What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-31 compared with 2023-03-01 · 166 added, 117 removed, 225 unchanged (56% of the section changed)

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• Results of Operations.

An analysis of our operations financial results comparing the three months ended January 31, 2023 to the prior-year period.

An analysis of our financial results comparing the three and six months ended April 30, 2023 to the prior-year period.

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

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Corporate Investments include certain business incubation and investment projects.

• In Personal Systems, our strategic focus is on:

• In Personal Systems, our long-term strategic focus is on:

◦ profitable growth through innovation, market segmentation and simplification of our portfolio

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

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

• In Printing, our strategic focus is on:

We believe that we are well positioned due to our competitive product lineup along with our recent acquisitions enhancing our portfolio of hybrid systems and remote-computing solutions.

• In Printing, our long-term strategic focus is on:

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

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We are committed to growing our hybrid systems, gaming, workforce services and solutions, consumer subscriptions, 3D and industrial graphics businesses at a rate faster than our core business with accretive margins in the longer term.

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

We believe our ability to innovate will help us gain momentum in growth areas like hybrid systems and gaming, and we see significant opportunities to drive greater recurring revenues across Personal Systems and Printing.

Our acquisition of Poly adds to our growth portfolio by bringing industry-leading video conferencing solutions, cameras, headsets, voice and software capabilities.

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• In Personal Systems, we face challenges with decline in Personal Systems market due to demand softness and competitive pricing environment.

• In Printing, we face challenges from non-original supplies (which includes imitation, refill, or remanufactured alternatives) and competitors with a favorable foreign currency environment.

We also obtain many Printing

AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

components from single source due to technology, availability, price, quality, or other considerations.

• In Printing, we face challenges from non-original supplies (which includes imitation, refill, or remanufactured alternatives) and competitors with a favorable foreign currency environment.

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 laser printer engines and laser toner cartridges from Canon.

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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, efficiencies and simplification of our product portfolio.

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.

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 strategy, and developing and capitalizing on market opportunities.

Macroeconomic Environment

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We face global macroeconomic challenges, particularly in light of the effects of the ongoing geopolitical conflicts in Ukraine, tensions across the Taiwan Strait, tariff-driven headwinds, uncertainty in the markets, volatility in exchange rates, inflationary trends and evolving dynamics in the global trade environment.

During the first quarter of fiscal 2023, we observed significant market uncertainty, budget tightening by large enterprise for information technology hardware, lower consumer spending, inflationary pressures and a weakening U.S.

During the first half of fiscal 2023, we observed significant market uncertainty, budget tightening by large enterprise for information technology hardware, lower consumer spending, inflationary pressures and a weakening U.S.

These market dynamics, which we expect will continue in the short-term, have created new and different demand dynamics and have had significant impacts on our financial results.

In the first quarter of fiscal 2023, we continued to experience overall demand weakness and elevated industry wide reseller inventory, particularly in Personal Systems due to a challenging macroeconomic environment.

In the first half of fiscal 2023, we continued to experience overall demand weakness and elevated industry wide reseller inventory, particularly in Personal Systems due to a challenging macroeconomic environment.

This decline in revenue of Personal Systems is in line with market trends and we expect this to continue in the short-term.

In Printing, we continued to see gradual and uneven recovery in Commercial and Consumer Printing, driven by the slow return of workers to the office.

In Printing, we continued to see gradual and uneven recovery in Commercial Printing, driven by the slow return of workers to the office.

We continued to experience a competitive pricing environment, which we expect to continue in the short-term, due to the macroeconomic environment across Personal Systems and Printing.

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As a result, our financial results can be, and particularly in recent periods have been, impacted by fluctuations in foreign currency exchange rates.

We expect foreign currency fluctuations to continue to negatively impact our financial results in the fiscal 2023.

We expect foreign currency fluctuations to continue to negatively impact our financial results in fiscal 2023.

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 in February 2022.

