Business Context and Reporting Period
This Form 10-K covers the fiscal year ended October 31, 1998, for Hewlett-Packard Company (HP). Effective May 20, 1998, the company changed its state of incorporation from California to Delaware. HP designs, manufactures, and services equipment for measurement, computation, and communications, including computer systems, personal computers (PCs), printers, test and measurement equipment, and medical electronics. The company employs approximately 124,600 people worldwide and operates in more than 130 countries.
Key Financial Metrics
The filing incorporates detailed financial statements by reference to the 1998 Annual Report to Stockholders; specific revenue, profit, and cash flow totals are not explicitly listed in the provided text. However, the following metrics are disclosed:
- Research and Development (R&D): Expenditures totaled $3.4 billion in fiscal 1998, representing a 9% increase from the prior year and 7.1% of net revenue.
- Capital Expenditures: Investment in new property, plant, and equipment was $2.0 billion in fiscal 1998.
- Services Revenue: Services accounted for 15% of total revenue in fiscal 1998.
- International Revenue: Approximately 54% of net revenue originated outside the United States.
- Market Capitalization: The aggregate market value of common stock held by nonaffiliates as of December 28, 1998, was approximately $55.8 billion.
- Shares Outstanding: 1,015,098,000 shares of common stock as of December 28, 1998.
Material Changes and Operational Highlights
Several significant operational shifts and strategic moves occurred during the reporting period:
- Acquisitions: HP acquired Heartstream, Inc. (medical defibrillators) and MTI Analytical Instruments (gas chromatographs) during fiscal 1998.
- Product Introductions: Launched new server families (HP 9000 A-, R-, and K-Class), business PCs (HP Brio 7000/8000), handheld PCs (HP Jornada), and advanced printers (HP Color LaserJet 4500/8500).
- Organizational Restructuring: The Measurement Systems Organization was reorganized into the Measurement Organization, consolidating Medical Products, Chemical Analysis, and Component Groups.
- Real Estate: The company owned or leased approximately 53.1 million square feet of space worldwide, actively disposing of excess space while utilizing the vast majority of facilities productively.
Outlook, Risks, and Contingencies
Management highlights several forward-looking risks and strategic considerations:
- Competition and Margins: The company anticipates continued price adjustments to remain competitive, which may result in reduced gross margins. HP competes on technology, performance, price, and service.
- Year 2000 (Y2K) Readiness: HP is focused on internal IT/non-IT systems, product readiness, and third-party readiness. Management expects costs to be immaterial but acknowledges risks of disruption if readiness is not achieved.
- Foreign Currency and Euro: The company faces foreign exchange rate risks and is managing the transition to the Euro (effective January 1, 1999) through a dedicated task force.
- Reseller Dependency: More than half of revenue is derived through resellers. The financial health of these partners is a material risk factor.
- Supply Chain: Periodic constraints on component parts due to industry demand could adversely affect operating results, though alternate sources are generally available.
Investor Verification Checklist
- Verify the specific Net Revenue and Net Income figures in the Consolidated Statement of Earnings (referenced on page 44 of the Annual Report), as these totals are not explicitly stated in the 10-K text provided.
- Review the Consolidated Balance Sheet (page 45) for total debt levels and liquidity positions, which are not detailed in the narrative text.
- Confirm the impact of the Heartstream and MTI acquisitions on segment reporting and goodwill.
- Assess the Year 2000 remediation status and associated costs detailed in the Annual Report (pages 40-43).
- Monitor the gross margin trends in light of management's expectation of price adjustments in the competitive computer market.