HP Annual Report 2000 | Quarterlytics

FY2000 Annual Report · HP

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What does the future require of us today?

the everyday acts of many

We can’t forget that technology
is ultimately about people.

89,000 hp people around the globe

So far, the Net has been about inventing
new ways of doing old things. Now, we have to
invent things that have never existed before.

15,700 people joined hp this year

Standards-based approaches will help
this world evolve to its fullest.

founded in 1939

We can unleash the inventiveness and
economic power of 4 billion more people.

more than 50 percent of hp people have joined hp in the past five years

There’s power in aligning
toward the same goal.

hp conducts business in more than 120 countries

It starts with me.

began reinventing in 2000

While advancements are often made

possible by technology, they are made

profound by people and their decidedly

human aspirations. That’s because vir-

tually all meaningful advancements in

business, society and life are not

achieved through the bold acts of a

few, but the everyday acts of many.

carly fiorina, chairman, president and ceo

Dear fellow shareowners,

Systemic, sustainable advances in business and society are seldom defined by a single bold act. Instead, they are
realized through the everyday acts of many.

This past year shows what is possible when the 89,000 people of Hewlett-Packard put their minds to some-
thing and contribute in their own creative ways to a unified effort. FY00 will go down as a pivotal year in our
history, a year in which hp’s reinvention gained sufficient velocity and direction to begin driving meaningful,
sustainable progress.

As we enter the 21st century, we stand at the edge of a new era, an era in which technology will become even
more deeply woven into the fabric of business, society and our daily lives. As we enter this era, a new technology
landscape is emerging. A landscape that’s defined by truly simple personal devices that run useful Web services—
e-services—across an Internet infrastructure that’s always on, always available. We’re heading toward a world
where everything will be connected by way of a new generation of technology linked to the Net.

We believe that hp has a unique opportunity to transform markets at the intersection of information appliances,
useful e-services and an always-on Internet infrastructure. Capitalizing on these opportunities requires us to rein-
vent this great company, restructuring and revitalizing ourselves to once again capture the spirit of invention and
apply it to solving customer problems and meeting customer needs.

Our collective goal in this reinvention is to preserve the best of hp and reinvent the rest. By this I mean that we are
maintaining the best attributes we have developed over our 61 years in business—our inventive capability, our
focus on the customer, our respect for our employees—while thoroughly reinventing every major component of the
organization around these core strengths.

A year of improving performance

From the day I arrived at hp, I have said that the world has yet to see the performance that hp is truly capable
of achieving. With a more consistent strategy that pulls together the many attributes of this company—and with
a renewed inventive spirit—I believe the people of hp can deliver greater and greater value to our customers, our
shareowners and our communities.

One of the very first commitments I made to hp’s shareowners was to improve hp’s ability to deliver consistent,
predictable top- and bottom-line results. Because of the actions we took this year, hp revitalized top-line growth
and achieved balanced revenue and earnings growth of 15 percent for the first time in four years.

You are starting to see what hp can accomplish when we focus our energy and our resources on a set of
shared objectives:

- Our total revenues grew to $48.8 billion this year—reflecting the new relevance we are gaining with

our customers.

- Our return on assets and our return on equity,10.5 percent and 25.1 percent respectively, are strong.
- The business continues to generate significant cash, and our balance sheet is exceptional.

Overall, the numbers reflect the progress we are making, along with the areas where we need to work harder.
While we posted four quarters of improving top-line performance for FY00, we failed to meet our profitability
targets in the fourth quarter. And while there were a number of factors at play, many unique to the quarter, the
leadership team and I are resolved to meet our commitment to deliver consistent, predictable financial results.

Heading into fiscal year 2001, our goal is to accelerate the reinvention of hp. We are confident that our strategy
is on track and our executional abilities are improving. And as we enter increasingly difficult and uncertain eco-
nomic times, our portfolio breadth and depth, our reputation for quality and reliability, our financial strength and
our deeply rooted global presence will serve as important assets.

letter printed on hp LaserJet paper

If you read no further, you should take away this: The reinvention of hp is on track, we are once again capable
of delivering balanced revenue and profit growth, and we are back as a competitive force in the industry. But I
hope you will read further, because the lessons we’re learning within hp are applicable not only to our business,
but to many businesses in an Internet Age.

Fueling reinvention: putting the components in harmony

Our belief is that sustainable reinvention requires a holistic approach. By this I mean we’re working to ensure that
the four essential components of a healthy business system are synchronized and in full support of our
reinvention goals:

Strategy. HP has traditionally excelled at developing product strategies and marshaling resources to pursue
them. Our highly decentralized structure has enabled us to move quickly. In an Internet Age, it’s clear that we
must maintain this speed. At the same time, our value to customers lies not only in individual products—but in
delivering total solutions. To achieve this, we are focusing on strategic opportunities that fall between our tradi-
tional businesses, or cross the lines of one or more of our businesses.

Structure and e-processes. To deliver on our strategy, we need to continually raise our performance to higher
levels in terms of how we serve customers and how quickly we turn inventive ideas into world-class technology
solutions. This year, we began the work of radically restructuring hp into four organizations—two customer-facing
(our Business Customer Organization and our Consumer Business Organization) and two focused on product
generation (Computing Systems, and Imaging and Printing Systems). The IT Services segment is a component of
the Business Customer Organization.

This organizational structure aligns us to create superior customer experiences, while committing focused
resources to developing superior technology solutions. For speed, our customer-facing and product-generation
organizations have clear roles and responsibilities for execution. For leverage, they collaborate closely on key
areas of product planning, solutions creation and share important operational and financial goals. In addition,
in FY00, we began consolidating 83 independent product lines into 17 product categories—allowing us to
reduce redundant overhead and channel the savings into R&D and sales.

At the same time, we began introducing e-services initiatives within the company to streamline processes, make
employees more productive and take cost out of our infrastructure. The goal is to allow us to invest in important
growth opportunities for the company as well as in more customer-facing resources.

Performance metrics and rewards. What gets measured is what gets done. To help incent the right actions
and behaviors within hp—and to reinforce new ways of collaborating—we’ve reengineered our performance
management, compensation and rewards programs. Many elements of these programs went into effect this year,
with expansion planned for FY01. For example, our top 200 leaders are now rewarded through a pay-for-results
program that requires achieving specific goals in both revenue and profit growth to receive their bonuses. This
“double-barrel” approach means that if the company does not meet its threshold performance goals for both
revenue and profit growth in a given half, leaders receive no company-wide bonus—which is exactly what hap-
pened for the second half of FY00. On the other hand, there is considerable upside potential if targeted aspira-
tional goals are met.

In fiscal year 2001, we will be expanding this pay-for-results program significantly. Indeed, all hp employees will
have a portion of their compensation tied to the company’s results. As part of our reinvention of rewards, we
have created a Company Performance Bonus to replace hp’s Profit-Sharing Plan. With the new program, employ-
ees will receive a bonus—targeted at between 6 and 9 percent of their pay—only if we meet or exceed thresh-
old revenue and profit goals. As with the pay-for-results program, there will be considerable upside potential
when hp meets its aspirational goals.

letter printed on hp LaserJet paper

Culture. HP has long been admired for our culture—a performance meritocracy with an informal environment
and a firm belief that every community in which we live and work should benefit by our presence. For decades,
the hp Way served as a guiding set of principles in this regard, shaping our actions and differentiating hp as a
place to build a meaningful career. In recent years, the intent of the hp Way became clouded and it was used
to justify behavior such as conflict avoidance, weak performance management and an excessive focus on consensus.

Clearly, this was not what our founders Bill Hewlett and Dave Packard had in mind. We’ve spent a significant
amount of energy this year defining what will be required of each of us going forward—what traits, what actions,
what new ways of working together. We’ve captured these requirements in something we call The Rules of the
Garage, which preserves and builds on the beliefs and core values inherent in the hp Way. These values
include: respect for the individual, contribution to customers and the community, uncompromising integrity,
teamwork and innovation. We like to think of The Rules of the Garage as the hp Way, recast for the 21st century.
We believe quite strongly that our culture, our principles and our way of treating each other create unique
advantages for hp—both in serving our customers and in allowing us to recruit and retain the best and
brightest employees. These advantages set us apart from the pack—and we intend to cultivate and nurture them.

How reinvention is fueling business performance

Reinvention is a process—a journey, if you will. And along the way there are signposts that represent tangible
evidence of progress. Here are some of the most significant signposts from fiscal year 2000:

Heavy lifting in the computer systems business results in improved performance. Our computer systems
business is focused on delivering the next-generation infrastructure—an always-on Internet infrastructure that will
help businesses provide services to their customers and employees. During FY00, we did the heavy lifting re-
quired to refresh our server product line from low-end to high-end and everywhere in between. While in the midst
of one of the more impressive product rollovers in our history, we still managed to deliver 18 percent growth in
this critical arena. We nearly doubled our performance in our low-end server business, which is an important
indicator of our progress against our competition in this market. Our mid-range server revenue was up 17 per-
cent, and we also launched Superdome—our much-anticipated high-end UNIX system that offers not only superi-
or performance, but also a truly exceptional customer experience. We also redoubled our efforts in serving our
enterprise customers by restructuring and reenergizing our sales force. The combination of our best server line-up
ever and a more focused approach to key account coverage paid off with 28 percent revenue growth in our cor-
porate accounts business during the second half of the year.

- Storage offers another tremendous growth opportunity for hp. Although we took a short-term hit in storage
revenue when we ended our relationship with EMC, our storage business is now healthy again and growing.
As just one example, our storage area network business grew 70 percent year-over-year.

- We revamped our software strategy and made significant investments in components of the software stack that
will position hp for leadership in services-based computing. In particular, by entering into an agreement to buy
Bluestone Software and add its highly acclaimed XML-based Web application server and tools to our portfolio,
we are working to enable customers to develop and deploy applications and services that capitalize on the
XML standard.

- Thanks to this heavy lifting in FY00, we entered FY01 with the strongest and broadest line of servers, storage

and software solutions in our history.

- While we are pleased with the momentum across many segments of our Computing Systems business, we are
not yet satisfied with our progress in the Netserver and commercial PC segments, and we have more work to
do to improve profitability overall.

letter printed on hp LaserJet paper

Achieved significant, organic growth in our services business. Another promising aspect of hp’s diversified
approach is our IT Services business. Here we achieved 14 percent revenue growth—fueled by consulting rev-
enues that were up 28 percent, and orders that topped $1 billion. We believe this growth reflects a fundamental
shift in the way customers want to be served. More and more, our enterprise customers are telling us they want
to talk to one company about linking their business transformation needs with their IT implementations. We invest-
ed substantially in people during the year to meet this increasing need, hiring more than 1,700 consultants—an
impressive achievement, considering the especially tight talent pool in the industry. We intend to continue grow-
ing our consulting business organically through hiring, and will analyze other possibilities for capitalizing on this
important arena.

- Another highlight from our IT Services business included growing revenue 12 percent this year. Despite our pro-

gress in delivering solid revenue growth in core components of our IT Services business, we are not satisfied with
our profitability and will make profitable growth a key focus during FY01.

Capitalized on our market clout in imaging and printing to fuel solid growth. This year, our unparalleled
imaging and printing businesses achieved several notable milestones. This shows that hp is not content to rest on
its laurels, but is committed to increasing our lead in the markets that we create. Total revenues surpassed $20
billion—up 10 percent compared with the year-ago period. We gained market share in laser printing, upping
our share to 61 percent of the total market. To give you an appreciation of hp’s position in this core business,
we shipped more laser printers in our fourth quarter than our nearest competitor shipped in its entire year.

- Our share of the inkjet market is 41 percent, and our market share is twice that of our nearest competitor.We
enter FY01 with a reengineered product line—bottom to top—across all categories, placing us in an excellent
competitive position.

- FY00 was an outstanding year for other important imaging product categories, too. For example, revenue in our
image capture business grew 40 percent, including growth in digital cameras and photo printers, up 302 per-
cent for the year.

Became the world’s largest consumer technology supplier. Our consumer business, which includes home
PCs, notebooks, PDAs, personal storage devices, inkjet printers and supplies, scanners, digital cameras and photo
printers, grew 30 percent during the year. In addition to capitalizing on favorable market dynamics, our momentum
in this business can be attributed to a revitalized hp brand, world-class manufacturing and distribution opera-
tions, a leading retail and online presence, a rich set of product configurations and innovative partnership mod-
els. In 2001, we plan to extend our reach into key markets in Europe, Asia and Latin America and continue to
differentiate hp through innovative offerings that enrich people’s lives.

Began to use hp’s strengths to deliver exceptional customer experiences. In reinventing hp, our primary
focus has been on customers. We are carefully examining how to improve every aspect of the customer experi-
ence lifecycle: how to better deliver on customer needs; how to develop deeper, more strategic relationships; how
to engender unmatched loyalty. This year, we launched our first total customer experience (TCE) initiatives—includ-
ing everything from better customer support programs to new and innovative go-to-market strategies. In the spirit
of “what gets measured gets done,” we developed a comprehensive set of analytics to measure our progress
along key customer relationship metrics and, going forward, the compensation of our senior leaders will be tied
to delivering on our TCE goals.

Changing the world: It’s aspiration that drives us

While we learned a number of important lessons in FY00, the one that stands out the most is the sheer power of
aspiration. As a company, we aspire to become a winning e-company with a shining soul: a company that
leads in our core businesses; a company that uses the Internet and new technology to run our company and inter-
face with customers; a company that displays uncompromising integrity, a passion for good citizenship and serves
as a model of inclusion in the workplace and the marketplace; a company that uses its inventive capabilities to

letter printed on hp LaserJet paper

transform markets, even industries. Central to our aspirations is a vision of computing developed more than a
decade ago in hp Labs. At that time, a team of researchers began envisioning an interconnected world. It was
a world where computing was not limited by proprietary technology, closed computing architectures or even the
need for electrical power. Our researchers envisioned a world based on open standards, a world in which virtu-
ally every person, place and thing on the planet could be connected.

This vision has become our company’s shared vision, a vision in which e-services of all types are made available
on personal, friendly information appliances that are powered by an always-on Internet infrastructure.

It’s at the intersection of these three major forces of technology—information appliances, useful e-services and an
always-on Internet infrastructure—that the most inventive solutions will be created: vehicles that serve as platforms
for myriad e-services, connected to the Net via wireless networks. Mobile phones that offer an array of nimble
e-services that will become essential for people on the go. Entire buildings—and virtually every entity in them—
acting as platforms for e-services that serve tomorrow’s workforce. This is a wholly different view of how the Net
works—it’s a world where the Web works for you, rather than the other way around.

All the hard work we are currently investing in the reinvention of hp will put us in position to deliver the benefits of
this vision—a Net that serves everyone. It will allow us to extend the power of technology far beyond the halls of
business and deep into society, including the four billion people in the developing world who currently don’t
have access to technology and the benefits it provides.

The journey

We have made solid progress over the past year and a half. And we know we have more work to do in FY01 to
meet our commitments to shareowners. The 89,000 people of hp are reenergized and working with a common
sense of purpose. We have a new bounce in our step because we realize as a team that we are on the verge of
living up to our promise—to our customers, our shareowners and ourselves.

We have reinvented and revitalized ourselves before in our 61 years of superior business performance. This time,
our renewal will place us at the forefront of the Internet Age, where we will use our unique inventive capability to
fundamentally transform how people live, learn, work and play.

This is something worth doing—something that is worthy of Hewlett-Packard.

Carly Fiorina
Chairman, President and Chief Executive Officer

letter printed on hp LaserJet paper

financial highlights printed by hp PhotoSmart 1218 printer

”How do we build technology
for life lived in motion?“

mobile e-services bazaars

Human beings are inherently nomadic—which is why a worldwide hp team is master-
minding ways to harness mobile technologies for life lived in motion. Peter Vesterbacka,
Nectari Charitakis, Kelvin Tan and Louis Judice are stationed on the frontlines of the
mobile revolution, overseeing hp’s mobile e-services bazaars in Helsinki, Singapore and
the Silicon Valley. Here, hp and bazaar members meet to discuss the latest break-
throughs, build relationships, and collaborate in creating new mobile technologies,
e-services, and even whole new business models—through virtual and face-to-face inter-
actions. A cross between a buzzing business hub and a living lab, the bazaars are
becoming ground zero for the inventors and entrepreneurs fueling the mobile Net. Ideas
born here are enabling people to redefine and, in essence, reinvent the concept of com-
munity in our mobile cultures—widening social connections, making interactions and
transactions more convenient, providing a greater sense of freedom and control, and
offering new avenues for self-expression.

peter vesterbacka

Channels On Tap When Lynn Sauder, Kyle Neal and their group heard Carly Fiorina say that hp should “make
the Internet work for our customers” they decided to brainstorm about an obstacle facing the emerging e-services
industry: The ASP marketplace has the potential to reach $22.7 billion by 2003. But the expense and complexity of
building a full-service sales and marketing channel keep many businesses from pursuing this market. Lynn’s team
dreamed up a “B2B2B ecosystem,” a new way for service providers and other channel partners to reach customers
in a more cost-effective way by dynamically connecting them with agents and customers online. Their creation,
Channels On Tap (a combination of hp e-services portals AgentDepot and AsktheDepot), now offers a trusted mar-
ketplace for all—and a new, annuity-based revenue stream (plus a patent in the works) for hp.

image of kyle neal taken with hp PhotoSmart 912 digital camera

embedded computing In the buildings that once housed hp headquarters, Bob Rau, Stan Williams, Chuck
Morehouse and others spend a lot of energy in their labs working on making computers, custom chips and storage
technologies as small as atoms, and affordable to produce. Why the obsession with nanotechnology? Because these
breakthroughs will form the foundation of a much more interactive environment—a world in which any information
appliance (a PDA, a cell phone), network infrastructure, or object with an embedded microchip (an alarm clock, a
dashboard) can perform tasks by operating on its own, or by teaming up and linking to e-services over the Net, in
order to get things done.

image of chuck morehouse taken with hp PhotoSmart 912 digital camera

Develops revolutionary hp
digital camera technology
to foster the inventive-
ness of people around
the world.

(www.hp.com/100cameras)

mary peery

Reinvented the process
of recycling hp parts
and entire products in
a way that salvages
precious metals and pro-
tects the environment.

joe kraynik

fred kitson

Developing streaming
media technology to
provide mobile users
with media-rich content
and communication
capabilities through
information appliances.

portraits taken with hp PhotoSmart 618 and hp PhotoSmart 912 digital cameras

Pioneered an alliance to
form an industry-standard
security platform for e-com-
merce, based on an hp trust
model that lets people and
devices test a computing
environment before conduct-
ing transactions with it.

Creating an ASP-model
e-service that simplifies
and automates the sales
tax collection process.

tse hwonk choo

dan kostenbauder

Contributing hardware,
software and significant
time to support ARKive,
a database of images
and recordings of the
world’s endangered and
extinct species.

andrew nelson

betty sproule

Partners with communi-
ties to develop and run
education and training
programs, virtual and
physical community cen-
ters, and home-based
Internet tools.

portraits taken with hp PhotoSmart 618 and hp PhotoSmart 912 digital cameras

“Technology is not about bits and bytes—it’s about
the celebration of people’s hearts and minds.”

sachin sawant is a software engineer in hp’s e-Marketing Automation group

oksana vishnevskaya is a software engineer in hp’s human resources IT department

“What happens when product design
goes way beyond the box?”

Superdome

The hp Superdome product team knew they had built something special in their new top-
of-the-line UNIX server. But in addition to record-beating performance capabilities, the
other breakthroughs they delivered went far beyond the box. By harnessing the collective
know-how of far-flung, interdisciplinary hp teams, they learned they could make the whole
experience of planning, purchasing, integrating and maintaining high-end server systems
painless—and therefore priceless—for customers.

The team held monthly Superdome council meetings, inviting representatives from R&D
and marketing, manufacturing and sales, and financing and support to cover everything
from bug fixes to how to maneuver the refrigerator-size server onto loading docks. In those
meetings, the team realized through their conversations, and by listening to customers, that
they had the opportunity to deliver something truly groundbreaking: an unprecedented
customer experience. Together, they conceived of a dedicated solutions manager and sup-
port team for each and every customer. They introduced a utility pricing model and sys-
tem pre-integration for faster time-to-revenue (for example, hp OpenView management
software, hp SureStore XP512 disk arrays, and other leading hp and partner capabilities
can all be pre-integrated into Superdome). In the end, the success of hp Superdome is a
tribute to the inventiveness of the team as a whole—but also to every individual who con-
tributed in his or her own way to bring it to market.

loreum ipsum

ryan houdek

brad klein

mary cooley

doyle shipman

rob harris

bruce roberts

mark shaw

tammy heiserman

jill quan

harish babu

paul perez

d’ann chorak

supply chain management How does someone apply their rather obscure interests in real options theory and
perfect market dynamics, to solving a basic business challenge at hp? Corey Billington did it. He wanted to help hp
figure out a better way to manage the supply chain risks inherent with volatile technology markets, so he assembled
a team and built TradingHubs.com, a prototype online exchange that enables hp and its partners to buy and sell
excess parts and inventory in an auction environment. (Today, TradingHubs.com is at the heart of hp’s contribution
to eHITEX (now Converge.com), the Internet marketplace founded in June 1999 to serve the supply chain needs of
the high-tech community.) Corey’s team is on a roll. Through their pioneering work, they’ve created a way for hp to
save up to 30 percent in inventory costs. They also reinvented the hp product distribution packaging process, sav-
ing the company $35 million this year.

image of corey billington taken with hp PhotoSmart 912 digital camera

hp garage program Lang-Anh Pham and Adrian Ott wanted to infuse hp with some of its original inventive spir-
it and bolster the company’s relevance in today’s Internet economy. So they garnered support to start a virtual team
to build and sell solutions to start-ups. Every day, they spoke to at least one Internet company, VC or incubator,
immersing themselves in the complexities of those businesses. Their team spanned 13 divisions and ran like a start-up—
without an official budget, holding meetings at any hour. In just over 60 days they launched the hp Garage Program,
which now provides the tools to help qualified start-ups build their new ventures. In seven months the program added
more than 275 companies to hp’s base, infusing hp with new revenue streams and technology and business models.

images of lang-anh pham and adrian ott taken with hp PhotoSmart 912 digital camera

“It all started in a garage 61 years ago,
and every day hp people work hard to return there.”

“Shouldn’t companies pay just
for what they use?”

e-Utilica

Utility computing—a model in which information and computing power are made avail-
able like electricity or water—has been a mantra and a vision at hp for decades. The thinking
behind it is simple: In the future, individuals and businesses won’t always buy hardware
or software, they’ll rent it—paying only for what they use.

With utility computing as their design strategy, Matt Oberdorfer and his team in Fort
Collins, Colorado, invented e-Utilica, the world’s first plug-and-play Internet data center
solution that makes it possible for service providers, carriers and enterprises to deliver appli-
cations and computing services “on tap.” In the intense, hothouse environment of a start-up,
they built concepts and prototypes; invented new manufacturing, customer support, service,
and training processes; won patents—and created a whole new product category.

Thanks to the doggedness and creativity of an inspired team, utility computing is more
than just a timely concept. It’s now a whole new revenue stream based on hp’s unique
intellectual property—and uniquely inventive spirit.

team members: harry baeverstad darlene letey richard searles

team members: brad saunders kerri diamant

“What’s possible when every person,
place and thing can be connected?”

CoolTown

Back in 1994, before the Internet went mainstream, a team in hp labs began experiment-
ing with the concept—and very real probability—that the Net could significantly change
the way we interact. What if, they wondered, every person, place and thing had a pres-
ence on the Web? What’s possible in a world where literally everything can be connect-
ed to the Internet? Where e-services are accessible no matter where you are, and can be
delivered on the spot to appropriately fit the context you’re in?

This year, thousands of people got a glimpse of this world in CoolTown—hp’s vision of a
world where the physical and digital worlds are intertwined in ways that simplify how we
live, learn, work and play. Gene Becker, Gary Herman, Jeff Morgan and Gita Gopal are
part of a larger team behind CoolTown and the technologies that make it possible for peo-
ple, environments and things to effortlessly exchange information and services using the
open standards of the Web.

This year, the team began working with customers to explore ways to extend CoolTown
technologies to the real world in cars, watches, cell phones, PDAs, hospitals and theme
parks. Now, that’s cool.

gary herman gita gopal gene becker

hp patents Steve Fox thought long and hard about what it would take to raise hp into a top-10 ranking among
U.S. patenting companies—and came up with a plan. He and his staff developed a systematic approach to align
IP protection with hp business strategy, with a set of procedures that requires ongoing communication among both
engineers and hp strategists. Through a series of worldwide “innovation workshops,” he is also able to plumb hp
inventors for promising IP they’re developing, helping them identify market-leading technology and ideas that
might require protection. His efforts are paying off: This year, more than 3,000 hp patent applications were filed
worldwide, which is more than 12 inventions protected each working day of the year—an increase of 30 percent
over last year.

image of steve fox taken with hp PhotoSmart 912 digital camera

world e-inclusion Three years ago, Grameen Bank founder Dr. Muhammad Yunus spoke to the World Economic
Forum about microlending to the poor of Bangladesh. Yunus’ successful business model for “putting poverty in the
museum of history” inspired a small, passionate core of people at hp. They resolved to leverage hp inventiveness to
reach out to the four billion poor people living in developing countries, and to broaden access to social and eco-
nomic opportunities through technology. Recognizing that markets, talent and customers will come from this under-
served population in coming years—and that barriers to technology access (cost, electricity, literacy) continue to be
lowered—this team developed a unique World e-Inclusion business strategy that relies on working with partners to
invent sustainable solutions that benefit the poor, and create new markets in developing countries.

image of lyle hurst taken with hp PhotoSmart 912 digital camera

luis rodriguez

HP thermal inkjet cartridge
manufacturing sites owe
their success to effective
worldwide collaboration.

david and sharon gross

Flexible work options
let them job-share–both
parenting their son, and
their position as an hp
OmniBook Product
Manager.

Designed the hp “Next-
Generation Workplace”
which includes wireless,high-
speed remote Net access
and a modular environ-
ment that balances tech-
nology with human needs.

jeremy yu

portraits taken with hp PhotoSmart 618 digital camera

chris feduniw

danny prince

Helped build the @hp
employee portal, giving
all employees access to
e-services to support the
company’s reinvention
efforts.

Invented a tool to more
accurately monitor hp
U.K. revenues and invest-
ments in consumer
accounts and channels.

Launched the first new
packaging based on the
“hp invent” brand in just
45 days, proving that
the system could be
implemented quickly
and within budget.

shirley bunger

Provides internships, men-
toring and technology as
part of the hp Scholars
Program to encourage
women and minorities to
pursue careers in engine-
ering, math and science.

bess stephens

portraits taken with hp PhotoSmart 618 digital camera

joan bodway is a member of the Superdome team

alan driscoll is a member of the Superdome team

summary
financial information

Condensed Consolidated Statement of Earnings
Hewlett-Packard Company and Subsidiaries

For the years ended October 31
In millions, except per share amounts

2000

1999

1998

Net revenue:
Products
Services

Total net revenue

Costs and expenses:

Cost of products sold
Cost of services
Research and development
Selling, general and administrative

Total costs and expenses

Earnings from operations
Interest income and other, net
Interest expense
Earnings from continuing operations before taxes
Provision for taxes
Net earnings from continuing operations
Net earnings from discontinued operations
Net earnings

Net earnings per share–Continuing operations:

Basic
Diluted

Net earnings per share–Discontinued operations:

Basic
Diluted

Net earnings per share–Total:

Basic
Diluted

Average number of shares and share equivalents:

Basic
Diluted

$ 41,446
7,336
48,782

29,727
5,137
2,646
7,383
44,893
3,889
993
257
4,625
1,064
3,561
136
$ 3,697

$
$

1.80
1.73

0.07
0.07

1.87
1.80

1,979
2,077

$ 36,015
6,355
42,370

25,305
4,415
2,440
6,522
38,682
3,688
708
202
4,194
1,090
3,104
387
3,491

1.54
1.49

0.19
0.18

1.73
1.67

2,018
2,105

$
$

$ 33,585
5,834
39,419

24,044
3,746
2,380
5,850
36,020
3,399
530
235
3,694
1,016
2,678
267
$ 2,945

$
$

1.29
1.26

0.13
0.13

1.42
1.39

2,068
2,144

All share and per-share amounts reflect the retroactive effects of all stock splits including the two-for-one stock split in the form of a stock dividend
effective October 27, 2000.

See accompanying Notes to Condensed Consolidated Financial Statements.

Condensed Consolidated Balance Sheet
Hewlett-Packard Company and Subsidiaries

October 31
In millions, except par value and number of shares

Assets
Current assets:

Cash and cash equivalents
Short-term investments
Accounts receivable
Financing receivables
Inventory
Other current assets

Total current assets

Property, plant and equipment, net
Long-term investments and other assets
Net assets of discontinued operations
Total assets

Liabilities and Stockholders’ Equity
Current liabilities:

Notes payable and short-term borrowings
Accounts payable
Employee compensation and benefits
Taxes on earnings
Deferred revenues
Other accrued liabilities
Total current liabilities

Long-term debt
Other liabilities
Commitments and contingencies
Stockholders’ equity:

Preferred stock, $0.01 par value

2000

1999

$ 3,415
592
6,394
2,174
5,699
4,970
23,244
4,500
6,265
–
$ 34,009

1,555
5,049
1,584
2,046
1,759
3,204
15,197
3,402
1,201

$ 5,411
179
5,958
1,889
4,863
3,342
21,642
4,333
5,789
3,533
$ 35,297

$ 3,105
3,517
1,287
2,152
1,437
2,823
14,321
1,764
917

(300,000,000 shares authorized; none issued)

–

Common stock, $0.01 par value

(4,800,000,000 shares authorized;
1,947,312,000 shares issued and outstanding at
October 31, 2000, and 2,009,138,000 shares issued
and outstanding at October 31, 1999)

Additional paid-in capital
Retained earnings
Accumulated other comprehensive income

Total stockholders’ equity

Total liabilities and stockholders’ equity

19
–
14,097
93
14,209
$ 34,009

20
–
18,275
–
18,295
$ 35,297

All share and per-share amounts reflect the retroactive effects of all stock splits including the two-for-one stock split in the form of a stock dividend
effective October 27, 2000.

See accompanying Notes to Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Cash Flows
Hewlett-Packard Company and Subsidiaries

For the years ended October 31
In millions

Cash flows from operating activities:

Net earnings from continuing operations
Adjustments to reconcile net earnings from continuing

operations to net cash provided by operating activities:

Depreciation and amortization
Gains from divestitures
Deferred taxes on earnings
Tax benefit on employee stock options
Changes in assets and liabilities:

Accounts and financing receivables
Inventory
Accounts payable
Taxes on earnings
Other current assets and liabilities
Other, net
Net cash provided by operating activities

Cash flows from investing activities:

Investment in property, plant and equipment
Disposition of property, plant and equipment
Purchases of investments
Maturities and sales of investments
Net proceeds from divestitures
Other, net

Net cash used in investing activities

Cash flows from financing activities:

(Decrease) increase in notes payable

and short-term borrowings

Issuance of long-term debt
Payment of long-term debt
Issuance of common stock under employee stock plans
Repurchase of common stock
Dividends

Net cash used in financing activities
Net cash provided by (used in) discontinued operations
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

See accompanying Notes to Condensed Consolidated Financial Statements.

2000

1999

1998

$ 3,561

$ 3,104

2,678

1,368
(212)
(689)
495

(1,312)
(845)
1,544
175
(282)
(343)
3,460

(1,737)
420
(1,131)
1,004
448
(130)
(1,126)

(1,297)
1,936
(474)
748
(5,570)
(638)
(5,295)
965
(1,996)
5,411
$ 3,415

1,316
–
(171)
289

(1,637)
(171)
751
(639)
330
(76)
3,096

(1,134)
542
(1,015)
1,063
35
(119)
(628)

1,377
(27)
(1,101)
157

(1,100)
630
61
1,200
731
154
4,760

(1,584)
260
(4,059)
4,834
89
(148)
(608)

2,399
240
(1,047)
660
(2,643)
(650)
(1,041)
(62)
1,365
4,046
$ 5,411

(734)
223
(573)
467
(2,424)
(625)
(3,666)
488
974
3,072
$ 4,046

Notes to Condensed Consolidated Financial Statements
Hewlett-Packard Company and Subsidiaries

Basis of Presentation
Hewlett-Packard Company (HP or hp) is a leading global provider of computing and imaging solutions and services
for business and home, and is focused on capitalizing on the opportunities of the Internet and the emergence of
next-generation appliances, e-services and infrastructure.

These condensed consolidated financial statements do not constitute a full set of financial statements prepared
in accordance with accounting principles generally accepted in the United States. The condensed consolidated
financial statements should be read in conjunction with the complete 2000 Consolidated Financial Statements
and Notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations includ-
ed in hp’s Annual Report on Form 10-K for fiscal year 2000 accompanying the Notice of Annual Meeting and
Proxy Statement for hp’s 2001 Annual Meeting of Shareowners.

Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include the accounts of hp and its wholly-owned and
controlled majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates. The preparation of financial statements in accordance with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the amounts
reported in hp’s financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition. Revenue from product sales is generally recognized at the time the product is shipped, with pro-
visions established for price protection programs and for estimated product returns. Upon shipment, hp also provides
for the estimated cost that may be incurred for product warranties and post-sales support. Coupons, rebates and
other cash sales incentives offered by hp to its customers are recorded as a reduction of revenue at the time of sale.
Service revenue is recognized over the contractual period or as services are rendered and accepted by the customer.

Advertising. Advertising costs are expensed as incurred.

Taxes on Earnings. Income tax expense is based on pretax financial accounting income. Deferred tax assets and
liabilities are recognized principally for the expected tax consequences of temporary differences between the tax
bases of assets and liabilities and their reported amounts.

Net Earnings Per Share. HP’s basic earnings per share (EPS) is calculated based on net earnings and the weighted-
average number of shares outstanding during the reporting period. Diluted EPS includes additional dilution from
potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options outstanding and the
conversion of debt. All share and per-share amounts reflect the retroactive effects of all stock splits, including the
two-for-one stock split in the form of a stock dividend effective October 27, 2000.

Cash Equivalents and Short-Term Investments. HP classifies investments as cash equivalents if the original maturi-
ty of an investment is three months or less from the purchase date. Short-term investments principally consist of
time deposits and money-market instruments. Cash equivalents and short-term investments are stated at cost, which
approximates market value.

Inventory. Inventory is valued at standard cost which approximates actual cost computed on a first-in, first-out basis,
not in excess of market value.

Property, Plant and Equipment. Property, plant and equipment is 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 15 to 40 years for buildings and improvements and 3 to 10
years for machinery and equipment. Depreciation of leasehold improvements is provided using the straight-line
method over the life of the lease or the asset, whichever is shorter.

Capitalized Software. In fiscal 2000, hp adopted Statement of Position (SOP) No. 98-1, “Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. ”Historically, internal use software costs
were not material. With the adoption of SOP 98-1, hp began capitalizing certain internal and external costs
incurred to acquire or create internal use software, principally related to software coding, designing system inter-
faces, installation and testing of the software. Capitalized costs are amortized over three years.

Long-Term Investments. HP’s long-term investments, which are included in long-term investments and other assets
in the accompanying Condensed Consolidated Balance Sheet, consist of U.S. government, corporate and other
debt securities as well as public and nonpublic corporate equity securities. HP’s equity securities totaled $1.9 bil-
lion at October 31, 2000 and $1.4 billion at October 31, 1999. Investments in equity securities are classified as
available-for-sale and are carried at estimated fair value, with unrealized gains and losses, net of tax, included in
accumulated other comprehensive income as a separate component of stockholders’ equity. Minority equity invest-
ments in nonpublic companies are generally carried at cost. Investments accounted for using the equity method
are not material. HP monitors these investments for impairment and records appropriate reductions in carrying val-
ues when necessary. Investments in debt securities are classified as held-to-maturity and carried at amortized cost.

Foreign Currency Translation. HP uses the U.S. dollar as its functional currency. Foreign currency assets and
liabilities are remeasured into U.S. dollars at end-of-period exchange rates, except for inventory, property, plant
and equipment, other assets and deferred revenues, which are remeasured at historical exchange rates. Revenue
and expenses are remeasured at average exchange rates in effect during each period, except for those expenses
related to balance sheet amounts which are remeasured at historical exchange rates. Gains or losses from foreign
currency remeasurement are included in net earnings.

Comprehensive Income. Comprehensive income includes net earnings as well as other comprehensive income.
HP’s other comprehensive income consists of unrealized gains and losses on available-for-sale securities.

Reclassifications. Certain reclassifications have been made to prior year balances in order to conform to the
current year presentation.

Recent Pronouncements. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This
statement establishes accounting and reporting standards for derivative instruments and requires recognition of
all derivatives as assets or liabilities in the statement of financial position and measurement of those instruments
at fair value. HP adopted the standard on November 1, 2000, and the adoption did not materially impact its
consolidated financial statements.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101,
“Revenue Recognition in Financial Statements.” This bulletin summarizes certain of the SEC’s views in applying
accounting principles generally accepted in the United States to revenue recognition in financial statements. Based
on the SEC’s latest timeline for implementing SAB 101, hp would be required to comply with the guidelines in the
fourth quarter of fiscal year 2001. Accordingly, hp is continuing to evaluate the potential impact that adoption will
have on its consolidated financial statements.

Net Earnings Per Share
The following table includes a reconciliation of the numerators and denominators of the basic and diluted EPS
calculations. All share and per-share amounts reflect the retroactive effects of all stock splits including the two-for-
one stock split in the form of a stock dividend effective October 27, 2000.

For the years ended October 31
In millions, except per share data

Numerator:

2000

1999

1998

Net earnings from continuing operations
Adjustment for interest expense, net of income tax effect
Net earnings from continuing operations, adjusted
Net earnings from discontinued operations
Net earnings, adjusted

$ 3,561
31
3,592
136
$ 3,728

$ 3,104
22
3,126
387
$ 3,513

2,678
26
2,704
267
2,971

Denominator:

Weighted-average shares outstanding
Effect of dilutive securities:

Dilutive options and other stock-based awards
Zero-coupon subordinated convertible

notes due 2017

Dilutive potential common shares
Weighted-average shares and dilutive

potential common shares

Net earnings per share–Continuing operations:

Basic
Diluted

Net earnings per share–Discontinued operations:

Basic
Diluted

Net earnings per share–Total:

Basic
Diluted

Average number of shares and share equivalents:

Basic
Diluted

1,979

2,018

2,068

26
98

22
87

20
76

2,077

2,105

2,144

$
$

1.80
1.73

0.07
0.07

1.87
1.80

1,979
2,077

$
$

1.54
1.49

0.19
0.18

1.73
1.67

2,018
2,105

$
$

1.29
1.26

0.13
0.13

1.42
1.39

2,068
2,144

Discontinued Operations
On March 2, 1999, hp announced its intention to launch a new company, subsequently named Agilent Technologies,
Inc. (Agilent Technologies), through a distribution of Agilent Technologies common stock to hp’s stockholders in the
form of a tax-free spin-off. Agilent Technologies is composed of hp’s former Measurement Organization, which
included the test-and-measurement, semiconductor products, chemical analysis and healthcare solutions businesses.
Effective July 31, 1999, hp’s management and Board of Directors completed the plan of disposition for Agilent
Technologies. HP’s condensed consolidated financial statements for all periods present Agilent Technologies as a dis-
continued business segment in accordance with Accounting Principles Board Opinion No. 30.

In November 1999, Agilent Technologies completed an initial public offering of approximately 16% of its com-
mon stock and distributed the net proceeds of approximately $2.1 billion to hp. HP provided initial funding in
November 1999 to Agilent Technologies and retained certain assets and liabilities of Agilent Technologies as of
November 1, 1999, which were subsequently liquidated. The aggregate impact of these transactions resulted in
cash flows from discontinued operations of approximately $1.0 billion and an increase in additional paid-in
capital of approximately $1.3 billion.

HP distributed substantially all of its remaining interest in Agilent Technologies through a stock dividend to hp
stockholders on June 2, 2000, resulting in the elimination of the net assets of discontinued operations and a
$4.2 billion reduction of retained earnings. The decrease in the intrinsic value of hp’s employee stock plans
attributable to the distribution of Agilent Technologies was restored in accordance with the methodology set forth
in the FASB Emerging Issues Task Force Issue 90-9, “Changes to Fixed Employee Stock Option Plans as a Result
of Equity Restructuring.”

In the second quarter of fiscal 2000, the cumulative net earnings of Agilent Technologies since the July 31, 1999
measurement date began to exceed the total estimated net costs to effect the spin-off. Net earnings from discontinued
operations for fiscal 2000 were $136 million. Of this $136 million, net earnings of Agilent Technologies for the
period from July 31, 1999 through the June 2, 2000 spin-off date totaled $287 million (net of related tax expense
of $174 million), and the net costs to effect the spin-off were $151 million (net of related tax benefit of $23 mil-
lion). Net earnings from discontinued operations for fiscal years 1999 and 1998 consisted only of the net earnings
of Agilent Technologies.

Contingencies and Factors That Could Affect Future Results
Contingencies. HP is involved in lawsuits, claims, investigations and proceedings, including patent, commercial
and environmental matters, which arise in the ordinary course of business. There are no such matters pending that
hp expects to be material in relation to its business, financial condition or results of operations.

Factors That Could Affect Future Results. A substantial portion of hp’s revenues each year is generated from the
development, manufacture and rapid release to market of high technology products newly introduced during the
year. In the extremely competitive industry in which hp operates, product development, manufacturing and marketing
are complex and uncertain processes requiring hp to accurately predict emerging technological trends and cus-
tomers’ changing needs. Additionally, hp’s production strategy relies on its suppliers’ ability to deliver quality
components and products in time to meet critical manufacturing and distribution schedules, and its sales strategy
relies on the ability of third-party distributors to sell hp products to accommodate changing customer preferences.
In light of these dependencies, failure to successfully manage a significant product introduction or the transition
from existing products to new products, failure of suppliers to deliver as needed, or failure of resellers to remain cus-
tomers and channel partners could have a severe near-term impact on hp’s revenue growth or results of operations.
HP sells a significant portion of its products through third-party resellers and, as a result, maintains individually sig-
nificant receivable balances with major distributors. If the financial condition or operations of these distributors
deteriorate substantially, hp’s operating results could be adversely affected. Future results could also be affected by
problems encountered with respect to intellectual property; international sales and operations; and acquisition,
strategic alliance, joint venture and divestiture activities.

This summary of factors that could affect future results should be read in conjunction with the section entitled
“Factors That Could Affect Future Results” contained in hp’s Annual Report on Form 10-K for fiscal year 2000
accompanying the Notice of Annual Meeting and Proxy Statement for hp’s 2001 Annual Meeting of Shareowners.

Segment Information
HP is a leading global provider of computing and imaging solutions and services for business and home, and
is focused on capitalizing on the opportunities of the Internet and the emergence of next-generation appliances,
e-services and infrastructure.

As of October 31, 2000, hp organized its operations into three major businesses: Imaging and Printing Systems,
Computing Systems and IT Services. The segments were determined primarily on how management views and
evaluates hp’s businesses. The factors that management uses to identify hp’s separate businesses include customer
base, homogeneity of products, technology and delivery channels. A description of the types of products and serv-
ices provided by each reportable segment is as follows:

Imaging and Printing Systems provides laser and inkjet printers (both monochrome and color), mopiers, scanners,
all-in-one devices, personal color copiers and faxes, digital senders, wide- and large-format printers, print servers,
network-management software, networking solutions, digital photography products, imaging and printing supplies,
imaging and software solutions, and related professional and consulting services.

Computing Systems provides a broad range of computing systems for the enterprise, commercial and consumer
markets. The products and solutions range from mission-critical systems and software to personal computers for busi-
ness and home. Major product lines include UNIX® and PC servers, desktop and mobile personal computers,
workstations, software solutions and storage solutions.

IT Services provides consulting, education, design and installation services, ongoing support and maintenance,
and proactive services like mission-critical support, outsourcing and utility-computing capabilities. Financing capa-
bilities include leasing, automatic technology-refreshment services, solution financing and venture financing.

HP’s immaterial operating segments were aggregated to form an “All Other” category.

In the second and third quarters of fiscal 2000, hp made certain strategic changes to its organizational structure.
These changes included the movement of its appliances business from the Computing Systems segment to a
separate operating segment, and the movement of the majority of its services business related to imaging and
printing from the Imaging and Printing Systems segment to its IT Services segment. The appliances operating
segment is now included in “All Other” as it does not meet the materiality threshold for a reportable segment.
Segment financial data for the fiscal years ended October 31, 1999 and 1998 has been restated to reflect these
organizational changes.

The results of the reportable segments are derived directly from hp’s management reporting system. As described
above, these results are based on hp’s method of internal reporting and are not necessarily in conformity with
accounting principles generally accepted in the United States. Management measures the performance of each
segment based on several metrics, including earnings from operations. These results are used, in part, to evaluate
the performance of, and allocate resources to, each of the segments.

The table below presents segment information as of and for the years ended October 31:

In millions

2000

Imaging and
Printing Systems

Computing
Systems

IT Services

All Other

Total Segments

Net revenue from external customers
Intersegment net revenue

Total net revenue

$ 20,471
5
$ 20,476

$ 20,694
401
$ 21,095

$ 7,086
43
$ 7,129

$ 1,230
69
$ 1,299

$ 49,481
518
$ 49,999

Earnings (loss) from operations
Depreciation and amortization

expense

Assets
Capital expenditures

19 9 9

$ 2,746

960

634

$ (103)

$ 4,237

$
344
$ 7,571
309
$

$
93
$ 6,686
99
$

$
450
$ 8,455
779
$

$
11
$ 446
3
$

$
898
$ 23,158
$ 1,190

Net revenue from external customers
Intersegment net revenue

Total net revenue

$ 18,512
38
$ 18,550

$ 17,256
558
$ 17,814

$ 6,191
64
$ 6,255

$ 880
6
886

$ 42,839
666
$ 43,505

Earnings (loss) from operations
Depreciation and amortization

expense

Assets
Capital expenditures

19 9 8

$ 2,335

850

575

$
494
$ 7,150
140
$

$
96
$ 5,846
96
$

$ 415
$ 7,100
$ 544

Net revenue from external customers
Intersegment net revenue

Total net revenue

$ 16,661
48
$ 16,709

$ 16,851
464
$ 17,315

$ 5,613
72
$ 5,685

Earnings (loss) from operations
Depreciation and amortization

expense

Assets
Capital expenditures

$ 2,043

480

748

$
425
$ 6,831
452
$

$
189
$ 5,372
88
$

$ 404
$ 5,834
493
$

$
$
$

(71)

$ 3,689

4
250
1

766
7
773

$ 1,009
$ 20,346
781
$

$ 39,891
591
$ 40,482

(5)

$ 3,266

12
275
10

$ 1,030
$ 18,312
$ 1,043

The following is a reconciliation of segment information to hp consolidated totals as of and for the years ended
October 31:

In millions

Net revenue:

Total segments
Financing interest income reclassification
Elimination of intersegment net revenue and other

Total hp consolidated

Earnings from continuing operations before taxes:

Total segment earnings from operations
Net financing interest reclassification
Interest income and other, net
Interest expense
Corporate and unallocated costs, and eliminations

Total hp consolidated

Assets:

2000

1999

1998

$ 49,999
(368)
(849)
$ 48,782

$ 4,237
(162)
993
(257)
(186)
$ 4,625

$ 43,505
(298)
(837)
$ 42,370

3,689
(139)
708
(202)
138
4,194

$ 40,482
(221)
(842)
$ 39,419

$ 3,266
(84)
530
(235)
217
$ 3,694

Total segments
Assets not allocated to segments:
Cash and cash equivalents
Short-term investments and long-term investments

in debt securities

Other corporate

Total assets from continuing operations
Net assets of discontinued operations

Total hp consolidated

$ 23,158

$ 20,346

$ 18,312

3,415

5,411

4,046

1,106
6,330
34,009
–
$ 34,009

1,192
4,815
31,764
3,533
$ 35,297

1,241
5,025
28,624
3,084
$ 31,708

Statement of Management Responsibility
Hewlett-Packard Company and Subsidiaries

HP’s management is responsible for the preparation, integrity and objectivity of the consolidated financial
statements and other financial information accompanying the company’s Notice of Annual Meeting and Proxy
Statement for the 2001 Annual Meeting of Shareowners. The consolidated financial statements have been pre-
pared in conformity with accounting principles generally accepted in the United States, and reflect the effects
of certain estimates and judgments made by management. The condensed consolidated financial statements and
related financial information presented herein are consistent with those presented in the consolidated financial statements.

HP’s management maintains an effective system of internal control that is designed to provide reasonable assur-
ance that assets are safeguarded and transactions are properly recorded and executed in accordance with man-
agement’s authorization. The system is continuously monitored by direct management review and by internal
auditors who conduct an extensive program of audits throughout hp. HP selects and trains qualified people who
are provided with and expected to adhere to hp’s Standards of Business Conduct. These standards, which set
forth the highest principles of business ethics and conduct, are a key element of hp’s control system.

HP’s consolidated financial statements as of and for the year ended October 31, 2000 have been audited by
Ernst & Young LLP, independent auditors. HP’s consolidated financial statements as of and for each of the two years
in the period ended October 31, 1999 have been audited by PricewaterhouseCoopers LLP, independent account-
ants. Their respective audits were conducted in accordance with auditing standards generally accepted in the
United States, and included a review of financial controls and tests of accounting records and procedures as they
respectively considered necessary in the circumstances.

The Audit Committee of the Board of Directors, which consists of outside directors, meets regularly with manage-
ment, the internal auditors and the independent auditors to review accounting, reporting, auditing and internal
control matters. The committee has direct and private access to both internal and external auditors.

Carleton S. Fiorina
Chairman, President and Chief Executive Officer

Robert P. Wayman
Executive Vice President, Finance and Administration
and Chief Financial Officer

Report of Independent Auditors
Hewlett-Packard Company and Subsidiaries

To the Board of Directors and Stockholders of Hewlett-Packard Company
We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated
balance sheet of Hewlett-Packard Company and subsidiaries as of October 31, 2000, and the related consolidat-
ed statements of earnings, stockholders’ equity and cash flows for the year then ended (not presented separately
herein); and in our report dated November 15, 2000, we expressed an unqualified opinion on those consolidat-
ed financial statements. In our opinion, the information set forth in the accompanying condensed consolidated
financial statements is fairly stated in all material respects in relation to the consolidated financial statements from
which it has been derived.

San Jose, California
November 15, 2000

Report of Independent Accountants
Hewlett-Packard Company and Subsidiaries

To the Board of Directors and Stockholders of Hewlett-Packard Company
We have audited, in accordance with auditing standards generally accepted in the United States of America, the
consolidated financial statements of Hewlett-Packard Company as of October 31, 1999 and for each of the two
years in the period ended October 31, 1999 accompanying the Notice of Annual Meeting and Proxy Statement
for the 2001 Annual Meeting of Shareowners of Hewlett-Packard Company (which statements are not presented
herein); and in our report dated November 23, 1999 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the accompanying condensed consolidated bal-
ance sheet as of October 31, 1999 and the related condensed consolidated statements of earnings and cash
flows for each of the two years in the period ended October 31,1999 is fairly stated in all material respects in
relation to the consolidated financial statements from which it has been derived. We have not audited the consoli-
dated financial statements of Hewlett-Packard Company for any period subsequent to October 31, 1999.

San Jose, California
November 23,1999, except for the stock split disclosed
in Note 12 of the consolidated financial statements, as to
which the date is October 27, 2000.

Selected Financial Data (1)
Hewlett-Packard Company and Subsidiaries

For the years ended October 31
In millions, except per share amounts

Net revenue
Earnings from operations (2)
Net earnings from continuing

operations

Net earnings per share, continuing

operations (3)
Basic
Diluted

Cash dividends declared per share (3)
At year-end:

Assets–Continuing operations
Assets–Total (4)
Long-term debt

2000

1999

1998

1997

1996

$ 48,782
3,889

$ 42,370
3,688

$ 39,419
3,399

$ 35,465
3,405

$ 31,613
2,926

3,561

3,104

2,678

2,515

2,085

1.80
1.73
.32

$ 34,009
34,009
3,402

1.54
1.49
.32

$ 31,764
35,297
1,764

1.29
1.26
.30

$ 28,624
31,708
2,063

1.23
1.19
.26

1.02
.99
.22

$ 26,681
29,852
3,158

$ 22,934
25,977
2,579

(1) HP’s condensed consolidated financial statements and notes for all periods present Agilent Technologies’ businesses as a discontinued operation
through the spin-off date of June 2, 2000. See further discussion in Notes to Condensed Consolidated Financial Statements.
(2) Earnings from operations represent earnings before net interest income and other, interest expense, provision for taxes and net earnings from
discontinued operations.
(3) All per-share amounts reflect the retroactive effects of all stock splits including the two-for-one stock split in the form of a stock dividend effective
October 27, 2000.
(4) Total Assets includes assets from continuing operations and the net assets of discontinued operations through the Agilent Technologies’ spin-off
date of June 2, 2000.

Dr. Richard A. DeMillo*
Vice President and Chief Technology Officer

Debra L. Dunn*
Vice President and General Manager
Strategy and Corporate Operations

Bernard Guidon
Vice President and General Manager
hp Consulting

Pradeep Jotwani*
President and General Manager
Consumer Business Organization

Richard H. Lampman
Vice President, Research
Director, hp Laboratories

Ann M. Livermore*
President
Business Customer Organization

Michael J. Rose
Vice President and Chief Information Officer
Controller (effective January 31, 2001)

William V. Russell
Vice President and General Manager
Software and Solutions Organization

Alex Sozonoff
Vice President
Customer Advocacy

Dr. Stephen L. Squires
Vice President and Chief Science Officer

Lawrence J. Tomlinson
Vice President and Treasurer

Carolyn M. Ticknor*
President
Imaging and Printing Systems

Duane E. Zitzner*
President
Computing Systems

DIRECTORS

Philip M. Condit
Chairman of the Board and
Chief Executive Officer
The Boeing Company
An aerospace manufacturer

Patricia C. Dunn
Co-Chairman and
Global Chief Executive
Barclays Global Investors
A global investment firm

Carleton S. Fiorina
Chairman, President and
Chief Executive Officer
Hewlett-Packard Company

Sam Ginn
Retired Chairman
Vodafone AirTouch Plc

Richard A. Hackborn
Former Chairman and Retired Executive
Vice President, Computer Products
Organization
Hewlett-Packard Company

Walter B. Hewlett
Independent software developer and
Chairman of Vermont Telephone
Company

George A. Keyworth II
Chairman and Senior Fellow
The Progress & Freedom Foundation
A public policy research institute

Robert E. Knowling, Jr.
Former President and
Chief Executive Officer
Covad Communications Company
A DSL provider

Susan Packard Orr
President
Technology Resource Assistance Center
A software development company
(retiring February 2001)

Robert P. Wayman
Executive Vice President
and Chief Financial Officer
Hewlett-Packard Company

EMERITUS DIRECTOR

William R. Hewlett
Co-founder
Hewlett-Packard Company

COMMITTEES OF THE BOARD

Executive Committee
Fiorina (Chair), Wayman

Audit Committee
Keyworth (Chair), Dunn,
Hackborn, Knowling

Compensation Committee
Condit (Chair), Ginn, Hewlett

Finance and Investment Committee
Dunn (Chair), Hackborn, Keyworth,
Knowling, Wayman

Nominating and Governance
Committee
Ginn (Chair), Condit, Hewlett,
Orr, Fiorina

EXECUTIVE OFFICERS

Carleton S. Fiorina*
Chairman, President and
Chief Executive Officer

Robert P. Wayman*
Executive Vice President,
Finance and Administration and
Chief Financial Officer

Ann O. Baskins
Vice President, General Counsel and
Secretary

Susan D. Bowick*
Vice President and Director
Corporate Human Resources

Charles N. Charnas
Assistant Secretary
and Senior Managing Counsel

Raymond W. Cookingham*
Vice President and Controller
(retiring January 31, 2001)

* Executive officer of hp under Section 16 of the Securities and Exchange Act of 1934.

STOCKHOLDER INFORMATION

The annual meeting will be held on Tuesday,
February 27, 2001 at the Flint Center for the
Performing Arts. The address is 21250 Stevens
Creek Boulevard, Cupertino, California,
95015-1897.

Common Stock and Dividends
Hewlett-Packard is listed on the New York and
Pacific stock exchanges, with the ticker symbol
HWP. We’ve paid cash dividends each year
since 1965. The current rate is $0.08 per share
per quarter. As of November 30, 2000, there
were 122,409 shareholders of record.

CORPORATE INFORMATION

Headquarters
3000 Hanover Street
Palo Alto, CA 94304-1185
(650) 857-1501

Dividend Reinvestment/
Stock Purchase
Dividend reinvestment and stock purchase
are available through Computershare, hp’s
transfer agent. For information on this program,
please contact Computershare at the following
address and phone number:
Computershare Trust Company
Dividend Reinvestment Services
P.O. Box A3309
Chicago, IL 60690
(800) 286-5977 (from the U.S.) or
(312) 360-5138 (outside the U.S.)

Investor Information
Current and prospective hp investors can
receive the Annual Report, Proxy Statement,
10-K, earnings announcements, 10-Q and
other publications at no cost by calling 800-
TALK-HWP (825-5497). As a service to people
with impaired vision, the 2000 Annual Report
is available on audio cassette.

HP’s home page on the World Wide Web is at
http://www.hp.com

The Annual Report and related financial infor-
mation are also available on the Web, and
they can be accessed either from our home
page or directly at http://www.hp.com/
hpinfo/investor/main.htm

Transfer Agent and Registrar
Please contact hp’s transfer agent, at the phone
number or address listed below, with questions
concerning stock certificates, dividend checks,
transfer of ownership or other matters pertain-
ing to your stock account.
Computershare Investor Services
Shareholder Services
P.O. Box A3504
Chicago, Illinois 60690
(800) 286-5977 (from the United States)
(312) 360-5138 (outside the United States)

Regional Headquarters

Latin America
Waterford Building, 9th floor
5200 Blue Lagoon Drive
Miami, FL 33126
Telephone: (305) 267-4220

Europe, Africa, Middle East
Route du Nant-d’Avril 150
CH-1217 Meyrin 2
Geneva, Switzerland
Telephone: (41/22) 780-8111

Asia Pacific
19/F Cityplaza One
1111 King’s Road
Taikoo Shing, Hong Kong
Telephone: (852) 2 599-7777

Printed on recycled paper and on hp
LaserJet paper.

UNIX is a registered trademark of
The Open Group.

eHITEX and Converge.com are trademarks
of Converge, Inc.

The Grameen Bank is a member of the
non-governmental organization Grameen
Family of Organizations.

Forward-Looking Statements
This annual report contains forward-looking statements that involve risks and uncertainties, as well as assumptions
that, if they never materialize or prove incorrect, could cause the results of hp and its consolidated subsidiaries to
differ materially from those expressed or implied by such forward-looking statements. All statements other than
statements of historical fact are forward-looking statements, including any projections of earnings, revenues, or
other financial items; any statements of the plans, strategies and objectives of management for future operations;
any statements concerning proposed new products, services, or developments; any statements regarding future
economic conditions or performance; statements of belief and any statement of assumptions underlying any of the
foregoing. The risks, uncertainties and assumptions referred to above include the ability of hp to retain and moti-
vate key employees; the timely development, production and acceptance of products and services and their
feature sets; the challenge of managing asset levels, including inventory; the flow of products into third-party distri-
bution channels; the difficulty of keeping expense growth at modest levels while increasing revenues; and other
risks that are described from time to time in hp’s Securities and Exchange Commission reports, including but not
limited to the Annual Report on Form 10-K for the years ended October 31, 2000 and 1999, and subsequently
filed reports. HP assumes no obligation to update these forward-looking statements.

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5980-3654EN