1
Exhibit 13
Selected Financial Data
Unaudited
- ------
For the years ended October 31
In millions except per share
amounts and employees 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------
U.S. orders $11,692 $ 9,462 $ 7,569 $ 6,484 $ 6,143
International orders 13,658 11,310 9,192 8,192 7,342
----------------------------------------------------------
Total orders $25,350 $20,772 $16,761 $14,676 $13,485
----------------------------------------------------------
Net revenue $24,991 $20,317 $16,410 $14,494 $13,233
Earnings from operations $ 2,549 $ 1,879 $ 1,404 $ 1,210 $ 1,162
Earnings before effect of
1992 accounting change $ 1,599 $ 1,177 $ 881 $ 755 $ 739
Net earnings $ 1,599 $ 1,177 $ 549 $ 755 $ 739
[BAR CHART OMITTED]
Per share:
Earnings before
effect of 1992
accounting change $ 6.14 $ 4.65 $ 3.49 $ 3.02 $ 3.06
Net earnings $ 6.14 $ 4.65 $ 2.18 $ 3.02 $ 3.06
Cash dividends paid $ 1.10 $ .90 $ .725 $ .48 $ .42
At year-end:
Total assets $19,567 $16,736 $13,700 $11,973 $11,395
Employees 98,400 96,200 92,600 89,000 92,200
----------------------------------------------------------
[BAR CHART OMITTED]
See discussion of the 1994 calculation of earnings-per-share on page 32 of this
report.
See discussion of the 1992 change in accounting for retiree medical
benefits on page 39 of this report.
Hewlett-Packard Company and Subsidiaries
------
23
2
Consolidated Statement of Earnings
- ------
For the years ended October 31
In millions except per share amounts 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
Net revenue:
Equipment $19,307 $15,533 $12,354
Services 5,684 4,784 4,056
-------------------------------------------
24,991 20,317 16,410
-------------------------------------------
Costs and expenses:
Cost of equipment sold 11,572 8,929 6,625
Cost of services 3,918 3,194 2,533
Research and development 2,027 1,761 1,620
Selling, general and administrative 4,925 4,554 4,228
-------------------------------------------
22,442 18,438 15,006
-------------------------------------------
Earnings from operations 2,549 1,879 1,404
Interest income and other, net 29 25 17
Interest expense 155 121 96
-------------------------------------------
Earnings before taxes and effect of 1992
accounting change 2,423 1,783 1,325
Provision for taxes 824 606 444
-------------------------------------------
Earnings before effect of 1992 accounting change 1,599 1,177 881
Transition effect of 1992 accounting change, net
of taxes -- -- 332
-------------------------------------------
Net earnings $ 1,599 $1,177 $ 549
===========================================
Earnings per share before effect of 1992
accounting change $6.14 $4.65 $3.49
Transition effect per share of 1992 accounting
change, net of taxes -- -- 1.31
-------------------------------------------
Net earnings per share $6.14 $4.65 $2.18
===========================================
The accompanying notes are an integral part of these financial statements.
See discussion of the 1994 calculation of earnings-per-share on page 32 of this
report.
See discussion of the 1992 change in accounting for retiree medical
benefits on page 39 of this report.
Hewlett Packard Company and Subsidiaries
- ------
24
3
Financial Review
Unaudited
- ------
Results of Operations
In 1994, HP again experienced excellent overall market acceptance of new
products and achieved 23 percent growth in net revenue, despite some continuing
economic weakness around the world. Moreover, favorable impacts from ongoing
efforts to improve operating expense structures offset rising costs of sales,
resulting in increased earnings from operations of 36 percent over 1993.
[GRAPH OMITTED]
HP's orders increased 22 percent over 1993, totaling $25.4 billion, compared
with a 24 percent increase in 1993. Domestic and international orders grew 24
and 21 percent, respectively, reflecting HP's well-balanced position across a
variety of geographic markets. In 1994, net revenue grew 23 percent in both the
U.S. and internationally to $11.5 billion and $13.5 billion, respectively,
following increases of 30 percent in the U.S. and 19 percent internationally in
1993. The U.S. dollar weakened during 1994 relative to most major foreign
currencies, which had a minor impact on HP's international net revenue.
Net revenue from equipment sales increased 24 percent in 1994 compared with 26
percent in 1993. Demand for the company's peripheral products, such as the HP
LaserJet and HP DeskJet families of printers, continued to be excellent in
1994, which included the shipment of the 30 millionth HP printer. Orders for
semiconductor- and communications-test equipment, multi-user computer systems
based on the UNIX operating system and Vectra PCs also continued to be
excellent in 1994. Sales of customer support services and consumable supplies
for the company's printer products were strong and fueled the growth in
services revenue of 19 percent in 1994 and 18 percent in 1993. Detailed
information on orders and net revenue by groupings of similar products and
services is presented on page 44 of this report.
New products introduced during the year demonstrated HP's commitment to
innovative technology and continuous product improvements. Many new products
received strong acceptance in the marketplace during 1994 such as those from
the HP LaserJet and HP DeskJet printer families, HP 9000 Series workstations
and multiuser systems, and HP Vectra PCs.
[GRAPH OMITTED]
Costs, expenses and earnings as a percentage of net revenue were as follows:
4
For the years ended October 31 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
Cost of equipment sold and services 62.0% 59.7% 55.8%
Research and development 8.1% 8.7% 9.9%
Selling, general and administrative 19.7% 22.4% 25.7%
Earnings from operations 10.2% 9.2% 8.6%
Earnings before effect of 1992
accounting change 6.4% 5.8% 5.4%
Net earnings 6.4% 5.8% 3.3%
- ------------------------------------------------------------------------------------------------------
Hewlett-Packard Company and Subsidiaries
------
25
Financial Review
Unaudited
- ------
During 1994, cost of equipment sold and services as a percentage of net revenue
increased 2.3 percentage points following a 3.9 percentage point increase in
1993. Pricing and other competitive pressures continued in 1994 and had a
significant impact on cost of sales as a percentage of net revenue. Changes in
the mix of products sold also continued to put upward pressure on cost of sales
as a percentage of net revenue. In 1994, a higher portion of the company's net
revenue was generated by sales through dealers and other indirect channels.
Products, such as peripherals and PCs, sold through these channels generally
carry higher discounts, thereby increasing cost of sales as a percentage of net
revenue. These factors are likely to continue to put some upward pressure on
the cost of sales ratio. Although the company again experienced upward
pressures on its cost of sales, the growth in cost of sales as a percentage of
net revenue slowed in 1994, partly as a result of HP's ongoing efforts to
improve its cost structure by maximizing manufacturing efficiencies.
[GRAPH OMITTED]
Research and development expenditures increased 15 percent to $2.0 billion in
1994 versus $1.8 billion in 1993. The increased investment in research and
development reflects the company's ongoing belief that success in a global
marketplace requires a continuing flow of innovative, high-quality products.
Research and development expenditures as a percentage of net revenue decreased
.6 percentage points in 1994 compared with a 1.2 percentage point decrease in
1993.
Selling, general and administrative expense as a percentage of net revenue
decreased 2.7 percentage points to 19.7 percent of net revenue during 1994,
following a 3.3 percentage point decrease in 1993. The decrease in selling,
general and administrative expense as a percentage of net revenue is
5
attributable primarily to the company's ongoing cost control initiatives and
continuing efforts to manage employment levels.
Interest income and other, net was $29 million in 1994 compared to $25 million
in 1993 and $17 million in 1992. Interest expense was $155 million in 1994
compared to $121 million in 1993 and $96 million in 1992. The increases in
interest expense reflect increases in the level of debt outstanding, as well as
interest rate changes during the respective periods.
