What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-06-03 compared with 2022-03-07 · 193 added, 121 removed, 235 unchanged (57% of the section changed)

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• Results of Operations.

An analysis of our operations financial results comparing the three months ended January 31, 2022 to the prior-year period.

An analysis of our financial results comparing the three and six months ended April 30, 2022 to the prior-year period.

A discussion of the results of operations is followed by a more detailed discussion of the results of operations by segment.

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Corporate Investments include HP Labs and certain business incubation and investment projects.

• In Personal Systems, our strategic focus is on profitable growth through innovation and market segmentation.

This focus is with respect to enhanced innovation in multi-operating systems, multi-architecture, geography, customer segments and other key attributes.

Additionally, we are investing in endpoint services and solutions.

• In Personal Systems, our strategic focus is on

◦ profitable growth through innovation and market segmentation

◦ enhanced innovation in multi-operating systems, multi-architecture, geography, customer segments and other key attributes

◦ investing in endpoint services and solutions.

We are focused on services, including Device as a Service, as the market begins to shift to contractual solutions, and accelerating in attractive adjacencies such as peripherals;

We are driving innovation to enable productivity and collaboration with the PC becoming essential for hybrid work, learn and play.

◦ driving innovation to enable productivity and collaboration with the PC becoming essential for hybrid work, learn and play.

We believe that we are well positioned due to our competitive product lineup along with our recent acquisitions in peripherals and remote-computing solutions.

• In Printing, our strategic focus is on offering innovative printing solutions and contractual solutions to serve consumers, SMBs and large enterprises through our Instant Ink Services, HP+ and Managed Print Services solutions, providing digital printing solutions for graphics segments and applications including commercial publishing, labels, packaging and textiles;

as well as expanding our footprint in 3D printing across digital manufacturing and strategic applications.

• In Printing, our strategic focus is on

◦ offering innovative printing solutions and contractual solutions to serve consumers, SMBs and large enterprises through our Instant Ink Services, HP+ and Managed Print Services solutions,

◦ providing digital printing solutions for graphics segments and applications including commercial publishing, labels, packaging and textiles;

◦ expanding our footprint in 3D printing across digital manufacturing and strategic applications.

In addition to focusing on growing our subscription business, we are also focused on rebalancing system profitability to more profit upfront units through our product offerings including HP+ and Big Tank.

We are focused on growing our gaming, peripherals, workforce solutions, consumer subscriptions, 3D and industrial graphics businesses.

Our ability to innovate is helping us gain momentum in growth areas like gaming and peripherals, and we see significant opportunities to drive greater recurring revenues across Personal Systems and Printing.

We have integrated and expanded our Device-as-a-Service and Managed Print Services offerings to create new Workforce Solutions that help customers manage and secure hybrid IT ecosystems.

We continue to build on strong assets like Instant Ink to grow our Consumer Subscription business.

In Industrial Graphics, we are driving the shift from analog to digital in segments like labels and packaging.

In Personalization & 3D, we are creating end-to-end solutions that can capture more value with our differentiated technology.

We continue to experience challenges that are representative of trends and uncertainties that may affect our business and results of operations.

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Additional challenges we face at the segment level are set forth below.

• In Personal Systems, we face challenges with industry component availability which we expect to continue to negatively impact our ability to meet demand at least in the short-term, and a competitive environment.

• In Personal Systems, we face challenges with industry component availability which we expect to continue to negatively impact our ability to meet demand at least in the short-term.

Also, as component availability improves we expect the pricing environment to get more competitive.

• In Printing, we face challenges from a competitive environment, including non-original supplies (which includes imitation, refill, or remanufactured alternatives), and we face component constraints and other supply chain disruptions particularly in printer hardware which we expect to continue to negatively impact our ability to meet demand at least in the short-term.

We also obtain many Printing components from single source due to technology, availability, price, quality or other considerations.

We also obtain many Printing components from single source due to technology, availability, price,

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

quality or other considerations.

For instance, we source the majority of our A4 and a portion of our A3 portfolio of laser printer engines and laser toner cartridges from Canon.

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however, we have a long-standing business relationship with Canon and anticipate renewal of this agreement.

In fiscal year 2022, we expect to see continued demand for both Personal Systems and Printing.

We also anticipate that component shortages, manufacturing disruptions and logistics challenges will continue to impact our revenues and margins.

Additionally, we are closely monitoring the unfolding events due to the Russian invasion of Ukraine and its regional and global ramifications.

While the situation is still evolving and the outcomes remain highly uncertain, we expect these events to have an unfavorable impact on our business, results of operations, cash flows and financial position.

On May 31, 2022, we announced our decision to wind down business operations in Russia having already suspended all new shipments and paused marketing and advertising activities.

Russia contributed approximately $1.0 billion of total net revenue in fiscal 2021.

Though, we do not have significant operations or assets in Russia, Belarus or Ukraine, the Russian invasion of Ukraine has aggravated, and is expected to continue to aggravate supply chain and overall macroeconomic challenges.

