the same periodchanges in fiscal 1995,
resultedtax laws in that country. Cash from the Company's rebalancingliquidation of
its debt financingthose investments was used to more
closely match the termpay down notes payable and interest rate profile of its investment
portfolio.short-term
borrowings.
Under the Company's ongoing stock repurchase program, shares have been
purchased periodically to meet employee stock plan requirements. During the ninethree months
ended JulyJanuary 31, 1997, the Company purchased and retired approximately
3.3 million shares for an aggregate price of $172 million. During the
three months ended January 31, 1996, the Company purchased and retired
approximately 18.2 million shares (on a post-split basis) for an aggregate
price of $802 million. During the nine months ended July 31, 1995, the
Company purchased and retired approximately 13.67.4 million shares (on a restated basis) for an aggregate
price of $384$309 million.
FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------
HP's future operating results may be adversely affected if the Company
is unable to continue to rapidly develop, manufacture and market
innovative products and services that meet customer requirements. The
process of developing new high technology products and solutions is
inherently complex and uncertain. It requires accurate anticipation of
customers' changing needs and emerging technological trends. The Company
then must make long-term investments and commit significant resources before
knowing whether its predictions will eventually result in products that
achieve market acceptance. After a product is developed, the Company must
quickly ramp manufacturing in sufficient volumes at acceptable costs.
This is a process that requires accurate forecasting of volumes, mix of
products and configurations. Moreover, the supply and timing of a new
product or service must match the customers' demand and timing for those
particular products or services. Given the wide variety of systems,
products and services which the Company offers, the process of planning
production and managing inventory levels becomes increasingly difficult.
Managing inventory levels is becomingInventory management has also become increasingly complicatedcomplex as the Company
continues to sell a greater mix of products, especially printers and personal
computers, through third party distribution channels. Resellers constantly
adjust their ordering patterns in response to take into account the Company's, and its
competitors', supply into the channel and the timing of their new product
introductions and relative feature sets.sets, as well as seasonal fluctuations
in end-user demand such as the back-to-school and holiday selling periods.
Resellers may increase or even double orders during times of shortages, and cancel orders
as supply becomes plentiful. Ifif the back end of product cycles
coincides with a channel is filled with currently available products, resellers
may cancel or delay orders
in anticipation of the new products. ThisAny excess supply could result in
price reductions and inventory writedowns, which in turn could adversely
affect the Company's gross margins.
The short life cycles of many of the Company's products pose a challenge
for the effective management of the transition from existing products to
new products and could adversely affect the Company's future operating
results. Product development or manufacturing delays, variations in
product costs, and delays in customer purchases of existing products in
anticipation of new product introductions are among the factors that make
a smooth transition from current products to new products difficult. In
addition, the timing of competitors' introductions of new products and
services may negatively affect the future operating results of the Company,
especially when these introductions coincide with periods leading up to
the Company's own introduction of new or enhanced products. Furthermore,
some of the Company's own new products replace or compete with others of
the Company's current products.
8
In addition, portionsPortions of the company'sCompany's manufacturing operations are dependent on the
ability of suppliers to deliver components, integral subassemblies and completed
products in time to meet critical manufacturing and distribution schedules.
The Company periodically experiences constrained supply of certain component
parts in some product lines as a result of strong demand in those product lines and in the industry as a
whole. Continuedfor
those parts. Such constraints, if persistent, may adversely affect the
Company's operating results until alternate sourcing could be developed. In
order to secure components for production and introduction of new products,
the Company frequently makes advanced payments to certain suppliers, and
often enters into noncancelable purchase commitments with vendors with respect to the
purchase offor such
components. Volatility in the prices of these component parts, the possible
inability of the Company to secure enough components at reasonable prices to
build new products in a timely manner in the quantities and configurations
demanded or, conversely, a temporary oversupply of these parts, could
adversely affect the Company's future operating results.
The Company continues to expand into third-party distribution channels
to accomodate changing industry practices and customer preferences. As more of the Company's products are distributed through resellers,a result, the financial
health of these resellers, and the Company's continuing relationships with
them, become more important to the Company's success. Some of these
companies are thinly capitalized and may be unable to withstand changes
in business conditions. The Company's financial results could be adversely
affected if the financial condition of these resellers substantially weakens
or the Company's relationship with such resellers deteriorates.
Sales outside the United States make up more than half of the Company's
revenues. In addition, a portion of the Company's product and component
manufacturing, along with key suppliers, are located outside the United
States. Accordingly, the Company's future results could be adversely
affected by a variety of factors, including changes in foreign currency
exchange rates, changes in a specific country's or region's political or
economic conditions, trade protection measures, import or export licensing
requirements, the overlap of different tax structures, unexpected changes
in regulatory requirements and natural disasters.
As a matter of course, the Company frequently engages in discussions
with a variety of parties relating to possible acquisitions, strategic
alliances, joint ventures and divestitures. Although the consummation
of any transaction is unlikely to have a material effect on the Company's
results as a whole, the implementation or integration of the transaction
may contribute to the Company's results differing from the investment
community's expectation in a given quarter. Divestitures may result in
the cancellation of orders and charges to earnings. Acquisitions and
strategic alliances may require, among other things, integration or
coordination with a different company culture, management team organization,
and business infrastructure. They may also require the development,
manufacture and marketing of product offerings with the Company's products
in a way that enhances the performance of the combined business or product
line. Depending on the size and complexity of the transaction, successful
integration or implementation depends on a variety of factors, including
the hiring and retention or coordination of key employees, management of
geographically separate facilities, and the integration or coordination of
different research and development and product manufacturing facilities.
