What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-09-02 compared with 2022-06-03 · 164 added, 143 removed, 285 unchanged (52% of the section changed)

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• Results of Operations.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For instance, we source the majority of our A4 and a portion of our A3 portfolio of

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Financial Condition and Results of Operations (Continued)

quality or other considerations.

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

laser printer engines and laser toner cartridges from Canon.

Any decision by either party to not renew our agreement with Canon or to limit or reduce the scope of the agreement could adversely affect our net revenue from LaserJet products;

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

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

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

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

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

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

In the third quarter of fiscal 2022, we recognized a charge of $23 million towards severance, cancellation of contract, inventory write-downs and other one-time exit charges related to our decision to wind down our operations in Russia.

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

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

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

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

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

In October 2019, we announced cost-reduction and operational efficiency initiatives intended to simplify the way we work, move closer to our customers and facilitate specific investment in our business.

These were further updated in February 2020.

These efforts included transforming our operating model to integrate our sales force into a single commercial organization and reducing structural costs across the Company through our restructuring plan approved in September 2019 (the “Fiscal 2020 Plan”).

We have invested and expect to invest some of the savings from these efforts across our businesses, including investing to build our digital capabilities.

These initiatives were further updated in February 2020.

These efforts included transforming our operating model to integrate our sales force into a single commercial organization and reducing structural costs across HP through our restructuring plan approved in September 2019 (the “Fiscal 2020 Plan”).

We have invested, and expect to continue to invest, a portion of the savings from these efforts across our businesses, including investing to build our digital capabilities.

Over time, we expect these investments will make us more efficient and allow us to advance our positions in Personal Systems and Printing, while also disrupting new industries where we see attractive medium to long-term growth opportunities.

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

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

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

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

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

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

We continue to optimize our real estate footprint, including 23 real estate actions for the nine months ended July 31, 2022, as we rebuild and modernize our key locations, focusing on collaboration and hybrid work for our employees.

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

As we complete the current Fiscal 2020 plan, we are currently finalizing a new multi-year transformation program that we plan to communicate in the first quarter of fiscal 2023.

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

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We have commenced a phased approach to returning our employees onsite, which included modifications to certain of our facilities as we adapt to a hybrid work environment.

The business impact of the COVID-19 pandemic has created new and different demand dynamics in the market.

The business impact of the COVID-19 pandemic has created new and different demand dynamics in our markets.

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

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

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

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

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

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

However, these trends and consumer behavior have started to change driven by various macroeconomic factors.

For the nine months ended July 31, 2022, we continued to see strong demand in Windows-based Commercial PCs, and mix shifts from low end to premium products.

We saw demand weakness in Consumer PCs and Chromebook.

We further anticipate the overall macroeconomic environment to adversely impact the demand for Commercial PCs in the short-term.

In Printing, we continued to see gradual and uneven recovery in Commercial Print and softening of demand in Consumer Print.

Also, favorable pricing and mix has contributed towards higher average selling prices (“ASPs”) in both Personal Systems and Printing which is offsetting the impact of higher cost.

Industry wide commodity and component constraints, including application specific integrated circuits (“ASICs”) that are unique to our products, manufacturing disruptions in China, and logistics challenges globally, are expected to continue with some improvement, at least in the short-term.

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

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

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

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

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RECENT DEVELOPMENTS

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

On August 29, 2022, we completed the acquisition of 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.

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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.

The financial results of Poly will be included in our Consolidated Financial Statements for the year ended October 31, 2022, from the date of the acquisition.

On September 1, 2022, we consummated our offer (the “Exchange Offer”) to exchange approximately $0.5 billion of outstanding notes issued by Poly (the “Poly Notes”) for new notes issued by us with the same interest rate, interest payment dates, maturity date and redemption terms as the exchanged Poly Notes.

In conjunction with the Exchange Offer, certain proposed amendments that would eliminate substantially all restrictive covenants and certain events of default and other provisions in the indenture governing Poly Notes were adopted, pursuant to a consent solicitation (the “Consent Solicitation”) conducted concurrently with the Exchange Offer.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

Actual results may differ materially from those estimates.

As of July 31, 2022, the impact to our business from the COVID-19 pandemic and changing macroeconomic factors continue to unfold.

Additionally, HP continues to assess and evaluate impacts from the events in Russia, inflationary concerns, as well as certain supply chain disruptions.