[GRAPH OMITTED]
The company's effective tax rate was 34 percent in both 1994 and 1993, up
slightly from 33.5 percent in 1992. A combination of factors led to the
increase from 1992 to 1993, including an increase in the U.S. corporate federal
income tax rate, changes in the geographic mix of the company's earnings, and
resolution of certain issues related to tax returns filed in prior years.
Net earnings increased 36 percent to $1.6 billion in 1994. This compares to a
34 percent increase in 1993 and a 17 percent increase in 1992, excluding the
1992 one-time charge of $332 million after income taxes for a change in
accounting for retiree medical benefits. As a percentage of net revenue, net
earnings were 6.4 percent in 1994 compared with 5.8 percent in 1993 and 5.4
percent in 1992, excluding the accounting change.
Hewlett-Packard Company and Subsidiaries
- ------
26
Financial Review
Unaudited
- ------
In fiscal 1994, net earnings per share were computed based on a method which
approximates the use of a weighted-average number of common shares and common
share equivalents outstanding during the period. Common share equivalents
represent the dilutive effect of outstanding stock options. In previous
periods, common share equivalents were not included as their effect was
considered immaterial. The inclusion of these equivalents in fiscal 1994
reduced earnings per share by 15 cents. Average shares outstanding used to
compute earnings per share were 260.4 million in 1994, 253.2 million in 1993
and 252.6 million in 1992. The increases in shares outstanding resulted from
the inclusion, in 1994, of common share equivalents, and issuances of common
stock to employees under various stock plans, partially offset by stock
acquired by the company under its ongoing share repurchase program.
[BAR CHART OMITTED]
Financial Condition and Liquidity
6
HP's financial position remains strong, with cash and cash equivalents and
short-term investments of $2.5 billion at October 31, 1994, compared with $1.6
billion at October 31, 1993, and $1.0 billion at October 31, 1992.
Operating activities generated $2.2 billion in cash in 1994, compared with $1.1
billion and $1.3 billion in 1993 and 1992, respectively. The increase in cash
generated from operations in 1994 compared to 1993 is primarily attributable to
higher net earnings before depreciation and amortization and slower inventory
growth. Inventory as a percentage of net revenue declined from 18.2 percent in
1993 to 17.1 percent in 1994. The lower growth rate is attributable to the
company's effort to enhance processes, with a focus on improving inventory
turnover, to accommodate business changes such as shorter product life cycles
and rapid product ramp-ups.
1994 capital expenditures were $1.3 billion compared to $1.4 billion and $1.0
billion in 1993 and 1992, respectively. The capital expenditures in 1994
relate mainly to expansion of production capacity and to accomodate the
introduction of new products.
The company invests excess cash in short-term and long-term investments
depending on its projected cash needs for operations, capital expenditures and
other business purposes. The company from time to time supplements its
internally generated cash flow with a combination of short-term and long-term
borrowings as required by various business and financial market factors.
[BAR CHART OMITTED]
Cash flow from changes in the company's debt structure resulted in net
borrowings of $155 million in 1994 compared with net borrowings of $966 million
and $416 million in 1993 and 1992, respectively. At October 31, 1994, the
company had unused credit lines and authorized but unissued commercial paper
totaling $3.1 billion.
Shares are repurchased periodically to meet employee stock plan requirements.
Approximately 4.0 million shares were purchased in 1994 at an aggregate price
of approximately $325 million. In 1993, approximately 4.3 million shares were
purchased at an aggregate price of approximately $314 million; and in 1992,
approximately 7.7 million shares were purchased at an aggregate price of
approximately $530 million. Additional stock repurchases, based on certain
price and volume criteria, are authorized by the Board of Directors. At October
31, 1994, the remaining authorization was $255 million.
Hewlett-Packard Company and Subsidiaries
------
27
7
Consolidated Balance Sheet
- ------
October 31
In millions except par value and number of shares 1994 1993
- ------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,357 $ 889
Short-term investments 1,121 755
Accounts and notes receivable 5,028 4,208
Inventories:
Finished goods 2,466 2,121
Purchased parts and fabricated assemblies 1,807 1,570
Other current assets 730 693
-------------------------------
Total current assets 12,509 10,236
-------------------------------
Property, plant and equipment:
Land 508 514
Buildings and leasehold improvements 3,472 3,254
Machinery and equipment 3,958 3,759
-------------------------------
7,938 7,527
Accumulated depreciation (3,610) (3,347)
-------------------------------
4,328 4,180
Long-term receivables and other assets 2,730 2,320
-------------------------------
$19,567 $16,736
==============================
Liabilities and shareholders' equity
Current liabilities:
Notes payable and short-term borrowings $ 2,469 $ 2,190
Accounts payable 1,466 1,223
Employee compensation and benefits 1,256 1,048
Taxes on earnings 1,245 922
Deferred revenues 598 507
Other accrued liabilities 1,196 978
------------------------------
Total current liabilities 8,230 6,868
------------------------------
Long-term debt 547 667
Other liabilities 864 690
Shareholders' equity:
Preferred stock, $1 par value
(authorized: 300,000,000 shares; issued: none) -- --
Common stock and capital in excess of $1 par value
(authorized: 600,000,000 shares; issued and outstanding:
254,827,000 in 1994 and 252,713,000 in 1993) 1,033 937
Retained earnings 8,893 7,574
------------------------------
Total shareholders' equity 9,926 8,511
------------------------------
$19,567 $16,736
==============================
8
The accompanying notes are an integral part of these financial statements.
Hewlett-Packard Company and Subsidiaries
- ------
28
Financial Review
Unaudited
- ------
Factors That May Affect Future Results
The company's future operating results are dependent on the company's ability
to rapidly develop, manufacture and market technologically innovative products
that meet customers' needs. Inherent in this process are a number of risks that
the company must successfully manage in order to achieve favorable operating
results.
The process of developing new high technology products is complex and uncertain
and requires innovative designs that anticipate customer needs and
technological trends. After the products are developed, the company must
quickly manufacture products in sufficient volumes at acceptable costs to meet
demand.
[GRAPH OMITTED]
In addition, a portion of the company's manufacturing operations is dependent
on the ability of significant suppliers to deliver integral sub-assemblies and
components in time to meet critical manufacturing schedules. The failure of
suppliers to deliver these sub-assemblies and components in a timely manner may
adversely affect the company's operating results until alternate sourcing could
be developed. The company believes that alternate suppliers or design solutions
could be arranged within a reasonable time so that material long-term adverse
impacts would be unlikely.
Changing industry practices and customer preferences require the company to
expand into new distribution channels. As more of HP's products are distributed
through dealer and other indirect channels, these channels become more critical
to the company's success. Financial results could be adversely affected in the
event that the financial condition of these sellers weakens.
The 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
9
by local governments. Liability for environmental remediation is
accrued when it is considered probable and costs can be estimated.
Environmental expenditures are presently not material to HP's operations or
financial position.
[GRAPH OMITTED]
A portion of the company's research and development activities, its corporate
headquarters and other critical business operations are located near major
earthquake faults. The ultimate impact on the company, significant suppliers
and the general infrastructure is unknown, but operating results could be
materially affected in the event of a major earthquake. The company is
predominantly self-insured for losses and interruptions caused by earthquakes.
Although HP believes that it has the product offerings and resources needed for
continued success, future revenue and margin trends cannot be reliably
predicted and may cause the company to adjust its operations. Factors external
to the company can result in volatility of the company's common stock price.