All of these efforts require varying levels of management resources,
which may temporarily adversely impact other business operations.
9
A portion of the Company's research and development activities, its
corporate headquarters, other critical business operations and certain of its
suppliers are located near major earthquake faults. The ultimate impact on
the Company, its significant suppliers and the general infrastructure is
unknown, but operating results could be materially affected in the event of
a major earthquake. The Company is predominately self-insured for losses
and interruptions caused by earthquakes.
Operations of the Company involve the use of substances regulated under
various federal, state and international laws governing the environment.
It is the Company's policy to apply strict standards for environmental
protection to sites inside and outside the U.S., even if not subject to
regulations imposed by local governments. The liability for environmental
remediation and related costs is accrued when it is considered probable
and the costs can be reasonably estimated. Environmental costs are
presently not material to the Company's operations or financial position.
Although the Company believes that it has the product offerings and
resources needed for continuing success, future revenue and margin
trends cannot be reliably predicted and may cause the Company to adjust
its operations. The Company's stock price, like that of other
technology companies, is subject to significant volatility. The
announcement of new products, services or technological innovations by
the Company or its competitors, quarterly variations in the Company's
results of operations, changes in revenue or earnings estimates by the
investment community and speculation in the press or investment
community are among the factors affecting the Company's stock price. In
addition, the stock price may be affected by general market conditions
and domestic and international macroeconomic factors unrelated to the
Company's performance. Because of the foregoing reasons, recent trends
should not be considered reliable indicators of future stock prices or
financial results.
UNIX is a registered trademark in the United States and other
countries, licensed exclusively through X/Open(R) Company Limited.
X/Open is a registered trademark, and the X device is a trademark
of X/Open Company Ltd. in the U.K. and other countries.
10
PART II. OTHER INFORMATION
---------------------------
Item 5. Other Information.
On May 17, 1996,4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on
February 25, 1997.
(b) At the Company's BoardAnnual Meeting, shareholders voted on three matters:
the election of Directors approved a
2-for-1 stock splitdirectors, the adoption of the Company's $1 par value common stock
in1997
Director Stock Plan and the formappointment of a 100 percent distribution toPrice Waterhouse LLP
as the Company's independent accountants.
The shareholders of record on June 21, 1996. As a resultelected all members of the split, authorized,
outstanding,management slate
in an uncontested election and reserved common shares doubled. Retained
earnings was reducedapproved the adoption of the
1997 Director Stock Plan and the appointment of independent
accountants, by the par valuefollowing votes, respectively.
Directors
---------
Votes Withheld/
Director Votes For Abstentions
-------- --------- ---------------
Thomas E. Everhart 839,973,588 6,957,640
John B. Fery 840,037,495 6,893,733
Jean-Paul G. Gimon 840,129,551 6,801,677
Sam Ginn 840,150,525 6,780,703
Richard A. Hackborn 840,189,980 6,741,248
Walter B. Hewlett 840,143,171 6,788,057
George A. Keyworth II 840,183,091 6,748,137
David M. Lawrence, M.D. 840,058,118 6,873,110
Paul F. Miller, Jr. 840,137,583 6,793,645
Susan P. Orr 840,158,608 6,772,620
David W. Packard 840,060,904 6,870,324
Lewis E. Platt 840,185,891 6,745,337
Robert P. Wayman 840,167,232 6,763,996
Adoption of the additional common
shares issued. The rights of the holders of these securities
were not otherwise modified.1997 Director Stock Plan
------------------------------------
Votes Withheld/
Votes For Votes Against Abstentions
--------- ------------- ---------------
827,400,859 12,464,458 7,065,911
Accountants
-----------
Votes Withheld/
Votes For Votes Against Abstentions
--------- ------------- ---------------
843,735,489 1,302,557 1,893,182
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
A list of exhibits is set forth in the Exhibit Index
found on page 13 of this report.
(b) Reports on Form 8-K:
The Company filed a ReportThere were no reports on Form 8-K on Julyfiled during the
three months ended January 31, 1996
describing the Company's discontinuation of disk-mechanism
manufacturing and cessation of operations of its Disk
Memory Division.1997.
11
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEWLETT-PACKARD COMPANY
(Registrant)
Dated: September 16, 1996March 14, 1997 By: ROBERT P. WAYMAN
---------------------------------------------
Robert P. Wayman
Executive Vice President,
Finance and Administration
(Chief Financial Officer)
12
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
-------------
Exhibits:
1. Not applicable.
2. None.
3. None.Amended By-Laws
4. None.
5-9. Not applicable.
10-11. None.
12-14. Not applicable.
15. None.
16-17. Not applicable.
18-19. None.
20-21. Not applicable.
22-24. None.
25-26. Not applicable.
27. Financial Data Schedule.
28. Not applicable.
99. None.Hewlett-Packard Company 1997 Director Stock Plan, which exhibit
is incorporated herein by reference to Form S-8 filing made on
March 7, 1997.
13