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

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

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

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

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

ACCOUNTING PRONOUNCEMENTS

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

Three months ended April 30 Six months ended April 30

Three months ended July 31 Nine months ended July 31

2022 2021 2022 2021

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Amortization of intangible assets 50 0.4 % 42 0.3 % 154 0.3 % 103 0.2 %

Russia exit charges 23 0.2 % — — % 23 — % — — %

Earnings from operations 1,272 8.7 % 1,381 9.0 % 3,909 8.1 % 4,064 8.7 %

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Net earnings $ 1,119 7.6 % $ 1,108 7.2 % $ 3,205 6.7 % $ 3,404 7.3 %

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

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

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

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

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

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

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

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

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

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

For the three months ended July 31, 2022, net revenue decreased 4.1% (decreased 1.9% on a constant currency basis) as compared to the prior-year period.

net revenue decreased 10.4% to $5.2 billion, while net revenue from international operations decreased 0.2% to $9.5 billion.

The decrease in net revenue was primarily driven by reduction in previously estimated sales and marketing program incentives in the prior-year period, decline in Notebooks and Supplies, and foreign currency impacts, partially offset by growth in Desktop and Workstations.

The decrease was driven by unit decline, partially offset by higher ASPs in Personal Systems.

Overall, units were down in both Personal Systems and Printing due to demand softness, particularly in Consumer, driven by the macroeconomic environment and inflationary trends.

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Financial Condition and Results of Operations (Continued)

For the nine months ended July 31, 2022, total net revenue increased 2.9% (increased 3.8% on a constant currency basis) as compared to the prior-year period.

net revenue decreased 3.8% to $16.3 billion, while net revenue from international operations increased 6.7% to $31.9 billion.

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

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

Overall, units were down in both Personal Systems and Printing due to demand softness, particularly in Consumer, driven by the macroeconomic environment and inflationary trends.

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

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

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

For the three months ended July 31, 2022, gross margin decreased by 2.4 percentage points, primarily driven by the reduction in previously estimated sales and marketing program incentives in the prior-year period and foreign currency impacts.

For the nine months ended July 31, 2022, gross margin decreased by 1.7 percentage points, primarily driven by the reduction in previously estimated sales and marketing program incentives in the third quarter of fiscal 2021, higher commodity costs, foreign currency impacts and mix shift towards Personal Systems, partially offset by favorable pricing.

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

Operating Expenses

Research and Development (“R&D”)

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

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

R&D expense decreased 22.9% for the three months ended July 31, 2022, primarily due to lower variable compensation and increased investments in Personal Systems in the prior-year period.

R&D expense decreased 17.2% for the nine months ended July 31, 2022, primarily due to joint R&D partner funding and increased investments in Personal Systems in the prior-year period, and lower variable compensation.

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

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

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

SG&A expense decreased 18.8% and 4.5% for the three and nine months ended July 31, 2022, respectively, primarily due to lower spend on go-to-market initiatives and variable compensation.

Restructuring and Other Charges

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

Restructuring and other charges for the three and nine months ended July 31, 2022 related primarily to the Fiscal 2020 Plan.

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

Amortization of Intangible Assets

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

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

Amortization of intangible assets for the three and nine months ended July 31, 2022 relates primarily to intangible assets resulting from prior acquisitions.

Amortization of intangible assets increased by $8 million and $51 million for the three and nine months ended July 31, 2022, respectively, primarily due to recent acquisitions including HyperX and Teradici.

Russia exit charges

For the three months and nine months ended July 31, 2022, HP recognized a charge of $23 million towards severance, cancellation of contracts, inventory write-downs and other one-time exit charges related to our decision to wind down our operations in Russia.

Interest and Other, Net

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

Interest and other, net expense increased $15 million and $35 million for the three months and nine months ended July 31, 2022, respectively, primarily due to issuance of senior unsecured notes.

Provision for taxes

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

Our effective tax rate was 7.0% for the three months ended July 31, 2022 and 15.0% for the nine months ended July 31, 2022.

The difference between the U.S.

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

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

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

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

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

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

During the three and nine months ended July 31, 2022, we recorded $132 million and $97 million, respectively, of net income tax benefits related to discrete items in the provision for taxes.

These amounts included income tax benefits of $161 million and $144 million related to the filing of tax returns in various jurisdictions for the three and nine months ended July 31,

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Financial Condition and Results of Operations (Continued)

2022, and $3 million and $34 million related to restructuring charges for the three and nine months ended July 31, 2022, respectively.