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Historical seasonal patterns may not continue in the future and have been impacted by supply constraints, shifts in customer behavior, continuing impacts of the macroeconomic challenges and different demand dynamics.

For a further discussion of trends, uncertainties and other factors that could impact our operating results, see the section entitled “Risk Factors” in Item 1A of Part I in this Annual Report on Form 10-K.

For a further discussion of trends, uncertainties and other factors that could impact our operating results, see the section entitled “Risk Factors” in Item 1A of Part I in our Annual Report on Form 10-K.

Transformation Update

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The three key elements of our Fiscal 2023 plan are digital transformation, portfolio optimization, and operational efficiency.

We expect to invest some of the savings from these efforts across our businesses to be more efficient and advance our positions in Personal Systems and Printing, while also disrupting new industries where we see attractive growth opportunities.

We also plan to use some of these savings to partially offset headwinds we expect to continue to see across our businesses in fiscal 2023 as a result of macroeconomic factors.

We expect to invest some of the savings from these efforts across our businesses to be more efficient and advance our positions in Personal Systems and Printing, while also disrupting

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Financial Condition and Results of Operations (Continued)

new industries where we see attractive growth opportunities.

We also plan to use some of these savings to partially offset headwinds we expect to continue to see across our businesses in fiscal 2023 as a result of macroeconomic factors.

We are on-track to achieve our targeted gross annual run-rate structural cost savings by the end of fiscal 2023.

During the first quarter of fiscal 2023, we continued to digitize our customer support engagement using artificial intelligence (AI) based interactive voice response technology to deliver a more seamless and connected experience.

We took actions, including headcount reductions, to optimize our cost in supply chain for core Printing, and also announced a voluntary enhanced early retirement program in the United States offering employees the opportunity to early retire.

We continue to leverage artificial intelligence (“AI”) to positively impact both our products and solutions.

During the first half of fiscal 2023, we enhanced our digital capabilities in Workforce Solution and Services.

Additionally, we are reducing portfolio complexity, improving continuity of supply, and increasing our forecast accuracy.

We continued to reduce our structural cost primarily within our operating expenses through headcount reductions and executed a significant portion of the early retirement program in second quarter of fiscal 2023 and are on track to achieve our overall headcount reduction goal.

For more information on our Fiscal 2023 Plan, see Note 3, “Restructuring and Other Charges,” and Note 4, “Retirement and Post-Retirement Benefit Plans,” 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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The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent liabilities.

As of January 31, 2023, the impact of current macroeconomic factors on our business continued to unfold.

As of April 30, 2023, the impact of current macroeconomic factors on our business continued to unfold.

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

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

Management believes that there have been no significant changes during the three months ended January 31, 2023 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, 2022, except as mentioned in Note 1, “Basis of Presentation”.

Management believes that there have been no significant changes during the six months ended April 30, 2023 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, 2022, except as mentioned in Note 1, “Basis of Presentation”.

ACCOUNTING PRONOUNCEMENTS

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

Three months ended January 31

Dollars % of Net Revenue Dollars % of Net Revenue

Three months ended April 30 Six months ended April 30

2023 2022 2023 2022

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

Dollars in millions

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Earnings before taxes 602 4.7 % 1,239 7.5 % 1,186 4.4 % 2,566 7.7 %

Provision for taxes (97) (0.7) % (241) (1.4) %

Benefit from (provision for) taxes 464 3.6 % (239) (1.4) % 367 1.4 % (480) (1.5) %

Net earnings $ 1,066 8.3 % $ 1,000 6.1 % $ 1,553 5.8 % $ 2,086 6.2 %

Three months ended January 31, 2023 compared with three months ended January 31, 2022

Net revenue decreased 18.8% (decreased 14.7% on a constant currency basis).

For the three months ended April 30, 2023, net revenue decreased 21.7% (decreased 18.0% on a constant currency basis) as compared to the prior-year period.

net revenue decreased 20.9% to $4.4 billion, and net revenue from international operations decreased 22.1% to $8.5 billion.

