HEWLETT-PACKARD COMPANY ANNUAL … REPORT Financial highlights Net sales Other income, net Total income Cost of goods sold and operating expense Selling, administrative and general

HEWLETT-PACKARD COMPANY

ANNUAL REPORT

Financial highlights

Net sales

Other income, net

Total income

Cost of goods sold and operating expense

Selling, administrative and general expense

Provision for federal and foreign income taxes

Net income

Net income per share of common stock

Hewlett-Packard report for the fiscal year ended October 31; 1968

TO OUR SHAREOWNERS 1968 was asignificant year for Hewlett-

Packard, a period of change marked by some difficulties and disappointments, but by some important accomplishments as well. Sales and earnings were not up to our expectations a t the beginning of the year, largely because of diminishing growth opportunities in some of our older, traditional markets. On the other hand, we made good progress in expanding our technology into

Net earnings totaled $20,825,000, equal- ing $1.66 a share on 12,564,219 shares of common stock outstanding a t the end of the year. This compares with $1.62 a share on somewhat fewer shares outstanding in 1967. The Federal income-tax surcharge reduced 1968 earnings by approximately $1,500,000, or 12 cents a share.

In the latter part of fiscal 1967 we had some difficulty in meeting shipment tar- gets and in making appropriate adjustments in engineering and marketing costs. These problems carried over into the first quarter of 1968 and were reflected in dis- appointing profit margins. In the second quarter, however, our performance showed marked improvement, and we managed to maintain reasonably good margins throughout the remainder of the year.

For some time we have recognized an a. singly important trend in the elec- instrumentation business, one that

will have a strong impact on the future of our company and our industry. This is the trend toward more sophisticated, automated equipment. I t manifests itself in the growing demand for measuring systems, rather than individual instruments, and for the application of computer technology in solving a wide variety of complex measuring problems.

Hewlett-Packard, with its broad experience in instrumentation and its exten- sive engineering and marketingcapabilities, is in a unique position to take advantage of this trend. Our initial step in this direction occurred early in fiscal 1967, when we introduced a small, digital computer to the market. Since then we have broadened the scope of our data products activity in several important ways, successfully utilizing computer techniques to speed and simplify

complex measurements and calculations. Additional instrumentation computers

were introduced in 1968, one of which has been designed into a low-cost, highly versatile time-sharing system. We expanded our line of computer peripheral equipment, and made an effective s tar t in the development of computerized systems incorpo- rating a broad range of HP instruments.

Most important, perhaps, was our introduction of a high-speed electronic calculator that is the size of a typewriter, yet can outperform some computers. Offering a number of unique features, the calculator has gained wide customer acceptance and is now in full-scale production. Sales are running ahead of forecasts, and we expect the calculator to be a major contributor to our growth in 1969 and the years beyond.

Indicating the significance we attach to our data products activity, we have devoted a special section of this report, beginning on page 7, to describing and illustrating some of its more important aspects. I ts overall effect on our operations was clearly apparent in the pattern of incoming orders during 1968. Several of our traditional, less sophisticated instruments generated com- paratively little growth and were under increasing competitive pressure. On the other hand, there was a sharply rising demand for our data products. We expect this trend to continue.

One of our primary tasks in the coming year will be to allocate our resources effectively among our various fields of interest. We want to maintain a strong position in our traditional product areas, while giving increasing support to our newer areas. Be- cause of the rapid growth and increasing complexity of our product line, i t has been . necessary to expand and strengthen our

field marketing organizations. Consequent- ly our marketing expenses have been running a t nearly 14% of sales, a somewhat higher ratio than in the past. We expect this will continue to be the case so long as we have the opportunity to move into new markets of high interest and potential.

In 1968 we spent $29.3 million on research and development. As in 1967, this expenditure represented about 11 % of our sales revenue. In the first quarter of the year the percentage was as high as 12.6%, largely because our sales volume was considerably less than anticipated. For the remainder of the year, however, i t leveled off a t about 10.5%. We believe expenditures approximating this level will provide adequate support for our product development activity during fiscal 1969.

