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Item 7. Management’s Discussion and Analysis

2023-12-18 compared with 2022-12-06 · 142 added, 278 removed, 282 unchanged (60% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is organized as follows:

A discussion of our business and other highlights affecting the Company to provide context for the remainder of this MD&A.

• Critical Accounting Policies and Estimates.

A discussion of accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.

• Results of Operations.

This section discusses the results of operations for the fiscal year ended October 31, 2022 compared to the fiscal year ended October 31, 2021.

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

For a discussion of the fiscal year ended October 31, 2021 compared to the fiscal year ended October 31, 2020, please refer to Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

• Liquidity and Capital Resources.

An analysis of changes in our cash flows and a discussion of our liquidity and financial condition.

• Contractual and Other Obligations.

An overview of contractual obligations, retirement and post-retirement benefit plan contributions, cost-saving plans, uncertain tax positions and off-balance sheet arrangements.

The discussion of financial condition and results of our operations that follows provides information that will assist the reader in understanding our Consolidated Financial Statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our Consolidated Financial Statements.

This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes that appear elsewhere in this document.

This section generally discusses the results of operations for the fiscal year ended October 31, 2023 compared to the fiscal year ended October 31, 2022.

For a discussion of fiscal year ended October 31, 2022 compared to the fiscal year ended October 31, 2021, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, which also should be read in conjunction with our Annual Report on Form 10-K/A for the fiscal year ended October 31, 2022 as it contained certain revisions to our Consolidated Financial Statements for the fiscal years ended 2022 and 2021.

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Financial Condition and Results of Operations (Continued)

We are a leading global provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions, and services.

We are a leading global provider of personal computing and other digital access devices, imaging and printing products, and related technologies, solutions, and services.

We sell to individual consumers, SMBs and large enterprises, including customers in the government, health, and education sectors.

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Personal Systems, Printing, and Corporate Investments.

The Personal Systems segment offers commercial and consumer desktop and notebook PCs, workstations, thin clients, commercial mobility devices, retail POS systems, displays and peripherals, software, support, and services.

The Personal Systems segment offers commercial and consumer desktops and notebooks, workstations, thin clients, commercial mobility devices, retail POS systems, displays, hybrid systems (includes video conferencing cameras and solutions, headsets, voice, and related software capabilities), software, support, and services.

The Printing segment provides consumer and commercial printer hardware, supplies, solutions and services.

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

• In Personal Systems, our strategic focus is on:

Corporate Investments include certain business incubation and investment projects.

• 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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◦ investing in endpoint services and solutions.

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

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

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

• In Printing, our strategic focus is on:

We are focused on services, including Device as a Service, as the market shifts to contractual solutions, and accelerating in attractive adjacencies such as hybrid systems;

◦ 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 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;

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

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

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

In addition to growing our subscription business, we are also focused on rebalancing system profitability to more upfront profitable hardware sales 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.

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

To drive more integration across our commercial services, software and security portfolio, we have created a new Workforce Services and Solutions organization.

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

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 cameras and solutions, headsets, voice and software capabilities.

Our Workforce Solutions organization drives integration across our commercial services, software and security portfolio.

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

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

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

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

We continue to experience challenges that are representative of the trends and uncertainties that may affect our industry, generally, and our business and financial results, specifically, and we expect these challenges to continue in the short-term.

One set of challenges relates to the current macroeconomic environment and the adverse impact on demand for certain of our products and product mix.

One set of challenges relates to the current macroeconomic environment and the adverse impact on demand for certain of our products.

A second set of challenges relates to changes in the competitive landscape.

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A third set of challenges relates to business model changes and our go-to-market execution in an evolving distribution and reseller landscape, with increasing online and omnichannel presence.

Additional challenges we face at the segment level, and that we expect to continue facing in the short-term are set forth below.

• In Personal Systems, we face challenges with competitive pricing environment, supply shortages in certain parts of business, elevated commodity and logistics costs compared to pre-pandemic levels.

We are also experiencing softness in demand resulting in overall decline in Personal Systems market.

• 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 which we expect to continue to negatively impact our financial performance in the short term.

We also obtain many Printing components from single

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

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.

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.

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

• In Personal Systems, we face challenges with a competitive pricing environment and demand softness.

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

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

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

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

Macroeconomic Environment

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

We face global macroeconomic challenges, particularly in light of the effects of the ongoing geopolitical conflicts in Ukraine, tensions across the Taiwan Strait, the COVID-19 pandemic, tariff-driven headwinds, uncertainty in the markets, volatility in exchange rates, inflationary trends and evolving dynamics in the global trade environment.

Throughout fiscal 2022, we observed significant market uncertainty, increasing inflationary pressures, supply constraints and a strengthening U.S.

dollar, as well as ongoing effects from the COVID-19 pandemic.

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

While our Personal Systems business benefited from the hybrid work environment and growth in gaming driven by the COVID-19 pandemic, these trends and consumer behavior have started to change as a result of various macroeconomic factors, including but not limited to inflation, foreign currency, and lower consumer spending.

Beginning third quarter of fiscal 2022, we observed an accelerated decline in consumer demand, particularly with respect to Consumer PCs.

This decline in demand is in line with industry-wide declines and we expect this to continue for fiscal 2023.

For the fiscal year 2022, we continued to see strong demand in Windows-based Commercial PCs, and mix shifts from low end to premium products.

However, we anticipate the overall macroeconomic environment to continue 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, driven by the slow return of workers to the office, and softening of demand in Consumer Print, which accelerated during the fourth quarter of fiscal 2022.

Also, we experienced an increasingly competitive pricing environment in the second half of fiscal 2022, which we expect to continue in the short-term, due to the macroeconomic environment across Personal Systems and Printing.

Further, our operating margins were negatively impacted by the higher cost due to inflationary pressures.

In fiscal 2023, we expect decline in both Personal Systems and Printing market compared to fiscal 2022.

Supply chain dynamics have impacted and we expect will continue to impact logistics and component costs at least in the short term, with logistics costs remaining elevated for the fiscal year as a result of both expedited shipments of components and overall rate costs in the freight network, while capacity improved in the second half of fiscal 2022.

Additionally, we expect industry wide commodity and component constraints, including application specific integrated circuits (“ASICs”) that are unique to our products in Personal Systems and Printing, to continue to impact our businesses in the short-term.

We continue to monitor the COVID-19 pandemic and variants of the coronavirus, as well as the impact the pandemic has on our employees, customers, business partners, and communities.

We have experienced and may experience future disruptions in supply, manufacturing and logistics, particularly in Asia, and with our suppliers and outsourcing partners globally as a result of COVID-19.

In addition to the macroeconomic dynamics, we are exposed to fluctuations in foreign currency exchange rates.

We have a large global presence, with more than 65% of our net revenue for fiscal 2022 coming from outside the United States.

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.

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.

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

In the second half of fiscal 2022, we recognized a charge of $23 million towards severance, cancellation of contracts, inventory write-downs and other one-time exit charges related to our decision.

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.

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,

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Financial Condition and Results of Operations

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

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

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

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

We face global macroeconomic challenges including ongoing effects of geopolitical conflicts (including the Russian invasion of Ukraine, tensions across the Taiwan Strait, the Israel-Hamas conflict and other hostilities in the Middle East), uncertainty in the markets, volatility in exchange rates, inflationary trends and evolving dynamics in the global trade environment.

We also experience seasonality in the sale of our products and services which may be affected by general economic conditions.

During fiscal year 2023, we observed continued market uncertainty, cautious commercial spending on information technology hardware, lower discretionary consumer spending, inflationary pressures, and foreign currency fluctuations.

These market pressures created new and different demand dynamics which had significant impacts on our financial results.

Geographically, we observed these macroeconomic dynamics negatively impacting certain markets, particularly China.

However, in the second half of fiscal year 2023 we also observed uneven recovery in the markets.

During fiscal year 2023, we experienced overall demand weakness and elevated industry wide reseller inventory.

However, towards the end of fiscal year 2023 inventory began to stabilize and we exited the fiscal year with normalized inventory levels.

The decline in Personal Systems revenue was in line with market trends.

In Printing, we saw gradual and uneven recovery in Commercial Printing driven by hybrid work trends.

We experienced a competitive pricing environment across Personal Systems and Printing.

These markets declined during fiscal year 2023, however we expect to see stabilization during fiscal 2024.

We are exposed to fluctuations in foreign currency exchange rates.

We have a large global presence, with approximately 65% of our net revenue coming from outside the United States.

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

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.

Transformation Update

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

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”).

In the third year of our program, we completed our Fiscal 2020 Plan, generating over $1.3 billion dollars in gross annual run-rate structural costs savings, ahead of our $1.2 billion dollar goal.

We have changed our operating model to simplify the way we are structured and the way we work to free up capacity, create scale, efficiency, and effectiveness.

We focused on real estate and site optimization in alignment with our location strategy.

We have also focused on creating efficient digital workspaces with the transition to a hybrid work model, which is in line with real estate optimization.

We made significant progress in optimizing our manufacturing footprint including factory locations (China, India, Puerto Rico) while investing in a best-in-class supply chain network and product supply resiliency.

We have invested a portion of the savings from these efforts across our businesses, including investing to build our digital capabilities such as deployment of our SAP S/4 HANA system, one of the largest ERP implementations.

Now that the Fiscal 2020 plan is complete, we are now starting on the next phase in our transformation.

In November 2022, we announced our Future Ready Plan (the “Fiscal 2023 Plan”) to become a more digitally enabled company, focus investments on key growth opportunities and simplify our operating model.

The new Fiscal 2023 plan is expected to run for three years through end of fiscal 2025.

The Fiscal 2023 plan is expected to run through end of fiscal 2025.

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

As part of digital transformation, we will continue the process of digitizing the company to simplify and accelerate many processes through automation and end-to-end management.

As part of optimizing our portfolio, we plan to continue to invest in our key growth areas of Peripherals, Gaming, Workforce Services & Solutions, Consumer Subscriptions and Industrial Graphics and 3D, to drive competitive advantage and market leadership and we also plan to simplify our portfolio to reduce complexity.

Further to achieve operational efficiency, we plan to optimize our performance by driving efficiencies, simplifying organizational structures, and optimizing costs.

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 see across our businesses in fiscal 2023 as a result of macroeconomic factors.

We expect to continue to invest some of the savings from these efforts across our businesses as well as partially use them to offset headwinds as a result of macroeconomic factors.

We exceeded our gross annual run-rate structural cost savings target for fiscal year 2023.

We enhanced our digital capabilities in Workforce Solutions and continued to leverage AI to positively impact both our products and solutions.

Additionally, we are reducing portfolio complexity, improving continuity of supply, and increasing our forecast accuracy across our business to drive reduction in our cost of sales and operating expenses.

We also continued to reduce our structural cost 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.

See “Risk Factors— We may not achieve some or all of the expected benefits of our restructuring plans and our restructuring may adversely affect our business” in Item 1A, which is incorporated herein by reference.

For more information on our Fiscal 2020 Plan and Fiscal 2023 Plan, 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.

Oracle Corporation (“Oracle”) Litigation proceeds

On October 12, 2021, Oracle paid approximately $4.65 billion, to satisfy the judgment with interest, related to the litigation in connection with Oracle’s discontinuation of software support for former Hewlett-Packard Company’s Itanium-based line of mission-critical servers.

The net proceeds from the judgement were shared equally between HP and Hewlett Packard Enterprise pursuant to the terms of the separation and distribution agreement.

Recent Developments

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.

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

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

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

We expect to complete the integration of Poly to HP’s system and process by the end of fiscal year 2023.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

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

The Consolidated Financial Statements of HP are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”), which require 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 October 31, 2022, the impact to our business from the changing macroeconomic factors continued 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.

Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources.

For more information on our Fiscal 2023 Plan, 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.

CRITICAL ACCOUNTING ESTIMATES

Our Consolidated Financial Statements are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”), which require 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.

Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

Management has discussed the development, selection and disclosure of these estimates with the Audit Committee of HP’s Board of Directors.

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however, actual results may differ from these estimates.

Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control.

Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows.

A summary of significant accounting policies is included in Note 1, “Overview and Summary of Significant Accounting Policies” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements.

Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.

Revenue Recognition

We recognize revenue depicting the transfer of promised goods or services to customers in an amount that reflects the consideration to which we are expected to be entitled in exchange for those goods or services.

We evaluate customers’ ability to pay based on various factors like historical payment experience, financial metrics and customer credit scores.

We enter into contracts to sell our products and services, and while many of our sales contracts contain standard terms and conditions, there are contracts which contain non-standard terms and conditions.

Further, many of our arrangements include multiple performance obligations.

As a result, significant contract interpretation may be required to determine the appropriate accounting, including the identification of performance obligations that are distinct, the allocation of the transaction price among performance obligations in the arrangement and the timing of transfer of control of promised goods or services for each of those performance obligations.

We evaluate each performance obligation in an arrangement to determine whether it represents distinct goods or services.

A performance obligation constitutes distinct goods or services when the customer can benefit from the goods or services either on its own or together with other resources that are readily available to the customer and the performance obligation is distinct within the context of the contract.

Transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring goods or services to the customer.

If the transaction price includes a variable amount, we estimate the amount using either the expected value or most likely amount method.

We reduce the transaction price at the time of revenue recognition for customer and distributor programs and incentive offerings, rebates, promotions, other volume-based incentives and expected returns.

We use estimates to determine the expected variable consideration for such programs based on historical experience, expected consumer behavior and market conditions.

When a sales arrangement contains multiple performance obligations, such as hardware and/or services, we allocate revenue to each performance obligation in proportion to their selling price.

The selling price for each performance obligation is based on its Standalone Selling Price (“SSP”).

We establish SSP using the price charged for a performance obligation when

A summary of our significant accounting policies is included in Note 1, “Overview and Summary of Significant Accounting Policies” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

Management believes the following accounting policies reflect the critical accounting estimates used in the preparation of our Consolidated Financial Statements.

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Financial Condition and Results of Operations

sold separately (“observable price”) and, in some instances, using the price established by management having the relevant authority.

When observable price is not available, we establish SSP based on management’s judgment considering internal factors such as margin objectives, pricing practices and controls, customer segment pricing strategies and the product life-cycle.

Consideration is also given to market conditions such as competitor pricing strategies and technology industry life cycles.

We may modify or develop new go-to-market practices in the future, which may result in changes in selling prices, impacting standalone selling price determination applying the aforementioned management judgments and estimates.

This may change the pattern and timing of revenue recognition for identical arrangements executed in future periods but will not change the total revenue recognized for any given arrangement.

In most arrangements with multiple performance obligations, the transaction price is allocated to each performance obligation at the inception of the arrangement based on their relative selling price.

Revenue is recognized when, or as, a performance obligation is satisfied by transferring control of a promised good or service to a customer.

We generally invoice the customer upon delivery of the goods or services and the payments are due as per contract terms.

For fixed-price support or maintenance and other service contracts that are in the nature of stand-ready obligations, payments are generally received in advance from customers and revenue is recognized on a straight-line basis over the duration of the contract.

In instances when revenue is derived from sales of third-party vendor products or services, we record revenue on a gross basis when we are a principal in the transaction and on a net basis when we are acting as an agent between the customer and the vendor.