Because of the foregoing factors, recent trends should not be considered
reliable indicators of future stock prices or financial results.
Hewlett-Packard Company and Subsidiaries
------
29
10
Consolidated Statement of Cash Flows
- ------
For the years ended October 31
In millions 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 1,599 $ 1,177 $ 549
Adjustments to reconcile net earnings to
cash provided by operating activities:
Transition effect of 1992 accounting change -- -- 332
Depreciation and amortization 1,006 846 673
Deferred taxes on earnings (156) (137) (35)
Changes in assets and liabilities:
Accounts and notes receivable (848) (709) (480)
Inventories (582) (1,056) (267)
Accounts payable 243 283 226
Taxes on earnings 320 452 31
Other current assets and liabilities 585 200 328
Other, net 57 86 (69)
--------------------------------------------------
2,224 1,142 1,288
--------------------------------------------------
Cash flows from investing activities:
Investment in property, plant and equipment (1,257) (1,405) (1,032)
Disposition of property, plant and equipment 291 215 183
Purchase of short-term investments (2,758) (1,634) (782)
Maturities of short-term investments 2,392 1,283 883
Purchase of long-term investments (332) (22) (53)
Maturities of long-term investments 47 22 4
Acquisitions, net of cash acquired (62) (86) (411)
Other, net 69 23 (58)
--------------------------------------------------
(1,610) (1,604) (1,266)
--------------------------------------------------
Cash flows from financing activities:
Increase in notes payable and short-term
borrowings 250 807 186
Issuance of long-term debt 64 387 309
Payment of current maturities of long-term debt (159) (228) (79)
Issuance of common stock under employee
stock plans 300 308 293
Repurchase of common stock (325) (314) (530)
Dividends (280) (228) (183)
Other, net 4 (22) (2)
--------------------------------------------------
(146) 710 (6)
--------------------------------------------------
Increase in cash and cash equivalents 468 248 16
Cash and cash equivalents at beginning of year 889 641 625
--------------------------------------------------
Cash and cash equivalents at end of year $ 1,357 $ 889 $ 641
==================================================
The accompanying notes are an integral part of these financial statements.
Hewlett-Packard Company and Subsidiaries
- ------
30
11
Consolidated Statement of Shareholders' Equity
- ------
Common Stock
----------------------------------------------
Par value
and capital
Number of in excess Retained
In millions except number of shares in thousands shares of par earnings Total
- ---------------------------------------------------------------------------------------------------------
Balance October 31, 1991 251,547 $1,010 $6,259 $7,269
Employee stock plans:
Shares issued 6,960 394 -- 394
Shares purchased (7,683) (530) -- (530)
Dividends -- -- (183) (183)
Net earnings -- -- 549 549
----------------------------------------------
Balance October 31, 1992 250,824 874 6,625 7,499
Employee stock plans:
Shares issued 6,234 377 -- 377
Shares purchased (4,345) (314) -- (314)
Dividends -- -- (228) (228)
Net earnings -- -- 1,177 1,177
----------------------------------------------
Balance October 31, 1993 252,713 937 7,574 8,511
Employee stock plans:
Shares issued 6,142 421 -- 421
Shares purchased (4,028) (325) -- (325)
Dividends -- -- (280) (280)
Net earnings -- -- 1,599 1,599
----------------------------------------------
Balance October 31, 1994 254,827 $1,033 $8,893 $9,926
==============================================
The accompanying notes are an integral part of these financial statements.
Hewlett-Packard Company and Subsidiaries
------
31
12
Notes to Consolidated Financial Statements
- ------
Summary of Significant Accounting Policies
- -----------------------------------------------------------------------------
Principles of consolidation
The consolidated financial statements include the accounts of Hewlett-Packard
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Revenue recognition
Revenue from equipment sales is generally recognized at the time the equipment
is shipped. Services revenue is recognized over the contractual period or as
services are performed.
Taxes on earnings
Income tax expense is based on pretax financial accounting income. Deferred tax
assets and liabilities are recognized for the expected tax consequences of
temporary differences between the tax bases of assets and liabilities and their
reported amounts.
Net earnings per share
In fiscal 1994, net earnings per share are computed based on a method that
approximates the use of a 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. In previous
periods, common share equivalents were not included as their effect was
considered immaterial. Shares used in the computation were 260,388,000 in 1994,
253,230,000 in 1993 and 252,600,000 in 1992.
Short-term investments
Short-term investments are principally comprised of cash invested in
certificates of deposit, temporary money-market instruments and repurchase
agreements and are stated at cost, which approximates market.
Inventories
Inventories are valued at standard costs that approximate actual costs computed
on a first-in, first-out basis, not in excess of market values.
Property, plant and equipment
Property, plant and equipment are stated at cost. Additions, improvements and
major renewals are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. Depreciation is provided using accelerated methods,
principally over the following useful lives: buildings and improvements, 15 to
40 years; machinery and equipment, 3 to 10 years. Depreciation of leasehold
improvements is provided using the straight-line method over the life of the
lease or the asset, whichever is shorter.
Foreign currency translation
13
The company uses the U.S. dollar as its functional currency. Foreign currency
assets and liabilities are translated into U.S. dollars at end-of-period
exchange rates except for inventories, deposits, and property, plant and
equipment, which are translated at historical exchange rates. Revenues and
expenses are translated at average exchange rates in effect during each period
except for those expenses related to balance sheet amounts, which are
translated at historical exchange rates. Gains or losses from foreign currency
translation are included in net earnings.
Statement of cash flows
The company has classified investments as cash equivalents if the original
maturity of such investments is three months or less.
The company paid income taxes of $626 million in 1994, $293 million in 1993 and
$459 million in 1992. For the same periods, the company paid interest of $143
million, $109 million and $84 million, respectively. The effect of foreign
currency exchange rate fluctuations on cash balances denominated in foreign
currencies was not material.
Reclassifications
Certain amounts have been reclassified to conform to the 1994 presentation.
Hewlett-Packard Company and Subsidiaries
- ------
32
Acquisitions
- ------------------------------------------------------------------------------
The company acquired several companies during 1994, 1993 and 1992. These
acquisitions were not significant to the financial position or results of
operations of the company.
All of these acquisitions were accounted for using the purchase method. Under
the purchase method, the results of operations of acquired companies are
included prospectively from the date of acquisition, and the acquisition cost
is allocated to the acquirees' assets and liabilities based upon their fair
market values at the date of the acquisition. The excess of the acquisition
cost over the fair market value of net assets acquired represents goodwill and
amounted to $40 million and $71 million for the 1994 and 1993 acquisitions,
respectively. At the end of fiscal year 1994, the net book value of goodwill
associated with current and prior acquisitions was $528 million and is being
amortized on a straight-line basis over 3 to 10 years.
Financial Instruments
- ------------------------------------------------------------------------------
Off-balance-sheet risk
The company enters into foreign exchange contracts to hedge
14
against changes in foreign currency exchange rates. Such exposures are a result
of the portion of the company's operations as well as assets and liabilities
that are denominated in currencies other than the U.S. dollar. When the
company's foreign exchange contracts hedge operational exposure, the effects of
movements in currency exchange rates on these instruments are recognized when
the related revenue and expenses are recognized. When foreign exchange
contracts hedge balance sheet exposure, such effects are recognized when the
exchange rate changes. Because the impact of movements in currency exchange
rates on foreign exchange contracts offsets the related impact on the
underlying items being hedged, these instruments do not subject the company to
risk that would otherwise result from changes in currency exchange rates.
Foreign exchange contracts require the company to exchange foreign currencies
for U.S. dollars and generally mature within six months. The company had
foreign exchange contracts of $2.5 billion and $3.0 billion outstanding at
October 31, 1994 and 1993, respectively.
The company enters into interest rate swap agreements to manage its exposure to
interest rate changes. The transactions generally involve the exchange of fixed
and floating interest payment obligations without the exchange of the
underlying principal amounts. At October 31, 1994 and 1993, off-balance-sheet
exposures under interest rate swap agreements were not material.
Concentrations of credit risk
Financial instruments that potentially subject the company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable.
The company maintains cash and cash equivalents, short- and long-term
investments and certain other off-balance-sheet financial instruments with
various financial institutions. These financial institutions are located in
many different geographies throughout the world, and company policy is designed
to limit exposure with any one institution. As part of its cash management
process, the company performs periodic evaluations of the relative credit
standing of these financial institutions.
Credit risk with respect to trade accounts receivable is generally diversified
due to the large number of entities comprising the company's customer base and
their dispersion across many different industries and geographies. The company
performs ongoing credit evaluations of its customers' financial condition,
utilizes flooring arrangements with third-party financing companies and
requires collateral, such as letters of credit and bank guarantees, in certain
circumstances.
Hewlett-Packard Company and Subsidiaries
------
33
15
The company sells a significant portion of its products through third-party
resellers and, as a result, maintains individually significant receivable
balances with major distributors. If the financial condition and operations of
these distributors deteriorate below critical levels, the company's operating
results could be adversely affected. The ten largest distributor receivable
balances collectively represented 10 percent and 9 percent of total accounts
and notes receivable at October 31, 1994 and 1993, respectively.
Fair value of financial instruments
For certain of the company's financial instruments, including cash and cash
equivalents, short-term investments, accounts and notes receivable, notes
payable and short-term borrowings, accounts payable and other accrued
liabilities, the carrying amounts approximate fair value due to their short
maturities. Long-term floating rate notes and certificates of deposit are
carried at amounts that approximate fair value. The estimated fair value of
long-term debt is primarily based on quoted market prices, as well as borrowing
rates currently available to the company for bank loans with similar terms and
maturities. This fair value, when adjusted for unrealized gains and losses on
related interest rate swap agreements, approximates the carrying amount of
long-term debt. Consequently, such instruments are not included in the
following table, which provides information regarding the estimated fair values
of other financial instruments, both on and off-balance-sheet, at October 31:
1994 1993
------------------- --------------------
Carrying Estimated Carrying Estimated
In millions Amount Fair Value Amount Fair Value
- ----------------------------------------------------------------------------------------------
Long-term stock investments $ 64 $ 75 $ 88 $106
Foreign exchange contracts,
including options $(24) $(108) $ 32 $ 66
- ---------------------------------------------------------------------------------------------
The estimated fair value of long-term stock investments is based on quoted
market prices. For foreign exchange contracts, including options, the estimated
fair value is primarily based on quoted market prices for the same or similar
instruments, adjusted where necessary for maturity differences.
The estimated fair values may not be representative of actual values of the
financial instruments that could have been realized as of year end or that will
be realized in the future.
Taxes on Earnings
- ------------------------------------------------------------------------------
The provision for income taxes is comprised of the following:
16
In millions 1994 1993 1992
- --------------------------------------------------------------------------------------------------
U.S. federal taxes:
Current $511 $330 $248
Deferred (156) (46) (93)
Non-U.S. taxes:
Current 441 381 199
Deferred -- (91) 58
State taxes 28 32 32
--------------------------------------
$824 $606 $444
======================================
Hewlett-Packard Company and Subsidiaries
- ------
34
17
The significant components of deferred tax assets and liabilities included on
the balance sheet at October 31 are:
1994 1993
------------------------ -----------------------------
Deferred Deferred Deferred Deferred
tax tax tax tax
In millions assets liabilities assets liabilities
- ------------------------------------------------------------------------------------------------------------
Inventory $329 $ 28 $283 $ 28
Fixed assets 61 12 56 6
Retiree medical benefits 243 -- 234 --
Other retirement benefits -- 113 -- 116
Employee benefits, other
than retirement 90 20 22 31
Leasing activities -- 79 -- 83
Other 254 198 193 163
-------------------------------------------------------
$977 $450 $788 $427
=======================================================
No valuation allowance was necessary in 1994 and 1993.
Tax benefits of $41 million, $35 million and $28 million associated with the
exercise of employee stock options were allocated to equity in 1994, 1993 and
1992, respectively. The company's average U.S. statutory tax rate increased to
35 percent in 1994 from 34.8 percent in 1993 and 34.0 percent in 1992 as a
result of legislation enacted in August 1993 which was effective January 1,
1993. The effect on the company's deferred tax assets and liabilities was not
material.
The differences between the U.S. federal statutory income tax rate and the
company's effective rate are as follows:
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
U.S. federal statutory income tax rate 35.0% 34.8% 34.0%
State income taxes, net of federal
tax benefit 0.8 1.1 1.6
Lower rates in other jurisdictions, net (4.8) (3.1) (4.1)
Other, net 3.0 1.2 2.0
--------------------------------------
34.0% 34.0% 33.5%
======================================
After allocating eliminations and corporate items, earnings before taxes are as
follows:
In millions 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
U.S. operations including Puerto Rico $ 915 $ 818 $ 734
Non-U.S. 1,508 965 591
------------------------------------------
$2,423 $1,783 $1,325
==========================================
Hewlett-Packard Company and Subsidiaries
------
35
18
The company has not provided for U.S. federal income and foreign withholding
taxes on $2.2 billion of non-U.S. subsidiaries' undistributed earnings as of
October 31, 1994, because such earnings are intended to be reinvested
indefinitely. If these earnings were distributed, foreign tax credits should
become available under current law to reduce or eliminate the resulting U.S.
income tax liability. Where excess cash has accumulated in the company's
non-U.S. subsidiaries and it is advantageous for tax or foreign exchange
reasons, subsidiary earnings are remitted.
As a result of certain employment and capital investment actions undertaken by
the company, income from manufacturing activities in certain countries is
subject to reduced tax rates, and in some cases is wholly exempt from taxes,
for years through 2010. The income tax benefits attributable to the tax status
of these subsidiaries are estimated to be $163 million, $128 million and $123
million for 1994, 1993 and 1992, respectively.
The Internal Revenue Service (IRS) has completed its examination of the
company's federal income tax returns filed through 1983. The IRS has not
commenced its examination of returns for years subsequent to 1989. The company
believes that adequate accruals have been provided for all years.
Borrowings
- -----------------------------------------------------------------------------
Notes payable and short-term borrowings are comprised of the following:
1994 1993
----------------- ------------------
Interest Interest
In millions rate rate
- ------------------------------------------------------------------------------------
Commercial paper $1,155 5.1% $1,174 3.1%
Notes payable to banks 1,090 5.1% 820 4.2%
Other short-term borrowings 224 3.7% 196 3.2%
------ ------
$2,469 $2,190
====== ======
The interest rates represent average rates in effect at October 31, 1994 and
1993.
Long-term debt consists of corporate bonds placed with various financial
institutions with interest rates ranging from 4.8 percent to 7.3 percent. The
aggregate payments for the next five years of long-term debt outstanding at
October 31, 1994 are $151 million in 1996, $158 million in 1999, and $238
million in 2000 and thereafter.
At October 31, 1994, the company had unused lines of credit of $1.3 billion and
authorized but unissued commercial paper of about $1.8 billion. The credit
lines provide for borrowings on a
19
worldwide basis and generally do not require commitment fees.