In 1966 we found i t necessary to make increasing use of our unsecured borrowing capacity, the necessity arising from a com- bination of factors. These included a buildup of our inventories, an increase in accounts receivable and substantial outlays for land, buildings and equipment. Short-term borrowings continued to rise into fiscal 1967, reaching a peak of $31 million early in the year. Since then they have declined appreci- ably and a t the end of fiscal 1968 amounted to $8.5 million, most of i t in foreign obli- gations.

1968 capital expenditures were rela- tively low, approximating $16 million. The largest single outlay was for initial construction on a 300,000-square-foot plant in Santa Clara, California. To be completed in the summer of 1969, the plant will be occupied by the Frequency &Time Division, now located in our main plant in Stanford Industrial Park.

Other major building projects under-

taken or completed in 1968 included a large addition to our plant in West Germany, a new building for H P Associates in Palo Alto, and new sales offices in Geneva, Paris, Dallas and Paramus, New Jersey. We also purchased the plant in Waltham, Massa- chusetts, which we had previously leased.

The rapid growth of our data products activity has placed critical demands on our plant capacity in the Palo Alto area. As a consequence, shortly after the end of the fiscal year we purchased a new 150,000- square-foot building in nearby Cupertino. The building, not previously occupied, is located on a 46-acre site. I t is now being outfitted and we expect to be able to con- solidate our data products activity in this new facility by mid-1969.

In November, also after the end of the fiscal year, we bought a 71-acre site in San Diego. This will be used for the futur pansion of our San Diego Division. 0 merly known as the Moseley Division, this group is now headquartered in a leased building near the newly-acquired property.

The Cupertino and San Diego transactions, involving an expenditure of more than $6 million, are included in our capital spending budget for 1969. We expect total capital expenditures will exceed $25 million, up substantial ly f rom 1968. Sufficient funds should be generated internally to cover these expenditures.

International orders continued to show good strength in 1968, accounting for more than one-fourth of our total business. In Western Europe, where there has been some softness in the general economy, orders totaled $45.6 million, up 26% over the previous year. We are continuing to pay close attention to the monetary problems encountered by various countries overseas,

and are endeavoring to protect ourselves against possible currency devaluations by appropriate transactions in the foreign ex- change futures market.

Our overseas companies expanded their product development efforts this past year, introducing several new instruments and systems to worldwide markets. At the same time, exports from our factories in the U.S. continued to rise, contributing a useful increment to our country's balance of payments.

To strengthen our international mar- 'keting operations we established our own sales organizations in six additional countries - Finland, Norway, Denmark, Ar- gentina, Brazil and Venezuela. In Japan, one of our most important markets, our position was enhanced by the continued

and progress of Yokogawa-Hewlett- ard, Ltd. Sales and profits for this nese affiliate were up considerably

over 1967. At the end of the fiscal year we had

more than 2,100 people employed overseas. For the corporation as a whole, employment totaled 13,430, a 10% increase over 1967.

To staff our growing operations, particularly in the technical and scientific areas, we continued to place strong em- phasis on our professional recruitment activities. We also expanded our personnel training programs, especially those aimed a t the development of management skills and capabilities. In addition, the appoint- ment of a full-time Equal Opportunities Manager enhanced our corporate-wide efforts to provide worthwhile jobs for minor- ities and other less advantaged groups in our society. We are accelerating these efforts, particularly in the area of training, as a means of obtaining good people and

contributing constructively to the solution of a critical social and economic problem.

With the expanding scope of our company has come the need for more effective management of its diverse activities. We have given considerable attention and study to this problem during the past year, and have begun to restructure our corporate organization in a way that we believe will strengthen the company and will enable us to take full advantage of the opportunities presented by changing technologies and markets.

Our plan is to gradually combine several of our operating divisions into groups, each group responsible for related products and activities. As an initial step in the plan, one that became effective with the beginning of the 1969 fiscal year, John A. Young was appointed a vice president and placed in charge of a new Palo Alto Electronic Products Group. This group, producing a broad range of instruments and components, includes our Microwave Division, Frequency & Time Division, Paeco Division and H P Associates.