The decrease in net revenue was primarily driven by demand softness across Personal Systems and Supplies as well as foreign currency impacts, partially offset by an increase in Commercial Printing.

The decrease in net revenue was primarily driven by demand softness across Personal Systems, Consumer Printing and Supplies as well as foreign currency impacts, partially offset by an increase in Commercial Printing.

For the six months ended April 30, 2023, total net revenue decreased 20.2% (decreased 16.4% on a constant currency basis) as compared to the prior-year period.

net revenue decreased 18.5% to $9.0 billion, and net revenue from international operations decreased 21.1% to $17.7 billion.

The decrease in net revenue was primarily driven by demand softness across Personal Systems, Supplies and Consumer Printing as well as foreign currency impacts, partially offset by an increase in Commercial Printing.

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

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Financial Condition and Results of Operations (Continued)

Gross margin increased by 0.4 percentage points, primarily driven by lower commodity cost, mix shift towards Printing, partially offset by foreign currency impacts and competitive pricing in Personal Systems.

For the three and six months ended April 30, 2023, gross margin increased by 2.5 and 1.5 percentage points, respectively, primarily driven by mix shift towards Printing, and lower commodity cost in Personal Systems and, partially offset by foreign currency impacts and competitive pricing particularly in Printing Consumer hardware.

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

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Research and Development (“R&D”)

R&D expense decreased 3.6%, primarily due to lower variable compensation partially offset by the Poly acquisition and joint R&D partner funding received in the prior-year period.

R&D expense decreased 3.5% for the three months ended April 30, 2023, primarily due to disciplined cost management, higher R&D partner funding and lower variable compensation partially offset by the Poly acquisition.

R&D expense decreased 3.6% for the six months ended April 30, 2023, primarily due to lower variable compensation, disciplined cost management, partially offset by the Poly acquisition and higher R&D partner funding received in the prior-year period.

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

SG&A expense decreased 9.3%, primarily due to lower variable compensation partially offset by the Poly acquisition.

SG&A expense decreased 4.5% and 6.9% for the three months and six months ended April 30, 2023 respectively, primarily due to disciplined cost management including Future Ready transformation savings, lower variable compensation and higher charitable contributions in the prior-year period, partially offset by the Poly acquisition.

Restructuring and Other Charges

Restructuring and other charges relate primarily to the Fiscal 2023 Plan.

Restructuring and other charges for the three and six months ended April 30, 2023 relate primarily to the Fiscal 2023 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.

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Acquisition and divestiture charges primarily include direct third-party professional and legal fees, integration and divestiture-related costs, non-cash adjustments to the fair value of certain acquired assets, such as inventory, and certain compensation charges related to cash settlement of restricted stock units and performance-based restricted stock units from acquisitions.

Acquisition and divestiture charges increased by $64 million, primarily due to the Poly acquisition.

Acquisition and divestiture charges for the three and six months ended April 30, 2023 increased by $41 million and $105 million, respectively, primarily due to the Poly acquisition.

Amortization of Intangible Assets

Amortization of intangible assets relates primarily to intangible assets resulting from acquisitions.

Amortization of intangible assets increased by $33 million, primarily due to the Poly acquisition.

Amortization of intangible assets for the three and six months ended April 30, 2023 relates primarily to intangible assets resulting from prior acquisitions.

Amortization of intangible assets increased by $34 million and $67 million for the three and six months ended April 30, 2023, respectively, primarily due to the Poly acquisition.

Interest and Other, Net

Interest and other, net expense increased $149 million, primarily due to higher interest expense on debt.

Interest and other, net expense increased $121 million and $270 million for the three months and six months ended April 30, 2023, respectively, primarily due to higher interest expense on debt and factoring costs.

Provision for taxes

Our effective tax rate was 16.6% and 18.2% for the three months ended January 31, 2023 and 2022, respectively.

Our effective tax rate was (77.1)% for the three months ended April 30, 2023 and (30.9)% for the six months ended April 30, 2023.