Hewlett-Packard Company and Subsidiaries
- ------
36
Shareholders' Equity
Employee Stock Purchase Plan
Eligible company employees may generally contribute up to 10 percent of their
base compensation to the quarterly purchase of company stock under the Employee
Stock Purchase Plan. Under this plan, employee contributions are partially
matched with company contributions on a quarterly basis to purchase HP stock.
At October 31, 1994, approximately 83,000 employees were eligible to
participate and approximately 41,000 employees were participants in the plan.
Incentive compensation plans
The company has three principal stock option plans, adopted in 1979, 1985 and
1990. All plans permit options granted to qualify as "Incentive Stock Options"
under the Internal Revenue Code. The exercise price of a stock option is
generally equal to the fair market value of the company's common stock on the
date the option is granted. Under the 1990 Incentive Stock Plan, however, the
Executive Compensation and Stock Option Committee, in certain cases, may choose
to establish a discounted exercise price at no less than 75 percent of fair
market value on the grant date. In 1994 and 1993, discounted options totaling
216,000 shares and 741,000 shares, respectively, were granted at no less than
75 percent of fair market value on the grant date. Stock compensation expense
related to the discounted options was not material. Options generally vest at a
rate of 25 percent per year over a period of four years from the date of grant
except for discounted options, which may not be exercised before the fifth
anniversary of the option grant date, at which time such options become 100
percent vested. The plans provide for the granting of stock appreciation rights
with respect to options granted to officers. The company has not included stock
appreciation rights with options granted to officers since October 31, 1991.
The following table summarizes option activity during 1994:
In thousands except Price
price per share amounts Options per share
- -------------------------------------------------------------------------
Outstanding at October 31, 1993 13,912 $27-81
Granted 2,109 56-88
Exercised (2,964) 27-85
Cancelled (221) 27-85
------- -------
Outstanding at October 31, 1994 12,836 $27-88
======= =======
20
At October 31, 1994, options to purchase 6,899,000 shares were exercisable at
prices ranging from $27 to $88 per share. Shares available for option grants at
October 31, 1994 and 1993 were 5,161,000 and 7,406,000, respectively.
Approximately 47,000 employees were considered eligible to receive stock
options in fiscal 1994. There were approximately 21,000 employees holding
options under one or more of the option plans as of October 31, 1994.
Hewlett-Packard Company and Subsidiaries
------
37
Under the 1985 Incentive Compensation Plan and the 1990 Incentive Stock Plan,
certain key employees may be granted cash or restricted stock awards. Cash and
restricted stock awards are independent of option grants and are subject to
restrictions considered appropriate by the company's Executive Compensation and
Stock Option Committee. The majority of the shares of restricted stock
outstanding at October 31, 1994 are subject to forfeiture if employment
terminates prior to five years from the date of grant. During that period,
ownership of the shares cannot be transferred. Restricted stock has the same
dividend and voting rights as other common stock and is considered to be
currently issued and outstanding. The cost of the awards, determined to be the
fair market value of the shares at the date of grant, is expensed ratably over
the period the restrictions lapse. Such expense was not material in 1994, 1993
or 1992. At October 31, 1994 and 1993, the company had 482,000 and 276,000
shares, respectively, of restricted stock outstanding.
Shares reserved
The company has reserved shares for future issuance under the employee stock
plans. At October 31, 1994 and 1993, 29,709,000 and 35,797,000 shares,
respectively, were reserved.
Stock repurchase program
Under the company's stock repurchase program, shares of HP common stock are
periodically purchased to meet future employee stock plan requirements. In
1994, 1993 and 1992, 4,028,000, 4,345,000 and 7,683,000 shares were repurchased
for an aggregate purchase price of $325 million, $314 million and $530 million,
respectively. At October 31, 1994, HP had authorization for an aggregate of
$255 million in future repurchases under this program based on certain price
and volume criteria.
Retirement Plans and Retiree Medical Benefits
- -----------------------------------------------------------------------------
Pension and profit-sharing plans
Substantially all of the company's employees are covered under various pension
and deferred profit-sharing retirement plans. The worldwide pension and
deferred profit-sharing costs were $196 million in 1994, $159 million in 1993,
and $138 million in 1992.
21
Through October 31, 1993, U.S. employees were provided retirement
benefits under the U.S. Deferred Profit-Sharing Plan (DPS) and the U.S.
Supplemental Pension Plan (SPP). The DPS was a defined contribution plan that
provided the vast majority of retirement benefits. The plan was funded solely
by the company through an annual contribution based upon the company's adjusted
U.S. net income, as defined in the plan agreement. The SPP was a defined
benefit plan that provided for any excess of defined minimum benefits over the
benefits available from the DPS. The amount of the benefit was computed based
upon the employee's highest average pay rate and length of service, reduced by
the annuity value to which the employee was entitled under the DPS. The DPS and
SPP were substantially amended effective October 29, 1993, such that all
accrued pension benefits under these plans were immediately 100 percent vested.
This amendment resulted in SPP prior service cost of $69 million. Additionally,
the accumulated benefit obligation and projected benefit obligation increased
by approximately $3 million and $69 million, respectively.
Effective November 1, 1993, the DPS assets were frozen and the SPP was modified
and renamed the Hewlett-Packard Company Retirement Plan (Retirement Plan).
Benefits under the amended plan continue to be based upon the employee's
highest average pay rate and length of service. Employees retained benefits
earned through October 31, 1993 under the DPS and SPP with benefits under the
SPP adjusted for future salary increases. Assets of the Retirement Plan,
previously the SPP, and the DPS are held in trust for the sole benefit of
employees.
Hewlett-Packard Company and Subsidiaries
- ------
38
The status of the U.S. Retirement and DPS plans follows:
In millions 1994 1993
- -------------------------------------------------------------
Fair value of plan assets $2,093 $2,096
Retirement benefit obligation $1,977 $1,872
- -------------------------------------------------------------
Employees outside the U.S. generally receive retirement benefits under various
defined benefit and defined contribution plans based upon factors such as years
of service and employee compensation levels.
Retiree medical plan
In addition to providing pension benefits, the company also has a medical plan
that provides defined benefits to U.S. retired employees. Substantially all of
the company's U.S. employees could become eligible for these benefits.
22
The company adopted, effective as of the beginning of the 1992 fiscal year,
Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." SFAS No. 106
requires that postretirement benefits other than pensions be accounted for
using the accrual method. The adoption of SFAS No. 106 in 1992 resulted in a
one-time charge to net earnings of $332 million in the first quarter, after a
reduction for income taxes of $212 million, representing the transition effect
of adopting SFAS No. 106 as of the beginning of 1992.
An increase in the discount rate and changes in benefit elections made by the
plan participants resulted in a decrease in the benefit obligation and an
increase in the unrecognized net experience gain at October 31, 1994.
Additionally, effective January 1, 1994, the plan was amended such that all
benefits for retirees age 65 and over are coordinated with Medicare on a
carve-out basis. This amendment resulted in an unrecognized prior service gain
and a decrease in the benefit obligation.
401(k) Plan
U.S. employees of the company may participate in the Tax Saving Capital
Accumulation Plan (TAXCAP), which was established as a supplemental retirement
program. Under the TAXCAP program, the company matches contributions by
employees up to a maximum of 4 percent of an employee's annual compensation.
Effective November 1, 1993, the maximum combined contribution to the Employee
Stock Purchase Plan and TAXCAP is 17 percent of an employee's annual base
compensation subject to certain regulatory and plan limitations. Previously,
the combined contributions to these two plans by an employee could not exceed
12 percent of an employee's annual base compensation. At October 31, 1994,
47,000 employees were participating in TAXCAP out of the 56,000 who were
eligible.
Hewlett-Packard Company and Subsidiaries
------
39
23
Funded status and net periodic cost
The funded status of the defined benefit and retiree medical plans is as
follows:
U.S. defined Non-U.S. defined U.S. retiree
benefit plan benefit plans medical plan
---------------- ----------------- -----------------
In millions 1994 1993 1994 1993 1994 1993
- -----------------------------------------------------------------------------------------------------------
Fair value of plan assets $ 310 $ 307 $ 933 $ 798 $ 258 $ 251
Benefit obligation (194) (83) (1,015) (851) (328) (444)
-----------------------------------------------------------
Excess of plan assets
over benefit obligation 116 224 (82) (53) (70) (193)
Unrecognized net experience
(gain) loss (52) (77) 85 69 (203) (57)
Unrecognized prior service cost
related to plan changes 63 69 33 28 (183) (181)
Unrecognized net
transition asset* (47) (54) (6) (7) -- --
-----------------------------------------------------------
Prepaid (accrued) costs $ 80 $ 162 $ 30 $ 37 $(456) $(431)
===========================================================
Vested benefit obligation $ (47) $ (19) $(656) $(529)
Accumulated benefit obligation $ (47) $ (19) $(706) $(576)
======================================
* Amortized over 15 years for the U.S. plan and over periods ranging from 12 to
20 years for non-U.S. plans.
Plan assets consist primarily of listed stocks and bonds for the U.S. plans and
listed stocks, bonds and cash surrender value of life insurance policies for
the non-U.S. plans. It is the company's practice to fund these costs to the
extent they are tax-deductible.
The company's net pension, deferred profit-sharing and retiree medical costs
are comprised of the following:
Pension and deferred profit-sharing
------------------------------------
U.S. retiree
U.S. plans Non-U.S. plans medical plan
----------------------- ------------------------ -----------------------
In millions 1994 1993 1992 1994 1993 1992 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
Service cost-benefits
earned during the
period $112 $ 4 $ 3 $ 73 $ 61 $ 52 $ 27 $ 28 $ 26
Interest cost on
benefit obligation 6 3 3 58 49 45 33 35 33
Actual investment
return on plan assets (7) (45) (19) (44) (107) 5 (7) (40) (14)
Net amortization and
deferral (29) 11 (14) (16) 59 (53) (27) 10 (13)
----------------------------------------------------------------------------
Net plan cost (credit) 82 (27) (27) 71 62 49 26 33 32
Pension and deferred
profit-sharing costs
for other plans -- 88 69 43 36 47 -- -- --
----------------------------------------------------------------------------
$ 82 $ 61 $ 42 $114 $ 98 $ 96 $ 26 $ 33 $ 32
============================================================================
Hewlett-Packard Company and Subsidiaries
- ------
40
24
The assumptions used to measure the benefit obligations and to compute the
expected long-term return on assets for the company's defined benefit and
retiree medical plans are as follows:
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
U.S. defined benefit plan:
Discount rate 8.0% 7.0% 8.0%
Average increase in
compensation levels 5.5% 5.5% 6.5%
Expected long-term return
on assets 9.0% 9.0% 9.0%
Non-U.S. defined benefit plans:
Discount rate 5.0% to 8.8% 5.0% to 9.0% 5.0% to 9.0%
Average increase in
compensation levels 4.1% to 7.0% 4.5% to 6.3% 4.5% to 6.3%
Expected long-term return
on assets 7.0% to 9.5% 7.0% to 10.0% 7.0% to 11.0%
Retiree medical plan:
Discount rate 8.0% 7.0% 8.0%
Expected long-term return
on assets 9.0% 9.0% 9.0%
Current medical cost trend rate 10.8% 11.2% 13.0%
Ultimate medical cost trend rate 6.0% 6.0% 7.0%
Medical cost trend rate decreases
to ultimate rate in year 2007 2007 2007
Effect of a 1% increase in the medical
cost trend rate (millions):
Increase in benefit
obligation $66 $97 $88
Increase in the annual
retiree medical cost $13 $18 $17
- ------------------------------------------------------------------------------------------------------
Commitments
- ------------------------------------------------------------------------------
The company leases certain real and personal property. Minimum commitments
under these operating leases are $157 million for 1995, $128 million for 1996,
$96 million for 1997, $80 million for 1998, $50 million for 1999 and $171
million for 2000 through 2061. Certain leases require the company to pay
property taxes, insurance and routine maintenance and include escalation
clauses. Rent expense was $274 million in 1994, $269 million in 1993 and $257
million in 1992.
Geographic Area Information
- ------------------------------------------------------------------------------
The company operates in a single industry segment: the design, manufacture and
service of measurement, computation and communications products and systems.
Net revenue, earnings from operations and identifiable assets, classified by
the major geographic areas in which the company operates, are as follows:
Hewlett-Packard Company and Subsidiaries
------
41
25
In millions 1994 1993 1992
- -------------------------------------------------------------------------------------------------------
Net revenue
United States:
Unaffiliated customer sales $11,469 $ 9,346 $ 7,212
Interarea transfers 4,653 4,249 3,436
-----------------------------------------
16,122 13,595 10,648
-----------------------------------------
Europe:
Unaffiliated customer sales 8,423 7,177 6,083
Interarea transfers 1,058 899 649
-----------------------------------------
9,481 8,076 6,732
-----------------------------------------
Asia Pacific, Canada, Latin America:
Unaffiliated customer sales 5,099 3,794 3,115
Interarea transfers 2,765 2,165 1,120
-----------------------------------------
7,864 5,959 4,235
-----------------------------------------
Eliminations (8,476) (7,313) (5,205)
-----------------------------------------
$24,991 $20,317 $16,410
=========================================
Earnings from operations
United States $ 1,472 $ 1,485 $ 1,155
Europe 660 447 308
Asia Pacific, Canada, Latin America 824 630 372
Eliminations and corporate (407) (683) (431)
-----------------------------------------
$ 2,549 $ 1,879 $ 1,404
=========================================
Identifiable assets
United States $ 9,848 $ 8,984 $ 7,309
Europe 4,991 4,452 3,869
Asia Pacific, Canada, Latin America 4,052 3,056 2,026
Eliminations and corporate 676 244 496
-----------------------------------------
$19,567 $16,736 $13,700
=========================================
Net revenue from sales to unaffiliated customers is based on the location of
the customer. Interarea transfers are sales among HP affiliates principally
made at market price, less an allowance primarily for subsequent manufacturing
and/or marketing costs. Earnings from operations and identifiable assets are
classified based on the location of the company's facilities.
Identifiable corporate assets, which are net of eliminations, comprise
primarily cash, property, plant and equipment, and other assets, and aggregate
$4,594 million in 1994, $3,148 million in 1993 and $2,889 million in 1992.
Hewlett-Packard Company and Subsidiaries
- ------
42
26
["STATEMENT OF MANAGEMENT RESPONSIBILITY" OMITTED]
Report of Independent Accountants
- ------
To the Shareholders and Board of Directors of Hewlett-Packard Company
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of earnings, of cash flows and of shareholders'
equity present fairly, in all material respects, the financial position of
Hewlett-Packard Company and its subsidiaries at October 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the three
years in the period ended October 31, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in the Retirement Plans and Retiree Medical Benefits note to the
financial statements, the company changed its method of accounting for retiree
medical benefits in the year ended October 31, 1992. We concur with this change
in accounting.
