HP INC 10-Q

ITEM 1. Financial Statements and Supplementary Data. Index Page Consolidated Condensed Statements of Earnings for the three and six months ended April 3 0 , 2022 and 2021 (Unaudited) 5 Consolidated Condensed Statements of Comprehensive Income for the three and six months ended April 3 0 , 2022 and 2021 (Unaudited) 6 Consolidated Condensed Balance Sheets as of April 3 0 , 2022 and October 31, 2021 (Unaudited) 7 Consolidated Condensed Statements of Cash Flows for the six months ended April 3 0 , 2022 and 2021 (Unaudited) 8 Consolidated Condensed Statements of Stockholders’ Deficit (Unaudited) 9 Notes to Consolidated Condensed Financial Statements (Unaudited) 10 Note 1: Basis of Presentation 10 Note 2: Segment Information 11 Note 3: Restructuring and Other Charges 14 Note 4: Retirement and Post-Retirement Benefit Plans 15 Note 5: Taxes on Earnings 17 Note 6: Supplementary Financial Information 18 Note 7: Fair Value 22 Note 8: Financial Instruments 24 Note 9: Borrowings 29 Note 10: Stockholders’ Deficit 30 Note 11: Net Earnings Per Share 33 Note 12: Litigation and Contingencies 33 Note 13: Guarantees, Indemnifications and Warranties 38 Note 14: Commitments 39 N ote 1 5 : Acquisitions 39 4 Table of Contents HP INC. AND SUBSIDIARIES Consolidated Condensed Statements of Earnings (Unaudited) Three months ended April 30 Six months ended April 30 2022 2021 2022 2021 In millions, except per share amounts Net revenue $ 16,490 $ 15,877 $ 33,518 $ 31,523 Costs and expenses: Cost of revenue 13,157 12,437 26,800 24,759 Research and development 425 514 843 985 Selling, general and administrative 1,464 1,483 2,932 2,859 Restructuring and other charges 82 39 150 160 Acquisition-related charges 32 10 52 16 Amortization of intangible assets 52 32 104 61 Total costs and expenses 15,212 14,515 30,881 28,840 Earnings from operations 1,278 1,362 2,637 2,683 Interest and other, net ( 39 ) ( 26 ) ( 71 ) ( 51 ) Earnings before taxes 1,239 1,336 2,566 2,632 Provision for taxes ( 239 ) ( 108 ) ( 480 ) ( 336 ) Net earnings $ 1,000 $ 1,228 $ 2,086 $ 2,296 Net earnings per share: Basic $ 0.95 $ 1.00 $ 1.96 $ 1.82 Diluted $ 0.94 $ 0.98 $ 1.94 $ 1.81 Weighted-average shares used to compute net earnings per share: Basic 1,050 1,234 1,066 1,260 Diluted 1,062 1,247 1,078 1,270 The accompanying notes are an integral part of these Consolidated Condensed Financial Statements. 5 Table of Contents HP INC. AND SUBSIDIARIES Consolidated Condensed Statements of Comprehensive Income (Unaudited) Three months ended April 30 Six months ended April 30 2022 2021 2022 2021 In millions Net earnings $ 1,000 $ 1,228 $ 2,086 $ 2,296 Other comprehensive income (loss) before taxes: Change in unrealized components of available-for-sale debt securities: Unrealized (loss) gains arising during the period ( 4 ) — ( 6 ) 4 Change in unrealized components of cash flow hedges: Unrealized gains (losses) arising during the period 603 ( 21 ) 902 ( 387 ) (Gains) losses reclassified into earnings ( 120 ) 149 ( 164 ) 198 483 128 738 ( 189 ) Change in unrealized components of defined benefit plans: Gains arising during the period 1 42 22 41 Amortization of actuarial loss and prior service benefit 5 21 11 42 Curtailments, settlements and other — — — 1 6 63 33 84 Change in cumulative translation adjustment ( 32 ) 3 ( 42 ) 33 Other comprehensive income (loss) before taxes 453 194 723 ( 68 ) Provision for taxes ( 90 ) ( 41 ) ( 116 ) ( 9 ) Other comprehensive income (loss), net of taxes 363 153 607 ( 77 ) Comprehensive income $ 1,363 $ 1,381 $ 2,693 $ 2,219 The accompanying notes are an integral part of these Consolidated Condensed Financial Statements. 6 Table of Contents HP INC. AND SUBSIDIARIES Consolidated Condensed Balance Sheets (Unaudited) As of April 30, 2022 October 31, 2021 In millions, except par value ASSETS Current assets: Cash and cash equivalents $ 4,477 $ 4,299 Accounts receivable, net of allowance for credit losses of $ 118 and $ 111 , respectively 5,405 5,511 Inventory 8,944 7,930 Other current assets 4,689 4,430 Total current assets 23,515 22,170 Property, plant and equipment, net 2,613 2,546 Goodwill 6,801 6,803 Other non-current assets 6,972 7,091 Total assets $ 39,901 $ 38,610 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Notes payable and short-term borrowings $ 694 $ 1,106 Accounts payable 17,004 16,075 Other current liabilities 11,208 11,915 Total current liabilities 28,906 29,096 Long-term debt 8,304 6,386 Other non-current liabilities 4,589 4,778 Stockholders’ deficit: Preferred stock, $ 0.01 par value ( 300 shares authorized; no ne issued) — — Common stock, $ 0.01 par value ( 9,600 shares authorized; 1,033 and 1,092 shares issued and outstanding at April 30, 2022 and October 31, 2021, respectively) 10 11 Additional paid-in capital 1,081 1,060 Accumulated deficit ( 3,336 ) ( 2,461 ) Accumulated other comprehensive income (loss) 347 ( 260 ) Total stockholders’ deficit ( 1,898 ) ( 1,650 ) Total liabilities and stockholders’ deficit $ 39,901 $ 38,610 The accompanying notes are an integral part of these Consolidated Condensed Financial Statements. 7 Table of Contents HP INC. AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Unaudited) Six months ended April 30 2022 2021 In millions Cash flows from operating activities: Net earnings $ 2,086 $ 2,296 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 390 389 Stock-based compensation expense 203 191 Restructuring and other charges 150 160 Deferred taxes on earnings ( 5 ) 50 Other, net 304 101 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 91 335 Inventory ( 1,270 ) ( 1,555 ) Accounts payable 981 515 Net investment in leases ( 41 ) ( 38 ) Taxes on earnings ( 23 ) ( 99 ) Restructuring and other ( 146 ) ( 115 ) Other assets and liabilities ( 555 ) 238 Net cash provided by operating activities 2,165 2,468 Cash flows from investing activities: Investment in property, plant and equipment, net ( 452 ) ( 252 ) Proceeds from sale of property, plant and equipment 1 — Purchases of available-for-sale securities and other investments ( 8 ) ( 13 ) Maturities and sales of available-for-sale securities and other investments 7 274 Collateral posted for derivative instruments 14 ( 154 ) Payment made in connection with business acquisitions, net of cash acquired ( 24 ) ( 170 ) Net cash used in investing activities ( 462 ) ( 315 ) Cash flows from financing activities: Payment of short-term borrowings with original maturities less than 90 days, net ( 400 ) — Proceeds from debt, net of issuance costs 2,060 60 Payment of debt ( 96 ) ( 126 ) Stock-based award activities and others ( 97 ) ( 50 ) Repurchase of common stock ( 2,518 ) ( 2,988 ) Cash dividends paid ( 533 ) ( 489 ) Settlement of cash flow hedges 59 — Net cash used in financing activities ( 1,525 ) ( 3,593 ) Increase (decrease) in cash and cash equivalents 178 ( 1,440 ) Cash and cash equivalents at beginning of period 4,299 4,864 Cash and cash equivalents at end of period $ 4,477 $ 3,424 The accompanying notes are an integral part of these Consolidated Condensed Financial Statements. 8 Table of Contents HP INC. AND SUBSIDIARIES Consolidated Condensed Statements of Stockholders’ Deficit (Unaudited) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Deficit Number of Shares Par Value Accumulated Deficit In millions, except number of shares in thousands Balance January 31, 2021 1,252,532 $ 13 $ 984 $ ( 2,759 ) $ ( 1,473 ) $ ( 3,235 ) Net earnings 1,228 1,228 Other comprehensive income, net of taxes 153 153 Comprehensive income 1,381 Issuance of common stock in connection with employee stock plans and other 717 — Repurchases of common stock (Note 10) ( 51,994 ) ( 1 ) ( 42 ) ( 1,546 ) ( 1,589 ) Cash dividends 7 7 Stock-based compensation expense 76 76 Balance April 30, 2021 1,201,255 $ 12 $ 1,018 $ ( 3,070 ) $ ( 1,320 ) $ ( 3,360 ) Balance January 31, 2022 1,059,900 $ 11 $ 1,046 $ ( 3,369 ) $ ( 16 ) $ ( 2,328 ) Net earnings 1,000 1,000 Other comprehensive income, net of taxes 363 363 Comprehensive income 1,363 Issuance of common stock in connection with employee stock plans and other 608 ( 7 ) ( 7 ) Repurchases of common stock (Note 10) ( 27,116 ) ( 1 ) ( 28 ) ( 970 ) ( 999 ) Cash dividends 3 3 Stock-based compensation expense 70 70 Balance April 30, 2022 1,033,392 $ 10 $ 1,081 $ ( 3,336 ) $ 347 $ ( 1,898 ) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Deficit Number of Shares Par Value Accumulated Deficit In millions, except number of shares in thousands Balance October 31, 2020 1,303,927 $ 13 $ 963 $ ( 1,961 ) $ ( 1,243 ) $ ( 2,228 ) Net earnings 2,296 2,296 Other comprehensive loss, net of taxes ( 77 ) ( 77 ) Comprehensive income 2,219 Issuance of common stock in connection with employee stock plans and other 10,416 ( 48 ) ( 48 ) Repurchases of common stock (Note 10) ( 113,088 ) ( 1 ) ( 88 ) ( 2,915 ) ( 3,004 ) Cash dividends ($ 0.39 per common share) ( 490 ) ( 490 ) Stock-based compensation expense 191 191 Balance April 30, 2021 1,201,255 $ 12 $ 1,018 $ ( 3,070 ) $ ( 1,320 ) $ ( 3,360 ) Balance October 31, 2021 1,092,205 $ 11 $ 1,060 $ ( 2,461 ) $ ( 260 ) $ ( 1,650 ) Net earnings 2,086 2,086 Other comprehensive income, net of taxes 607 607 Comprehensive income 2,693 Issuance of common stock in connection with employee stock plans and other 10,384 ( 113 ) ( 113 ) Repurchases of common stock (Note 10) ( 69,197 ) ( 1 ) ( 69 ) ( 2,428 ) ( 2,498 ) Cash dividends ($ 0.50 per common share) ( 533 ) ( 533 ) Stock-based compensation expense 203 203 Balance April 30, 2022 1,033,392 $ 10 $ 1,081 $ ( 3,336 ) $ 347 $ ( 1,898 ) The accompanying notes are an integral part of these Consolidated Condensed Financial Statements. 9 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Unaudited) Note 1: Basis of Presentation Basis of Presentation The accompanying Consolidated Condensed Financial Statements of HP and its wholly-owned subsidiaries are prepared in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”). The interim financial information is unaudited but reflects all normal adjustments that are necessary to provide a fair statement of results for the interim periods presented. This interim information should be read in conjunction with the Consolidated Financial Statements for the fiscal year ended October 31, 2021 in the Annual Report on Form 10-K, filed on December 9, 2021. The Consolidated Condensed Balance Sheet for October 31, 2021 was derived from audited financial statements. Principles of Consolidation The Consolidated Condensed Financial Statements include the accounts of HP and its subsidiaries and affiliates in which HP has a controlling financial interest or is the primary beneficiary. All intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in HP’s Consolidated Condensed Financial Statements and accompanying notes. Actual results may differ materially from those estimates. As of April 30, 2022, the extent to which the COVID-19 pandemic will impact our business going forward depends on numerous dynamic factors which we cannot reliably predict. As a result, many of our estimates and assumptions required increased judgment and may carry a higher degree of variability and volatility. As the events continue to evolve with respect to the pandemic, our estimates may materially change in future periods. Recently Adopted Accounting Pronouncements In October 2021, the Financial Accounting Standards Board (“FASB”) issued guidance on the recognition and measurement of contract assets and contract liabilities acquired in a business combination. This guidance requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. Under the new guidance, it is generally expected that an acquirer will recognize and measure contract assets and liabilities in a manner consistent with how they were recognized by the acquiree in its preacquisition financial statements. HP is required to adopt the guidance in the first quarter of fiscal year 2024, with early adoption permitted. HP has early adopted the guidance in fiscal year 2022, and the implementation of this guidance did not have a material impact on the Consolidated Condensed Financial Statements. 10 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 2: Segment Information HP is a leading global provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions and services. HP sells to individual consumers, small- and medium-sized businesses (“SMBs”) and large enterprises, including customers in the government, health and education sectors. HP goes to market through its extensive channel network and direct sales. HP’s operations are organized into three reportable segments: Personal Systems, Printing, and Corporate Investments. HP’s organizational structure is based on many factors that the chief operating decision maker (“CODM”) uses to evaluate, view and run the business operations, which include, but are not limited to, customer base and homogeneity of products and technology. The segments are based on this organizational structure and information reviewed by HP’s CODM to evaluate segment results. The CODM uses several metrics to evaluate the performance of the overall business, including earnings from operations, and uses these results to allocate resources to each of the segments. A summary description of each segment is as follows: Personal Systems offers commercial and consumer desktop and notebook personal computers (“PCs”), workstations, thin clients, commercial mobility devices, retail point-of-sale (“POS”) systems, displays and peripherals, software, support and services. HP groups commercial notebooks, commercial desktops, commercial services, commercial mobility devices, commercial detachables and convertibles, workstations, retail POS systems and thin clients into commercial PCs and consumer notebooks, consumer desktops, consumer services and consumer detachables into consumer PCs when describing performance in these markets. Described below are HP’s global business capabilities within Personal Systems: • Commercial PCs are optimized for use by enterprise, public sector which includes education, and SMB customers, with a focus on robust designs, security, serviceability, connectivity, reliability and manageability in the customer’s environment. Additionally, HP offers a range of services and solutions to enterprise, public sector which includes education, and SMB customers to help them manage the lifecycle of their PC and mobility installed base. • Consumer PCs are optimized for consumer usage, focusing on gaming, learning and working remotely, consuming multi-media for entertainment, managing personal life activities, staying connected, sharing information, getting things done for work including creating content and staying informed and secure. Personal Systems groups its global business capabilities into the following business units when reporting business performance: • Notebooks consists of consumer notebooks, commercial notebooks, mobile workstations, peripherals, and commercial mobility devices; • Desktops includes consumer desktops, commercial desktops, thin clients, displays, peripherals, and retail POS systems; • Workstations consists of desktop workstations, displays, and peripherals; and • Other consists of consumer and commercial services as well as other Personal Systems capabilities. Printing provides consumer and commercial printer hardware, supplies, services and solutions. Printing is also focused on imaging solutions in the commercial and industrial markets. Described below are HP’s global business capabilities within Printing. • Office Printing Solutions delivers HP’s office printers, supplies, services and solutions to SMBs and large enterprises. It also includes OEM hardware and solutions, and some Samsung-branded supplies. • Home Printing Solutions delivers innovative printing products, supplies, services and solutions for the home, home business and micro business customers utilizing both HP’s Ink and Laser technologies. It also includes some Samsung-branded supplies. • Graphics Solutions delivers large-format, commercial and industrial solutions and supplies to print service providers and packaging converters through a wide portfolio of printers and presses (HP DesignJet, HP Latex, HP Indigo and HP PageWide Web Presses). • 3D Printing & Digital Manufacturing offers a portfolio of additive manufacturing solutions and supplies to help customers succeed in their additive and digital manufacturing journey. HP offers complete solutions in collaboration with an ecosystem of partners. 11 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 2: Segment Information (Continued) Printing groups its global business capabilities into the following business units when reporting business performance: • Commercial consists of office printing solutions, graphics solutions and 3D printing & digital manufacturing, excluding supplies; • Consumer consists of home printing solutions, excluding supplies; and • Supplies comprises a set of highly innovative consumable products, ranging from ink and laser cartridges to media, graphics supplies and 3D printing & digital manufacturing supplies, for recurring use in consumer and commercial hardware. Corporate Investments includes HP Labs and certain business incubation and investment projects. The accounting policies HP uses to derive segment results are substantially the same as those used by HP in preparing these financial statements. HP derives the results of the business segments directly from its internal management reporting system. HP does not allocate certain operating expenses, which it manages at the corporate level, to its segments. These unallocated amounts include certain corporate governance costs and infrastructure investments, stock-based compensation expense, restructuring and other charges, acquisition-related charges and amortization of intangible assets. 12 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 2: Segment Information (Continued) Segment Operating Results from Operations and the reconciliation to HP consolidated results were as follows: Three months ended April 30 Six months ended April 30 2022 2021 2022 2021 In millions Net revenue: Notebooks $ 7,734 $ 7,489 $ 16,155 $ 14,855 Desktops 2,855 2,225 5,662 4,625 Workstations 494 407 1,028 789 Other 449 434 883 889 Personal Systems 11,532 10,555 23,728 21,158 Supplies 3,131 3,337 6,199 6,483 Commercial 1,042 1,085 2,081 2,042 Consumer 790 901 1,514 1,842 Printing 4,963 5,323 9,794 10,367 Corporate Investments — 1 1 1 Total segment net revenue 16,495 15,879 33,523 31,526 Other ( 5 ) ( 2 ) ( 5 ) ( 3 ) Total net revenue $ 16,490 $ 15,877 $ 33,518 $ 31,523 Earnings before taxes: Personal Systems $ 798 $ 710 $ 1,755 $ 1,468 Printing 958 951 1,837 1,949 Corporate Investments ( 52 ) ( 35 ) ( 126 ) ( 62 ) Total segment earnings from operations 1,704 1,626 3,466 3,355 Corporate and unallocated costs and other ( 190 ) ( 108 ) ( 320 ) ( 244 ) Stock-based compensation expense ( 70 ) ( 75 ) ( 203 ) ( 191 ) Restructuring and other charges ( 82 ) ( 39 ) ( 150 ) ( 160 ) Acquisition-related charges ( 32 ) ( 10 ) ( 52 ) ( 16 ) Amortization of intangible assets ( 52 ) ( 32 ) ( 104 ) ( 61 ) Interest and other, net ( 39 ) ( 26 ) ( 71 ) ( 51 ) Total earnings before taxes $ 1,239 $ 1,336 $ 2,566 $ 2,632 13 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Unaudited) Note 3: Restructuring and Other Charges Summary of Restructuring Plans HP’s restructuring activities for the six months ended April 30, 2022 and 2021 summarized by plan were as follows: Fiscal 2020 Plan Severance and EER Non-labor Other prior-year plan Total In millions Accrued balance as of October 31, 2021 $ 75 $ — $ — $ 75 Charges 85 57 3 145 Cash payments ( 115 ) ( 23 ) ( 3 ) ( 141 ) Non-cash and other adjustments 2 ( 34 ) — ( 32 ) Accrued balance as of April 30, 2022 $ 47 $ — $ — $ 47 Total costs incurred to date as of April 30, 2022 $ 694 $ 105 $ 507 $ 1,306 Reflected in Consolidated Condensed Balance Sheets Other current liabilities $ 47 $ — $ — $ 47 Accrued balance as of October 31, 2020 $ 55 $ — $ 12 $ 67 Charges 136 15 — 151 Cash payments ( 92 ) ( 3 ) ( 10 ) ( 105 ) Non-cash and other adjustments 1 ( 12 ) — ( 11 ) Accrued balance as of April 30, 2021 $ 100 $ — $ 2 $ 102 HP’s restructuring charges for the three months ended April 30, 2022 summarized by the plans outlined below were as follows: Fiscal 2020 Plan Severance and EER Non-labor Total In millions For the three months ended April 30, 2022 $ 32 $ 46 $ 78 Fiscal 2020 Plan On September 30, 2019, HP’s Board of Directors approved the Fiscal 2020 Plan intended to optimize and simplify its operating model and cost structure that HP expects will be implemented through fiscal 2022. HP expects to reduce global headcount by approximately 7,000 to 9,000 employees through a combination of employee exits and voluntary EER. HP estimates that it will incur pre-tax charges of approximately $ 1.0 billion relating to labor and non-labor actions. HP expects to incur approximately $ 0.7 billion primarily in labor costs related to workforce reductions and the remaining costs will relate to non-labor actions and other charges. Other charges Other charges include non-recurring costs, including those as a result of information technology rationalization efforts, and are distinct from ongoing operational costs. These costs primarily relate to third-party professional services and other non-recurring costs. For the three and six months ended April 30, 2022, HP incurred $ 4 million and $ 5 million of other charges, respectively. For the three and six months ended April 30, 2021, HP incurred $ 5 million and $ 9 million of other charges, respectively. 14 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Unaudited) Note 4: Retirement and Post-Retirement Benefit Plans The components of HP’s pension and post-retirement benefit (credit) cost recognized in the Consolidated Condensed Statements of Earnings were as follows: Three months ended April 30 U.S. Defined Benefit Plans Non-U.S. Defined Benefit Plans Post-Retirement Benefit Plans 2022 2021 2022 2021 2022 2021 In millions Service cost $ — $ — $ 14 $ 17 $ — $ 1 Interest cost 40 76 5 4 2 2 Expected return on plan assets ( 75 ) ( 127 ) ( 12 ) ( 12 ) ( 2 ) ( 6 ) Amortization and deferrals: Actuarial loss (gain) 2 15 9 14 ( 4 ) ( 4 ) Prior service cost (credit) — — 1 ( 1 ) ( 3 ) ( 3 ) Total periodic benefit (credit) cost $ ( 33 ) $ ( 36 ) $ 17 $ 22 $ ( 7 ) $ ( 10 ) Six months ended April 30 U.S. Defined Benefit Plans Non-U.S. Defined Benefit Plans Post- Retirement Benefit Plans 2022 2021 2022 2021 2022 2021 In millions Service cost $ — $ — $ 28 $ 34 $ — $ 1 Interest cost 80 152 11 9 4 4 Expected return on plan assets ( 149 ) ( 254 ) ( 25 ) ( 24 ) ( 4 ) ( 12 ) Amortization and deferrals: Actuarial loss (gain) 3 30 19 27 ( 8 ) ( 8 ) Prior service cost (credit) — — 3 ( 1 ) ( 6 ) ( 6 ) Net periodic benefit (credit) cost ( 66 ) ( 72 ) 36 45 ( 14 ) ( 21 ) Settlement loss — 1 — — — — Total periodic benefit (credit) cost $ ( 66 ) $ ( 71 ) $ 36 $ 45 $ ( 14 ) $ ( 21 ) Employer Contributions and Funding Policy HP’s policy is to fund its pension plans so that it makes the minimum contribution required by local government, funding and taxing authorities. During fiscal year 2022, HP anticipates making contributions of approximately $ 44 million to its non-U.S. pension plans, approximately $ 36 million to its U.S. non-qualified plan participants and approximately $ 4 million to cover benefit claims under HP’s post-retirement benefit plans. During the six months ended April 30, 2022, HP contributed $ 19 million to its non-U.S. pension plans, paid $ 15 million to cover benefit payments to U.S. non-qualified plan participants and paid $ 2 million to cover benefit claims under HP’s post-retirement benefit plans. HP’s pension and other post-retirement benefit costs and obligations depend on various assumptions. Differences between expected and actual returns on investments and changes in discount rates and other actuarial assumptions are reflected as unrecognized gains or losses, and such gains or losses are amortized to earnings in future periods. A deterioration in the funded status of a plan could result in a need for additional contributions or an increase in net pension and post-retirement benefit costs in future periods. Actuarial gains or losses are determined at the measurement date and amortized over the remaining service life for active plans or the life expectancy of plan participants for frozen plans. 15 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 4: Retirement and Post-Retirement Benefit Plans (Continued) In fiscal 2021, HP entered into an agreement with The Prudential Insurance Company of America (“Prudential”) to purchase an irrevocable group annuity contract and transferred approximately $ 5.2 billion of the Pension Plan obligations resulting in a decrease in interest cost and expected returns on plan assets for the three and six months ended April 30, 2022. 16 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Unaudited) Note 5: Taxes on Earnings Provision for Taxes HP’s effective tax rate was 19.3 % and 8.1 % for the three months ended April 30, 2022 and 2021, respectively, and 18.7 % and 12.7 % for the six months ended April 30, 2022 and 2021, respectively. The difference between the U.S. federal statutory tax rate of 21% and HP’s 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 HP’s operations in lower-tax jurisdictions throughout the world. The difference between the U.S. federal statutory tax rate of 21% and HP’s effective tax rate for the three and six months ended April 30, 2021 was primarily due to tax effects of internal reorganization and by favorable tax rates associated with certain earnings from HP’s operations in lower-tax jurisdictions throughout the world. During the three and six months ended April 30, 2022, HP 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, HP 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. During the three and six months ended April 30, 2021, HP recorded $ 128 million and $ 129 million, respectively, of net income tax benefits related to discrete items in the provision for taxes. These amounts included tax benefits of $ 89 million related to tax effects of internal reorganization, $ 8 million and $ 36 million related to restructuring charges, $ 23 million and $ 11 million related to audit settlements in various jurisdictions, and $ 12 million and $ 5 million related to other tax benefits for the three and six months ended April 30, 2021, respectively. These benefits were partially offset by $ 4 million and $ 12 million of uncertain tax position charges for the three and six months ended April 30, 2021, respectively. For the six months ended April 30, 2021, excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units were immaterial. Uncertain Tax Positions As of April 30, 2022, the amount of gross unrecognized tax benefits was $ 843 million, of which up to $ 642 million would affect HP’s effective tax rate if realized. Total gross unrecognized tax benefits increased by $ 23 million for the six months ended April 30, 2022. HP recognizes interest income from favorable settlements and interest expense and penalties accrued on unrecognized tax benefits in the provision for taxes in the Consolidated Condensed Statements of Earnings. As of April 30, 2022 and 2021, HP had accrued $ 81 million and $ 66 million, respectively, for interest and penalties. HP engages in continuous discussions and negotiations with taxing authorities regarding tax matters in various jurisdictions. HP expects to complete resolution of certain tax years with various tax authorities within the next 12 months. HP believes it is reasonably possible that its existing gross unrecognized tax benefits may be reduced by $ 80 million within the next 12 months, affecting HP’s effective tax rate if realized. HP is subject to income tax in the United States and approximately 60 other countries and is subject to routine corporate income tax audits in many of these jurisdictions. In addition, HP is subject to numerous ongoing audits by federal, state and foreign tax authorities. The Internal Revenue Service (“IRS”) is conducting an audit of HP’s 2018 and 2019 income tax returns. 17 Table of Contents HP INC. AND SUBSIDIARIES Consolidated Condensed Statements of Earnings (Continued) (Unaudited) Note 6: Supplementary Financial Information Accounts Receivable The allowance for credit losses related to accounts receivable and changes were as follows: Six months ended April 30, 2022 In millions Balance at beginning of period $ 111 Current-period allowance for credit losses 10 Deductions, net of recoveries ( 3 ) Balance at end of period $ 118 HP has third-party arrangements, consisting of revolving short-term financing, which provide liquidity to certain partners to facilitate their working capital requirements. These financing arrangements, which in certain circumstances may contain partial recourse, result in a transfer of HP’s receivables and risk to the third-party. As these transfers qualify as true sales under the applicable accounting guidance, the receivables are de-recognized from the Consolidated Condensed Balance Sheets upon transfer, and HP receives a payment for the receivables from the third-party within a mutually agreed upon time period. For arrangements involving an element of recourse, the recourse obligation is measured using market data from similar transactions and reported as a current liability in the Consolidated Condensed Balance Sheets. The recourse obligations as of April 30, 2022 and October 31, 2021, and the costs associated with the sale of trade receivables for the three and six months ended April 30, 2022 and 2021 were not material. The following is a summary of the activity under these arrangements: Three months ended April 30 Six months ended April 30 2022 2021 2022 2021 In millions Balance at beginning of period (1) $ 121 $ 207 $ 131 $ 188 Trade receivables sold 3,002 2,947 5,969 6,489 Cash receipts ( 2,941 ) ( 2,940 ) ( 5,914 ) ( 6,472 ) Foreign currency and other ( 9 ) ( 2 ) ( 13 ) 7 Balance at end of period (1) $ 173 $ 212 $ 173 $ 212 (1) Amounts outstanding from third parties reported in Accounts receivable in the Consolidated Condensed Balance Sheets. Inventory As of April 30, 2022 October 31, 2021 In millions Finished goods $ 5,324 $ 4,532 Purchased parts and fabricated assemblies 3,620 3,398 $ 8,944 $ 7,930 18 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 6: Supplementary Financial Information (Continued) Other Current Assets As of April 30, 2022 October 31, 2021 In millions Prepaid and other current assets $ 1,839 $ 1,092 Supplier and other receivables 1,761 2,333 Value-added taxes receivable 1,089 1,005 $ 4,689 $ 4,430 Property, Plant and Equipment, net As of April 30, 2022 October 31, 2021 In millions Land, buildings and leasehold improvements $ 2,182 $ 2,166 Machinery and equipment, including equipment held for lease 5,422 5,307 7,604 7,473 Accumulated depreciation ( 4,991 ) ( 4,927 ) $ 2,613 $ 2,546 Other Non-Current Assets As of April 30, 2022 October 31, 2021 In millions Deferred tax assets $ 2,810 $ 2,917 Right-of-use assets from operating leases, net 1,098 1,192 Prepaid pension asset 837 766 Deposits and prepaid 659 734 Intangible assets 651 784 Other 917 698 $ 6,972 $ 7,091 19 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 6: Supplementary Financial Information (Continued) Other Current Liabilities As of April 30, 2022 October 31, 2021 In millions Sales and marketing programs $ 3,223 $ 3,179 Deferred revenue 1,237 1,277 Other accrued taxes 1,214 1,227 Employee compensation and benefit 1,183 1,627 Warranty 649 731 Tax liability 374 296 Operating lease liabilities 353 350 Other 2,975 3,228 $ 11,208 $ 11,915 Other Non-Current Liabilities As of April 30, 2022 October 31, 2021 In millions Deferred revenue $ 1,146 $ 1,099 Pension, post-retirement, and post-employment liabilities 957 1,041 Operating lease liabilities 820 936 Tax liability 728 830 Deferred tax liability 92 57 Other 846 815 $ 4,589 $ 4,778 Interest and other, net Three months ended April 30 Six months ended April 30 2022 2021 2022 2021 In millions Interest expense on borrowings $ ( 74 ) $ ( 64 ) $ ( 136 ) $ ( 128 ) Other, net 35 38 65 77 $ ( 39 ) $ ( 26 ) $ ( 71 ) $ ( 51 ) 20 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 6: Supplementary Financial Information (Continued) Net revenue by region Three months ended April 30 Six months ended April 30 2022 2021 2022 2021 In millions Americas $ 6,903 $ 6,846 $ 13,762 $ 13,740 Europe, Middle East and Africa 6,022 5,766 11,958 11,263 Asia-Pacific and Japan 3,565 3,265 7,798 6,520 Total net revenue $ 16,490 $ 15,877 $ 33,518 $ 31,523 Value of Remaining Performance Obligations As of April 30, 2022, the estimated value of transaction price allocated to remaining performance obligations was $ 3.6 billion. HP expects to recognize approximately $ 1.6 billion of the unearned amount in next 12 months and $ 2.0 billion thereafter. HP has elected the practical expedients and accordingly does not disclose the aggregate amount of the transaction price allocated to remaining performance obligations if: • the contract has an original expected duration of one year or less; or • the revenue from the performance obligation is recognized over time on an as-invoiced basis when the amount corresponds directly with the value to the customer; or • the portion of the transaction price that is variable in nature is allocated entirely to a wholly unsatisfied performance obligation. The remaining performance obligations are subject to change and may be affected by various factors, such as termination of contracts, contract modifications and adjustment for currency. Contract Liabilities As of April 30, 2022 and October 31, 2021, HP’s contract liabilities balances were $ 2.4 billion and $ 2.3 billion, respectively, included in Other current liabilities and Other non-current liabilities in the Consolidated Condensed Balance Sheets. The increase in the contract liabilities balance for the six months ended April 30, 2022, was primarily driven by sales of fixed-price support and maintenance services, partially offset by $ 0.7 billion of revenue recognized that was included in the contract liabilities balance as of October 31, 2021. 21 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 7: Fair Value Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Fair Value Hierarchy HP uses valuation techniques that are based upon observable and unobservable inputs. Observable inputs are developed using market data such as publicly available information and reflect the assumptions market participants would use, while unobservable inputs are developed using the best information available about the assumptions market participants would use. Assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement: Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2—Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs. Level 3—Unobservable inputs for the asset or liability. The fair value hierarchy gives the highest priority to observable inputs and lowest priority to unobservable inputs. The following table presents HP’s assets and liabilities that are measured at fair value on a recurring basis: As of April 30, 2022 As of October 31, 2021 Fair Value Measured Using Fair Value Measured Using Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total In millions Assets: Cash Equivalents: Corporate debt $ — $ 735 $ — $ 735 $ — $ 1,112 $ — $ 1,112 Government debt (1) 2,558 — — 2,558 1,931 — — 1,931 Available-for-Sale Investments: Financial institution instruments — 5 — 5 — 5 — 5 Marketable equity securities and mutual funds 6 48 — 54 15 56 — 71 Derivative Instruments: Interest rate contracts — 3 — 3 — — — — Foreign currency contracts — 1,004 — 1,004 — 277 — 277 Other derivatives — 2 — 2 — 5 — 5 Total assets $ 2,564 $ 1,797 $ — $ 4,361 $ 1,946 $ 1,455 $ — $ 3,401 Liabilities: Derivative Instruments: Interest rate contracts $ — $ 58 $ — $ 58 $ — $ 24 $ — $ 24 Foreign currency contracts — 238 — 238 — 203 — 203 Other derivatives — 9 — 9 — — — — Total liabilities $ — $ 305 $ — $ 305 $ — $ 227 $ — $ 227 (1) Government debt includes instruments such as U.S. treasury notes, U.S. agency securities and non-U.S. government bonds. Money market funds invested in government debt and traded in active markets are included in Level 1. 22 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 7: Fair Value (Continued) Valuation Techniques Cash Equivalents and Investments: HP holds time deposits, money market funds, mutual funds, other debt securities primarily consisting of corporate and foreign government notes and bonds, and common stock and equivalents. HP values cash equivalents and equity investments using quoted market prices, alternative pricing sources, including net asset value, or models utilizing market observable inputs. The fair value of debt investments is based on quoted market prices or model-driven valuations using inputs primarily derived from or corroborated by observable market data, and, in certain instances, valuation models that utilize assumptions which cannot be corroborated with observable market data. Derivative Instruments: HP uses industry standard valuation models to measure fair value. Where applicable, these models project future cash flows and discount the future amounts to present value using market-based observable inputs, including interest rate curves, HP and counterparty credit risk, foreign exchange rates, and forward and spot prices for currencies and interest rates. See Note 8, “Financial Instruments” for a further discussion of HP’s use of derivative instruments. Other Fair Value Disclosures Short- and Long-Term Debt: HP estimates the fair value of its debt primarily using an expected present value technique, which is based on observable market inputs using interest rates currently available to companies of similar credit standing for similar terms and remaining maturities and considering its own credit risk. The portion of HP’s debt that is hedged is reflected in the Consolidated Condensed Balance Sheets as an amount equal to the debt’s carrying amount and a fair value adjustment representing changes in the fair value of the hedged debt obligations arising from movements in benchmark interest rates. The fair value of HP’s short- and long-term debt was $ 8.4 billion as compared to its carrying amount of $ 9.0 billion at April 30, 2022. The fair value of HP’s short- and long-term debt was $ 8.0 billion as compared to its carrying value of $ 7.5 billion at October 31, 2021. If measured at fair value in the Consolidated Condensed Balance Sheets, short- and long-term debt would be classified in Level 2 of the fair value hierarchy. Other Financial Instruments: For the balance of HP’s financial instruments, primarily accounts receivable, accounts payable and financial liabilities included in Other current liabilities on the Consolidated Condensed Balance Sheets, the carrying amounts approximate fair value due to their short maturities. If measured at fair value in the Consolidated Condensed Balance Sheets, these other financial instruments would be classified as Level 2 or Level 3 in the fair value hierarchy. Non-Marketable Equity Investments and Non-Financial Assets: HP’s non-marketable equity investments are measured at cost less impairment, adjusted for observable price changes. HP’s non-financial assets, such as intangible assets, goodwill and property, plant and equipment, are recorded at fair value in the period an impairment charge is recognized. If measured at fair value in the Consolidated Condensed Balance Sheets these would generally be classified within Level 3 of the fair value hierarchy. 23 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 8: Financial Instruments Cash Equivalents and Available-for-Sale Investments As of April 30, 2022 As of October 31, 2021 Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value In millions Cash Equivalents: Corporate debt $ 735 $ — $ — $ 735 $ 1,112 $ — $ — $ 1,112 Government debt 2,558 — — 2,558 1,931 — — 1,931 Total cash equivalents 3,293 — — 3,293 3,043 — — 3,043 Available-for-Sale Investments: Financial institution instruments 5 — — 5 5 — — 5 Marketable equity securities and mutual funds 39 15 — 54 42 29 — 71 Total available-for-sale investments 44 15 — 59 47 29 — 76 Total cash equivalents and available-for-sale investments $ 3,337 $ 15 $ — $ 3,352 $ 3,090 $ 29 $ — $ 3,119 All highly liquid investments with original maturities of three months or less at the date of acquisition are considered cash equivalents. As of April 30, 2022 and October 31, 2021, the carrying amount of cash equivalents approximated fair value due to the short period of time to maturity. The estimated fair value of the available-for-sale investments may not be representative of values that will be realized in the future. Contractual maturities of investments in available-for-sale debt securities were as follows: As of April 30, 2022 Amortized Cost Fair Value In millions Due in one year $ 5 $ 5 Non-marketable equity securities in privately held companies are included in Other non-current assets in the Consolidated Condensed Balance Sheets. These amounted to $ 65 million and $ 59 million as of April 30, 2022 and October 31, 2021, respectively. HP determines credit losses on cash equivalents and available-for-sale debt securities at the individual security level. All instruments are considered investment grade. No credit-related or noncredit-related impairment losses were recorded for the three and six months ended April 30, 2022. Derivative Instruments HP uses derivatives to offset business exposure to foreign currency and interest rate risk on expected future cash flows and on certain existing assets and liabilities. As part of its risk management strategy, HP uses derivative instruments, primarily forward contracts, interest rate swaps, total return swaps, treasury rate locks, forward starting swaps and, at times, option contracts to hedge certain foreign currency, interest rate and, return on certain investment exposures. HP may designate its derivative contracts as fair value hedges or cash flow hedges and classifies the cash flows with the activities that correspond to the underlying hedged items. Additionally, for derivatives not designated as hedging instruments, HP categorizes those economic hedges as other derivatives. HP recognizes all derivative instruments at fair value in the Consolidated Condensed Balance Sheets. As a result of its use of derivative instruments, HP is exposed to the risk that its counterparties will fail to meet their contractual obligations. Master netting agreements mitigate credit exposure to counterparties by permitting HP to net amounts 24 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 8: Financial Instruments (Continued) due from HP to counterparty against amounts due to HP from the same counterparty under certain conditions. To further limit credit risk, HP has collateral security agreements that allow HP’s custodian to hold collateral from, or require HP to post collateral to, counterparties when aggregate derivative fair values exceed contractually established thresholds which are generally based on the credit ratings of HP and its counterparties. If HP’s or the counterparty’s credit rating falls below a specified credit rating, either party has the right to request full collateralization of the derivatives’ net liability position. The fair value of derivatives with credit contingent features in a net liability position was $ 60 million and $ 64 million as of April 30, 2022 and as of October 31, 2021, respectively, all of which were fully collateralized within two business days. Under HP’s derivative contracts, the counterparty can terminate all outstanding trades following a covered change of control event affecting HP that results in the surviving entity being rated below a specified credit rating. This credit contingent provision did not affect HP’s financial position or cash flows as of April 30, 2022 and October 31, 2021. Fair Value Hedges HP enters into fair value hedges, such as interest rate swaps, to reduce the exposure of its debt portfolio to changes in fair value resulting from changes in benchmark interest rates on HP’s future interest payments. For derivative instruments that are designated and qualify as fair value hedges, HP recognizes the change in fair value of the derivative instrument, as well as the offsetting change in the fair value of the hedged item, in Interest and other, net in the Consolidated Condensed Statements of Earnings in the period of change. Cash Flow Hedges HP uses forward contracts, treasury rate locks, forward starting swaps and, at times, option contracts designated as cash flow hedges to protect against the foreign currency exchange and interest rate risks inherent in its forecasted net revenue, cost of revenue, operating expenses and debt issuance. HP’s foreign currency cash flow hedges mature predominantly within twelve months ; however, hedges related to long-term procurement arrangements extend several years. For derivative instruments that are designated and qualify as cash flow hedges, HP initially records changes in fair value of the derivative instrument in Accumulated other comprehensive income (loss) as a separate component of stockholders’ deficit in the Consolidated Condensed Balance Sheets and subsequently reclassifies these amounts into earnings in the period during which the hedged transaction is recognized in earnings. HP reports the changes in the fair value of the derivative instrument in the same financial statement line item as changes in the fair value of the hedged item. In March 2022, a series of forward starting swaps totaling $ 1.5 billion notional amount were settled upon the issuance of the senior unsecured notes resulting in a gain of $ 59 million recognized in accumulated other comprehensive income (loss). The gain will be reclassified to Interest and other, net over a portion of the life of the related debt. In April 2022, HP entered into a series of forward starting swap instruments with notional amount totaling $ 1.5 billion to hedge the exposure to variability in future cash flows resulting from changes in interest rates related to the anticipated issuance of long-term debt. Other Derivatives Other derivatives not designated as hedging instruments consist primarily of forward contracts used to hedge foreign currency-denominated balance sheet exposures. HP also uses total return swaps to hedge its executive deferred compensation plan liability. For derivative instruments not designated as hedging instruments, HP recognizes changes in fair value of the derivative instrument, as well as the offsetting change in the fair value of the hedged item, in Interest and other, net in the Consolidated Condensed Statements of Earnings in the period of change. Hedge Effectiveness For interest rate swaps designated as fair value hedges, HP measures hedge effectiveness by offsetting the change in fair value of the hedged item with the change in fair value of the derivative. For foreign currency options, forward contracts and forward starting swaps designated as cash flow hedges, HP measures hedge effectiveness by comparing the cumulative change in fair value of the hedge contract with the cumulative change in fair value of the hedged item, both of which are based on forward rates. During the three and six months ended April 30, 2022 and 2021, no portion of the hedging instruments’ gain or loss was excluded from the assessment of effectiveness for fair value and cash flow hedges. Fair Value of Derivative Instruments in the Consolidated Condensed Balance Sheets The gross notional and fair value of derivative instruments in the Consolidated Condensed Balance Sheets were as follows: 25 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 8: Financial Instruments (Continued) As of April 30, 2022 As of October 31, 2021 Outstanding Gross Notional Other Current Assets Other Non-Current Assets Other Current Liabilities Other Non-Current Liabilities Outstanding Gross Notional Other Current Assets Other Non-Current Assets Other Current Liabilities Other Non-Current Liabilities In millions Derivatives designated as hedging instruments Fair value hedges: Interest rate contracts $ 750 $ — $ — $ — $ 58 $ 750 $ — $ — $ — $ 16 Cash flow hedges: Foreign currency contracts 17,523 752 217 165 57 17,137 198 69 148 42 Interest rate contracts 1,500 — 3 — — 1,500 — — — 8 Total derivatives designated as hedging instruments 19,773 752 220 165 115 19,387 198 69 148 66 Derivatives not designated as hedging instruments Foreign currency contracts 4,362 35 — 16 — 6,293 10 — 13 — Other derivatives 125 2 — 9 — 103 5 — — — Total derivatives not designated as hedging instruments 4,487 37 — 25 — 6,396 15 — 13 — Total derivatives $ 24,260 $ 789 $ 220 $ 190 $ 115 $ 25,783 $ 213 $ 69 $ 161 $ 66 Offsetting of Derivative Instruments HP recognizes all derivative instruments on a gross basis in the Consolidated Condensed Balance Sheets. HP does not offset the fair value of its derivative instruments against the fair value of cash collateral posted under its collateral security agreements. As of April 30, 2022 and October 31, 2021, information related to the potential effect of HP’s master netting agreements and collateral security agreements was as follows: In the Consolidated Condensed Balance Sheets (i) (ii) (iii) = (i)–(ii) (iv) (v) (vi) = (iii)–(iv)–(v) Gross Amounts Not Offset Gross Amount Recognized Gross Amount Offset Net Amount Presented Derivatives Financial Collateral Net Amount In millions As of April 30, 2022 Derivative assets $ 1,009 $ — $ 1,009 $ 234 $ 654 (1) $ 121 Derivative liabilities $ 305 $ — $ 305 $ 234 $ 86 (2) $ ( 15 ) As of October 31, 2021 Derivative assets $ 282 $ — $ 282 $ 160 $ 65 (1) $ 57 Derivative liabilities $ 227 $ — $ 227 $ 160 $ 64 (2) $ 3 (1) Represents the cash collateral posted by counterparties as of the respective reporting date for HP’s asset position, net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date. 26 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 8: Financial Instruments (Continued) (2) Represents the collateral posted by HP including any re-use of counterparty cash collateral as of the respective reporting date for HP’s liability position, net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date. Effect of Derivative Instruments in the Consolidated Condensed Statements of Earnings The pre-tax effect of derivative instruments and related hedged items in a fair value hedging relationship were as follows: Derivative Instrument Hedged Item Location Year Total amounts of income/(expense) line items in the statement of financial performance in which the effects of fair value hedges are recorded Gain/(loss) recognized in earnings on derivative instruments Gain/(loss) recognized in earnings on hedged item In millions Three months ended April 30 Interest rate contract Fixed-rate debt Interest and other, net 2022 $ ( 39 ) $ ( 31 ) $ 31 2021 $ ( 26 ) $ ( 7 ) $ 7 Six months ended April 30 Interest rate contract Fixed-rate debt Interest and other, net 2022 $ ( 71 ) $ ( 42 ) $ 42 2021 $ ( 51 ) $ ( 10 ) $ 10 27 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 8: Financial Instruments (Continued) The pre-tax effect of derivative instruments in cash flow hedging relationships included in Accumulated other comprehensive income (loss) was as follows: Three months ended April 30 Six months ended April 30 2022 2021 2022 2021 In millions Gain/(loss) recognized in Accumulated other comprehensive income (loss) on derivatives: Foreign currency contracts $ 553 $ ( 21 ) $ 833 $ ( 387 ) Interest rate contracts $ 50 $ — $ 69 $ — The pre-tax effect of derivative instruments in cash flow hedging relationships included in earnings were as follows: Total amounts of income/(expense) line items in the statement of financial performance in which the effects of cash flow hedges are recorded Gain/(loss) reclassified from Accumulated other comprehensive income (loss) into earnings Three months ended April 30 Six months ended April 30 Three months ended April 30 Six months ended April 30 2022 2021 2022 2021 2022 2021 2022 2021 In millions Net revenue $ 16,490 $ 15,877 $ 33,518 $ 31,523 $ 142 $ ( 146 ) $ 199 $ ( 189 ) Cost of revenue ( 13,157 ) ( 12,437 ) ( 26,800 ) ( 24,759 ) ( 21 ) ( 4 ) ( 35 ) ( 10 ) Other operating expenses ( 2,055 ) ( 2,078 ) ( 4,081 ) ( 4,081 ) — 1 1 1 Interest and other, net ( 39 ) ( 26 ) ( 71 ) ( 51 ) ( 1 ) — ( 1 ) — Total $ 120 $ ( 149 ) $ 164 $ ( 198 ) As of April 30, 2022, HP expects to reclassify an estimated accumulated other comprehensive gain of $ 475 million, net of taxes, to earnings within the next twelve months associated with cash flow hedges along with the earnings effects of the related forecasted transactions. The amounts ultimately reclassified into earnings could be different from the amounts previously included in Accumulated other comprehensive income (loss) based on the change of market rate, and therefore could have different impact on earnings. The pre-tax effect of derivative instruments not designated as hedging instruments recognized in Interest and other, net in the Consolidated Condensed Statements of Earnings for the three and six months ended April 30, 2022 and 2021 was as follows: Gain/(loss) recognized in earnings on derivative instrument Three months ended April 30 Six months ended April 30 Location 2022 2021 2022 2021 In millions Foreign currency contracts Interest and other, net $ 32 $ ( 23 ) $ ( 5 ) $ ( 9 ) Other derivatives Interest and other, net ( 1 ) 2 ( 12 ) 5 Total $ 31 $ ( 21 ) $ ( 17 ) $ ( 4 ) 28 Table of Contents HP INC. AND SUBSIDIARIES Consolidated Condensed Statements of Earnings (Continued) (Unaudited) Note 9: Borrowings Notes Payable and Short-Term Borrowings As of April 30, 2022 As of October 31, 2021 Amount Outstanding Weighted-Average Interest Rate Amount Outstanding Weighted-Average Interest Rate In millions Commercial paper $ — — % $ 400 0.2 % Current portion of long-term debt 665 3.9 % 672 3.8 % Notes payable to banks, lines of credit and other 29 3.3 % 34 1.2 % $ 694 $ 1,106 Long-Term Debt As of April 30, 2022 October 31, 2021 In millions U.S. Dollar Global Notes (1) $ 500 issued at discount to par at a price of 99.771 % at 4.05 %, due September 2022 $ 499 $ 499 $ 1,200 issued at discount to par at a price of 99.863 % at 6.00 %, due September 2041 1,199 1,199 $ 1,150 issued at discount to par at a price of 99.769 % at 2.2 %, due June 2025 1,148 1,148 $ 1,000 issued at discount to par at a price of 99.718 % at 3.0 %, due June 2027 997 997 $ 850 issued at discount to par at a price of 99.790 % at 3.4 %, due June 2030 848 848 $ 1,000 issued at discount to par at a price of 99.808 % at 1.45 %, due June 2026 999 999 $ 1,000 issued at discount to par at a price of 99.573 % at 2.65 %, due June 2031 (2) 996 996 $ 1,000 issued at discount to par at a price of 99.767 % at 4.00 %, due April 2029 999 — $ 1,000 issued at discount to par at a price of 99.966 % at 4.20 %, due April 2032 1,000 — 8,685 6,686 Other borrowings at 0.51 %- 9.00 %, due in calendar years 2022-2029 408 439 Fair value adjustment related to hedged debt ( 58 ) ( 16 ) Unamortized debt issuance cost ( 66 ) ( 51 ) Current portion of long-term debt ( 665 ) ( 672 ) Total long-term debt $ 8,304 $ 6,386 (1) HP may redeem some or all of the fixed-rate U.S. Dollar Global Notes at any time in accordance with the terms thereof. The U.S. Dollar Global Notes are senior unsecured debt. (2) HP intends to allocate an amount equal to the net proceeds to finance or refinance, in whole or in part, environmentally and socially responsible eligible projects in the following eight areas: renewable energy; green buildings; energy efficiency; clean transportation; pollution prevention and control; eco-efficient and/or circular economy products, production technologies and processes; environmentally sustainable management of living natural resources and land use; and socioeconomic advancement and empowerment. In March 2022, HP completed its offering of $ 2.0 billion aggregate principal amount of senior unsecured notes, consisting of $ 1.0 billion of 4.00 % notes due April 2029 and $ 1.0 billion of 4.20 % notes due April 2032. HP incurred issuance costs of $ 17 million. HP will pay interest semi-annually on each series of the notes on April 15 and October 15, beginning October 15, 2022. In March 2022, HP terminated a series of forward starting swap agreements with notional amounts totaling $ 1.5 billion that were executed to mitigate the treasury rate volatility associated with this debt issuance. HP intends to use the net proceeds from the offering of the notes for general corporate purposes, which may include, without limitation, repayment and refinancing of debt, funding of acquisition opportunities, working capital, capital expenditures, and share repurchases. As disclosed in Note 8, “Financial Instruments”, HP uses interest rate swaps to mitigate some of the exposure of its debt portfolio to changes in fair value resulting from changes in benchmark interest rates. Interest rates shown in the table of long-term debt have not been adjusted to reflect the impact of any interest rate swaps. 29 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 9: Borrowings (Continued) Commercial Paper As of April 30, 2022, HP maintained two commercial paper programs. HP’s U.S. program provides for the issuance of U.S. dollar-denominated commercial paper up to a maximum aggregate principal amount of $ 6.0 billion. HP’s euro commercial paper program provides for the issuance of commercial paper outside of the United States denominated in U.S. dollars, euros or British pounds up to a maximum aggregate principal amount of $ 6.0 billion or the equivalent in those alternative currencies. The combined aggregate principal amount of commercial paper outstanding under those programs at any one time cannot exceed the $ 6.0 billion authorized by HP’s Board of Directors. Credit Facility As of April 30, 2022, HP maintained a $ 5.0 billion sustainability-linked senior unsecured committed revolving credit facility, which HP entered into on May 26, 2021. Commitments under the revolving credit facility will be available until May 26, 2026. Commitment fees, interest rates and other terms of borrowing under the revolving credit facility vary based on HP’s external credit ratings and certain sustainability metrics. Funds borrowed under the revolving credit facility may be used for general corporate purposes. As of April 30, 2022, HP was in compliance with the covenants in the credit agreement governing the revolving credit facility. Available Borrowing Resources As of April 30, 2022, HP had available borrowing resources of $ 550 million from uncommitted lines of credit in addition to the revolving credit facility. Note 10: Stockholders’ Deficit Share Repurchase Program HP’s share repurchase program authorizes both open market and private repurchase transactions. During the three and six months ended April 30, 2022, HP executed share repurchases of 27 million shares and 69 million shares and settled total shares for $ 1.0 billion and $ 2.5 billion respectively. During the three and six months ended April 30, 2021, HP executed share repurchases of 52 million shares and 113 million and settled total shares for $ 1.6 billion and $ 3.0 billion respectively. Share repurchases executed during the three and six months ended April 30, 2022 and 2021 included 1 million and 2 million shares settled in May 2022 and 2021, respectively. The shares repurchased during the six months ended April 30, 2022 and 2021 were all open market repurchase transactions. As of April 30, 2022, HP had approximately $ 3.9 billion remaining under the share repurchase authorizations approved by HP’s Board of Directors. Tax effects related to Other Comprehensive Income (Loss) 30 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 10: Stockholders' Deficit (Continued) Three months ended April 30 Six months ended April 30 2022 2021 2022 2021 In millions Tax effect on change in unrealized components of available-for-sale debt securities: Tax benefit (provision) on unrealized (losses) gains arising during the period $ 1 $ — $ 1 $ ( 1 ) Tax effect on change in unrealized components of cash flow hedges: Tax (provision) benefit on unrealized gains (losses) arising during the period ( 114 ) ( 7 ) ( 146 ) 40 Tax provision (benefit) on (gains) losses reclassified into earnings 24 ( 17 ) 36 ( 21 ) ( 90 ) ( 24 ) ( 110 ) 19 Tax effect on change in unrealized components of defined benefit plans: Tax provision on gains arising during the period — ( 11 ) ( 6 ) ( 11 ) Tax benefit on amortization of actuarial loss and prior service benefit ( 1 ) ( 5 ) ( 2 ) ( 10 ) Tax provision on curtailments, settlements and other ( 1 ) — ( 1 ) — ( 2 ) ( 16 ) ( 9 ) ( 21 ) Tax effect on change in cumulative translation adjustment 1 ( 1 ) 2 ( 6 ) Tax provision on other comprehensive income $ ( 90 ) $ ( 41 ) $ ( 116 ) $ ( 9 ) Changes and reclassifications related to Other Comprehensive Income (Loss), net of taxes Three months ended April 30 Six months ended April 30 2022 2021 2022 2021 In millions Other comprehensive income (loss), net of taxes: Change in unrealized components of available-for-sale debt securities: Unrealized (losses) gains arising during the period $ ( 3 ) $ — $ ( 5 ) $ 3 Change in unrealized components of cash flow hedges: Unrealized gains (losses) arising during the period 489 ( 28 ) 756 ( 347 ) (Gains) losses reclassified into earnings ( 96 ) 132 ( 128 ) 177 393 104 628 ( 170 ) Change in unrealized components of defined benefit plans: Gains arising during the period 1 31 16 30 Amortization of actuarial loss and prior service benefit (1) 4 16 9 32 Curtailments, settlements and other ( 1 ) — ( 1 ) 1 4 47 24 63 Change in cumulative translation adjustment ( 31 ) 2 ( 40 ) 27 Other comprehensive income (loss), net of taxes $ 363 $ 153 $ 607 $ ( 77 ) (1) These components are included in the computation of net pension and post-retirement benefit (credit) charges in Note 4, “Retirement and Post-Retirement Benefit Plans”. 31 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 10: Stockholders' Deficit (Continued) The components of Accumulated other comprehensive income (loss), net of taxes and changes were as follows: Six months ended April 30, 2022 Net unrealized gains (losses) on available-for-sale debt securities Net unrealized gains (losses) on cash flow hedges Unrealized components of defined benefit plans Change in cumulative translation adjustment Accumulated other comprehensive income (loss) In millions Balance at beginning of period $ 15 $ 19 $ ( 323 ) $ 29 $ ( 260 ) Other comprehensive (loss) gain before reclassifications ( 5 ) 756 16 ( 40 ) 727 Reclassifications of (gain) loss into earnings — ( 128 ) 9 — ( 119 ) Reclassifications of settlements into earnings — — ( 1 ) — ( 1 ) Balance at end of period $ 10 $ 647 $ ( 299 ) $ ( 11 ) $ 347 32 Table of Contents HP INC. AND SUBSIDIARIES Consolidated Condensed Statements of Earnings (Continued) (Unaudited) Note 11: Net Earnings Per Share HP calculates basic net EPS using net earnings and the weighted-average number of shares outstanding during the reporting period. Diluted net EPS includes any dilutive effect of restricted stock units, stock options, performance-based awards and shares purchased under the 2021 employee stock purchase plan. A reconciliation of the number of shares used for basic and diluted net EPS calculations is as follows: Three months ended April 30 Six months ended April 30 2022 2021 2022 2021 In millions, except per share amounts Numerator: Net earnings $ 1,000 $ 1,228 $ 2,086 $ 2,296 Denominator: Weighted-average shares used to compute basic net EPS 1,050 1,234 1,066 1,260 Dilutive effect of employee stock plans 12 13 12 10 Weighted-average shares used to compute diluted net EPS 1,062 1,247 1,078 1,270 Net earnings per share: Basic $ 0.95 $ 1.00 $ 1.96 $ 1.82 Diluted $ 0.94 $ 0.98 $ 1.94 $ 1.81 Anti-dilutive weighted-average stock-based compensation awards (1) 1 — 4 3 (1) HP excludes from the calculation of diluted net EPS stock options and restricted stock units where the assumed proceeds exceed the average market price, because their effect would be anti-dilutive. The assumed proceeds of a stock option include the sum of its exercise price, and average unrecognized compensation cost. The assumed proceeds of a restricted stock unit represent unrecognized compensation cost. Note 12: Litigation and Contingencies HP is involved in lawsuits, claims, investigations and proceedings, including those identified below, consisting of IP, commercial, securities, employment, employee benefits and environmental matters that arise in the ordinary course of business. HP accrues a liability when management believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. HP believes it has recorded adequate provisions for any such matters and, as of April 30, 2022, it was not reasonably possible that a material loss had been incurred in excess of the amounts recognized in HP’s financial statements. HP reviews these matters at least quarterly and adjusts its accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Pursuant to the separation and distribution agreement entered into with Hewlett Packard Enterprise Company (“Hewlett Packard Enterprise”), HP shares responsibility with Hewlett Packard Enterprise for certain matters, as indicated below, and Hewlett Packard Enterprise has agreed to indemnify HP in whole or in part with respect to certain matters. Based on its experience, HP believes that any damage amounts claimed in the specific matters discussed below are not a meaningful indicator of HP’s potential liability. Litigation is inherently unpredictable. However, HP believes it has valid defenses with respect to legal matters pending against it. Nevertheless, cash flows or results of operations could be materially affected in any particular period by the resolution of one or more of these contingencies. Litigation, Proceedings and Investigations Copyright Levies . Proceedings are ongoing or have been concluded involving HP in certain European countries, challenging the imposition or the modification of levies regimes upon IT equipment (such as PCs or printers) or the restrictions to exonerate the application of private copying levies on devices purchased by business users. The levies are generally based upon the number of products sold and the per-product amounts of the levies, which vary. Some European countries are expected to implement legislation to introduce or extend existing levy schemes to digital devices. HP, other companies and various industry associations have opposed the extension of levies to the digital environment and certain requirements for 33 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 12: Litigation and Contingencies (Continued) business sales exemptions, and have advocated alternative models of compensation to rights holders. Based on industry opposition to the extension of levies to digital products, HP’s assessments of the merits of various proceedings and HP’s estimates of the number of units impacted and the amounts of the levies, HP has accrued amounts that it believes are adequate to address the ongoing disputes. Hewlett-Packard Company v. Oracle Corporation . On June 15, 2011, HP filed suit against Oracle Corporation (“Oracle”) in California Superior Court in Santa Clara County in connection with Oracle’s March 2011 announcement that it was discontinuing software support for HP’s Itanium-based line of mission critical servers. HP asserted, among other things, that Oracle’s actions breached the contract that was signed by the parties as part of the settlement of the litigation relating to Oracle’s hiring of Mark Hurd. In the first phase of the bifurcated trial, the court ruled that the contract at issue required Oracle to continue to offer its software products on HP’s Itanium-based servers for as long as HP decided to sell such servers. In the second phase, the jury returned a verdict in favor of HP, awarding HP approximately $ 3.0 billion in damages, which included approximately $ 1.7 billion for past lost profits and $ 1.3 billion for future lost profits. The court entered judgment for HP for this amount with interest accruing until the judgment is paid. Oracle appealed the trial court’s judgment and HP filed a cross appeal challenging the trial court’s denial of prejudgment interest. The Court of Appeals affirmed both the trial court’s judgment and its denial of prejudgment interest to HP. Oracle filed a petition with the California Supreme Court for review, which was denied on September 29, 2021. On October 12, 2021, Oracle paid approximately $ 4.65 billion to satisfy the judgment with interest. During the fourth quarter of fiscal 2021, HP recorded approximately $ 2.3 billion as a gain (Interest and other, net) in relation to the damages awarded, representing HP’s interest in the amount recovered, which was shared equally between HP and Hewlett Packard Enterprise, less $ 47.4 million reimbursed to Hewlett Packard Enterprise for certain costs incurred in the prosecution of the action prior to the Separation. On January 27, 2022, Oracle filed a petition for certiorari asking the United States Supreme Court for review. The petition was denied on May 16, 2022. Oracle has exhausted legal appeals and has no further legal recourse to reverse the judgment. Forsyth, et al. v. HP Inc. and Hewlett Packard Enterprise . This is a purported class and collective action filed on August 18, 2016 in the United States District Court, Northern District of California, against HP and Hewlett Packard Enterprise (“HPE”) alleging the defendants violated federal and state law by terminating older workers and replacing them with younger workers. In their most recent complaint, plaintiffs seek to represent (1) a putative nationwide federal Age Discrimination in Employment Act (ADEA) collective comprised of all former HP Inc. employees 40 years of age and older who had their employment terminated under a WFR plan in or after 2014 or 2015, depending on state law; and (2) a putative Rule 23 class under California law comprised of all former HP Inc. employees 40 years of age and older who had their employment terminated in California under a WFR plan in or after 2012. Excluded from the putative collective and class are employees who (a) signed a Waiver and General Release Agreement at termination, or (b) signed an Agreement to Arbitrate Claims. Similar claims are pending against HPE. Because the court granted plaintiffs’ motion for preliminary certification of the putative nationwide ADEA collectives, a third-party administrator notified eligible former employees of their right to opt into the ADEA collective. This opt-in period closed on February 15, 2022, and the next case management conference is anticipated to set discovery timelines for the remainder of 2022. Plaintiffs seek monetary damages, punitive damages, and other relief. India Directorate of Revenue Intelligence Proceedings . On April 30 and May 10, 2010, the India Directorate of Revenue Intelligence (the “DRI”) issued show cause notices to Hewlett-Packard India Sales Private Limited (“HP India”), a subsidiary of HP, seven HP India employees and one former HP India employee alleging that HP India underpaid customs duties while importing products and spare parts into India and seeking to recover an aggregate of approximately $ 370 million, plus penalties and interest. Prior to the issuance of the notices, HP India deposited approximately $ 16 million with the DRI and agreed to post a provisional bond in exchange for the DRI’s agreement to not seize HP India products and spare parts or interrupt business by HP India. On April 11, 2012, the Bangalore Commissioner of Customs issued an order on the products-related notice affirming certain duties and penalties against HP India and the named individuals of approximately $ 386 million, of which HP India had already deposited $ 9 million. On December 11, 2012, HP India voluntarily deposited an additional $ 10 million in connection with the products-related notice. The differential duty demand is subject to interest. On April 20, 2012, the Commissioner issued an order on the parts-related notice affirming certain duties and penalties against HP India and certain of the named individuals of approximately $ 17 million, of which HP India had already deposited $ 7 million. After the order, HP India deposited an additional $ 3 million in connection with the parts-related notice so as to avoid certain penalties. HP India filed appeals of the Commissioner’s orders before the Customs, Excise and Service Tax Appellate Tribunal (the “Customs Tribunal”) along with applications for waiver of the pre-deposit of remaining demand amounts as a condition for hearing the appeals. The Customs Department has also filed cross-appeals before the Customs Tribunal. On January 24, 2013, 34 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 12: Litigation and Contingencies (Continued) the Customs Tribunal ordered HP India to deposit an additional $ 24 million against the products order, which HP India deposited in March 2013. On February 7, 2014, the Customs Tribunal granted HP India’s application for extension of the stay of deposit until disposal of the appeals. On October 27, 2014, the Customs Tribunal commenced hearings on the cross-appeals of the Commissioner’s orders and rejected HP India’s request to remand the matter to the Commissioner on procedural grounds. The Customs Tribunal cancelled hearings to reconvene in 2015, 2016 and January 2019. On January 20, 2021, the Customs Tribunal held a virtual hearing during which the judge allowed HP’s application for a physical hearing on the merits as soon as practicable, which will be scheduled when physical hearings resume at court. Pursuant to the separation and distribution agreement, Hewlett Packard Enterprise has agreed to indemnify HP in part, based on the extent to which any liability arises from the products and spare parts of Hewlett Packard Enterprise’s businesses. Philips Patent Litigation . In September 2020, Koninklijke Philips N.V. and Philips North America LLC (collectively, “Philips”) filed a complaint against HP for patent infringement in federal court for the District of Delaware and filed a companion complaint with the U.S. International Trade Commission (“ITC”) pursuant to Section 337 of the Tariff Act against HP and 8 other sets of respondents. Both complaints allege that certain digital video-capable devices and components thereof infringe four of Philips’ patents. In October 2020, the ITC instituted an investigation, and Philips later withdrew two of the four patents. On March 23, 2022, the ITC rendered a final determination that no violation of section 337 has occurred. Philips may file an appeal or resume litigation with its case in federal court. In the ITC proceeding, Philips seeks an order enjoining respondents from importing, or selling after importation, the accused products. In the district court case, Philips seeks unspecified damages and an injunction against HP, and the case has been stayed pending resolution of the ITC proceeding. Caltech Patent Litigation . On November 11, 2020, the California Institute of Technology (“Caltech”) filed a complaint against HP for patent infringement in the federal court for the Western District of Texas. On March 19, 2021, Caltech filed an amendment to this same complaint. The complaint as amended alleges infringement of five of Caltech’s patents, U.S. Patent Nos. 7,116,710; 7,421,032; 7,716,552; 7,916,781; and 8,284,833. The accused products are HP commercial and consumer PCs as well as wireless printers that comply with the IEEE 802.11n, 802.11ac, and/or 802.11ax standards. Caltech seeks unspecified damages and other relief. The court stayed the case pending the decision by the U.S. Court of Appeals for the Federal Circuit in The California Inst. of Tech. v. Broadcom Ltd et al. , Case No. 2020-2222, which was issued on February 4, 2022. On March 12, 2022, the parties filed a status report regarding whether the stay should be lifted. In re HP Inc. Securities Litigation (Electrical Workers Pension Fund, Local 103, I.B.E.W. v. HP Inc., et al.) . On February 19, 2020, Electrical Workers Pension Fund, Local 103, I.B.E.W. filed a putative class action complaint against HP, Dion Weisler, Catherine Lesjak, and Steven Fieler in U.S. District Court in the Northern District of California. The court appointed the State of Rhode Island, Office of the General Treasurer, on behalf of the Employees’ Retirement System of Rhode Island and Iron Workers Local 580 Joint Funds as Lead Plaintiffs. Lead Plaintiffs filed an amended complaint, which additionally named as defendants Enrique Lores and Christoph Schell. HP and the named officers filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted. The court granted HP’s motion to dismiss and granted plaintiffs leave to amend the complaint. Plaintiffs’ second amended complaint, which no longer names Christoph Schell as a defendant, alleges, among other things, that from February 23, 2017 to October 3, 2019, HP and the named officers violated Sections 10(b) and 20(a) of the Exchange Act by making false or misleading statements about HP’s printing supplies business. It further alleges that Dion Weisler and Enrique Lores violated Sections 10(b) and 20A of the Exchange Act by allegedly selling shares of HP common stock during this period while in possession of material, non-public adverse information about HP’s printing supplies business. Plaintiffs seek compensatory damages and other relief. HP and the named officers filed a motion to dismiss the second amended complaint for failure to state a claim upon which relief can be granted. On September 15, 2021, the court granted HP’s motion. Plaintiffs are appealing the decision. York County on behalf of the County of York Retirement Fund v. HP Inc., et al., and related proceedings. On November 5, 2020, York County, on behalf of the County of York Retirement Fund, filed a putative class action complaint against HP, Dion Weisler, and Catherine Lesjak in federal court in the Northern District of California. The court appointed Maryland Electrical Industry Pension Fund as Lead Plaintiff. Lead Plaintiff filed a consolidated complaint, which additionally names as defendants Enrique Lores and Richard Bailey. The complaint alleges, among other things, that from November 5, 2015 to June 21, 2016, HP and the named current and former officers violated Sections 10(b) and 20(a) of the Exchange Act by concealing material information and making false statements about HP’s printing supplies business. Plaintiff seeks compensatory damages and other relief. HP and the named officers filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted. On March 3, 2022, the court granted the motion to dismiss with prejudice. Plaintiffs are appealing the decision. On May 17, 2021, stockholder Scott Franklin filed a derivative complaint against certain current and former officers and directors in federal court in the District of Delaware. Plaintiff purports to bring the action on behalf of HP, which he has named 35 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 12: Litigation and Contingencies (Continued) as a nominal defendant, and it makes substantially the same factual allegations as in the York County securities complaint, bringing claims for breach of fiduciary duty and