The difference between the U.S.

federal statutory tax rate of 21% and our effective tax rate for the three months ended January 31, 2023 and 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 months ended January 31, 2023, we recorded $56 million of net income tax benefits related to discrete items in the provision for taxes.

These amounts included $30 million of income tax benefits related to restructuring charges, $14 million related to acquisition charges and $12 million of other net tax benefits.

During the three months ended January 31, 2023, discrete items in the provision for taxes and excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units were immaterial.

federal statutory tax rate of 21% and our effective tax rate for the three and six months ended April 30, 2023, was primarily due to tax effects of internal reorganization.

During the three and six months ended April 30, 2023, we recorded $636 million and $692 million, respectively, of net income tax benefits related to discrete items in the provision for taxes.

These amounts included income tax benefits of $691 million and $697 million related to one-time tax effects of internal reorganization, $36 million and $66 million related to restructuring charges, and $13 million and $27 million related to acquisition and divestiture charges for the three and six months ended April 30, 2023, respectively.

The six months ended April 30, 2023 also included $11 million of other net tax benefits.

These benefits were partially offset by income tax charges of $62 million and $58 million related to audit settlements in various jurisdictions, $34 million and $36 million related to the filing of tax returns in various jurisdictions, and $8 million and $15 million of uncertain tax position charges for the three and six months ended April 30, 2023, respectively.

During the three and six months ended April 30, 2023, discrete items in the provision for taxes and excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units were immaterial.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Segment Information

During the first quarter of fiscal 2023, the Company realigned the Personal Systems business units reporting structure.

This realignment had no impact to the reportable segments identified by the Company.

A description of the products and services for each segment can be found in Note 2, “Segment Information” 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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Personal Systems

Three months ended January 31

2023 2022 % Change

Three months ended April 30 Six months ended April 30

2023 2022 % Change 2023 2022 % Change

Dollars in millions

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

Three months ended January 31

Three months ended April 30 Six months ended April 30

Net Revenue Weighted Net Revenue Change (1)

Dollars in millions Percentage Points

Net Revenue Weighted Net Revenue Change (1)

2023 2022 2023 2022

Dollars in millions Percentage Points Dollars in millions Percentage Points

Commercial PS $ 5,922 $ 7,817 (16.4) $ 12,351 $ 15,674 (14.0)

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

Three months ended January 31, 2023 compared with three months ended January 31, 2022

Personal Systems net revenue decreased 24.4% (decreased 19.7% on a constant currency basis) for the three months ended January 31, 2023.

The net revenue decrease was primarily due to 27.9% decrease in commercial and consumer client PCs unit volume due to demand softness, partially offset by increase in revenue driven by the Poly acquisition.

The average selling price (“ASPs”) remained flat, primarily due to foreign currency impacts, offset by mix shifts.

Commercial PS net revenue decreased 18.2% primarily driven by unit decline due to demand softness, and foreign currency impacts, partially offset by increase in hybrid systems revenue driven by the Poly acquisition.

Three months ended April 30, 2023 compared with three months ended April 30, 2022

Personal Systems net revenue decreased 29.1% (decreased 24.8% on a constant currency basis) for the three months ended April 30, 2023.

The net revenue decrease was primarily due to a 27.6% decrease in commercial and consumer client PCs unit volume and decline in average selling price (“ASPs”) by 5.8%, partially offset by an increase in revenue driven by the Poly acquisition.

The decline in unit volume is due to demand softness and elevated industry-wide reseller inventory.

The decline in ASPs is primarily due to foreign currency impacts and competitive pricing partially offset by mix shift towards Commercial.

Commercial PS net revenue decreased 24.2% primarily driven by unit decline due to demand softness and lower ASPs, partially offset by an increase in hybrid systems revenue driven by the Poly acquisition.

The lower ASPs were driven by unfavorable mix shift and foreign currency impacts.

Consumer PS net revenue decreased 39.3% driven by unit decline due to demand softness and lower ASPs.