Mr. Young was formerly general manager of the Microwave Division. In his new capacity, he has overall operating responsibility for the four divisions, assisted by a small staff of executives responsible for specific group functions, such as manufacturing and marketing.

We intend, during 1969, to adopt a similar management structure for our data products activity. It is likely that other groups will be formed, as well, as we expand our product lines and markets.

Our plan has two basic objectives. One is to enable compatible units to combine their resources and to work together more - effectively on a day-to-day basis. The sec-

ond is to decentralize our top management - structure, assigning more responsibility for overall planning and decision making '

I to the group level. By meeting these objectives, we hope to have a more flexible, dynamic organization, one that can readily adapt itself to customer needs and continue to generate substantial growth.

During 1968 two of our directors, James L. Jenks, Jr. and Robert L. Garner, retired. They had served on the board since 1961 and we are grateful for their con- "

I tributions to our progress over the past several years. Elected to the board were John J. B. Fulenwider and Edmund W. Littlefield. Mr. Fulenwider was associated with Hercules, Inc., for many years; Mr. Littlefield is president and general manager of the Utah Construction & Mining Co. Both are distinguished business leaders whose experience and counsel are proving most helpful to us. Another HP director, Luis W. Alvarez, received the 1968 Nobel Prize in physics, a richly deserved honor which merits our warmest congratulations.

Summing up our operations for 1968, we have greatly expanded the scope of our activity, we have made a significant thrust into new and promising markets, we have improved our financial position, and we have built additional long-term strength -

1

and flexibility into our organieation. De- spite some uncertainties in the economic . climate, we believe these strong, positive factors assure continued growth for the company in 1969 and the years beyond.

D l Chairman and C h k f Exemtive Oficer

DATA PROCESSING: A new dimension for Hewlett-Packard

Once the exclusive tool of the communications engineer, electronic measurement now finds increasing application throughout our technological society. Electronics probes the earth and scans the sky. I t monitors the heartbeat of an unborn baby, as well as an orbiting astronaut. I t listens to the death of atoms and the birth of galaxies.

As the applications of electronic measurement have multiplied, so have the contributions of Hewlett-Packard-to the extent that today the company is internationally known as a foremost designer and manufacturer of data gathering instruments.

But in this age of dynamic technological change, it is not enough to merely gather data. The data must be refined as well as mined. This calls for the effective application of computer technology, with its vast power to absorb enormous amounts of raw data and quickly reduce i t into a more convenient and workable form.

Thus HP entered the computer field to provide instrumentation that combines data gathering with data processing. By doing both jobs, the company can do each job better. Instruments designed to deliver data to computers can measure thousands of times faster than those delivering their data to the human eye, or even to electro-mechanical recorders. Computers designed specifically to process electronic measurements are more efficient than general purpose computers that must be laboriously adapted to the task.

As illustrated on the following pages, data processing provides a new dimension for Hewlett-Packard, and will add substantially to the company's growth in the years ahead. But beyond that is the realization that Hewlett-Packard is extending its tradition of contri- bution into an exciting, highly promising field of technical endeavor.

HP'S COMPUTER FAMILY: General purpose in design, but instrument-oriented

As the age of technology developed, measurement played an increasingly important role. In fact in some respects i t was determining the limits of progress. Measuring instruments were being asked to perform more and more complex tasks, and a t progressively greater speeds. The need for automation was clear, and recog- nizing this, Hewlett-Packard designed many of its instruments with the computer in mind.

Although many computers were available when the company first began har- nessing instrumentation capability to computer techniques, none readily interfaced with instruments, and i t was not uncom- mon for a user to spend months of time and thousands of dollars working out this problem.

HP computers were the first to solve the user's interface problems in advance. General purpose in their nature, H P computers have the special capability to work easily and quickly with measuring instruments, both to control their operation and to interpret their readings.

The company's computer family is unique in many other respects as well. It is unusual to find computers that are con- structed to instrument standards, but every H P computer meets the company's high

standards of quality and reliability. In addition, these computers perform well in the same wide range of environmental con- ditions as H P instruments. This gives the company's family of computers substantial competitive advantage in performance, yet experience has shown that they have remained competitive in price as well.