The three and nine months ended July 31, 2022 also included $87 million of tax benefits related to internal reorganization.

These benefits were partially offset by income tax charges of $109 million and $104 million related to uncertain tax positions and $10 million and $19 million related to audit settlements in various jurisdictions for the three and nine months ended July 31, 2022, respectively.

The nine months ended July 31, 2022 also included tax charges of $55 million related to withholding taxes on undistributed foreign earnings.

In addition to the discrete items mentioned above, we recorded excess tax benefits of $32 million associated with stock options, restricted stock units and performance-adjusted restricted stock units for the nine months ended July 31, 2022.

Segment Information

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Personal Systems

Three months ended April 30 Six months ended April 30

Three months ended July 31 Nine months ended July 31

2022 2021 % Change 2022 2021 % Change

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

Three months ended April 30 Six months ended April 30

Three months ended July 31 Nine months ended July 31

Net Revenue Weighted Net Revenue Change (1)

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

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

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

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

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

Personal Systems net revenue decreased 3.0% (decreased 0.3% on a constant currency basis) for the three months ended July 31, 2022, as compared to the prior-year period.

The decrease was primarily driven by the prior period reduction in previously estimated sales and marketing program incentives.

Unit volume declined 25.0% and ASP’s increased by 29.3%.

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

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

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

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

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

Commercial PCs revenue increased 6.9% primarily driven by higher ASPs and unit growth in Workstations and Desktops, partially offset by unit decline in Notebooks due to lower Chromebooks.

Consumer PCs net revenue decreased 19.7% driven by unit declines in Notebooks and Desktops, partially offset by higher ASPs.

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

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

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

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

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

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

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

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

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

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

Consequently, net revenue decreased 10.3% in Notebooks, increased 13.0% in Desktops and 38.5% in Workstations.

Personal Systems earnings from operations as a percentage of net revenue decreased by 1.5 percentage points, primarily due to a decrease in gross margin, partially offset by a decrease in operating expenses as a percentage of revenue.

The gross margin decreased primarily due to higher costs, foreign currency impacts and a reduction in previously estimated sales and marketing program incentives in the prior-year period, partially offset by favorable pricing.

Operating expenses as a percentage of revenue decreased by 1.7 percentage points primarily driven by lower variable compensation and increased R&D investments in the prior-year period.

Nine months ended July 31, 2022 compared with nine months ended July 31, 2021

Personal Systems net revenue increased 7.1% (increased 8.3% on a constant currency basis) for the nine months ended July 31, 2022, as compared to the prior-year period.

The increase was driven by a 27.2% increase in ASPs, partially offset by 15.8% decrease in unit volume.

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

The decrease in unit volume was primarily driven by a decline in Notebooks due to

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Financial Condition and Results of Operations (Continued)

lower Chromebook sales and softening consumer demand, partially offset by increases in Desktops and Workstations.

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

Commercial PCs revenue increased 17.0% primarily driven by higher ASPs and unit growth in Desktops and Workstations, partially offset by unit decline in Notebooks due to lower Chromebooks.

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Consequently, net revenue increased 2.5% in Notebooks, 19.3% in Desktops and 33.0% in Workstations.

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

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

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

Three months ended April 30 Six months ended April 30

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

The gross margin decrease was primarily due to the reduction in previously estimated sales and marketing program incentives in the third quarter of fiscal 2021, higher costs including commodity costs and foreign currency impacts, partially offset by favorable pricing and mix shifts.

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

Three months ended July 31 Nine months ended July 31

2022 2021 % Change 2022 2021 % Change

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

Three Months Ended April 30 Six months ended April 30

Three months ended July 31 Nine months ended July 31

Net Revenue Weighted Net Revenue Change (1)

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

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

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

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

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

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

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

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

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

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

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

The increase in ASPs was primarily driven by favorable pricing.

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

The increase in gross margin is primarily

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

P rinting net revenue decreased 6.3% (decreased 5.3% on a constant currency basis) for the three months ended July 31, 2022, as compared to the prior-year period.

Net revenue for Supplies decreased 9.0%, primarily due to a significant reduction in consumer demand driven by the challenging environment and continued normalization in Home printing, partially offset by the gradual recovery in Industrial print.

Also, Supplies revenue was impacted by our decision to wind down business operations in Russia.

Printer unit volume decreased 2.8% and ASPs remained flat.

The decrease in printer unit volume was due to component availability and supply chain disruptions which continued to limit unit availability for both Commercial and Consumer.

Net revenue for Commercial decreased by 3.2%, primarily due to a 14.7% decrease in printer unit volume, partially offset by 10.3% increase in ASPs.

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

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Financial Condition and Results of Operations (Continued)

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

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

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

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

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

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

Net revenue for Consumer increased 0.7 % , primarily due to 1.6% increase in ASPs, partially offset by 0.8% decrease in printer unit volume.

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

Printing earnings from operations as a percentage of net revenue increased by 2.3 percentage points, primarily due to lower operating expenses as a percentage of revenue.

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

Nine months ended July 31, 2022 compared with nine months ended July 31, 2021

Printing net revenue decreased 5.8% (decreased 5.5% on a constant currency basis) for the nine months ended July 31, 2022, as compared to the prior-year period.

Net revenue for Supplies decreased 5.9%, primarily due to a significant reduction in consumer demand driven by the challenging environment and continued normalization in Home printing, partially offset by the gradual recovery in Industrial print.

Also, Supplies revenue was impacted by China lockdowns and the decision to wind down business operations in Russia.

Printer unit volume decreased 19.0% and ASPs increased 13.5%.

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

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

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

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

Printing earnings from operations as a percentage of net revenue increased by 0.7 percentage points, for the nine months ended July 31, 2022, primarily due to lower operating expense as a percentage of revenue, partially offset by decrease in gross margin.

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

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

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

Corporate Investments

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

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

LIQUIDITY AND CAPITAL RESOURCES

We use cash generated by operations as our primary source of liquidity.

The impacts from the COVID-19 pandemic were originally expected to be temporary, however, with the emergence of new variants, there remains uncertainty around the extent and duration of the pandemic and how our liquidity and working capital needs may be impacted in the future periods as a result.

We believe that current cash, cash flow from operating activities, new borrowings, available commercial paper authorization and the credit facilities will be sufficient to meet HP’s operating cash requirements, planned capital expenditures, interest and principal payments on all borrowings, pension and post-retirement funding requirements, authorized share repurchases and annual dividend payments for the foreseeable future.

While the impacts of the COVID-19 pandemic were initially expected to be temporary, however, with the emergence of new variants and continued global outbreaks, there remains uncertainty around the extent and duration of the pandemic and how our liquidity and working capital needs may be impacted in future periods as a result.

We believe that current cash, cash flow from operating activities, new borrowings, available commercial paper authorization and the credit facilities will be sufficient to meet our operating cash requirements, planned capital expenditures, interest and principal payments on all borrowings, pension and post-retirement funding requirements, authorized share repurchases and annual dividend payments for the foreseeable future.

Additionally, if suitable acquisition opportunities arise, the Company may obtain all or a portion of the required financing through additional borrowings.

While our access to capital markets may be constrained and our cost of borrowing may increase under certain business, market and economic conditions, our access to a variety of funding sources to meet our liquidity needs is designed to facilitate continued access to capital resources under all such conditions.

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

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

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

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

While our access to the capital markets may be constrained and our cost of borrowing may increase under certain business, market and economic conditions, our access to a variety of funding sources to meet our liquidity needs is designed to facilitate continued access to capital resources under all such conditions.

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

On August 29, 2022, we completed the acquisition of 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 .

We funded the transaction through a combination of cash and new debt.

On September 1, 2022, we consummated our Exchange Offer and Consent Solicitation.

The approximately $0.5 billion in aggregate principal amount of our new notes mature in 2029, and an aggregate amount of $8 million in consent fee was paid in connection therewith.

In addition, under the terms of our new notes, we are obligated to, within 60 days after the consummation of our acquisition of Poly, offer to purchase all or a portion of the new notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.

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

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Amounts held outside of the United States are generally utilized to support non-U.S.

liquidity needs and may from time to time be distributed to the United States.

liquidity needs and may from time to time

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

be distributed to the United States.

The Tax Cuts and Jobs Act (“TCJA”) made significant changes to the U.S.