The lower ASPs were driven by foreign currency impacts and competitive pricing, partially offset by mix shifts.

The lower ASPs were driven by foreign currency impacts and competitive pricing largely due to elevated industry-wide reseller inventory, partially offset by favorable mix shifts.

Personal Systems earnings from operations as a percentage of net revenue decreased by 1.5 percentage points.

The decrease was driven by a decline in gross margin and an increase in operating expenses as a percentage of revenue.

The gross margin decreased primarily due to foreign currency impacts and competitive pricing, partially offset by lower commodity costs.

Operating expenses as a percentage of revenue increased primarily driven by joint R&D partner funding received in the prior-year period and acquisition of Poly, partially offset by lower variable compensation.

Three months ended January 31

2023 2022 % Change

The decrease was driven by an increase in operating expenses as a percentage of revenue, partially offset by an increase in gross margin.

Gross margin increased primarily due to lower commodity cost and favorable mix shift, partially offset by foreign currency impacts and competitive pricing.

Operating expenses as a percentage of revenue increased primarily driven by the acquisition of Poly, partially offset by disciplined cost management including Future Ready transformation savings and higher R&D partner funding.

Six months ended April 30, 2023 compared with six months ended April 30, 2022

Personal Systems net revenue decreased 26.7% (decreased 22.2% on a constant currency basis) for the six months ended April 30, 2023.

The net revenue decrease was primarily due to a 27.8% decrease in commercial and consumer client PCs unit volume and a decline in ASPs by 2.7%, partially offset by an increase in revenue driven by the Poly acquisition.

The decline in unit volume is due to demand softness and elevated industry-wide reseller inventory.

The decline in ASPs is primarily due to foreign currency impacts and competitive pricing partially offset by mix shift towards Commercial.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Commercial PS net revenue decreased 21.2% primarily driven by unit decline due to demand softness, and lower ASPs, partially offset by an increase in hybrid systems revenue driven by the Poly acquisition.

The lower ASPs were driven by foreign currency impacts and unfavorable mix shift.

Consumer PS net revenue decreased 37.4% driven by unit decline due to demand softness and lower ASPs.

The lower ASPs were driven by foreign currency impacts and competitive pricing largely due to elevated industry-wide reseller inventory, partially offset by favorable mix shifts.

Personal Systems earnings from operations as a percentage of net revenue decreased by 2.0 percentage points.

The decrease was driven by an increase in operating expenses as a percentage of revenue, partially offset by an increase in gross margin.

Gross margin increased primarily due to lower commodity cost and favorable mix shift, partially offset by foreign currency impacts and competitive pricing.

Operating expenses as a percentage of revenue increased primarily driven by the acquisition of Poly and R&D partner funding received in the prior-year period, partially offset by disciplined cost management including Future Ready transformation savings and lower variable compensation.

Three months ended April 30 Six months ended April 30

2023 2022 % Change 2023 2022 % Change

Dollars in millions

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Earnings from operations as a % of net revenue 19.0 % 19.1 % 18.9 % 18.6 %

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

Three Months Ended January 31

Three Months Ended April 30 Six months ended April 30

Net Revenue Weighted Net Revenue Change (1)

Dollars in millions Percentage Points

Net Revenue Weighted Net Revenue Change (1)

2023 2022 2023 2022

Dollars in millions Percentage Points Dollars in millions Percentage Points

Supplies $ 3,006 $ 3,131 (2.5) $ 5,863 $ 6,199 (3.4)

Commercial Printing 1,056 1,039 0.4 %

Consumer Printing 699 724 (0.5) %

Commercial 1,089 1,042 0.9 2,145 2,081 0.6

Consumer 641 790 (3.0) 1,340 1,514 (1.8)

Total Printing $ 4,736 $ 4,963 (4.6) $ 9,348 $ 9,794 (4.6)

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

Three months ended January 31, 2023 compared with three months ended January 31, 2022

Printing net revenue decreased 4.5% (decreased 2.2% on a constant currency basis) for the three months ended January 31, 2023.