[SIGNATURE OF PRICE WATERHOUSE LLP OMITTED]
San Francisco, California
November 21, 1994
Hewlett-Packard Company and Subsidiaries
------
43
27
Orders and Net Revenue by Groupings of Similar Products and Services
Unaudited
- ------
For the years ended October 31
In millions 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
Orders
Computer products, service and support $19,882 $15,903 $12,293
Electronic test and measurement
instrumentation, systems and service 2,759 2,335 2,257
Medical electronic equipment and service 1,170 1,196 1,004
Analytical instrumentation and service 777 721 678
Electronic components 762 617 529
-------------------------------------
$25,350 $20,772 $16,761
=====================================
Net revenue
Computer products, service and support $19,632 $15,572 $12,028
Electronic test and measurement
instrumentation, systems and service 2,722 2,318 2,207
Medical electronic equipment and service 1,141 1,149 1,010
Analytical instrumentation and service 754 704 693
Electronic components 742 574 472
------------------------------------
$24,991 $20,317 $16,410
====================================
The table above provides supplemental information showing orders and net
revenue by groupings of similar products and services. The groupings are as
follows:
Computer products, service and support
Computer equipment and systems (hardware and software), networking products,
printers, plotters, scanners, disk and tape drives, terminals and handheld
calculators; support and maintenance services, parts and supplies. Products are
used for business, scientific and industrial applications.
Electronic test and measurement instrumentation, systems and service
Instruments and measurement systems used for design, production and maintenance
of electronic equipment; support and maintenance services.
Medical electronic equipment and service
Instruments and information systems used for patient care monitoring;
diagnostic cardiology; computer equipment, systems integration and application
software; support and maintenance services; hospital supplies.
Analytical instrumentation and service
Gas and liquid chromatographs, mass spectrometers and spectrophotometers used
to analyze chemical compounds; laboratory data and information management
systems; support, supplies and maintenance services.
28
Electronic components
Microwave semiconductor and optoelectronic devices that are sold primarily to
manufacturers for incorporation into electronic products.
Hewlett-Packard Company and Subsidiaries
- ------
44
Quarterly Summary
Unaudited
- ------
For the three months ended
In millions except per share amounts January 31 April 30 July 31 October 31
- -------------------------------------------------------------------------------------------------------------------
1994
U.S. orders $2,572 $2,937 $2,776 $3,407
International orders 3,570 3,431 3,185 3,472
---------------------------------------------------------
Total orders $6,142 $6,368 $5,961 $6,879
---------------------------------------------------------
Net revenue $5,682 $6,254 $6,053 $7,002
Cost of equipment sold
and services $3,470 $3,890 $3,774 $4,356
Earnings from operations $ 598 $ 638 $ 543 $ 770
Net earnings $ 368 $ 408 $ 347 $ 476
Net earnings per share* $ 1.42 $ 1.56 $ 1.33 $ 1.83
Cash dividend paid per share $ .250 $ .250 $ .300 $ .300
Range of stock prices per share $71 1/2-87 1/2 $76-92 $72-81 7/8 $78 3/8-97 7/8
===============================================================
[BAR CHART OMITTED]
1993
U.S. orders $2,093 $2,341 $2,237 $2,791
International orders 3,108 3,026 2,466 2,710
--------------------------------------------------------------
Total orders $5,201 $5,367 $4,703 $5,501
--------------------------------------------------------------
Net revenue $4,573 $5,096 $4,961 $5,687
Cost of equipment sold
and services $2,664 $2,997 $2,968 $3,494
Earnings from operations $ 421 $ 554 $ 427 $ 477
Net earnings $ 261 $ 347 $ 271 $ 298
Net earnings per share $ 1.03 $ 1.38 $ 1.06 $ 1.18
Cash dividend paid per share $ .200 $ .200 $ .250 $ .250
Range of stock prices per share $55 3/8-74 1/8 $67 3/8-78 1/4 $71-87 1/2 $65-75 5/8
==============================================================
[BAR CHART OMITTED]
*See discussion of the 1994 calculation of earnings-per-share on page 32 of
this report.
Hewlett-Packard Company and Subsidiaries
------
45
29
Shareholder Information
- ------
Annual Meeting of Shareholders
The annual meeting will be held Tuesday, February 28, 1995, at 2 p.m. at
Hewlett-Packard's Cupertino site located at 19447 Pruneridge Avenue, Cupertino,
California.
Annual Report/Form 10-K
Publications of interest to current and potential HP investors are available
upon request. These include annual and quarterly reports and the Form 10-K
filed with the Securities and Exchange Commission. As a service to those with
impaired vision, the HP 1994 Annual Report is available on audio cassette. This
material can be obtained at no cost by contacting the Corporate Communications
Department, Hewlett-Packard Company corporate offices.
Transfer Agent and Registrar
Harris Trust and Savings Bank
Corporate Trust Operations
Division, P.O. Box 755
Chicago, Illinois 60690
Telephone: (312) 461-4061
Common Stock, Dividend Policy
The company's stock is traded on the New York Stock Exchange and the Pacific,
Tokyo, London, Frankfurt, Zurich and Paris exchanges. Cash dividends have been
paid each year since 1965. The current rate is $.30 per share per quarter. At
November 30, 1994, there were 72,843 shareholders of record.
- ------
48
30
Corporate Information
- ------
Headquarters
3000 Hanover Street
Palo Alto, California 94304
Telephone: (415) 857-1501
Geographic Operations
Americas
5301 Stevens Creek Boulevard
Santa Clara, California 95052
Telephone: (408) 246-4300
Europe, Africa, Middle East
Route du Nant-d'Avril 150
CH-1217 Meyrin 2
Geneva, Switzerland
Telephone: (41/22)780-8111
Asia Pacific
17-21/F Shell Tower
Times Square, 1 Matheson Street
Causeway Bay, Hong Kong
Telephone: (852) 599-7777
A directory of sales and support locations can be obtained from the Corporate
Communications Department at HP's offices in Palo Alto.
[SYMBOL OMITTED] Printed on recycled paper
UNIX is a registered trademark in the United States and other countries,
licensed exclusively through X/Open(TM) Company Limited.
X/Open is trademark of X/Open Company Limited in the UK and other countries.
HP-UX is based on and is compatible with Novell's UNIX operating system. It
also complies with X/Open's XPG4, POSIX 1003.1, 1003.2; FIPS 151-1; and SVID2
interface specifications.
Microsoft is a U.S. registered trademark of Microsoft Corp.
Windows is a U.S. trademark of Microsoft Corp.
Intel is a U.S. trademark of Intel Corp.
Pentium is a U.S. trademark of Intel Corp.
Designed and produced by Ted Williams Design Group, San Francisco
31
GRAPHICS APPENDIX LIST*
* In this Appendix, the following descriptions of certain bar charts and graphs
in the Company's 1994 Annual Report to Shareholders that are omitted from the
EDGAR version are more specific with respect to the actual numbers, amounts and
percentages than is determinable from the bar charts and graphs themselves. The
Company submits such more specific descriptions only for the purpose of
complying with the requirements for transmitting this Annual Report on Form
10-K electronically via EDGAR; such more specific descriptions are not intended
in any way to provide information that is additional to the information
otherwise provided in the Annual Report.