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

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

April 30, 2022 October 31, 2021

July 31, 2022 October 31, 2021

Cash and cash equivalents $ 5.4 $ 4.3

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Our key cash flow metrics were as follows:

Six months ended April 30

Nine months ended July 31

Net cash provided by operating activities $ 2,559 $ 3,561

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Operating Activities

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

Compared to the corresponding period in fiscal year 2021, net cash provided by operating activities decreased by $1.0 billion for the nine months ended July 31, 2022, primarily driven by the changes in other assets and liabilities including lower employee compensation and benefits accruals, and sales and marketing program liabilities, partially offset by improvements in key working capital metrics noted below.

Key Working Capital Metrics

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

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

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

Days of sales outstanding in accounts receivable (“DSO”) 27 30 (3) 29 32 (3) (2)

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Cash conversion cycle (29) (25) (4) (29) (30) 1 —

April 30, 2022 as compared to April 30, 2021

July 31, 2022 as compared to July 31, 2021

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

Items which may cause the cash conversion cycle in a particular period to differ from historical trends include, but are not limited to, changes in business mix, changes in payment terms and timing, extent of receivables factoring, seasonal trends and the timing of revenue recognition and inventory purchases within the period.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

DSO measures the average number of days our receivables are outstanding.

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

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

The decrease in DSO was primarily due to higher factoring and lower extended payment terms offered, partially offset by a decrease in customers taking advantage of our cash discounts in exchange for paying early.

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

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

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

The increase in DOS was primarily due to higher inventory to mitigate supply chain constraints in Printing, partially offset by inventory reduction in Personal Systems.

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

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

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

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

The decrease in DPO was primarily due to lower purchasing volumes.

Investing Activities

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

Compared to the corresponding period in fiscal year 2021, net cash used in investing activities increased by $0.1 billion for the nine months ended July 31, 2022, primarily due to lower proceeds from sale of investments of $0.3 billion and increase in net investment in property, plant and equipment of $0.2 billion, partially offset by lower collateral posted for derivative instruments of $0.1 billion and lower net payments for acquisitions of $0.6 billion.

Financing Activities

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

Compared to the corresponding period in fiscal year 2021, net cash used in financing activities decreased by $3.6 billion for the nine months ended July 31, 2022, primarily due to our issuance of senior unsecured notes of $2.0 billion, lower payment towards debt of $1.1 billion and lower share repurchases of $0.9 billion, partially offset by payment towards commercial paper of $0.4 billion.

Share Repurchases and Dividends

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

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

During the nine months ended July 31, 2022, HP returned $4.3 billion to the shareholders in the form of share repurchases of $3.5 billion and cash dividends of $0.8 billion.

As of July 31, 2022, HP had approximately $2.9 billion remaining under the share repurchase authorizations approved by HP’s Board of Directors.

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

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

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

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

Outstanding borrowings increased to $11.0 billion as of July 31, 2022 as compared to $7.5 billion as of October 31, 2021, bearing weighted-average interest rates of 3.8% and 3.1% for July 31, 2022 and October 31, 2021, respectively.

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

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

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

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

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

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

Available Borrowing Resources

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

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

As of July 31, 2022, we had available borrowing resources of $539 million from uncommitted lines of credit in addition to the revolving credit facility.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

one or more offerings, $1.0 billion, in the aggregate, of debt securities, common stock, preferred stock, depository shares and warrants.

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

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

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

CONTRACTUAL AND OTHER OBLIGATIONS

Principal and Interest payments on debt

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

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

As a result, our future principal payments on debt increased from $7.6 billion as at October 31, 2021 to $11.1 billion as at July 31, 2022 and future interest payments on debt increased from $2.3 billion as at October 31, 2021 to $3.1 billion as at July 31, 2022.

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

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Unconditional purchase obligations exclude agreements that are cancellable without penalty.

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

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

As of July 31, 2022, the Company had outstanding purchase commitments of $4.3 billion.

The majority of these commitments are due within five years.

For more information, see Note 14, “Commitments,” to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Retirement and Post-Retirement Benefit Plan Contributions

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

As of July 31, 2022, we anticipate making contributions for the remainder of fiscal year 2022 of approximately $19 million to our non-U.S.

pension plans, $13 million to cover benefit payments to U.S.

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Uncertain Tax Positions

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

As of July 31, 2022, we had approximately $615 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

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

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Off-balance sheet arrangements

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

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

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

For more information on our third-party short-term financing arrangements, see Note 6, “Supplementary Financial Information,” to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Quantitative and Qualitative Disclosures About Market Risk.

For quantitative and qualitative disclosures about market risk affecting HP, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

Our exposure to market risk has not changed materially since October 31, 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis