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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, ~~2018~~2019
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4423

HP INC.

(Exact name of registrant as specified in its charter)



Delaware		94-1081436
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)
1501 Page Mill Road, Palo Alto, California		94304
(Address of principal executive offices)		(Zip code)
(650) 857-1501 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	HPQ	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filerý ý	Accelerated filero Non-accelerated filer o Smaller reporting companyo (Do not check if a smaller reporting company) Emerging growth company o	~~Non-accelerated filer~~ o ~~(Do not check if a smaller reporting company)~~	~~Smaller reporting company~~o	~~Emerging growth company~~o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No ý

The number of shares of HP common stock outstanding as of April 30, ~~2018~~2019 was ~~1,610,512,633~~1,506,291,734 shares.

HP INC. AND SUBSIDIARIES

Form 10-Q

For the Quarterly Period ended April 30, ~~2018~~2019

Table of Contents

In this report on Form 10-Q, for all periods presented, “we”, “us”, “our”, “company”, “HP” and “HP Inc.” refer to HP Inc. (formerly Hewlett-Packard Company) and its consolidated subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I, contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP Inc. and its consolidated subsidiaries (“HP”) may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, any projections of net revenue, margins, expenses, effective tax rates, net earnings, net earnings per share, cash flows, benefit plan funding, deferred taxes, share repurchases, foreign currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring and other charges; any statements of the plans, strategies and objectives of management for future operations, including, but not limited to, our sustainability goals, the execution of restructuring plans and any resulting cost savings, net revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief, including with respect to the timing and expected benefits of acquisitions and other business combination and investment transactions; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the need to address the many challenges facing HP’s businesses; the competitive pressures faced by HP’s businesses; risks associated with executing HP’s strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of HP’s products and the delivery of HP’s services effectively; the protection of HP’s intellectual property assets, including intellectual property licensed from third parties; risks associated with HP’s international operations; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers, clients and partners; the hiring and retention of key employees; integration and other risks associated with business combination and investment transactions; the results of the restructuring plans, including estimates and assumptions related to the cost (including any possible disruption of HP’s business) and the anticipated benefits of the restructuring plans; the impact of changes in tax laws, including uncertainties related to expected regulations of the ~~interpretation and application~~U.S. Department of the Treasury implementing the Tax Cuts and Jobs Act of 2017 on HP’s tax obligations and effective tax rate; the resolution of pending investigations, claims and disputes; and other risks that are described herein, including, but not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K, for the fiscal year ended October 31, ~~2017,~~2018, and that are otherwise described or updated from time to time in HP’s other filings with the Securities and Exchange Commission ~~(the “SEC”~~(“the SEC”). HP assumes no obligation and does not intend to update these forward-looking statements.

Part I. Financial Information

ITEM 1. Financial Statements and Supplementary Data.

Index



	Page
Consolidated Condensed Statements of Earnings for the three and six months ended April 30, ~~2018~~2019 and ~~2017~~2018 (Unaudited)	5
Consolidated Condensed Statements of Comprehensive Income for the three and six months ended April 30, ~~2018~~2019 and ~~2017~~2018 (Unaudited)	6
Consolidated Condensed Balance Sheets as of April 30, ~~2018~~2019 and as of October 31, ~~2017~~2018 (Unaudited)	7
Consolidated Condensed Statements of Cash Flows for the six months ended April 30, ~~2018~~2019 and ~~2017~~2018 (Unaudited)	8
Consolidated Condensed Statements of Stockholders’ Deficit	9
Notes to Consolidated Condensed Financial Statements (Unaudited)	910
Note 1: Basis of Presentation	910
Note 2: Segment Information	1115
Note 3: Restructuring and Other Charges	1318
Note 4: Retirement and Post-Retirement Benefit Plans	1519
Note 5: ~~Stock-Based Compensation~~Taxes on Earnings	1620
Note 6: ~~Taxes on Earnings~~	18
~~Note 7:~~ Supplementary Financial Information	21
Note 8:7: Fair Value	2425
Note 8: Financial Instruments	27
Note 9: ~~Financial Instruments~~Borrowings	2632
Note 10: ~~Borrowings~~	31
~~Note 11:~~ Stockholders’ Deficit	33
Note ~~12:~~11: Net Earnings Per Share	3536
Note ~~13:~~12: Litigation and Contingencies	36
Note ~~14:~~13: Guarantees, Indemnifications and Warranties	40
Note ~~15:~~14: Acquisitions	4142
Note ~~16: Intangibles~~15: Intangible Assets	4142

HP INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Earnings

(Unaudited)


	Three months ended April 30						Six months ended April 30						Three months ended April 30						Six months ended April 30
	2018			2017			2018			2017			2019			2018			2019			2018
	In millions, except per share amounts												In millions, except per share amounts
Net revenue	14,003			$	12,385		$	28,520		$	25,069		$	14,036		$	14,003		$	28,746		$	28,520
Costs and expenses:
Cost of revenue	11,301			10,002			23,236			20,438			11,307			11,301			23,405			23,236
Research and development	356			314			703			610			353			356			697			703
Selling, general and administrative	1,260			1,090			2,429			2,107			1,339			1,318			2,587			2,547
Restructuring and other charges	57			140			88			203			69			57			124			88
Acquisition-related charges	45			20			87			36			11			45			21			87
Amortization of intangible assets	20			1			40			1			29			20			58			40
Total costs and expenses	13,039			11,567			26,583			23,395			13,108			13,097			26,892			26,701
Earnings from operations	964			818			1,937			1,674			928			906			1,854			1,819
Interest and other, net	(881		)	(64		)	(949		)	(145		)	(45		)	(823		)	(71		)	(831		)
Earnings before taxes	83			754			988			1,529			883			83			1,783			988
Benefit from (provision for) taxes	975			(195		)	2,008			(359		)
(Provision for) benefit from taxes													(101		)	975			(198		)	2,008
Net earnings	$	1,058		$	559		$	2,996		$	1,170		$	782		$	1,058		$	1,585		$	2,996

Net earnings per share:
Basic	$0.65			$	0.33		$1.83			$	0.69		$	0.51		$	0.65		$	1.03		$	1.83
Diluted	$0.64			$	0.33		$1.81			$	0.68		$	0.51		$	0.64		$	1.02		$	1.81

Cash dividends declared per share	$	—		$	—		$	0.28		$	0.27		$	—		$	—		$	0.32		$	0.28

Weighted-average shares used to compute net earnings per share:
Basic	1,630			1,688			1,640			1,696			1,529			1,630			1,543			1,640
Diluted	1,646			1,709			1,658			1,716			1,536			1,646			1,551			1,658

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

HP INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Comprehensive Income

(Unaudited)


	Three months ended April 30						Six months ended April 30						Three months ended April 30						Six months ended April 30
	2018			2017			2018			2017			2019			2018			2019			2018
	In millions												In millions
Net earnings	$	1,058		$	559		$	2,996		$	1,170		$	782		$	1,058		$	1,585		$	2,996
Other comprehensive income (loss) before taxes:
Change in unrealized components of available-for-sale securities:
Unrealized (losses) gains arising during the period	(2		)	1			(5		)	4
Gains reclassified into earnings	—			—			(5		)	—
	(2		)	1			(10		)	4
Change in unrealized components of available-for-sale debt securities:
Unrealized losses arising during the period													—			(2		)	—			(5		)
Losses (gains) reclassified into earnings													3			—			3			(5		)
													3			(2		)	3			(10		)
Change in unrealized components of cash flow hedges:
Unrealized gains (losses) arising during the period	297			(70		)	(254		)	(239		)	198			297			91			(254		)
Losses (gains) reclassified into earnings	276			(16		)	346			(87		)	6			276			(173		)	346
	573			(86		)	92			(326		)	204			573			(82		)	92
Change in unrealized components of defined benefit plans:
Gains arising during the period	—			13			—			13
Losses arising during the period													(4		)	—			(4		)	—
Amortization of actuarial loss and prior service benefit	13			17			25			37			12			13			23			25
Curtailments, settlements and other	—			3			1			3
Settlements and other													1			—			(1		)	1
	13			33			26			53			9			13			18			26
Change in cumulative translation adjustment													13			—			8			—
Other comprehensive income (loss) before taxes	584			(52		)	108			(269		)	229			584			(53		)	108
(Provision for) benefit from taxes	(69		)	7			(4		)	(7		)
Provision for taxes													(42		)	(69		)	(2		)	(4		)
Other comprehensive income (loss), net of taxes	515			(45		)	104			(276		)	187			515			(55		)	104
Comprehensive income	$	1,573		$	514		$	3,100		$	894		$	969		$	1,573		$	1,530		$	3,100

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

HP INC. AND SUBSIDIARIES

Consolidated Condensed Balance Sheets

(Unaudited)


	As of						As of
	April 30, 2018			October 31, 2017			April 30, 2019			October 31, 2018
	In millions, except par value						In millions, except par value
ASSETS
Current assets:
Cash and cash equivalents	$	4,247		$	6,997		$	3,556		$	5,166
Accounts receivable	4,605			4,414
Accounts receivable, net							5,414			5,113
Inventory	5,557			5,786			5,394			6,062
Other current assets	5,024			5,121			3,921			5,046
Total current assets	19,433			22,318			18,285			21,387
Property, plant and equipment	2,061			1,878
Property, plant and equipment, net							2,412			2,198
Goodwill	5,941			5,622			6,349			5,968
Other non-current assets	4,652			3,095			4,900			5,069
Total assets	$	32,087		$	32,913		$	31,946		$	34,622
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Notes payable and short-term borrowings	$	1,617		$	1,072		$	290		$	1,463
Accounts payable	13,054			13,279			13,839			14,816
Employee compensation and benefits	897			894			826			1,136
Taxes on earnings	300			214			206			340
Deferred revenue	1,062			1,012
Other accrued liabilities	6,197			5,941			8,042			7,376
Total current liabilities	23,127			22,412			23,203			25,131
Long-term debt	4,494			6,747			4,749			4,524
Other non-current liabilities	6,329			7,162			5,481			5,606
Stockholders’ deficit:
Preferred stock, $0.01 par value (300 shares authorized; none issued)	—			—			—			—
Common stock, $0.01 par value (9,600 shares authorized; 1,611 and 1,650 shares issued and outstanding at April 30, 2018 and October 31, 2017, respectively)	16			16
Additional paid in capital	510			380
Retained deficit	(1,075		)	(2,386		)
Common stock, $0.01 par value (9,600 shares authorized; 1,506 and 1,560 shares issued and outstanding at April 30, 2019 and October 31, 2018, respectively)							15			16
Additional paid-in capital							723			663
Accumulated deficit							(1,325		)	(473		)
Accumulated other comprehensive loss	(1,314		)	(1,418		)	(900		)	(845		)
Total stockholders’ deficit	(1,863		)	(3,408		)	(1,487		)	(639		)
Total liabilities and stockholders’ deficit	$	32,087		$	32,913		$	31,946		$	34,622

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

HP INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows

(Unaudited)

Six months ended April 30
2018 2017
In millions
Cash flows from operating activities:

Net earnings $ 2,996
$ 1,170
Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization 256
173
Stock-based compensation expense 148
123
Restructuring and other charges 88
203
Deferred taxes on earnings (3,316 ) 205
Other, net 198
21
Changes in operating assets and liabilities, net of acquisition:

Accounts receivable 38
289
Inventory 450
(272 )
Accounts payable (277 ) 26
Taxes on earnings 935
(177 )
Restructuring and other (177 ) (97 )
Other assets and liabilities 707
(442 )
Net cash provided by operating activities 2,046
1,222
Cash flows from investing activities:

Investment in property, plant and equipment (242 ) (176 )
Proceeds from sale of property, plant and equipment 110
69
Purchases of available-for-sale securities and other investments (304 ) (3 )
Maturities and sales of available-for-sale securities and other investments 345
2
Collateral posted for derivative instruments (901 ) (258 )
Collateral returned for derivative instruments 910
125
Payment made in connection with business acquisition, net of cash acquired (1,020 ) —
Net cash used in investing activities (1,102 ) (241 )
Cash flows from financing activities:

Proceeds from short-term borrowings with original maturities less than 90 days, net 837
74
Proceeds from short-term borrowings with original maturities greater than 90 days 300
—
Proceeds from debt, net of issuance costs —
5
Payment of short-term borrowings with original maturities greater than 90 days (1,087 ) (3 )
Payment of debt (2,026 ) (41 )
Settlement of cash flow hedges —
(9 )
Net payments related to stock-based award activities 2
(12 )
Repurchase of common stock (1,263 ) (609 )
Cash dividends paid (457 ) (451 )
Net cash used in financing activities (3,694 ) (1,046 )
Decrease in cash and cash equivalents (2,750 ) (65 )
Cash and cash equivalents at beginning of period 6,997
6,288
Cash and cash equivalents at end of period $ 4,247
$ 6,223
Supplemental schedule of non-cash activities:

Purchase of assets under capital leases $ 129
$ 84



	Six months ended April 30
	2019			2018
	In millions
Cash flows from operating activities:
Net earnings	$	1,585		$	2,996
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	349			256
Stock-based compensation expense	173			148
Restructuring and other charges	124			88
Deferred taxes on earnings	118			(3,316		)
Other, net	113			198
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(103		)	38
Inventory	362			450
Accounts payable	(963		)	(277		)
Taxes on earnings	—			935
Restructuring and other	(79		)	(177		)
Other assets and liabilities	44			707
Net cash provided by operating activities	1,723			2,046
Cash flows from investing activities:
Investment in property, plant and equipment	(303		)	(242		)
Proceeds from sale of property, plant and equipment	—			110
Purchases of available-for-sale securities and other investments	(69		)	(304		)
Maturities and sales of available-for-sale securities and other investments	754			345
Collateral posted for derivative instruments	(32		)	(901		)
Collateral returned for derivative instruments	32			910
Payment made in connection with business acquisitions, net of cash acquired	(404		)	(1,020		)
Net cash used in investing activities	(22		)	(1,102		)
Cash flows from financing activities:
(Payments of) Proceeds from short-term borrowings with original maturities less than 90 days, net	(856		)	837
Proceeds from short-term borrowings with original maturities greater than 90 days	—			300
Proceeds from debt, net of issuance costs	64			—
Payment of short-term borrowings with original maturities greater than 90 days	—			(1,087		)
Payment of debt	(538		)	(2,026		)
Stock-based award activities	(76		)	2
Repurchase of common stock	(1,411		)	(1,263		)
Cash dividends paid	(494		)	(457		)
Net cash used in financing activities	(3,311		)	(3,694		)
Decrease in cash and cash equivalents	(1,610		)	(2,750		)
Cash and cash equivalents at beginning of period	5,166			6,997
Cash and cash equivalents at end of period	$	3,556		$	4,247
Supplemental schedule of non-cash activities:
Purchase of assets under capital leases	$	165		$	129

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

HP INC. AND SUBSIDIARIES

Consolidated Condensed Statements of Stockholders’ Deficit

(Unaudited)



	Common Stock				Additional Paid-in Capital						Accumulated Other Comprehensive Loss			Total Stockholders' Deficit
	Number of Shares		Par Value		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders' Deficit
	In millions, except number of shares in thousands
Balance January 31, 2018	1,641,374		$	16	$	417		$	(1,346	)	$	(1,829	)	$	(2,742	)
Net earnings								1,058						1,058
Other comprehensive income, net of taxes											515			515
Comprehensive income														1,573
Issuance of common stock in connection with employee stock plans and other	4,527				39									39
Repurchases of common stock	(35,389	)			(9		)	(789		)				(798		)
Cash dividends								2						2
Stock-based compensation expense					63									63
Balance April 30, 2018	1,610,512		$	16	$	510		$	(1,075	)	$	(1,314	)	$	(1,863	)

Balance January 31, 2019	1,539,372		$	15	$	666		$	(1,431	)	$	(1,087	)	$	(1,837	)
Net earnings								782						782
Other comprehensive income, net of taxes											187			187
Comprehensive income														969
Issuance of common stock in connection with employee stock plans and other	765				5									5
Repurchases of common stock	(33,845	)			(14		)	(679		)				(693		)
Cash dividends								3						3
Stock-based compensation expense					66									66
Balance April 30, 2019	1,506,292		$	15	$	723		$	(1,325	)	$	(900	)	$	(1,487	)



	Common Stock					Additional Paid-in Capital						Accumulated Other Comprehensive Loss			Total Stockholders' Deficit
	Number of Shares		Par Value			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders' Deficit
	In millions, except number of shares in thousands
Balance October 31, 2017	1,649,580		$	16		$	380		$	(2,386	)	$	(1,418	)	$	(3,408	)
Net earnings									2,996						2,996
Other comprehensive income, net of taxes												104			104
Comprehensive income															3,100
Issuance of common stock in connection with employee stock plans and other	16,681					(4		)							(4		)
Repurchases of common stock	(55,749	)				(14		)	(1,228		)				(1,242		)
Cash dividends									(457		)				(457		)
Stock-based compensation expense						148									148
Balance April 30, 2018	1,610,512		$	16		$	510		$	(1,075	)	$	(1,314	)	$	(1,863	)

Balance October 31, 2018	1,560,270		$	16		$	663		$	(473	)	$	(845	)	$	(639	)
Net earnings									1,585						1,585
Other comprehensive loss, net of taxes												(55		)	(55		)
Comprehensive income															1,530
Issuance of common stock in connection with employee stock plans and other	12,144					(86		)							(86		)
Repurchases of common stock	(66,122	)	(1		)	(27		)	(1,381		)				(1,409		)
Cash dividends									(493		)				(493		)
Stock-based compensation expense						173									173
Adjustment for adoption of accounting standards (Note 1)									(563		)				(563		)
Balance April 30, 2019	1,506,292		$	15		$	723		$	(1,325	)	$	(900	)	$	(1,487	)

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

(Unaudited)

Note 1: Basis of Presentation

~~Separation Transaction~~

On November 1, 2015, Hewlett-Packard Company completed the separation of Hewlett Packard Enterprise Company (“Hewlett Packard Enterprise”), Hewlett-Packard Company’s former enterprise technology infrastructure, software, services and financing businesses (the “Separation”). In connection with the Separation, Hewlett-Packard Company changed its name to HP Inc. (“HP”) and entered into a separation and distribution agreement as well as various other agreements with Hewlett Packard Enterprise that provide a framework for the relationships between the parties, including among others a tax matters agreement, an employee matters agreement, a transition service agreement, a real estate matters agreement, a master commercial agreement and an information technology service agreement. For more information on the impacts of these agreements, see Note 6, “Taxes on Earnings”, Note 7, “Supplementary Financial Information”, Note 13, “Litigation and Contingencies” and Note 14, “Guarantees, Indemnifications and Warranties”.

Basis of Presentation

The accompanying Consolidated Condensed Financial Statements of HP and its wholly-owned subsidiaries are prepared in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”). The interim financial information is unaudited but reflects all normal adjustments that are necessary to provide a fair statement of results for the interim periods presented. This interim information should be read in conjunction with the Consolidated ~~Condensed~~ Financial Statements for the fiscal year ended October 31, ~~2017~~2018 in the Annual Report on Form 10-K, filed on December ~~14, 2017.~~13, 2018. The Consolidated Condensed Balance Sheet for October 31, ~~2017~~2018 was derived from audited financial statements.

Principles of Consolidation

The Consolidated Condensed Financial Statements include the accounts of HP and its subsidiaries and affiliates in which HP has a controlling financial interest or is the primary beneficiary. All intercompany balances and transactions have been eliminated.

Reclassifications

Effective at the beginning of its first quarter of fiscal year 2019, HP implemented an organizational change to align its ~~segment and~~ business unit financial reporting more closely with its current business structure. HP reflected this change to its ~~segment and~~ business unit information in prior reporting periods on an as-if basis. The reporting ~~changes~~change had no impact onto previously reported segment net revenue, consolidated net revenue, earnings from operations, net earnings or net earnings per share (“EPS”). ~~See~~

HP has reclassified certain prior-year amounts to conform to the current-year presentation as a result of the adoption of Accounting Standards Update (“ASU”) 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost”. This adoption had no impact on previously reported consolidated net revenue, net earnings or net EPS.

For detailed discussion, see Note 2, “Segment Information”~~, for a further discussion of HP’s segment and business unit realignments.~~.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in HP’s Consolidated Condensed Financial Statements and accompanying notes. Actual results could differ materially from those estimates.

Separation Transaction

On November 1, 2015, Hewlett-Packard Company completed the separation of Hewlett Packard Enterprise Company (“Hewlett Packard Enterprise”), Hewlett-Packard Company’s former enterprise technology infrastructure, software, services and financing businesses (the “Separation”). In connection with the Separation, HP entered into a separation and distribution agreement, a tax matters agreement, an employee matters agreement and various other agreements with Hewlett Packard Enterprise that provide a framework for the relationships between the parties. For more information on the impacts of these agreements, see Note 6, “Supplementary Financial Information”, Note 12, “Litigation and Contingencies” and Note 13, “Guarantees, Indemnifications and Warranties”.

Recently Adopted Accounting Pronouncements

In March 2017, the Financial Accounting Standards Board (“FASB”) issued guidance, which addresses the improvement of the presentation of net periodic pension and net periodic post-retirement benefit cost. The guidance requires entities to present the service cost component of net periodic benefit cost in the same income statement line item as other compensation costs arising from services rendered during the period. Additionally, the guidance requires that companies present the other components of the net periodic benefit cost separately from the line item that includes service cost and any other subtotal of income from operations. The amendments in this guidance are to be applied retrospectively for presentation in the Consolidated Condensed Statements of Earnings. A practical expedient allows companies to use the amount disclosed in its pension and other post-retirement plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. HP adopted this guidance in the first quarter of fiscal year 2019 and elected to use the practical expedient. The adoption of this guidance has no impact on net earnings. The reclassification resulted in an increase in Selling, general and administrative expenses and a reduction in interest and other, net of $58 million and $118 million for the three and six months ended April 30, 2018, respectively.

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 1: Basis of Presentation (Continued)

first quarter of fiscal year 2019. The implementation of this guidance did not have any impact on its Consolidated Condensed Financial Statements.

In October 2016, the FASB issued guidance, which amends the existing accounting for Intra-Entity Transfers of Assets Other Than Inventory. The guidance (Topic 740) requires an entity to recognize the income tax consequences of intra-entity transfers, other than inventory, when the transfer occurs. It also requires modified retrospective transition with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. HP adopted this guidance in the first quarter of fiscal year 2019. The implementation of this guidance resulted in $353 million of net reduction to its prepaid tax asset adjusted through accumulated deficit.

In August 2016, the FASB issued guidance, which amends the existing accounting standards for the classification of certain cash receipts and cash payments on the statement of cash flows. HP adopted this guidance in the first quarter of fiscal year 2019. The implementation of this guidance did not have any impact on its Consolidated Condensed Financial Statements.

In January 2016, the FASB issued guidance, which amends the existing accounting standards for the recognition and measurement of financial assets and financial liabilities. The guidance (Topic 825-10) primarily addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with other amendments related specifically to equity securities without readily determinable fair values applied prospectively. HP adopted this guidance in the first quarter of fiscal year 2019. The implementation of this guidance did not have a material impact on its Consolidated Condensed Financial Statements.

In May 2014, the FASB issued guidance, which amends the existing accounting standards for revenue recognition. The amendments (Topic 606) are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. HP adopted the new revenue standard in the first quarter of fiscal year 2019 using the modified retrospective method applied to contracts that were not completed as of November 1, 2018. HP recognized the net impact of adoption as an increase to accumulated deficit by $212 million, net of tax on November 1, 2018.

The primary changes that impact the Consolidated Condensed Financial Statements are as below:

Variable consideration - HP estimates the transaction price for elements of consideration which are variable in nature. Certain distributor programs and incentive offerings which were recorded at the date the sales incentives were offered, will now be recorded at the time of revenue recognition based on estimates.

Costs to obtain a contract - The incremental costs to obtain a contract are primarily comprised of eligible sales commissions which were previously expensed as incurred. HP will capitalize the eligible sales commission costs for contracts with terms of more than one year and will amortize these costs over the expected period of the benefit.

The adoption has led to certain balance sheet reclassifications pertaining to return asset and liability and repurchase reserves which impacts accounts receivable, net, inventory, other current assets and other accrued liabilities balances.

Revenue Recognition

General

HP recognizes revenues at a point in time or over time depicting the transfer of promised goods or services to customers in an amount that reflects the consideration to which HP expects to be entitled in exchange for those goods or services. HP follows the five-step model for revenue recognition as summarized below:

Identify the contract with a customer - A contract with customer exists when (i) it is approved and signed by all parties, (ii) each party’s rights and obligations can be identified, (iii) payment terms are defined, (iv) it has commercial substance and (v) the customer has the ability and intent to pay. HP evaluates customers’ ability to pay based on various factors like historical payment experience, financial metrics and customer credit scores.

Identify the performance obligations in the contract - HP evaluates each performance obligation in an arrangement to determine whether it represents a separate unit of accounting, such as hardware and/or service. A performance obligation constitutes a separate unit of accounting 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.


3.	Determine the transaction price - Transaction price is the amount of consideration to which HP expects to be entitled in exchange for transferring goods or services to the customer. If the transaction price includes a variable amount, HP estimates the amount it expects to be entitled to using either the expected value or most likely amount method.

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 1: Basis of Presentation (Continued)

HP reduces 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. HP uses estimates to determine the expected variable consideration for such programs based on factors like historical experience, expected consumer behavior and market conditions.

HP has elected the practical expedient of not accounting for significant financing components if the period between revenue recognition and when the customer pays for the product or service is one year or less.

Allocate the transaction price to performance obligations in the contract - When a sales arrangement contains multiple performance obligations, such as hardware and/or services, HP allocates 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”). HP establishes SSP using the price charged for a performance obligation when sold separately (“observable price”) and, in some instances, using the price established by management having the relevant authority. When observable price is not available, HP establishes SSP based on management 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.

Recognize revenue when (or as) the performance obligation is satisfied - Revenue is recognized when, or as, a performance obligation is satisfied by transferring control of a promised good or service to a customer. HP generally invoices the customer upon delivery of the goods or services and the payments are due as per contract terms. For fixed price support or maintenance 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 time for the duration of the contract.

HP reports revenue net of any taxes collected from customers and remitted to government authorities, and the collected taxes are recorded as other accrued liabilities until remitted to the relevant government authority. HP includes costs related to shipping and handling in cost of revenue.

HP records revenue on a gross basis when HP is a principal in the transaction and on a net basis when HP is acting as an agent between the customer and the vendor. HP considers several factors to determine whether it is acting as a principal or an agent, most notably whether HP is the primary obligor to the customer, has established its own pricing and has inventory and credit risks.

Hardware

HP transfers control of the products to the customer at the time the product is delivered to the customer and recognizes revenue accordingly, unless customer acceptance is uncertain or significant obligations to the customer remain unfulfilled.

Services

HP recognizes revenue from fixed-price support, maintenance and other service contracts over time depicting the pattern of service delivery and recognizes the costs associated with these contracts as incurred.

Contract Assets and Liabilities

Contract assets are rights to consideration in exchange for goods or services that HP has transferred to a customer when such right is conditional on something other than the passage of time. Such contract assets are insignificant to HP’s Consolidated Condensed Financial Statements.

Contract liabilities are recorded as deferred revenues when amounts invoiced to customers are more than the revenues recognized or when payments are received in advance for fixed price support or maintenance contracts. The short-term and long-term deferred revenues are reported within the other accrued liabilities and other non-current liabilities respectively.

Cost to obtain a contract and fulfillment cost

Incremental direct costs of obtaining a contract primarily consist of sales commissions. HP has elected the practical expedient to expense as incurred the costs to obtain a contract with a benefit period equal to or less than one year. For contracts with a period of benefit greater than one year, HP capitalizes incremental costs of obtaining a contract with a customer and amortizes these costs over their expected period of benefit provided such costs are recoverable.

Fulfillment costs consist of set-up and transition costs related to other service contracts. These costs generate or enhance resources of HP that will be used in satisfying the performance obligation in the future and are capitalized and amortized over the expected period of the benefit, provided such costs are recoverable.

See Note 6, “Supplementary Financial Information” for details on cost to obtain a contract and fulfillment cost, contract liabilities and value of remaining performance obligations.

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 1: Basis of Presentation (Continued)

Transition disclosure

In accordance with the modified retrospective method transition requirements, HP has presented the financial statement line items impacted and adjusted to compare to presentation under the prior GAAP for the Consolidated Condensed Balance Sheet as of April 30, 2019 and for Consolidated Condensed Statement of Earnings for three months and six months ended April 30, 2019.



	As of April 30, 2019
CONSOLIDATED CONDENSED BALANCE SHEET ITEMS	As Reported			Effect of Adoption			Balances Without Adoption of Topic 606
	In millions
ASSETS
Accounts receivable, net	$	5,414		$	(168	)	$	5,246
Inventory	5,394			170			5,564
Other current assets	3,921			(170		)	3,751
Other non-current assets	$	4,900		$	(30	)	$	4,870
LIABILITIES AND STOCKHOLDERS' DEFICIT
Taxes on earnings	$	206		$	33		$	239
Other accrued liabilities	8,042			(404		)	7,638
Accumulated deficit	$	(1,325	)	$	173		$	(1,152	)



	Three months ended April 30, 2019									Six months ended April 30, 2019
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS ITEMS	As Reported			Effect of Adoption			Balances Without Adoption of Topic 606			As Reported			Effect of Adoption			Balances Without Adoption of Topic 606
	In millions
Net revenue	$	14,036		$	(12	)	$	14,024		$	28,746		$	(48	)	$	28,698
Earnings from operations	928			(12		)	916			1,854			(48		)	1,806
Earnings before taxes	883			(12		)	871			1,783			(48		)	1,735
Provision for taxes	(101		)	2			(99		)	(198		)	9			(189		)
Net earnings	$	782		$	(10	)	$	772		$	1,585		$	(39	)	$	1,546

Opening Balance Sheet Adjustments:

The following table presents the adoption impact of the new accounting standards to HP’s previously reported financial statements:



	As Reported on October 31, 2018			Adjustments under Topic 606			Other ⁽¹⁾			As Restated on November 1, 2018
	In millions
ASSETS
Accounts receivable, net	$	5,113		$	213		$	—		$	5,326
Inventory	6,062			(203		)	—			5,859
Other current assets	5,046			203			(90		)	5,159
Other non-current assets	$	5,069		$	33		$	(263	)	$	4,839
LIABILITIES AND STOCKHOLDERS' DEFICIT
Taxes on earnings	$	340		$	(39	)	$	—		$	301
Other accrued liabilities	7,376			497			—			7,873
Accumulated other comprehensive loss	(845		)	—			(2		)	(847		)
Accumulated deficit	$	(473	)	$	(212	)	$	(351	)	$	(1,036	)

⁽¹⁾Other includes $353 million adjustment related to Topic 740.

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 1: Basis of Presentation (Continued)

Recently Issued Accounting Pronouncements Not Yet Adopted

In February 2018, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued guidance, which eliminates the stranded tax effects in other comprehensive income resulting from the Tax Cuts and Jobs Act (the “TCJA”). Because the amendments only relate to the reclassification of the income tax effects of the TCJA, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from ~~continuing~~ operations is not affected. HP is required to adopt the guidance in the first quarter of fiscal year 2020. Earlier adoption is permitted. Based on the current assessment, HP ~~is currently evaluating~~expects the ~~timing and the impact~~adoption of this guidance will have a material impact on ~~the~~its Consolidated Condensed Financial Statements.

In August 2017, the FASB issued guidance, which amends the existing accounting standards for derivatives and hedging. The amendment improves the financial reporting of hedging relationships to better represent the economic results of an entity’s risk management activities in its financial statements and made certain targeted improvements to simplify the application of the hedge accounting guidance in current U.S. GAAP. HP is required to adopt the guidance in the first quarter of fiscal year 2020. Earlier adoption is permitted. ~~HP is currently evaluating the timing and impact of this guidance~~Based on the ~~Consolidated Condensed Financial Statements.~~

In January 2017, the FASB issued guidance, which amends the existing accounting standards for business combinations. The amendments clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. HP is required to adopt the guidance in the first quarter of fiscal year 2019. Earlier adoption is permitted. HP currently expects to adopt this guidance early, in the fourth quarter of fiscal year 2018.current assessment, HP expects that the implementation of this guidance will not have a material impact on its Consolidated Condensed Financial Statements.

~~Table of Contents~~

~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 1: Basis of Presentation (Continued)~~

In November 2016, the FASB issued guidance, which addresses the presentation of restricted cash in the statement of cash flows. The guidance requires entities to present the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. HP is required to adopt the guidance retrospectively in the first quarter of fiscal year 2019. Earlier adoption is permitted. HP will adopt this guidance in the first quarter of fiscal year 2019. HP expects that the implementation of this guidance will not have a material impact on its Consolidated Condensed Financial Statements.

In October 2016, the FASB issued guidance, which amends the existing accounting for Intra-Entity Transfers of Assets Other Than Inventory. The guidance requires an entity to recognize the income tax consequences of intra-entity transfers, other than inventory, when the transfer occurs. It also requires modified retrospective transition with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. HP is required to adopt the guidance in the first quarter of fiscal year 2019. Earlier adoption is permitted. HP will adopt this guidance in the first quarter of fiscal year 2019. HP is currently evaluating the impact of this guidance on the Consolidated Condensed Financial Statements.

In August 2016, the FASB issued guidance, which amends the existing accounting standards for the classification of certain cash receipts and cash payments on the statement of cash flows. HP is required to adopt the guidance in the first quarter of fiscal year 2019. Earlier adoption is permitted. HP will adopt this guidance in the first quarter of fiscal year 2019. HP expects that the implementation of this guidance will not have a material impact on its Consolidated Condensed Financial Statements.

In June 2016, the FASB issued guidance, which requires credit losses on financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses. Further, credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses limited to the amount by which fair value is below amortized cost. HP is required to adopt the guidance in the first quarter of fiscal year 2021. Earlier adoption is permitted. HP is currently evaluating the timing and the impact of this guidance on the Consolidated Condensed Financial Statements.

In February 2016, the FASB issued guidance, which amends the existing accounting standards for leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. Under the new guidance, a lessee will be required to recognize assets and liabilities for all leases with lease terms of more than twelve months. Under the current amendments, HP is required to adopt the guidance in the first quarter of fiscal year 2020 using a modified retrospective approach. Earlier adoption is permitted. HP is currently evaluating the timing and the impact of this guidance on the Consolidated Condensed Financial Statements.

In January 2016, the FASB issued guidance, which amends the existing accounting standards for the recognition and measurement of financial assets and financial liabilities. The guidance primarily addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. HP is required to adopt the guidance in the first quarter of fiscal year 2019. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with other amendments related specifically to equity securities without readily determinable fair values applied prospectively. Earlier adoption is permitted. HP will adopt this guidance in the first quarter of fiscal year ~~2019. HP expects that~~2020 and will apply the ~~implementation of this guidance~~modified retrospective transition option made available in July 2018 by the FASB, whereby comparative periods will not ~~have a material impact on its~~be retrospectively presented in the Consolidated Condensed Financial Statements.

~~In May 2014,~~ HP is in the ~~FASB issued guidance, which amends~~process of completing the existing accounting standards for revenue recognition. The amendments (Topic 606) are based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments may be applied retrospectively to each prior period presented (“full retrospective method”) or retrospectively with the cumulative effect recognized asevaluation of the ~~date of initial application (“modified retrospective method”). HP will adopt~~impacts from the new ~~revenue standard in the first quarter of fiscal 2019 and intends to apply the modified retrospective method.~~lease accounting standard. Based on the ~~initial~~current assessment, ~~it is not anticipated that~~HP expects the adoption ~~will~~of this standard to have a material impact on the ~~amount or timing of revenue recognized in the~~ Consolidated Condensed ~~Financial Statements. We continue to make progress on assessing the overall impact of adoption of the standard on our business processes, systems and controls.~~Balance Sheet.

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 2. Segment Information

HP is a leading global provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions and services. HP sells to individual consumers, ~~small~~small- and medium-sized businesses (“SMBs”) and large enterprises, including customers in the government, health and education sectors.

HP’s operations are organized into three ~~segments for financial reporting purposes:~~reportable segments: Personal Systems, Printing and Corporate Investments. HP’s organizational structure is based on ~~a number of~~many factors that the chief operating decision maker (“CODM”) uses to evaluate, view and run its business operations, which include, but are not limited to, customer base and homogeneity of products and technology. The segments are based on this organizational structure and information reviewed by HP’s ~~chief operating decision maker~~CODM to evaluate segment results. The ~~chief operating decision maker~~CODM uses several metrics to evaluate the performance of the overall business, including earnings from operations, and uses these results to allocate resources to each of the segments.

A summary description of each segment is as follows:

Personal Systems ~~provides~~offers Commercial and Consumer desktop and notebook personal computers (“PCs”), ~~workstations,~~Workstations, thin clients, Commercial mobility devices, retail point-of-sale (“POS”) systems, displays and other related accessories, software, support and ~~services for the commercial and consumer markets.~~services. HP groups Commercial notebooks, Commercial desktops, Commercial services, Commercial mobility devices, Commercial detachables and convertibles, Workstations, retail ~~point-of-sale~~POS systems and thin clients into Commercial PCs and Consumer notebooks, Consumer desktops, Consumer services and Consumer detachables into Consumer PCs when describing performance in these markets. Described below are HP’s global business capabilities within Personal Systems:

Commercial PCs are optimized for use by customers, including enterprise, public sector and ~~SMBs,~~SMB customers, with a focus on robust designs, security, serviceability, connectivity, reliability and manageability in networked and cloud-based environments. Additionally, HP offers a range of services and solutions to enterprise, public sector and ~~SMBs~~SMB customers to help them manage the lifecycle of their PC and mobility installed base.

Consumer PCs are optimized for consumer usage, focusing on gaming, consuming multi-media ~~consumption, online browsing, gaming~~for entertainment, personal life activities, staying connected, sharing information, getting things done for work including creating content, staying informed and ~~light productivity.~~security.

Personal Systems groups its global business capabilities into ~~Notebooks, Desktops, Workstations and Other~~the following business units when reporting business ~~performance.~~performance:

Notebooksconsists of Consumer notebooks, Commercial notebooks, Mobile workstations and Commercial mobility devices;

• Desktops includes Consumer desktops, Commercial desktops, thin clients, and retail ~~point-of-sale~~POS systems;

Workstationsconsists of ~~Desktop Workstations~~desktop workstations and accessories; and

Otherconsists of Consumer and Commercial services as well as other Personal Systems capabilities.

Printing provides Consumer and Commercial printer hardware, Supplies, solutions and services, as well as scanning devices. Printing is also focused on imaging solutions in the commercial and industrial markets. Described below are HP’s global business capabilities within ~~Printing:~~Printing.

Office Printing Solutions delivers HP’s office printers, ~~supplies,~~ services and solutions to SMBs and large enterprises. It also includes ~~Samsung Electronics Co., Ltd (“Samsung”)-branded~~some Samsung-branded and ~~Original Equipment Manufacturer (“OEM”)~~OEM hardware ~~supplies~~ and solutions. HP goes to market through its extensive channel network and directly with HP sales. Ongoing key initiatives include ~~design and deployment of A3 products~~the shift to contractual through our Managed Print Service (“MPS”) and solutions offerings for the A3 copier and multifunction printer market, printer security solutions, PageWide solutions and award-winning JetIntelligence LaserJet products.

Home Printing ~~Solution~~Solutions s delivers innovative printing products and solutions for the home, ~~and~~ home business ~~or small office~~and micro business customers utilizing both HP’s Ink and Laser ~~technologies.~~technologies (including laser technology from some Samsung-branded products). Initiatives such as Instant Ink and Continuous Ink Supply System provide business model innovation to benefit and expand HP’s existing customer base, while new ~~innovations~~technologies like Photo Lifestyle ~~products~~and HP Smart App drive print relevance for a mobile generation.

Graphics Solutions deliverslarge-format, commercial and industrial solutions to print service providers and packaging converters through ~~the largest~~a wide portfolio of printers and presses (HP DesignJet, HP Latex, HP Stitch, HP Scitex, HP Indigo and HP PageWide Web Presses). Ongoing key initiatives include accelerating transformation of industrial prints from analog to digital.

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 2: Segment Information (Continued)

3D Printingdelivers ~~HP’s~~the HP Multi-Jet Fusion 3D Printing Solution designed for prototyping and production of functional parts and functioning on an open platform facilitating the development of new 3D printing materials.

Printing groups its global business capabilities into the following business units when reporting business performance:

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~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 2: Segment Information (Continued)~~

Commercial Hardwareconsists of Office Printing Solutions, Graphics Solutions and 3D Printing, excluding ~~supplies;~~Supplies;

Consumer Hardware~~includes~~ consists of Home Printing Solutions, excluding ~~supplies;~~Supplies; and

Supplies comprises a set of highly innovative consumable products, ranging from Ink and Laser cartridges to media, graphics supplies and 3D ~~Printing supplies and Samsung-branded A4 and A3 supplies and OEM~~printing supplies, for recurring use in Consumer and Commercial Hardware.

Corporate Investments includes HP Labs and certain business incubation projects.

The accounting policies HP uses to derive segment results are substantially the same as those used by HP in preparing these financial statements. HP derives the results of the business segments directly from its internal management reporting system.

HP does not allocate certain operating expenses, which it manages at the corporate level, to its segments. These unallocated amounts include certain corporate governance costs and ~~market-related retirement credits,~~infrastructure investments, stock-based compensation expense, restructuring and other charges, acquisition-related charges and amortization of intangible ~~assets, defined~~assets. Pursuant to the adoption of ASU 2017-07 in the first quarter of fiscal year 2019, HP now reclassifies market-related retirement credits and all other components (excluding the service cost component) of net periodic benefit ~~plan settlement charges.~~cost to Interest and other, net in Consolidated Condensed Statement of Earnings. HP reflected this change in prior reporting periods on an as-if basis. This adoption did not have a material impact to previously reported segment earnings from operations.

Realignment

Effective at the beginning of its first quarter of fiscal year ~~2018,~~2019, HP implemented an organizational change to align its ~~segment and~~ business unit financial reporting more closely with its current business structure. The organizational change resulted in the transfer of ~~long life consumables~~certain Samsung-branded product categories from Commercial to ~~Supplies~~Consumer within the Printing segment. ~~Certain revenues related to service arrangements, which are being eliminated for the purposes of reporting HP’s consolidated net revenue, have now been reclassified from Other to segments.~~ HP ~~has~~ reflected this change to its ~~segment and~~ business unit information in prior reporting periods on an as-if basis. The reporting change had no impact onto previously reported segment net revenue, consolidated net revenue, earnings from operations, net earnings or net ~~earnings per share.~~

~~Segment Operating Results from Operations~~

Personal
Systems Printing Corporate
Investments Total
Segments Other Total
In millions
Three months ended April 30, 2018

Net revenue $ 8,762
$ 5,241
$ 1
$ 14,004
$ (1 ) $ 14,003
Earnings (loss) from operations $ 331
$ 839
$ (21 ) $ 1,149

Three months ended April 30, 2017

Net revenue $ 7,653
$ 4,728
$ 3
$ 12,384
$ 1
$ 12,385
Earnings (loss) from operations $ 244
$ 820
$ (26 ) $ 1,038

Six months ended April 30, 2018

Net revenue $ 18,202
$ 10,317
$ 2
$ 28,521
$ (1 ) $ 28,520
Earnings (loss) from operations $ 668
$ 1,640
$ (40 ) $ 2,268

Six months ended April 30, 2017

Net revenue $ 15,869
$ 9,192
$ 5
$ 25,066
$ 3
$ 25,069
Earnings (loss) from operations $ 556
$ 1,534
$ (49 ) $ 2,041

~~The reconciliation of segment operating results to HP consolidated results was as follows:~~EPS.

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 2: Segment Information (Continued)

Segment Operating Results from Operations and the reconciliation to HP consolidated results were as follows:


	Three months ended April 30						Six months ended April 30						Three months ended April 30						Six months ended April 30
	2018			2017			2018			2017			2019			2018			2019			2018
	In millions												In millions
Net Revenue:	Net Revenue:												Net Revenue:
Personal Systems													$	8,921		$	8,762		$	18,578		$	18,202
Printing													5,116			5,241			10,172			10,317
Corporate Investments													—			1			1			2
Total segments	$	14,004		$	12,384		$	28,521		$	25,066		$	14,037		$	14,004		$	28,751		$	28,521
Other	(1		)	1			(1		)	3			(1		)	(1		)	(5		)	(1		)
Total net revenue	$	14,003		$	12,385		$	28,520		$	25,069		$	14,036		$	14,003		$	28,746		$	28,520
Earnings before taxes:
Personal Systems													$	385		$	329		$	795		$	664
Printing													839			837			1,660			1,636
Corporate Investments													(24		)	(21		)	(48		)	(40		)
Total segment earnings from operations	$	1,149		$	1,038		$	2,268		$	2,041		$	1,200		$	1,145		$	2,407		$	2,260
Corporate and unallocated costs and other	—			(11		)	32			(4		)	(97		)	(54		)	(177		)	(78		)
Stock-based compensation expense	(63		)	(48		)	(148		)	(123		)	(66		)	(63		)	(173		)	(148		)
Restructuring and other charges	(57		)	(140		)	(88		)	(203		)	(69		)	(57		)	(124		)	(88		)
Acquisition-related charges	(45		)	(20		)	(87		)	(36		)	(11		)	(45		)	(21		)	(87		)
Amortization of intangible assets	(20		)	(1		)	(40		)	(1		)	(29		)	(20		)	(58		)	(40		)
Interest and other, net	(881		)	(64		)	(949		)	(145		)	(45		)	(823		)	(71		)	(831		)
Total earnings before taxes	$	83		$	754		$	988		$	1,529		$	883		$	83		$	1,783		$	988

Net revenue by segment and business unit was as follows:



	Three months ended April 30						Six months ended April 30
	2019			2018			2019			2018
	In millions
Notebooks	$	5,099		$	5,153		$	11,018		$	10,748
Desktops	2,940			2,752			5,797			5,707
Workstations	569			538			1,131			1,081
Other	313			319			632			666
Personal Systems	8,921			8,762			18,578			18,202
Supplies	3,331			3,434			6,598			6,785
Commercial Hardware	1,179			1,145			2,269			2,182
Consumer Hardware	606			662			1,305			1,350
Printing	5,116			5,241			10,172			10,317
Corporate Investments	—			1			1			2
Total segment net revenue	14,037			14,004			28,751			28,521
Other	(1		)	(1		)	(5		)	(1		)
Total net revenue	$	14,036		$	14,003		$	28,746		$	28,520

Three months ended April 30 Six months ended April 30
2018 2017 2018 2017
In millions
Notebooks $ 5,153
$ 4,493
$ 10,748
$ 9,383
Desktops 2,752
2,377
5,707
4,911
Workstations 538
495
1,081
986
Other 319
288
666
589
Personal Systems 8,762
7,653
18,202
15,869
Supplies 3,434
3,188
6,785
6,223
Commercial Hardware 1,186
936
2,256
1,775
Consumer Hardware 621
604
1,276
1,194
Printing 5,241
4,728
10,317
9,192
Corporate Investments 1
3
2
5
Total segment net revenue 14,004
12,384
28,521
25,066
Other (1 ) 1
(1 ) 3
Total net revenue $ 14,003
$ 12,385
$ 28,520
$ 25,069

Table of Contents

HP INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

(Unaudited)

Note 3: Restructuring and Other Charges

Summary of Restructuring Plans

HP’s restructuring activities for the six months ended April 30, ~~2018~~2019 and ~~2017~~2018 summarized by ~~the plans outlined below~~plan were as follows:

~~Table of Contents~~

~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 3: Restructuring and Other Charges (Continued)~~


	Fiscal 2017 Plan						Fiscal 2015 Plan						Fiscal 2012 Plan								Fiscal 2017 Plan
	Severance			Infrastructure and other⁽¹⁾			Severance and PRP⁽²⁾			Infrastructure and other			Severance and EER⁽³⁾			Infrastructure and other		Total			Severance			Infrastructure and other			Other prior-year plans⁽¹⁾			Total
																					In millions
Accrued balance as of October 31, 2018																					$	50		$	—		$	9		$	59
Charges																					97			19			—			116
Cash payments																					(61		)	(8		)	(3		)	(72		)
Non-cash and other adjustments																					(3		)	(11		)	—			(14		)
Accrued balance as of April 30, 2019																					$	83		$	—		$	6		$	89
Total costs incurred to date as of April 30, 2019																					$	350		$	100		$	1,317		$	1,767

Reflected in Consolidated Condensed Balance Sheets
Other accrued liabilities																					83			—			5			88
Other non-current liabilities																					—			—			1			1
	In millions
Accrued balance as of October 31, 2017	$	76		$	19		$	6		$	2		$	3		$	2	$	108		76			19			13			108
Charges	52			12			—			—			—			—		64			52			12			—			64
Cash payments	(86		)	(31		)	(1		)	(2		)	—			—		(120		)	(86		)	(31		)	(3		)	(120		)
Non-cash and other adjustments	—			—			1			—			—			—		1			—			—			1			1
Accrued balance as of April 30, 2018	$	42		$	—		$	6		$	—		$	3		$	2	$	53		$	42		$	—		$	11		$	53
Total costs incurred to date as of April 30, 2018	$	193		$	106		$	171		$	27		$	1,075		$	44	$	1,616
Reflected in Consolidated Condensed Balance Sheets
Other accrued liabilities	$	42		$	—		$	6		$	—		$	3		$	1	$	52
Other non-current liabilities	—			—			—			—			—			1		1
Accrued balance as of October 31, 2016	$	24		$	—		$	21		$	4		$	7		$	2	$	58
Charges	81			58			10			—			1			—		150
Cash payments	(20		)	(4		)	(31		)	(2		)	(3		)	—		(60		)
Non-cash and other adjustments	—			(52		)	1			—			—			—		(51		)
Accrued balance as of April 30, 2017	$	85		$	2		$	1		$	2		$	5		$	2	$	97

HP’s restructuring charges for the three months ended April 30, ~~2018~~2019 summarized by the plans outlined below were as follows:

Fiscal 2017 Plan Fiscal 2015 Plan Fiscal 2012 Plan
Severance Infrastructure and other
Severance and PRP⁽²⁾
Infrastructure and other
Severance and EER⁽³⁾
Infrastructure and other Total
In millions
For the three months ended April 30, 2018 $ 40
$ 6
$ —
$ —
$ —
$ —
$ 46



	Fiscal 2017 Plan
	Severance		Infrastructure and other		Other prior-year plans⁽¹⁾		Total
	In millions
For the three months ended April 30, 2019	$	50	$	13	$	—	$	63


⁽¹⁾	~~Infrastructure and other includes asset impairment charges of $52 million for the three and six months ended April 30, 2017~~Includes prior-year plans which are considered substantially complete. HP does not expect any further material activity associated with ~~the consolidation of manufacturing into global hubs.~~these plans.


⁽²⁾	~~PRP represents Phased Retirement Program.~~


⁽³⁾	~~EER represents Enhanced Early Retirement.~~

Fiscal 2017 Plan

On October 10, 2016, HP’s Board of Directors approved a restructuring plan (the “Fiscal 2017 Plan”), which ~~it had~~HP expected would be implemented through fiscal year 2019. HP estimated that it would incur aggregate pre-tax charges of approximately $500 million relating to labor and non-labor actions. HP expected around 4,000 employees to exit by the end of fiscal year 2019.

On May 26, 2018, HP’s Board of Directors approved amending the Fiscal 2017 Plan. HP ~~now~~ expects approximately 4,500 to 5,000 employees to exit by the end of fiscal year ~~2019, subject to certain jurisdictional labor law requirements.~~2019. HP estimates that it will ~~now~~ incur aggregate pre-tax charges of approximately $700 million relating to labor and non-labor actions. HP estimates that approximately half of the expected cumulative pre-tax costs will relate to severance and the remaining costs will relate to infrastructure, non-labor actions and other charges.

~~Fiscal 2015 Plan~~

In connection with the Separation, on September 14, 2015, HP’s Board of Directors approved a cost savings plan (the “Fiscal 2015 Plan”), which includes labor and non-labor actions. The Fiscal 2015 Plan was considered substantially complete as of October 31, 2016 and HP does not expect any further activity associated with this plan.

~~Fiscal 2012 Plan~~

HP initiated a restructuring plan in fiscal year 2012 (the “Fiscal 2012 Plan”), which includes severance and infrastructure costs. The Fiscal 2012 Plan was considered substantially complete as of October 31, 2016 and HP does not expect any further activity associated with this plan.

~~Table of Contents~~

~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 3: Restructuring and Other Charges (Continued)~~

Other Charges

Other charges include non-recurring costs, including those as a result of Separation, and are distinct from ongoing operational costs. These costs primarily relate to information technology costs such as advisory, consulting and non-recurring labor costs. For the three and six months ended April 30, ~~2018,~~2019, HP incurred ~~$11~~$6 million and ~~$24~~$8 million of other charges, respectively. For the three and six months ended April 30, ~~2017,~~2018, HP incurred ~~$22~~$11 million and ~~$53~~$24 million of other charges, respectively.

Table of Contents

HP INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 4: Retirement and Post-Retirement Benefit Plans

The components of HP’s pension and post-retirement (credit) benefit ~~(credit)~~ cost recognized in the Consolidated Condensed Statements of Earnings were as follows:


	Three months ended April 30																		Three months ended April 30
	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						Post-Retirement Benefit Plans						U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						Post-Retirement Benefit Plans
	2018			2017			2018			2017			2018			2017			2019			2018			2019			2018			2019			2018
	In millions																		In millions
Service cost	$	—		$	—		$	14		$	12		$	—		$	—		$	—		$	—		$	15		$	14		$	—		$	—
Interest cost	113			117			6			4			4			5			123			113			6			6			4			4
Expected return on plan assets	(179		)	(170		)	(10		)	(8		)	(6		)	(6		)	(146		)	(179		)	(9		)	(10		)	(5		)	(6		)
Amortization and deferrals:
Actuarial loss (gain)	16			18			7			10			(4		)	(5		)	15			16			8			7			(8		)	(4		)
Prior service benefit	—			—			(1		)	(1		)	(5		)	(5		)	—			—			—			(1		)	(3		)	(5		)
Net periodic (credit) benefit cost	(50		)	(35		)	16			17			(11		)	(11		)	(8		)	(50		)	20			16			(12		)	(11		)
Settlement loss	—			3			—			—			—			—			1			—			—			—			—			—
Total periodic (credit) benefit cost	$	(50	)	$	(32	)	$	16		$	17		$	(11	)	$	(11	)	$	(7	)	$	(50	)	$	20		$	16		$	(12	)	$	(11	)


	Six months ended April 30																		Six months ended April 30
	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						Post- Retirement Benefit Plans						U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						Post- Retirement Benefit Plans
	2018			2017			2018			2017			2018			2017			2019			2018			2019			2018			2019			2018
	In millions																		In millions
Service cost	$	—		$	—		$	28		$	24		$	—		$	—		$	—		$	—		$	29		$	28		$	—		$	—
Interest cost	226			234			12			8			8			9			246			226			12			12			8			8
Expected return on plan assets	(360		)	(339		)	(20		)	(16		)	(12		)	(12		)	(291		)	(360		)	(19		)	(20		)	(10		)	(12		)
Amortization and deferrals:
Actuarial loss (gain)	31			36			14			20			(8		)	(7		)	30			31			16			14			(16		)	(8		)
Prior service benefit	—			—			(2		)	(2		)	(10		)	(10		)	—			—			(1		)	(2		)	(6		)	(10		)
Net periodic benefit (credit) cost	(103		)	(69		)	32			34			(22		)	(20		)
Net periodic (credit) benefit cost																			(15		)	(103		)	37			32			(24		)	(22		)
Settlement loss	1			3			—			—			—			—			1			1			—			—			—			—
Total periodic benefit (credit) cost	$	(102	)	$	(66	)	$	32		$	34		$	(22	)	$	(20	)
Total periodic (credit) benefit cost																			(14		)	(102		)	37			32			(24		)	(22		)

Employer Contributions and Funding Policy

HP’s policy is to fund its pension plans so that it makes at least the minimum contribution required by local government, funding and taxing authorities.

During fiscal year ~~2018,~~2019, HP anticipates making contributions of approximately ~~$33~~$46 million to its non-U.S. pension plans, ~~including an increase of $9 million related to the acquisition of Samsung’s printer business,~~ approximately ~~$33~~$32 million to its U.S. non-qualified plan participants and approximately $7$6 million to cover benefit claims under HP’s post-retirement benefit plans. During the six months ended April 30, ~~2018,~~2019, HP contributed ~~$16~~$15 million to its non-U.S. pension plans, ~~and~~ paid ~~$20~~$17 million to cover benefit payments to U.S. non-qualified plan participants.

~~Table of Contents~~

~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 4: Retirement and Post-Retirement Benefit Plans (Continued)~~

HP’s pension and other post-retirement benefit costs and obligations depend on various assumptions. Differences between expected and actual returns on investments and changes in discount rates and other actuarial assumptions are reflected as unrecognized gains or losses, and such gains or losses are amortized to earnings in future periods. A deterioration in the funded status of a plan could result in a need for additional company contributions or an increase in net pension and post-retirement benefit costs in future periods. Actuarial gains or losses are determined at the measurement date and amortized over the remaining service life for active plans or the life expectancy of plan participants for frozen plans.

~~Note 5: Stock-Based Compensation~~

~~HP’s stock-based compensation plans permit the issuance of restricted stock awards, stock options and performance-based awards.~~

~~Stock-based compensation expense and the resulting tax benefits were as follows:~~

Three months ended April 30 Six months ended April 30
2018 2017 2018 2017
In millions
Stock-based compensation expense $ 63
$ 48
$ 148
$ 123
Income tax benefit (14 ) (15 ) (33 ) (39 )
Stock-based compensation expense, net of tax $ 49
$ 33
$ 115
$ 84

~~Restricted Stock Awards~~

Restricted stock awards are non-vested stock awards that may include grants of restricted stock or restricted stock units. For the three and six months ended April 30, 2018 and 2017, HP granted only restricted stock units. HP uses the closing stock price on the grant date to estimate the fair value of service-based restricted stock units. HP did not grant any restricted stock units subject to performance-adjusted vesting conditions for the three months ended April 30, 2018 and 2017. HP estimates the fair value of restricted stock units subject to performance-adjusted vesting conditions using a combination of the closing stock price on the grant date and a Monte Carlo simulation model. The weighted-average fair value and the assumptions used to measure the fair value of restricted stock units subject to performance-adjusted vesting conditions in the Monte Carlo simulation model were as follows:

Six months ended April 30
2018 2017
Weighted-average fair value⁽¹⁾
$ 24
$ 20
Expected volatility⁽²⁾
29.8 % 30.5 %
Risk-free interest rate⁽³⁾
1.9 % 1.4 %
Expected performance period in years⁽⁴⁾
2.9
2.9


⁽¹⁾	~~The weighted-average fair value was based on performance-adjusted restricted stock units granted during the period.~~


⁽²⁾	~~The expected volatility was estimated using the historical volatility derived from HP’s common stock.~~


⁽³⁾	~~The risk-free interest rate was estimated based on the yield on U.S. Treasury zero-coupon issues.~~


⁽⁴⁾	~~The expected performance period was estimated based on the length of the remaining performance period from the grant date.~~

Table of Contents

HP INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

~~Note 5: Stock-Based Compensation (Continued)~~

~~A summary of restricted stock unit activity was as follows:~~

Six months ended April 30, 2018
Shares Weighted-Average
Grant Date Fair Value
Per Share
In thousands
Outstanding at beginning of period 31,822
$ 14
Granted 13,862
$ 21
Vested (13,706 ) $ 14
Forfeited (577 ) $ 17
Outstanding at end of period 31,401
$ 17

As of April 30, 2018, there was $282 million of unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock units, which HP expects to recognize over the remaining weighted-average vesting period of 1.4 years.

~~Stock Options~~

HP utilizes the Black-Scholes-Merton option pricing model to estimate the fair value of stock options subject to service-based vesting conditions. HP estimates the fair value of stock options subject to performance-contingent vesting conditions using a combination of a Monte Carlo simulation model and a lattice model, as these awards contain market conditions. HP did not grant any stock options for the three and six months ended April 30, 2017. The weighted-average fair value and the assumptions used to measure the fair value of stock options for the three and six months ended April 30, 2018 were as follows:

Three months ended April 30, 2018 Six months ended April 30, 2018
Weighted-average fair value ⁽¹⁾
$ 5
$ 5
Expected volatility ⁽²⁾
29.4 % 29.4 %
Risk-free interest rate ⁽³⁾
2.5 % 2.5 %
Expected dividend yield ⁽⁴⁾
2.6 % 2.6 %
Expected term in years ⁽⁵⁾
5
5


⁽¹⁾	~~The weighted-average fair value was based on stock options granted during the period.~~


⁽²⁾	~~The expected volatility was estimated based on a blended volatility (50% historical volatility and 50% implied volatility from traded options on HP's common stock).~~


⁽³⁾	~~The risk-free interest rate was estimated based on the yield on U.S. Treasury zero-coupon issues.~~


⁽⁴⁾	~~The expected dividend yield represents a constant dividend yield applied for the duration of the expected term of the award.~~


⁽⁵⁾	Due to the lack of historical exercise and post-vesting termination patterns of the post-Separation employee base, the expected term was estimated using the simplified method; and for the performance-contingent awards, the expected term represents an output from the lattice model.

~~Table of Contents~~

~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 5: Stock-Based Compensation (Continued)~~

~~A summary of stock option activity was as follows:~~

Six months ended April 30, 2018
Shares Weighted-
Average
Exercise Price Weighted-
Average
Remaining
Contractual
Term Aggregate
Intrinsic Value
In thousands In years In millions
Outstanding at beginning of period 18,067
$ 13

Granted 54
$ 21

Exercised (6,942 ) $ 12

Forfeited and expired (110 ) $ 22

Outstanding at end of period 11,069
$ 14
4.4 $ 87
Vested and expected to vest 10,973
$ 14
4.4 $ 86
Exercisable 7,603
$ 13
4.0 $ 62

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that option holders would have realized had all option holders exercised their options on the last trading day of the second quarter of fiscal year 2018. The aggregate intrinsic value is the difference between HP’s closing stock price on the last trading day of the second quarter of fiscal year 2018 and the exercise price, multiplied by the number of in-the-money options. The total intrinsic value of options exercised for the three and six months ended April 30, 2018 was $40 million and $70 million~~respectively.~~

As of April 30, 2018, there was $3 million of unrecognized pre-tax, stock-based compensation expense related to unvested stock options, which HP expects to recognize over the remaining weighted-average vesting period of 0.4 years.

~~In January 2018, the Board approved an amendment and restatement of HP’s 2004 Stock Incentive Plan, which included retiring 80 million shares from the plan’s share reserves.~~

Note 6:5: Taxes on Earnings

~~Tax Matters Agreement and Other Income Tax Matters~~

In connection with the Separation, HP entered into the tax matters agreement (“TMA”) with Hewlett Packard Enterprise, effective on November 1, 2015. The TMA provides that HP and Hewlett Packard Enterprise will share certain pre-Separation income tax liabilities. In addition, if the distribution of Hewlett Packard Enterprise’s common shares to the HP stockholders is determined to be taxable, Hewlett Packard Enterprise and HP would share the tax liability equally, unless the taxability of the distribution is the direct result of action taken by either Hewlett Packard Enterprise or HP subsequent to the distribution, in which case the party causing the distribution to be taxable would be responsible for any taxes imposed on the distribution.

HP records income tax indemnification receivables from various third parties for certain income tax liabilities that HP is jointly and severally liable for, but for which it is indemnified by those same third parties under existing legal agreements. The actual amount that the third parties pay may be obligated to pay HP could vary depending on the outcome of certain unresolved tax matters, which may not be resolved for several years. The net receivable as of April 30, 2018 was $898 million.

Provision for Taxes

On December 22, 2017, the TCJA was ~~signed by the President of the United States and~~ enacted into law. The law includes significant changes to the U.S. corporate income tax system, including a federal corporate rate reduction from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, and the transition of U.S. international taxation from a worldwide tax system to a territorial tax system. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017 (the “Effective Date”), or in the case of certain other provisions, January 1, 2018.

~~Table of Contents~~

~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 6: Taxes on Earnings (Continued)~~

When a U.S. federal tax rate change occurs during a fiscal year, taxpayers are required to compute a weighted daily average rate for the fiscal year of enactment. As a result of the TCJA, HP has calculated a blended U.S. federal statutory corporate income tax rate of 23% for the fiscal year ending October 31, 2018 and applied this rate in computing the first and second quarters’ income tax provision for fiscal year 2018. The blended U.S. federal statutory corporate income tax rate of 23% is the weighted daily average rate between the pre-enactment U.S. federal statutory tax rate of 35% applicable to HP’s 2018 fiscal year prior to the Effective Date and the post-enactment U.S. federal statutory tax rate of 21% applicable to the 2018 fiscal year thereafter. HP expects the U.S. federal statutory rate to be 21% for fiscal years beginning after October 31, 2018.

Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), in December 2017, which allows registrants to record provisional amounts during a one year “measurement period”. During the measurement period, impacts of the TCJA are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.

SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the TCJA.

As of ~~April 30, 2018,~~January 31, 2019, HP ~~has not~~had completed its accounting for the tax effects of the TCJA however, in certain cases HP has made a reasonable estimate of the effects for remeasurement on its existing deferred tax balances and the one-time transition tax. With respect to the Global Intangible Low Taxed Income (“Global Minimum Tax”) provisions, further discussed below, HP has not been able to make a reasonable estimate and continues to account for this item based on its existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. The impact of the TCJA may differ materially from this estimate due towith no material changes ~~in interpretations and assumptions HP has made, additional guidance that may be issued and actions HP may take as a result of the TCJA. The impacts of HP's estimates are described further below.~~

While HP has not yet completed its analysis to the impact on its deferred tax balances, for the three months ended January 31, 2018, HP recorded provisional income tax expense of $1.2 billion related to the remeasurement of its deferred tax assets and liabilities at the new statutory rate. In addition, for the three months ended April 30, 2018, due to additional information and a subsequent refinement of its analysis HP recorded provisional tax expense of $379 million related to remeasurement of its U.S. deferred tax assets that are expected to be realized at a lower rate by recording a valuation allowance. HP is still analyzing certain aspects of the TCJA and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

The TCJA also includes a one-time mandatory deemed repatriation transition tax on the net accumulated post-1986 earnings and profits (“E&P”) of a U.S. taxpayer’s foreign subsidiaries. HP has computed a provisional deemed repatriation tax of approximately $3.1 billion, of which more than half is expected to be offset with existing and future tax attributes, reducing HP’s cash outlay. Companies may elect to pay this tax over 8 years, and HP intends to make this election. HP has not yet completed its calculation of the total post-1986 E&P for its foreign subsidiaries. Further, the transition tax is based, in part, on the amount of those earnings held in cash and other specified assets. This amount may change when HP finalizes the calculation of post-1986 E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.

As a result of the deemed repatriation tax noted above, which is based on HP’s total post-1986 deferred foreign income, HP redetermined $5.5 billion of its U.S. deferred tax liability on those unremitted earnings with a provisional tax payable of $3.1 billion, as noted above. This resulted in a net benefit. This tax benefit is provisional as HP is still analyzing certain aspects of the legislation and refining calculations, which could potentially materially affect the measurement of these amounts.

Upon further analysis of certain aspects of the TCJA and refinement of the calculations during the three months ended April 30, 2018, HP adjusted the provisional tax payable by recording a tax expense of $336 million primarily comprised of a tax expense of $379 million for reduction to its deferred tax assets and a tax benefit of $43 million as an adjustment to the provisional ~~deemed repatriation tax amount due to further analysis and additional guidance. During~~amounts recorded during the three months ended April 30, 2018, HP remeasured its deferred taxes to reflect the reduced rate that will apply when these deferred taxes are settled or realized in future periods. HP has not yet completed the accounting for the remeasurement of deferred taxes. To calculate the remeasurement of deferred taxes, HP has estimated when the existing deferred taxes will be settled or realized. The

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~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 6: Taxes on Earnings (Continued)~~

~~remeasurement of deferred taxes included in the financial statements will be subject to further revisions if the current estimates are different from the actual future operating results.~~measurement period.

In January 2018, the FASB released guidance on the accounting for tax on the Global Minimum Tax provisions of TCJA. The Global Minimum Tax provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to Global Minimum Tax inclusions or to treat any taxes on Global Minimum Tax inclusions as period cost are both acceptable methods subject to an accounting policy election. HP ~~is still evaluating whether to make a policy election~~has elected to treat the Global Minimum Tax inclusions as a period cost or to provide U.S. deferred taxes on foreign temporary differences that are expected to generate Global Minimum Tax income when they reverse in future years. There could be additional changes to HP's deferred taxes once it completes its evaluations.costs.

As a result of U.S. tax reform, HP revised its estimated annual effective tax rate to reflect the change in the U.S. federal statutory tax rate from 35% to 21%. Since HP has a fiscal year ending October 31, it is subject to transitional tax rate rules. Therefore, a blended rate of 23% was computed as effective for the current fiscal year. HP’s effective tax rate was ~~(1,162%)~~11.4% and ~~25.9%~~(1,162)% for the three months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~(203%)~~11.1% and ~~23.5%~~(203)% for the six months ended April 30, ~~2018~~2019 and ~~April 30, 2017,~~2018, respectively. The difference between the ~~current fiscal year blended~~ U.S. federal statutory tax rate of ~~23%~~21% and HP’s effective tax rate for the three and six months ended April 30, ~~2018~~2019 is primarily due to favorable tax rates associated with certain earnings from HP’s operations in lower-tax jurisdictions throughout the world. For the three and six months ended April 30, 2018 HP’s effective tax rate generally differs from the U.S. federal statutory rate of 23% due to the transitional impacts of U.S. tax reform and resolution of various audits and tax litigation, partially offset by favorable tax rates associated with certain earnings from HP’s operations in lower-tax jurisdictions throughout the world. ~~For~~

During the three and six months ended April 30, ~~2017 HP’s effective~~2019, HP recorded $40 million and $49 million, respectively, of net tax ~~rate generally differs from~~benefits related to discrete items in the ~~U.S. federal statutory rate~~provision for taxes. These amounts included tax benefits of ~~35% due~~$42 million and $48 million related to ~~favorable~~one-time items for the three and six months ended April 30, 2019, respectively, and $14 million and $26 million related to restructuring charges for the three and six months ended April 30, 2019, respectively. These benefits were partially offset by uncertain tax ~~rates~~position charges of $12 million and $32 million for the three and six months ended April 30, 2019, respectively, and other charges of $4 million and $14 million for the three and six months ended April 30, 2019, respectively. The six months ended April 30, 2019 also included a tax benefit of $21 million related to final tax reform adjustments. In addition to the discrete items mentioned above, HP recorded $20 million of excess tax benefits associated with ~~certain earnings from HP’s operations in lower-tax jurisdictions throughout~~stock options, restricted stock units and performance-adjusted restricted stock units for the ~~world. HP has not provided U.S. taxes for all foreign earnings because HP plans to reinvest some of those earnings indefinitely outside the United States.~~six months ended April 30, 2019.

During the three and six months ended April 30, 2018, HP recorded $1.1 billion and $2.2 billion, respectively, of net tax benefits related to discrete items in the provision for taxes. As ~~noted above,~~of April 30, 2018, HP ~~has~~had not yet completed its analysis of the full impact of TCJA. However, for the three months ended January 31, 2018, HP recorded a provisional tax benefit of $1.1 billion related to $5.5 billion net benefit for the decrease in our deferred tax liability on unremitted foreign earnings, partially offset by $3.2 billion net expense for the deemed repatriation tax payable in installments over eight years and $1.2 billion net expense for remeasurement of its deferred tax assets and liabilities for the ~~remeasurement~~revaluation of its deferred assets and liabilities to the new U.S. statutory tax rate. In addition, for the three months ended April 30, 2018, HP recorded provisional tax expense of $379 million related to remeasurement of its U.S. deferred tax assets that ~~are~~were expected to be realized at a lower rate and a $43 million tax benefit as an adjustment to the provisional deemed repatriation tax amount due to further analysis and additional guidance. This amount also included tax benefits related to audit settlements of $1.4 billion and $1.5 billion for the three and six months ended April 30, 2018, respectively, and loss on extinguishment of debt of $33 million for the three and six months ended April 30, 2018. These tax benefits were offset by uncertain tax position charges of $8 million and $51 million for the three and six months ended April 30, 2018, respectively. During the three and six months ended April 30, 2018, in addition to the discrete items mentioned above, weHP recorded excess tax benefits of $6$6 million and ~~$34~~$34 million,, respectively, on stock options, restricted stock units and performance-adjusted restricted stock units.

In the second quarter of 2018, HP settled audits with multiple tax jurisdictions covering numerous open years while also achieving resolution on certain tax litigations. HP has agreed with all of the adjustments contained within the various final closing agreements and has redetermined its unrecognized tax positions for all open years based on the closing agreements and associated information and analysis of those agreements. HP recorded net benefit of $1.4 billion in the quarter due to the completion of the various audits, the resolution of certain tax litigations and associated reserve redeterminations.

During the three and six months ended April 30, 2017, HP recorded $4 million and $5 million, respectively, of net tax benefit related to discrete items in the provision for taxes. These amounts included a tax benefit of $12 million and $31 million for the three and six months ended April 30, 2017, respectively, related to restructuring charges. The three months ended April 30, 2017 also included various other tax charges of $8 million. The six months ended April 30, 2017 also included a tax charge of $26 million related to state provision to return adjustments.

Uncertain Tax Positions

As of April 30, ~~2018,~~2019, the amount of gross unrecognized tax benefits was ~~$8.0~~$7.8 billion, of which up to ~~$1.7~~$1.5 billion would affect HP’s effective tax rate if and when realized. ~~The~~There were no material changes to the amount of gross unrecognized tax benefits ~~decreased by $2.8 billion~~ for the six months ended April 30, ~~2018, primarily related to the resolution of various audits.~~2019. HP recognizes interest income from favorable settlements and interest expense and penalties accrued on unrecognized tax benefits in the provision for taxes in the Consolidated Condensed Statements of Earnings. As of April 30, 2019 and 2018, HP had accrued $193 million and $141 million, respectively, for interest and penalties.

HP engages in continuous discussions and negotiations with taxing authorities regarding tax matters in various jurisdictions. HP expects to complete resolution of certain tax years with various tax authorities within the next 12 months. It is

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HP INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 6:5: Taxes on Earnings (Continued)

also possible that other federal, foreign and state tax issues may be concluded within the next 12 months. HP believes it is reasonably possible that its existing gross unrecognized tax benefits may be reduced by up to $6.4 billion within the next 12 ~~months. These unrecognized~~months of which up to $706 million would affect HP’s effective tax ~~benefits have associated gain contingencies which will be settled in the same period resulting in a net release of $822 million.~~ rate if and when realized.

HP is subject to income tax in the United States and approximately 5860 other countries and is subject to routine corporate income tax audits in many of these jurisdictions. In addition, HP is subject to numerous ongoing audits by federal, state and foreign tax authorities. The U.S. Internal Revenue Service is conducting an audit of HP’s 2013 ~~2014 and 2015~~through 2016 income tax returns.

Note 7:6: Supplementary Financial Information

Accounts Receivable, net


	As of						As of
	April 30, 2018			October 31, 2017			April 30, 2019			October 31, 2018
	In millions						In millions
Accounts receivable	$	4,732		$	4,515		$	5,526		$	5,242
Allowance for doubtful accounts	(127		)	(101		)	(112		)	(129		)
	$	4,605		$	4,414		$	5,414		$	5,113

The allowance for doubtful accounts related to accounts receivable and changes ~~was~~were as follows:


	Six months ended April 30, 2018			Six months ended April 30, 2019
	In millions			In millions
Balance at beginning of period	$	101		$	129
Provision for doubtful accounts	29			24
Deductions, net of recoveries	(3		)	(41		)
Balance at end of period	$	127		$	112

HP has third-party arrangements, consisting of revolving short-term financing, which provide liquidity to certain partners in order to facilitate their working capital requirements. These financing arrangements, which in certain circumstances may contain partial recourse, result in a transfer of HP’s receivables and risk to the third party. As these transfers qualify as true sales under the applicable accounting guidance, the receivables are ~~derecognized~~de-recognized from the Consolidated Condensed Balance Sheets upon transfer, and HP receives a payment for the receivables from the third party within a mutually agreed upon time period. For arrangements involving an element of recourse, the recourse obligation is measured using market data from the similar transactions and reported as a current liability in the Consolidated Condensed Balance Sheets. The recourse obligations as of April 30, ~~2018~~2019 and October 31, ~~2017~~2018 were not material. The costs associated with the sales of trade receivables for the three ~~and six~~ months ended April 30, ~~2018~~2019 and ~~2017~~2018 were not material.

The following is a summary of the activity under these arrangements:


	Three months ended April 30						Six months ended April 30						Three months ended April 30						Six months ended April 30
	2018			2017			2018			2017			2019			2018			2019			2018
	In millions												In millions
Balance at beginning of period⁽¹⁾	$	172		$	104		$	147		$	149		$	194		$	172		$	165		$	147
Trade receivables sold	2,434			2,252			5,370			4,701			2,490			2,434			5,525			5,370
Cash receipts	(2,430		)	(2,235		)	(5,351		)	(4,728		)	(2,498		)	(2,430		)	(5,507		)	(5,351		)
Foreign currency and other	(5		)	2			5			1			(4		)	(5		)	(1		)	5
Balance at end of period⁽¹⁾	$	171		$	123		$	171		$	123		$	182		$	171		$	182		$	171


⁽¹⁾	Amounts outstanding from third parties reported in Accounts Receivable, net in the Consolidated Condensed Balance Sheets.

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HP INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 7:6: Supplementary Financial Information (Continued)

Inventory


	As of				As of
	April 30, 2018		October 31, 2017		April 30, 2019		October 31, 2018
	In millions				In millions
Finished goods	$	3,579	$	3,857	$	3,544	$	4,019
Purchased parts and fabricated assemblies	1,978		1,929		1,850		2,043
	$	5,557	$	5,786	$	5,394	$	6,062

Other Current Assets


	As of				As of
	April 30, 2018		October 31, 2017		April 30, 2019		October 31, 2018
	In millions				In millions
Supplier and other receivables					$	1,822	$	2,025
Prepaid and other current assets					1,216		1,445
Value-added taxes receivable	$	803	$	857	866		865
Available-for-sale investments⁽¹⁾	1,083		1,149		17		711
Supplier and other receivables	1,945		1,891
Prepaid and other current assets	1,193		1,224
	$	5,024	$	5,121	$	3,921	$	5,046


⁽¹⁾	See Note 8, “Financial Instruments” for detailed information.

Property, Plant and Equipment, net



	As of
	April 30, 2019			October 31, 2018
	In millions
Land, buildings and leasehold improvements	$	1,965		$	1,893
Machinery and equipment, including equipment held for lease	4,540			4,216
	6,505			6,109
Accumulated depreciation	(4,093		)	(3,911		)
	$	2,412		$	2,198

Other Non-Current Assets



	As of
	April 30, 2019		October 31, 2018
	In millions
Deferred tax assets	$	2,288	$	2,431
Tax indemnifications receivable	868		953
Intangible assets⁽¹⁾	701		453
Other⁽²⁾	1,043		1,232
	$	4,900	$	5,069


⁽¹⁾	See Note ~~8, “Fair Value”~~15, “Intangible Assets” for detailed information.


⁽²⁾	Includes marketable equity securities and mutual funds classified as available-for-sale investments of $54 million and $53 million as of April 30, 2019 and October 31, 2018, respectively. See Note 9,8, “Financial Instruments” for detailed ~~information.~~information

~~Property, Plant and Equipment~~

As of
April 30, 2018 October 31, 2017
In millions
Land, buildings and leasehold improvements $ 1,900
$ 2,082
Machinery and equipment, including equipment held for lease 4,110
3,876
6,010
5,958
Accumulated depreciation (3,949 ) (4,080 )
$ 2,061
$ 1,878

Other ~~Non-Current Assets~~Accrued Liabilities

As of
April 30, 2018 October 31, 2017
In millions
Tax indemnifications receivable⁽¹⁾
$ 911
$ 1,695
Deferred tax assets⁽²⁾
2,174
342
Other⁽³⁾
1,567
1,058
$ 4,652
$ 3,095



	As of
	April 30, 2019		October 31, 2018
	In millions
Sales and marketing programs	$	3,104	$	2,758
Deferred revenue	1,138		1,095
Other accrued taxes	916		982
Warranty	657		673
Other	2,227		1,868
	$	8,042	$	7,376

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HP INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 7:6: Supplementary Financial Information (Continued)


⁽¹⁾	During the three months ended April 30, 2018, HP adjusted $671 million of indemnification receivable, pursuant to resolution of various audit settlements. See Note 6, “Taxes on Earnings” for further information.


⁽²⁾	~~See Note 6, “Taxes on Earnings” for detailed information.~~


⁽³⁾	~~Includes marketable equity securities and mutual funds classified as available-for-sale investments of $57 million and $61 million as of April 30, 2018 and October 31, 2017, respectively.~~

~~Other Accrued Liabilities~~

As of
April 30, 2018 October 31, 2017
In millions
Other accrued taxes $ 897
$ 895
Warranty 651
660
Sales and marketing programs 2,650
2,441
Other 1,999
1,945
$ 6,197
$ 5,941

Other Non-Current Liabilities


	As of				As of
	April 30, 2018		October 31, 2017		April 30, 2019		October 31, 2018
	In millions				In millions
Tax liability					$	1,978	$	2,063
Pension, post-retirement, and post-employment liabilities	$	1,843	$	1,999	1,586		1,645
Deferred tax liability⁽¹⁾	86		1,410
Tax liability⁽¹⁾	2,577		2,005
Deferred revenue	956		921		1,026		1,005
Deferred tax liability					52		100
Other	867		827		839		793
	$	6,329	$	7,162	$	5,481	$	5,606


⁽¹⁾	~~See Note 6, “Taxes on Earnings” for detailed information.~~

Interest and ~~other,~~Other, net


	Three months ended April 30						Six months ended April 30						Three months ended April 30						Six months ended April 30
	2018			2017			2018			2017			2019			2018			2019			2018
	In millions												In millions
Tax indemnifications⁽¹⁾													$	5		$	(671	)	$	15		$	(673	)
Loss on extinguishment of debt	$	(126	)	$	—		$	(126	)	$	—		—			(126		)	—			(126		)
Tax indemnifications⁽¹⁾	(671		)	5			(673		)	14
Interest expense on borrowings	(88		)	(73		)	(175		)	(146		)	(61		)	(88		)	(125		)	(175		)
Foreign exchange loss	(27		)	(18		)	(40		)	(47		)
Other, net	31			22			65			34			11			62			39			143
	$	(881	)	$	(64	)	$	(949	)	$	(145	)	$	(45	)	$	(823	)	$	(71	)	$	(831	)


⁽¹⁾	For the three and six months ended April 30, 2018, includes an adjustment of $671 million of indemnification receivable, pursuant to resolution of various income tax audit settlements. See Note ~~6, “Taxes on Earnings”~~13, “Guarantees, Indemnifications and Warranties” for further information.

Net revenue by region



	Three months ended April 30				Six months ended April 30
	2019		2018		2019		2018
	In millions
Americas	$	5,785	$	5,929	$	11,817	$	12,164
Europe, Middle East and Africa	5,110		5,139		10,468		10,360
Asia-Pacific and Japan	3,141		2,935		6,461		5,996
Total net revenue	$	14,036	$	14,003	$	28,746	$	28,520

Value of Remaining Performance Obligations

As of April 30, 2019, the estimated value of transaction price allocated to remaining performance obligations was $4.4 billion. HP expects to recognize approximately $1.8 billion of the unearned amount in next 12 months and $2.6 billion thereafter.

HP has elected the practical expedients and accordingly does not disclose the aggregate amount of the transaction price allocated to remaining performance obligations if:

the contract has an original expected duration of one year or less; or

the revenue from the performance obligation is recognized over time on an as-invoiced basis when the amount corresponds directly with the value to the customer; or

the portion of the transaction price that is variable in nature is allocated entirely to a wholly unsatisfied performance obligation.

The remaining performance obligations are subject to change and may be affected by various factors, such as termination of contracts, contract modifications and adjustment for currency.

Costs of Obtaining Contracts

As of April 30, 2019, deferred contract fulfillment and acquisition costs balances were $40 million and $35 million, included in Other Current Assets and Other Non-Current Assets, respectively, in the Consolidated Condensed Balance Sheet. During the six months ended April 30, 2019, the Company amortized $43 million of these costs.

Contract Liabilities

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 6: Supplementary Financial Information (Continued)

As of April 30, 2019 and October 31, 2018, HP’s contract liabilities balances were $2.0 billion and $1.9 billion, included in Other Current Liabilities and Other Non-Current Liabilities, respectively, in the Consolidated Condensed Balance Sheet.

The increase in the contract liabilities balance for the six months ended April 30, 2019 is primarily driven by sales of fixed price support and maintenance services, partially offset by $526 million of revenue recognized that were included in the opening contract liabilities balance as of November 1, 2018.

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 8:7: Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

Fair Value Hierarchy

HP uses valuation techniques that are based upon observable and unobservable inputs. Observable inputs are developed using market data such as publicly available information and reflect the assumptions market participants would use, while unobservable inputs are developed using the best information available about the assumptions market participants would use.

Assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2—Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.

Level 3—Unobservable inputs for the asset or liability.

The fair value hierarchy gives the highest priority to observable inputs and lowest priority to unobservable inputs.

The following table presents HP’s assets and liabilities that are measured at fair value on a recurring basis:

As of April 30, 2018 As of October 31, 2017
Fair Value Measured Using Fair Value Measured Using
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
In millions
Assets:

Cash Equivalents:

Corporate debt $ —
$ 960
$ —
$ 960
$ —
$ 1,390
$ —
$ 1,390
Financial institution instruments —
10
—
10
—
6
—
6
Government debt⁽¹⁾
1,641
56
—
1,697
3,902
100
—
4,002
Available-for-Sale Investments:
Corporate debt —
554
—
554
—
629
—
629
Financial institution instruments —
66
—
66
—
78
—
78
Government debt⁽¹⁾
—
463
—
463
—
442
—
442
Mutual funds 51
—
—
51
49
—
—
49
Marketable equity securities 6
—
—
6
6
6
—
12
Derivative Instruments:

Foreign currency contracts —
189
10
199
—
110
10
120
Other derivatives —
1
—
1
—
1
—
1
Total Assets $ 1,698
$ 2,299
$ 10
$ 4,007
$ 3,957
$ 2,762
$ 10
$ 6,729
Liabilities:

Derivative Instruments:

Interest rate contracts $ —
$ 23
$ —
$ 23
$ —
$ 12
$ —
$ 12
Foreign currency contracts —
314
23
337
—
358
2
360
Total Liabilities $ —
$ 337
$ 23
$ 360
$ —
$ 370
$ 2
$ 372

~~__________________~~



	As of April 30, 2019								As of October 31, 2018
	Fair Value Measured Using								Fair Value Measured Using
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	In millions
Assets:
Cash Equivalents:
Corporate debt	$	—	$	1,272	$	—	$	1,272	$	—	$	1,620	$	—	$	1,620
Financial institution instruments	—		—		—		—		—		9		—		9
Government debt⁽¹⁾	1,231		9		—		1,240		2,217		150		—		2,367
Available-for-Sale Investments:
Corporate debt	—		12		—		12		—		366		—		366
Financial institution instruments	—		—		—		—		—		32		—		32
Government debt⁽¹⁾	—		5		—		5		—		313		—		313
Mutual funds	48		—		—		48		47		—		—		47
Marketable equity securities	6		—		—		6		6		—		—		6
Derivative Instruments:
Foreign currency contracts	—		429		—		429		—		508		7		515
Other derivatives	—		2		—		2		—		—		—		—
Total Assets	$	1,285	$	1,729	$	—	$	3,014	$	2,270	$	2,998	$	7	$	5,275
Liabilities:
Derivative Instruments:
Interest rate contracts	$	—	$	8	$	—	$	8	$	—	$	23	$	—	$	23
Foreign currency contracts	—		146		—		146		—		164		—		164
Other derivatives	—		—		—		—		—		8		—		8
Total Liabilities	$	—	$	154	$	—	$	154	$	—	$	195	$	—	$	195


⁽¹⁾	Government debt includes instruments such as U.S. ~~Treasury~~treasury notes, ~~U.S.~~U.S agency securities and non-U.S. government bonds. Money market funds invested in government debt and traded in active markets are included in Level 1.

There were no transfers between levels within the fair value hierarchy during the six months ended April 30, ~~2018.~~2019.

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 8:7: Fair Value (Continued)

Valuation Techniques

Cash Equivalents and Investments: HP holds time deposits, money market funds, mutual funds, other debt securities primarily consisting of corporate and government notes and bonds, and common stock and equivalents. HP values cash equivalents and equity investments using quoted market prices, alternative pricing sources, including net asset value, or models utilizing market observable inputs. The fair value of debt investments iswas based on quoted market prices or model-driven valuations using inputs primarily derived from or corroborated by observable market data, and, in certain instances, valuation models that utilize assumptions which cannot be corroborated with observable market data.

Derivative Instruments: From time to time, HP uses forward contracts, interest rate and total return swaps and, in the past, option contracts to hedge certain foreign currency ~~and~~ interest rate and return on certain investment exposures. HP uses industry standard valuation models to measure fair value. Where applicable, these models project future cash flows and discount the future amounts to present value using market-based observable inputs, including interest rate curves, HP and counterparty credit risk, foreign exchange rates, and forward and spot prices for currencies and interest rates. See Note 9,8, “Financial Instruments” for a further discussion of HP’s use of derivative instruments.

Other Fair Value Disclosures

Short- and Long-Term Debt: HP estimates the fair value of its debt primarily using an expected present value technique, which is based on observable market inputs using interest rates currently available to companies of similar credit standing for similar terms and remaining maturities and considering its own credit risk. The portion of HP’s debt that is hedged is reflected in the Consolidated Condensed Balance Sheets as an amount equal to the debt’s carrying amount and a fair value adjustment representing changes in the fair value of the hedged debt obligations arising from movements in benchmark interest rates. The fair value of HP’s short- and long-term debt was ~~$6.2~~$5.2 billion as of April 30, ~~2018,~~2019, compared to its carrying amount of ~~$6.1~~$5.0 billion at that date. The fair value of HP’s short- and long-term debt was ~~$8.1~~$6.0 billion as of October 31, ~~2017,~~2018, compared to its carrying value of ~~$7.8~~$6.0 billion at that date. If measured at fair value in the Consolidated Condensed Balance Sheets, ~~short~~short- and long-term debt would be classified in Level 2 of the fair value hierarchy.

Other Financial Instruments: For the balance of HP’s financial instruments, primarily accounts receivable, accounts payable and financial liabilities included in Other accrued liabilities on the Consolidated Condensed Balance Sheets, the carrying amounts approximate fair value due to their short maturities. If measured at fair value in the Consolidated Condensed Balance Sheets, these other financial instruments would be classified in Level 2 or Level 3 of the fair value hierarchy.

Non-Marketable Equity Investments and Non-Financial Assets: HP’s non-marketable equity investments ~~and~~are measured at cost less impairment, adjusted for observable price changes.HP’s non-financial assets, such as ~~goodwill,~~ intangible assets, goodwill and property, plant and equipment, are recorded at fair value in the period ~~of acquisition and a subsequent~~an impairment charge is recognized. If measured at fair value in the Consolidated Condensed Balance Sheets ~~non-marketable equity investments and non-financial assets~~these would generally be classified within Level 3 of the fair value hierarchy.

2526

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HP INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 9:8: Financial Instruments

Cash Equivalents and Available-for-Sale Investments


	As of April 30, 2018									As of October 31, 2017									As of April 30, 2019								As of October 31, 2018
	Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value		Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value		Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value		Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
	In millions																		In millions
Cash Equivalents:
Corporate debt	$	960	$	—	$	—		$	960	$	1,390	$	—	$	—		$	1,390	$	1,272	$	—	$	—	$	1,272	$	1,620	$	—	$	—		$	1,620
Financial institution instruments	10		—		—			10		6		—		—			6		—		—		—		—		9		—		—			9
Government debt	1,697		—		—			1,697		4,002		—		—			4,002		1,240		—		—		1,240		2,367		—		—			2,367
Total cash equivalents	2,667		—		—			2,667		5,398		—		—			5,398		2,512		—		—		2,512		3,996		—		—			3,996
Available-for-Sale Investments:
Corporate debt ⁽¹⁾	557		—		(3		)	554		629		—		—			629		12		—		—		12		368		—		(2		)	366
Financial institution instruments ⁽¹⁾	66		—		—			66		78		—		—			78		—		—		—		—		32		—		—			32
Government debt ⁽¹⁾	465		—		(2		)	463		443		—		(1		)	442		5		—		—		5		314		—		(1		)	313
Marketable equity securities	4		2		—			6		5		7		—			12		4		2		—		6		4		2		—			6
Mutual funds	41		10		—			51		39		10		—			49		39		9		—		48		38		9		—			47
Total available-for-sale investments	1,133		12		(5		)	1,140		1,194		17		(1		)	1,210		60		11		—		71		756		11		(3		)	764
Total cash equivalents and available-for-sale investments	$	3,800	$	12	$	(5	)	$	3,807	$	6,592	$	17	$	(1	)	$	6,608	$	2,572	$	11	$	—	$	2,583	$	4,752	$	11	$	(3	)	$	4,760

⁽¹⁾HP classifies its marketable debt securities as available-for-sale investments within Other current assets on the Consolidated Condensed Balance Sheets, including those with maturity dates beyond one year, based on their highly liquid nature and availability for use in current operations.


⁽¹⁾	HP classifies its marketable debt securities as available-for-sale investments within Other current assets on the Consolidated Condensed Balance Sheets, including those with maturity dates beyond one year, based on their highly liquid nature and availability for use in current operations.

All highly liquid investments with original maturities of three months or less at the date of acquisition are considered cash equivalents. As of April 30, ~~2018~~2019 and October 31, ~~2017,~~2018, the carrying amount of cash equivalents approximated fair value due to the short period of time to maturity. The estimated fair value of the available-for-sale investments may not be representative of values that will be realized in the future.

Contractual maturities of investments in available-for-sale debt securities were as follows:

As of April 30, 2018
Amortized
Cost Fair Value
In millions
Due in one year or less $ 757
$ 755
Due in one to five years $ 331
$ 328



	As of April 30, 2019
	Amortized Cost		Fair Value
	In millions
Due in one year or less	$	17	$	17

Equity securities in privately held companies ~~include cost basis and equity method investments and~~ are included in Other non-current assets on the Consolidated Condensed Balance Sheets. These amounted to ~~$33~~$49 million and ~~$37~~$36 millionas of April 30, ~~2018~~2019 and October 31, ~~2017,~~2018, respectively.

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~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 9: Financial Instruments (Continued)~~

Derivative Instruments

HP uses derivatives to offset business exposure to foreign currency and interest rate risk on expected future cash flows and on certain existing assets and liabilities. As part of its risk management strategy, HP uses derivative instruments, primarily forward contracts, interest rate swaps, total return swaps and, at times, option contracts to hedge certain foreign currency, interest rate and, ~~to a lesser extent, equity~~return on certain investment exposures. HP may designate its derivative contracts as fair value hedges or cash flow hedges and classifies the cash flows with the activities that correspond to the underlying hedged items. Additionally, for derivatives not designated as hedging instruments, HP categorizes those economic hedges as other derivatives. HP recognizes all derivative instruments at fair value in the Consolidated Condensed Balance Sheets.

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HP INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 8: Financial Instruments (Continued)

As a result of its use of derivative instruments, HP is exposed to the risk that its counterparties will fail to meet their contractual obligations. Master netting agreements mitigate credit exposure to counterparties by permitting HP to net amounts due from HP to counterparty against amounts due to HP from the same counterparty under certain conditions. To further limit credit risk, HP has collateral security agreements that allow HPHP’s custodian to hold collateral from, or require HP to post collateral to, counterparties when aggregate derivative fair values exceed contractually established thresholds which are generally based on the credit ratings of HP and its counterparties. If HP’s or the counterparty’s credit rating falls below a specified credit rating, either party has the right to request full collateralization of the derivatives’ net liability position. The fair value of derivatives with credit contingent features in a net liability position was ~~$217~~$56 million and ~~$258~~$68 million as of April 30, ~~2018~~2019 and as of October 31, ~~2017,~~2018, respectively, all of which were fully collateralized within two business days.

Under HP’s derivative contracts, the counterparty can terminate all outstanding trades following a covered change of control event affecting HP that results in the surviving entity being rated below a specified credit rating. This credit contingent provision did not affect HP’s financial position or cash flows as of April 30, ~~2018~~2019 and October 31, ~~2017.~~2018.

Fair Value Hedges

HP enters into fair value hedges, such as interest rate swaps, to reduce the exposure of its debt portfolio to changes in fair value resulting from changes in interest rates by achieving a primarily U.S. dollar London Interbank Offered Rate (“LIBOR”)-based floating interest expense.

For derivative instruments that are designated and qualify as fair value hedges, HP recognizes the change in fair value of the derivative instrument, as well as the offsetting change in the fair value of the hedged item, in Interest and other, net on the Consolidated Condensed Statements of Earnings in the period of change.

Cash Flow Hedges

HP uses forward contracts and at times, option contracts designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in its forecasted net revenue and, to a lesser extent, cost of revenue, operating expenses, and intercompany loans denominated in currencies other than the U.S. dollar. HP’s foreign currency cash flow hedges mature ~~generally~~predominantly within twelve months. However, hedges related to longer-term procurement arrangements extend several years and forward contracts associated with intercompany loans extend for the duration of the loan term, which typically range from two to five years.

For derivative instruments that are designated and qualify as cash flow hedges, HP initially records changes in fair value for the effective portion of the derivative instrument in accumulated other comprehensive loss as a separate component of stockholders’ deficit on the Consolidated Condensed Balance Sheets and subsequently reclassifies these amounts into earnings in the period during which the hedged transaction is recognized in earnings. HP reports the effective portion of its cash flow hedges in the same financial statement line item as changes in the fair value of the hedged ~~transaction.~~item.

Other Derivatives

Other derivatives not designated as hedging instruments consist primarily of forward contracts used to hedge foreign currency-denominated balance sheet exposures. HP uses total return swaps to hedge its executive deferred compensation plan liability.

For derivative instruments not designated as hedging instruments, HP recognizes changes in fair value of the derivative instrument, as well as the offsetting change in the fair value of the hedged item, in Interest and other, net in the Consolidated Condensed Statements of Earnings in the period of change.

Hedge Effectiveness

For interest rate swaps designated as fair value hedges, HP measures hedge effectiveness by offsetting the change in fair value of the hedged item with the change in fair value of the derivative. For foreign currency options and forward contracts designated as cash flow hedges, HP measures hedge effectiveness by comparing the cumulative change in fair value of the hedge contract with the cumulative change in fair value of the hedged item, both of which are based on forward rates.

HP recognizes any ineffective portion of the hedge in the Consolidated Condensed Statements of Earnings in the same period in

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~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 9: Financial Instruments (Continued)~~

which ineffectiveness occurs. Amounts excluded from the assessment of effectiveness are recognized in the Consolidated Condensed Statements of Earnings in the period they arise.

As of April 30, ~~2018~~2019 and ~~April 30, 2017,~~2018, no portion of the hedging instruments’ gain or loss was excluded from the assessment of effectiveness for fair value and cash flow hedges. Hedge ineffectiveness for fair value and cash flow hedges recognized in earnings were not material for the three and six months ended April 30, ~~2018~~2019 and ~~2017.~~2018.

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HP INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 8: Financial Instruments (Continued)

Fair Value of Derivative Instruments in the Consolidated Condensed Balance Sheets

The gross notional and fair value of derivative instruments in the Consolidated Condensed Balance Sheets were as follows:


	As of April 30, 2018										As of October 31, 2017										As of April 30, 2019										As of October 31, 2018
	Outstanding Gross Notional		Other Current Assets		Other Non-Current Assets		Other Accrued Liabilities		Other Non-Current Liabilities		Outstanding Gross Notional		Other Current Assets		Other Non-Current Assets		Other Accrued Liabilities		Other Non-Current Liabilities		Outstanding Gross Notional		Other Current Assets		Other Non-Current Assets		Other Accrued Liabilities		Other Non-Current Liabilities		Outstanding Gross Notional		Other Current Assets		Other Non-Current Assets		Other Accrued Liabilities		Other Non-Current Liabilities
	In millions																				In millions
Derivatives designated as hedging instruments
Fair value hedges:
Interest rate contracts	$	1,000	$	—	$	—	$	1	$	22	$	2,500	$	—	$	—	$	—	$	12	$	750	$	—	$	—	$	—	$	8	$	1,000	$	—	$	—	$	—	$	23

Cash flow hedges:
Foreign currency contracts	17,361		147		20		225		97		16,149		92		12		245		100		16,182		283		129		99		42		17,147		386		107		86		52
Total derivatives designated as hedging instruments	18,361		147		20		226		119		18,649		92		12		245		112		16,932		283		129		99		50		18,147		386		107		86		75
Derivatives not designated as hedging instruments
Foreign currency contracts	4,606		32		—		15		—		5,801		16		—		15		—		5,764		17		—		5		—		5,437		22		—		26		—
Other derivatives	111		1		—		—		—		123		1		—		—		—		127		2		—		—		—		122		—		—		8		—
Total derivatives not designated as hedging instruments	4,717		33		—		15		—		5,924		17		—		15		—		5,891		19		—		5		—		5,559		22		—		34		—
Total derivatives	$	23,078	$	180	$	20	$	241	$	119	$	24,573	$	109	$	12	$	260	$	112	$	22,823	$	302	$	129	$	104	$	50	$	23,706	$	408	$	107	$	120	$	75

~~In March 2018,~~

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HP ~~terminated several interest rate swaps with a notional amount of $1.5 billion that were de-designated as fair value hedges of certain fixed rate debt securities. See~~ INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note ~~10, “Borrowings” for detailed information.~~8: Financial Instruments (Continued)

Offsetting of Derivative Instruments

HP recognizes all derivative instruments on a gross basis in the Consolidated Condensed Balance Sheets. HP does not offset the fair value of its derivative instruments against the fair value of cash collateral posted under its collateral security agreements. As of April 30, ~~2018~~2019 and October 31, ~~2017,~~2018, information related to the potential effect of HP’s master netting agreements and collateral security agreements was as follows:

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~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 9: Financial Instruments (Continued)~~


	In the Consolidated Condensed Balance Sheets													In the Consolidated Condensed Balance Sheets
							Gross Amounts Not Offset													Gross Amounts Not Offset
	Gross Amount Recognized (i)		Gross Amount Offset (ii)		Net Amount Presented (iii) = (i)–(ii)		Derivatives (iv)		Financial Collateral (v)			Net Amount (vi) = (iii)–(iv)–(v)		Gross Amount Recognized (i)		Gross Amount Offset (ii)		Net Amount Presented (iii) = (i)–(ii)		Derivatives (iv)		Financial Collateral (v)			Net Amount (vi) = (iii)–(iv)–(v)
	In millions													In millions
As of April 30, 2018
As of April 30, 2019
Derivative assets	$	200	$	—	$	200	$	137	$	13	⁽¹⁾	$	50	$	431	$	—	$	431	$	97	$	312	⁽¹⁾	$	22
Derivative liabilities	$	360	$	—	$	360	$	137	$	219	⁽²⁾	$	4	$	154	$	—	$	154	$	97	$	52	⁽²⁾	$	5
As of October 31, 2017
As of October 31, 2018
Derivative assets	$	121	$	—	$	121	$	108	$	4	⁽¹⁾	$	9	$	515	$	—	$	515	$	112	$	299	⁽¹⁾	$	104
Derivative liabilities	$	372	$	—	$	372	$	108	$	219	⁽²⁾	$	45	$	195	$	—	$	195	$	112	$	69	⁽²⁾	$	14


⁽¹⁾	Represents the cash collateral posted by counterparties as of the respective reporting date for HP’s asset position, net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date.


⁽²⁾	Represents the collateral posted by HP through re-use of counterparty cash collateral as of the respective reporting date for HP’s liability position, net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date.

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~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 9: Financial Instruments (Continued)~~

Effect of Derivative Instruments in the Consolidated Condensed Statements of Earnings

~~The pre-tax effect of~~Interest rate swaps agreements are designated as hedge relationships with gains or losses on the derivative ~~instruments~~recognized in interest and ~~related hedged items~~other financial charges offsetting the gains and losses on the underlying debt being hedged. Gain on interest rate swap agreements recognized in ~~a fair value hedging relationship~~earnings was $4 million for the three months ended April 30, 2019 and $29 million for the three months ended April 30, 2018. Gain on interest rate swap agreements recognized in earnings was $16 million for the six months ended April 30, ~~2018~~2019 and ~~2017 were as follows:~~

Gain (Loss) Recognized in Earnings on Derivative and Related Hedged Item
Derivative Instrument Location Three months ended April 30, 2018 Six months ended April 30, 2018 Hedged Item Location Three months ended April 30, 2018 Six months ended April 30, 2018
In millions In millions
Interest rate contracts Interest and other, net $ 29
$ (11 ) Fixed-rate debt Interest and other, net $ (29 ) $ 11

Gain (Loss) Recognized in Earnings on Derivative and Related Hedged Item
Derivative Instrument Location Three months ended April 30, 2017 Six months ended April 30, 2017 Hedged Item Location Three months ended April 30, 2017 Six months ended April 30, 2017
In millions In millions
Interest rate contracts Interest and other, net $ 4
$ (48 ) Fixed-rate debt Interest and other, net $ (4 ) $ 48
loss of $11 million for the six months ended April 30, 2018. Gains and losses are fully offset by changes in the fair value of the debt being hedged.

The pre-tax effect of derivative instruments in cash flow hedging relationships for the three and six months ended April 30, ~~2018~~2019 was as follows:

(Loss) Gain Recognized in
Other Comprehensive
Income (“OCI”) on Derivatives (Effective Portion)
(Loss) Gain Reclassified from Accumulated OCI Into
Earnings (Effective Portion)
Three months ended April 30, 2018 Six months ended April 30, 2018 Location Three months ended April 30, 2018 Six months ended April 30, 2018
In millions In millions
Cash flow hedges:

Foreign currency contracts $ 297
$ (254 ) Net revenue $ (277 ) $ (329 )

Cost of revenue —
(18 )
Operating expenses 1
1
Total $ 297
$ (254 ) $ (276 ) $ (346 )

~~The pre-tax effect of derivative instruments in cash flow hedging relationships for the three and six months ended April 30, 2017 was as follows:~~


	Loss Recognized in Other Comprehensive Income (“OCI”) on Derivatives (Effective Portion)						Gain (Loss) Reclassified from Accumulated OCI Into Earnings (Effective Portion)							Gain Recognized in Other Comprehensive Income ("OCI") on Derivatives (Effective Portion)				(Loss) Gain Reclassified from Accumulated OCI Into Earnings (Effective Portion)
	Three months ended April 30, 2017			Six months ended April 30, 2017			Location	Three months ended April 30, 2017			Six months ended April 30, 2017			Three months ended April 30, 2019		Six months ended April 30, 2019		Location	Three months ended April 30, 2019			Six months ended April 30, 2019
	In millions							In millions						In millions					In millions
Cash flow hedges:
Foreign currency contracts	$	(70	)	$	(239	)	Net revenue	$	39		$	115		$	198	$	91	Net revenue	$	—		$	191
							Cost of revenue	(19		)	(19		)					Cost of revenue	(6		)	(16		)
							Interest and other, net	(4		)	(9		)					Operating expenses	—			(2		)
Total	$	(70	)	$	(239	)		$	16		$	87		$	198	$	91		$	(6	)	$	173

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HP INC. AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 9:8: Financial Instruments (Continued)

The pre-tax effect of derivative instruments in cash flow hedging relationships for the three and six months ended April 30, 2018 was as follows:



	Gain (Loss) Recognized in Other Comprehensive Income ("OCI") on Derivatives (Effective Portion)					(Loss) Gain Reclassified from Accumulated OCI Into Earnings (Effective Portion)
	Three months ended April 30, 2018		Six months ended April 30, 2018			Location	Three months ended April 30, 2018			Six months ended April 30, 2018
	In millions						In millions
Cash flow hedges:
Foreign currency contracts	$	297	$	(254	)	Net revenue	$	(277	)	$	(329	)
						Cost of revenue	—			(18		)
						Operating expenses	1			1
Total	$	297	$	(254	)		$	(276	)	$	(346	)

As of April 30, ~~2018,~~2019, HP expects to reclassify an estimated accumulated other comprehensive ~~loss (“AOCI”)~~gain of ~~$75~~$141 million, net of taxes, to earnings within the next twelve months associated with cash flow hedges along with the earnings effects of the related forecasted transactions. The amounts ultimately reclassified into earnings could be different from the amounts previously included in ~~AOCI~~accumulated OCI based on the change of market rate, and therefore could have a different impact on earnings.

The pre-tax effect of derivative instruments not designated as hedging instruments recognized in Interest and Other, net in the Consolidated Condensed Statements of Earnings for the three and six months ended April 30, ~~2018~~2019 and ~~2017~~2018 was as follows:

Gain (Loss) Recognized in Earnings on Derivatives
Location Three months ended April 30, 2018 Three months ended April 30, 2017 Six months ended April 30, 2018 Six months ended April 30, 2017
In millions
Foreign currency contracts Interest and other, net $ 8
$ (47 ) $ (9 ) $ (49 )
Other derivatives Interest and other, net (2 ) 1
—
4
Total $ 6
$ (46 ) $ (9 ) $ (45 )

~~Note 10: Borrowings~~

~~Notes Payable and Short-Term Borrowings~~

As of April 30, 2018 As of October 31, 2017
Amount
Outstanding Weighted-Average
Interest Rate Amount
Outstanding Weighted-Average
Interest Rate
In millions In millions
Commercial paper $ 1,041
2.8 % $ 943
1.8 %
Current portion of long-term debt 537
3.0 % 96
3.5 %
Notes payable to banks, lines of credit and other 39
1.2 % 33
1.5 %
$ 1,617

$ 1,072



	Three months ended April 30						Six months ended April 30
	2019			2018			2019			2018
	In millions
Foreign currency contracts	$	(18	)	$	8		$	(58	)	$	(9	)
Other derivatives	5			(2		)	19			—
Total	$	(13	)	$	6		$	(39	)	$	(9	)

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HP INC. AND SUBSIDIARIES

~~Notes to~~ Consolidated Condensed ~~Financial~~ Statements of Earnings (Continued)

(Unaudited)

Note ~~10:~~9: Borrowings ~~(Continued)~~

Notes Payable and Short-Term Borrowings



	As of April 30, 2019				As of October 31, 2018
	Amount Outstanding		Weighted-Average Interest Rate		Amount Outstanding		Weighted-Average Interest Rate
	In millions				In millions
Commercial paper	$	—	—	%	$	854	2.5	%
Current portion of long-term debt	252		3.7	%	565		3.1	%
Notes payable to banks, lines of credit and other	38		1.9	%	44		1.7	%
	$	290			$	1,463

Long-Term Debt


	As of						As of
	April 30, 2018			October 31, 2017			April 30, 2019			October 31, 2018
	In millions						In millions
U.S. Dollar Global Notes⁽¹⁾
2009 Shelf Registration Statement:
$1,350 issued at discount to par at a price of 99.827% in December 2010 at 3.75%, due December 2020	$	648		$	648		$	648		$	648
$1,250 issued at discount to par at a price of 99.799% in May 2011 at 4.3%, due June 2021	666			1,249			667			667
$1,000 issued at discount to par at a price of 99.816% in September 2011 at 4.375%, due September 2021	537			999			538			538
$1,500 issued at discount to par at a price of 99.707% in December 2011 at 4.65%, due December 2021	693			1,498			695			694
$500 issued at discount to par at a price of 99.771% in March 2012 at 4.05%, due September 2022	499			499			499			499
$1,200 issued at discount to par at a price of 99.863% in September 2011 at 6.0%, due September 2041	1,199			1,199			1,199			1,199
2012 Shelf Registration Statement:
$750 issued at par in January 2014 at three-month USD LIBOR plus 0.94%, due January 2019	102			102			—			102
$1,250 issued at discount to par at a price of 99.954% in January 2014 at 2.75%, due January 2019	300			300			—			300
	4,644			6,494			4,246			4,647
Other, including capital lease obligations, at 0.51%-8.50%, due in calendar years 2018-2025	430			360
Other, including capital lease obligations, at 0.51%-8.47%, due in calendar years 2019-2029							782			487
Fair value adjustment related to hedged debt	(26		)	8			(11		)	(28		)
Less: Unamortized debt issuance cost	(17		)	(19		)
Less: current portion of long-term debt	(537		)	(96		)
Unamortized debt issuance cost							(16		)	(17		)
Current portion of long-term debt							(252		)	(565		)
Total long-term debt	$	4,494		$	6,747		$	4,749		$	4,524


⁽¹⁾	HP may redeem some or all of the fixed-rate U.S. Dollar Global Notes at any time in accordance with the terms thereof. The U.S. Dollar Global Notes are senior unsecured debt.

In December 2016, HP filed a shelf registration statement (the “2016 Shelf Registration Statement”) with the SEC to enable the company to offer for sale, from time to time, in one or more offerings, an unspecified amount of debt securities, common stock, preferred stock, depositary shares and warrants.

As disclosed in Note 9,8, “Financial Instruments”, HP uses interest rate swaps to mitigate some of the exposure of its debt portfolio to changes in fair value resulting from changes in interest rates by achieving a primarily U.S. dollar LIBOR-based floating interest expense. Interest rates shown in the table of long-term debt have not been adjusted to reflect the impact of any interest rate swaps.

~~Extinguishment of Debt~~

In March 2018, HP commenced and completed a cash tender offer (the “Tender Offer") to purchase approximately $1.85 billion in aggregate principal amount of outstanding U.S. Dollar 4.650% Global Notes due December 9, 2021, 4.375% Global Notes due September 15, 2021 and 4.300% Global Notes due June 1, 2021. In connection with the Tender Offer, HP also solicited consents from holders of its 4.650% Notes due December 2021, (the “4.650% Notes”) to amend the indenture under which the 4.650% Notes were issued to, among other things, eliminate substantially all of the restrictive covenants of the indenture (the “Proposed Amendments”). Holders of a majority in principal amount of the outstanding 4.650% Notes consented to the Proposed Amendments, and as a result, a supplemental indenture was executed on March 26, 2018 to effect the Proposed Amendments. This extinguishment of debt resulted in a loss of $126 million, which was recorded as "Interest and other, net" on the Consolidated Condensed Statements of Earnings.

Commercial Paper

On November 1, 2015, HP’s Board of Directors authorized HP to borrow up to a total outstanding principal balance of $4.0 billion, or the equivalent in foreign currencies, for the use and benefit of HP and HP’s subsidiaries, by the issuance of commercial paper or through the execution of promissory notes, loan agreements, letters of credit, agreements for lines of credit or overdraft facilities. HP increased the issuance authorization under its commercial paper program from $4.0 billion to $6.0 billion in November 2017. As of April 30, ~~2018,~~2019, HP maintained two commercial paper programs. HP’s U.S. program provides for the issuance of U.S. dollar-denominated commercial paper up to a maximum aggregate principal amount of $6.0 billion. HP’s ~~Euro~~euro commercial paper program provides for the issuance of commercial paper outside of the United States denominated in U.S. dollars, ~~Euros~~euros or British pounds up to a maximum aggregate principal amount of $6.0 billion or the equivalent in those alternative

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~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 10: Borrowings (Continued)~~

currencies. The combined aggregate principal amount of commercial paper outstanding under those programs at any one time cannot exceed the $6.0 billion authorized by HP’s Board of Directors.

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 9: Borrowings (Continued)

Credit Facility

As of April 30, ~~2018,~~2019, HP ~~maintains~~maintained a $4.0 billion, senior unsecured committed revolving credit facility to support the issuance of commercial paper or for general corporate purposes. Commitments under the revolving credit facility will be available until March 30, 2023. Commitment fees, interest rates and other terms of borrowing under the credit ~~facilities~~facility vary based on HP’s external credit ratings. As of April 30, ~~2018,~~2019, HP was in compliance with the financial covenants in the credit agreement governing the revolving credit facility.

~~In December 2017, HP also entered into an additional revolving credit facility with certain institutional lenders that provides HP with $1.5 billion of available borrowings until November 30, 2018.~~

Available Borrowing Resources

As of April 30, ~~2018,~~2019, HP and its subsidiaries had available borrowing resources of ~~$722~~$730 million from uncommitted lines of credit in addition to the commercial paper and revolving credit ~~facilities~~facility discussed above.

Note ~~11:~~10: Stockholders’ Deficit

Share Repurchase Program

HP’s share repurchase program authorizes both open market and private repurchase transactions. During the three and six months ended April 30, 2019, HP executed share repurchases of 34 million shares and 66 million shares and settled total shares for $0.7 billion and $1.4 billion, respectively. During the three and six months ended April 30, 2018, HP executed share repurchases of 35 million shares and 56 million shares and settled total shares for $0.8 billion and $1.3 billion, respectively. During the three and six months ended April 30, 2017, HP executed share repurchases of 13 million shares and 39 million shares and settled total shares for $0.2 billion and $0.6 billion, respectively. Share repurchases executed during the three months ended April 30, 2018 and April 30, 2017 included 0.6 million and 1 million shares settled in May 2018 and May 2017, respectively.

The shares repurchased during the six months ended April 30, ~~2018~~2019 and ~~2017~~2018 were all open market repurchase transactions. On June 19, 2018, HP’s Board of Directors authorized an additional $4.0 billion for future repurchases of its outstanding shares of common stock. As of April 30, ~~2018,~~2019, HP had approximately ~~$1.2~~$2.5 billion remaining under the share repurchase authorizations approved by HP’s Board of Directors.

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note ~~11: Stockholder’s~~10: Stockholders' Deficit (Continued)

Tax effects related to Other Comprehensive Income (Loss)


	Three months ended April 30						Six months ended April 30						Three months ended April 30						Six months ended April 30
	2018			2017			2018			2017			2019			2018			2019			2018
	In millions												In millions
Tax effect on change in unrealized components of available-for-sale securities:
Tax benefit (provision) on unrealized (losses) gains arising during the period	$	—		$	—		$	1		$	(1	)
Tax effect on change in unrealized components of available-for-sale debt securities:
Tax benefit on unrealized losses arising during the period													$	—		$	—		$	—		$	1
	—			—			1			(1		)	—			—			—			1
Tax effect on change in unrealized components of cash flow hedges:
Tax (provision) benefit on unrealized gains (losses) arising during the period	(37		)	10			33			7			(36		)	(37		)	(16		)	33
Tax (benefit) provision on losses (gains) reclassified into earnings	(29		)	7			(32		)	11			(2		)	(29		)	20			(32		)
	(66		)	17			1			18			(38		)	(66		)	4			1
Tax effect on change in unrealized components of defined benefit plans:
Tax provision on gains arising during the period	—			(4		)	—			(4		)
Tax benefit on losses arising during the period													1			—			1			—
Tax provision on amortization of actuarial loss and prior service benefit	(3		)	(5		)	(6		)	(11		)	(3		)	(3		)	(6		)	(6		)
Tax provision on curtailments, settlements and other	—			(1		)	—			(9		)
Tax benefit on settlements and other													—			—			1			—
	(3		)	(10		)	(6		)	(24		)	(2		)	(3		)	(4		)	(6		)
Tax (provision) benefit on other comprehensive income	$	(69	)	$	7		$	(4	)	$	(7	)
Tax effect on change in cumulative translation adjustment													(2		)	—			(2		)	—
Tax provision on other comprehensive income (loss)													$	(42	)	$	(69	)	$	(2	)	$	(4	)

Changes and reclassifications related to Other Comprehensive Income (Loss), net of taxes


	Three months ended April 30						Six months ended April 30						Three months ended April 30						Six months ended April 30
	2018			2017			2018			2017			2019			2018			2019			2018
	In millions												In millions
Other comprehensive income (loss), net of taxes:
Change in unrealized components of available-for-sale securities:
Unrealized (losses) gains arising during the period	$	(2	)	$	1		$	(4	)	$	3
Gains reclassified into earnings	—			—			(5		)	—
Change in unrealized components of available-for-sale debt securities:
Unrealized losses arising during the period													$	—		$	(2	)	$	—		$	(4	)
Losses (gains) reclassified into earnings													3			—			3			(5		)
	(2		)	1			(9		)	3			3			(2		)	3			(9		)
Change in unrealized components of cash flow hedges:
Unrealized gains (losses) arising during the period	260			(60		)	(221		)	(232		)	162			260			75			(221		)
Losses (gains) reclassified into earnings⁽¹⁾	247			(9		)	314			(76		)
Losses (gains) reclassified into earnings													4			247			(153		)	314
	507			(69		)	93			(308		)	166			507			(78		)	93
Change in unrealized components of defined benefit plans:
Gains arising during the period	—			9			—			9
Losses arising during the period													(3		)	—			(3		)	—
Amortization of actuarial loss and prior service benefit⁽²⁾⁽¹⁾	10			12			19			26			9			10			17			19
Curtailments, settlements and other	—			2			1			(6		)
Settlements and other													1			—			—			1
	10			23			20			29			7			10			14			20
Change in cumulative translation adjustment													11			—			6			—
Other comprehensive income (loss), net of taxes	$	515		$	(45	)	$	104		$	(276	)	$	187		$	515		$	(55	)	$	104


⁽¹⁾	~~Reclassification~~These components are included in the computation of ~~pre-tax losses (gains) on cash flow hedges into the Consolidated Condensed Statements of Earnings was as follows:~~net pension and post-retirement benefit (credit) charges in Note 4, “Retirement and Post-Retirement Benefit Plans”.

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(Unaudited)

Note ~~11: Stockholder’s~~10: Stockholders' Deficit (Continued)

Three months ended April 30 Six months ended April 30
2018 2017 2018 2017
In millions
Net revenue $ 277
$ (39 ) $ 329
$ (115 )
Cost of revenue —
19
18
19
Operating expenses (1 ) —
(1 ) —
Interest and other, net —
4
—
9
Total $ 276
$ (16 ) $ 346
$ (87 )


⁽²⁾	~~These components are included in the computation of net pension and post-retirement benefit (credit) charges in Note 4, “Retirement and Post-Retirement Benefit Plans.”~~

The components of accumulated other comprehensive ~~loss,~~income (loss), net of taxes and changes were as follows:

Six months ended April 30, 2018
Net unrealized
gains on
available-for-sale
securities Net unrealized
gains (losses) on cash
flow hedges Unrealized
components
of defined
benefit plans Accumulated
other
comprehensive
loss
In millions
Balance at beginning of period $ 12
$ (240 ) $ (1,190 ) $ (1,418 )
Other comprehensive loss before reclassifications (4 ) (221 ) —
(225 )
Reclassifications of (gains) losses into earnings (5 ) 314
19
328
Reclassifications of curtailments, settlements and other into earnings —
—
1
1
Balance at end of period $ 3
$ (147 ) $ (1,170 ) $ (1,314 )



	Six months ended April 30, 2019
	Net unrealized gains on available-for-sale debt securities		Net unrealized gains (losses) on cash flow hedges			Unrealized components of defined benefit plans			Change in cumulative translation adjustment			Accumulated other comprehensive loss
	In millions
Balance at beginning of period	$	5	$	291		$	(1,141	)	$	—		$	(845	)
Other comprehensive income (loss) before reclassifications	—		75			(3		)	(5		)	67
Reclassifications of losses (gains) into earnings	3		(153		)	17			11			(122		)
Balance at end of period	$	8	$	213		$	(1,127	)	$	6		$	(900	)

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note ~~12:~~11: Net Earnings Per Share

HP calculates basic net EPS using net earnings and the weighted-average number of shares outstanding during the reporting period. Diluted net EPS includes any dilutive effect of restricted stock ~~awards,~~units, stock options, performance-based awards and shares purchased under the 2011 employee stock purchase plan.

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~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 12: Net Earnings Per Share (Continued)~~

A reconciliation of the number of shares used for basic and diluted net EPS calculations is as follows:


	Three months ended April 30				Six months ended April 30				Three months ended April 30				Six months ended April 30
	2018		2017		2018		2017		2019		2018		2019		2018
	In millions, except per share amounts								In millions, except per share amounts
Numerator:
Net earnings	$	1,058	$	559	$	2,996	$	1,170	$	782	$	1,058	$	1,585	$	2,996
Denominator:
Weighted-average shares used to compute basic net EPS	1,630		1,688		1,640		1,696		1,529		1,630		1,543		1,640
Dilutive effect of employee stock plans	16		21		18		20		7		16		8		18
Weighted-average shares used to compute diluted net EPS	1,646		1,709		1,658		1,716		1,536		1,646		1,551		1,658
Net earnings per share:
Basic	$	0.65	$	0.33	$	1.83	$	0.69	$	0.51	$	0.65	$	1.03	$	1.83
Diluted	$	0.64	$	0.33	1.81		0.68		$	0.51	$	0.64	$	1.02	$	1.81
Anti-dilutive weighted-average stock-based compensation awards⁽¹⁾	—		3		—		4		8		—		6		—

⁽¹⁾

HP excludes from the calculation of diluted net EPS stock options and restricted stock units where the assumed proceeds exceed the average market price, ~~from the calculation of diluted net EPS~~ because their effect would be anti-dilutive. The assumed proceeds of a stock option include the sum of its exercise price, and average unrecognized compensation cost. The assumed proceeds of a restricted stock unit represent unrecognized compensation cost.

Note ~~13:~~12: Litigation and Contingencies

HP is involved in lawsuits, claims, investigations and proceedings, including those identified below, consisting of ~~intellectual property,~~IP, commercial, securities, employment, employee benefits and environmental matters that arise in the ordinary course of business. HP accrues a liability when management believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. HP believes it has recorded adequate provisions for any such matters and, as of April 30, ~~2018,~~2019, it was not reasonably possible that a material loss had been incurred in excess of the amounts recognized in HP’s financial statements. HP reviews these matters at least quarterly and adjusts its accruals to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Pursuant to the separation and distribution agreement, HP shares responsibility with Hewlett Packard Enterprise for certain matters, as indicated below, and Hewlett Packard Enterprise has agreed to indemnify HP in whole or in part with respect to certain matters. Based on its experience, HP believes that any damage amounts claimed in the specific matters discussed below are not a meaningful indicator of HP’s potential liability. Litigation is inherently unpredictable. However, HP believes it has valid defenses with respect to legal matters pending against it. Nevertheless, cash flows or results of operations could be materially affected in any particular period by the resolution of one or more of these contingencies.

Litigation, Proceedings and Investigations

Copyright Levies. Proceedings are ongoing or have been concluded involving HP in certain European countries, including litigation in Belgium and other countries, seeking to impose or modify levies upon IT equipment (such as multifunction devices (“MFDs”) and PCs), alleging that these devices enable the production of private copies of copyrighted materials. The levies are generally based upon the number of products sold and the per-product amounts of the levies, which vary. Some European countries that do not yet have levies on digital devices are expected to implement similar legislation to enable them to extend existing levy schemes, while other European countries have phased out levies or are expected to limit the scope of levy schemes and applicability in the digital hardware environment, particularly with respect to sales to business users. HP, other companies and various industry associations have opposed the extension of levies to the digital environment and have advocated alternative models of compensation to rights holders.

Reprobel, a collecting society administering the remuneration for reprography to Belgian copyright holders, requested by extrajudicial means that HP amend certain copyright levy declarations submitted for inkjet MFDs sold in Belgium from January 2005 to December 2009 to enable it to collect copyright levies calculated based on the generally higher copying speed when the

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 12: Litigation and Contingencies (Continued)

MFDs are operated in draft print mode rather than when operated in normal print mode. In March 2010, HP filed a lawsuit against Reprobel in the Court of First Instance of Brussels seeking a declaratory judgment that no copyright levies are payable

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~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 13: Litigations and Contingencies (Continued)~~

on sales of MFDs in Belgium or, alternatively, that payments already made by HP are sufficient to comply with its obligations. The Court of Appeal in Brussels (the “Court of Appeal”) stayed the proceedings and referred several questions to the Court of Justice of the European Union (“CJEU”). On November 12, 2015, the CJEU published its judgment providing that a national legislation such as the Belgian one at issue in the main proceedings is incompatible with EU law on multiple legal points, as argued by HP, and returned the proceedings to the referring court. On May 12, 2017, the Court of Appeal held that (1) reprographic copyright levies are due notwithstanding the lack of conformity of the Belgian system with EU law in certain aspects and (2) the applicable levies are to be calculated based on the objective speed of each MFD as established by an expert appointed by the Court of Appeal. HP appealed this decision before the Belgian Supreme Court on January 18, 2018.

Based on industry opposition to the extension of levies to digital products, HP’s assessments of the merits of various proceedings and HP’s estimates of the number of units impacted and the amounts of the levies, HP has accrued amounts that it believes are adequate to address the ongoing disputes.

Hewlett-Packard Company v. Oracle Corporation. On June 15, 2011, HP filed suit against Oracle Corporation (“Oracle”) in California Superior Court in Santa Clara County in connection with Oracle’s March 2011 announcement that it was discontinuing software support for HP’s Itanium-based line of mission-critical servers. HP asserted, among other things, that Oracle’s actions breached the contract that was signed by the parties as part of the settlement of the litigation relating to Oracle’s hiring of Mark Hurd. The matter eventually progressed to trial, which was bifurcated into two phases. HP prevailed in the first phase of the trial, in which the court ruled that the contract at issue required Oracle to continue to offer its software products on HP’s Itanium-based servers for as long as HP decided to sell such servers. The second phase of the trial was then postponed by Oracle’s appeal of the trial court’s denial of Oracle’s “anti-SLAPP” motion, in which Oracle argued that HP’s damages claim infringed on Oracle’s First Amendment rights. On August 27, 2015, the California Court of Appeals rejected Oracle’s appeal. The matter was remanded to the trial court for the second phase of the trial, which began on May 23, 2016 and was submitted to the jury on June 29, 2016. On June 30, 2016, the jury returned a verdict in favor of HP, awarding HP approximately $3.0 billion in damages, which included approximately $1.7 billion for past lost profits and $1.3 billion for future lost profits. On October 20, 2016, the court entered judgment for HP for this amount with interest accruing until the judgment is paid. Oracle’s motion for a new trial was denied on December 19, 2016, and Oracle filed its notice of appeal from the trial court’s judgment on January 17, 2017. On February 2, 2017, HP filed a notice of cross-appeal challenging the trial ~~court��s~~court’s denial of prejudgment interest. Oracle’s opening brief was filed on March 7, 2019. HP’s respondent’s/cross-opening brief is due 75 days after Oracle’s brief unless an extension of time is granted; Oracle’s reply/cross-respondent’s brief is due 75 days after HP’s respondent’s/cross-opening brief is filed; and HP’s cross-reply brief is due 50 days after Oracle’s reply/cross-respondent’s brief is filed. The Court of Appeal will schedule ~~for appellate briefing and~~oral argument ~~has not yet been established.~~after the case is fully briefed. HP expects that the appeals process could take several years to complete. Litigation is unpredictable, and there can be no assurance that HP will recover damages, or that any award of damages will be for the amount awarded by the jury’s verdict. The amount ultimately awarded, if any, would be recorded in the period received. No adjustment has been recorded in the financial statements in relation to this potential award. Pursuant to the terms of the separation and distribution agreement, HP and Hewlett Packard Enterprise will share equally in any recovery from Oracle once Hewlett Packard Enterprise has been reimbursed for all costs incurred in the prosecution of the action prior to the Separation.

Forsyth, et al. v. HP Inc. and Hewlett Packard Enterprise. This is a purported class and collective action filed on August 18, 2016 in the United States District Court, Northern District of California, against HP and Hewlett Packard Enterprise alleging the defendants violated the Federal Age Discrimination in Employment Act (“ADEA”), the California Fair Employment and Housing Act, California public policy and the California Business and Professions Code by terminating older workers and replacing them with younger workers. Plaintiffs ~~seek~~originally sought to certify a nationwide collective class action under the ADEA comprised of all U.S. residents employed by defendants who had their employment terminated pursuant to a workforce reduction (“WFR”) plan on or after May 23, 2012 and who were 40 years of age or older. Plaintiffs also ~~seek~~originally sought to represent a Rule 23 class under California law comprised of all persons 40 years or older employed by defendants in the state of California and terminated pursuant to a WFR plan on or after May 23, 2012. Following a partial motion to dismiss, a motion to strike and a motion to compel arbitration that the defendants filed in November 2016, the plaintiffs amended their complaint. New plaintiffs were added, but the plaintiffs agreed that the class period for the putative nationwide ADEA collective action should be shortened and now starts, at the earliest, on December 9, 2014. The plaintiffs also agreed that the class period for the putative California state law class action should be shortened and now starts on August 18, 2012. On January 30, 2017, the defendants filed another partial motion to dismiss and motions to compel arbitration as to several of the plaintiffs. On March 20, 2017, the defendants filed additional motions to compel arbitration as to a number of the opt-in plaintiffs. On September 20, 2017, the Court granted the motions to compel arbitration as to the plaintiffs and opt-ins who

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 12: Litigation and Contingencies (Continued)

signed WFR release agreements, ~~(17 individuals), and also~~denied the pending motion to dismiss without prejudice, stayed the ~~entire~~action and administratively closed the case ~~until~~pending the ~~arbitrations are completed.~~completion of the compelled arbitrations. On November 30, 2017, three named plaintiffs and twelve opt-in plaintiffs filed a single arbitration demand. An additional arbitration claimant was added later by stipulation. On December 22, 2017, the defendants filed a motion toto: (1) stay the ~~case pending arbitrations~~claims of individuals not subject to arbitration and (2) enjoin the demanded arbitration and require each plaintiff to file a separate arbitration demand. On February 6, 2018, the Court granted the motion to stay and denied the motion to enjoin. Pre-arbitration mediation proceedings took place on October 4 and 5, 2018, and the claims of all 16 arbitration claimants were resolved. Between November 2018 and April 2019, an additional 154 individuals filed consents to opt‐in to the action as party‐plaintiffs. Of the new opt-ins, 143 signed separation agreements that include class waivers and mandatory arbitration provisions. The addition of these opt-ins brings the total number of named and opt-in plaintiffs to 193. The stay of the litigation remains in place.

Jackson, et al. v. HP Inc. and Hewlett Packard ~~Enterprise~~Enterprise.. This putative nationwide class action was filed on July 24, 2017 in federal district court in San Jose, California. The plaintiffs purport to bring the lawsuit on behalf of themselves and

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~~(Unaudited)~~

~~Note 13: Litigations and Contingencies (Continued)~~

other similarly situated African-Americans and individuals over the age of forty. The plaintiffs allege that the defendants engaged in a pattern and practice of racial and age discrimination in lay-offs and promotions. The plaintiffs filed an amended complaint on September 29, 2017. On January 12, 2018, the defendants moved to transfer the matter to the federal district court in the Northern District of Georgia. The defendants also moved to dismiss the claims on various grounds and to strike certain aspects of the proposed class definition. The ~~defendants’ motions remain pending.~~Court dismissed the action on the basis of improper venue. On July 23, 2018, the plaintiffs refiled the case in the Northern District of Georgia. On August 9, 2018, the plaintiffs also filed a notice of appeal of the dismissal order with the United States Court of Appeals for the Ninth Circuit. On October 1, 2018, the Georgia court granted the plaintiffs’ unopposed motion to stay and administratively close the Georgia action until the Ninth Circuit appeal is decided.

India Directorate of Revenue Intelligence Proceedings.On April 30 and May 10, 2010, the India Directorate of Revenue Intelligence (the “DRI”) issued show cause notices to Hewlett-Packard India Sales Private Limited (“HP India”), a subsidiary of HP, seven HP India employees and one former HP India employee alleging that HP India underpaid customs duties while importing products and spare parts into India and seeking to recover an aggregate of approximately $370 million, plus penalties. Prior to the issuance of the show cause notices, HP India deposited approximately $16 million with the DRI and agreed to post a provisional bond in exchange for the DRI’s agreement to not seize HP India products and spare parts and to not interrupt the transaction of business by HP India.

On April 11, 2012, the Bangalore Commissioner of Customs issued an order on the products-related show cause notice affirming certain duties and penalties against HP India and the named individuals of approximately $386 million, of which HP India had already deposited $9 million. On December 11, 2012, HP India voluntarily deposited an additional $10 million in connection with the products-related show cause notice. The differential duty demand is subject to interest. On April 20, 2012, the Commissioner issued an order on the parts-related show cause notice affirming certain duties and penalties against HP India and certain of the named individuals of approximately $17 million, of which HP India had already deposited $7 million. After the order, HP India deposited an additional $3 million in connection with the parts-related show cause notice so as to avoid certain penalties.

HP India filed appeals of the Commissioner’s orders before the Customs Tribunal along with applications for waiver of the pre-deposit of remaining demand amounts as a condition for hearing the appeals. The Customs Department has also filed cross-appeals before the Customs Tribunal. On January 24, 2013, the Customs Tribunal ordered HP India to deposit an additional $24 million against the products order, which HP India deposited in March 2013.

The Customs Tribunal did not order any additional deposit to be made under the parts order. In December 2013, HP India filed applications before the Customs Tribunal seeking early hearing of the appeals as well as an extension of the stay of deposit as to HP India and the individuals already granted until final disposition of the appeals. On February 7, 2014, the application for extension of the stay of deposit was granted by the Customs Tribunal until disposal of the appeals. On October 27, 2014, the Customs Tribunal commenced hearings on the cross-appeals of the Commissioner’s orders. The Customs Tribunal rejected HP India’s request to remand the matter to the Commissioner on procedural grounds. The hearings scheduled to reconvene on April 6, 2015 and again on November 3, 2015 and April 11, 2016 were canceled at the request of the Customs Tribunal. A hearing on the merits of the appeal scheduled for January 15, 2019 has been cancelled. Pursuant to the separation and distribution agreement, Hewlett Packard Enterprise has agreed to indemnify HP in part, based on the extent to which any liability arises from the products and spare parts of Hewlett Packard Enterprise’s businesses.

~~Russia GPO Anti-Corruption Investigation~~. ~~The German Public Prosecutor’s Office (“German PPO”) conducted an investigation into allegations that current~~

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 12: Litigation and former employees of HP engaged in bribery, embezzlement and tax evasion relating to a transaction between Hewlett-Packard ISE GmbH in Germany, a former subsidiary of HP, and the General Prosecutor’s Office of the Russian Federation. The approximately $35 million transaction, which was referred to as the Russia GPO deal, spanned the years 2001 to 2006 and was for the delivery and installation of an IT network. The German PPO issued an indictment of four individuals, including one current and two former HP employees, on charges including bribery, breach of trust and tax evasion. The German PPO also requested that HP be made an associated party to the case, and, if that request is granted, HP would participate in any portion of the court proceedings that could ultimately bear on the question of whether HP should be subject to potential disgorgement of profits based on the conduct of the indicted current and former employees. On August 29, 2017, the Regional Court of Leipzig decided not to admit the matter to trial. The German PPO appealed this decision. On March 20, 2018, the Higher Regional Court in Dresden agreed with the decision to not admit the matter to trial. In light of this decision, the prosecution is expected to come to an end.Contingencies (Continued)

Class Actions re Authentication of Supplies

. Five purported consumer class actions were filed against HP, arising out of the supplies authentication protocol in certain OfficeJet printers. This authentication protocol rejects some third-party ink cartridges that use non-HP security chips. Two of the cases were dismissed, and the remaining cases were consolidated in the United States District Court for the Northern District of California, captioned In re HP Printer Firmware Update Litigation. The remaining plaintiffs’ consolidated amended complaint was filed on February 15, 2018, alleging eleven causes of action: (1) unfair and unlawful business practices in violation of the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq.; (2) fraudulent business practices in violation of the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq.; (3) violations of the False Advertising Law, Cal. Bus.

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~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 13: Litigations and Contingencies (Continued)~~

& Prof. Code § 17500, et seq.; (4) violations of the Consumer Legal Remedies Act, Cal. Civ. Code § 1750, et seq.; (5) violations of the Texas Deceptive Trade Practices ‒ Consumer Protection Act, Tex. Bus. & Com. Code Ann. § 17.01, et seq.; (6) violations of the Washington Consumer Protection Act, Wash. Rev. Code Ann. § 19.86.010, et seq.; (7) violations of the New Jersey Consumer Fraud Act, New Jersey Statutes Ann. 56:8-1, et seq.; (8) violations of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, et seq.; (9) violations of the California Computer Data Access and Fraud Act, Cal. Penal Code § 502; (10) Trespass to Chattels; and (11) Tortious Interference with Contractual Relations and/or Prospective Economic Advantage. On February 7, 2018, the plaintiffs moved to certify an injunctive relief class of “[a]ll persons in California who own a Class Printer” under the “unfair” prong of the California unfair competition statute and a class of “[a]ll persons in the United States who purchased a Class Printer and experienced a print failure while using a non-HP aftermarket cartridge during the period between March 1, 2015 and December 31, 2017” under the Computer Fraud and Abuse Act and common law trespass to chattels. On March 29, 2018, the court granted in part and denied in part HP’s motion to dismiss. The court dismissed the plaintiffs’ claim under the “unfair” prong of the California unfair competition statute, claims under the non-California consumer protection statutes, and claim for tortious interference with contractual relations and/or prospective economic advantage. The court also dismissed in part the plaintiffs’ fraud-based claims under the California consumer protection statutes and computer hacking claims under the Computer Fraud and Abuse Act and California Computer Data Access and Fraud Act. The court denied HP’s motion to dismiss with respect to the plaintiffs’ claim for trespass to chattels and claim under the “unlawful” prong of the California unfair competition statute. The court granted the plaintiffs leave to amend on all of the dismissed claims, except the California Computer Data Access and Fraud Act claim to the extent it was based on two specific subsections of that statute. ~~The deadline for~~On September 18, 2018, the parties entered into a Settlement Agreement and Release pursuant to which the plaintiffs agreed to ~~file~~dismiss all claims against HP in exchange for a ~~consolidated second amended complaint is July 12,~~$1.5 million payment to the class and an agreement that HP would not reinstall the authentication protocol on the printers at issue. The plaintiffs filed a motion for preliminary approval of the settlement, which was granted by the court on November 19, 2018. Notice of the settlement was given to the class beginning on January 7, 2019, and the period for individuals to opt out of or object to the settlement ended in March 2019. The court granted final approval of the class settlement on April 25, 2019. The court did not rule on plaintiffs’ motion for attorneys’ fees and expenses at that time but instead ordered plaintiffs to submit additional evidence in support of their motion.

Autonomy-Related Legal Matters

Investigations. As a result of the findings of an ongoing investigation, HP has provided information to the U.K. Serious Fraud Office, the U.S. Department of Justice (“DOJ”) and the SEC related to the accounting improprieties, disclosure failures and misrepresentations at Autonomy that occurred prior to and in connection with HP’s acquisition of Autonomy. On January 19, 2015, the U.K. Serious Fraud Office notified HP that it was closing its investigation and had decided to cede jurisdiction of the investigation to the U.S. authorities. On November 14, 2016, the DOJ announced that a federal grand jury indicted Sushovan Hussain, the former CFO of Autonomy. Mr. Hussain was charged with conspiracy to commit wire fraud, securities fraud, and multiple counts of wire fraud. The indictment alleged that Mr. Hussain engaged in a scheme to defraud purchasers and sellers of securities of Autonomy and HP about the true performance of Autonomy’s business, its financial condition, and its prospects for growth. A jury trial commenced on February 26, 2018. On April 30, 2018, the jury found Mr. Hussain guilty of all charges against him. On November 15, 2016, the SEC announced that Stouffer Egan, the formerCEO of Autonomy’s U.S.-based operations, settled charges relating to his participation in an accounting scheme to meet internal sales targets and analyst revenue expectations. On November 29, 2018, the DOJ announced that a federal grand jury indicted Michael Lynch, former CEO of Autonomy, and Stephen Chamberlain, former VP of Finance of Autonomy. Dr. Lynch and Mr. Chamberlain were charged with conspiracy to commit wire fraud and multiple counts of wire fraud. HP is continuing to cooperate with the ongoing enforcement actions.

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 12: Litigation and Contingencies (Continued)

Autonomy Corporation Limited v. Michael Lynch and Sushovan Hussain. On April 17, 2015, four former-HP subsidiaries that became subsidiaries of Hewlett Packard Enterprise at the time of the Separation (Autonomy Corporation Limited, Hewlett Packard Vision BV, Autonomy Systems, Limited, and Autonomy, Inc.) initiated civil proceedings in the U.K. High Court of Justice against two members of Autonomy’s former management, Michael Lynch and Sushovan Hussain. The Particulars of Claim seek damages in excess of $5 billion from Messrs. Lynch and Hussain for breach of their fiduciary duties by causing Autonomy group companies to engage in improper transactions and accounting practices. On October 1, 2015, Messrs. Lynch and Hussain filed their defenses. Mr. Lynch also filed a counterclaim against Autonomy Corporation Limited seeking $160 million in damages, among other things, for alleged misstatements regarding Lynch. The Hewlett Packard Enterprise subsidiary claimants filed their replies to the defenses and the asserted counter-claim on March 11, 2016. ~~The parties are actively engaged in the disclosure process. A six-month trial~~Trial began on March 25, 2019 and is scheduled to ~~begin on March 25,~~continue through the remainder of 2019.

Environmental

HP’s operations and products are subject to various federal, state, local and foreign laws and regulations concerning environmental protection, including laws addressing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites, the content of HP’s products and the recycling, treatment and disposal of those products. In particular, HP faces increasing complexity in its product design and procurement operations as it adjusts to new and future requirements relating to the chemical and materials composition of its products, their safe use, and the energy consumption associated with those products, including requirements relating to climate change. HP is also subject to legislation in an increasing number of jurisdictions that makes producers of electrical goods, including computers and printers, financially responsible for specified collection, recycling, treatment and disposal of past and future covered products (sometimes referred to as “product take-back legislation”). HP could incur substantial costs, its products could be restricted from entering certain jurisdictions, and it could face other sanctions, if it were to violate or become liable under

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~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 13: Litigations and Contingencies (Continued)~~

environmental laws or if its products become noncompliant with environmental laws. HP’s potential exposure includes fines and civil or criminal sanctions, third-party property damage or personal injury claims and clean-up costs. The amount and timing of costs to comply with environmental laws are difficult to predict.

HP is party to, or otherwise involved in, proceedings brought by U.S. or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), known as “Superfund,” or state laws similar to CERCLA, and may become a party to, or otherwise involved in, proceedings brought by private parties for contribution towards clean-up costs. HP is also conducting environmental investigations or remediations at several current or former operating sites pursuant to administrative orders or consent agreements with state environmental agencies.

The separation and distribution agreement includes provisions that provide for the allocation of environmental liabilities between HP and Hewlett Packard Enterprise including certain remediation obligations; responsibilities arising from the chemical and materials composition of their respective products, their safe use and their energy consumption; obligations under product take back legislation that addresses the collection, recycling, treatment and disposal of products; and other environmental matters. HP will generally be responsible for environmental liabilities related to the properties and other assets, including products, allocated to HP under the separation and distribution agreement and other ancillary agreements. Under these agreements, HP will indemnify Hewlett Packard Enterprise for liabilities for specified ongoing remediation projects, subject to certain limitations, and Hewlett Packard Enterprise has a payment obligation for a specified portion of the cost of those remediation projects. In addition, HP will share with Hewlett Packard Enterprise other environmental liabilities as set forth in the separation and distribution agreement. HP is indemnified in whole or in part by Hewlett Packard Enterprise for liabilities arising from the assets assigned to Hewlett Packard Enterprise and for certain environmental matters as detailed in the separation and distribution agreement.

Note ~~14:~~13: Guarantees, Indemnifications and Warranties

Guarantees

In the ordinary course of business, HP may issue performance guarantees to certain of its clients, customers and other parties pursuant to which HP has guaranteed the performance obligations of third parties. Some of those guarantees may be backed by standby letters of credit or surety bonds. In general, HP would be obligated to perform over the term of the guarantee in the event a specified triggering event occurs as defined by the guarantee. HP believes the likelihood of having to perform under a material guarantee is remote.

Cross-Indemnifications with Hewlett Packard Enterprise

Under the separation and distribution agreement, HP agreed to indemnify Hewlett Packard Enterprise, each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note 13: Guarantees, Indemnifications and Warranties (Continued)

of or resulting from, among other matters, the liabilities allocated to HP as part of the Separation. Hewlett Packard Enterprise similarly agreed to indemnify HP, each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to Hewlett Packard Enterprise as part of the Separation. HP expects Hewlett Packard Enterprise to fully perform under the terms of the separation and distribution agreement.

For information on cross-indemnifications with Hewlett Packard Enterprise for litigation matters, see Note 12, “Litigation and Contingencies.”

Indemnifications

In the ordinary course of business, HP enters into contractual arrangements under which HP may agree to indemnify a third party to such arrangement from any losses incurred relating to the services they perform on behalf of HP or for losses arising from certain events as defined within the particular contract, which may include, for example, litigation or claims relating to past performance. HP also provides indemnifications to certain vendors and customers against claims of intellectual property infringement made by third parties arising from the vendors’ and customers’ use of HP’s software products and services and certain other matters. Some indemnifications may not be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been immaterial.

~~Cross-Indemnifications with Hewlett Packard Enterprise~~

~~Under~~HP records tax indemnification receivables from various third parties for certain tax liabilities that HP is jointly and severally liable for, but for which it is indemnified by those same third parties under existing legal agreements. HP records a tax indemnification payable to various third parties under these agreements when management believes that it is both probable that a liability has been incurred and the ~~separation~~amount can be reasonably estimated. The actual amount that the parties pay or may be obligated to pay could vary depending on the outcome of certain unresolved tax matters and ~~distribution agreement, HP agreed to indemnify Hewlett Packard Enterprise, each~~determination of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to HP as part of the Separation. Hewlett Packard Enterprise similarly agreed to indemnify HP, each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to Hewlett Packard Enterprise as part of the Separation. HP expects Hewlett Packard Enterprise to fully performsuch obligation under the terms of ~~the separation~~such legal agreements, which may not be resolved for several years. The net receivable as of April 30, 2019 and ~~distribution agreement.~~

~~For information on the cross-indemnifications related to the tax matter agreements~~October 31, 2018 were $0.9 billion and ~~litigations effective upon the Separation on November 1, 2015, see Note 6, “Taxes on Earnings”, and Note 13, “Litigation and Contingencies”,~~$1.0 billion, respectively.

Warranties

HP accrues the estimated cost of product warranties at the time it recognizes revenue. HP engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers; however, contractual warranty terms, repair costs, product call rates, average cost per call, current period product shipments and ongoing

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~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 14: Guarantees, Indemnifications and Warranties (Continued)~~

product failure rates, as well as specific product class failures outside of HP’s baseline experience, affect the estimated warranty obligation.

HP’s aggregate product warranty liabilities and changes were as follows:


	Six months ended April 30, 2018			Six months ended April 30, 2019
	In millions			In millions
Balance at beginning of period	$	898		$	915
Accruals for warranties issued	501			519
Adjustments related to pre-existing warranties (including changes in estimates)	(8		)	(1		)
Settlements made (in cash or in kind)	(490		)	(524		)
Balance at end of period	$	901		$	909

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Notes to Consolidated Condensed Financial Statements (Continued)

(Unaudited)

Note ~~15:~~14: Acquisitions

On November 1, ~~2017,~~2018, HP completed the acquisition of ~~Samsung’s printer business. With this~~the Apogee group. This acquisition ~~HP now offers~~furthers HP’s plan to disrupt the ~~industry’s strongest~~A3 copier market and builds on its printing strategy to enhance its A3 and A4 product portfolio; build differentiated solutions and tools to expand its MPS; and invest in its direct and indirect go-to-market capabilities. Apogee augments HP’s services portfolio of A3 multifunction printers that deliver the simplicity of printers with the high performance of copiers. The fully integrated portfolio, including next-generation PageWide technologies, offers opportunities to grow managed printin contractual office printing and ~~document services as sales models shift from transactional to contractual.~~MPS, where solutions are increasingly important for SMBs. HP reports the financial results of the above business in the Printing segment.

The table below presents the preliminary purchase price allocation for HP's acquisition as of November 1, ~~2017~~2018 and reflects various preliminary fair value estimates and analyses, including preliminary work performed by third-party valuation specialists, which are subject to change within the measurement period as valuations are finalized. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair values of certain tangible assets and liabilities acquired, the valuation of intangible assets acquired ~~certain legal matters, income and non-income based taxes,~~ and residual goodwill. HP expects to continue to obtain information to assist it in determining the fair value of the net assets acquired at the acquisition date during the measurement period.


	In millions		In millions
Goodwill	$	319	$	375
Amortizable intangible assets	520		300
Net assets assumed	184
Net liabilities assumed			(186		)
Total fair value of consideration	$	1,023	$	489

~~Table of Contents~~Note 15: Intangible Assets

~~HP INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Condensed Financial Statements (Continued)~~

~~(Unaudited)~~

~~Note 16: Intangibles~~

HP’s ~~acquired~~ intangible assets were composed of:


	Weighted-Average Useful Lives	As of April 30, 2018						As of October 31, 2017						As of April 30, 2019						As of October 31, 2018
	Weighted-Average Useful Lives	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
	In years	In millions												In millions
Customer contracts, customer lists and distribution agreements	8	$	112	$	86	$	26	$	85	$	84	$	1	$	391	$	105	$	286	$	112	$	88	$	24
Technology and patents	7	591		134		457		98		96		2
Technology, patents and trade name														628		213		415		601		172		429
Total intangible assets		$	703	$	220	$	483	$	183	$	180	$	3	$	1,019	$	318	$	701	$	713	$	260	$	453

During the six months ended April 30, ~~2018,~~2019, the increase in gross intangible assets was primarily due to intangible assets resulting from the acquisition of ~~Samsung’s printer business. The reported amounts~~the Apogee group, which are based on preliminary fair value estimates of the assets acquired.

The weighted-average useful lives of intangible assets acquired during the period are as follows:



	Weighted-Average Useful Life
Customer contracts, customer lists and distribution agreements	9
Technology, patents and trade name	7

As of April 30, ~~2018,~~2019, estimated future amortization expense related to intangible assets was as follows:


Fiscal year	In millions		In millions
Remainder of 2018	$	39
2019	79
Remainder of 2019			$	57
2020	79		115
2021	79		114
2022	79		114
2023			113
Thereafter	128		188
Total	$	483	$	701

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

HP INC. AND SUBSIDIARIES

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:

Overview. 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. An analysis of our operations financial results comparing the three and six months ended April 30, ~~2018~~2019 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.

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 of our operations.

The discussion of financial condition and results of our operations that follows provides information that will assist the reader in understanding our Consolidated Condensed 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 Condensed Financial Statements. This discussion should be read in conjunction with our Consolidated Condensed Financial Statements and the related notes that appear elsewhere in this document.

OVERVIEW

We are a leading global provider of personal computing and other 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. We have three ~~segments for financial reporting purposes:~~reportable segments: 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 ~~point-of-sale~~POS systems, displays and other related accessories, software, support, and ~~services for the commercial and consumer markets.~~services. The Printing segment provides Consumer and Commercial printer hardware, Supplies, solutions and services, as well as scanning devices. Corporate Investments include HP Labs and certain business incubation projects.

In Personal Systems, our strategic focus is on profitable growth through hyper market segmentation with respect to enhanced innovation in multi-operating systems, multi-architecture, geography, customer segments and other key attributes. Additionally, we are investing in premium ~~and mobility~~ form factors such as convertible notebooks ~~detachable notebooks, and mobility devices in order~~ to meet customer preference for mobile, thinner and lighter devices. ~~The beginning of a market shift to contractual solutions includes an~~We have increased our focus on Device as a ~~Service.~~Service as the market begins to shift to contractual solutions. We believe that we are well positioned due to our competitive product lineup.

In Printing, our strategic growth focus is on ~~business printing, a~~ shift to contractual solutions and Graphics, as well as expanding our footprint in the 3D printing marketplace. ~~Business printing includes delivering solutions to SMBs and enterprise customers, such as multi-function and PageWide printers, including our JetIntelligence lineup of LaserJet printers.~~ The shift to contractual solutions includes an increased focus on ~~Managed Print Services~~MPS and Instant Ink, supporting our strategy of placing higher value printer units (including our A3 products and solutions) which ~~presents~~offer strong ~~after-market supplies opportunities.~~annuity of toner and ink. In the Graphics space, we are focused on innovations such as our Indigo and Latex product ~~offerings. We plan to continue to focus on shifting the mix~~offerings, which support accelerated growth in ~~the installed base to higher value units and expanding~~ our ~~innovative Ink, Laser, Graphics and 3D printing programs.~~Graphic solutions. We continue to execute on our key initiatives of focusing on high-value products targeted at high usage categories and introducing new revenue delivery models. Our focus is on placing higher value printer units which offer strong annuity of toner and ink, the design and deployment of A3 products and solutions, accelerating growth in Graphic solutions and 3D printing.

We continue to experience challenges that are representative of trends and uncertainties that may affect our business and results of operations. One set of challenges relates to dynamic market trends, such as ~~flat~~forecasted declining PC ~~device~~Client markets and home printing markets.

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~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operations (Continued)~~

A second set of challenges relates to changes in the competitive landscape. Our primary competitors are exerting competitive pressure in targeted areas and are entering new markets, our emerging competitors are introducing new technologies and business models, and our alliance partners in some businesses are increasingly becoming our competitors in others. A third set of challenges relates to business model changes and our go-to-market ~~execution.~~execution in an evolving distribution and reseller landscape, with increasing omnichannel presence.

In Personal Systems, we face challenges with ~~continued increases in commodity costs, especially in memory,~~industry component availability.

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Management’s Discussion and ~~logistics costs,~~Analysis of

Financial Condition and ~~the uncertainty~~Results of ~~the market’s ability to absorb price increases driven by these costs.~~Operations (Continued)

In Printing, we ~~are seeing signs of stabilization of demand in consumer and commercial markets, but are still experiencing an overall competitive pricing environment. We~~ obtain ~~a number of~~many components from single sources 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. We are also seeing increases in commodity costs ~~such as oil prices,~~ impacting our bill of materials.

Our business and financial performance also depend significantly on worldwide economic conditions. Accordingly, we face global macroeconomic challenges, tariff-driven headwinds, uncertainty in the markets, volatility in exchange rates, ~~and~~ weaker macroeconomic ~~conditions.~~conditions and evolving dynamics in the global trade environment. The impact of these and other global macroeconomic challenges on our business cannot be known at this time.

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 ~~need to~~ continue to ~~improve~~work on improving our operations, with a particular focus on enhancing our end-to-end processes, analytics and efficiencies. We also ~~need to~~ continue to ~~optimize~~work on optimizing our sales coverage models, align our sales incentives with our strategic goals, improve channel execution, strengthen our capabilities in our areas of strategic focus, and develop and capitalize on market opportunities.

We typically experience higher net revenues in our ~~first and~~ fourth ~~quarters~~quarter compared to other quarters in our fiscal year due in part to seasonal holiday demand. Historical seasonal patterns should not be considered reliable indicators of our future net revenues or financial performance.

For a further discussion of trends, uncertainties and other factors that could impact our operating results, see the ~~sections~~section entitled “Risk Factors” in Item 1A of Part ~~II of our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2018 and Item 1A of part~~ I in our Annual Report on Form 10-K for the fiscal year ended October 31, ~~2017.~~2018.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

~~The~~ MD&A is based on our Consolidated Condensed Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses, and disclosure of contingent liabilities. Our management believes that ~~other than with respect to Taxes on Earnings,~~ there have been no significant changes during the six months ended April 30, ~~2018~~2019 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, ~~2017.~~2018, except as mentioned previously in “Note 1: Basis of Presentation”, we have adopted the new revenue standard in first quarter of fiscal 2019 and the accounting policy is updated.

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 considered to be separate units of accounting, 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 a separate unit of accounting. A performance obligation constitutes a separate unit of accounting 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 sold

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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. 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. However, the aforementioned factors may result in a different SSP determination applying 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.

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 time for 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.

Taxes on Earnings

The TCJA made significant changes to the U.S. tax law. The TCJA lowered our U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a one-time transition tax on accumulated foreign earnings. For the three months ended January 31, 2018, we recorded a provisional tax benefit of $1.1 billion. In addition, for the three months ended April 30, 2018, we recorded provisional tax expense of $379 million related to remeasurement of our U.S. deferred tax assets that are expected to be realized at a lower rate, which are considered provisional estimates under the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 118.

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~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operations (Continued)~~

In December 2017, the SEC staff issued SAB No. 118, which ~~addresses how~~allows registrants to record provisional amounts during a ~~company recognizes provisional estimates when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its~~one year “measurement period”. In January 2019, we completed our accounting for the effect of the changes in the TCJA. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. The final impacttax effects of the TCJA ~~may differ from the provisional estimates due to~~with no material changes in interpretations of the TCJA, legislative action to address questions that arise because of the TCJA, changes in accounting standard for income taxes and related interpretations in response to the TCJA, and updates or changes to estimates used in the provisional amounts. For the three months ended January 31, 2018, we recorded a provisional tax benefit of $1.1 billion related to the $5.5 billion net benefit for the decrease in our deferred tax liability on unremitted foreign earnings, partially offset by a $3.2 billion net expense for the deemed repatriation tax payable in installments over eight years and a $1.2 billion net expense for remeasurement of our deferred tax assets and liabilities for the revaluation of our deferred assets and liabilities to the new U.S. statutory tax rate. In addition, for the three months ended April 30, 2018, we recorded provisional tax expense of $379 million related to realization on U.S. deferred taxes that are expected to be realized at a lower rate and a $43 million tax benefit as an adjustment to the provisional amounts recorded during the measurement period.

In January 2018, the FASB released guidance on the accounting for tax on the Global Minimum Tax provisions of TCJA. The Global Minimum Tax provisions impose a tax on foreign income in excess of a deemed ~~repatriation tax amount due~~return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to ~~further analysis and additional guidance. Resolution of~~Global Minimum Tax inclusions or to treat any taxes on Global Minimum Tax inclusions as period cost are both acceptable methods subject to an accounting policy election. We have elected to treat the ~~provisional estimates of the TCJA effects that are different from the assumptions made by us could have a material impact on our financial condition and operating results.~~Global Minimum Tax inclusions as period costs.

Prior to the enactment of the TCJA, our effective tax rate included the impact of certain undistributed foreign earnings for which we have not provided U.S. federal taxes because we had planned to reinvest such earnings indefinitely outside the United States. We plan distributions of foreign earnings based on projected cash flow needs as well as the working capital and long-term investment requirements of our foreign subsidiaries and ~~our~~ domestic operations. Based on these assumptions, we estimate the amount we expect to indefinitely invest outside the United States and the amounts we expect to distribute to the United States and provide the U.S. federal taxes due on amounts expected to be distributed to the United States. Further, as a result of certain employment actions and capital investments we have undertaken, income from manufacturing activities in certain jurisdictions is subject to reduced tax rates and, in some cases, is wholly exempt from taxes for fiscal years through 2027. Material changes in our estimates of cash, working capital and long-term investment requirements in the various jurisdictions in which we do business could impact how future earnings are repatriated to the United States, and our related future effective tax rate. The effects of the TCJA related to these policies are referenced and discussed in detail in Note 6, “Taxes on Earnings” to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

ACCOUNTING PRONOUNCEMENTS

For a summary of recent accounting pronouncements applicable to our Consolidated Condensed Financial Statements see Note 1, “Basis of Presentation”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

RESULTS OF OPERATIONS

Revenue from our international operations has historically represented, and we expect will continue to represent, a majority of our overall net revenue. 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

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HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

exchange fluctuations calculated by translating current period revenues using monthly average exchange rates from the comparative period and hedging activities from the prior-year period and does not adjust 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. The constant currency measures are provided in addition to, and not as a substitute for, the year-over-year percentage change in net revenue on a GAAP basis. Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes.

~~Table of Contents~~

~~HP INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operations (Continued)~~

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


	Three months ended April 30										Six months ended April 30										Three months ended April 30										Six months ended April 30
	2018					2017					2018					2017					2019					2018					2019					2018
	Dollars			% of Net Revenue		Dollars			% of Net Revenue		Dollars			% of Net Revenue		Dollars			% of Net Revenue		Dollars			% of Net Revenue		Dollars			% of Net Revenue		Dollars			% of Net Revenue		Dollars			% of Net Revenue
	Dollars in millions																				Dollars in millions
Net revenue	$	14,003		100.0	%	$	12,385		100.0	%	$	28,520		100.0	%	$	25,069		100.0	%	$	14,036		100.0	%	$	14,003		100.0	%	$	28,746		100.0	%	$	28,520		100.0	%
Cost of revenue	(11,301		)	(80.7	)%	(10,002		)	(80.8	)%	(23,236		)	(81.5	)%	(20,438		)	(81.5	)%	(11,307		)	(80.6	)%	(11,301		)	(80.7	)%	(23,405		)	(81.4	)%	(23,236		)	(81.5	)%
Gross profit	2,702			19.3	%	2,383			19.2	%	5,284			18.5	%	4,631			18.5	%	2,729			19.4	%	2,702			19.3	%	5,341			18.6	%	5,284			18.5	%
Research and development	(356		)	(2.5	)%	(314		)	(2.5	)%	(703		)	(2.5	)%	(610		)	(2.4	)%	(353		)	(2.5	)%	(356		)	(2.5	)%	(697		)	(2.4	)%	(703		)	(2.5	)%
Selling, general and administrative	(1,260		)	(9.1	)%	(1,090		)	(8.8	)%	(2,429		)	(8.5	)%	(2,107		)	(8.5	)%	(1,339		)	(9.5	)%	(1,318		)	(9.5	)%	(2,587		)	(9.0	)%	(2,547		)	(8.9	)%
Restructuring and other charges	(57		)	(0.4	)%	(140		)	(1.1	)%	(88		)	(0.3	)%	(203		)	(0.8	)%	(69		)	(0.5	)%	(57		)	(0.4	)%	(124		)	(0.5	)%	(88		)	(0.3	)%
Acquisition-related charges	(45		)	(0.3	)%	(20		)	(0.2	)%	(87		)	(0.3	)%	(36		)	(0.1	)%	(11		)	(0.1	)%	(45		)	(0.3	)%	(21		)	(0.1	)%	(87		)	(0.3	)%
Amortization of intangible assets	(20		)	(0.1	)%	(1		)	—	%	(40		)	(0.1	)%	(1		)	—	%	(29		)	(0.2	)%	(20		)	(0.1	)%	(58		)	(0.2	)%	(40		)	(0.1	)%
Earnings from operations	964			6.9	%	818			6.6	%	1,937			6.8	%	1,674			6.7	%	928			6.6	%	906			6.5	%	1,854			6.4	%	1,819			6.4	%
Interest and other, net	(881		)	(6.3	)%	(64		)	(0.5	)%	(949		)	(3.3	)%	(145		)	(0.6	)%	(45		)	(0.3	)%	(823		)	(5.9	)%	(71		)	(0.2	)%	(831		)	(2.9	)%
Earnings before taxes	83			0.6	%	754			6.1	%	988			3.5	%	1,529			6.1	%	883			6.3	%	83			0.6	%	1,783			6.2	%	988			3.5	%
Benefit from (provision for) taxes	975			7.0	%	(195		)	(1.6	)%	2,008			7.0	%	(359		)	(1.4	)%
(Provision for) benefit from taxes																					(101		)	(0.7	)%	975			7.0	%	(198		)	(0.7	)%	2,008			7.0	%
Net earnings	$	1,058		7.6	%	$	559		4.5	%	$	2,996		10.5	%	$	1,170		4.7	%	$	782		5.6	%	$	1,058		7.6	%	$	1,585		5.5	%	$	2,996		10.5	%

Net Revenue

For the three months ended April 30, ~~2018,~~2019, total net revenue ~~increased 13.1%~~remained flat (increased ~~9.9%~~2% on a constant currency basis) as compared to the prior-year period. U.S. net revenue ~~increased 5.0%~~decreased 1% to ~~$4.7~~$4.6 billion, while net revenue from international operations increased ~~17.6%~~1% to ~~$9.3~~$9.4 billion. The increase in net revenue was primarily driven by growth in Desktops, Notebooks and Commercial Printing Hardware, partially offset by unfavorable foreign currency impacts and a decline in Supplies.

For the six months ended April 30, ~~2018,~~2019, total net revenue increased ~~13.8%~~1% (increased ~~11.4%~~2% on a constant currency basis) as compared to the prior-year period. U.S. net revenue ~~increased 7.2%~~decreased 1% to ~~$9.7~~$9.5 billion, while net revenue from international operations increased ~~17.5%~~2% to ~~$18.8~~$19.2 billion. The increase in net revenue was primarily driven by growth in Notebooks, Desktops ~~Commercial~~and Consumer Printing Hardware, ~~and Supplies revenue and favorable~~partially offset by unfavorable foreign currency ~~impacts.~~impacts and decline in Supplies.

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

Gross Margin

For the three months ended April 30, ~~2018,~~2019, our gross margin increased by 0.1 percentage ~~points~~point as compared to the prior-year period. For the six months ended April 30, 2019, our gross margin increased by 0.1 percentage point as compared to the prior-year period. The increase ~~was~~is primarily driven by ~~an improved~~higher rate in Personal Systems due to ~~higher average selling prices (“ASPs”),~~lower supply chain costs, partially offset by higher commodity costs in Personal Systems and higher Commercial Hardware unit placements in Printing. For the six months ended April 30, 2018, our gross margin remained flat, as compared to the prior-year period.unfavorable segment mix.

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

Operating Expenses

Research and Development

~~Research and development~~ (“R&D”)

R&D expense ~~increased 13.4% and 15.2%~~remained flat for the three and six months ended April 30, ~~2018, respectively,~~2019, as compared to the prior-year ~~periods, primarily due~~period, and relate to continuing ~~investment~~investments in key growth initiatives in both Printing ~~including the acquisition of Samsung’s printer business.~~and Personal Systems.

Selling, General and Administrative

Selling, general and administrative expense increased 15.6% and 15.3% for the three and six months ended April 30, 2018, respectively, as compared to the prior-year periods, primarily driven by the acquisition of Samsung’s printer business and incremental go-to-market investments to support revenue growth.

~~Restructuring and Other Charges~~

Restructuring and other charges for the three and six months ended April 30, 2018 relate primarily to the Fiscal 2017 Plan and certain non-recurring costs, including those as a result of the Separation.

~~Acquisition-related charges~~ (“SG&A”)

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HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

SG&A expense increased 1.6% for the three and six months ended April 30, 2019, as compared to the prior-year period, primarily driven by investment in digital infrastructure, partially offset by operating expense spend favorability.

Restructuring and Other Charges

Restructuring and other charges for the three and six months ended April 30, 2019 relate primarily to the Fiscal 2017 Plan.

Acquisition-Related Charges

Acquisition-related charges for the three and six months ended April 30, ~~2018~~2019 relate primarily to third-party professional and legal fees, and integration-related ~~costs, as well as fair value adjustments of certain acquired assets such as inventory.~~costs.

Amortization of Intangible Assets

Amortization of intangible assets for the three and six months ended April 30, ~~2018~~2019 relate primarily to intangible assets resulting from the ~~acquisition~~acquisitions of Samsung’s printer ~~business.~~business and the Apogee group.

Interest and Other, Net

Interest and other, net expense ~~increased~~decreased by ~~$817~~$778 million and ~~$804~~$760 million for the three and six months ended April 30, ~~2018,~~2019, respectively, as compared to the prior-year ~~periods, primarily due to~~period, as Interest and other, net expense for the three and six months ended April 30, 2018 included reversal of indemnification receivables from Hewlett Packard Enterprise pertaining to various audit settlements, and loss on extinguishment of debt.

(Provision for) Benefit from ~~(Provision for)~~ Taxes

As a result of U.S. tax reform, we revised our estimated annual effective tax rate to reflect the change in the U.S. federal statutory tax rate from 35% to 21%. Since we have a fiscal year ending October 31, we are subject to transitional tax rate rules. Therefore, a blended rate of 23% was computed as effective for the current fiscal year. Our effective tax rate was ~~(1162%)~~11.4% and ~~25.9%~~(1,162%) for the three months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and 11.1% and (203%) ~~and 23.5%~~ for the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The difference between the ~~current fiscal year blended~~ U.S. federal statutory tax rate of ~~23%~~21% and ~~the Company’s~~our effective tax rate for the three ~~months~~ and six months ended April 30, ~~2018~~2019 is primarily due to ~~transitional impacts of U.S. tax reform, resolution of various audits and tax litigation, and~~ favorable tax rates associated with certain earnings from our operations in lower-tax jurisdictions throughout the world. For the three and six months ended April 30, ~~2017~~2018 our effective tax rate generally differs from the U.S. federal statutory blended rate of ~~35%~~23% due to transitional impacts of U.S. tax reform and resolution of various audits and tax litigation, partially offset by favorable tax rates associated with certain earnings from our operations in lower-tax jurisdictions throughout the world. ~~We have not provided U.S. taxes~~

During the three and six months ended April 30, 2019, we recorded $40 million and $49 million, respectively, of net income tax benefits related to discrete items in the provision for ~~all foreign earnings because~~taxes. These amounts included tax benefits of $42 million and $48 million related to one-time items for the three and six months ended April 30, 2019, respectively, and $14 million and $26 million related to restructuring charges for the three and six months ended April 30, 2019, respectively. These benefits were partially offset by uncertain tax position charges of $12 million and $32 million for the three and six months ended April 30, 2019, respectively and other charges of $4 million and $14 million for the three and six months ended April 30, 2019, respectively. The six months ended April 30, 2019 also included a tax benefit of $21 million related to final tax reform adjustments. In addition to the discrete items mentioned above, we ~~plan to reinvest some~~recorded $20 million of ~~those earnings indefinitely outside~~excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units for the ~~United States.~~six months ended April 30, 2019.

During the three and six months ended April 30, 2018, we recorded $1.1 billion and $2.2 billion, respectively, of net tax benefits related to discrete items in the provision for taxes. As ~~discussed in the Note 6~~of April 30, 2018, we ~~have~~had not yet completed our analysis of the full impact of TCJA. However, for the three months ended January 31, 2018, we recorded a provisional tax benefit of $1.1 billion related to $5.5 billion net benefit for the decrease in our deferred tax liability on unremitted foreign earnings, partially offset by $3.2 billion net expense for the deemed repatriation tax payable in installments over eight years and $1.2 billion net expense for remeasurement of our deferred tax assets and liabilities ~~for the revaluation of our deferred assets and liabilities~~ to the new U.S. statutory tax rate. In addition, for the three months ended April 30, 2018, we recorded provisional tax expense of $379 million related to remeasurement of our U.S. deferred taxes that ~~are~~were expected to be realized at a lower rate and a $43 million tax benefit as an adjustment to the provisional deemed repatriation tax amount due to further analysis and additional guidance. This amount also included tax benefits related to audit settlements of $1.4 billion and $1.5 billion for the three and six months ended April 30, 2018, respectively, and loss on extinguishment of debt of $33 million for the three and six months ended April 30, 2018. These tax benefits were offset by uncertain tax position charges of $8 million and $51 million for the three and six months ended April 30, 2018, respectively. During the three and six months ended April 30, 2018, in addition to the discrete items mentioned above, we recorded excess tax benefits of $6 million and $34 million, respectively, on stock options, restricted stock units and performance-adjusted restricted stock units.

In the second quarter of 2018, we settled audits with multiple tax jurisdictions covering numerous open years while also achieving resolution on certain tax litigation. We have agreed with all of the adjustments contained within the various final closing agreements and have redetermined our unrecognized tax positions for all open years based on the closing agreements and associated information and analysis of those agreements. We recorded net benefit of $1.4 billion in the quarter due to the completion of the various audits, the resolution of certain tax litigation and associated reserve redeterminations.

During the three and six months ended April 30, 2017, we recorded $4 million and $5 million , respectively, of net tax benefits related to discrete items in the provision for taxes for continuing operations. These amounts included a tax benefit of $12 million and $31 million for the three and six months ended April 30, 2017, respectively, related to restructuring charges. The three months ended April 30, 2017 also included various other tax charges of $8 million. The six months ended April 30, 2017 also included a tax charge of $26 million related to state provision to return adjustm~~ents.~~

Segment Information

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

Realignment

Effective at the beginning of its first quarter of fiscal year 2018, HP implemented an organizational change to align its segment and business unit financial reporting more closely with its current business structure. The organizational change resulted in the transfer of long-life consumables from Commercial to Supplies within the Printing segment. Certain revenues related to service arrangements, which are being eliminated for the purposes of reporting HP’s consolidated net revenue, have

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HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

~~now been reclassified~~Effective at the beginning of its first quarter of fiscal year 2019, we implemented an organizational change to align our business unit financial reporting more closely with our current business structure. The organizational change resulted in the transfer of certain Samsung-branded product categories from ~~Other~~Commercial to ~~segments. HP has~~Consumer within the Printing segment. We reflected this change to ~~its segment and~~our business unit information in prior reporting periods on an as-if basis. The reporting change had no impact onto previously reported segment net revenue, consolidated net revenue, earnings from operations, net earnings or net ~~earnings per share.~~EPS.

Personal Systems


	Three months ended April 30								Six months ended April 30								Three months ended April 30								Six months ended April 30
	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change		2019			2018			% Change
	Dollars in millions																Dollars in millions
Net revenue	$	8,762		$	7,653		14.5	%	$	18,202		$	15,869		14.7	%	$	8,921		$	8,762		1.8	%	$	18,578		$	18,202		2.1	%
Earnings from operations	$	331		$	244		35.7	%	$	668		$	556		20.1	%	$	385		$	329		17.0	%	$	795		$	664		19.7	%
Earnings from operations as a % of net revenue	3.8		%	3.2		%			3.7		%	3.5		%			4.3		%	3.8		%			4.3		%	3.6		%

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


	Three months ended April 30							Six months ended April 30							Three months ended April 30									Six months ended April 30
	Net Revenue				Weighted Net Revenue Change			Net Revenue						Weighted Net Revenue Change	Net Revenue						Weighted Net Revenue Change			Net Revenue							Weighted Net Revenue Change
	2018		2017				2018			2017			2019			2018				2019				2018							Weighted Net Revenue Change
	Dollars in millions				Weighted Net Revenue Change	Percentage Points			Dollars in millions					Weighted Net Revenue Change		Percentage Points	Dollars in millions							Percentage Points			Dollars in millions						Percentage Points
Notebooks	$	5,153	$	4,493	8.6			$	10,748		$	9,383		8.6	$	5,099		$	5,153		Weighted Net Revenue Change	(0.6	)		$	11,018			$	10,748		1.5
Desktops	2,752		2,377		4.9			5,707			4,911			5.0	2,940			2,752			2.1			5,797				5,707			0.5
Workstations	538		495		0.6			1,081			986			0.6	569			538			0.4			1,131				1,081			0.3
Other	319		288		0.4			666			589			0.5	313			319			(0.1	)		632				666			(0.2	)
Total Personal Systems	$	8,762	$	7,653	14.5			$	18,202		$	15,869		14.7	$	8,921		$	8,762		1.8			$	18,578			$	18,202		2.1

Three months ended April 30, ~~2018~~2019 compared with three months ended April 30, ~~2017~~2018

Personal Systems net revenue increased ~~14.5%~~1.8% (increased ~~10.7%~~4.7% on a constant currency basis) for the three months ended April 30, ~~2018~~2019 as compared to the prior-year period. The net revenue increase was primarily due to growth in Desktops, Notebooks and ~~Desktops and favorable~~Workstations, partially offset by unfavorable foreign currency impacts. The net revenue increase was driven by a ~~7.0%~~3.3% increase in ~~both~~average selling prices (“ASPs”), partially offset by a 1.5% decrease in unit volume, ~~and ASPs~~ as compared to the prior-year period. The increase in ASPs was due to higher pricing and positive mix shifts, partially offset by unfavorable foreign currency impacts. The decrease in unit volume was primarily due to ~~growth~~decline in ~~Notebooks and Desktops. The~~Consumer units driven by demand weakness, partially offset by an increase in ~~ASPs was due to foreign currency impacts, positive mix shifts~~Commercial units. Consequently, Commercial revenue increased 6.7% and ~~favorable pricing rate.~~

Consumer revenue ~~increased 10.5%~~decreased 9.1% for the three months ended April 30, ~~2018~~2019 as compared to the prior-year period, driven by growth in Notebooks and Desktops as a result of higher unit volume combined with higher ASPs. Commercial revenue increased 16.4% as compared to the prior-year period, driven by growth in Notebooks, Desktops and Workstations.period.

Net revenue increased ~~15.8%~~6.8% in Desktops ~~14.7%~~and 5.8% in ~~Notebooks~~Workstations and ~~8.7%~~decreased 1.0% in ~~Workstations~~Notebooks as compared to the prior-year period.

Personal Systems earnings from operations as a percentage of net revenue increased by ~~0.6~~0.5 percentage points for the three months ended April 30, ~~2018~~2019 as compared to the prior-year ~~period,~~period. The increase was primarily due to an increase in gross ~~margin. The increase in gross~~ margin, ~~was~~ primarily due to higher ASPs ~~partially offset by an increase in logistics~~ and ~~commodity~~lower supply chain costs.

Six months ended April 30, ~~2018~~2019 compared with six months ended April 30, ~~2017~~2018

Personal Systems net revenue increased ~~14.7%~~2.1% (increased ~~11.9%~~4.1% on a constant currency basis) for the six months ended April 30, ~~2018~~2019 as compared to the prior-year period. The net revenue increase was primarily due to growth in Notebooks, ~~and~~ Desktops and ~~favorable~~Workstations, partially offset by unfavorable foreign currency impacts. The net revenue increase was driven by a ~~7.1%~~4.5% increase in ~~both~~ASPs, partially offset by a 2.3% decrease in unit volume, ~~and ASPs~~ as compared to the prior-year period. The increase in ASPs was due to positive mix shifts and higher pricing, partially offset by unfavorable foreign currency impacts. The decrease in unit volume was primarily due to ~~growth~~decline in ~~Notebooks and Desktops. The~~Consumer units driven by demand weakness, partially offset by an increase in ~~ASPs was due to favorable pricing rate, foreign currency impacts~~Commercial units. Consequently, Commercial revenue increased 4.8% and ~~positive mix shifts.~~

Consumer revenue ~~increased 11.7%~~decreased 3.3% for the six months ended April 30, ~~2018~~2019 as compared to the prior-year period, driven by growth in Notebooks and Desktops as a result of higher unit volume combined with higher ASPs. Commercial revenue increased 16.3% as compared to the prior-year period, driven by growth in Notebooks, Desktops and Workstations.period.

Net revenue increased ~~16.2%~~2.5% in Notebooks, 1.6% in Desktops ~~14.5% in Notebooks~~ and ~~9.6%~~4.6% in Workstations as compared to the prior-year period.

Personal Systems earnings from operations as a percentage of net revenue increased by 0.2 percentage points for the six months ended April 30, 2018 as compared to the prior-year period, primarily due to a decrease in operating expenses. Gross

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HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

~~margin~~Personal Systems earnings from operations as a percentage of net revenue increased by 0.7 percentage points for the six months ended April 30, 2019 as compared to the prior-year period. The increase was ~~flat~~primarily due to an increase in gross margin, primarily due to higher ASPs ~~offset by an increase in commodity~~and lower supply chain costs. ~~Operating expenses as a percentage of net revenue decreased primarily due to operating expense management.~~

Printing


	Three months ended April 30								Six months ended April 30								Three months ended April 30								Six months ended April 30
	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change		2019			2018			% Change
	Dollars in millions																Dollars in millions
Net revenue	$	5,241		$	4,728		10.9	%	$	10,317		$	9,192		12.2	%	$	5,116		$	5,241		(2.4	)%	$	10,172		$	10,317		(1.4	)%
Earnings from operations	$	839		$	820		2.3	%	$	1,640		$	1,534		6.9	%	$	839		$	837		0.2	%	$	1,660		$	1,636		1.5	%
Earnings from operations as a % of net revenue	16.0		%	17.3		%			15.9		%	16.7		%			16.4		%	16.0		%			16.3		%	15.9		%

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


	Three months ended April 30					Six months ended April 30					Three months ended April 30					Six months ended April 30
	Net Revenue					Net Revenue					Net Revenue					Net Revenue
	2018		2017		Weighted Net Revenue Change	2018		2017		Weighted Net Revenue Change	2019		2018		Weighted Net Revenue Change	2019		2018		Weighted Net Revenue Change
	Dollars in millions				Percentage Points	Dollars in millions				Percentage Points	Dollars in millions				Percentage Points	Dollars in millions				Percentage Points
Supplies	$	3,434	$	3,188	5.2	$	6,785	$	6,223	6.1	$	3,331	$	3,434	(2.0)	$	6,598	$	6,785	(1.8)
Commercial Hardware	1,186		936		5.3	2,256		1,775		5.2	1,179		1,145		0.7	2,269		2,182		0.8
Consumer Hardware	621		604		0.4	1,276		1,194		0.9	606		662		(1.1)	1,305		1,350		(0.4)
Total Printing	$	5,241	$	4,728	10.9	$	10,317	$	9,192	12.2	$	5,116	$	5,241	(2.4)	$	10,172	$	10,317	(1.4)

Three months ended April 30, ~~2018~~2019 compared with three months ended April 30, ~~2017~~2018

Printing net revenue ~~increased 10.9% (increased 8.7%~~decreased 2.4% (decreased 1.7% on a constant currency basis) for the three months ended April 30, ~~2018~~2019 as compared to the prior-year period. The ~~increase~~decline in net revenue was primarily driven by ~~increases~~declines in ~~both~~ Supplies and Consumer Hardware, ~~revenue, and favorable foreign currency impacts.~~partially offset by an increase in Commercial Hardware. Net revenue for Supplies ~~increased 7.7%~~decreased 3.0% as compared to the prior-year period, ~~including the acquisition of Samsung’s printer business.~~primarily due to demand weakness. Printer unit volume ~~increased 13.3% while~~decreased 3.8% and ASPs ~~increased 1.6%~~decreased 2.0% as compared to the prior-year period. The ~~increase~~decrease in printer unit volume was primarily driven by unit ~~increases~~decreases in ~~Commercial Hardware, including the Samsung-branded printers.~~Consumer Hardware. Printer ASPs ~~increased~~decreased primarily due to ~~favorable foreign currency impacts, partially offset by the dilution impact from Samsung-branded low-end A4 products.~~higher discounting.

Net revenue for Commercial Hardware increased by ~~26.7%~~3.0% as compared to the prior-year period, ~~including revenue from Samsung-branded printers, LaserJet and PageWide printers. The unit volume in Commercial Hardware increased~~ primarily due to ~~Samsung-branded printers. The ASP decrease in Commercial Hardware was primarily due to dilution impact from Samsung-branded low-end A4 products.~~the acquisition of the Apogee group.

Net revenue for Consumer Hardware ~~increased 2.8%~~decreased 8.5% as compared to the prior-year period, primarily due to a ~~3.7% increase~~4.0% decrease in printer unit volume ~~whereas the ASPs remained roughly flat.~~and 5.6% decrease in ASPs. The unit volume ~~increase~~decrease was primarily driven by the Inkjet Home Consumer and LaserJet Home ~~business.~~Business. The decrease in ASPs ~~remained flat due to favorable foreign currency impacts, offset~~was primarily driven by ~~unfavorable mix shift to Deskjet and~~ higher ~~discounts due to competitive pressures.~~discounting.

Printing earnings from operations as a percentage of net revenue ~~decreased~~increased by ~~1.3~~0.4 percentage points for the three months ended April 30, ~~2018~~2019 as compared to the prior-year period, primarily due to ~~an increase~~decrease in operating expenses and decline in overall gross margin. The gross margin decrease was primarily driven by dilution impact from Samsung-branded low-end products and increase in commodity costs, partially offset by favorable foreign currency impacts.expenses. Operating expenses ~~increased~~as a percentage of net revenue decreased primarily ~~driven by the acquisition of Samsung’s printer business and increases in investments in key growth initiatives and go-to-market.~~due to operating expense spend favorability.

Six months ended April 30, ~~2018~~2019 compared with six months ended April 30, ~~2017~~2018

Printing net revenue ~~increased 12.2% (increased 10.4%~~decreased 1.4% (decreased 1.2% on a constant currency basis) for the six months ended April 30, ~~2018~~2019 as compared to the prior-year period. The ~~increase~~decline in net revenue was primarily driven by a decline in Supplies partially offset by an increase in ~~Supplies and Hardware revenue, and favorable foreign currency impacts.~~Commercial Hardware. Net revenue for Supplies ~~increased by 9.0%~~decreased 2.8% as compared to the prior-year period, primarily due to demand weakness. Printer unit volume decreased 0.6% and ASPs decreased 2.5% as compared to the prior-year period. The decrease in printer unit volume was primarily driven by unit decrease in Consumer Hardware. Printer ASPs decreased primarily due to higher discounting.

Net revenue for Commercial Hardware increased by 4.0% as compared to the prior-year period, primarily due to the acquisition of the Apogee group.

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HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

prior-year period, including the acquisition of Samsung’s printer business. Printer unit volume increased 13.8% while ASPs increased 3.8% as compared to the prior-year period. The increase in printer unit volume was primarily driven by unit increases in Commercial and Consumer Hardware, including the Samsung-branded printers. Printer ASPs increased primarily due to a mix shift to higher-end printers and favorable foreign currency impacts, partially offset by the dilution impact from Samsung-branded low-end A4 products.

Net revenue for Commercial Hardware increased 27.1% as compared to the prior-year period, including revenue from Samsung-branded printers, LaserJet and PageWide printers and 3D printers. The unit volume in Commercial Hardware increased primarily due to Samsung-branded printers. The ASP decrease in Commercial Hardware was primarily due to the dilution impact from Samsung-branded low-end A4 products.

Net revenue for Consumer Hardware ~~increased 6.9%~~decreased 3.3% as compared to the prior-year period, due to a ~~5.3% increase~~0.7% decrease in printer unit volume and ~~a 2.3% increase~~by 3.3% decrease in ASPs. The unit volume ~~increase~~decrease was primarily driven by the InkJet Home ~~business.~~Consumer Business. The ~~ASP increase~~decrease in ASPs was primarily driven by ~~favorable foreign currency impacts.~~higher discounting.

Printing earnings from operations as a percentage of net revenue ~~decreased~~increased by ~~0.8~~0.4 percentage points for the six months ended April 30, ~~2018~~2019 as compared to the prior-year period, primarily due to ~~an increase~~decrease in operating expenses, partially offset by ~~improved~~decline in gross margin. The gross margin ~~increased due to operational improvements and favorable foreign currency impacts, partially offset by dilution impact of Samsung-branded low-end products. Operating expenses increased~~decrease was primarily driven by ~~the acquisition~~lower Supplies mix. Operating expenses as a percentage of ~~Samsung’s printer business and increases in investments in key growth initiatives and go-to-market.~~net revenue decreased primarily due to operating expense spend favorability.

Corporate Investments

The loss from operations in Corporate Investments for the three ~~months~~ and six months ended April 30, ~~2018~~2019 was primarily due to expenses associated with our incubation projects.

LIQUIDITY AND CAPITAL RESOURCES

We use cash generated by operations as our primary source of liquidity. We believe that internally generated cash flows are generally sufficient to support our operating businesses, capital expenditures, acquisitions, restructuring activities, maturing debt, income tax payments and the payment of stockholder dividends, in addition to investments and share repurchases. We are able to supplement this short-term liquidity, if necessary, with broad access to capital markets and credit facilities made available by various domestic and foreign financial institutions. While our access to capital markets may be constrained and our cost of borrowing may increase under certain business, market and economic conditions, our access to a variety of funding sources to meet our liquidity needs is designed to facilitate continued access to capital resources under all such conditions. Our liquidity is subject to various risks including the risks identified in the section entitled “Risk Factors” in Item 1A of Part I in our Annual Report on Form 10-K, for the fiscal year ended October 31, ~~2017~~2018 and the market risks identified in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Item 3 of Part I of this report, which are incorporated herein by reference.

Our cash balances are held in numerous locations throughout the world, with the majority of those amounts held outside of the United States. We utilize a variety of planning and financing strategies in an effort to ensure that our worldwide cash is available when and where it is needed. Our cash position remains strong, and we expect that our cash balances, anticipated cash flow generated from operations and access to capital markets will be sufficient to cover our expected near-term cash outlays.

Amounts held outside of the United States are generally utilized to support non-U.S. liquidity needs and may from time to time be distributed to the United States. The TCJA made significant changes to the U.S. tax law, including a one-time transition tax on accumulated foreign earnings. The payments associated with this one-time transition tax will be paid over eight years beginning ~~2019.~~in the current fiscal year. We expect a significant portion of the cash and cash equivalents held by our foreign subsidiaries will no longer be subject to U.S. income tax consequences upon a subsequent repatriation to the United States as a result of the transition tax on accumulated foreign earnings. However, a portion of this cash may still be subject to foreign income tax or withholding tax consequences upon repatriation. As we evaluate the ~~impact of the TCJA and 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, ~~returning capital to shareholders with a focus on incremental share repurchase~~ or other uses.

Liquidity

Our key cash flow metrics were as follows:



	Six months ended April 30
	2019			2018
	In millions
Net cash provided by operating activities	$	1,723		$	2,046
Net cash used in investing activities	(22		)	(1,102		)
Net cash used in financing activities	(3,311		)	(3,694		)
Net decrease in cash and cash equivalents	$	(1,610	)	$	(2,750	)

Operating Activities

Compared to the corresponding period in fiscal year 2018, net cash provided by operating activities decreased by $0.3 billion for the six months ended April 30, 2019, primarily due to working capital management activities.

Working Capital Metrics

Management utilizes current cash conversion cycle information to manage HP’s working capital levels. Our working capital metrics and cash conversion cycle impacts were as follows:

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HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Six months ended April 30
2018 2017
In millions
Net cash provided by operating activities $ 2,046
$ 1,222
Net cash used in investing activities (1,102 ) (241 )
Net cash used in financing activities (3,694 ) (1,046 )
Net decrease in cash and cash equivalents $ (2,750 ) $ (65 )

~~Operating Activities~~

Compared to the corresponding period in fiscal year 2017, net cash provided by operating activities increased by $0.8 billion for the six months ended April 30, 2018, primarily due to higher earnings from operations and an increase in other liabilities.

~~Working Capital Metrics~~

~~Management utilizes current cash conversion cycle information to manage HP’s working capital levels. Our working capital metrics and cash conversion cycle impacts were as follows:~~


	As of						As of								As of						As of
	April 30, 2018		October 31, 2017		Change		April 30, 2017		October 31, 2016		Change		Y/Y Change		April 30, 2019		October 31, 2018		Change		April 30, 2018		October 31, 2017		Change		Y/Y Change
Days of sales outstanding in accounts receivable (“DSO”)	30		29		1		27		30		(3	)	3		35		30		5		30		29		1		5
Days of supply in inventory (“DOS”)	44		46		(2	)	43		39		4		1		43		43		—		44		46		(2	)	(1	)
Days of purchases outstanding in accounts payable (“DPO”)	(104	)	(105	)	1		(100	)	(98	)	(2	)	(4	)	(110	)	(105	)	(5	)	(104	)	(105	)	1		(6	)
Cash conversion cycle	(30	)	(30	)	—		(30	)	(29	)	(1	)	—		(32	)	(32	)	—		(30	)	(30	)	—		(2	)

April 30, ~~2018~~2019 as compared to April 30, ~~2017~~2018

The cash conversion cycle is the sum 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, 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 doubtful accounts, by a 90-day average net revenue. The increase in DSO was primarily due to unfavorable revenue linearity.

DOS measures the average number of days from procurement to sale of our product. DOS is calculated by dividing ending inventory by a 90-day average cost of revenue. The ~~increase~~decrease in DOS was primarily due to ~~leveraging our balance sheet, particularly through strategic~~reduction in inventory ~~investments.~~driven by reclassification of certain balances to other current assets, pursuant to adoption of the new revenue standard in the first quarter of fiscal 2019.

DPO measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing ending accounts payable by a 90-day average cost of revenue. The increase in DPO was primarily due to ~~higher inventory purchasing volume and negotiated payment terms with our product suppliers.~~working capital management activities.

Investing Activities

Compared to the corresponding period in fiscal year ~~2017,~~2018, net cash used in investing activities ~~increased~~decreased by ~~$0.9~~$1.1 billion for the six months ended April 30, ~~2018,~~2019, primarily due to ~~payment~~a decrease in investments classified as available-for-sale investments within Other current assets of $0.6 billion and lower net payments for ~~the acquisition~~acquisitions of ~~Samsung’s printer business.~~$0.6 billion.

Financing Activities

Compared to the corresponding period in fiscal year ~~2017,~~2018, net cash used in financing activities ~~increased~~decreased by ~~$2.6~~$0.4 billion for the six months ended April 30, ~~2018,~~2019, primarily due to ~~the~~lower payment ~~for the repurchase~~ of debt of ~~$1.85~~$1.5 billion ~~and~~partially offset by a ~~higher share repurchase settlement amount~~decrease in outstanding commercial paper amounts of ~~$0.7~~$0.9 billion.

Capital Resources

Debt Levels

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. Outstanding borrowings decreased to ~~$6.1~~$5.0 billion as of April 30, ~~2018~~2019 as compared to ~~$7.8~~$6.0 billion as

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~~HP INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operations (Continued)~~

of October 31, ~~2017,~~2018, bearing weighted-average interest rates of ~~4.2%~~4.7% and ~~4.0%~~4.3% for April 30, ~~2018~~2019 and October 31, ~~2017, respectively, primarily due to the payment for the repurchase of approximately $1.85 billion in aggregate principal amount of U.S. Dollar Global Notes.~~2018, respectively.

Our weighted-average interest rate reflects the average effective rate on our borrowings prevailing during the period and reflects the impact of interest rate swaps. For more information on our interest rate swaps, see Note 9,8, “Financial Instruments”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

As of April 30, ~~2018,~~2019, we maintain a senior unsecured committed revolving credit facility with aggregate lending commitments of ~~$4.0~~$4.0 billion, ~~which~~that will be available until March 30, 2023 and is primarily to support the issuance of commercial paper. Funds borrowed under this revolving credit facility may also be used for general corporate purposes. ~~As of April 30, 2018, we had $1.0 billion of commercial paper outstanding.~~

We increased our issuance authorization under our commercial paper program from $4.0 billion to $6.0 billion in November 2017. In December 2017, we also entered into an additional revolving credit facility with certain institutional lenders that provides us with $1.5 billion of available borrowings until November 30, 2018.

Available Borrowing Resources

We had the following resources available to obtain short or long-term financing in addition to the commercial paper and revolving credit ~~facilities~~facility discussed above:

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HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

As of April 30, 2018
In millions
2016 Shelf Registration Statement Unspecified
Uncommitted lines of credit $ 722



	As of April 30, 2019
	In millions
2016 Shelf Registration Statement	Unspecified
Uncommitted lines of credit	$730 million

For more information on our borrowings, see Note ~~10,~~9, “Borrowings”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Credit Ratings

Our credit risk is evaluated by major independent rating agencies based upon publicly available information as well as information obtained in our ongoing discussions with them. While we do not have any rating downgrade triggers that would accelerate the maturity of a material amount of our debt, previous downgrades have increased the cost of borrowing under our credit ~~facilities,~~facility, have reduced market capacity for our commercial paper and have required the posting of additional collateral under some of our derivative contracts. In addition, any further downgrade to our credit ratings by any rating agencies may further impact us in a similar manner, and, depending on the extent of any such downgrade, could have a negative impact on our liquidity and capital position. We can access alternative sources of funding, including drawdowns under our credit ~~facilities,~~facility, if necessary, to offset potential reductions in the market capacity for our commercial paper.

CONTRACTUAL AND OTHER OBLIGATIONS

~~Contractual Obligations~~

During the three months ended April 30, 2018, we renegotiated certain purchase agreements, pursuant to which our unconditional purchase obligations as of April 30, 2018 were $0.9 billion, as compared to $1.2 billion as of October 31, 2017.

Retirement and Post-Retirement Benefit Plan Contributions

As of April 30, ~~2018,~~2019, we anticipate making contributions for the remainder of fiscal year ~~2018~~2019 of approximately ~~$17~~$31 million to our non-U.S. pension plans, ~~$13~~$15 million to cover benefit payments to U.S. non-qualified pension plan participants and $7$6 million to cover benefit claims for our post-retirement benefit plans. Our policy is to fund our pension plans so that we meet at least the minimum contribution requirements, as established by local government, funding and taxing authorities. For more information on our retirement and post-retirement benefit plans, see 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.

Cost Savings Plan

We expect to make future cash payments of approximately ~~$346~~$207 million in connection with our cost savings ~~plans through fiscal year 2019.~~plans. 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

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~~HP INC. AND SUBSIDIARIES~~

~~Management’s Discussion and Analysis of~~

~~Financial Condition and Results of Operations (Continued)~~

As of April 30, ~~2018,~~2019, we had approximately $1.4 billion 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. Payments of these obligations would result from settlements with taxing authorities. For more information on our uncertain tax positions, see Note 6,5, “Taxes on Earnings”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Payment of one-time transition taxes under the TCJA

The TCJA made significant changes to U.S. tax law resulting in a one-time gross transition tax ~~of $3.1 billion~~ on accumulated foreign ~~earnings.~~earnings of $3.3 billion. We expect the actual cash payments for the tax to be much lower as we expect to reduce the overall liability by more than half once existing and future credits and other balance sheet attributes are used. The payments associated with this one-time transition tax will be paid over eight years beginning in the current fiscal year.

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.

We have third-party short-term financing arrangements intended to facilitate the working capital requirements of certain customers. For more information on our third-party short-term financing arrangements, see Note 7,6, “Supplementary Financial Information”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

For quantitative and qualitative disclosures about market risk affecting HP, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended October 31, ~~2017,~~2018, which is incorporated herein by reference. Our exposure to market risk has not changed materially since October 31, ~~2017.~~2018.

Item 4. Controls and Procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information ~~relating to HP, including our consolidated subsidiaries,~~ required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to HP’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our principal executive officer and principal financial officer concluded that there has not been any change in our internal control over financial reporting during that quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Information with respect to this item may be found in Note ~~13,~~12, “Litigation and Contingencies” to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Item 1A. Risk Factors.

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, ~~2017~~2018 and Part II, Item 1A, “Risk Factors” in our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, ~~2018,~~2019, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock. ~~There~~Other than the risk factors set forth below, there have been no material changes in ~~our~~the risk factors ~~since~~described in our Annual Report on Form 10-K for the fiscal year ended October 31,2018 and our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, ~~2018~~.2019.

If we are unsuccessful at addressing our business challenges, our business and results of operations may be adversely affected and our ability to invest in and grow our business could be limited.

Our business faces many challenges we must address. One set of challenges relates to dynamic and accelerating market trends, which may include declines in the markets in which we operate. A second set of challenges relates to changes in the competitive landscape. Our primary competitors are exerting increased competitive pressure in targeted areas and are entering new markets; our emerging competitors are introducing new technologies and business models; and our alliance partners in some businesses are increasingly becoming our competitors in others. A third set of challenges relates to business model changes and our go-to-market execution. For example, we may fail to develop innovative products and services, maintain the manufacturing quality of our products, manage our global, multi-tier distribution network, adapt to new or changing marketplaces or successfully market new products and services, any of which could adversely affect our business and financial condition.

In addition, we have in the recent past and may again in the future face macroeconomic challenges, including weakness in certain geographic regions and global political developments that impact international trade, such as trade disputes and increased tariffs. We may also be vulnerable to increased risks associated with our efforts to address such challenges given the broad range of geographic regions in which we and our customers and partners operate. If we experience these challenges and do not succeed in our efforts to mitigate them, or if these efforts are more costly or time-consuming than expected, our business and results of operations may be adversely affected, which could limit our ability to invest in and grow our business.

If we cannot successfully execute our go-to-market strategy and continue to develop, manufacture and market innovative products and services, our business and financial performance may suffer.

Our strategy is focused on leveraging our existing portfolio of products and services to meet the demands of a continually changing technological landscape and to offset certain areas of industry decline. To successfully execute this strategy, we must emphasize the aspects of our core business where demand remains strong, identify and capitalize on natural areas of growth, innovate and develop new products and services that will enable us to expand beyond our existing technology categories, and adapt to new and changing marketplaces for our products. For example, our go-to-market strategy, including online, omnichannel and contractual sales, needs to evolve in-line with market dynamics, forces and demand. If we cannot innovate, develop and execute evolutionary strategies in this changing environment, then we may not be able to successfully compete and maintain the value proposition of our products, including supplies. Any failure to successfully execute this strategy, including any failure to invest sufficiently in strategic growth areas, could adversely affect our business, results of operations and financial condition.

The process of developing new high-technology products and services and enhancing existing products and services is complex, costly and uncertain, and any failure by us to anticipate customers’ changing needs and emerging technological trends accurately could significantly harm our market share, results of operations and financial condition. For example, to offset industry declines in some of our businesses, our strategy is to successfully grow in adjacencies such as copier printers, maintain our strong position in graphics, scale our 3D Printing, Managed Print Services and Device as a Service businesses and execute on our Personal Systems growth strategy by providing specialized products and services that address the needs of our customers. We must make long-term investments, develop or acquire and appropriately protect intellectual property, and commit significant research and development and other resources before knowing whether our predictions will accurately reflect customer demand for our products and services. Any failure to accurately predict technological and business trends, control research and development costs or execute our innovation strategy could harm our business and financial performance. Our research and development initiatives may not be successful in whole or in part, including research and development projects which we have prioritized with respect to funding and/or personnel.

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Our industry is subject to rapid and substantial innovation and technological change. Even if we successfully develop new products and technologies, future products and technologies may eventually supplant ours if we are unable to keep pace with technological advances and end-user requirements and preferences and timely enhance our existing products and technologies or develop new ones. Our competitors may also create products that replace ours. As a result, any of our products and technologies may be rendered obsolete or uneconomical.

After we develop a product, we must be able to manufacture appropriate volumes quickly while also managing costs and preserving margins. To accomplish this, we must accurately forecast volumes, mixes of products and configurations that meet customer requirements, and we may not succeed at doing so within a given product’s lifecycle or at all. Any delay in the development, production or marketing of a new product, service or solution could result in us not being among the first to market, which could further harm our competitive position.

The net revenue and profitability of our operations have historically varied, which makes our future financial results less predictable.

Our net revenue, gross margin and profit vary among our diverse products and services, customer groups and geographic markets and therefore will likely be different in future periods than our current results. Overall gross margins and profitability in any given period are dependent on the product, service, customer and geographic mix reflected in that period’s net revenue, which in turn depends on the overall demand for our products and services. Delays or reductions in hardware and related services spending by our customers or potential customers could have a material adverse effect on demand for our products and services, which could result in a significant decline in net revenue. In addition, net revenue declines in some of our businesses may affect net revenue in our other businesses as we may lose cross-selling opportunities. Competition, lawsuits, investigations, increases in component and manufacturing costs that we are unable to pass on to our customers, increased tariffs, component supply disruptions and other risks affecting our businesses may also have a significant impact on our overall gross margin and profitability. In addition, newer geographic markets may be relatively less profitable due to our investments associated with entering those markets and local pricing pressures, and we may have difficulty establishing and maintaining the operating infrastructure necessary to support the high growth rate associated with some of those markets. Market trends, industry shifts, competitive pressures, commoditization of products, increased component or shipping costs, increased tariffs, regulatory impacts and other factors may result in reductions in revenue or pressure on gross margins in a given period, which may lead to adjustments to our operations. Moreover, our efforts to address the challenges facing our business could increase the level of variability in our financial results because the rate at which we are able to realize the benefits from those efforts may vary from period to period.

If we fail to manage the distribution of our products and services properly, our business and financial performance could suffer.

We use a variety of distribution methods to sell our products and services around the world, including third-party resellers and distributors and both direct and indirect sales to enterprise accounts and consumers. Successfully managing the interaction of our direct and indirect channel efforts to reach various potential customer segments for our products and services is a complex process. Moreover, since each distribution method has distinct risks and gross margins, any failure to implement the most advantageous balance in the delivery model for our products and services could adversely affect our net revenue and gross margins and therefore our profitability.

Our financial results could be materially adversely affected due to distribution channel conflicts or if the financial conditions of our channel partners were to weaken. Our results of operations may be adversely affected by any conflicts that might arise between our various distribution channels or the loss or deterioration of any alliance or distribution arrangement or reduced assortments of our products. Moreover, some of our wholesale and retail distributors may have insufficient financial resources and may not be able to withstand changes in business conditions, including economic weakness, industry consolidation and market trends. Many of our significant distributors operate on narrow margins and have been negatively affected by business pressures in the past. Considerable trade receivables that are not covered by collateral or credit insurance are outstanding with our distribution and retail channel partners. Net revenue from indirect sales could suffer, and we could experience disruptions in distribution, if our distributors’ financial conditions, abilities to borrow funds or operations weaken, or if our distributors cannot successfully compete in the online or omnichannel marketplace.

Our inventory management is complex, as we continue to sell a significant mix of products through distributors. We must manage both owned and channel inventory effectively, particularly with respect to sales to distributors, which involves forecasting demand and pricing challenges. Our forecasts may not accurately predict demand, and distributors may increase orders during periods of product shortages, cancel orders if their inventory is too high or delay orders in anticipation of new products. Distributors also may adjust their orders in response to the supply of our products and the products of our competitors and seasonal fluctuations in end-user demand. Our reliance upon indirect distribution methods, including a multi-tiered channel, may reduce our visibility into inventories, demand and pricing trends and issues, and therefore make forecasting more difficult. Sales of our products by channel partners to unauthorized resellers or unauthorized resale of our products could also make our forecasting more difficult and impact pricing in the market. If we have excess or obsolete inventory, we may have to reduce our prices and write down inventory. Moreover, our use of indirect distribution channels may limit our willingness or

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ability to adjust prices quickly and otherwise to respond to pricing changes by competitors. In addition, factors in different markets may cause differential discounting between the geographies where our products are sold, which makes it difficult to achieve global consistency in pricing.

We depend on third-party suppliers, and our financial results could suffer if we fail to manage our suppliers effectively.

Our operations depend on our ability to anticipate our needs for components, products and services, as well as our suppliers’ ability to deliver sufficient quantities of quality components, products and services at reasonable prices and in time for us to meet critical schedules for the delivery of our own products and services. Given the wide variety of products and services that we offer, the large number of our suppliers and contract manufacturers that are located around the world, and the long lead times required to manufacture, assemble and deliver certain components and products, problems could arise in production, planning and inventory management that could seriously harm our business. Third-party suppliers may have limited financial resources to withstand challenging business conditions, particularly as a result of increased interest rates or emerging market volatility, and our business could be negatively impacted if key suppliers are forced to cease or limit their operations. Due to the international nature of our third-party supplier network, our financial results may also be negatively impacted by increased trade barriers and increased tariffs, which could increase the cost of certain components, products and services that we may not be able to offset. In addition, our ongoing efforts to optimize the efficiency of our supply chain could cause supply disruptions and be more expensive, time-consuming and resource-intensive than expected. Furthermore, certain of our suppliers may decide to discontinue conducting business with us. Other supplier problems that we could face include component shortages, excess supply, risks related to the terms of our contracts with suppliers, risks associated with contingent workers, risks related to supply chain working conditions and materials sourcing and risks related to our relationships with single-source suppliers, each of which is described below.

Component shortages. We may experience a shortage of, or a delay in receiving, certain components as a result of strong demand, capacity constraints, supplier financial weaknesses, the inability of suppliers to borrow funds, disputes with suppliers (some of whom are also our customers), disruptions in the operations of component suppliers, other problems experienced by suppliers or problems faced during the transition to new suppliers. For example, our PC business relies heavily upon outsourced manufacturers (“OMs") to manufacture its products and is therefore dependent upon the continuing operations of those OMs to fulfill demand for our PC products. We represent a substantial portion of the business of some of these OMs, and any changes to the nature or volume of our business transactions with a particular OM could adversely affect the operations and financial condition of the OM and lead to shortages or delays in receiving products from that OM. If shortages or delays persist, the price of certain components may increase, we may be exposed to quality issues or the components may not be available at all. We may not be able to secure enough components at reasonable prices or of acceptable quality to build products or provide services in a timely manner in the quantities needed or according to our specifications. Accordingly, our business and financial performance could suffer if we lose time-sensitive sales, incur additional freight costs or are unable to pass on price increases to our customers. If we cannot adequately address supply issues, we might have to re-engineer some product or service offerings, which could result in further costs and delays.

Excess supply. In order to secure components for our products or services, at times we may make advance payments to suppliers or enter into non-cancelable commitments with vendors. In addition, we may purchase components strategically in advance of demand to take advantage of favorable pricing or to address concerns about the availability of future components. If we fail to anticipate customer demand properly, a temporary oversupply could result in excess or obsolete components, which could adversely affect our business and financial performance.

Contractual terms. As a result of binding long-term price or purchase commitments with vendors, we may be obligated to purchase components or services at prices that are higher than those available in the current market and be limited in our ability to respond to changing market conditions. If we commit to purchasing components or services for prices in excess of the then-current market price, we may be at a disadvantage to competitors who have access to components or services at lower prices, our gross margin could suffer, and we could incur additional charges relating to inventory obsolescence. In addition, many of our competitors obtain products or components from the same OMs and suppliers that we utilize. Our competitors may obtain better pricing, more favorable contractual terms and conditions, and more favorable allocations of products and components during periods of limited supply, and our ability to engage in relationships with certain OMs and suppliers could be limited. The practice employed by our PC business of purchasing product components and transferring those components to OMs may create large supplier receivables with the OMs that, depending on the financial condition of the OMs, may create collectability risks. In addition, certain of our OMs and suppliers may decide to discontinue conducting business with us. Any of these developments could adversely affect our future results of operations and financial condition.

Contingent workers. We also rely on third-party suppliers for the provision of contingent workers, and our failure to manage our use of such workers effectively could adversely affect our results of operations. We have been exposed to various legal claims relating to the status of contingent workers in the past and could face similar claims in the future. We may be subject to shortages, oversupply or fixed contractual terms relating to contingent workers. Our ability to

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manage the size of, and costs associated with, the contingent workforce may be subject to additional constraints imposed by local laws.

Working conditions and materials sourcing. We work with our suppliers to improve their labor practices and working conditions, such as by including requirements in our agreements with our suppliers that workers receive fair treatment, safe working conditions and freely chosen employment, that materials are responsibly sourced and that business operations are conducted in an environmentally responsible and ethical way. Brand perception and customer loyalty could be adversely impacted by a supplier’s improper practices or failure to comply with the above-mentioned requirements or those included in our Supplier Code of Conduct, General Specification for the Environment and other related provisions and requirements of our procurement contracts, including supplier audits, reporting of smelters, wood fiber certification (for HP brand paper and product packaging) and GHG emissions, water and waste data.

Single-source suppliers. We obtain a significant number of components from single sources due to technology, availability, price, quality or other considerations. For example, we rely on Canon for certain laser printer engines and laser toner cartridges. We also rely on Intel to provide us with a sufficient supply of processors for many of our PCs and workstations, and we rely on AMD to provide us with a sufficient supply of processors for other products. Some of those processors are customized for our products. New products that we introduce may utilize custom components obtained from only one source initially until we have evaluated whether there is a need for additional suppliers. Replacing a single-source supplier could delay production of some products as replacement suppliers may be subject to capacity constraints or other output limitations. For some components, such as customized components and some of the processors that we obtain from Intel, or the laser printer engines and toner cartridges that we obtain from Canon, alternative sources either may not exist or may be unable to produce the quantities of those components necessary to satisfy our production requirements. In addition, we sometimes purchase components from single-source suppliers under short-term agreements that contain favorable pricing and other terms but that may be unilaterally modified or terminated by the supplier with limited notice and with little or no penalty. The performance of such single-source suppliers under those agreements (and the renewal or extension of those agreements upon similar terms) may affect the quality, quantity and price of our components. The loss of a single-source supplier, the deterioration of our relationship with a single-source supplier, or any unilateral modification to the contractual terms under which we are supplied components by a single-source supplier could adversely affect our business and financial performance.

Due to the international nature of our business, political or economic changes, uncertainty or other factors could harm our business and financial performance.

Approximately 65% of our net revenue for fiscal year 2018 came from outside the United States. In addition, a portion of our business activity is being conducted in emerging markets. Our future business and financial performance could suffer due to a variety of international factors, including:

ongoing instability or changes in a country’s or region’s economic, regulatory or political conditions, including inflation, recession, interest rate fluctuations and actual or anticipated military or political conflicts or any other change resulting from Brexit;

longer collection cycles and financial instability among customers, the imposition by governments of additional taxes, tariffs or other restrictions on foreign trade or changes in restrictions on trade between the United States and other countries, including the impact of recently imposed tariffs between the United States and China on a wide variety of products;

trade regulations and procedures and actions affecting production, shipping, pricing and marketing of products, including policies adopted by the United States or other countries that may champion or otherwise favor domestic companies and technologies over foreign competitors;

local labor conditions and regulations, including local labor issues faced by specific suppliers and Original Equipment Manufacturers (“OEMs”);

managing a geographically dispersed workforce;

changes or uncertainty in the international, national or local regulatory and legal environments;

differing technology standards or customer requirements;

import, export or other business licensing requirements or requirements relating to making foreign direct investments, which could increase our cost of doing business in certain jurisdictions, prevent us from shipping products to particular countries or markets, affect our ability to obtain favorable terms for components, increase our operating costs or lead to penalties or restrictions;

stringent privacy and data protection policies, such as the European Union’s General Data Protection Regulation (“GDPR”);

changes in tax laws; and

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fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points of exit and entry for our products and shipments.

The factors described above also could disrupt our product and component manufacturing and key suppliers located outside of the United States. For example, we rely on manufacturers in Taiwan for the production of notebook computers and other suppliers in Asia for product assembly and manufacture.

Beginning in 2018, the United States commenced certain trade actions, including imposing tariffs on certain goods imported from China and other countries, which has resulted in retaliatory tariffs by China and other countries. Additional tariffs imposed by the United States on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could increase the cost of our products and the components that go into making them. These increased costs could adversely impact our overall gross margin and profitability. Tariffs could also make our products more expensive for customers, which could make our products less competitive and reduce demand.

In many foreign countries, particularly in those with developing economies, there are companies that engage in business practices prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”). Although we implement policies, procedures and training designed to facilitate compliance with these laws, our employees, contractors and agents, as well as those of the companies to which we outsource certain of our business operations, may take actions in violation of our policies. Any such violation, even if prohibited by our policies, could have an adverse effect on our business and reputation.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities

There were no unregistered sales of equity securities during the period covered by this report.

Issuer Purchases of Equity Securities

Period Total
Number
of Shares
Purchased Average
Price Paid
per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs Approximate Dollar
Value of Shares
that May Yet Be
Purchased under the
Plans or Programs
In thousands, except per share amounts
February 2018 6,223
$ 21.93
6,223
$ 1,862,059
March 2018 20,875
$ 23.17
20,875
$ 1,378,403
April 2018 8,342
$ 21.63
8,342
$ 1,197,931
Total 35,440

35,440



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs
	In thousands, except per share amounts
February 2019	8,549	$	23.05	8,549	$	2,986,383
March 2019	12,635	$	19.61	12,635	$	2,738,644
April 2019	12,375	$	19.92	12,375	$	2,492,155
Total	33,559			33,559

On ~~October 10, 2016,~~June 19, 2018, HP’s Board of Directors authorized ~~$3.0~~$4.0 billion for future repurchases of its outstanding shares of common stock. This program, which does not have a specific expiration date, authorizes repurchases in the open market or in private transactions. HP intends to use repurchases from time to time to offset the dilution created by shares issued under employee stock plans and to repurchase shares opportunistically. All share repurchases settled in the second quarter of fiscal year ~~2018~~2019 were open market transactions. As of April 30, ~~2018,~~2019, HP had approximately ~~$1.2~~$2.5 billion remaining under the share repurchase authorizations.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

~~Not applicable~~Disclosure Under Section 13(r) of the Securities Exchange Act of 1934, as amended

Section 13(r) of the Securities Exchange Act of 1934, as amended, requires issuers to disclose certain types of dealings by the issuer or its affiliates relating to Iran or with certain individuals or entities that are subject to sanctions under U.S. law.

HP acquired the Apogee group, a U.K. based office equipment dealer, on November 1, 2018. During the second quarter of 2019, HP discovered that its newly acquired subsidiary had invoiced one payment and accepted two payments from Bank Sepah International plc shortly after the acquisition, under a legacy contract for copier services. Bank Sepah International plc is subject to U.S. sanctions pursuant to Executive Order 13382. The combined total value of the transactions was £72.49 ($92.78). We are unable to accurately calculate the net profit attributable to these transactions. Following HP’s discovery of these

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transactions and at HP’s direction, Apogee terminated the contract with Bank Sepah International plc. HP is in the process of disclosing relevant transactions related to the Apogee acquisition to the relevant authorities.

Item 6. ~~Exhibits.~~Exhibits.

The Exhibit Index beginning on page57 61 of this report sets forth a list of exhibits.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	HP INC.
	/s/ ~~CATHERINE A. LESJAK~~STEVE FIELER
	~~Catherine A. Lesjak~~Steve Fieler Chief Financial Officer (Principal Financial Officer and Authorized Signatory)

Date: ~~June 5, 2018~~

May 30, 2019

HP INC. AND SUBSIDIARIES

EXHIBIT INDEX



Exhibit Number		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit(s)	Filing Date
2(a)	Separation and Distribution Agreement, dated as of October 31, 2015, by and among Hewlett-Packard Company, Hewlett Packard Enterprise Company and the Other Parties Thereto.**	8-K	001-04423	2.1	November 5, 2015
2(b)	~~Transition Services Agreement, dated as of November 1, 2015, by and between Hewlett-Packard Company and Hewlett Packard Enterprise Company~~.**	~~8-K~~	~~001-04423~~	~~2.2~~	~~November 5, 2015~~
~~2(c)~~	Tax Matters Agreement, dated as of October 31, 2015, by and between Hewlett-Packard Company and Hewlett Packard Enterprise Company.**	8-K	001-04423	2.3	November 5, 2015
~~2(d)~~2(c)	Employee Matters Agreement, dated as of October 31, 2015, by and between Hewlett-Packard Company and Hewlett Packard Enterprise Company.**	8-K	001-04423	2.4	~~November 5, 2015~~
~~2(e)~~	~~Real Estate Matters Agreement, dated as of October 31, 2015, by and between Hewlett-Packard Company and Hewlett Packard Enterprise Company.~~**	~~8-K~~	~~001-04423~~	~~2.5~~	November 5, 2015
3(a)	Registrant’s Certificate of Incorporation.	10-Q	001-04423	3(a)	June 12, 1998
3(b)	Registrant’s Amendment to the Certificate of Incorporation.	10-Q	001-04423	3(b)	March 16, 2001



~~Exhibit~~ ~~Number~~		~~Incorporated by Reference~~
~~Exhibit~~ ~~Number~~	~~Exhibit Description~~	~~Form~~	~~File No.~~	~~Exhibit(s)~~	~~Filing Date~~
3(c)	Registrant’s Certificate of Amendment to the Certificate of Incorporation.	8-K	001-04423	3.2	October 22, 2015
3(d)	Registrant’s Certificate of Amendment to the Certificate of Incorporation.	8-K	001-04423	3.1	April 7, 2016
3(e)	Registrant’s Amended and Restated Bylaws.	8-K	001-04423	3.1	~~July 26, 2017~~February 7, 2019
4(a)	Form of Senior Indenture	S-3	333-215116	4.1	December 15, 2016
4(b)	Form of Subordinated Indenture.	S-3	333-21516	4.2	December 15, 2016
4(c)	Form of Registrant’s 3.750% Global Note due December 1, 2020 and form of related Officers’ Certificate.	8-K	001-04423	4.2 and 4.3	December 2, 2010
4(d)	Form of Registrant’s 4.300% Global Note due June 1, 2021 and form of related Officers’ Certificate.	8-K	001-04423	4.5 and 4.6	June 1, 2011
4(e)	Form of Registrant’s 4.375% Global Note due September 15, 2021 and 6.000% Global Note due September 15, 2041 and form of related Officers’ Certificate.	8-K	001-04423	4.4, 4.5 and 4.6	September 19, 2011
4(f)	Form of Registrant’s 4.650% Global Note due December 9, 2021 and related Officers’ Certificate.	8-K	001-04423	4.3 and 4.4	December 12, 2011
4(g)	Form of Registrant’s 4.050% Global Note due September 15, 2022 and related Officers’ Certificate.	8-K	001-04423	4.2 and 4.3	March 12, 2012



Exhibit Number		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit(s)	Filing Date
4(h)	Form of Registrant’s 2.750% Global Note due January 14, 2019 and Floating Rate Global Note due January 14, 2019 and related Officers’ Certificate.	8-K	001-04423	4.1, 4.2 and 4.3	January 14, 2014
4(i)	Specimen certificate for the Registrant’s common stock.	8-K/A	001-04423	4.1	June 23, 2006
4(j)	First Supplemental Indenture, dated as of March 26, 2018, to the Indenture, dated as of June 1, 2000, by and between the Registrant and The Bank of New York Mellon Trust Company, N.A.‡	10-Q	001-04423	4(j)	June 5, 2018
10(a)	Registrant’s 2004 Stock Incentive Plan.*	S-8	333-114253	4.1	April 7, 2004
10(b)	Registrant’s Excess Benefit Retirement Plan, amended and restated as of January 1, 2006.*	8-K	001-04423	10.2	September 21, 2006
10(c)	Hewlett-Packard Company Cash Account Restoration Plan, amended and restated as of January 1, 2005.*	8-K	001-04423	99.3	November 23, 2005
10(d)	Registrant’s 2005 Pay-for-Results Plan, as amended.*	10-K	001-04423	10(h)	December 14, 2011
10(e)	Registrant’s Executive Severance Agreement.*	10-Q	001-04423	10(u)(u)	June 13, 2002
10(f)	Registrant’s Executive Officers Severance Agreement.*	10-Q	001-04423	10(v)(v)	June 13, 2002
10(g)	Form letter regarding severance offset for restricted stock and restricted units.*	8-K	001-04423	10.2	March 22, 2005
10(h)	Form of Agreement Regarding Confidential Information and Proprietary Developments (California).*	8-K	001-04423	10.2	January 24, 2008
10(i)	Form of Agreement Regarding Confidential Information and Proprietary Developments (Texas).*	10-Q	001-04423	10(o)(o)	March 10, 2008
10(j)	Form of Stock Option Agreement for Registrant’s 2004 Stock Incentive Plan.*	10-Q	001-04423	10(p)(p)	March 10, 2008
10(k)	Form of Option Agreement for Registrant’s 2000 Stock Plan.*	10-Q	001-04423	10(t)(t)	June 6, 2008
10(1)	Form of Common Stock Payment Agreement for Registrant’s 2000 Stock Plan.*	10-Q	001-04423	10(u)(u)	June 6, 2008
10(m)	Form of Stock Notification and Award Agreement for awards of non-qualified stock options.*	10-K	001-04423	10(y)(y)	December 18, 2008



Exhibit Number		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit(s)	Filing Date
10(n)	First Amendment to the Hewlett-Packard Company Excess Benefit Retirement Plan.*	10-Q	001-04423	10(b)(b)(b)	March 10, 2009
10(o)	Form of Stock Notification and Award Agreement for awards of non-qualified stock options.*	10-K	001-04423	10(i)(i)(i)	December 15, 2010
10(p)	Form of Agreement Regarding Confidential Information and Proprietary Developments (California—new hires).*	10-K	001-04423	10(j)(j)(j)	December 15, 2010
10(q)	Form of Agreement Regarding Confidential Information and Proprietary Developments (California—current employees).*	10-K	001-04423	10(k)(k)(k)	December 15, 2010
10(r)	Second Amended and Restated Hewlett-Packard Company 2004 Stock Incentive Plan, as amended effective February 28, 2013.*	8-K	001-04423	10.2	March 21, 2013
10(s)	Form of Stock Notification and Award Agreement for awards of restricted stock units.*	10-Q	001-04423	10(u)(u)	March 11, 2014
10(t)	Form of Stock Notification and Award Agreement for awards of foreign stock appreciation rights.*	10-Q	001-04423	10(v)(v)	March 11, 2014
10(u)	Form of Stock Notification and Award Agreement for long-term cash awards.*	10-Q	001-04423	10(w)(w)	March 11, 2014
10(v)	Form of Stock Notification and Award Agreement for awards of non-qualified stock options.*	10-Q	001-04423	10(x)(x)	March 11, 2014
10(w)	Form of Grant Agreement for grants of performance-adjusted restricted stock units.*	10-Q	001-04423	10(y)(y)	March 11, 2014
10(x)	Form of Stock Notification and Award Agreement for awards of restricted stock.*	10-Q	001-04423	10(z)(z)	March 11, 2014
10(y)	Form of Stock Notification and Award Agreement for awards of performance-contingent non-qualified stock options.*	10-Q	001-04423	10(a)(a)(a)	March 11, 2014



Exhibit Number		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit(s)	Filing Date
10(z)	Form of Grant Agreement for grants of performance-contingent non-qualified stock options.*	10-Q	001-04423	10(b)(b)(b)	March 11, 2014
10(a)(a)	Form of Grant Agreement for grants of restricted stock units.**	10-Q	001-04423	10(c)(c)(c)	March 11, 2015
10(b)(b)	Form of Grant Agreement for grants of foreign stock appreciation rights.*	10-Q	001-04423	10(d)(d)(d)	March 11, 2015
10(c)(c)	Form of Grant Agreement for grants of long-term cash awards.*	10-Q	001-04423	10(e)(e)(e)	March 11, 2015
10(d)(d)	Form of Grant Agreement for grants of non-qualified stock options.*	10-Q	001-04423	10(f)(f)(f)	March 11, 2015
10(e)(e)	Form of Grant Agreement for grants of performance-adjusted restricted stock units.*	10-Q	001-04423	10(g)(g)(g)	March 11, 2015
10(f)(f)	Form of Grant Agreement for grants of restricted stock awards.*	10-Q	001-04423	10(h)(h)(h)	March 11, 2015
10(g)(g)	Form of Grant Agreement for grants of performance-contingent non-qualified stock options.*	10-Q	001-04423	10(i)(i)(i)	March 11, 2015
10(h)(h)	Term Loan Agreement, dated as of April 30, 2015, among the Registrant, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent.	10-Q	001-04423	10(b)(b)(b)	June 8, 2015
10(i)(i)	Amendment, dated as of June 1, 2015, to the Term Loan Agreement, dated as of April 30, 2015, among the Registrant, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent.	10-Q	001-04423	10(c)(c)(c)	June 8, 2015
10(j)(j)	Second Amended and Restated Five-Year Credit Agreement, dated as of April 2, 2014, as Amended and Restated as of November 1, 2015, ~~as further Amended and Restated as of March 30, 2018,~~ among the Registrant, the lenders named therein and Citibank, N.A., as administrative processing agent and co-administrative agent, and JPMorgan Chase Bank, N.A., as co-administrative ~~agent~~agent..‡	10-Q	001-04423	10.(j)(j)	June 5, 2018

Exhibit

Number

Incorporated by Reference

Exhibit Description

Form

File No.

Exhibit(s)

Filing Date

10(k)(k)

Amendment No. 1, dated March 1, 2019 to Second Amended and Restated Five-Year Credit Agreement, dated as of April 2, 2014, as Amended and Restated as of November 1, 2015, as further Amended and Restated as of March 30, 2018, among the Registrant, the lenders named therein and Citibank, N.A., as administrative processing agent and co-administrative agent, and JPMorgan Chase Bank, N.A., as co-administrative agent.

10-Q

001-04423

10(k)(k)

March 5, 2019

10(l)(l)

Form of Grant Agreement for grants of foreign stock appreciation rights.*

10-K

001-04423

10(e)(e)(e)

December 16, 2015

~~10(l)(l)~~

10(m)(m)

Form of Grant Agreement for grants of performance-contingent non-qualified stock options.*

10-K

001-04423

10(f)(f)(f)

December16, 2015

~~10(m)(m)~~

10(n)(n)

Form of Grant Agreement for grants of non-qualified stock options.*

10-K

001-04423

10(g)(g)(g)

December 16, 2015

~~10(n)(n)~~

10(o)(o)

Registrant’s 2005 Executive Deferred Compensation Plan, amended and restated effective November 1, 2015.*

10-Q

001-04423

10(n)(n)

March 3, 2016

~~10(o)(o)~~

10(p)(p)

Registrant’s Severance and Long-Term Incentive Change in Control Plan for Executive Officers, amended and restated effective November 1, 2015.*

10-Q

001-04423

10(o)(o)

March 3, 2016

~~10(p)(p)~~

10(q)(q)

Form of Stock Notification and Award Agreement for awards of performance-contingent non-qualified stock options (launch grant).*

10-Q

001-04423

10(p)(p)

March 3, 2016

~~10(q)(q)~~

10(r)(r)

Form of Stock Notification and Award Agreement for awards of restricted stock units (launch grant).*

10-Q

001-04423

10(q)(q)

March 3, 2016

~~10(r)(r)~~

10(s)(s)

Form of Stock Notification and Award Agreement for awards of restricted stock units.*

10-Q

001-04423

10(r)(r)

March 3, 2016

~~10(s)(s)~~

10(t)(t)

Form of Stock Notification and Award Agreement for awards of performance-adjusted restricted stock units.*

10-Q

001-04423

10(s)(s)

March 3, 2016

~~10(t)(t)~~

10(u)(u)

Form of Amendment to Award Agreements for awards of restricted stock units or performance-adjusted restricted stock units, effective January 1, 2016.*

10-Q

001-04423

10(t)(t)

March 3, 2016

~~10(u)(u)~~

10(v)(v)

First Amendment to Severance and Long-Term Incentive Change in Control Plan for Executive Officers, as amended and restated effective November 1, 2015.*

10-K

001-04423

10(u)(u)

December 15, 2016

~~10(v)(v)~~

10(w)(w)

Second Amendment to Severance and Long-Term Incentive Change in Control Plan for Executive Officers, as amended and restated effective November 1, 2015.*

10-Q

001-04423

10(v)(v)

March 2, 2017

~~10(w)(w)~~

10(x)(x)

2017 Amendment to the Hewlett-Packard Company Cash Account Restoration Plan.*

10-Q

001-04423

10(w)(w)

March 2, 2017

~~10(x)(x)~~

10(y)(y)

Second Amendment to the Hewlett-Packard Company Excess Benefit Retirement Plan.*

10-Q

001-04423

10(x)(x)

March 2, 2017

~~10(y)(y)~~

10(z)(z)

Second Amended and Restated HP Inc. 2004 Stock Incentive Plan, as amended and restated effective January 23, 2017.*

10-Q

001-04423

10(y)(y)

March 2, 2017

~~10(z)(z)~~

10(a)(a)(a)

Form of Grant Agreement for grants of performance-adjusted restricted stock units (for use from November 1, 2016).*

10-Q

001-04423

10(z)(z)

March 2, 2017

~~10(a)(a)(a)~~

10(b)(b)(b)

Form of Grant Agreement for grants of restricted stock units (for use from November 1, 2016).*

10-Q

001-04423

10(a)(a)(a)

March 2, 2017

~~10(b)(b)(b)~~

10(c)(c)(c)

Second Amended and Restated HP Inc. 2004 Stock Incentive Plan (as amended effective January 29, 2018).*

10-Q

001-04423

10(b)(b)(b)

March 1, 2018

~~10(c)(c)(c)~~

10(d)(d)(d)

Form of Grant Agreement for grants of restricted stock units (for use from November 1, 2017).*

10-Q

001-04423

10(c)(c)(c)

March 1, 2018

~~10(d)(d)(d)~~

10(e)(e)(e)

Form of Grant Agreement for grants of performance-adjusted restricted stock units (for use from November 1, 2017).*

10-Q

001-04423

10(d)(d)(d)

March 1, 2018

~~10(e)(e)(e)~~

10(f)(f)(f)

Form of Grant Agreement for grants of restricted stock units for directors (for use from November 1, 2017).*

10-Q

001-04423

10(e)(e)(e)

March 1, 2018

~~10(f)(f)(f)~~

10(g)(g)(g)

Form of Grant Agreement for grants of stock options for directors (for use from November 1, 2017).*

10-Q

001-04423

10(f)(f)(f)

March 1, 2018

10(h)(h)(h)

Form of Grant Agreement for grants of restricted stock units (for use from November 1, 2018).*

10-K

001-04423

10(g)(g)(g)

December 13, 2018

10(i)(i)(i)

Form of Grant Agreement for grants of stock options (for use from November 1, 2018).*

10-K

001-04423

10(h)(h)(h)

December 13, 2018

10(j)(j)(j)

Form of Grant Agreement for grants of stock options for directors (for use from November 1, 2018).*

10-Q

001-04423

10(j)(j)(j)

March 5, 2019

10(k)(k)(k)

Form of Grant Agreement for grants of restricted stock units for directors (for use from November 1, 2018). *

10-Q

001-04423

10(k)(k)(k)

March 5, 2019

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.‡

~~Exhibit~~

~~Number~~

~~Incorporated by Reference~~

~~Exhibit Description~~

~~Form~~

~~File No.~~

~~Exhibit(s)~~

~~Filing Date~~

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.‡

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†

101.INS

XBRL Instance Document.‡

101.SCH

XBRL Taxonomy Extension Schema Document.‡

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.‡

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.‡

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.‡

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.‡

* Indicates management contract or compensatory plan, contract or arrangement.

** Certain schedules and exhibits to this agreement have been omitted pursuant to Item ~~601(b)(2)~~601(a)(5) of Registration S-K. ~~A copy of any omitted schedule and/or exhibit will be furnished supplementally to the SEC upon request.~~

‡ Filed herewith.

† Furnished herewith.

The registrant agrees to furnish to the Commission supplementally upon request a copy of ~~(1)~~ any instrument with respect to long-term debt not filed herewith as to which the total amount of securities authorized thereunder does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated ~~basis and (2) any omitted schedules to any material plan of acquisition, disposition or reorganization set forth above.~~basis.

6466



	Personal Systems		Printing		Corporate Investments			Total Segments		Other			Total
	In millions
Three months ended April 30, 2018
Net revenue	$	8,762	$	5,241	$	1		$	14,004	$	(1	)	$	14,003
Earnings (loss) from operations	$	331	$	839	$	(21	)	$	1,149
Three months ended April 30, 2017
Net revenue	$	7,653	$	4,728	$	3		$	12,384	$	1		$	12,385
Earnings (loss) from operations	$	244	$	820	$	(26	)	$	1,038
Six months ended April 30, 2018
Net revenue	$	18,202	$	10,317	$	2		$	28,521	$	(1	)	$	28,520
Earnings (loss) from operations	$	668	$	1,640	$	(40	)	$	2,268
Six months ended April 30, 2017
Net revenue	$	15,869	$	9,192	$	5		$	25,066	$	3		$	25,069
Earnings (loss) from operations	$	556	$	1,534	$	(49	)	$	2,041



	Six months ended April 30, 2018
	Shares		Weighted-Average Grant Date Fair Value Per Share
	In thousands
Outstanding at beginning of period	31,822		$	14
Granted	13,862		$	21
Vested	(13,706	)	$	14
Forfeited	(577	)	$	17
Outstanding at end of period	31,401		$	17



	Three months ended April 30, 2018			Six months ended April 30, 2018
Weighted-average fair value ⁽¹⁾	$	5		$	5
Expected volatility ⁽²⁾	29.4		%	29.4		%
Risk-free interest rate ⁽³⁾	2.5		%	2.5		%
Expected dividend yield ⁽⁴⁾	2.6		%	2.6		%
Expected term in years ⁽⁵⁾	5			5



	Six months ended April 30, 2018
	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
	In thousands				In years	In millions
Outstanding at beginning of period	18,067		$	13
Granted	54		$	21
Exercised	(6,942	)	$	12
Forfeited and expired	(110	)	$	22
Outstanding at end of period	11,069		$	14	4.4	$	87
Vested and expected to vest	10,973		$	14	4.4	$	86
Exercisable	7,603		$	13	4.0	$	62



	Gain (Loss) Recognized in Earnings on Derivative and Related Hedged Item
Derivative Instrument	Location	Three months ended April 30, 2018		Six months ended April 30, 2018			Hedged Item	Location	Three months ended April 30, 2018			Six months ended April 30, 2018
		In millions							In millions
Interest rate contracts	Interest and other, net	$	29	$	(11	)	Fixed-rate debt	Interest and other, net	$	(29	)	$	11