In the course of developing computer "hardware," the company was also focus- ing attention on the "software" problem. Today, easy programming in several languages .is a common feature of all HP computers. A large library of useful programs that work with every model is available, making the company's computers easy to operate by those who are not computer specialists.

H P computers are fast and versatile, and despite their small size they have a large memory capacity. The compa largest computer, the model 2116B, 9 sufficient speed and memory to make it ideal for a low-cost time-shared system (r ight) . The smallest computer, model 2114A, is so compact and economical that i t can be used either as an inexpensive personal computer or as a component in a larger system. A third model, the 2115A, is an intermediate. All these computers use the same programming languages and operational software.

Automated instrumentation systems are not the sole markets for H P computers. Original equipment manufacturers incor- porate H P computers into general-purpose systems they build ; stand-alone applications are common, where an H P computer performs control or computation functions unrelated with instruments.

One of the many OEM applications incorporates an HP computer into a $225,-

000 scanning system (below) to measure and control basis weight and moisture con- tent of paper as it is being manufactured.

A typical stand-alone application is a t a university computational center (below, right), where an HP computer, along with its accompanying model 2020 digikal mag- netic tape recording unit, is readily aeces- sible for student use.

HP's 2000A time-sharing system (illustrated with three teleprintar terminals, page 9) typifies the use of a aomputer in w standard, low-eo~t system. This system uses direct %ire or telephone lines to link a central 2116B computer with users a t as many as 16 remote terminals.

Another standard system is the 2007A basic educational system, being used (op- posite page, left) by high school students. To feed their progrms into the computer, they place coded tabulating cards in an EEP optical mark reader ; the computed answer is received on the teleprinter. Program cards can be coded a t home with ordinary pencil, saving class time for instruction. Colleges, as well as high schools, are find- ing this system an exeellent way to teach students the power of a computer without the burden of learning complex pmgram- ming languages.

Other standard systems with high sales potential include computerized data

acquisition systems (model 2310A is below, right), which scan, measure and record data, and the 8641A automatic network analyzer system (right), which measures transmission and reflection characteristics of microwave networks.

In addition to providing standard systems, the company is developing custom- built systems to meet specialized customer requirements. The model 9500A, for exam- ple, computerizes the production testing of electronic components. InitiaI delivery of this system occurred in late 1968 and is expected to open a broad, new market for HP's expanding computer and systems technology.

81- mmm

mmm m m m m::

HP'S DESK-TOP CALCULATOR: Solving complex problems at split-second speeds

"I do not normally write letters of appreciation to manufacturers of products I use, but my joy in ownership of one of your new 9100A calculators impels me to write you my congratulations and praise for a unique product. . ."

This letter from a California geophys- ics professor is typical of the many unso- licited comments received from users of Hewlett-Packard's new desk-top electronic calculator.

The 9100A is a self-contained, 40-pound machine performing a wide range of math- ematical functions a t split-second speeds. Until its introduction, engineers and scien- tists were limited in choice of suitable cal- culating aids. On one end of the scale was the common slide rule, restricted in speed and accuracy. On the other end was the

large computer, expensive and inconve- nient. In between were c a l c u l a ~ m of various capacity and use fu ln~s , most of them paxforming only simple arithmetic, a few offering some but not all of the capabilities of the 9100A.

The I19 calculator is a $4,900 i n s h - ment designed specifically for the en gin^ and scientist. It places a t the fingertips virtually all the mrrthematicai functions needed, Among these are trigonom&ric, hyperbolic, exponential, logarithmio and vector functions, each available with gingle key strokes. With its ability to handle num- bers from 10-98 to 1095, no number wm- monly encountered in scientific problem solving is too big or too small for the 9100A, and its 10-digit accuracy is more t b n adequate for nearly all calculatiom.

Like computers, the HP & ~ a h b programmable. I b 196 steps of p ~ w pacity, with complete looE,bg and d ing capability, enable the mez ;t. m f t e simple programs etnd @Eve W prnbbau automatically. Since p m g r d ~ g t he 9100A doesn't require a spdlcil mmpukw language, it is easy m d d;irmt.

In essence, tbm, the Wtrtxx~rnt; is a computer with ksybomd input 1&e a calculator.

Development of the- 1966 in Hewle t t -Pwkd Palo Alto. The project WM

to the campmy% Lavelad, Ca sion far final design and mmmifmture. Demonstrating an eff mtive o~)pcs&tive &- fort among various HP group+ only 10 months elapsed betwem the de7h-t of an early prototype mdel md f U m e production of the finieohed kx&r@ment;. -

Produetion-line testing of %Be 916QA is facilitated by the use of an WP Z116B

computer. In a matter of seconds, the computer makes more than a half-million tests on each new calculator, speeding the production cycle and contributing to the instrument" high reliability.

With the introduction, in 1969, of two peripheral devices, the capabilities of the 9100A will be further extended. A specially designed HP printer will provide customers with permanent records of their calculations, and an x-y plotter will automatically convert calculated data into convenient, graphic form.

Markets for the 9100A calculator ex- tend into all branches of engineering and science. A Colorado civil engineering professor (below, left) uses a 9100A in the complex job of determining the flow effi- ciency of hydraulic equipment. A consulting engineer and land surveyor (right) finds the calculator particularly helpful in computing the area of irregular plots of land. In one instance, a problem previously

requiring as much a s nine hour8 to solve w@ solved in eight minutes with his SIOBsS, In astronomy, navigation, ch~mist-sy, phys- I

its and countless other fields, the edculator is applying computer power 60 the rapid, convenient solution af complex prbbIm~. I

Educators have been quick to mag- nize the advantages of the instrummk as a new and powerful teaching t a d (below, right). By removing the time-wnsuming drudgery of manipulating numbem and consulting tables, i t enables studentss to eoncentrate on the pure principles of math- ematim and enhances their entire l L e d n g process.

The BlOOA calculator, with its incmasg ing versatility and usefulnma, haa b e n described by a physics teach= in Ekoklmd as a "fantastic computing d@vioeS om mith great scientific and edueatbnd sigajfi- cance." Certainly i t is one d tb portant single products evm &we Hewlett-Packard.

CONSOLIDATED FINANCIAL POSITION October 31,1968 and 1967

ASSETS 4

1968 1967 (Thousands of dollars)

CURRENT ASSETS:

Cash and marketable securities . . . . . . . . . . . $ 4,692 $ 3,377

Notes and accounts receivable, less provision for losses in . . . . . . . . collection (1968 - $149 ; 1967 - $113) 50,826 43,855

Inventories : Finished goods and work in process, a t

approximate cost . . . . . . . . . . . . . . . 42,436 36,500

. . . . . . . Raw materials, a t lower of cost or market 15,893 15,689

Deposits and prepaid expenses . . . . . . . . . . . . 3,654 2,656

TOTAL CURRENT ASSETS. . . . . . . . . . . . $117,501 $102,077

PROPERTY, PLANT AND EQUIPMENT, AT COST:

Land . . . . . . . . . . . . . . . . . . . . $ 7,949 $ 7,400

Buildings, equipment and other, net . . . . . . . . . . 54,698 48,728 $ 62,647 $ 56,128

Securities, a t cost . . . . . . . . . . . . . . . . $ 926 $ 912

Deferred research and development expenses, net . . . . . 737 927

Patents and trademarks, net . . . . . . . . . . . . 1,626 1,544

Deposit on leasehold and other . . . . . . . . . . . . 1,768 1,755 $ 5,057 $ 5,138

TOTAL . . . . . . . . . . . . . . . . . . $185,205 $163,343

16 HEWLETT-PACKARD COMPANY

LIABILITIES AND SHAREOWNERS' EQUITY 1968 1967 (Thousands of dollars)

CURRENT LIABILITIES: . . . . . . . . . . . . . . . . . Notes payable. $ 8,473 $ 14,045

Accounts payable and accruals . . . . . . . . . . . 24,773 21,278

Provision for federal and foreign taxes on income . . . . . 7,978 8,048

. . . . . . . . . . TOTAL CURRENT LIABILITIES $ 41,224 $ 43,371

. . . . . . . . . . . . . . . . . LONG-TERM DEBT $ 1,227 $ 1,964

SHAREOWNERS' EQUITY:

Common stock, par value $1 a share :

1968 1967 (Stated in shares)

. . . . . . Authorized 15,000,000 15,000,000

Reserved for : Stock options . . . . . 183,124 254,139

Employee stock purchase . . . and award plans 224,521 41,918

Issued and outstanding . . 12,564,229 12,431,632 $ 12,564 $ 12,432

Capital in excess of par value . . . . . . . . . . . . 29,696 23,404

Retained earnings . . . . . . . . . . . . . . . . 100,494 82,172 $142,754 $118,008

. . . . . . . . . . . . . . . . . . TOTAL $185,205 $163,343

I The accompanuing notes to financial statements (page 1 9 ) are an integral part hereof.

CONSOLIDATED STATEMENT OF INCOME F o r the years ended October 31, 1968 a n d 1967

. . . . . . . . . . . . . . . . . Sales, net . . . . . . . . . . . . . . Cost of goods sold

. . . . . . . . . . . . . Gross profit on sales . . . . . . . . Research and development expense

Selling expense . . . . . . . . . . . . . . . Administrative and general expense. . . . . . . .

Total expense . . . . . . . . . . . . . . . Net profit from operations . . . . . . . . . . .

. . . . . . . . . . . . . . Other income, net . . . Net income before provision for taxes on income . . . Provision for federal and foreign taxes on income

Net income . . . . . . . . . . . . . . . .

4


C o s t s and expenses above include depreciat ion and amort i za t ion 1968 - $9,489; 1967 - $7,765

CONSOLIDATED STATEMENT OF CAPITAL @ IN EXCESS OF PAR VALUE AND RETAINED EARNINGS F o r the years ended October 31, 1968 a n d 1967

CAPITAL IN EXCESS O F PAR VALUE Balance, beginning of year . . . . . . . . . . . . . Add : excess of market value or proceeds received over

par value of capital stock issued under stock purchase and stock option plans, and other items less expenses in connection with issuance of capital stock . . . . .

Balance, end of year . . . . . . . . . . . . . . . RETAINED EARNINGS

Balance, beginning of year . . . . . . . . . . . . . Add: net income . . . . . . . . . . . . . . . .

Less : dividends paid . . . . . . . . . . . . . . . Balance, end of year . . . . . . . . . . . . . . .

The accompanying notes t o financial s t a t e m e n t s a r e a n in tegra l p a r t hereof.


18 HEWLETT-PACKARD COMPANY

NOTES TO FINANCIAL STATEMENTS October 31, 1968

1. Principles of consolidatiow The consolidated financial statements include the

accounts of the company and i ts significant domestic and foreign subsidiaries.

Foreign currencies have been translated into U.S. dollars a t ra tes considered appropriate. Net assets of the foreign subsidiaries amounted to $15,727,900 a t October 31. 1968.

I t is anticipated tha t the accumulated earnings of the foreign subsidiaries will be required fo r use in their operations and, therefore, no provision has been made f o r U. S. income taxes which would accrue upon the return of such earnings to the parent company.

2 . P r o p e ~ t y , plant alld rquipinent Buildings, equipment and other, net, is composed of

the following: 1968 1967

(Thousands of dollars) Buildings $31,900 $26,422 Machinery and equipment 38,104 32,643 Other 10,686 9,369

ruction in progress 4,579 5,033 $85,269 $73,467

hrc mulated depreciation [Q and amortization 30,571 24,739

$54,698 $48,728

The methods used by the company and subsidiaries in computing depreciation and amortization include the sum-of-the-years-digits, declining balance and straight- line methods.

A t October 31, 1968, land, buildings and construction in progress with a net book value of $1,787,500, $859,500 and $3,192,300, respectively, were pledged a s security fo r long-term debt aggregating $1,282,500.

3. Pension and rctirenicirt p l a l ~ s Hewlett-Packard Company and i ts domestic and

Canadian subsidiaries have profit-sharing retirement plans. The company plan requires annual contributions into a retirement t rus t of a n amount equal to 10 percent of the domestic consolidated net profit before federal income taxes and with certain other adjustments. The plan of the Canadian subsidiary requires a n annual contribu- tion into a retirement t rus t of a n amount tha t credits to each of its qualified employees an amount equal to tha t which is credited to comparable domestic employees. The provisions made f o r the year ended October 31, 1968, amounted to $1,630,000.

4 . Co?nmo?t stock Changes in shares of common stock outstanding f o r

the year ended October 31, 1968, were a s follows:

Balance, November 1,1967 12,431,632 Shares sold or issued under:

Option plans 65,190 Employees purchase plan 65,187 Service award plan

Balance, October 31,1968

5 . Employee stock optioit and p u ~ c h a s e plans During prior years, Hewlett-Packard Company re-

served shares of i ts common stock fo r stock option plans. Pursuant to these plans, restricted o r qualified options were or will be granted over a five-year period and become exercisable a f t e r one year and within five years from date of grant , a t the ra te of 25 percent a year. The option price was or will be market value a t the date of grant .

A t October 31, 1968, 183,124 shares of common stock were reserved fo r issuance under stock option plans. Of these shares, 134,624 were reserved under options al- ready granted a t prices ranging from $18.75 to $76.25. During 1968, additional options fo r 31,500 shares were granted; options fo r 65,190 shares were exercised, and options fo r 5,825 shares were canceled.

During November 1968, the Board of Directors ap- proved preliminary action to have the shareowners ap- prove a modified stock option plan to reserve a n additional 250,000 shares of common stock.

Hewlett-Packard Company adopted, in prior years, a plan f o r employees to purchase the company's common stock. The plan requires the company and participating subsidiaries to contribute 25 percent of the purchase price (approximate market value) of such stock a t the dates of purchase. During 1968, the company reserved a n additional 250,000 shares of stock fo r this plan, and a t October 31,1968, there remained 214,201 unsold shares.

6. Co~nmi tmen t s and coi i t i i~gent liabilities Hewlett-Packard Company entered into a guarantee

agreement f o r borrowing by i ts Japanese affiliate, Yoko- gawa-Hewlett-Packard, Ltd. The borrowings subject to this agreement a t October 31, 1968, were $680,000.

Sales recorded during the years subsequent to Oc- tober 31, 1964, subject to the U.S. Renegotiation Act of 1951, a s amended, remain subject to review. The management believes tha t when such sales a r e examined, there will be no refund payable.

Hewlett-Packard Company's federal income tax re- tu rns fo r the year ended October 31, 1964, and subsequent years remain subject to review by the Internal Revenue Service.

The companies have long-term leases requiring annual rental of $589,300 and commitments to their building programs of approxin~ately $11,173,000.


TEN -YEAR CONSOLIDATED SUMMARY (Thousands of dollars except per-share amounts)

Years ended October 31 C

Income 1968 1967

Sales. less returns and allowances . . . . . . . . . . . . $268. 849 $243. 361

Commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income

. . . . . . . . . . . . . . . . . . . . . Total $272. 416 $245. 426 --

Deductions

. . . . . . . . . Cost of goods sold and operating expense

. . . . . . . . . . . Research and development expense

. . . . . . . . Selling. administrative and general expense

. . . . . . . . . . . . . . . . . . Interest expense

. . . . . . . . . . . . . . . . . . . . . Total

Income before taxes on income . . . . . . . . . . . . . . Federal taxes on income . . . . . . . . . . . . . . . Foreign taxes on income . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . Total

Preferred dividends . . . . . . . . . . . . . . . . . . . . Net income to common stock . . .

. . . . . . . . . . . Net income per share of common stock* $1.66 $1.62

* Based o n the n u m b e r of shares of common stock outstanding a t the end o f each

y e a r . giving re t roac t ive e f e c t t o subsequent poolings o f in teres t s and o ther i t e m s .



CONSOLIDATED STATEMENT OF SOURCE AND APPLICATION OF FUNDS For the year ended October 31, 1968

(Thousands of dollars)

Funds were provided by : Net income . . . . . . . . . . . . . . . . . . . . . . . $20,825 Depreciation and other non-cash items . . . . . . . . . . . . . . 9,849 Issuance of common stock :

Stock plans and service awards less issuance expense

Funds were applied to : Purchase of property, plant and equipment . . . . Dividends on common stock . . . . . . . . . . Reduction of long-term debt . . . . . . . . . Purchaseofpatentsandtrademarks . . . . . . . Increase in deposit on leasehold and other assets . . . Increase in working capital . . . . . . . . . .

ACCOUNTANTS' REPORT

To the Board of Directors Hewlett-Packard Company :

We have examined the consolidated financial position of Hewlett-Packard Company and subsidiaries as of October 31, 1968, and the related statements of income, capital in excess of par value, retained earnings and source and application of funds for the year then ended. Our exam- ination was made in accordance with generally accepted auditing standards, and accordingly in-

December 30,1968 San Francisco, California

eluded such tests of the accounting records and such other auditing procedures a s we considered necessary in the circumstances.

In our opinion, such statements present fairly the financial position of Hewlett-Packard Com- pany and subsidiaries a s of October 31, 1968, the results of their operations and the source and application of funds for the year then ended in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year.

Main Lafrentz & Co. Certified Public Accountants


CORPORATE OFFICES

1501 Page Mill Road, Palo Alto, California 94304

DOMESTIC OPERATIONS

Manufacturing Palo Alto, Mountain View, Pasadena and San Diego, California . Colorado Springs and Loveland, Colorado . Waltham, Massachusetts . Berkeley Heights and Rockaway! New Jersey . Avondale, Pennsylvania

Marketing Regional headquarters in North Hollywood, California ; Atlanta, Georgia ; Skokie, Illinois ; and Paramus, New Jersey 48 sales offices throughout the United States

Manufacturing Boblingen, West Germany South Queensferry, Scotland Tokyo, Japan

Marketing Regional headquarters in Palo, Alto, California, and Geneva, Switzerland 115 sales offices throughout the Free World

Transfer agents The Chase Manhattan Bank, New York Crocker-Citizens National Bank, San Francisco

Registrars First National City Bank, New York Wells Fargo Bank, San Francisco

Annual meeting of shareowners 2 p.m., Tuesday, February 25,1969 1501 Page Mill Road, Palo Alto, California

DIRECTORS Luis W. Alvarez

Professor of Physics, University of California Ernest C. Arbuckle

Chairman, Wells Fargo Bank Robert Minge Brown

Par tner ; McCutchen, Doyle, Brown & Enersen Harold H. Buttner

Retired Vice President, International Telephone and Telegraph Corporation W. F. Cavier

Vice President and Secretary, Hewlett-Packard Company John J. B. Fulenwider

Retired Vice President, Hercules, Inc. William R. Hewlett

President, Hewlett-Packard Company Russell J'. A. Lee, M.D.

Chairman, Palo Alto Medical Research Foundation Edmund W. Littlefield

President and General Manager, Utah Construction & Mining Co. Francis L. Moseley

President, Servo Products Company David Packard

Chairman and Chief Executive Officer, Hewlett-Packard Company Thomas P. Pike

Vice Chairman, The Fluor Corporation, Ltd. Frederick E. Terman

Vice President and Provost Emeritus, Stanford University Edwin E. van Bronkhorst

Vice President and Treasurer, Hewlett-Packard Company Erskine N. White

Retired Chairman, New England Telephone & Telegraph Company

OFFICERS David Packard

Chairman and Chief Executive Officer William R. Hewlett

President W. F. Cavier

Vice President and Secretary William P. Doolittle

Vice President W. Noel Eldred

Vice President, Marketing Ralph E. Lee

Vice President, Western Operations Bernard M. Oliver

Vice President, Research and Development Noel E. Porter

Vice President, Eastern Operations Edwin E. van Bronkhorst

Vice President and Treasurer Ray L. Wilbur, Jr.

Vice President John A. Young

Vice President

Documents

HEWLETT-PACKARD COMPANY ANNUAL … REPORT Financial highlights Net sales Other income, net Total income Cost of goods sold and operating expense Selling, administrative and general