violations of securities laws. The derivative plaintiff seeks compensatory damages, governance reforms, and other relief. By court order following stipulations by the parties, the case was transferred to the Northern District of California, and the case was stayed pending a ruling on the motion to dismiss in York County. On January 13, 2022, stockholder Gerald Lovoi filed a derivative complaint in federal court in the Northern District of California against the same current and former officers and directors named in the Franklin action. The complaint alleges the same basic claims based on the same alleged conduct as the Franklin action and seeks similar relief. By stipulation of the parties, the Lovoi action was stayed pending a ruling on the motion to dismiss in York County . Both derivative actions will remain stayed until any appeal related to the York decision has been exhausted. Legal Proceedings re Authentication of Supplies . Since 2016, HP has from time to time been named in civil litigation, or been the subject of government investigations, involving supplies authentication protocols used in certain HP printers in multiple geographies, including but not limited to the United States, Italy, Israel, and the Netherlands. The supplies authentication protocols are often referred to as Dynamic Security. The core allegations in these proceedings claim misleading or inadequate consumer notifications and permissions pertaining to the use of Dynamic Security, the installation of firmware updates, or the potential inability of cartridges with clone chips or circuitry to work in HP printers with Dynamic Security. Plaintiffs base or have based their claims on various legal theories, including but not limited to unfair competition, computer trespass, and similar statutory claims. Among other relief, Plaintiffs have sought or seek money damages and in certain cases have or may seek injunctive relief against the use or operation of Dynamic Security or relief requiring interoperability. If HP is not successful in its defense of these cases or investigations, it could be subject to damages, penalties, significant settlement demands, or injunctive relief that may be costly or may disrupt operations. Certain of these proceedings in Italy, the Netherlands and Israel have been resolved, have concluded, or have concluded subject only to HP’s pending appeal. Civil litigation filed by Digital Revolution B.V. (trading as 123Inkt) against HP Nederlands B.V., et al. (Netherlands) in March 2020, including its competition claim, remains pending. On December 15, 2021, the Dutch Supreme Court rejected 123Inkt’s competition law claims, its request to prohibit Dynamic Security, and other claims, but held HP liable to 123Inkt where it can show, in separate proceedings, that it suffered damages resulting from the display of certain old error messages. Both parties have appealed. In addition, two putative class actions have been filed against HP in federal court in California, in December 2020 and April 2022, arising out of the use of Dynamic Security firmware updates in HP Laserjet printers and HP Inkjet printers, respectively. Plaintiffs in both cases seek compensatory damages, restitution, injunctive relief against alleged unfair business practices, and other relief. The cases are in their early stages. Autonomy-Related Legal Matters Investigations . As a result of the findings of an internal investigation, HP provided information to government authorities, including the U.S. Department of Justice (“DOJ”) related to accounting improprieties, disclosure failures and misrepresentations at Autonomy that occurred before and in connection with HP’s 2011 acquisition of Autonomy. In November 2016, a federal grand jury indicted Sushovan Hussain, former CFO of Autonomy on charges of conspiracy to commit wire fraud, securities fraud, and multiple counts of wire fraud. The indictment alleged that Mr. Hussain engaged in a scheme to defraud purchasers and sellers of securities of Autonomy and HP about Autonomy’s true financial performance and condition. On April 30, 2018, a jury found Mr. Hussain guilty of all charges against him, and that judgment was affirmed on appeal in August 2020. In November 2018, a federal grand jury indicted Michael Lynch, former CEO of Autonomy, and Stephen Chamberlain, former VP of Finance of Autonomy. The indictment charged Mr. Lynch and Mr. Chamberlain with conspiracy to commit wire fraud and multiple counts of wire fraud. On January 28, 2022, the U.K. Home Office approved U.S. demands to have Mr. Lynch extradited to face the charges. In February 2022, Mr. Lynch sought permission to appeal, and his request is pending. HP is continuing to cooperate with the ongoing enforcement actions. Autonomy Corporation Limited v. Michael Lynch and Sushovan Hussain . On April 17, 2015, four former HP subsidiaries that became subsidiaries of Hewlett Packard Enterprise at the time of the Separation (Autonomy Corporation Limited, Hewlett Packard Vision BV, Autonomy Systems, Limited, and Autonomy, Inc.) initiated civil proceedings in the U.K. High Court of Justice against two members of Autonomy’s former management, Michael Lynch and Sushovan Hussain. The Particulars of Claim seek damages in excess of $ 5 billion from Messrs. Lynch and Hussain for breach of their fiduciary duties by causing Autonomy group companies to engage in improper transactions and accounting practices. On October 1, 2015, Messrs. Lynch and Hussain filed their defenses. Mr. Lynch also filed a counterclaim against Autonomy Corporation Limited seeking $ 160 million in damages, among other things, for alleged misstatements regarding Lynch. Trial was completed in January 2020. On May 17, 2022, the court issued its final judgment, memorializing its findings that HP succeeded in substantially all of its claims 36 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 12: Litigation and Contingencies (Continued) and that Messrs. Lynch and Hussein engaged in fraud, and dismissing Mr. Lynch’s counterclaim. The court deferred its assessment of damages to a later, separate judgment to be issued after further submissions, but it has indicated that damages awarded may be substantially less than is claimed. Litigation is unpredictable, and there can be no assurance that HP will recover damages or as to how any award of damages will compare with the amount claimed. The amount ultimately awarded, if any, would be recorded in the period received. No adjustment has been recorded in the financial statements in relation to this potential award. Pursuant to the terms of the separation and distribution agreement, HP and Hewlett Packard Enterprise will share equally in any recovery. Environmental HP is party to, or otherwise involved in, proceedings brought by U.S. or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), known as “Superfund,” or state laws similar to CERCLA, and may become a party to, or otherwise involved in, proceedings brought by private parties for contribution towards clean-up costs. HP is also conducting environmental investigations or remediations at several current or former operating sites pursuant to administrative orders or consent agreements with state environmental agencies. 37 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 13: Guarantees, Indemnifications and Warranties Guarantees In the ordinary course of business, HP may issue performance guarantees to certain of its clients, customers and other parties pursuant to which HP has guaranteed the performance obligations of third parties. Some of those guarantees may be backed by standby letters of credit or surety bonds. In general, HP would be obligated to perform over the term of the guarantee in the event a specified triggering event occurs as defined by the guarantee. HP believes the likelihood of having to perform under a material guarantee is remote. Cross-Indemnifications with Hewlett Packard Enterprise On November 1, 2015, Hewlett-Packard Company completed the separation of Hewlett Packard Enterprise, Hewlett-Packard Company’s former enterprise technology infrastructure, software, services and financing businesses. The separation and distribution agreement provides for cross-indemnities between HP and Hewlett Packard Enterprise for liabilities allocated to the respective party pursuant to the terms of such agreement. For information on cross-indemnifications with Hewlett Packard Enterprise for litigation matters, see Note 12, “Litigation and Contingencies”. Indemnifications In the ordinary course of business, HP enters into contractual arrangements under which HP may agree to indemnify a third-party to such arrangement from any losses incurred relating to the services they perform on behalf of HP or for losses arising from certain events as defined within the particular contract, which may include, for example, litigation or claims relating to past performance. HP also provides indemnifications to certain vendors and customers against claims of intellectual property infringement made by third parties arising from the vendors’ and customers’ use of HP’s software products and services and certain other matters. Some indemnifications may not be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been immaterial. HP records tax indemnification receivables from various third parties for certain tax liabilities that HP is jointly and severally liable for, but for which it is indemnified by those same third parties under existing legal agreements. HP records a tax indemnification payable to various third parties under these agreements when management believes that it is both probable that a liability has been incurred and the amount can be reasonably estimated. The actual amount that the third parties pay or may be obligated to pay HP could vary depending on the outcome of certain unresolved tax matters, which may not be resolved for several years. Warranties HP accrues the estimated cost of product warranties at the time it recognizes revenue. HP engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers; however, contractual warranty terms, repair costs, product call rates, average cost per call, current period product shipments and ongoing product failure rates, as well as specific product class failures outside of HP’s baseline experience, affect the estimated warranty obligation. HP’s aggregate product warranty liabilities and changes were as follows: Six months ended April 30, 2022 In millions Balance at beginning of period $ 959 Accruals for warranties issued 485 Adjustments related to pre-existing warranties (including changes in estimates) ( 37 ) Settlements made (in cash or in kind) ( 500 ) Balance at end of period $ 907 38 Table of Contents HP INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Continued) (Unaudited) Note 14: Commitments Unconditional Purchase Obligations As of April 30, 2022, HP had unconditional purchase obligations of $ 5.4 billion. These unconditional 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, unconditional purchase obligations were as follows: Fiscal year In millions 2022 (1) $ 1,528 2023 2,313 2024 1,479 2025 74 2026 5 Thereafter 13 Total $ 5,412 (1) Represents expected unconditional purchase obligations for the remaining six months of the fiscal year 2022. Note 15: Acquisitions 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. 39 Table of Contents