A significant escalation or expansion of the situation’s current scope could have a material adverse effect on our business, results of operations, cash flows or financial position.

We continue to be focused on the safety and security of our employees and their families in the impacted regions and we have provided, and expect to continue to provide, grants to support Ukrainian relief efforts.

Our business and financial performance also depend significantly on worldwide economic conditions.

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To address these challenges, we continue to pursue innovation with a view towards developing new products and services aligned with generating market demand and meeting the needs of our customers and partners.

In addition, we continue to work on improving our operations and adapting our business models, with a particular focus on enhancing our end-to-end processes,

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

analytics and efficiencies.

In addition, we continue to work on improving our operations and adapting our business models, with a particular focus on enhancing our end-to-end processes, analytics and efficiencies.

We also continue to work on optimizing our sales coverage models, aligning our sales incentives with our strategic goals, improving channel execution and inventory, production and backlog management, strengthening our capabilities in our areas of strategic focus, strengthening our pricing discipline, and developing and capitalizing on market opportunities.

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As a result, we may experience delays in the anticipated timing of activities related to these efforts, and the anticipated benefits of these efforts may not materialize.

In the second year of our program, we continued to look at new cost savings opportunities and remained ahead of our $1.2 billion gross run rate structural cost reduction plan.

In the third year of our program, we continued to look at new cost savings opportunities and are on track to deliver $1.2 billion dollars in gross run-rate structural cost reductions by year end.

In the third quarter of fiscal year 2021, we completed the initial deployment of our SAP S/4 HANA system, one of the largest ERP implementations.

Also, as part of our end-to-end business planning and forecasting efforts, we went live with our new cloud-based platform which we believe will improve our forecasting agility as part of our digital transformation.

Further, our hybrid work strategy has enabled us to accelerate our location strategy while

providing a more flexible workspace.

Going forward we are enabling HP’s hybrid work strategy by modernizing our sites to be critical hubs for collaboration and innovation.

This will also deliver savings in our real estate portfolio.

We continue to optimize our real estate footprint, including 15 real estate actions in the first half of 2022, as we rebuild and modernize our key locations, focusing on collaboration and hybrid work for our employees.

For more information on our Fiscal 2020 Plan, see Note 3, “Restructuring and Other Charges”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

We typically experience higher net revenues in our fourth quarter compared to other quarters in our fiscal year due in part to seasonal holiday demand.

Historical seasonal patterns may not continue in the future and have been impacted by increasing supply constraints, shifts in customer behavior and the evolving impacts of the COVID-19 pandemic.

Historical seasonal patterns may not continue in the future and have been impacted by supply constraints, shifts in customer behavior and the continuing impacts of the COVID-19 pandemic.

Our COVID-19 Response

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We will continue promoting the health, safety, and well-being of workers and their loved ones.

In response to the COVID-19 pandemic, we have established a cross-functional COVID-19 program management office that reviews the latest data from our business and site leaders and identifies and addresses emerging risks and issues, and we have put in place global policies and protocols based on guidance from healthcare experts and public health leaders, which we continue to review and update.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

guidance from healthcare experts and public health leaders, which we continue to review and update.

We balance our company-wide approach by assessing risk and adjusting our response at the site level, taking into consideration each country's or area's COVID-19 case trends and related measures.

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Our Personal Systems business benefited from the hybrid work environment and growth in gaming.

In the first quarter of fiscal 2022, we saw strong demand in non-Chromebook Commercial PCs, and mix shifts from low end to premium products.

In Printing, Consumer print demand remained strong, and Commercial print is expected to continue its gradual improvement as more offices reopen.

Also, favorable pricing including lower promotions and incentives have contributed positively towards average selling prices (“ASPs”) in both Personal Systems and Printing.

We estimate sales and marketing program incentives based on a number of factors like historical experience, expected customer behavior and market conditions.

These estimates have been and may continue to be impacted by lower-than-expected incentives due to increased supply constraints, shifts in customer behavior and the evolving impact of the COVID-19 pandemic.

Demand fulfillment has been and is expected to continue to be impacted by industry wide commodity and component constraints primarily integrated circuits and panels, and logistics challenges globally, at least in short-term.

As the COVID-19 pandemic continues and new variants of the virus emerge, we are seeing a resurgence of the pandemic in key markets.

For the six months ended April 30, 2022, we saw strong demand in non-Chromebook Commercial PCs, and mix shifts from low end to premium products.

In Consumer PCs, we are seeing softening of demand, however demand still exceeds pre-pandemic levels.

In Printing, Consumer print demand remained strong despite some softening in Europe, and Commercial print is expected to continue its gradual improvement as more offices reopen.

Also, favorable pricing has contributed towards higher average selling prices (“ASPs”) in both Personal Systems and Printing.

Demand fulfillment has been and is expected to continue to be impacted by industry wide commodity and component constraints, ASICs (application specific integrated circuits) that are unique to our products and manufacturing disruptions in China, and logistics challenges globally, at least in the short-term.

As the COVID-19 pandemic continues and new variants of the virus emerge, we are seeing a resurgence of the pandemic in key markets including China.

We have experienced and may experience future disruptions in supply, manufacturing and logistics, including in Asia, and with our suppliers and outsourcing partners.

The full extent of the impact of the COVID-19 pandemic on our business, results of operations, cash flows and financial position will depend on many factors that are not within our control, including, but not limited to:

the severity, duration and scope of the pandemic, including the impact of coronavirus mutations

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

and resurgences;

the severity, duration and scope of the pandemic, including the impact of coronavirus mutations and resurgences;

the effectiveness of actions taken to contain or mitigate the pandemic and prevent or limit any reoccurrence;

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For a further discussion of trends, uncertainties and other factors that could impact our operating results, see the section entitled “Risk Factors” in Item 1A of Part II of this report as well as in Item 1A of Part I in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

RECENT DEVELOPMENTS

On March 25, 2022, we entered into a definitive agreement to acquire Plantronics, Inc.

(“Poly”), a leading global provider of workplace collaboration solutions, in an all-cash transaction for $40 per share, implying a total enterprise value of $3.3 billion, inclusive of Poly’s net debt.

Poly is a leader in video conferencing solutions, cameras, headsets, voice and software.

With the acquisition, we aim to deliver a complete ecosystem of devices, software, and digital services to create premium employee experiences, improve workforce productivity, and provide enterprise customers with better visibility, insights, security, and manageability across their hybrid IT environments.

We expect this acquisition to close by the end of calendar year 2022, subject to approval by Poly’s shareholders, required regulatory clearances, and the satisfaction of other customary closing conditions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent liabilities.

As of January 31, 2022, the impact of COVID-19 on our business continued to unfold.

As of April 30, 2022, the impact of COVID-19 on our business continued to unfold.

As a result, many of our estimates and assumptions required increased judgment and may carry a higher degree of variability and volatility.

As events continue to evolve and additional information becomes available, our estimates may change in future periods.

Our management believes that there have been no significant changes during the three months ended January 31, 2022 to the items that we disclosed as our critical accounting policies and estimates in MD&A in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, except as mentioned in Note 1, “Basis of Presentation”.

Our management believes that there have been no significant changes during the six months ended April 30, 2022 to the items that we disclosed as our critical accounting policies and estimates in MD&A in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, except as mentioned in Note 1, “Basis of Presentation”.

ACCOUNTING PRONOUNCEMENTS

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Results of operations in dollars and as a percentage of net revenue were as follows:

Three months ended January 31

Dollars % of Net Revenue Dollars % of Net Revenue

Three months ended April 30 Six months ended April 30

2022 2021 2022 2021

Dollars % of Net Revenue Dollars % of Net Revenue Dollars % of Net Revenue Dollars % of Net Revenue

Dollars in millions

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Net earnings $ 1,000 6.1 % $ 1,228 7.7 % $ 2,086 6.2 % $ 2,296 7.3 %

Three months ended January 31, 2022 compared with three months ended January 31, 2021

Net revenue increased 8.8% (increased 8.2% on a constant currency basis) as compared to the prior-year period.

For the three months ended April 30, 2022, net revenue increased 3.9% (increased 4.9% on a constant currency basis) as compared to the prior-year period.

net revenue remained flat at $5.5 billion, while net revenue from international operations increased 6.1% to $11.0 billion.

The increase in net revenue was primarily driven by growth in Desktops, Notebooks and Workstations, partially offset by decline in Supplies, Consumer Printing and foreign currency impacts.

The increase was driven by higher ASP’s due to favorable pricing and mix shifts, partially offset by unit decline.

Units were down in both Personal Systems and Printing driven by the continued supply chain challenges and overall macroeconomic environment.

For the six months ended April 30, 2022, total net revenue increased 6.3% (increased 6.5% on a constant currency basis) as compared to the prior-year period.

net revenue decreased 0.3% to $11.1 billion, while net revenue from international operations increased 10.0% to $22.4 billion.

The increase in net revenue was primarily driven by growth in Notebooks, Desktops, Workstations, favorable foreign currency impacts and growth in Commercial Printing, partially offset by decline in Consumer Printing and Supplies.

The increase was driven by higher ASP’s due to favorable pricing and mix, partially offset by unit decline.

Supply chain constraints impacted the availability of both Printing and Personal Systems units.

A detailed discussion of the factors contributing to the changes in segment net revenue is included in “Segment Information” below.

The increase in net revenue was primarily driven by growth in Notebooks, Desktops and Workstations partially offset by decline in Consumer Printing and Supplies.

The increase was driven by higher ASP’s due to favorable pricing and mix shifts, partially offset by unit decline.

Units were down in both Personal Systems and Printing driven by the continued supply chain challenges and overall macroeconomic environment.

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Financial Condition and Results of Operations (Continued)

Gross margin decreased by 1.3 percentage points, primarily driven by mix shift towards Personal Systems, higher commodity and supply chain costs, partially offset by favorable pricing and foreign currency impacts .