We consider several factors to determine whether we are acting as a principal or an agent, most notably whether we are the primary obligor to the customer, have established our own pricing and have inventory and credit risks.

We accrue the estimated cost of product warranties at the time we recognize revenue.

We evaluate our warranty obligations on a product group basis.

Our standard product warranty terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period.

While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, we base our estimated warranty obligation on contractual warranty terms, repair costs, product call rates, average cost per call, current period product shipments and ongoing product failure rates, as well as specific product class failure outside of our baseline experience.

Warranty terms generally range from 90 days to three years for parts, labor and onsite services, depending upon the product.

If actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty obligation may be required.

Revenue Recognition - Variable Consideration

We recognize revenue depicting the transfer of promised goods or services to customers in an amount that may include variable consideration.

When the transaction price includes a variable amount, we estimate the amount using either the expected value or most likely amount method.

We use estimates to determine the expected variable consideration for such programs based on historical experience, expected consumer behavior and market conditions.

Retirement and Post-Retirement Benefits

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Our major assumptions vary by plan, and the weighted-average rates used are set forth in Note 4, “Retirement and Post-Retirement Benefit Plans” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

The following table provides the impact a change of 25 basis points in each of the weighted-average assumptions of the discount

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

rate, expected increase in compensation levels and expected long-term return on plan assets would have had on our net periodic benefit (credit) cost for fiscal year 2022:

The following table provides the impact a change of 25 basis points in each of the weighted-average assumptions of the discount rate, expected increase in compensation levels and expected long-term return on plan assets would have had on our net periodic benefit (credit) cost for fiscal year 2023:

Change in Net Periodic

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In the event we were to determine that it is more likely than not that we will be unable to realize all or part of our deferred tax assets in the future, we would increase the valuation allowance and recognize a corresponding charge to earnings or other comprehensive income in the period in which we make such a determination.

Likewise, if we later determine that we are more likely than not to realize the deferred tax assets, we would reverse the applicable portion of the previously recognized valuation allowance.

Likewise, if we later determine that we are more likely than not to realize the deferred tax assets, we would

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

reverse the applicable portion of the previously recognized valuation allowance.

In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in the jurisdictions in which the deferred tax assets are located.

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For a further discussion on taxes on earnings, refer to Note 6, “Taxes on Earnings” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

Product Inventory

We state our inventory at the lower of cost or market on a first-in, first-out basis.

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Factors influencing these adjustments include changes in demand, ageing of inventory, technological changes, supply constraints, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Business Combinations

We allocate the fair value of purchase consideration to the assets acquired, liabilities assumed, and non-controlling interests in the acquiree generally based on their fair values at the acquisition date.

The excess of the fair value of purchase consideration over the fair value of these assets acquired, liabilities assumed and non-controlling interests in the acquiree is recorded as goodwill and may involve engaging independent third parties to perform an appraisal.

When determining the fair values of assets acquired, liabilities assumed, and non-controlling interests in the acquiree, management makes significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth rates and margins, attrition rates, future changes in technology and brand awareness, loyalty and position, and discount rates.

Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability.

Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.

We review goodwill for impairment annually during our fourth quarter and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable.

A qualitative assessment is first performed to determine if the fair value of a reporting unit is more likely than not to be less than its carrying amount.

A qualitative assessment may first be performed to determine if the fair value of a reporting unit is more likely than not to be less than its carrying amount.

Judgment in the assessment of qualitative factors of impairment may include changes in business climate, market conditions, or other events impacting the reporting unit.

If we determine an impairment is more likely than not based on our qualitative assessment, a quantitative assessment of impairment is performed.

However, we may also elect to bypass the qualitative assessment and perform a quantitative assessment.

Performing a quantitative goodwill impairment test includes the determination of the fair value of a reporting unit and involves significant estimates and assumptions.

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We review these matters at least quarterly and adjust these liabilities to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other updated information and events, pertaining to a particular case.

Pursuant to the separation and distribution agreement, we share responsibility with Hewlett Packard Enterprise for certain matters, as discussed in Note 14, “Litigation and Contingencies” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference, and Hewlett Packard Enterprise has agreed to indemnify us in whole or in part with respect to certain matters.

Based on our experience, we believe that any damage amounts claimed in the specific litigation and contingencies matters further discussed in Note 14, “Litigation and Contingencies”, are not a meaningful indicator of HP’s potential liability.

Litigation is inherently unpredictable.

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As a result, our net revenue growth has been impacted, and we expect it will continue to be impacted, by fluctuations in foreign currency exchange rates.

In order to provide a framework for assessing performance excluding the impact of foreign currency fluctuations, we supplement the year-over-year percentage change in net revenue with the year-over-year percentage change in net revenue on a constant currency basis, which excludes the effect of foreign currency

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

exchange fluctuations calculated by translating current period revenues using monthly exchange rates from the comparative period and excluding any hedging impact recognized in the current period, and without adjusting for any repricing or demand impacts from changes in foreign currency exchange rates.

In order to provide a framework for assessing performance excluding the impact of

foreign currency fluctuations, we supplement the year-over-year percentage change in net revenue with the year-over-year percentage change in net revenue on a constant currency basis, which excludes the effect of foreign currency exchange fluctuations calculated by translating current period revenues using monthly exchange rates from the comparative period and excluding any hedging impact, and without adjusting for any repricing or demand impacts from changes in foreign currency exchange rates.

