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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
FORM 10-Q
(Mark One)  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
July 31, 2021
Or
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 94304
Palo Alto, California (Zip code)
(Address of principal executive offices)
(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  No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes  No 
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 filer Accelerated filer
Non-accelerated filer  Smaller reporting company
                                 Emerging growth company
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
The number of shares of HP Inc. common stock outstanding as of July 31, 2021 was 1,152,518,738 shares.




HP INC. AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period ended July 31, 2021
Table of Contents
In this report on Form 10-Q, for all periods presented, “we”, “us”, “our”, the “company”, the “Company”, “HP” and “HP Inc.” refer to HP Inc. (formerly Hewlett-Packard Company) and its consolidated subsidiaries.

2

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 based on current expectations and assumptions that involve risks and uncertainties. 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 statements regarding the potential impact of the COVID-19 pandemic and the actions by governments, businesses and individuals in response to the situation; 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, planned structural cost reductions and productivity initiatives; any statements of the plans, strategies and objectives of management for future operations, including, but not limited to, our business model and transformation, our sustainability goals, our go-to-market strategy, the execution of restructuring plans and any resulting cost savings, net revenue or profitability improvements or other financial impacts; 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. Forward-looking statements can also generally be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will,” “would,” “could,” “can,” “may,” and similar terms. Risks, uncertainties and assumptions include factors relating to the effects of the COVID-19 pandemic and the actions by governments, businesses and individuals in response to the situation, the effects of which may give rise to or amplify the risks associated with many of these factors listed here; HP’s ability to execute on its strategic plan, including the previously announced initiatives, business model changes and transformation; execution of planned structural cost reductions and productivity initiatives; HP’s ability to complete any contemplated share repurchases, other capital return programs or other strategic transactions; 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 and business model changes and transformation; successfully innovating, developing and executing HP’s go-to-market strategy, including online, omnichannel and contractual sales, in an evolving distribution and reseller landscape; 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; successfully competing and maintaining the value proposition of HP’s products, including supplies; the need to manage (and reliance on) third-party suppliers, including with respect to component shortages, and the need to manage HP’s global, multi-tier distribution network, limit potential misuse of pricing programs by HP’s channel partners, adapt to new or changing marketplaces and effectively deliver HP’s services; challenges to HP’s ability to accurately forecast inventories, demand and pricing, which may be due to HP’s multi-tiered channel, sales of HP’s products to unauthorized resellers or unauthorized resale of HP’s products or our uneven sales cycle; 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 protection of HP’s intellectual property assets, including intellectual property licensed from third parties; the hiring and retention of key employees; the impact of macroeconomic and geopolitical trends and events, including the effects of inflation; risks associated with HP’s international operations; the execution and performance of contracts by HP and its suppliers, customers, clients and partners, including logistical challenges with respect to such execution and performance; changes in estimates and assumptions HP makes in connection with the preparation of its financial statements; disruptions in operations from system security risks, data protection breaches, cyberattacks, extreme weather conditions, medical epidemics or pandemics such as the COVID-19 pandemic, and other natural or manmade disasters or catastrophic events; the impact of changes to federal, state, local and foreign laws and regulations, including environmental regulations and tax laws; potential impacts, liabilities and costs from pending or potential investigations, claims and disputes; and other risks that are described herein and the risks discussed in Item 1A “Risk Factors” of Part I in our Annual Report on Form 10-K for the fiscal year ended October 31, 2020 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 forward-looking statements in this report are made as of the date of this filing and HP assumes no obligation and does not intend to update these forward-looking statements.
3

Part I. Financial Information

ITEM 1. Financial Statements and Supplementary Data.
Index
  Page
5
6
7
8
9
    

4

HP INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
  Three months ended July 31 Nine months ended July 31
  2021   2020 2021 2020
  In millions, except per share amounts
Net revenue $ 15,289    $ 14,294  $ 46,812  $ 41,381 
Costs and expenses:    
Cost of revenue 11,901    11,901  36,660  33,623 
Research and development 477    359  1,462  1,097 
Selling, general and administrative 1,408    1,156  4,267  3,662 
Restructuring and other charges 56  59  216  431 
Acquisition-related charges 24    11  40  14 
Amortization of intangible assets 42    29  103  84 
Total costs and expenses 13,908    13,515  42,748  38,911 
Earnings from operations 1,381    779  4,064  2,470 
Interest and other, net (55) (28) (106) (15)
Earnings before taxes 1,326    751  3,958  2,455 
Provision for taxes (218) (17) (554) (279)
Net earnings $ 1,108    $ 734  $ 3,404  $ 2,176 
Net earnings per share:      
Basic $ 0.94    $ 0.52  $ 2.76  $ 1.52 
Diluted $ 0.92    $ 0.52  $ 2.73  $ 1.51 
Weighted-average shares used to compute net earnings per share:      
Basic 1,185    1,417  1,235  1,435 
Diluted 1,199    1,423  1,247  1,441 
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

5

HP INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income
(Unaudited)
  Three months ended July 31 Nine months ended July 31
  2021 2020 2021 2020
  In millions
Net earnings $ 1,108  $ 734  $ 3,404  $ 2,176 
Other comprehensive income (loss) before taxes:        
Change in unrealized components of available-for-sale debt securities:        
Unrealized gains arising during the period
.
Change in unrealized components of cash flow hedges:        
Unrealized gains (losses) arising during the period 133  (563) (254) (272)
Losses (gains) reclassified into earnings 64  (130) 262  (242)
197  (693) (514)
Change in unrealized components of defined benefit plans:        
 (Losses) gains arising during the period (1) (5) 40  (6)
Amortization of actuarial loss and prior service benefit 20  20  62  61 
Curtailments, settlements and other — 
19  17  103  58 
Change in cumulative translation adjustment 15  35 
Other comprehensive income (loss) before taxes 219  (659) 151  (451)
 (Provision for) benefit from taxes (32) 104  (41) 71 
Other comprehensive income (loss), net of taxes 187  (555) 110  (380)
Comprehensive income $ 1,295  $ 179  $ 3,514  $ 1,796 
.
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
6

HP INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
  As of
  July 31, 2021 October 31, 2020
 
In millions, except par value
ASSETS    
Current assets:    
Cash and cash equivalents $ 3,439  $ 4,864 
Accounts receivable, net of allowance for credit losses of $117 and $122, respectively
4,908  5,381 
Inventory 8,165  5,963 
Other current assets 4,091  4,440 
Total current assets 20,603  20,648 
Property, plant and equipment, net 2,500  2,627 
Goodwill 6,628  6,380 
Other non-current assets 5,792  5,026 
Total assets $ 35,523  $ 34,681 
LIABILITIES AND STOCKHOLDERS’ DEFICIT    
Current liabilities:    
Notes payable and short-term borrowings $ 214  $ 674 
Accounts payable 15,898  14,704 
Other current liabilities 11,555  10,842 
Total current liabilities 27,667  26,220 
Long-term debt 6,898  5,543 
Other non-current liabilities 4,900  5,146 
Stockholders’ deficit:    
Preferred stock, $0.01 par value (300 shares authorized; none issued)
—  — 
Common stock, $0.01 par value (9,600 shares authorized; 1,153 and 1,304 shares issued and outstanding at July 31, 2021 and October 31, 2020, respectively)
12  13 
Additional paid-in capital 1,050  963 
Accumulated deficit (3,871) (1,961)
Accumulated other comprehensive loss (1,133) (1,243)
Total stockholders’ deficit (3,942) (2,228)
Total liabilities and stockholders’ deficit $ 35,523  $ 34,681 
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
7

HP INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
  Nine months ended July 31
  2021 2020
In millions
Cash flows from operating activities:    
Net earnings $ 3,404  $ 2,176 
Adjustments to reconcile net earnings to net cash provided by operating activities:    
Depreciation and amortization 585  593 
Stock-based compensation expense 260  221 
Restructuring and other charges 216  431 
Deferred taxes on earnings (93) 146 
Other, net 254  281 
Changes in operating assets and liabilities, net of acquisitions:    
Accounts receivable 503  699 
Inventory (2,225) (247)
Accounts payable 1,140  (433)
Net investment in leases (78) (112)
Taxes on earnings 19  (238)
Restructuring and other (166) (412)
Other assets and liabilities (258) (663)
Net cash provided by operating activities 3,561  2,442 
Cash flows from investing activities:    
Investment in property, plant and equipment (410) (464)
Proceeds from sale of property, plant and equipment — 
Purchases of available-for-sale securities and other investments (24) (533)
Maturities and sales of available-for-sale securities and other investments 283  303 
Collateral posted for derivative instruments 121  (240)
Payment made in connection with business acquisitions, net of cash acquired (582) — 
Net cash used in investing activities (612) (931)
Cash flows from financing activities:    
Proceeds from short-term borrowings with original maturities greater than 90 days 22  19 
Proceeds from debt, net of issuance costs 2,052  3,051 
Payment of debt (1,192) (1,788)
Stock-based award activities and others (42) (125)
Repurchase of common stock (4,495) (1,767)
Cash dividends paid (719) (759)
Net cash used in financing activities (4,374) (1,369)
(Decrease) increase in cash and cash equivalents (1,425) 142 
Cash and cash equivalents at beginning of period 4,864  4,537 
Cash and cash equivalents at end of period $ 3,439  $ 4,679 
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
8

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 Accumulated Deficit
  In millions, except number of shares in thousands
Balance April 30, 2020 1,429,957  $ 14  $ 926  $ (633) $ (1,050) $ (743)
Net earnings 734  734 
Other comprehensive loss, net of taxes (555) (555)
Comprehensive income 179 
Issuance of common stock in connection with employee stock plans and other 2,379  23  23 
Repurchases of common stock (Note 10) (58,839) (40) (961) (1,001)
Cash dividends ($0.35 per common share)
(493) (493)
Stock-based compensation expense 49  49 
Balance July 31, 2020 1,373,497  $ 14  $ 958  $ (1,353) $ (1,605) $ (1,986)
Balance April 30, 2021 1,201,255  $ 12  $ 1,018  $ (3,070) $ (1,320) $ (3,360)
Net earnings 1,108  1,108 
Other comprehensive income, net of taxes 187  187 
Comprehensive income 1,295 
Issuance of common stock in connection with employee stock plans and other 968 
Repurchases of common stock (Note 10) (49,704) (44) (1,456) (1,500)
Cash dividends ($0.39 per common share)
(453) (453)
Stock-based compensation expense 69  69 
Balance July 31, 2021 1,152,519  $ 12  $ 1,050  $ (3,871) $ (1,133) $ (3,942)
Common Stock Additional
Paid-in Capital
  Accumulated
Other
Comprehensive Loss
 Total Stockholders’ Deficit
Number of Shares Par Value Accumulated Deficit
In millions, except number of shares in thousands
Balance October 31, 2019 1,457,719  $ 15  $ 835  $ (818) $ (1,225) $ (1,193)
Net earnings 2,176  2,176 
Other comprehensive loss, net of taxes (380) (380)
Comprehensive income 1,796 
Issuance of common stock in connection with employee stock plans and other 13,143  (35) (35)
Repurchases of common stock (Note 10) (97,365) (1) (63) (1,737) (1,801)
Cash dividends ($0.70 per common share)
(1,001) (1,001)
Stock-based compensation expense 221  221 
Adjustment for adoption of accounting standards 27  27 
Balance July 31, 2020 1,373,497  $ 14  $ 958  $ (1,353) $ (1,605) $ (1,986)
Balance October 31, 2020 1,303,927  $ 13  $ 963  $ (1,961) $ (1,243) $ (2,228)
Net earnings 3,404  3,404 
Other comprehensive income, net of taxes 110  110 
Comprehensive income 3,514 
Issuance of common stock in connection with employee stock plans and other 11,385  (41) (41)
Repurchases of common stock (Note 10) (162,793) (1) (132) (4,371) (4,504)
Cash dividends ($0.78 per common share)
(943) (943)
Stock-based compensation expense 260  260 
Balance July 31, 2021 1,152,519  $ 12  $ 1,050  $ (3,871) $ (1,133) $ (3,942)
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
9

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

Note 1: Basis of Presentation
Basis of Presentation
The accompanying Consolidated Condensed Financial Statements of HP and its wholly-owned subsidiaries are prepared in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”). The interim financial information is unaudited but reflects all normal adjustments that are necessary to provide a fair statement of results for the interim periods presented. This interim information should be read in conjunction with the Consolidated Financial Statements for the fiscal year ended October 31, 2020 in the Annual Report on Form 10-K, filed on December 10, 2020. The Consolidated Condensed Balance Sheet for October 31, 2020 was derived from audited financial statements.
Principles of Consolidation
The Consolidated Condensed Financial Statements include the accounts of HP and its subsidiaries and affiliates in which HP has a controlling financial interest or is the primary beneficiary. All intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in HP’s Consolidated Condensed Financial Statements and accompanying notes. Actual results may differ materially from those estimates. As of July 31, 2021, the extent to which the COVID-19 pandemic will impact our business going forward depends on numerous dynamic factors which we cannot reliably predict. As a result, many of our estimates and assumptions required increased judgment and may carry a higher degree of variability and volatility. As the events continue to evolve with respect to the pandemic, our estimates may materially change in future periods.
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 and Hewlett Packard Enterprise entered into a separation and distribution agreement, an employee matters agreement and various other agreements which remain enforceable and provide a framework for the continuing relationships between the parties. For more information on the impacts of these agreements, see Note 12, “Litigation and Contingencies”.
Recently Adopted Accounting Pronouncements
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. Furthermore, 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 adopted the new credit loss standard as of November 1, 2020 using a modified retrospective approach. The cumulative effect upon adoption was not material to the consolidated condensed financial statements.
Accounts receivable
HP records allowance for credit losses for the current expected credit losses inherent in the asset over its expected life. The allowance for credit losses is maintained based on the relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.
HP records a specific reserve for individual accounts when HP becomes aware of specific customer circumstances, such as in the case of a bankruptcy filing or deterioration in the customer’s operating results or financial position. If there are additional changes in circumstances related to the specific customer, HP further adjusts estimates of the recoverability of receivables. HP assesses collectability by pooling receivables where similar risk characteristics exist.
HP maintains an allowance for credit losses for all other customers based on a variety of factors, including the use of third-party credit risk models that generate quantitative measures of default probabilities based on market factors, financial condition of customers, length of time receivables are past due, trends in the weighted-average risk rating for the portfolio, macroeconomic conditions, information derived from competitive benchmarking, significant one-time events, and historical experience. The past due or delinquency status of a receivable is based on the contractual payment terms of the receivable.
HP has third-party short-term financing arrangements intended to facilitate the working capital requirements of certain customers. These financing arrangements, which in certain cases provide for partial recourse, result in the transfer of HP’s trade receivables to a third-party. HP reflects amounts transferred to, but not yet collected from the third-party in Accounts receivable in the Consolidated Condensed Balance Sheets. For arrangements involving an element of recourse, the fair value of the
10

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 1: Basis of Presentation (Continued)

recourse obligation is measured using market data from similar transactions and reported as a current liability in the Consolidated Condensed Balance Sheets.
Debt and Marketable Equity Securities Investments
HP determines the appropriate classification of its investments at the time of purchase and re-evaluates the classifications at each balance sheet date. Debt and marketable equity securities are generally considered available-for-sale. All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. Marketable debt securities with maturities of twelve months or less are classified as short-term investments and marketable debt securities with maturities greater than twelve months are classified based on their availability for use in current operations. Marketable equity securities, including mutual funds, are classified as either short or long-term based on the nature of each security and its availability for use in current operations.
Available-for-sale debt securities are reported at fair value with unrealized gains and losses, net of applicable taxes, in Accumulated other comprehensive loss. Unrealized gains and losses on equity securities, credit losses and impairments on available-for-sale debt securities are recorded in Consolidated Condensed Statements of Earnings. Realized gains and losses on available-for-sale securities are calculated at the individual security level and included in Interest and other, net in the Consolidated Condensed Statements of Earnings.
HP monitors its investment portfolio for potential impairment and credit losses on a quarterly basis. If HP intends to sell a debt security or it is more likely than not that HP will be required to sell the security before recovery, then a decline in fair value below cost is recorded as an impairment charge in Interest and other, net and a new cost basis in the investment is established.
In other cases, if the carrying amount of an investment in debt securities exceeds its fair value and the decline in value is determined to be due to credit related reasons, HP records a credit loss allowance, limited by the amount that fair value is less than the amortized cost basis. HP recognizes the corresponding charge in Interest and other, net and the remaining unrealized loss, if any, in Accumulated other comprehensive loss in the Consolidated Condensed Balance Sheets. Factors that HP considers while determining the credit loss allowance includes, but is not limited to, severity and the reason for the decline in value, interest rate changes and counterparty long-term ratings.
11

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)

Note 2. Segment Information
HP is a leading global provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions and services. HP sells to individual consumers, small- and medium-sized businesses (“SMBs”) and large enterprises, including customers in the government, health and education sectors. HP goes to market through its extensive channel network and direct sales.
HP’s operations are organized into three reportable segments: Personal Systems, Printing, and Corporate Investments. HP’s organizational structure is based on many factors that the chief operating decision maker (“CODM”) uses to evaluate, view and run the business operations, which include, but are not limited to, customer base and homogeneity of products and technology. The segments are based on this organizational structure and information reviewed by HP’s CODM to evaluate segment results. The CODM uses several metrics to evaluate the performance of the overall business, including earnings from operations, and uses these results to allocate resources to each of the segments.
A summary description of each segment is as follows:
Personal Systems offers commercial and consumer desktop and notebook personal computers (“PCs”), workstations, thin clients, commercial mobility devices, retail point-of-sale (“POS”) systems, displays and peripherals, software, support and services. HP groups commercial notebooks, commercial desktops, commercial services, commercial mobility devices, commercial detachables and convertibles, workstations, retail POS systems and thin clients into commercial PCs and consumer notebooks, consumer desktops, consumer services and consumer detachables into consumer PCs when describing performance in these markets. Described below are HP’s global business capabilities within Personal Systems:
Commercial PCs are optimized for use by enterprise, public sector which includes education, and SMB customers, with a focus on robust designs, security, serviceability, connectivity, reliability and manageability in the customer’s environment. Additionally, HP offers a range of services and solutions to enterprise, public sector which includes education, and SMB customers to help them manage the lifecycle of their PC and mobility installed base. 
Consumer PCs are optimized for consumer usage, focusing on gaming, learning and working remotely, consuming multi-media for entertainment, managing personal life activities, staying connected, sharing information, getting things done for work including creating content and staying informed and secure.
Personal Systems groups its global business capabilities into the following business units when reporting business performance:
Notebooks consists of consumer notebooks, commercial notebooks, mobile workstations, peripherals, and commercial mobility devices;
Desktops includes consumer desktops, commercial desktops, thin clients, displays, peripherals, and retail POS systems;
•     Workstations consists of desktop workstations, displays, and peripherals; and
•     Other consists of consumer and commercial services as well as other Personal Systems capabilities.
Printing provides consumer and commercial printer hardware, supplies, services and solutions. Printing is also focused on imaging solutions in the commercial and industrial markets. Described below are HP’s global business capabilities within Printing.
Office Printing Solutions delivers HP’s office printers, supplies, services and solutions to SMBs and large enterprises. It also includes OEM hardware and solutions, and some Samsung-branded supplies.
Home Printing Solutions delivers innovative printing products, supplies, services and solutions for the home, home business and micro business customers utilizing both HP’s Ink and Laser technologies. It also includes some Samsung-branded supplies.
Graphics Solutions delivers large-format, commercial and industrial solutions and supplies to print service providers and packaging converters through a wide portfolio of printers and presses (HP DesignJet, HP Latex, HP Indigo and HP PageWide Web Presses).
3D Printing & Digital Manufacturing offers a portfolio of additive manufacturing solutions and supplies to help customers succeed in their additive and digital manufacturing journey. HP offers complete solutions in collaboration with an ecosystem of partners.
12

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 2: Segment Information (Continued)
Printing groups its global business capabilities into the following business units when reporting business performance:
Commercial consists of office printing solutions, graphics solutions and 3D printing & digital manufacturing, excluding supplies;
Consumer consists of home printing solutions, excluding supplies; and
Supplies comprises a set of highly innovative consumable products, ranging from ink and laser cartridges to media, graphics supplies and 3D printing & digital manufacturing supplies, for recurring use in consumer and commercial hardware.
Corporate Investments includes HP Labs and certain business incubation and investment projects.
The accounting policies HP uses to derive segment results are substantially the same as those used by HP in preparing these financial statements. HP derives the results of the business segments directly from its internal management reporting system.
HP does not allocate certain operating expenses, which it manages at the corporate level, to its segments. These unallocated amounts include certain corporate governance costs and infrastructure investments, stock-based compensation expense, restructuring and other charges, acquisition-related charges and amortization of intangible assets.
13

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 2: Segment Information (Continued)
Segment Operating Results from Operations and the reconciliation to HP consolidated results were as follows:
  Three months ended July 31 Nine months ended July 31
  2021 2020 2021 2020
  In millions
Net revenue:
Notebooks $ 7,328  $ 7,304  $ 22,183  $ 18,361 
Desktops 2,246  2,221  6,871  7,553 
Workstations 388  428  1,177  1,461 
Other 444  407  1,333  1,190 
Personal Systems 10,406  10,360  31,564  28,565 
Supplies 3,092  2,573  9,575  8,455 
Commercial 1,070  732  3,112  2,616 
Consumer 720  628  2,562  1,744 
Printing 4,882  3,933  15,249  12,815 
Corporate Investments — 
Total segment net revenue 15,288  14,294  46,814  41,382 
Other —  (2) (1)
Total net revenue $ 15,289  $ 14,294  $ 46,812  $ 41,381 
   
Earnings before taxes:
Personal Systems $ 869  $ 570  $ 2,337  $ 1,784 
Printing 857  480  2,806  1,782 
Corporate Investments (20) (15) (82) (42)
Total segment earnings from operations 1,706  1,035  5,061  3,524 
Corporate and unallocated costs and other (134) (108) (378) (304)
Stock-based compensation expense (69) (49) (260) (221)
Restructuring and other charges (56) (59) (216) (431)
Acquisition-related charges (24) (11) (40) (14)
Amortization of intangible assets (42) (29) (103) (84)
Interest and other, net (55) (28) (106) (15)
Total earnings before taxes $ 1,326  $ 751  $ 3,958  $ 2,455 

14

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 nine months ended July 31, 2021 and 2020 summarized by plan were as follows:
Fiscal 2020 Plan
Severance and EER Non-labor Other prior-year Plans Total
In millions
Accrued balance as of October 31, 2020 $ 55  $ —  $ 12  $ 67 
Charges 164  35  —  199 
Cash payments (132) (4) (12) (148)
Non-cash and other adjustments (1) (31) —  (32)
Accrued balance as of July 31, 2021 $ 86  $ —  $ —  $ 86 
Total costs incurred to date as of July 31, 2021 $ 592  $ 45  $ 1,817  $ 2,454 
Reflected in Consolidated Condensed Balance Sheets
Other current liabilities $ 86  $ —  $ —  $ 86 
Accrued balance as of October 31, 2019 $ 76  $ —  $ 66  $ 142 
Charges 325  331 
Cash payments (256) (5) (48) (309)
Non-cash and other adjustments (48) (1) —  (3) (51)
Accrued balance as of July 31, 2020 $ 97  $ —  $ 16  $ 113 
(1)Includes reclassification of liability related to the Enhanced Early Retirement (“EER”) plan of $44 million for certain healthcare and medical savings account benefits to pension and post-retirement plans.
HP’s restructuring charges for the three months ended July 31, 2021 summarized by the plans outlined below were as follows:
Fiscal 2020 Plan
Severance and EER Non-labor Total
In millions
For the three months ended July 31, 2021 $ 28  $ 20  $ 48 

Fiscal 2020 Plan
On September 30, 2019, HP’s Board of Directors approved the Fiscal 2020 Plan intended to optimize and simplify its operating model and cost structure that HP expects will be implemented through fiscal 2022. HP expects to reduce global headcount by approximately 7,000 to 9,000 employees through a combination of employee exits and voluntary EER. HP estimates that it will incur pre-tax charges of approximately $1.0 billion relating to labor and non-labor actions. HP now expects to incur approximately $0.8 billion primarily in labor costs related to workforce reductions and the remaining costs will relate to non-labor actions and other charges.
Other charges
Other charges include non-recurring costs, including those as a result of information technology rationalization efforts and proxy contest activities, and are distinct from ongoing operational costs. These costs primarily relate to third-party legal, professional services and other non-recurring costs. For the three and nine months ended July 31, 2021, HP incurred $8 million
15

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 3: Restructuring and Other Charges (Continued)
and $17 million of other charges, respectively. For the three and nine months ended July 31, 2020, HP incurred $13 million and $100 million of other charges, respectively.
16

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 4: Retirement and Post-Retirement Benefit Plans
The components of HP’s pension and post-retirement benefit (credit) cost recognized in the Consolidated Condensed Statements of Earnings were as follows:
  Three months ended July 31
  U.S. Defined Benefit Plans Non-U.S. Defined Benefit Plans Post-Retirement Benefit Plans
  2021 2020 2021 2020 2021 2020
  In millions
Service cost $ —  $ —  $ 16  $ 16  $ —  $ — 
Interest cost 76  103 
Expected return on plan assets (127) (175) (13) (10) (5) (6)
Amortization and deferrals:            
Actuarial loss (gain) 14  16  13  11  (4) (3)
Prior service benefit —  —  (1) (1) (2) (3)
Net periodic benefit (credit) cost (37) (56) 20  20  (9) (9)
Settlement loss —  —  —  —  — 
Total periodic benefit (credit) cost $ (37) $ (54) $ 20  $ 20  $ (9) $ (9)
  Nine months ended July 31
  U.S. Defined Benefit Plans Non-U.S. Defined Benefit Plans Post- Retirement Benefit Plans
  2021 2020 2021 2020 2021 2020
  In millions
Service cost $ —  $ —  $ 50  $ 47  $ $
Interest cost 228  309  14  13 
Expected return on plan assets (381) (525) (37) (31) (17) (17)
Amortization and deferrals:
Actuarial loss (gain) 44  48  40  32  (12) (8)
Prior service benefit —  —  (2) (2) (8) (9)
Net periodic benefit (credit) cost (109) (168) 65  59  (30) (25)
Settlement loss —  —  —  — 
Special termination benefit cost —  —  —  —  —  44 
Total periodic benefit (credit) cost $ (108) $ (165) $ 65  $ 59  $ (30) $ 19 
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 2021, HP anticipates making contributions of approximately $77 million to its non-U.S. pension plans, approximately $34 million to its U.S. non-qualified plan participants and approximately $5 million to cover benefit claims under HP’s post-retirement benefit plans. During the nine months ended July 31, 2021, HP contributed $50 million to its non-U.S. pension plans, paid $21 million to cover benefit payments to U.S. non-qualified plan participants and paid $3 million to cover benefit claims under HP’s post-retirement benefit plans.
HP’s pension and other post-retirement benefit costs and obligations depend on various assumptions. Differences between expected and actual returns on investments and changes in discount rates and other actuarial assumptions are reflected as unrecognized gains or losses, and such gains or losses are amortized to earnings in future periods. A deterioration in the funded status of a plan could result in a need for additional 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.
17

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 4: Retirement and Post-Retirement Benefit Plans (Continued)
In August 2021, HP entered into an agreement with The Prudential Insurance Company of America (“Prudential”) to purchase an irrevocable group annuity contract and transfer approximately $5.2 billion of the HP Inc. U.S. Pension Plan (“Pension Plan”) obligations, subject to customary closing conditions. Under the agreement, Prudential will assume responsibility for pension benefits and annuity administration for approximately 41,000 retirees and beneficiaries. This transaction will not change the amount or timing of monthly retirement benefit payments. Upon closing this transaction in the fourth quarter of fiscal 2021, HP will record a settlement gain of approximately $40 million. As the transaction will be funded directly by the assets of the Pension Plan, there will be no cash flow impact to HP.
18

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 5: Taxes on Earnings
Provision for Taxes
HP’s effective tax rate was 16.5% and 2.2% for the three months ended July 31, 2021 and 2020, respectively, and 14.0% and 11.4% for the nine months ended July 31, 2021 and 2020, respectively. The difference between the U.S. federal statutory tax rate of 21% and HP’s effective tax rate for the three and nine months ended July 31, 2021 was primarily due to tax effects of internal reorganization and by favorable tax rates associated with certain earnings from HP’s operations in lower-tax jurisdictions throughout the world. For the three and nine months ended July 31, 2020, HP’s effective tax rate differed from the U.S. federal statutory rate of 21% primarily due to audit settlements in various jurisdictions and favorable tax rates associated with certain earnings from HP’s operations in lower-tax jurisdictions throughout the world.
During the three and nine months ended July 31, 2021, HP recorded $21 million and $150 million, respectively, of net income tax benefits related to discrete items in the provision for taxes. These amounts included income tax benefits of $9 million and $45 million related to restructuring charges and $23 million and $30 million related to the filing of tax returns in various jurisdictions for the three and nine months ended July 31, 2021, respectively. The nine months ended July 31, 2021 also included a tax benefit of $89 million related to tax effects of internal reorganization and a tax benefit of $10 million related to audit settlements in various jurisdictions. These benefits were partially offset by uncertain tax position charges of $13 million and $25 million for the three and nine months ended July 31, 2021, respectively. For the three and nine months ended July 31, 2021, excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units were immaterial.
During the three and nine months ended July 31, 2020, HP recorded $116 million and $182 million, respectively, of net tax benefits related to discrete items in the provision for taxes. These amounts included tax benefits of $102 million and $143 million related to audit settlements in various jurisdictions, $20 million and $75 million related to restructuring charges, and $4 million and $20 million related to acquisition charges for the three and nine months ended July 31, 2020, respectively. These benefits were partially offset by uncertain tax position charges of $3 million and $54 million for the three and nine months ended July 31, 2020, respectively. For the three and nine months ended July 31, 2020, excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units were immaterial.
Uncertain Tax Positions
As of July 31, 2021, the amount of gross unrecognized tax benefits was $822 million, of which up to $653 million would affect HP’s effective tax rate if realized. 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 July 31, 2021 and 2020, HP had accrued $70 million and $37 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 the resolution of certain tax years with various tax authorities within the next 12 months. HP believes it is reasonably possible that its existing gross unrecognized tax benefits may be reduced by up to $98 million within the next 12 months, affecting HP’s effective tax rate if realized.
HP is subject to income tax in the United States and approximately 60 other countries and is subject to routine corporate income tax audits in many of these jurisdictions. In addition, HP is subject to numerous ongoing audits by federal, state and foreign tax authorities. The Internal Revenue Service (“IRS”) is conducting an audit of HP’s 2018 and 2019 income tax returns.
19

HP INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings (Continued)
(Unaudited)
Note 6: Supplementary Financial Information
Accounts Receivable
The allowance for credit losses related to accounts receivable and changes were as follows:
  Nine months ended July 31, 2021
  In millions
Balance at beginning of period $ 122 
Current-period allowance for credit losses
Deductions, net of recoveries (14)
Balance at end of period $ 117 
HP has third-party arrangements, consisting of revolving short-term financing, which provide liquidity to certain partners to facilitate their working capital requirements. These financing arrangements, which in certain circumstances may contain partial recourse, result in a transfer of HP’s receivables and risk to the third-party. As these transfers qualify as true sales under the applicable accounting guidance, the receivables are de-recognized from the Consolidated Condensed Balance Sheets upon transfer, and HP receives a payment for the receivables from the third-party within a mutually agreed upon time period. For arrangements involving an element of recourse, the recourse obligation is measured using market data from similar transactions and reported as a current liability in the Consolidated Condensed Balance Sheets. The recourse obligations as of July 31, 2021 and October 31, 2020 were not material. The costs associated with the sale of trade receivables for the three and nine months ended July 31, 2021 and 2020 were not material.
The following is a summary of the activity under these arrangements:
Three months ended July 31 Nine months ended July 31
  2021   2020 2021   2020
  In millions
Balance at beginning of period(1)
$ 212  $ 124  $ 188  $ 235 
Trade receivables sold 2,667  2,231  9,155  7,411 
Cash receipts (2,711) (2,254) (9,181) (7,544)
Foreign currency and other (2)
Balance at end of period(1)
$ 166  $ 109  $ 166  $ 109 
(1) Amounts outstanding from third parties reported in Accounts receivable in the Consolidated Condensed Balance Sheets.
Inventory
  As of
  July 31, 2021 October 31, 2020
  In millions
Finished goods $ 4,187  $ 3,662 
Purchased parts and fabricated assemblies(1)
3,978  2,301 
$ 8,165  $ 5,963 
(1) Increase is attributable to strategic buys in Personal Systems.
20

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 6: Supplementary Financial Information (Continued)
Other Current Assets
  As of
  July 31, 2021 October 31, 2020
  In millions
Supplier and other receivables $ 2,218  $ 2,092 
Prepaid and other current assets 1,031  1,104 
Value-added taxes receivable 834  970 
Available-for-sale investments 274 
$ 4,091  $ 4,440 

Property, Plant and Equipment, net
  As of
  July 31, 2021 October 31, 2020
  In millions
Land, buildings and leasehold improvements $ 2,168  $ 2,066 
Machinery and equipment, including equipment held for lease 5,259  5,275 
7,427  7,341 
Accumulated depreciation (4,927) (4,714)
$ 2,500  $ 2,627 

Other Non-Current Assets
  As of
  July 31, 2021 October 31, 2020
  In millions
Deferred tax assets $ 2,581  $ 2,515 
Right-of-use assets from operating leases, net 1,114  1,107 
Deposits and prepaid 757  337 
Intangible assets 741  540 
Other 599  527 
$ 5,792  $ 5,026 
21

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 6: Supplementary Financial Information (Continued)
Other Current Liabilities
  As of
  July 31, 2021 October 31, 2020
  In millions
Sales and marketing programs $ 3,101  $ 3,185 
Employee compensation and benefit 1,462  1,194 
Deferred revenue 1,335  1,208 
Other accrued taxes 1,020  1,051 
Warranty 752  746 
Operating lease liabilities 330  275 
Tax liability 271  223 
Other 3,284  2,960 
$ 11,555  $ 10,842 

Other Non-Current Liabilities
  As of
  July 31, 2021 October 31, 2020
  In millions
Pension, post-retirement, and post-employment liabilities $ 1,342  $ 1,576 
Deferred revenue 1,043  1,072 
Operating lease liabilities 878  904 
Tax liability 751  746 
Deferred tax liability 47  25 
Other 839  823 
$ 4,900  $ 5,146 

Interest and other, net
  Three months ended July 31 Nine months ended July 31
  2021 2020 2021   2020
  In millions
Interest expense on borrowings $ (68) $ (55) $ (193) $ (176)
Loss on extinguishment of debt(1)
(16) (40) (16) (40)
Other, net 29  67  103  201 
$ (55) $ (28) $ (106) $ (15)
(1) See Note 9 “Borrowings” for detailed information.



22

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 6: Supplementary Financial Information (Continued)
Net revenue by region
Three months ended July 31 Nine months ended July 31
  2021 2020 2021   2020
  In millions
Americas $ 7,006  $ 6,229  $ 20,746  $ 17,393 
Europe, Middle East and Africa 5,004  4,725  16,267  14,611 
Asia-Pacific and Japan 3,279  3,340  9,799  9,377 
Total net revenue $ 15,289  $ 14,294  $ 46,812  $ 41,381 

Value of Remaining Performance Obligations
    As of July 31, 2021, the estimated value of transaction price allocated to remaining performance obligations was $3.8 billion. HP expects to recognize approximately $1.8 billion of the unearned amount in next 12 months and $2.0 billion thereafter.
    HP has elected the practical expedients and accordingly does not disclose the aggregate amount of the transaction price allocated to remaining performance obligations if:
the contract has an original expected duration of one year or less; or
the revenue from the performance obligation is recognized over time on an as-invoiced basis when the amount corresponds directly with the value to the customer; or
the portion of the transaction price that is variable in nature is allocated entirely to a wholly unsatisfied performance obligation.
The remaining performance obligations are subject to change and may be affected by various factors, such as termination of contracts, contract modifications and adjustment for currency.
Contract Liabilities
As of July 31, 2021 and October 31, 2020, HP’s contract liabilities balances were $2.4 billion and $2.2 billion, respectively, included in Other current liabilities and Other non-current liabilities in the Consolidated Condensed Balance Sheets.
The increase in the contract liabilities balance for the nine months ended July 31, 2021 was primarily driven by sales of fixed-price support and maintenance services, partially offset by $0.9 billion of revenue recognized that was included in the contract liabilities balance as of October 31, 2020.
Changes in Variable Consideration
HP reduces the transaction price at the time performance obligations are satisfied for various customer and distributor sales incentive and promotional programs. During the three months ended July 31, 2021, we recorded an increase to our estimated transaction price for performance obligations satisfied in the prior periods of approximately $350 million. The change in estimate is a result of lower-than-expected marketing incentives due to increasing supply constraints, shifts in customer behavior and the evolving impact of the COVID-19 pandemic. The changes in estimates recorded during the nine months ended July 31, 2021 and the three and nine months ended July 31, 2020 were immaterial.


23

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 7: Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.
Fair Value Hierarchy
HP uses valuation techniques that are based upon observable and unobservable inputs. Observable inputs are developed using market data such as publicly available information and reflect the assumptions market participants would use, while unobservable inputs are developed using the best information available about the assumptions market participants would use.
Assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement:
Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2—Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.
Level 3—Unobservable inputs for the asset or liability.
The fair value hierarchy gives the highest priority to observable inputs and lowest priority to unobservable inputs.
    The following table presents HP’s assets and liabilities that are measured at fair value on a recurring basis:
  As of July 31, 2021 As of October 31, 2020
  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 $ —  $ 1,407  $ —  $ 1,407  $ —  $ 1,700  $ —  $ 1,700 
Financial institution instruments —  —  —  —  —  59  —  59 
Government debt(1)
770  —  —  770  1,992  181  —  2,173 
Available-for-Sale Investments:
Corporate debt —  —  —  —  —  169  —  169 
Financial institution instruments —  —  —  32  —  32 
Government debt(1)
—  —  —  —  —  73  —  73 
Mutual funds 57  —  63  53  —  58 
Derivative Instruments:          
Interest rate contracts —  —  —  — 
Foreign currency contracts —  188  —  188  —  191  —  191 
Other derivatives —  —  —  —  —  — 
Total assets $ 776  $ 1,663  $ —  $ 2,439  $ 1,997  $ 2,462  $ —  $ 4,459 
Liabilities:                
Derivative Instruments:                
Interest rate contracts $ —  $ $ —  $ $ —  $ $ —  $
Foreign currency contracts —  224  —  224  —  256  —  256 
Other derivatives —  —  —  — 
Total liabilities $ —  $ 231  $ —  $ 231  $ —  $ 262  $ —  $ 262 

(1) Government debt includes instruments such as U.S. treasury notes, U.S. agency securities and non-U.S. government bonds. Money market funds invested in government debt and traded in active markets are included in Level 1.
24

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 7: Fair Value (Continued)
Valuation Techniques
Cash Equivalents and Investments: HP holds time deposits, money market funds, mutual funds, other debt securities primarily consisting of corporate and foreign government notes and bonds, and common stock and equivalents. HP values cash equivalents and equity investments using quoted market prices, alternative pricing sources, including net asset value, or models utilizing market observable inputs. The fair value of debt investments is based on quoted market prices or model-driven valuations using inputs primarily derived from or corroborated by observable market data, and, in certain instances, valuation models that utilize assumptions which cannot be corroborated with observable market data.
Derivative Instruments: HP uses industry standard valuation models to measure fair value. Where applicable, these models project future cash flows and discount the future amounts to present value using market-based observable inputs, including interest rate curves, HP and counterparty credit risk, foreign exchange rates, and forward and spot prices for currencies and interest rates. See Note 8, “Financial Instruments” for a further discussion of HP’s use of derivative instruments.
Other Fair Value Disclosures
Short- and Long-Term Debt: HP estimates the fair value of its debt primarily using an expected present value technique, which is based on observable market inputs using interest rates currently available to companies of similar credit standing for similar terms and remaining maturities and considering its own credit risk. The portion of HP’s debt that is hedged is reflected in the Consolidated Condensed Balance Sheets as an amount equal to the debt’s carrying amount and a fair value adjustment representing changes in the fair value of the hedged debt obligations arising from movements in benchmark interest rates. The fair value of HP’s short- and long-term debt was $7.7 billion as of July 31, 2021, compared to its carrying amount of $7.1 billion at that date. The fair value of HP’s short- and long-term debt was $6.7 billion as of October 31, 2020, compared to its carrying value of $6.2 billion at that date. If measured at fair value in the Consolidated Condensed Balance Sheets, short- and long-term debt would be classified in Level 2 of the fair value hierarchy.
Other Financial Instruments: For the balance of HP’s financial instruments, primarily accounts receivable, accounts payable and financial liabilities included in Other current liabilities on the Consolidated Condensed Balance Sheets, the carrying amounts approximate fair value due to their short maturities. If measured at fair value in the Consolidated Condensed Balance Sheets, these other financial instruments would be classified as Level 2 or Level 3 in the fair value hierarchy.
Non-Marketable Equity Investments and Non-Financial Assets: HP’s non-marketable equity investments are measured at cost less impairment, adjusted for observable price changes. HP’s non-financial assets, such as intangible assets, goodwill and property, plant and equipment, are recorded at fair value in the period an impairment charge is recognized. If measured at fair value in the Consolidated Condensed Balance Sheets these would generally be classified within Level 3 of the fair value hierarchy.

25

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)

Note 8: Financial Instruments
Cash Equivalents and Available-for-Sale Investments
  As of July 31, 2021 As of October 31, 2020
  Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value
  In millions
Cash Equivalents:                
Corporate debt $ 1,407  $ —  $ —  $ 1,407  $ 1,700  $ —  $ —  $ 1,700 
Financial institution instruments
—  —  —  —  59  —  —  59 
Government debt 770  —  —  770  2,173  —  —  2,173 
Total cash equivalents 2,177  —  —  2,177  3,932  —  —  3,932 
Available-for-Sale Investments:          
Corporate debt(1)
—  —  —  —  169  —  —  169 
Financial institution instruments(1)
—  —  32  —  —  32 
Government debt(1)
—  —  —  —  73  —  —  73 
Mutual funds 44  19  —  63  42  16  —  58 
Total available-for-sale investments 52  19  —  71  316  16  —  332 
Total cash equivalents and available-for-sale investments $ 2,229  $ 19  $ —  $ 2,248  $ 4,248  $ 16  $ —  $ 4,264 
(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 July 31, 2021 and October 31, 2020, 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 July 31, 2021
  Amortized
Cost
Fair Value
  In millions
Due in one year $ $
Non-marketable equity securities in privately held companies are included in Other non-current assets in the Consolidated Condensed Balance Sheets. These amounted to $53 million and $44 million as of July 31, 2021 and October 31, 2020, respectively.
HP determines credit losses on cash equivalents and available-for-sale debt securities at the individual security level. All instruments are considered investment grade. No credit-related or noncredit-related impairment losses were recorded for the three and nine months ended July 31, 2021.

Derivative Instruments
HP uses derivatives to offset business exposure to foreign currency and interest rate risk on expected future cash flows and on certain existing assets and liabilities. As part of its risk management strategy, HP uses derivative instruments, primarily forward contracts, interest rate swaps, total return swaps, treasury rate locks, forward starting swaps and, at times, option
26

HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 8: Financial Instruments (Continued)
contracts to hedge certain foreign currency, interest rate and, return on certain investment exposures. HP may designate its derivative contracts as fair value hedges or cash flow hedges and classifies the cash flows with the activities that correspond to the underlying hedged items. Additionally, for derivatives not designated as hedging instruments, HP categorizes those economic hedges as other derivatives. HP recognizes all derivative instruments at fair value in the Consolidated Condensed Balance Sheets.
As a result of its use of derivative instruments, HP is exposed to the risk that its counterparties will fail to meet their contractual obligations. Master netting agreements mitigate credit exposure to counterparties by permitting HP to net amounts due from HP to counterparty against amounts due to HP from the same counterparty under certain conditions. To further limit credit risk, HP has collateral security agreements that allow HP’s custodian to hold collateral from, or require HP to post collateral to, counterparties when aggregate derivative fair values exceed contractually established thresholds which are generally based on the credit ratings of HP and its counterparties. If HP’s or the counterparty’s credit rating falls below a specified credit rating, either party has the right to request full collateralization of the derivatives’ net liability position. The fair value of derivatives with credit contingent features in a net liability position was $95 million and $90 million as of July 31, 2021 and as of October 31, 2020, 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 July 31, 2021 and October 31, 2020.
Fair Value Hedges
HP enters into fair value hedges, such as interest rate swaps, to reduce the exposure of its debt portfolio to changes in fair value resulting from changes in benchmark interest rates on HP’s future interest rate payments.
For derivative instruments that are designated and qualify as fair value hedges, HP recognizes the change in fair value of the derivative instrument, as well as the offsetting change in the fair value of the hedged item, in Interest and other, net in the Consolidated Condensed Statements of Earnings in the period of change.
During the nine months ended July 31, 2021, HP entered into interest rate swaps with a notional amount of $375 million that were designated as fair value hedges, to convert a portion of its fixed-rate debt to floating. HP terminated interest rate swaps with a notional amount of $500 million that were de-designated as fair value hedges including $250 million notional amount related to certain fixed-rate debt securities that were extinguished, resulting in an immaterial loss.
Cash Flow Hedges
HP uses forward contracts, treasury rate locks, forward starting swaps and, at times, option contracts designated as cash flow hedges to protect against the foreign currency exchange and interest rate risks inherent in its forecasted net revenue, cost of revenue, operating expenses and debt issuance. HP’s foreign currency cash flow hedges mature predominantly within twelve months; however, hedges related to long-term procurement arrangements extend several years.
For derivative instruments that are designated and qualify as cash flow hedges, HP initially records changes in fair value of the derivative instrument in Accumulated other comprehensive loss as a separate component of stockholders’ deficit in the Consolidated Condensed Balance Sheets and subsequently reclassifies these amounts into earnings in the period during which the hedged transaction is recognized in earnings. HP reports the changes in the fair value of the derivative instrument in the same financial statement line item as changes in the fair value of the hedged item.
During the nine months ended July 31, 2021, HP entered into a series of forward starting swap agreements with notional amounts totaling $1.75 billion to hedge the exposure to variability in future cash flows resulting from changes in interest rates related to the anticipated issuance of long-term debt. These agreements were designated as cash flow hedges. In June 2021, a series of these forward starting swaps totaling $750 million notional amount were settled upon the issuance of the senior notes resulting in an immaterial loss recognized in Accumulated other comprehensive loss. The loss will be reclassified to Interest and other, net over the life of the related debt.
Other Derivatives
Other derivatives not designated as hedging instruments consist primarily of forward contracts used to hedge foreign currency-denominated balance sheet exposures. HP also uses total return swaps to hedge its executive deferred compensation plan liability.
For derivative instruments not designated as hedging instruments, HP recognizes changes in fair value of the derivative instrument, as well as the offsetting change in the fair value of the hedged item, in Interest and other, net in the Consolidated Condensed Statements of Earnings in the period of change.

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HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 8: Financial Instruments (Continued)
Hedge Effectiveness
For interest rate swaps designated as fair value hedges, HP measures hedge effectiveness by offsetting the change in fair value of the hedged item with the change in fair value of the derivative. For foreign currency options, forward contracts and forward starting swaps designated as cash flow hedges, HP measures hedge effectiveness by comparing the cumulative change in fair value of the hedge contract with the cumulative change in fair value of the hedged item, both of which are based on forward rates.
During the three and nine months ended July 31, 2021 and 2020, no portion of the hedging instruments’ gain or loss was excluded from the assessment of effectiveness for fair value and cash flow hedges.
Fair Value of Derivative Instruments in the Consolidated Condensed Balance Sheets
Gross notional and fair value of derivative instruments in the Consolidated Condensed Balance Sheets were as follows:
  As of July 31, 2021 As of October 31, 2020
  Outstanding Gross Notional Other Current Assets Other Non-Current Assets Other Current Liabilities Other Non-Current Liabilities Outstanding Gross Notional Other Current Assets Other Non-Current Assets Other Current Liabilities Other Non-Current Liabilities
  In millions
Derivatives designated as hedging instruments          
Fair value hedges:          
Interest rate contracts $ 750  $ —  $ $ —  $ $ 875  $ $ —  $ —  $
Cash flow hedges:
Foreign currency contracts 16,531  142  32  135  47  15,661  148  30  199  37 
Interest rate contracts 1,000  —  —  —  27  —  —  —  —  — 
Total derivatives designated as hedging instruments 18,281  142  34  135  80  16,536  152  30  199  40 
Derivatives not designated as hedging instruments        
Foreign currency contracts 5,519  14  —  15  —  5,319  13  —  20  — 
Other derivatives 155  —  —  142  —  —  — 
Total derivatives not designated as hedging instruments 5,674  15  —  16  —  5,461  13  —  23  — 
Total derivatives $ 23,955  $ 157  $ 34  $ 151  $ 80  $ 21,997  $ 165  $ 30  $ 222  $ 40 

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 July 31, 2021 and October 31, 2020, 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 8: Financial Instruments (Continued)
  In the Consolidated Condensed Balance Sheets    
    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)
  In millions
As of July 31, 2021              
Derivative assets $ 191  $ —  $ 191  $ 133  $ 34  (1) $ 24 
Derivative liabilities $ 231  $ —  $ 231  $ 133  $ 75  (2) $ 23 
As of October 31, 2020              
Derivative assets $ 195  $ —  $ 195  $ 156  $ (1) $ 35 
Derivative liabilities $ 262  $ —  $ 262  $ 156  $ 130  (2) $ (24)
(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 including any re-use of counterparty cash collateral as of the respective reporting date for HP’s liability position, net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date.
Effect of Derivative Instruments in the Consolidated Condensed Statements of Earnings
The pre-tax effect of derivative instruments and related hedged items in a fair value hedging relationship were as follows:
Derivative Instrument Hedged Item Location Year Total amounts of income/(expense) line items in the statement of financial performance in which the effects of fair value hedges are recorded Gain/(loss) recognized in earnings on derivative instruments Gain/(loss) recognized in earnings on hedged item
In millions
Three months ended July 31
Interest rate contract Fixed-rate debt Interest and other, net 2021 $ (55) $