The decrease in net revenue was driven by Supplies and foreign currency impacts, partially offset by Commercial Printing .

Net revenue f or Supplies decreased 6.9%, primarily due to softening demand driven by market trends.

Print hardware ASPs decreased 1.0% and unit volume increased 1.7%.

Three months ended April 30, 2023 compared with three months ended April 30, 2022

Printing net revenue decreased 4.6% (decreased 2.4% on a constant currency basis) for the three months ended April 30, 2023 .

The decrease in net revenue was driven by Consumer Printing and Supplies as well as foreign currency impacts, partially offset by Commercial Printing .

Net revenue for Supplies decreased 4.0%, primarily due to decline in the installed base and usage.

Print hardware ASPs decreased 2.1% and unit volume decreased 4.0%.

Print hardware ASPs decreased primarily due to foreign currency impacts, partially offset by mix shift.

The decrease in print unit volume was primarily driven by Consumer Printing.

Net revenue for Commercial Printing increased by 4.5%, primarily due to a 9.4% increase in ASPs.

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

Net revenue for Consumer Printing decreased 18.9 % , primarily due to a 15.2% decrease in ASPs and 4.6% decrease in print unit volume.

The decrease in ASPs was primarily driven by competitive pricing and foreign currency impacts, partially offset by mix shift.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Printing earnings from operations as a percentage of net revenue decreased by 0.1 percentage points, primarily due to a decline in gross margin, partially offset by lower operating expenses as a percentage of revenue.

The decrease in gross margin is primarily due to pricing pressure, commodity cost and foreign currency impacts.

Operating expenses as a percentage of revenue decreased primarily due to lower variable compensation and disciplined cost management including Future Ready transformation savings.

Six months ended April 30, 2023 compared with six months ended April 30, 2022

Printing net revenue decreased 4.6% (decreased 2.3% on a constant currency basis) for the six months ended April 30, 2023 .

The decrease in net revenue was driven by Supplies, Consumer Printing as well as foreign currency impacts, partially offset by Commercial Printing .

Net revenue f or Supplies decreased 5.4%, primarily due to decline in the installed base and usage.

Print unit volume decreased 1.2% and hardware ASPs decreased 1.5%.

The decrease in print unit volume was primarily driven by Commercial Printing.

Print hardware ASPs decreased primarily due to foreign currency impacts and mix shifts, partially offset by disciplined pricing in Commercial Printing.

The increase in printer unit volume was primarily driven by unit increase in Consumer Printing partially offset by unit decrease in Commercial Printing.

Net revenue for Commercial Printing increased by 1.6%, primarily due to 13.5% increase in ASPs, partially offset by 7.5% decrease in printer unit volume.

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

Net revenue for Consumer Printing decreased 3.5 % , primarily due to 6.4% decrease in ASPs, partially offset by 3.4% increase in printer unit volume.

The decrease in ASPs was primarily driven by foreign currency impacts and competitive pricing.

Net revenue for Commercial Printing increased by 3.1%, primarily due to 11.7% increase in ASPs, partially offset by 4.0% decrease in print unit volume.

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

Net revenue for Consumer Printing decreased 11.5 % , primarily due to 10.8% decrease in ASPs and 0.8% decrease in print unit volume.

The decrease in ASPs was primarily driven by competitive pricing and foreign currency impacts, partially offset by mix shift.

Printing earnings from operations as a percentage of net revenue increased by 0.3 percentage points.

The increase was driven by a lower operating expenses as a percentage of revenue, partially offset by a decline in gross margin.

Operating expenses as a percentage of revenue decreased primarily due to lower variable compensation, R&D spend in innovation, and go-to-market initiative expenses.

The decline in gross margin is primarily driven by mix shifts and foreign currency impacts.

The increase was driven by lower operating expenses as a percentage of revenue, partially offset by a decline in gross margin.