This information is provided so that net revenue can be viewed with and without the effect of fluctuations in foreign currency exchange rates, which is consistent with how management evaluates our net revenue results and trends, as management does not believe that the excluded items are reflective of ongoing operating results.

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Earnings before taxes 2,937 5.4 % 4,324 6.8 % 7,568 11.9 %

Provision for taxes (1,238) (2.0) % (1,008) (1.6) % (387) (0.7) %

Benefit from (provision for) taxes 326 0.6 % (1,192) (1.9) % (1,027) (1.6) %

Net earnings $ 3,263 6.0 % $ 3,132 4.9 % $ 6,541 10.3 %

In fiscal year 2022, total net revenue decreased 0.8% (increased 0.7% on a constant currency basis) as compared to the prior-year period.

Net revenue from the United States decreased 3.4% to $21.7 billion, and outside of the United States increased 0.6% to $41.3 billion.

The decrease in net revenue was primarily driven by unfavorable foreign currency impacts, decline in Supplies, Notebooks and Consumer Printing, partially offset by an increase in Desktops, Workstations and Other Personal Systems.

The decrease was driven by unit decline, partially offset by higher average selling prices (“ASPs”).

Units were down in both Personal Systems and Printing due to supply chain constraints, and demand softness primarily in the second half of fiscal 2022 driven by the macroeconomic environment including inflationary trends.

In fiscal year 2023, total net revenue decreased 14.6% (decreased 11.7% on a constant currency basis) as compared to the prior-year period.

Net revenue from the United States decreased 12.9% to $18.8 billion, and outside of the United States decreased 15.5% to $34.9 billion.

The decrease in net revenue was primarily driven by demand softness and foreign currency impacts in both Personal Systems and Printing as well as lower average selling prices (“ASPs”) in Personal Systems.

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

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

For fiscal year 2022, gross margin decreased by 1.5 percentage points, primarily driven by unfavorable foreign currency impacts and mix shifts, higher costs including commodity costs and reduction in previously estimated sales and marketing program incentives in the prior-year period, partially offset by higher ASPs.

For fiscal year 2023, gross margin increased by 1.9 percentage points, primarily driven by mix shift towards Printing, and lower commodity and logistics cost in Personal Systems, partially offset by foreign currency impacts and competitive pricing across Personal Systems and Printing.

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 16.5% in fiscal year 2022, primarily driven by increased investments in Personal Systems in the prior-year period, lower variable compensation and joint partner funding.

R&D expense decreased 4.5% in fiscal year 2023, primarily due to disciplined cost management and higher R&D partner funding, partially offset by the Poly acquisition.

Selling, general and administrative (“SG&A”)

SG&A expense decreased 8.3% in fiscal year 2022, primarily driven by lower variable compensation and go-to-market initiatives expenses.

SG&A expense increased 1.8% in fiscal year 2023, primarily due the Poly acquisition partially offset by disciplined cost management including Future Ready transformation savings, and reductions in marketing spend.

Restructuring and other charges

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Acquisition and divestiture charges primarily include, direct third-party professional and legal fees, and integration and divestiture-related costs, as well as 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 $250 million in the fiscal year 2022, primarily due to the Poly acquisition.

Acquisition and divestiture charges decreased by $78 million in the fiscal year 2023, 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 $74 million in the fiscal year 2022, primarily due to the recent acquisition of Poly, and the acquisitions of HyperX and Teradici in the fiscal year 2021.

Russia exit charges

For the fiscal year 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.

Amortization of Intangible assets increased by $122 million in the fiscal year 2023, primarily due to the Poly acquisition.

Interest and other, net

Interest and other, net for the fiscal year 2022 was net expense as compared to a net gain in the fiscal year 2021, primarily due to one-time gain from Oracle litigation proceeds of $2.3 billion in the prior-year period and increased interest expenses on senior unsecured notes.

For more information, see Note 7, “Supplementary Financial Information”, to the Consolidated Financial Statements in Item 8 of Part II of this report, which is incorporated herein by reference.

Interest and other, net for the fiscal year 2023 increased $284 million primarily due to higher interest expense on debt, factoring costs, and retirement incentive benefits associated with our EER program, partially offset by the net gain on extinguishment of debt.

Provision for taxes

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The effective tax rate differs from the U.S.

federal statutory rate of 21% primarily due to impacts of internal reorganization and favorable tax rates associated with certain earnings in lower-tax jurisdictions throughout the world.

federal statutory rate of 21% primarily due to impacts of internal reorganization, changes in valuation allowances, and favorable tax rates associated with certain earnings from HP’s operations in lower-tax jurisdictions throughout the world.

The jurisdictions with favorable tax rates that had the most significant impact on our effective tax rate in the periods presented were Singapore, Malaysia, and Puerto Rico.

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federal statutory rate of 21% in fiscal year 2023, and further explanation of our provision for income taxes, see Note 6, “Taxes on Earnings” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

In fiscal year 2022, we recorded $470 million of net income tax charges related to discrete items in the provision for taxes.

This amount included $649 million of tax effects related to internal reorganization, $118 million of uncertain tax position charges, $55 million related to withholding taxes on undistributed foreign earnings, $51 million related to audit settlements in various jurisdictions and $26 million of other net tax charges.

These charges were partially offset by income tax benefits of $183 million related to the filing of tax returns in various jurisdictions, $156 million related to changes in valuation allowances, $47 million related to restructuring charges, and $43 million related to Poly acquisition charges.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

In fiscal year 2023, we recorded $1.1 billion of net income tax benefits related to discrete items in the provision for taxes.

This amount included $726 million of tax effects related to internal reorganization, $255 million related to changes in valuation allowances, $101 million related to restructuring charges, $58 million related to the filing of tax returns in various jurisdictions, and $42 million related to acquisition charges.

These benefits were partially offset by income tax charges of $60 million related to audit settlements in various jurisdictions, $27 million of uncertain tax position charges, and $25 million related to extinguishment of debt.

In fiscal year 2023, excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units were immaterial.

On August 16, 2022, the U.S.

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The Corporate AMT is effective for the Company beginning in fiscal 2024 and we have elected to treat any future Corporate AMT as period costs in the period they arise.

Additionally, the Inflation Reduction Act imposes an excise tax of 1% tax on the fair market value of net stock repurchases made after December 31, 2022.

The impact of this provision will be dependent on the extent of share repurchases made in future periods.

We continue to analyze the impacts of the Inflation Reduction Act;

however, it is not expected to have a material impact on our financial statements.

If we pay the Corporate AMT it will result in a Corporate AMT credit that can be carried forward indefinitely.

We will continue to analyze our ability to apply the credit against our regular federal tax liability in future years.

There are a number of uncertainties and ambiguities as to the interpretation and application of the Corporate AMT, and it is possible that any future guidance with respect to the interpretation and application of the Corporate AMT could further impact our liability for corporate taxes.

In December 2021, the Organization for Economic Cooperation and Development (“OECD”) enacted model rules for a new global minimum tax framework (“BEPS Pillar Two”), and various governments around the world have enacted, or are in the process of enacting, legislation on this.

We are in the process of assessing the tax effects of Pillar Two legislation for when it comes into effect, and we plan to treat the tax as a period cost.

Due to the complexities in applying the legislation, the quantitative impact of the enacted or substantively enacted legislation is not yet reasonably estimable.

Segment Information

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Future changes to this organizational structure may result in changes to the segments disclosed.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Personal Systems

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2023 2022 2021 2023 2022

Notebooks $ 29,183 $ 30,522 $ 25,766 (3.1) 12.2

Desktops 10,736 9,381 9,806 3.1 (1.1)

Workstations 2,100 1,669 1,816 1.0 (0.4)

Commercial PS

$ 24,712 $ 29,616 $ 26,822 (11.1) 6.3

10,972 14,395 16,510 (7.8) (4.8)

Total Personal Systems $ 35,684 $ 44,011 $ 43,332 (18.9) 1.5

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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.

(2) Includes net revenue of Poly since acquisition date (August 29, 2022).

Fiscal year 2023 compared with fiscal year 2022

Personal Systems net revenue increased 1.7% (increased 3.6% on a constant currency basis) in the fiscal year 2022, as compared to the prior-year period.

The net revenue increase was primarily attributable to Desktops, Workstations and Other, partially offset by unfavorable foreign currency impacts and a decline in Notebooks.

The net revenue increase was driven by 22.4% increase in ASPs, partially offset by 16.9% decrease in unit volume.

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

The decrease in unit volume was primarily driven by a decline in Notebooks including lower Chromebook sales, partially offset by increases in Desktops and Workstations.

In addition, units were impacted due to the overall macroeconomic environment, demand softness primarily in the second half of fiscal 2022, and supply chain constraints impacting certain parts of the product offerings.

Commercial PCs revenue increased 10.5% primarily driven by higher ASPs and unit growth in Desktops and Workstations, partially offset by unit decline in Notebooks due to lower Chromebooks.

Consumer PCs net revenue decreased 12.7% driven by unit declines in Notebooks, partially offset by higher ASPs.

Consequently, net revenue increased 14.4% in Desktops, 25.8% in Workstations and decreased 4.4% in Notebooks.

Personal Systems earnings from operations as a percentage of net revenue decreased by 0.6 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 prior-year period, higher costs including commodity costs, and foreign currency impacts, partially offset by disciplined pricing and mix shifts.

Operating expenses as a percentage of revenue decreased by 0.8 percentage points primarily driven by last year’s increased R&D investments, lower variable compensation and joint partner funding.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Personal Systems net revenue decreased 18.9% (decreased 15.5% on a constant currency basis) in the fiscal year 2023, as compared to the prior-year period.

The net revenue decrease was primarily due to a 14.5% decrease in commercial and consumer client PCs unit volume due to demand softness and a decline in ASPs by 8.0%, partially offset by the Poly acquisition.

The decline in ASPs was due to foreign currency impacts, unfavorable mix shift and competitive pricing.

Commercial PS revenue decreased 16.6% primarily driven by a decline in units of 14.1% due to demand softness and a decrease of 7.1% in 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 PCs net revenue decreased 23.8% driven by a decline in units of 15.2% due to demand softness and a decrease of 10.1% in ASPs.

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

Personal Systems earnings from operations as a percentage of net revenue decreased by 0.3 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 and logistics cost, partially offset by foreign currency impacts and competitive pricing.

Operating expenses as a percentage of revenue increased primarily driven by variable compensation and the acquisition of Poly, partially offset by disciplined cost management including reductions in marketing initiatives and Future Ready transformation savings.

For the fiscal years ended October 31

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Supplies $ 11,452 $ 11,761 $ 12,632 (1.6) (4.3)

Commercial 4,225 4,209 3,539 — 3.8

Consumer 2,916 3,287 2,516 (1.8) 4.4

Commercial Printing

4,183 4,225 4,209 (0.2) 0.1

Consumer Printing

2,394 2,916 3,287 (2.8) (1.8)

Total Printing $ 18,029 $ 18,902 $ 20,128 (4.6) (6.0)

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Printing net revenue decreased 4.6% (decreased 2.9% on a constant currency basis) for fiscal year 2023 as compared to the prior-year period.

The decline in net revenue was primarily driven by a decline in Supplies, Consumer and unfavorable foreign currency impacts, partially offset by growth in Commercial.

Net revenue for Supplies decreased 6.9%, primarily driven by consumer demand weakness, continued normalization in Home printing and the decision to wind down business operations in Russia, partially offset by the gradual recovery in Industrial print.

Printer unit volume decreased 15.4% and ASPs increased 10.4%.

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

Printer ASPs increased primarily due to disciplined pricing and mix shifts, partially offset by unfavorable foreign currency impacts.

Net revenue for Commercial increased by 0.4%, primarily due to a 7.7% increase in ASPs, partially offset by an 8.0% decrease in printer unit volume.

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

Net revenue for Consumer decreased 11.3%, primarily due to a 16.5% decrease in printer unit volume, partially offset by 5.9% increase in ASPs.

The increase in ASPs was primarily driven by disciplined pricing.

Printing earnings from operations as a percentage of net revenue increased by 1.2 percentage points for fiscal year 2022, primarily due to lower operating expense as a percentage of revenue, partially offset by a decrease in gross margin.

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

Further, 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 variable compensation and go-to-market initiative expenses.

The decline in net revenue was primarily driven by a decline in Consumer Printing, Supplies, and unfavorable foreign currency impacts.

Net revenue for Supplies decreased 2.6%, primarily due to decline in the installed base, usage, and foreign currency.

Printer unit volume decreased 10.1% due to demand weakness and ASPs remained flat for the period.

Print hardware ASPs remained flat due to unfavorable foreign currency impacts offset by favorable mix shifts in Commercial Printing.

Net revenue for Commercial Printing decreased by 1.0%, primarily due to a 10.2% decrease in printer unit volume, partially offset by an 8.9% increase in ASPs.

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

Net revenue for Consumer Printing decreased 17.9%, primarily due to a 10.1% decrease in printer unit volume and an 8.8% decrease in ASP’s.

The decrease in ASPs was primarily driven by competitive pricing, especially by our Japanese competitors benefiting from a favorable foreign currency environment, and unfavorable foreign currency impacts, partially offset by favorable mix shifts.

Printing earnings from operations as a percentage of net revenue decreased by 0.2 percentage points for fiscal year 2023, primarily due to a decline in gross margin, partially offset by lower operating expenses as a percentage of revenue.

The decline in gross margin was primarily driven by competitive pricing and foreign currency impacts, partially offset by favorable mix shift.

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 fiscal year 2022 was primarily due to expenses associated with our incubation projects and investments in digital enablement.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The loss from operations in Corporate Investments for the fiscal year 2023 was primarily due to expenses associated with our incubation projects.

LIQUIDITY AND CAPITAL RESOURCES

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Our liquidity is subject to various risks including the risks identified in the section entitled “Risk Factors” in Item 1A and market risks identified in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A, which are incorporated herein by reference.

During the fiscal year 2022, we completed the acquisition of Poly, with a combined purchase price of $2.7 billion, net of cash acquired, of which $1.8 billion was recorded as goodwill and $1.4 billion as intangible assets and net liabilities assumed of $0.4 billion.

For more information, see Note 18, “Acquisitions”, to the Consolidated Financial Statements in Item 8 of Part II of this report, which is incorporated herein by reference.

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 (the “2029 Notes”), and an aggregate amount of $8 million in consent fee was paid in connection therewith.

In addition, under the terms of the 2029 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 2029 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.

On October 19, 2022, we commenced the change of control offer for the 2029 Notes.

On November 17, 2022, we consummated the change of control offer and paid an aggregate amount of approximately $498 million in connection therewith, to repurchase the approximately $488 million of notes tendered.

On November 21, 2022, we issued a notice of redemption to redeem the remaining approximately $3 million of the 2029 Notes.

Amounts held outside of 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.

Our cash and cash equivalents, marketable debt securities and total debt were as follows:

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

As of October 31

Cash and cash equivalents $ 3,107 $ 3,145

Restricted cash

Total debt $ 9,484 $ 11,014

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Net cash used in financing activities (2,894) (2,068) (5,962)

Net (decrease) increase in cash and cash equivalents $ (1,154) $ (565) $ 327

Net increase (decrease) in cash and cash equivalents

$ 87 $ (1,154) $ (565)

Operating activities

Net cash provided by operating activities decreased by $1.9 billion for fiscal year 2022 due to lower net earnings as compared to the prior-year period, which included the one-time Oracle litigation proceeds of $1.8 billion partially offset by

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

working capital management activities, reduction in receivables from contract manufacturers and payment of employee variable compensation accrued in the prior-year period.

Net cash provided by operating activities decreased by $0.9 billion for fiscal year 2023 due to lower earnings before taxes, working capital management activities, and changes in receivables from contract manufacturers.

Key working capital metrics

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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 a long-term sustainable rate include, but are not limited to, changes in business mix, changes in payment terms and timing, extent of receivables factoring, macro-economic 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, 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 of net revenue.

The decrease in DSO as compared to prior-year period, was due to higher factoring, partially offset by unfavorable revenue linearity.

The DSO remained flat compared to the prior year.

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 of cost of goods sold.

The increase in DOS was primarily due to lower cost of revenue and higher inventory for assurance of supply in Printing, partially offset by consumption of commodities in Personal Systems.

The DOS remained flat compared to the prior year.

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 of cost of goods sold.

The increase in DPO as compared to prior-year period, was primarily due to payment timing partially offset by lower purchasing volumes.

The increase in DPO as compared to prior-year period, was primarily due working capital management activities.

Investing activities

Net cash used in investing activities increased $2.5 billion for fiscal year 2022 as compared to the prior-year period, primarily due to Poly’s acquisition, lower proceeds from sale of investments of $0.3 billion and higher investments in property, plant and equipment of $0.2 billion.

Net cash used in investing activities decreased $3.0 billion for fiscal year 2023 as compared to the prior-year period, primarily due to the $2.8 billion Poly acquisition in the prior-year period and lower investments in property, plant and equipment of $0.2 billion.

Financing activities

Net cash used in financing activities decreased by $3.9 billion in fiscal year 2022 compared to the prior-year period, primarily due to higher proceeds from debt issuance of $2.1 billion, lower share repurchases of $2.0 billion and lower payment of debt of $0.6 billion, partially offset by commercial paper activity of $0.8 billion.

Net cash used in financing activities increased by $0.8 billion in fiscal year 2023 compared to the prior-year period, primarily due to net debt repayment of $1.5 billion and repayment of $0.2 billion of collateral withdrawn for derivative instruments in the current year period, compared to issuance of senior unsecured notes net of payments of $3.1 billion, share repurchases of $4.2 billion and $0.2 billion withdrawal of collateral for derivative instruments in the prior year period.

Share repurchases and dividends

In fiscal year 2022, HP returned total $5.3 billion to the shareholders in the form of share repurchases of $4.3 billion and cash dividends of $1.0 billion.

In fiscal year 2023, HP returned $1.1 billion to shareholders in the form of cash dividends of $1.0 billion and share repurchases of $0.1 billion.

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

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Weighted-average interest rate 4.2 % 3.7 %

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

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.

Short-term debt decreased by $0.9 billion and long-term debt increased by $4.4 billion for fiscal year 2022 as compared to prior-year period.

The net increase in total debt was primarily due to issuance of unsecured senior debt amounting to $4.0 billion during the year and exchange offer of $0.5 billion related to Poly notes, which was, partially offset by payment of $0.5 billion towards redemption of existing notes maturing in September 2022 and commercial paper payments of $0.4 billion.

Short-term debt increased by $12 million and long-term debt decreased by $1.5 billion for fiscal year 2023 as compared to prior-year period.

The net decrease in debt was primarily due to repurchase and settlement of $1.15 billion in aggregate principal payment of various Global Notes and repurchase of $0.5 billion of the March 2029 notes related to the Poly acquisition.

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.

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For more information on the new notes and the redemption of existing notes, see Note 11, “Borrowings”, to the Consolidated Financial Statements in Item 8 of Part II of this report, which is incorporated herein by reference.

As of October 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.

As of October 31, 2023, we maintained a $5.0 billion sustainability-linked senior unsecured committed revolving credit facility 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 October 31, 2022, we had available borrowing resources of $937 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 October 31, 2022, enables us to offer for sale, from time to time, in one or more offerings, $1.0 billion, in the aggregate, of debt securities, common stock, preferred stock, depository shares and warrants.

The 2019 Shelf Registration Statement will expire in December 2022, around which time we expect to file a new shelf registration statement.

As of October 31, 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 11, “Borrowings”, to the Consolidated Financial Statements in Item 8, 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, depending on the extent of such downgrade.

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 facilities, 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 our contractual business going forward, depending on the extent of such downgrade.

See “Risk Factors— Failure to maintain our credit ratings could adversely affect our liquidity, capital position, borrowing costs and access to capital markets” in Item 1A, which is incorporated herein by reference.

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.

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

AND SUBSIDIARIES

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

fixed, minimum or variable price provisions;

fixed, minimum or variable price and volume provisions;

and the approximate timing of the transaction.

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For more information on our uncertain tax positions, see Note 6, “Taxes on Earnings”, to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Off-balance sheet arrangements

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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-K

Item 7. Management’s Discussion and Analysis