Annual Report HP Maria Farinez ACG

Executive Summary HP is the leading company in technology around the world. At the end of 2003 HP had a revenue of $73.7 billion, a cash flow from operations of more than $6 billion, ending the year with a gross cash and investments balance of $14.7 billion. They also paid a dividend of $977 million. In 2003 HP had a gross profit of $19,204 millions and a net income of$2,539. They invested in land $13,299 millions. HP’s Certificate of Incorporation authorizes 9.6 billion shares of stock. With a price of $23.13 per share. Dividends were $0.32 per share. 3_10k.pdf 3_10k.pdf

Introduction Carleton S. Fiorina (Chairman and Chief Executive Officer) The home office is located in Palo Alto, California. Latest fiscal year ended on October 31, 2003

Introduction 1.Imaging and Printing group: provides home and business imaging, printing and publishing devices and systems, digital imaging products, printer supplies and consulting services. 2. Personal System group: provides commercial personal computers, consumer PCs, workstations, a range of handheld computing devices, digital entertainment systems, calculator and other related accessories, software and services for commercial and consumer markets. 3. The Enterprise Systems group: provides server, storage and software solutions. 4. HP services: provides a portfolio of IT services including customer support, consulting and integration, and managed services. 5. HP Financial Services: provides a broad range of value-added financial life cycle management services. 6.Corporate Investments: sale of certain network infrastructure products to enhance computing and enterprise solutions as well as the licensing of specific HP technology to third parties. Main geographic area of activity: America: Houston, Texas. Europe, Middle East, Africa: Geneva; Switzerland. Asia Pacific: Hong Kong.

Audit Report Auditors: Ernst & Young LLP. The auditors explained what is their function. They have to make sure all financial statements are free of mistakes. They have to examine all the statements and check the amounts and disclosures. They said that the financial statements from HP Company are correct at October 31, 2003.

Stock Market Information Most recent price of the company’s stock: 20 Feb 2004: $23.13 Twelve month trading range of the company’s stock The 2003 rate is $0.08 dividends per share per quarter From the graphic we can see that the stock from HP has fluctuated. But, I think this is a stock to hold because the company is growing more every year.

Industry Situation and Company Plans Hp is the leader in technology around the world. The last year 2003, was a remarkable year because they achieved many of their goals. HP made significant investments on many of the different areas that are part of their business, such as software, innovation, etc. HP focuses on creating products that are simple, manageable and adaptable to the customer. So, they want to keep this in mind to change their products as the customers are changing their needs HP is the leader supplier to small and medium-size businesses and a leader in enterprise computing. HP wants to increase the number of customers in small and medium-size businesses by creating new technology that will work for them. HP is focusing now on four key growth areas which are rich digital media, mobility, management software and security. Their strategy is to offer products, services and solutions which are high tech and deliver the best customer experience.

Income Statement The format of the income statement is multi-step. Gross profit has increased from 2002 to 2003 this means they sold more products on 2003 due to effective cost management and cost reductions Income from operations increased on 2003 this means they spend less money on operations Net income increased on 2003 because they acquired Compaq at the beginning of May In millions Gross Profit $14,796$19,204 Income from Operations (1,012)2,896 Net Income($903)$2,539

Balance Sheet Cash and cash equivalents increased by $2,996 millions from 2002 to Total Assets increased by $3,998 millions Accounts payable increased by $2,273 millions Current assets increased by $4,921 million In millions Total Assets = Total Liabilities + Stockholders’ Equity 2002$ 70,710 = $ 34,448 + $ 36, $ 74,708 = $ 36,962 + $ 37,746

Statement of Cash Flow Cash flow from operations are more than net income for the past two years. The company is growing through investing activities such as buying property, plant and equipment. The primary financing source for HP are stock sales. Cash has increased over the past two years on 2003 there was a cash ending balance of $14,188 millions, and in 2002 there was a cash ending balance of $11,192 millions.

Accounting Policies Revenue recognition: revenue is recognize when persuasive evidence of a sales arrangement exists, delivery occurs or services are rendered, the sales price is fixed or determinable and collectibility is reasonably assured. Cash and cash equivalents: HP classifies investments as cash equivalents if the maturity of an investment is 3 months or less from the purchase date. Inventory: is valued at the lower of the cost or market, with cost computed on a first-in, first-out basis. Property, Plant and equipment: is stated at cost less accumulated depreciation. HP adopted the straight-line method of depreciation.

Accounting Policies Topics of the notes to the financial Statements. Summary of significant accounting policies Net earning (loss) per share Acquisitions and Divestitures. Goodwill and Purchased Intangible assets Restructuring charges Balance sheet details Financial Instruments Financing receivables and operating leases Guarantees Borrowings Taxes on Earnings Stockholders’ Equity Comprehensive Income (loss) Supplemental cash flow information Retirement and Post-retirement benefit plans Commitments Litigation and contingencies Segment Information

Financial Analysis Liquidity Ratios comments Working Capital$11,765$14,366 Current assets increased from 2002 to 2003 making the working capital increase. Current Ratio 1.5 HP has $1.5 of current assets for each $2.00 of current liabilities for both years. Receivable turnover 6.5 times 8.4 times The receivable turnover increased for The receivables were turned into cash 8.4 times during Average days sale The time to collect the accounts receivable increased to 43.5 days. Inventory turnover HP’s average inventory was sold 9.1 times during Average days inventory on hand It takes 40.1 days to sell the inventory on hand. This number increased in comparison to 2002.

Financial Analysis Profitability Ratios comments Profit Margin On each dollar of net sales, HP made 3.0 cents on Asset turnover.991 HP produces $1.00 in sales for each $1.00 invested in average total assets on Return on Assets (0.01)0.03 For each dollar invested, HP’s assets generated 3.0 cents on Return on equity HP earned 7.0 cents for every dollar invested by stockholders on 2003.

Financial Analysis Solvency Ratio Comment Debt to Equity HP receives 98% financing from its investors. It has increased by 3% from 2002 to 2003.

Financial Analysis Market Strength Ratios Comments Price/earnings per share (67.5) times 25.2 times Dividend yield 0.02% Investors get a return of 0.02% in dividends