EDGAR version - Page 23
A bar chart entitled "Net Earnings Per Share (In dollars)" at the top right of
page 23 of the 1994 Annual Report to Shareholders shows that for the fiscal
years 1990, 1991, 1992, 1993 and 1994 (shown on the x-axis) the Company had net
earnings per share (shown on the y-axis) in the respective amounts provided in
the table entitled "Selected Financial Data (Unaudited)" on page 23 of the
Annual Report. In addition, the bar chart shows that in fiscal 1992, after the
effect of a change in accounting for retiree medical benefits described on page
39 of the Annual Report, the Company had net earnings per share in an amount
shown in such table.
A bar chart entitled "Return on Average Shareholders' Equity (Percent)" at the
bottom right of page 23 of the 1994 Annual Report to Shareholders shows that
for the fiscal years 1990, 1991, 1992, 1993 and 1994 (shown on the x-axis) the
Company had a return on average shareholders' equity (shown on the y-axis) of
12.5%, 11.1%, 11.7%, 14.7% and 17.3%, respectively. In addition, the bar chart
shows that in fiscal 1992 the Company had a return on average shareholders'
equity of 7.4% after the effect of a change in accounting for retiree medical
benefits described on page 39 of the Annual Report.
EDGAR version - Page 25
A graph entitled "Net Revenue (In millions)" at the top right of page 25 of the
1994 Annual Report to Shareholders shows that for the fiscal years 1990, 1991,
1992, 1993 and 1994 (shown on the x-axis) the Company had total net revenue
(shown on the y-axis) in the respective amounts provided in the table entitled
"Selected Financial Data (Unaudited)" on page 23 of the Annual Report; and
international net revenue of $7,208 million, $8,104 million, $9,198 million,
$10,971 million and $13,522 million, respectively. In addition, the graph shows
that for the fiscal years 1990 and 1991 (shown on the x-axis) the company had
U.S. net revenue (shown on the y-axis of $6,025 million and $6,390 million,
respectively; and U.S. net revenue for the fiscal years 1992, 1993 and 1994
(shown on the x-axis) in the respective amounts (shown on the y-axis) provided
in the section entitled "Geographic Area Information" in the notes on pages
41-42 of the Annual Report.
32
A graph entitled "U.S. Dollar Relative to Major Foreign Currencies
(Fiscal 1980 equals 1.00)" at the bottom right of page 25 of the 1994 Annual
Report to Shareholders shows that in the months running consecutively from
October 1990 through October 1994 (shown on the x-axis) the U.S. Dollar was
equal to (shown on the y-axis) .99, .98, 1.00, 1.00, .98, 1.06, 1.10, 1.11,
1.15, 1.15, 1.12, 1.10, 1.09, 1.06, 1.04, 1.04, 1.06, 1.09, 1.08, 1.06, 1.04,
.99, .98, .99, 1.04, 1.11, 1.11, 1.14, 1.17, 1.17, 1.13, 1.13, 1.15, 1.19,
1.20, 1.16, 1.18, 1.21, 1.21, 1.21, 1.21, 1.19, 1.19, 1.17, 1.16, 1.13, 1.13,
1.11 and 1.09, respectively, multiplied by the currencies of the following
foreign countries, with varying weights assigned to each of such currencies:
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan,
Netherlands, Norway, Spain, Sweden, Switzerland and United Kingdom.
EDGAR version - Page 26
A graph entitled "Costs and Expenses (As a percentage of net revenue)" at the
top left of page 26 of the 1994 Annual Report to Shareholders shows that for
the fiscal years 1990 and 1991 (shown on the x-axis) the Company had (shown on
the y-axis) cost of equipment sold and services of 52.8% and 54.2%,
respectively, of net revenue; selling, general and administrative expenses of
28.1% and 27.4%, respectively, of net revenue; and research and development
expenses of 10.3% and 10.1%, respectively, of net revenue. In addition, the
graph shows that for the fiscal years 1992, 1993 and 1994 (shown on the x-axis)
the Company had, as a percentage of net revenue (shown on the y-axis), cost of
equipment sold and services, selling, general and administrative expenses and
research and development expenses in the respective amounts provided in the
table at the bottom of page 25 of the Annual Report.
A graph entitled "Interest and Other, Net (In millions)" at the bottom left of
page 26 of the 1994 Annual Report to Shareholders shows that for the fiscal
years 1990 and 1991 (shown on the x-axis) the company had (shown on the y-axis)
interest income and other, net of $66 million and $47 million, respectively;
and interest expense of $172 million and $130 million, respectively. In
addition, the graph shows that for the fiscal years 1992, 1993 and 1994 (shown
on the x-axis) the company had (shown on the y-axis) interest income and other,
net and interest expense in the respective amounts provided in the table
entitled "Consolidated Statement of Earnings" on page 24 of the Annual Report.
EDGAR Version - Page 27
A bar chart entitled "Net Earnings (In millions)" at the top right of page 27
of the 1994 Annual Report to Shareholders shows that for the fiscal years 1990,
1991, 1992, 1993 and 1994 (shown on the x-axis) the Company had net earnings
(shown on the y-axis) in the respective amounts provided in the table entitled
"Selected Financial Data (Unaudited)" on page 23 of the Annual Report. In
addition, the bar chart shows that in fiscal 1992, after the effect of a change
in accounting for retiree medical benefits described on page 39 of the Annual
Report, the Company had net earnings in an amount provided in such table.
33
A bar chart entitled "Selected Cash Flows (In millions)" at the bottom
right of page 27 of the 1994 Annual Report to Shareholders shows that for the
fiscal years 1990 and 1991 (shown on the x-axis) the Company had cash flows from
operating activities (shown on the y-axis) of $799 million and $1,552 million,
respectively; capital expenditures of $955 million and $862 million,
respectively; and dividends paid of $102 million and $120 million, respectively.
In addition, the bar chart shows that for the fiscal years 1992, 1993 and 1994
(shown on the x-axis) the Company had cash flows from operating activities and
dividends paid (shown on the y-axis) in the respective amounts provided in the
table entitled "Consolidated Statement of Cash Flows" on page 30 of the Annual
Report. Finally, the bar chart shows that for the fiscal years 1992, 1993 and
1994 (shown on the x-axis) the Company had capital expenditures (shown on the
y-axis) in the respective amounts shown as "Investment in property, plant and
equipment" provided in the table entitled "Consolidated Statement of Cash Flows"
on page 30 of the Annual Report.
EDGAR Version - Page 29
A graph entitled "Asset Management (As a percentage of net revenue)" at the top
right of page 29 of the 1994 Annual Report to Shareholders shows that for the
fiscal years 1990, 1991, 1992, 1993 and 1994 (shown on the x-axis) the Company
had (shown on the y-axis) net property, plant and equipment of 24.2%, 23.1%,
22.2%, 20.6% and 17.3%, respectively, of net revenue; accounts and notes
receivable of 21.8%, 20.5%, 21.3%, 20.7% and 20.1, respectively, of net
revenue; and inventories of 15.8%, 15.7%, 15.9%, 18.2% and 17.1, respectively.
A graph entitled "Employees and Net Revenue Per Employee (In thousands)" at the
bottom right of page 29 of the 1994 Annual Report to Shareholders shows that
for the fiscal years 1990, 1991, 1992, 1993 and 1994 (shown on the x-axis) the
Company had employees in the respective amounts (shown on the y-axis) provided
in the table entitled "Selected Financial Data (Unaudited)" on page 23 of the
Annual Report. In addition, the graph shows that for the fiscal years 1990,
1991, 1992, 1993 and 1994 (shown on the x-axis) the Company had net revenue per
employee (shown on the y-axis) of $141,500, $160,000, $180,800, $215,200 and
$256,900, respectively.