The decline in gross margin is primarily driven by pricing pressure, unfavorable mix shift, commodity cost and foreign currency impacts.

Operating expenses as a percentage of revenue decreased primarily due to lower variable compensation and disciplined cost management including Future Ready transformation savings.

Corporate Investments

The loss from operations in Corporate Investments for the three months ended January 31, 2023, 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 six months ended April 30, 2023 was primarily due to expenses associated with our incubation projects and investments in digital enablement.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

LIQUIDITY AND CAPITAL RESOURCES

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federal tax perspective but may be subject to state income or foreign withholding tax upon repatriation.

As we evaluate the future cash

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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.

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.

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

January 31, 2023 October 31, 2022

April 30, 2023 October 31, 2022

Cash and cash equivalents $ 1,923 $ 3,145

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Our key cash flow metrics were as follows:

Three months ended January 31

Net cash (used in) provided by operating activities $ (16) $ 1,657

Six months ended April 30

Net cash provided by operating activities $ 620 $ 2,165

Net cash used in investing activities (441) (462)

Net cash used in financing activities (1,384) (1,525)

Net decrease in cash, cash equivalents and restricted cash $ (1,376) $ (905)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (1,205) $ 178

Operating Activities

Compared to the corresponding period in fiscal year 2022, net cash provided by operating activities decreased by $1.7 billion for the three months ended January 31, 2023, primarily due to unfavorable working capital changes and lower net earnings, partially offset by amounts collected and held on behalf of a third party for trade receivables previously sold and lower employee variable compensation payments.

Compared to the corresponding period in fiscal year 2022, net cash provided by operating activities decreased by $1.5 billion for the six months ended April 30, 2023, primarily due to lower net earnings, unfavorable working capital impacts and changes in receivables from contract manufacturers, partially offset by lower variable compensation.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Key Working Capital Metrics

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

January 31, 2023 October 31, 2022 Change January 31, 2022 October 31, 2021 Change Y/Y Change

April 30, 2023 October 31, 2022 Change April 30, 2022 October 31, 2021 Change Y/Y Change

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

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Cash conversion cycle (26) (29) 3 (26) (25) (1) —

January 31, 2023 as compared to January 31, 2022

April 30, 2023 as compared to April 30, 2022

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, macroeconomic factors, seasonal trends and the timing of revenue recognition and inventory purchases within the period.

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, timing and extent of receivables factoring, seasonal trends and the timing of revenue recognition and inventory purchases within the period.

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, partially offset by higher factoring.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

The DSO remained flat.

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 goods sold.

The increase in DOS was primarily due to higher inventory in Print, offset by lower inventory in Personal Systems.

The increase in DOS was primarily due to change in business mix driven by demand softness in Personal Systems, strategic buys, and increased mix towards sea shipments.

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 goods sold.

The decrease in DPO was primarily due to lower purchasing volume in Personal Systems.

The increase in DPO was primarily driven by favorable purchase linearity.

Investing Activities

Compared to the corresponding period in fiscal year 2022, net cash used in investing activities increased by $0.2 billion for the three months ended January 31, 2023, primarily due to collateral posted for derivatives instruments of $0.3 billion, partially offset by decrease in net investment in property, plant and equipment of $0.1 billion.

Compared to the corresponding period in fiscal year 2022, net cash used in investing activities remained flat for the six months ended April 30, 2023, primarily due to a decrease in net investment in property, plant and equipment of $0.1 billion, offset by higher collateral posted for derivative instruments of $0.1 billion.

Financing Activities

Compared to the corresponding period in fiscal year 2022, net cash used in financing activities decreased by $1.4 billion for the three months ended January 31, 2023, primarily due to lower share repurchases of $1.4 billion and short term borrowing activity of $0.6 billion, partially offset by debt repurchase/redemption and settlement of $0.5 billion.

Compared to the corresponding period in fiscal year 2022, net cash used in financing activities decreased by $0.1 billion for the six months ended April 30, 2023, primarily due to lower share repurchases of $2.4 billion, partially offset by issuance of senior unsecured notes of $2.0 billion in the prior-year period and higher net payment of debt of $0.1 billion.