A detailed discussion of the factors contributing to the changes in segment net revenue is included in “Segment Information” below.

For both the three months and six ended April 30, 2022, gross margin decreased by 1.5 percentage points, primarily driven by mix shift towards Personal Systems, higher commodity costs, foreign currency impacts partially offset by favorable pricing.

A detailed discussion of the factors contributing to the changes in segment gross margins is included under “Segment Information” below.

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Research and Development (“R&D”)

R&D expense decreased 11.3%, primarily due to joint R&D partner funding in Personal Systems.

R&D expense decreased 17.3% for the three months ended April 30, 2022, primarily due to last year’s increased investments in Personal Systems.

R&D expense decreased 14.4% for the six months ended April 30, 2022, primarily due to joint R&D partner funding and last year’s increased investments in Personal Systems.

Selling, General and Administrative (“SG&A”)

SG&A expense increased 6.7%, primarily due to investments in go-to-market initiatives.

SG&A expense decreased 1.3% for the three months ended April 30, 2022, primarily due to lower variable compensation, partially offset by charitable contributions.

SG&A expense increased 2.6% for the six months ended April 30, 2022, primarily due to investments in go-to-market initiatives and charitable contributions.

Restructuring and Other Charges

Restructuring and other charges relate primarily to the Fiscal 2020 Plan.

Restructuring and other charges for the three and six months ended April 30, 2022 relate primarily to the Fiscal 2020 Plan.

For more information, see Note 3, “Restructuring and other charges”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Amortization of Intangible Assets

Amortization of intangible assets increased by $23 million, primarily due to recent acquisitions.

Amortization of intangible assets for the three and six months ended April 30, 2022 relates primarily to intangible assets resulting from prior acquisitions.

Amortization of intangible assets increased by $20 million and $43 million for the three and six months ended April 30, 2022, respectively, primarily due to recent acquisitions including HyperX and Teradici.

Interest and Other, Net

Interest and other, net expense increased $7 million, primarily due to foreign currency movements, partially offset by lower interest expense on debt.

Interest and other, net expense increased $13 million and $20 million for the three months and six months ended April 30, 2022, respectively, primarily due to lower Net Periodic Post-retirement Benefit Credit, higher interest expense on debt, partially offset by foreign currency movements.

Provision for taxes

Our effective tax rate was 18.1% and 17.5% for the three months ended January 31, 2022 and 2021, respectively.

Our effective tax rate was 19.3% for the three months ended April 30, 2022 and 18.7% for the six months ended April 30, 2022.

The difference between the U.S.

federal statutory tax rate of 21% and our effective tax rate for the three months ended January 31, 2022 and 2021, was primarily due to tax effects of favorable tax rates associated with certain earnings from our operations in lower-tax jurisdictions throughout the world.

During the three months ended January 31, 2022, we recorded $26 million, of net income tax charges related to discrete items in the provision for taxes.

These amounts included income tax charges of $39 million related to withholding taxes on undistributed foreign earnings and were partially offset by income tax benefits of $12 million related to restructuring charges for the three months ended January 31, 2022.

In addition to the discrete items mentioned above, we recorded excess tax benefits of $37 million associated with stock options, restricted stock units and performance-adjusted restricted stock units for the three months ended January 31, 2022.

During the three months ended January 31, 2021, discrete items in the provision for taxes and excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units were immaterial.

federal statutory tax rate of 21% and our effective tax rate for the three and six months ended April 30, 2022, was primarily due to tax effects of favorable tax rates associated with certain earnings from our operations in lower-tax jurisdictions throughout the world.

During the three and six months ended April 30, 2022, we recorded $8 million and $35 million, respectively, of net income tax charges related to discrete items in the provision for taxes.

These amounts included income tax charges of $18 million related to the filing of tax returns in various jurisdictions for the six months ended April 30, 2022 and $17 million and $56 million related to withholding taxes on undistributed foreign earnings for the three and six months ended April 30, 2022, respectively.

These charges were partially offset by income tax benefits of $20 million and $31 million related to restructuring charges and $7 million and $8 million related to other tax benefits for the three and six months ended April 30, 2022, respectively.

In addition to the discrete items mentioned above, we recorded excess tax benefits of $36 million associated with stock options, restricted stock units and performance-adjusted restricted stock units for the six months ended April 30, 2022.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Segment Information

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Personal Systems

Three months ended January 31

2022 2021 % Change

Three months ended April 30 Six months ended April 30

2022 2021 % Change 2022 2021 % Change

Dollars in millions

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The components of net revenue and the weighted net revenue change by business unit were as follows:

Three months ended January 31

Three months ended April 30 Six months ended April 30

Net Revenue Weighted Net Revenue Change (1)

Dollars in millions Percentage Points

Net Revenue Weighted Net Revenue Change (1)

2022 2021 2022 2021

Dollars in millions Percentage Points Dollars in millions Percentage Points

Notebooks $ 7,734 $ 7,489 2.3 $ 16,155 $ 14,855 6.1

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It is calculated by dividing the change in revenue of each business unit from the prior-year period by total segment revenue for the prior-year period.

Three months ended January 31, 2022 compared with three months ended January 31, 2021

Personal Systems net revenue increased 15.0% (increased 14.3% on a constant currency basis) for the three months ended January 31, 2022 as compared to the prior-year period.

The net revenue increase was primarily due to growth in Notebooks, Desktops and Workstations driven by 22.3% increase in ASPs, partially offset by 6.0% decrease in unit volume.

The increase in ASPs was primarily due to favorable pricing and mix shifts.

The decrease in unit volume was primarily driven by a decline in Notebooks due to lower Chromebooks and supply chain constraints, partially offset by increases in Desktops and Workstations.

Commercial PCs revenue increased 26.2% primarily driven by higher ASPs and unit growth in Desktops and Workstations, partially offset by unit decline in Notebooks due to lower Chromebooks and supply chain constraints.

Three months ended April 30, 2022 compared with three months ended April 30, 2021

Personal Systems net revenue increased 9.3% (increased 10.6% on a constant currency basis) for the three months ended April 30, 2022 as compared to the prior-year period.

The increase was driven by 30.9% increase in ASPs, partially offset by 16.5% decrease in unit volume.

The increase in ASPs was primarily due to mix shifts to premium and favorable pricing, partially offset by foreign currency impacts.

The decrease in unit volume was primarily driven by a decline in Notebooks due to lower Chromebooks and softening consumer demand, partially offset by increases in Desktops and Workstations.

Also, units were impacted due to the continued supply chain challenges and overall macroeconomic environment.

Commercial PCs revenue increased 18.4% primarily driven by higher ASPs and unit growth in Desktops and Workstations, partially offset by unit decline in Notebooks due to lower Chromebooks.

Consumer PCs net revenue decreased 6.1% driven by unit declines in Notebooks and Desktops, partially offset by higher ASPs.

Consequently, net revenue increased 3.3% in Notebooks, 28.3% in Desktops and 21.4% in Workstations.

Personal Systems earnings from operations as a percentage of net revenue increased by 0.7 percentage points.

The gross margin remained flat and there was a decrease in operating expenses as a percentage of revenue.

The gross margin remained flat primarily due to favorable pricing, mix shifts and foreign currency impacts, offset by higher costs including commodity costs.

Operating expenses as a percentage of revenue decreased by 0.7 percentage points primarily driven by joint R&D partner funding, partially offset by increases in go-to-market initiatives.

Personal Systems earnings from operations as a percentage of net revenue increased by 0.2 percentage points, primarily due to a decrease in operating expenses as a percentage of revenue, partially offset by decrease in gross margin.

The gross margin decreased primarily due to higher costs including commodity costs, and foreign currency impacts, partially offset by favorable pricing and mix shifts.

Operating expenses as a percentage of revenue decreased by 1.2 percentage points primarily driven by last year’s increased R&D investments and lower variable compensation.

Six months ended April 30, 2022 compared with six months ended April 30, 2021

Personal Systems net revenue increased 12.1% (increased 12.5% on a constant currency basis) for the six months ended April 30, 2022 as compared to the prior-year period.

The increase was driven by 26.5% increase in ASPs, partially offset by 11.3% decrease in unit volume.

The increase in ASPs was primarily due to favorable pricing and mix shifts to premium.

The decrease in unit volume was primarily driven by a decline in Notebooks due to lower Chromebooks and softening consumer demand, partially offset by increases in Desktops and Workstations.

Also, units were impacted due to the continued supply chain challenges and overall macroeconomic environment.

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Financial Condition and Results of Operations (Continued)

Three months ended January 31

2022 2021 % Change

Commercial PCs revenue increased 22.2% primarily driven by higher ASPs and unit growth in Desktops and Workstations, partially offset by unit decline in Notebooks due to lower Chromebooks.

Consumer PCs net revenue decreased 3.3% driven by unit declines in Notebooks and Desktops, partially offset by higher ASPs.

Consequently, net revenue increased 8.8% in Notebooks, 22.4% in Desktops and 30.3% in Workstations.

Personal Systems earnings from operations as a percentage of net revenue increased by 0.5 percentage points, primarily due to a decrease in operating expenses as a percentage of revenue, partially offset by decrease in gross margin.

The gross margin decreased primarily due to higher costs including commodity costs, and foreign currency impacts, partially offset by favorable pricing and mix shifts.

Operating expenses as a percentage of revenue decreased by 1.0 percentage points primarily driven by joint partner funding and last year’s increased R&D investments.

Three months ended April 30 Six months ended April 30

2022 2021 % Change 2022 2021 % Change

Dollars in millions

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The components of net revenue and the weighted net revenue change by business unit were as follows:

Three Months Ended January 31

Three Months Ended April 30 Six months ended April 30

Net Revenue Weighted Net Revenue Change (1)

Dollars in millions Percentage Points

Net Revenue Weighted Net Revenue Change (1)

2022 2021 2022 2021

Dollars in millions Percentage Points Dollars in millions Percentage Points

Supplies $ 3,131 $ 3,337 (3.9) $ 6,199 $ 6,483 (2.7)

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It is calculated by dividing the change in revenue of each business unit from the prior-year period by total segment revenue for the prior-year period.

Three months ended January 31, 2022 compared with three months ended January 31, 2021

Printing net revenue decreased 4.2% (decreased 4.6% on a constant currency basis) for the three months ended January 31, 2022.

The decrease in net revenue was driven by Consumer and Supplies, partially offset by Commercial.

Three months ended April 30, 2022 compared with three months ended April 30, 2021

Printing net revenue decrea sed 6.8% (decreased 6.5% on a constant currency basis) for the three months ended April 30, 2022.

Net revenue for Supplies decreased 6.2%, primarily due to normalization in home printing and gradual return to office.

Also, Supplies revenue was impacted by China lockdowns and the Russia-Ukraine conflict.

Printer A SPs increased 15.5% and unit volume decreased 23.1%.

Printer ASPs increased primarily due to favorable mix shifts and pricing.

The decrease in printer unit volume was due to component availability and supply chain disruptions continuing to limit unit availability for both Commercial and Consumer, during the three months ended January 31, 2022.

Net revenue for Commercial increased by 8.6%, primarily due to 16.0% increase in ASPs, partially offset by 3.0% decrease in printer unit volume.

The increase in ASPs was primarily driven by favorable pricing and mix shifts.

Printer ASPs increased primarily due to favorable pricing and mix shifts.

The decrease in printer unit volume was due to component availability and supply chain disruptions which continued to limit unit availability for both Commercial and Consumer, during the three months ended April 30, 2022.

Net revenue for Commercial decreased by 4.0%, primarily due to 17.2% decrease in printer unit volume, partially offset by 9.6% increase in ASPs.

The increase in ASPs was primarily driven by mix shifts and favorable pricing, partially offset by foreign currency impacts.

Net revenue for Consumer decreased 12.3 % , primarily due to 23.9% decrease in printer unit volume, partially offset by 14.7% increase in ASPs.

The increase in ASPs was primarily driven by favorable mix shifts, pricing and foreign currency impacts.

Printing earnings from operations as a percentage of net revenue decreased by 1.6 percentage points, primarily due to decrease in gross margin driven by higher commodity and supply chain costs, partially offset by favorable pricing and mix shifts.

Further, the hardware gross margin was impacted by component shortages and supply chain disruptions which impacted mix and unit availability for both Commercial and Consumer.

Operating expenses as a percentage of revenue remained flat.

Corporate Investments

The loss from operations in Corporate Investments for the three months ended January 31, 2022, was primarily due to expenses associated with our incubation projects and investments in digital enablement.

The increase in ASPs was primarily driven by favorable pricing.

Printing earnings from operations as a percentage of net revenue increased by 1.4 percentage points, primarily due to lower operating expenses as a percentage of revenue and increase in gross margin.

The increase in gross margin is primarily

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Financial Condition and Results of Operations (Continued)

due to mix shifts and favorable pricing, partially offset by higher commodity costs.

Operating expenses as a percentage of revenue decreased primarily due to lower variable compensation and go-to-market initiative expenses.

Six months ended April 30, 2022 compared with six months ended April 30, 2021

Printing net revenue decreased 5.5% (decreased 5.6% on a constant currency basis) for the six months ended April 30, 2022.

Net revenue for Supplies decreased 4.4%, primarily due to normalization in home printing and gradual return to office.

Also, Supplies revenue was impacted by China lockdowns and Russia-Ukraine conflict in the second quarter of fiscal 2022.

Printer unit volume decreased 25.5% and ASPs increased 20.1%.

The decrease in printer unit volume was primarily driven by decreases in both Consumer and Commercial due to component availability and supply chain disruptions.

Printer ASPs increased primarily due to favorable pricing and mix shifts.

Net revenue for Commercial increased by 1.9%, primarily due to 11.9% increase in ASPs, partially offset by 10.2% decrease in printer unit volume.

The increase in ASPs was primarily driven by favorable pricing and mix shifts.

Net revenue for Consumer decreased 17.8%, primarily due to a 27.5% decrease in printer unit volume, partially offset by 12.6% increase in ASPs.

The increase in ASPs was primarily driven by favorable pricing and mix shifts.

Printing earnings from operations as a percentage of net revenue remained flat for the six months ended April 30, 2022, primarily due to decrease in gross margin offset by lower operating expense as a percentage of revenue.

The decrease in gross margin is driven by higher commodity and supply chain costs, partially offset by mix shifts and favorable pricing.

Further, the hardware gross margin was impacted by component shortages and supply chain disruptions which impacted mix and unit availability for both Commercial and Consumer.

Operating expenses as a percentage of revenue decreased primarily due to lower investments in go-to-market initiative expenses and variable compensation.

Corporate Investments

The loss from operations in Corporate Investments for the three and six months ended April 30, 2022, was primarily due to expenses associated with our incubation projects and investments in digital enablement.

LIQUIDITY AND CAPITAL RESOURCES

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Our liquidity is subject to various risks including the risks identified in the section entitled “Risk Factors” in Item 1A of Part II of this report as well as Item 1A of Part I in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021 and the market risks identified in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Item 3 of Part I of this report.

On March 25, 2022, we entered into a definitive agreement to acquire Poly, a leading global provider of workplace collaboration solutions, in an all-cash transaction for $40 per share, implying a total enterprise value of $3.3 billion , inclusive of Poly’s net debt .

HP plans to fund the transaction through a combination of cash and new debt.

The transaction is expected to close by the end of calendar year 2022, pending regulatory reviews, approval by Poly’s shareholders, and other customary closing conditions.

Our cash and cash equivalents balances are held in numerous locations throughout the world.

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As we evaluate the future cash needs of our operations, we may revise the amount of foreign earnings considered to be permanently reinvested in our foreign subsidiaries and how to utilize such funds, including reducing our gross debt level, or other uses.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Our cash and cash equivalents and total debt were as follows:

January 31, 2022 October 31, 2021

April 30, 2022 October 31, 2021

Cash and cash equivalents $ 4.5 $ 4.3

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Our key cash flow metrics were as follows:

Three months ended January 31

Six months ended April 30

Net cash provided by operating activities $ 2,165 $ 2,468

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Net cash used in financing activities (1,525) (3,593)

Net decrease in cash and cash equivalents $ (905) $ (704)

Net increase (decrease) in cash and cash equivalents $ 178 $ (1,440)

Operating Activities

Compared to the corresponding period in fiscal year 2021, net cash provided by operating activities increased by $0.6 billion for the three months ended January 31, 2022, primarily due to favorable working capital changes.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Compared to the corresponding period in fiscal year 2021, net cash provided by operating activities decreased by $0.3 billion for the six months ended April 30, 2022, primarily due to changes in working capital activities.

Key Working Capital Metrics

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Our working capital metrics and cash conversion cycle impacts were as follows:

January 31, 2022 October 31, 2021 Change January 31, 2021 October 31, 2020 Change Y/Y Change

April 30, 2022 October 31, 2021 Change April 30, 2021 October 31, 2020 Change Y/Y Change

Days of sales outstanding in accounts receivable (“DSO”) 29 30 (1) 28 32 (4) 1

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Cash conversion cycle (26) (25) (1) (28) (30) 2 2

January 31, 2022 as compared to January 31, 2021

April 30, 2022 as compared to April 30, 2021

The cash conversion cycle is the sum of days of DSO and DOS less DPO.

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DSO is calculated by dividing ending accounts receivable, net of allowance for credit losses, by a 90-day average net revenue.

The decrease in DSO was primarily due to favorable revenue linearity.

The increase in DSO was primarily due to unfavorable revenue linearity.

DOS measures the average number of days from procurement to sale of our product.

DOS is calculated by dividing ending inventory by a 90-day average cost of revenue.

The increase in DOS was primarily due to higher inventory as a result of in-transit sea shipments, partially offset by higher cost of revenue in Personal Systems.

The increase in DOS was primarily due to higher inventory to mitigate supply chain constraints in Printing.

DPO measures the average number of days our accounts payable balances are outstanding.

DPO is calculated by dividing ending accounts payable by a 90-day average cost of revenue.

The increase in DPO was primarily due to an increase in inventory.

The increase in DPO was primarily due to higher inventory and working capital management activities.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Investing Activities

Compared to the corresponding period in fiscal year 2021, net cash used in investing activities increased by $0.3 billion for the three months ended January 31, 2022, primarily due to lower proceeds from sale of investments of $0.3 billion and increase in net investment in property, plant and equipment of $0.1 billion, partially offset by lower collateral posted for derivative instruments of $0.2 billion.

Compared to the corresponding period in fiscal year 2021, net cash used in investing activities increased by $0.1 billion for the six months ended April 30, 2022, primarily due to lower proceeds from sale of investments of $0.3 billion and increase in net investment in property, plant and equipment of $0.2 billion, partially offset by lower collateral posted for derivative instruments of $0.2 billion and lower net payments for acquisitions of $0.1 billion.

Financing Activities

Compared to the corresponding period in fiscal year 2021, net cash used in financing activities increased by $0.6 billion for the three months ended January 31, 2022, primarily due to payment towards commercial paper of $0.4 billion and higher share repurchases of $0.1 billion.

Compared to the corresponding period in fiscal year 2021, net cash used in financing activities decreased by $2.1 billion for the six months ended April 30, 2022, primarily due to issuance of senior unsecured notes of $2.0 billion and lower share repurchases of $0.5 billion, partially offset by payment towards commercial paper of $0.4 billion.

Share Repurchases and Dividends

During the three months ended January 31, 2022, HP returned $1.8 billion to the shareholders in the form of share repurchases of $1.5 billion and cash dividends of $0.3 billion.

As of January 31, 2022, HP had approximately $4.9 billion remaining under the share repurchase authorizations approved by HP’s Board of Directors.

During the six months ended April 30, 2022, HP returned $3.1 billion to the shareholders in the form of share repurchases of $2.5 billion and cash dividends of $533 million.

As of April 30, 2022, HP had approximately $3.9 billion remaining under the share repurchase authorizations approved by HP’s Board of Directors.

For more information on our share repurchases, see Note 10, “Stockholders’ Deficit”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

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Depending on these factors, we may, from time to time, incur additional indebtedness or refinance existing indebtedness.

Outstanding borrowings decreased to $7.1 billion as of January 31, 2022 as compared to $7.5 billion as

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

of October 31, 2021, bearing weighted-average interest rates of 3.3% and 3.1% for January 31, 2022 and October 31, 2021, respectively.

Outstanding borrowings increased to $9.0 billion as of April 30, 2022 as compared to $7.5 billion as of October 31, 2021, bearing weighted-average interest rates of 3.5% and 3.1% for April 30, 2022 and October 31, 2021, respectively.

In March 2022, we issued $2.0 billion in aggregate principal amount of senior unsecured notes across various maturities.

For more information on the new notes, see Note 9, “Borrowings”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Our weighted-average interest rate reflects the effective rate on our borrowings prevailing during the period and reflects the effect of interest rate swaps.

For more information on our interest rate swaps, see Note 8, “Financial Instruments”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

As of January 31, 2022, we maintained the 5-year sustainability-linked senior unsecured committed revolving credit facility with aggregate lending commitments of $5.0 billion which will be available until May 26, 2026.

As of April 30, 2022, we maintained the 5-year sustainability-linked senior unsecured committed revolving credit facility with aggregate lending commitments of $5.0 billion which will be available until May 26, 2026.

Funds borrowed under the revolving credit facility may be used for general corporate purposes.

Available Borrowing Resources

As of January 31, 2022, we had available borrowing resources of $633 million from uncommitted lines of credit in addition to the revolving credit facility.

The amendment to our 2019 Shelf Registration Statement to convert to a non-automatic shelf registration statement was declared effective by the SEC on February 25, 2021 and enables us to offer for sale, from time to time, in one or more offerings, $5.0 billion, in the aggregate, of debt securities, common stock, preferred stock, depository shares and warrants.

As of April 30, 2022, we had available borrowing resources of $550 million from uncommitted lines of credit in addition to the revolving credit facility.

The amendment to our 2019 Shelf Registration Statement to convert to a non-automatic shelf registration statement was declared effective by the SEC on February 25, 2021 and, as of April 30, 2022, enables us to offer for sale, from time to time, in one or more offerings, $3.0 billion, in the aggregate, of debt securities, common stock, preferred stock, depository shares and warrants.

For more information on our borrowings, see Note 9, “Borrowings”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

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We can access alternative sources of funding, including drawdowns under our credit facility, if necessary, to offset potential reductions in the market capacity for our commercial paper.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

CONTRACTUAL AND OTHER OBLIGATIONS

Principal and Interest payments on debt

In March 2022, we issued $2.0 billion in aggregate principal amount of senior unsecured notes across various maturities.

As a result, our future principal payments on debt increased from $7.6 billion as at October 31, 2021 to $9.1 billion as at April 30, 2022 and future interest payments on debt increased from $2.3 billion as at October 31, 2021 to $2.9 billion as at April 30, 2022.

For more information on the new notes, see Note 9, “Borrowings”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Unconditional Purchase Obligation

Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on HP and that specify all significant terms, including fixed or minimum quantities to be purchased;

fixed, minimum or variable price provisions;

and the approximate timing of the transaction.

These unconditional purchase obligations are primarily related to inventory and service support.

Unconditional purchase obligations exclude agreements that are cancellable without penalty.

As of April 30, 2022, the Company had outstanding purchase commitments of $5.4 billion.

The majority of these commitments are due within five years, see Note 14, “Commitments”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Retirement and Post-Retirement Benefit Plan Contributions

As of January 31, 2022, we anticipate making contributions for the remainder of fiscal year 2022 of approximately $31 million to our non-U.S.

As of April 30, 2022, we anticipate making contributions for the remainder of fiscal year 2022 of approximately $25 million to our non-U.S.

pension plans, $21 million to cover benefit payments to U.S.

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Uncertain Tax Positions

As of January 31, 2022, we had approximately $600 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

As of April 30, 2022, we had approximately $634 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

We are unable to make a reasonable estimate as to when cash settlement with the tax authorities might occur due to the uncertainties related to these tax matters.

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Off-balance sheet arrangements

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As part of our ongoing business, we have not participated in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

We have third-party short-term financing arrangements intended to facilitate the working capital requirements of certain customers.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis