1. ANNUAL REPORT HEWLETT-PACKARD VICTORIA KENWARD ACG2021 SECTION 002

2. Executive Summary Hewlett-Packard wrapped up the 2005 fiscal year on a very strong note. 2005 produced one of the strongest balance sheets in the industry. The company has strong assets to build on for the coming year. Profits showed an increase from the previous year and the company’s expectations were not only met but exceeded. In summary, HP is showing positive growth and has a good investment potential. http://www.hp.com/hpinfo/investor/financials/an nual/2005/05ar-graphics.pdf http://www.hp.com/hpinfo/investor/financials/an nual/2005/05ar-graphics.pdf

3. Part A. Introduction  Mark Hurd, Chief Executive Officer  Location of home office: Palo Alto, California  Ending date of latest fiscal year: October 31, 2005  Hewlett-Packard’s principal products include personal computers, printers, monitors and projectors, handhelds and calculators, fax, copiers, scanners, digital cameras, entertainment such as televisions, servers and networking.  Main geographic area of activity: United States, Asia Pacific and Europe

4. Part A. Audit Report  Name of the company’s independent auditors: Performance Metrics, Inc.  In review of Hewlett-Packard’s 2005 consolidated financial statements, the auditing committee has declared the statements to be in compliance with the accounting principles generally accepted in the United States.

5. Part A. Stock Market Information  Most recent price of the company’s stock: $33.26  Twelve month trading range of the company’s stock: $19.57 - $34.52  Dividend per share: 0.0800  Date of the above information: March 3, 2006  I would buy stock in Hewlett-Packard. The trend in price of stocks seems to reflect a steady increase in the last year. Buying stock in this company would be a good investment.

6. Part B. Industry Situation and Company Plans Hewlett-Packard is part of the fast growing technology industry. The company has introduced many new products and services in the past year as well as made some new acquisitions. On average the company produces 11 new patents each day. The company’s growth for the fiscal year 2005 increased $6.8 billion. HP has experienced significant growth and witnessed an appreciation in the price of stock. http://knowledgestorm.fastcompany.com/search/index/ fastco/prov_summary/51191 http://knowledgestorm.fastcompany.com/search/index/ fastco/prov_summary/51191

7. Part C. Income Statement  The format is most like a multi-step  Hewlett-Packard experienced an increase in gross profit from 2004 to 2005 but a decrease in operating income and net income. 20052004 Gross Profit $86,696 million $79,905 million Operating Income $3,473 million $4,227 million Net Income $2,398 million $3,497 million

8. Part C. Balance Sheet  The stockholder’s equity account remained relatively stable from 2004 to 2005, the liabilities account reflected more of a change in the form of an increase. Assets = Liabilities + Stockholder’s Equity 2005 $77,317 million $40,141 million $37,176 million 2004 $76,138 million $38,574 million $37,564 million

9. Part C. Statement of Cash Flows  Cash flows from operations are significantly more than net income for the past two years.  The company is growing through investing activities.  What is the company’s primary source of financing is issuance of common stock under employee stock plans.  Overall, cash has increased over the past two years by $1,248 million.

10. Part D. Accounting Policies  Hewlett-Packard recognizes revenue when persuasive evidence of a sales arrangement exits, delivery occurs or services are rendered, the sales price or fee is fixed or determinable and collectibility is reasonably assured. HP ceases revenue recognition on delinquent accounts based upon a number of factors including customer credit history, number of days past due and the terms of the customer agreement.  Topics of the notes to the financial statements: Summary of Significant Accounting Policies, Net Earnings per Share, Balance Sheet Details, Supplemental Cash Flow Information, Acquisitions, Goodwill and Purchased Intangible Assets, Restructuring Charges, Financial Instruments, Financing Receivables and Operating Leases, Guarantees, Borrowings, Taxes on Earnings, Stockholder’s Equity, Comprehensive Income, Retirement and Post-Retirement Benefit Plans, Commitments, Litigations and Contingencies, and Segment Information

11. Part E. Financial Analysis Liquidity Ratios 20052004 Working Capital $11,874 million $14,313 million Current Ratio 1.381.50 Receivable Turnover 8.75 times 7.81 times Average Days’ Sales Uncollected 41.71 days 46.73 days Inventory Turnover 7.64 times 6.88 times Average Days’ Inventory on Hand 47.77 days 53.05 days

12. Part E. Financial Analysis Profitability Ratios 20052004 Profit Margin 4.01%5.29% Asset Turnover 1.12 times 1.05 times Return on Assets 4.49%5.55% Return on Equity 9.34%11.25%

13. Part E. Financial Analysis Solvency Ratio  Both the 2005 and 2004 fiscal years the creditors have control 20052004 Debt to Equity 107.98%102.69%

14. Part E. Financial Analysis Market Strength Ratios 20052004 Price/Earnings per Share $1.19$1.45 Dividend Yield 1.14%1.13%