Share Repurchases and Dividends

During the three months ended January 31, 2023, HP returned $0.4 billion to the shareholders in the form of share repurchases of $0.1 billion and cash dividends of $0.3 billion.

As of January 31, 2023, HP had approximately $2.0 billion remaining under the share repurchase authorizations approved by HP’s Board of Directors.

During the six months ended April 30, 2023, HP returned $0.6 billion to the shareholders in the form of cash dividends of $0.5 billion and share repurchases of $0.1 billion.

As of April 30, 2023, HP had approximately $2.0 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.

Capital Resources

We maintain debt levels that we establish through consideration of a number of factors, including cash flow expectations, cash requirements for operations, investment plans (including acquisitions), share repurchase activities, our cost of capital and targeted capital structure.

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

Outstanding borrowings decreased to $10.8 billion as of January 31, 2023 as compared to $11.0 billion as of October 31, 2022, bearing weighted-average interest rates of 3.9% and 3.7% for January 31, 2023 and October 31, 2022, respectively.

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

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

Outstanding borrowings decreased to $10.6 billion as of April 30, 2023 as compared to $11.0 billion as of October 31, 2022, bearing weighted-average interest rates of 3.9% and 3.7% for April 30, 2023 and October 31, 2022, respectively.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

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

As of January 31, 2023, 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.

As of April 30, 2023, we maintained a 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.

In March 2023, we also entered into a $1.0 billion senior unsecured committed revolving credit facility with a 364-day maturity.

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

Available Borrowing Resources

As of January 31, 2023, we had available borrowing resources of $975 million from uncommitted lines of credit in addition to the revolving credit facility.

In December 2022, we filed a non-automatic shelf registration statement (the “2022 Shelf Registration Statement”) with the SEC to enable us, once the 2022 Shelf Registration Statement is declared effective by the SEC, 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 April 30, 2023, we had available borrowing resources of $1.2 billion from uncommitted lines of credit in addition to the revolving credit facilities.

In December 2022, we filed a non-automatic shelf registration statement (the “2022 Shelf Registration Statement”) with the SEC.

The 2022 Shelf Registration Statement was declared effective by the SEC on March 1, 2023 and enables us to offer for sale, from time to time, in one or more offerings, up to $3.0 billion, in the aggregate, of debt securities, common stock, preferred stock, depository shares and warrants.

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

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Our credit risk is evaluated by major independent rating agencies based upon publicly available information as well as information they obtain during our ongoing discussions.

While we currently do not have any rating downgrade triggers that would accelerate the maturity of a material amount of our debt, a downgrade from our current credit rating may increase the cost of borrowing under our credit facility, reduce market capacity for our commercial paper, require the posting of additional collateral under some of our derivative contracts and may have a negative impact on our liquidity and capital position,

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

depending on the extent of such downgrade.

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.

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Retirement and Post-Retirement Benefit Plan Contributions

As of January 31, 2023, we anticipate making contributions for the remainder of fiscal year 2023 of approximately $23 million to our non-U.S.

As of April 30, 2023, we anticipate making contributions for the remainder of fiscal year 2023 of approximately $15 million to our non-U.S.

pension plans, $19 million to cover benefit payments to U.S.

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We expect to make future cash payments of $0.2 billion in fiscal year 2023 with remaining cash payments through fiscal year 2025.

For more information on our restructuring activities that are part of our cost improvements, see Note 3, “Restructuring and Other Charges”, to the Consolidated Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

For more information on our restructuring activities that are part of our cost improvements, 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.

Uncertain Tax Positions

As of January 31, 2023, we had approximately $628 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

As of April 30, 2023, we had approximately $909 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.

HP utilizes certain third-party arrangements in the normal course of business as part of HPs cash and liquidity management and also to provide liquidity to certain partners to facilitate their working capital requirements.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis