Item 8. Financial Statements and Supplementary Data.

Table of Contents

	Page
Reports of Independent Registered Public Accounting Firm	53
Management's Report on Internal Control Over Financial Reporting	55
Consolidated Statements of Earnings	56
Consolidated Statements of Comprehensive Income	57
Consolidated Balance Sheets	58
Consolidated Statements of Cash Flows	59
Consolidated Statements of Stockholders' (Deficit) Equity	60
Notes to Consolidated Financial Statements	61
Note 1: Overview and Summary of Significant Accounting Policies	61
Note 2: Discontinued Operations	68
Note 3: Segment Information	69
Note 4: Restructuring and Other Charges	74
Note 5: Retirement and Post-Retirement Benefit Plans	75
Note 6: Stock-Based Compensation	85
Note 7: Taxes on Earnings	94
Note 8: Balance Sheet Details	104
Note 9: Goodwill	109
Note 10: Fair Value	111
Note 11: Financial Instruments	113
Note 12: Borrowings	120
Note 13: Stockholders' (Deficit) Equity	123
Note 14: Net Earnings Per Share	126
Note 15: Litigation and Contingencies	127
Note 16: Guarantees, Indemnifications and Warranties	134
Note 17: Commitments	136
Note 18: Divestitures	136
Quarterly Summary	137

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of HP Inc.

We have audited the accompanying consolidated balance sheets of HP Inc. and subsidiaries as of October 31, 2016 and 2015, and the related consolidated statements of earnings, comprehensive income, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended October 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of HP Inc. and subsidiaries at October 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 2016, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), HP Inc. and subsidiaries’ internal control over financial reporting as of October 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated December 15, 2016 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

San Jose, California

December 15, 2016

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of HP Inc.

We have audited HP Inc. and subsidiaries’ internal control over financial reporting as of October 31, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). HP Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, HP Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of October 31, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of HP Inc. and subsidiaries as of October 31, 2016 and 2015, and the related consolidated statements of earnings, comprehensive income, stockholders’ (deficit) equity and cash flows for each of the three years in the period ended October 31, 2016 and our report dated December 15, 2016 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

San Jose, California

December 15, 2016

Management’s Report on Internal Control Over Financial Reporting

HP’s management is responsible for establishing and maintaining adequate internal control over financial reporting for HP. HP’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. HP’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of HP; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of HP are being made only in accordance with authorizations of management and directors of HP; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of HP’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

HP’s management assessed the effectiveness of HP’s internal control over financial reporting as of October 31, 2016, utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 framework). Based on the assessment by HP’s management, we determined that HP’s internal control over financial reporting was effective as of October 31, 2016. The effectiveness of HP’s internal control over financial reporting as of October 31, 2016 has been audited by Ernst & Young LLP, HP’s independent registered public accounting firm, as stated in their report which appears on page 54 of this Annual Report on Form 10-K.

/s/ DION J. WEISLER		/s/ CATHERINE A. LESJAK
Dion J. Weisler President and Chief Executive Officer December 15, 2016		Catherine A. Lesjak Chief Financial Officer December 15, 2016

HP INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

	For the fiscal years ended October 31
	2016				2015				2014
	In millions, except per share amounts
Net revenue	$	48,238			$	51,463			$	56,651
Costs and expenses:
Cost of revenue	39,240				41,524				45,431
Research and development	1,209				1,191				1,298
Selling, general and administrative	3,840				4,720				5,361
Restructuring and other charges	205				63				176
Amortization of intangible assets	16				102				129
Defined benefit plan settlement charges (credits)	179				(57		)		—
Total costs and expenses	44,689				47,543				52,395
Earnings from continuing operations	3,549				3,920				4,256
Interest and other, net	212				(388		)		(393		)
Earnings from continuing operations before taxes	3,761				3,532				3,863
(Provision for) benefit from taxes	(1,095		)		186				(939		)
Net earnings from continuing operations	2,666				3,718				2,924
Net (loss) earnings from discontinued operations	(170		)		836				2,089
Net earnings	$	2,496			$	4,554			$	5,013
Net earnings (loss) per share:
Basic
Continuing operations	$	1.54			$	2.05			$	1.55
Discontinued operations	(0.10		)		0.46				1.11
Total basic net earnings per share	$	1.44			$	2.51			$	2.66
Diluted
Continuing operations	$	1.53			$	2.02			$	1.53
Discontinued operations	(0.10		)		0.46				1.09
Total diluted net earnings per share	$	1.43			$	2.48			$	2.62
Weighted-average shares used to compute net earnings per share:
Basic	1,730				1,814				1,882
Diluted	1,743				1,836				1,912

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

HP INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

	For the fiscal years ended October 31
	2016				2015				2014
	In millions
Net earnings	$	2,496			$	4,554			$	5,013
Other comprehensive loss before taxes:
Change in unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses) arising during the period	1				(17		)		7
Gains reclassified into earnings	—				—				(1		)
	1				(17		)		6
Change in unrealized components of cash flow hedges:
Unrealized gains arising during the period	199				1,091				337
Losses (gains) reclassified into earnings	63				(1,312		)		151
	262				(221		)		488
Change in unrealized components of defined benefit plans:
Losses arising during the period	(759		)		(548		)		(2,756		)
Amortization of actuarial loss and prior service benefit	51				443				259
Curtailments, settlements and other	183				115				51
	(525		)		10				(2,446		)
Change in cumulative translation adjustment	—				(207		)		(85		)
Other comprehensive loss before taxes	(262		)		(435		)		(2,037		)
Benefit from (provision for) taxes	45				14				(66		)
Other comprehensive loss, net of taxes	(217		)		(421		)		(2,103		)
Comprehensive income	$	2,279			$	4,133			$	2,910

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

HP INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	As of October 31
	2016				2015
	In millions, except par value
ASSETS
Current assets:
Cash and cash equivalents	$	6,288			$	7,584
Accounts receivable	4,114				4,825
Inventory	4,484				4,288
Other current assets	3,582				4,498
Current assets of discontinued operations	—				30,592
Total current assets	18,468				51,787
Property, plant and equipment	1,736				1,492
Goodwill	5,622				5,680
Other non-current assets	3,184				1,592
Non-current assets of discontinued operations	—				46,331
Total assets	$	29,010			$	106,882
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Notes payable and short-term borrowings	$	78			$	2,194
Accounts payable	11,103				10,194
Employee compensation and benefits	759				747
Taxes on earnings	231				243
Deferred revenue	919				1,051
Other accrued liabilities	5,718				6,241
Current liabilities of discontinued operations	—				21,521
Total current liabilities	18,808				42,191
Long-term debt	6,758				6,677
Other non-current liabilities	7,333				7,414
Non-current liabilities of discontinued operations	—				22,449
Commitments and contingencies	—				—
Stockholders’ (deficit) equity:
HP stockholders’ (deficit) equity
Preferred stock, $0.01 par value (300 shares authorized; none issued)	—				—
Common stock, $0.01 par value (9,600 shares authorized; 1,712 and 1,804 shares issued and outstanding at October 31, 2016, and 2015 respectively)	17				18
Additional paid in capital	1,030				1,963
Retained (deficit) earnings	(3,498		)		32,089
Accumulated other comprehensive loss	(1,438		)		(6,302		)
Total HP stockholders’ (deficit) equity	(3,889		)		27,768
Non-controlling interests of discontinued operations	—				383
Total stockholders’ (deficit) equity	(3,889		)		28,151
Total liabilities and stockholders’ (deficit) equity	$	29,010			$	106,882

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

HP INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	For the fiscal years ended October 31
	2016				2015				2014
	In millions
Cash flows from operating activities:
Net earnings	$	2,496			$	4,554			$	5,013
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	332				4,061				4,334
Stock-based compensation expense	182				709				560
Provision for doubtful accounts	65				71				55
Provision for inventory	95				305				211
Restructuring and other charges	200				1,017				1,619
Deferred taxes on earnings	401				(700		)		(34		)
Excess tax benefit from stock-based compensation	(6		)		(145		)		(58		)
Other, net	(198		)		1,031				81
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	565				572				2,017
Financing receivables	—				(65		)		420
Inventory	(291		)		(330		)		(580		)
Accounts payable	928				31				1,912
Taxes on earnings	106				(137		)		310
Restructuring and other	(157		)		(1,243		)		(1,506		)
Other assets and liabilities	(1,488		)		(3,241		)		(2,021		)
Net cash provided by operating activities	3,230				6,490				12,333
Cash flows from investing activities:
Investment in property, plant and equipment	(433		)		(3,603		)		(3,853		)
Proceeds from sale of property, plant and equipment	6				424				843
Purchases of available-for-sale securities and other investments	(126		)		(259		)		(1,086		)
Maturities and sales of available-for-sale securities and other investments	133				302				1,347
Payments made in connection with business acquisitions, net of cash acquired	(7		)		(2,644		)		(49		)
Proceeds from business divestitures, net	475				246				6
Net cash provided by (used in) investing activities	48				(5,534		)		(2,792		)
Cash flows from financing activities:
Short-term borrowings with original maturities less than 90 days, net	97				74				148
Proceeds from debt, net of issuance costs	4				20,758				2,875
Payment of debt	(2,188		)		(15,867		)		(6,037		)
Settlement of cash flow hedges	4				(4		)		—
Net transfer of cash and cash equivalents to Hewlett Packard Enterprise Company	(10,375		)		—				—
Issuance of common stock under employee stock plans	48				371				297
Repurchase of common stock	(1,161		)		(2,883		)		(2,728		)
Excess tax benefit from stock-based compensation	6				145				58
Cash dividends paid	(858		)		(1,250		)		(1,184		)
Net cash (used in) provided by financing activities	(14,423		)		1,344				(6,571		)
(Decrease) increase in cash and cash equivalents	(11,145		)		2,300				2,970
Cash and cash equivalents at beginning of period	17,433				15,133				12,163
Cash and cash equivalents at end of period	$	6,288			$	17,433			$	15,133
Supplemental cash flow disclosures:
Income taxes paid, net of refunds	$	587			$	1,012			$	1,267
Interest expense paid	$	318			$	532			$	678
Supplemental schedule of non-cash investing and financing activities:
Purchase of assets under capital leases	$	185			$	70			$	113
Stock awards assumed in business acquisitions	$	—			$	31			$	—

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

HP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ (Deficit) Equity

	Common Stock
	Number of Shares			Par Value				Additional Paid-in Capital				Retained (Deficit) Earnings				Accumulated Other Comprehensive (Loss) Income				Total HP Stockholders’ (Deficit) Equity				Non- controlling Interests of Discontinued Operations				Total
	In millions, except number of shares in thousands
Balance October 31, 2013	1,907,883			$	19			$	5,465			$	25,563			$	(3,778	)		$	27,269			$	387			$	27,656
Net earnings												5,013								5,013								5,013
Other comprehensive loss, net of taxes																(2,103		)		(2,103		)						(2,103		)
Comprehensive income																				2,910								2,910
Issuance of common stock in connection with employee stock plans and other	23,785							142				1								143								143
Repurchases of common stock	(92,380	)		(1		)		(2,694		)		(262		)						(2,957		)						(2,957		)
Tax deficiency from employee stock plans								(43		)										(43		)						(43		)
Cash dividends declared												(1,151		)						(1,151		)						(1,151		)
Stock-based compensation expense								560												560								560
Changes in non-controlling interest																								9				9
Balance October 31, 2014	1,839,288			$	18			$	3,430			$	29,164			$	(5,881	)		$	26,731			$	396			$	27,127
Net earnings												4,554								4,554								4,554
Other comprehensive loss, net of taxes																(421		)		(421		)						(421		)
Comprehensive income																				4,133								4,133
Issuance of common stock in connection with employee stock plans and other	39,834							(34		)		1								(33		)						(33		)
Repurchases of common stock	(75,403	)						(2,237		)		(411		)						(2,648		)						(2,648		)
Assumption of equity awards in connection with acquisitions								31												31								31
Tax benefit from employee stock plans								64												64								64
Cash dividends declared												(1,219		)						(1,219		)						(1,219		)
Stock-based compensation expense								709												709								709
Changes in non-controlling interest																								(13		)		(13		)
Balance October 31, 2015	1,803,719			$	18			$	1,963			$	32,089			$	(6,302	)		$	27,768			$	383			$	28,151
Separation of Hewlett Packard Enterprise												(37,225		)		5,081				(32,144		)		(383		)		(32,527		)
Net earnings												2,496								2,496								2,496
Other comprehensive loss, net of taxes																(217		)		(217		)						(217		)
Comprehensive income																				2,279								2,279
Issuance of common stock in connection with employee stock plans and other	8,227							29												29								29
Repurchases of common stock	(99,855	)		(1		)		(1,144		)										(1,145		)						(1,145		)
Cash dividends declared												(858		)						(858		)						(858		)
Stock-based compensation expense								182												182								182
Balance October 31, 2016	1,712,091			$	17			$	1,030			$	(3,498	)		$	(1,438	)		$	(3,889	)		$	—			$	(3,889	)

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

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1: Overview and Summary of Significant Accounting Policies

Overview

On November 1, 2015 (the “Distribution Date”), 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”).

On the Distribution Date, each of HP’s stockholders of record as of the close of business on October 21, 2015 (the “Record Date”) received one share of Hewlett Packard Enterprise common stock for every one share of HP common stock held as of the Record Date. Hewlett Packard Enterprise is an independent public company trading on the New York Stock Exchange (“NYSE”) under the symbol “HPE”. HP distributed a total of approximately 1.8 billion shares of Hewlett Packard Enterprise common stock to HP’s stockholders. After the Separation, HP does not beneficially own any shares of Hewlett Packard Enterprise common stock.

In connection with the Separation, HP and Hewlett Packard Enterprise entered into a separation and distribution agreement as well as various other agreements 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 5, “Retirement and Post-Retirement Benefit Plans”, Note 6, “Stock-Based Compensation”, Note 7, “Taxes on Earnings”, Note 15, “Litigation and Contingencies” and Note 16, “Guarantees, Indemnifications and Warranties”.

Basis of Presentation

The accompanying Consolidated Financial Statements of HP and its wholly-owned subsidiaries are prepared in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”). For all the periods prior to the Separation, the financial results of Hewlett Packard Enterprise are presented as net earnings from discontinued operations in the

Consolidated Statements of Earnings and assets and liabilities from discontinued operations in the Consolidated Balance Sheets. The historical statements of comprehensive income and cash flows and the balances related to stockholders’ (deficit) equity have not been revised to reflect the effect of the Separation. For further information on discontinued operations, see Note 2, “Discontinued Operations”.

Principles of Consolidation

The Consolidated 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 Financial Statements and accompanying notes. Actual results could differ materially from those estimates.

Foreign Currency Translation

HP uses the U.S. dollar as its functional currency. Assets and liabilities denominated in non-U.S. dollars are remeasured into U.S. dollars at current exchange rates for monetary assets and liabilities and at historical exchange rates for nonmonetary assets and liabilities. Net revenue, costs and expenses denominated in non-U.S. dollars are recorded in U.S. dollars at monthly average exchange rates prevailing during the period. HP includes gains or losses from foreign currency remeasurement in Interest and other, net in the Consolidated Statements of Earnings.

Recent Accounting Pronouncements

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Overview and Summary of Significant Accounting Policies (Continued)

In August 2016, the Financial Accounting Standards Board (“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 is currently evaluating the impact of this guidance on its Consolidated 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 impact of this guidance on its Consolidated Financial Statements.

In March 2016, the FASB issued guidance which amends the existing accounting standards for share-based payments. The amendment changes the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statements of cash flows. HP is required to adopt the guidance in the first quarter of fiscal year 2018. Earlier adoption is permitted. HP has elected to early adopt the amendment in the first quarter of fiscal year 2017. HP expects that the implementation of this guidance will not have a material effect on its Consolidated 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. 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 its Consolidated 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 updated 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. HP is currently evaluating the timing and the impact of this guidance on its Consolidated Financial Statements.

In May 2015, the FASB issued guidance which amends the existing disclosures for investments in certain entities that calculate net asset value per share (or its equivalent). This amendment removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendment also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. HP is required to adopt the guidance in the first quarter of fiscal year 2017. Earlier adoption is permitted. HP will adopt the amendment in the first quarter of fiscal year 2017. HP expects that the implementation of this guidance will impact the disclosures on its notes to the Consolidated Financial Statements but will not have an effect on its Consolidated Balance Sheets or Consolidated Statements of Earnings.

In April 2015, the FASB amended the existing accounting standards for intangible assets. The amendments provide explicit guidance to customers in determining the accounting for fees paid in a cloud computing arrangement, wherein the arrangements that do not convey a software license to the customer are accounted for as service contracts. HP is required to adopt the guidance in the first quarter of fiscal year 2017; however earlier adoption is permitted. The amendment may be adopted either prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. HP will adopt the amendments prospectively in the first quarter of fiscal year 2017. HP expects that the implementation of this guidance will not have a material effect on its Consolidated Financial Statements.

In April 2015, the FASB amended the existing accounting standards for the presentation of debt issuance costs. The amendments require that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by these amendments. HP is required to adopt the guidance in the first quarter of fiscal year 2017. Earlier adoption is permitted. The amendments should be applied retrospectively with the adjusted balance

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Overview and Summary of Significant Accounting Policies (Continued)

sheet of each individual period presented, in order to reflect the period-specific effects of applying the new guidance. HP will adopt the amendments in the first quarter of fiscal year 2017. HP expects that the implementation of this guidance will not have a material effect on its Consolidated Financial Statements.

In May 2014, the FASB amended the existing accounting standards for revenue recognition. The amendments 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. In August 2015, the FASB issued an accounting standard update for a one-year deferral of the effective date, with an option of applying the standard on the original effective date, which for HP is the first quarter of fiscal year 2018. In accordance with this deferral, HP is required to adopt these amendments in the first quarter of fiscal year 2019. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. HP is continuing to evaluate the impact of this guidance and the transition alternatives on its Consolidated Financial Statements.

Revenue Recognition

General

HP recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services are rendered, the sales price or fee is fixed or determinable, and collectability is reasonably assured. Additionally, HP recognizes hardware revenue on sales to channel partners, including resellers, distributors or value-added solution providers at the time of delivery when the channel partners have economic substance apart from HP, and HP has completed its obligations related to the sale.

HP reduces revenue for customer and distributor programs and incentive offerings, including price protection, rebates, promotions, other volume-based incentives and expected returns, at the later of the date of revenue recognition or the date the sales incentive is offered. Future market conditions and product transitions may require HP to take actions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is offered. For certain incentive programs, HP estimates the number of customers expected to redeem the incentive based on historical experience and the specific terms and conditions of the incentive.

In instances when revenue is derived from sales of third-party vendor products or services, HP records revenue on a gross basis when HP is a principal to 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.

HP reports revenue net of any taxes collected from customers and remitted to government authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority.

Multiple element arrangements

When a sales arrangement contains multiple elements or deliverables, such as hardware and/or services, HP allocates revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific objective evidence (“VSOE”) of selling price, if available, third-party evidence (“TPE”) if VSOE of selling price is not available, or estimated selling price (“ESP”) if neither VSOE of selling price nor TPE is available. HP establishes VSOE of selling price using the price charged for a deliverable when sold separately and, in rare instances, using the price established by management having the relevant authority. HP evaluates TPE of selling price by reviewing largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers. HP establishes ESP 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.

In most arrangements with multiple elements, HP allocates the transaction price to the individual units of accounting at inception of the arrangement based on their relative selling price. HP limits the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services, future performance obligations or subject to customer-specified refund or return rights.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Overview and Summary of Significant Accounting Policies (Continued)

HP evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting. A deliverable constitutes a separate unit of accounting when it has standalone value to the customer. For deliverables with no standalone value, HP recognizes revenue consistent with the pattern of delivery of the final deliverable. If the arrangement includes a customer-negotiated refund or return right or other contingency relative to the delivered items, and the delivery and performance of the undelivered items is considered probable and substantially within HP’s control, the delivered element constitutes a separate unit of accounting. In arrangements with combined units of accounting, changes in the allocation of the transaction price among elements may impact the timing of revenue recognition for the contract but will not change the total revenue recognized for the contract.

Net revenue

Hardware

Under HP’s standard terms and conditions of sale, HP transfers title and risk of loss to the customer at the time product is delivered to the customer and recognizes revenue accordingly, unless customer acceptance is uncertain or significant obligations to the customer remain. HP reduces revenue for estimated customer returns, price protection, rebates and other programs offered under sales agreements established by HP with its distributors and resellers. HP records revenue from the sale of equipment under sales-type leases as revenue at the inception of the lease. HP accrues the estimated cost of post-sale obligations, including standard product warranties, based on historical experience at the time HP recognizes revenue.

Services

HP recognizes revenue from fixed-price support or maintenance contracts ratably over the contract period and recognizes the costs associated with these contracts as incurred.

Deferred revenue

HP records amounts invoiced to customers in excess of revenue recognized as deferred revenue until the revenue recognition criteria are satisfied. HP records revenue that is earned and recognized in excess of amounts invoiced on services contracts as trade receivables. Deferred revenue represents amounts invoiced in advance for product support contracts and product sales.

Shipping and Handling

HP includes costs related to shipping and handling in Cost of revenue.

Stock-Based Compensation

HP determines stock-based compensation expense based on the measurement date fair value of the award. HP recognizes compensation cost only for those awards expected to meet the service and performance vesting conditions on a straight-line basis over the requisite service period of the award. HP determines compensation costs at the aggregate grant level for service-based awards and at the individual vesting tranche level for awards with performance and/or market conditions. HP estimates the forfeiture rate based on its historical experience.

Retirement and Post-Retirement Plans

HP has various defined benefit, other contributory and noncontributory retirement and post-retirement plans. HP generally amortizes unrecognized actuarial gains and losses on a straight-line basis over the average remaining estimated service life of participants. In limited cases, HP amortizes actuarial gains and losses using the corridor approach. See Note 5, “Retirement and Post-Retirement Benefit Plans” for a full description of these plans and the accounting and funding policies.

Advertising

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Overview and Summary of Significant Accounting Policies (Continued)

Costs to produce advertising are expensed as incurred during production. Costs to communicate advertising are expensed when the advertising is first run. Such costs totaled approximately $586 million in fiscal year 2016, $635 million in fiscal year 2015 and $614 million in fiscal year 2014.

Restructuring and Other Charges

HP records charges associated with management-approved restructuring plans to reorganize one or more of HP’s business segments, to remove duplicative headcount and infrastructure associated with business acquisitions or to simplify business processes and accelerate innovation. Restructuring charges can include severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate operations, and contract cancellation costs. HP records restructuring charges based on estimated employee terminations and site closure and consolidation plans. HP accrues for severance and other employee separation costs under these actions when it is probable that benefits will be paid and the amount is reasonably estimable. The rates used in determining severance accruals are based on existing plans, historical experiences and negotiated settlements. Other charges include non-recurring costs that are distinct from ongoing operational costs such as information technology costs incurred in connection with the Separation.

Taxes on Earnings

HP recognizes deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse. HP records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.

HP records accruals for uncertain tax positions when HP believes that it is not more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. HP makes adjustments to these accruals when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. The provision for income taxes includes the effects of adjustments for uncertain tax positions, as well as any related interest and penalties.

Accounts Receivable

HP establishes an allowance for doubtful accounts for accounts receivable. 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 maintains bad debt reserves 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, the financial condition of customers, the 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 Balance Sheets. For arrangements involving an element of recourse, the fair value of the recourse obligation is measured using market data from similar transactions and reported as a current liability in the Consolidated Balance Sheets.

Concentrations of Risk

Financial instruments that potentially subject HP to significant concentrations of credit risk consist principally of cash and cash equivalents, investments, receivables from trade customers and contract manufacturers and derivatives.

HP maintains cash and cash equivalents, investments, derivatives and certain other financial instruments with various financial institutions. These financial institutions are located in many different geographic regions, and HP’s policy is designed

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Overview and Summary of Significant Accounting Policies (Continued)

to limit exposure from any particular institution. As part of its risk management processes, HP performs periodic evaluations of the relative credit standing of these financial institutions. HP has not sustained material credit losses from instruments held at these financial institutions. HP utilizes derivative contracts to protect against the effects of foreign currency and interest rate exposures. Such contracts involve the risk of non-performance by the counterparty, which could result in a material loss. The likelihood of which HP deems to be remote.

HP sells a significant portion of its products through third-party distributors and resellers and, as a result, maintains individually significant receivable balances with these parties. If the financial condition or operations of these distributors’ and resellers’ aggregated business deteriorates substantially, HP’s operating results could be adversely affected. The ten largest distributor and reseller receivable balances, which were concentrated primarily in North America and Europe, collectively represented approximately 34% and 42% of gross accounts receivable as of October 31, 2016 and 2015, respectively. No single customer accounts for more than 10% of gross accounts receivable as of October 31, 2016 or 2015. Credit risk with respect to other accounts receivable is generally diversified due to the large number of entities comprising HP’s customer base and their dispersion across many different industries and geographic regions. HP performs ongoing credit evaluations of the financial condition of its third-party distributors, resellers and other customers and may require collateral, such as letters of credit and bank guarantees, in certain circumstances.

HP utilizes outsourced manufacturers around the world to manufacture HP-designed products. HP may purchase product components from suppliers and sell those components to its outsourced manufacturers thereby creating receivable balances from the outsourced manufacturers. The three largest outsourced manufacturer receivable balances collectively represented 78% and 81% of HP’s supplier receivables of $774 million and $634 million as of October 31, 2016 and 2015, respectively. HP includes the supplier receivables in Other current assets in the Consolidated Balance Sheets on a gross basis. HP’s credit risk associated with these receivables is mitigated wholly or in part, by the amount HP owes to these outsourced manufacturers, as HP generally has the legal right to offset its payables to the outsourced manufacturers against these receivables. HP does not reflect the sale of these components in net revenue and does not recognize any profit on these component sales until the related products are sold by HP, at which time any profit is recognized as a reduction to cost of revenue.

HP obtains a significant number of components from single source suppliers due to technology, availability, price, quality or other considerations. The loss of a single source supplier, the deterioration of HP’s relationship with a single source supplier, or any unilateral modification to the contractual terms under which HP is supplied components by a single source supplier could adversely affect HP’s net revenue and gross margins.

Upon completion of the Separation on November 1, 2015, HP recorded net income tax indemnification receivables from Hewlett Packard Enterprise for certain income tax liabilities that HP is jointly and severally liable for, but for which it is indemnified by Hewlett Packard Enterprise under the tax matters agreement (“TMA”). The actual amount that Hewlett Packard Enterprise may be obligated to pay HP could vary depending upon the outcome of certain unresolved tax matters, which may not be resolved for several years. The net receivable as of October 31, 2016 was $1.6 billion.

Inventory

HP values inventory at the lower of cost or market. Cost is computed using standard cost which approximates actual cost on a first-in, first-out basis. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimated excess, obsolete or impaired balances.

Property, Plant and Equipment

HP states property, plant and equipment at cost less accumulated depreciation. HP capitalizes additions and improvements and expenses maintenance and repairs as incurred. Depreciation expense is recognized on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives are five to 40 years for buildings and improvements and three to 15 years for machinery and equipment. HP depreciates leasehold improvements over the life of the lease or the asset, whichever is shorter. HP depreciates equipment held for lease over the initial term of the lease to the equipment’s estimated residual value. On retirement or disposition, the asset cost and related accumulated depreciation are removed from the Consolidated Balance Sheets with any gain or loss recognized in the Consolidated Statements of Earnings.

Goodwill

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Overview and Summary of Significant Accounting Policies (Continued)

HP reviews goodwill for impairment annually during its fourth quarter and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. HP can opt to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or HP can directly perform the two-step impairment test. Based on the qualitative assessment, if HP determines that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, the two-step impairment test will be performed.

In the first step of the impairment test, HP compares the fair value of each reporting unit to its carrying amount with the fair values derived most significantly from the income approach, and to a lesser extent, the market approach. Under the income approach, HP estimates the fair value of a reporting unit based on the present value of estimated future cash flows. HP bases cash flow projections on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. HP bases the discount rate on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit’s ability to execute on the projected cash flows. Under the market approach, HP estimates fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit. HP weights the fair value derived from the market approach depending on the level of comparability of these publicly-traded companies to the reporting unit. When market comparables are not meaningful or not available, HP estimates the fair value of a reporting unit using only the income approach.

In order to assess the reasonableness of the estimated fair value of HP’s reporting units, HP compares the aggregate reporting unit fair value to HP’s market capitalization on an overall basis and calculates an implied control premium (the excess of the sum of the reporting units’ fair value over HP’s market capitalization on an overall basis). HP evaluates the control premium by comparing it to observable control premiums from recent comparable transactions. If the implied control premium is determined to not be reasonable in light of these recent transactions, HP reevaluates its reporting unit fair values, which may result in an adjustment to the discount rate and/or other assumptions. This reevaluation could result in a change to the estimated fair value for certain or all reporting units.

If the fair value of a reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than its carrying amount, then HP performs the second step of the goodwill impairment test to measure the amount of impairment loss, if any. In the second step, HP measures the reporting unit’s assets, including any unrecognized intangible assets, liabilities and non-controlling interests at fair value in a hypothetical analysis to calculate the implied fair value of goodwill for the reporting unit in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit’s goodwill is less than its carrying amount, the difference is recorded as an impairment loss.

Debt and Marketable Equity Securities Investments

Debt and marketable equity securities are generally considered available-for-sale and are reported at fair value with unrealized gains and losses, net of applicable taxes, in Accumulated other comprehensive loss in the Consolidated Balance Sheets. Realized gains and losses for available-for-sale securities are calculated based on the specific identification method and included in Interest and other, net in the Consolidated Statements of Earnings. HP monitors its investment portfolio for potential impairment on a quarterly basis. When the carrying amount of an investment in debt securities exceeds its fair value and the decline in value is determined to be other-than-temporary (i.e., when HP does not intend to sell the debt securities and it is not more likely than not that HP will be required to sell the debt securities prior to anticipated recovery of its amortized cost basis), HP records an impairment charge to Interest and other, net in the amount of the credit loss and the remaining amount, if any, is recorded in Accumulated other comprehensive loss in the Consolidated Balance Sheets.

Derivatives

HP uses derivative instruments, primarily forwards, swaps, and at times, options, to hedge certain foreign currency and interest rate exposures. HP also may use other derivative instruments not designated as hedges, such as forwards used to hedge foreign currency balance sheet exposures. HP does not use derivative instruments for speculative purposes. See Note 11, “Financial Instruments” for a full description of HP’s derivative financial instrument activities and related accounting policies.

Loss Contingencies

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 1: Overview and Summary of Significant Accounting Policies (Continued)

HP is involved in various lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. HP records a liability for contingencies when it believes it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. See Note 15, “Litigation and Contingencies” for a full description of HP’s loss contingencies and related accounting policies.

Note 2: Discontinued Operations

On November 1, 2015, HP completed the Separation of Hewlett Packard Enterprise. After the Separation, HP does not beneficially own any shares of Hewlett Packard Enterprise common stock.

In connection with the Separation, HP and Hewlett Packard Enterprise have entered into a separation and distribution agreement as well as various other agreements 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. These agreements provide for the allocation between HP and Hewlett Packard Enterprise of assets, employees, liabilities and obligations (including investments, property, employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the Separation and govern certain relationships between HP and Hewlett Packard Enterprise after the Separation.

After the Separation, HP no longer consolidates the financial results of Hewlett Packard Enterprise within its financial results of continuing operations. For all the periods prior to the Separation, the financial results of Hewlett Packard Enterprise are presented as net earnings from discontinued operations on the Consolidated Statements of Earnings and assets and liabilities of discontinued operations on the Consolidated Balance Sheets.

The following table presents the financial results of HP’s discontinued operations:

	For the fiscal years ended October 31
	2016				2015				2014
	In millions
Net revenue	$	—			$	51,892			$	54,803
Cost of revenue(1)	—				37,072				39,408
Expenses(2)	201				13,269				12,466
Interest and other, net(3)(4)	(208		)		351				235
Earnings from discontinued operations before taxes	$	7			$	1,200			$	2,694
Provision for taxes(4)	(177		)		(364		)		(605		)
Net (loss) earnings from discontinued operations	$	(170	)		$	836			$	2,089

(1)	Cost of products, cost of services and financing interest.

(2)	Expenses for fiscal year 2016 were primarily related to separation costs.

(3)

In fiscal years 2015 and 2014, allocation of interest to Hewlett Packard Enterprise was based on using the average effective interest rate of the debt assumed by Hewlett Packard Enterprise and the debt repaid as part of the Separation. In fiscal year 2015, Interest and other, net also includes loss from the early extinguishment of debt in connection with the review of HP’s capital structure and the Separation.

(4)	In connection with the TMA, Interest and other, net for fiscal year 2016 includes $208 million of changes in the tax indemnifications amounts and Provision for taxes for fiscal year 2016 includes $201 million of the tax impact relating to the changes described above. For more information on tax indemnifications and the TMA, see Note 7, “Taxes on Earnings”.

The following table presents the significant non-cash items and capital expenditures of HP’s discontinued operations:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 2: Discontinued Operations (Continued)

	For the fiscal years ended October 31
	2015				2014
	In millions
Depreciation and amortization	$	3,657			$	3,861
Purchases of property, plant and equipment	$	3,020			$	3,228

The following table presents assets and liabilities that were transferred to Hewlett Packard Enterprise as of November 1, 2015 and are presented as discontinued operations on the Consolidated Balance Sheets as of October 31, 2015:

	In millions
Cash and cash equivalents	$	9,849
Accounts receivable	8,538
Financing receivables	2,918
Inventory	2,197
Other current assets	7,090
Total current assets of discontinued operations	$	30,592
Property, plant and equipment	$	9,598
Goodwill	27,261
Long-term financing receivables and other non-current assets	9,472
Total non-current assets of discontinued operations	$	46,331
Notes payable and short-term borrowings	$	691
Accounts payable	5,762
Employee compensation and benefits	2,861
Taxes on earnings	587
Deferred revenue	5,148
Other accrued liabilities	6,472
Total current liabilities of discontinued operations	$	21,521
Long-term debt	$	15,103
Other non-current liabilities	7,346
Total non-current liabilities of discontinued operations	$	22,449

Subsequent to the Separation, in conformity with the separation agreement, HP made a final cash transfer of $526 million to Hewlett Packard Enterprise.

Note 3: 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’s operations are organized into three segments for financial reporting purposes: Personal Systems, Printing and Corporate Investments. HP’s organizational structure is based on a number of factors that the chief operating decision maker 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 to evaluate segment results. The chief operating decision maker 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.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 3: Segment Information (Continued)

A summary description of each segment follows.

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

•	Commercial PCs are optimized for enterprise and SMB customers, with a focus on robust designs, serviceability, connectivity, reliability and manageability in networked environments. Additionally, HP offers a range of services and solutions to enterprise and SMB customers to help them manage the lifecycle of their PC and mobility installed base.

•	Consumer PCs are notebooks, desktops, and hybrids that are optimized for consumer usage, focusing on multi-media consumption, online browsing, and light productivity.

Printing provides consumer and commercial printer hardware, supplies, media, solutions and services, as well as scanning devices. Printing is also focused on imaging solutions in the commercial markets. HP groups LaserJet, Graphics and PageWide printers into Commercial Hardware and Inkjet printers into Consumer Hardware when describing performance in these markets. Described below are HP’s global business capabilities within Printing.

•

LaserJet and Enterprise Solutions delivers HP’s LaserJet printers, supplies and solutions to SMBs and large enterprises. HP goes to market through its extensive channel network and directly with HP sales. Ongoing key initiatives include design and deployment of A3 products and solutions for the copier and multifunction printer market, printer security solutions, PageWide Enterprise solutions, and award-winning JetIntelligence products.

•	Inkjet and Printing Solutions delivers HP’s consumer, SMB and PageWide Inkjet solutions (hardware, supplies, media, and web-connected hardware and services). Ongoing initiatives and programs such as Instant Ink and newer initiatives such as Continuous Ink Supply System provide innovative printing solutions to consumers and SMBs.

•	Graphics Solutions delivers large format printers (DesignJet, Large Format Production and Scitex Industrial), specialty printing, digital press solutions (Indigo and PageWide Presses), supplies and services to print service providers and design and rendering customers.

•	Print Solutions provides end-to-end services, as well as core platforms to develop and deploy services across printing systems. HP’s focus includes driving customer value through managed print services and providing support solutions for new and existing customers.

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 the company in preparing these financial statements. HP derives the results of the business segments directly from its internal management reporting system. Segment net revenue includes revenues from sales to external customers and intersegment revenues that reflect transactions between the segments on an arm’s-length basis. HP’s consolidated net revenue is derived and reported after the elimination of intersegment revenues from such arrangements.

Effective at the beginning of its first quarter of fiscal year 2016, HP implemented a reporting change to its segment operating results. This reporting change resulted in the exclusion of retirement related credits representing the market related components of pension and post-retirement benefits such as interest expense, expected return on plan assets, and actuarial gain (loss) amortization (“Market related retirement credits”). The reporting change had an immaterial impact to previously reported segment net revenue and earnings from operations and no impact to previously reported consolidated net revenue, earnings from continuing operations, net earnings or net earnings per share.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 3: Segment Information (Continued)

HP does not allocate certain operating expenses (credits), which it manages at the corporate level, to its segments. These unallocated amounts include certain corporate governance costs and market related retirement credits, stock-based compensation expense, amortization of intangible assets, restructuring and other charges, acquisition and other related charges, defined benefit plan settlement charges (credits) and intersegment eliminations.

Segment Operating Results from Continuing Operations

	Personal Systems				Printing				Corporate Investments				Total Segments				Intersegment Eliminations and Other				Total
2016
Net revenue	$	29,987			$	18,260			$	7			$	48,254			$	(16	)		$	48,238
Earnings (loss) from continuing operations	$	1,150			$	3,128			$	(98	)		$	4,180
2015
Net revenue	$	31,520			$	21,232			$	20			$	52,772			$	(1,309	)		$	51,463
Earnings (loss) from continuing operations	$	1,022			$	3,765			$	(43	)		$	4,744
2014
Net revenue	$	34,387			$	23,211			$	296			$	57,894			$	(1,243	)		$	56,651
Earnings from continuing operations	$	1,265			$	4,161			$	157			$	5,583

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

	For the fiscal years ended October 31
	2016				2015				2014
					In millions
Net revenue:
Total segments	$	48,254			$	52,772			$	57,894
Intersegment net revenue eliminations and other	(16		)		(1,309		)		(1,243		)
Total HP consolidated net revenue	$	48,238			$	51,463			$	56,651
Earnings from continuing operations before taxes:
Total segment earnings from operations	$	4,180			$	4,744			$	5,583
Corporate and unallocated costs and eliminations	(42		)		(504		)		(826		)
Stock-based compensation expense	(182		)		(212		)		(196		)
Amortization of intangible assets	(16		)		(102		)		(129		)
Acquisition and other related charges	(7		)		—				—
Restructuring and other charges	(205		)		(63		)		(176		)
Defined benefit plan settlement (charges) credits	(179		)		57				—
Interest and other, net	212				(388		)		(393		)
Total earnings from continuing operations before taxes	$	3,761			$	3,532			$	3,863

Segment Assets from Continuing Operations

HP allocates assets to its business segments based on the segments primarily benefiting from the assets. Total assets by segment and the reconciliation of segment assets to HP consolidated assets from continuing operations were as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 3: Segment Information (Continued)

	As of October 31
	2016				2015
	In millions
Personal Systems	$	10,686			$	11,240
Printing	9,959				10,687
Corporate Investments	1				9
Corporate and unallocated assets	8,364				8,023
Total assets from continuing operations	$	29,010			$	29,959

Major Customers

No single customer represented 10% or more of HP’s net revenue in any fiscal year presented.

Geographic Information

Net revenue by country is based upon the sales location that predominately represents the customer location. For each of the fiscal years of 2016, 2015 and 2014, other than the United States, no country represented more than 10% of HP net revenue.

Net revenue by country in which HP operates was as follows:

	For the fiscal years ended October 31
	2016				2015				2014
					In millions
United States	$	18,042			$	17,746			$	18,229
Other countries	30,196				33,717				38,422
Total net revenue	$	48,238			$	51,463			$	56,651

Net property, plant and equipment by country in which HP operates was as follows:

	As of October 31
	2016				2015
	In millions
United States	$	737			$	650
Singapore	314				325
Malaysia	170				105
Israel	155				157
Other countries	360				255
Total net property, plant and equipment	$	1,736			$	1,492

No single country other than those represented above exceed 10% or more of HP’s total net property, plant and equipment in any fiscal year presented.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 3: Segment Information (Continued)

Net revenue by segment and business unit was as follows:

	For the fiscal years ended October 31
	2016				2015				2014
					In millions
Notebooks	$	16,982			$	17,271			$	17,540
Desktops	9,956				10,941				13,197
Workstations	1,870				2,018				2,218
Other	1,179				1,290				1,432
Personal Systems	29,987				31,520				34,387
Supplies	11,875				13,979				14,917
Commercial Hardware	5,131				5,466				6,035
Consumer Hardware	1,254				1,787				2,259
Printing	18,260				21,232				23,211
Corporate Investments	7				20				296
Total segment net revenue	48,254				52,772				57,894
Intersegment net revenue eliminations and other	(16		)		(1,309		)		(1,243		)
Total net revenue	$	48,238			$	51,463			$	56,651

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 4: Restructuring and Other Charges

Summary of Restructuring Plans

HP’s restructuring activities in fiscal years 2016 and 2015 summarized by plan were as follows:

	Fiscal 2017 Plan				Fiscal 2015 Plan								Fiscal 2012 Plan
	Severance				Severance and PRP(1)				Infrastructure and other				Severance and EER(2)				Infrastructure and other				Total
	In millions
Accrued balance as of October 31, 2014	$	—			$	—			$	—			$	218			$	7			$	225
Charges	—				39				—				23				1				63
Cash payments	—				—				—				(216		)		(4		)		(220		)
Non-cash and other adjustments	—				—				—				(4		)		(1		)		(5		)
Accrued balance as of October 31, 2015	—				39				—				21				3				63
Charges	24				117				27				7				—				175
Cash payments	—				(122		)		(4		)		(30		)		(1		)		(157		)
Non-cash and other adjustments	—				(13		)		(19		)		9				—				(23		)
Accrued balance as of October 31, 2016	$	24			$	21			$	4			$	7			$	2			$	58
Total costs incurred to date as of October 31, 2016	$	24			$	156			$	27			$	1,074			$	44			$	1,325
Reflected in Consolidated Balance Sheets:
Other accrued liabilities	$	24			$	21			$	4			$	7			$	1			$	57
Other non-current liabilities	$	—			$	—			$	—			$	—			$	1			$	1

(1)	PRP represents Phased Retirement Program.

(2)	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 expects will be implemented through fiscal year 2019. HP estimates that it will incur aggregate pre-tax charges between $350 million and $500 million relating to workforce reductions, real estate consolidation and other non-labor charges. HP estimates that approximately half of the expected cumulative pre-tax costs will relate to severance and the remaining will relate to infrastructure and other. HP expects between 3,000 and 4,000 employees to exit by the end of fiscal year 2019.

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 complete as of October 31, 2016 and we do not expect any further costs associated with this plan. Approximately 3,000 employees exited by the end of fiscal year 2016.

During fiscal year 2016, HP announced a voluntary PRP for certain qualified employees. Qualified employees will retire gradually over a defined period of time and at the end of which they will receive severance and certain benefits. HP recognized charges aggregating $29 million during fiscal year 2016 related to the PRP.

Fiscal 2012 Plan

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 4: Restructuring and Other Charges (Continued)

The severance and infrastructure cash payments associated with the restructuring plan initiated by HP in fiscal year 2012 (the “Fiscal 2012 Plan”) are expected to be paid through fiscal year 2021. The Fiscal 2012 Plan was considered complete as of October 31, 2016 and we do not expect any further costs associated with this plan.

Other charges

Other charges include non-recurring costs that are distinct from ongoing operational costs such as information technology costs incurred in connection with the Separation. HP incurred $30 million of other charges in fiscal year 2016.

Note 5: Retirement and Post-Retirement Benefit Plan

Separation related activities

In advance of the Separation, HP underwent a plan-by-plan analysis and determined which plans would be assigned to either HP or Hewlett Packard Enterprise. While some pension plans transitioned in their entirety to Hewlett Packard Enterprise or remain in their entirety with HP, other plans were split into two identical plans resulting in both companies splitting the plan’s assets and liabilities. In the fourth quarter of fiscal year 2015, the plans were legally separated and the amounts attributable to Hewlett Packard Enterprise were transferred and reported as discontinued operations in fiscal year 2015.

The Hewlett-Packard Company 401(k) Plan, now known as the HP Inc. 401(k) Plan, remained with HP. A new 401(k) Plan was created for the employees of Hewlett Packard Enterprise. Balances for Hewlett Packard Enterprise employees were transferred to the new plan post-Separation.

Defined Benefit Plans

HP sponsors a number of defined benefit pension plans worldwide. The most significant defined benefit plan, the HP Inc. Pension Plan (“Pension Plan”) is in the United States.

HP reduces the benefit payable to certain U.S. employees under the Pension Plan for service before 1993, if any, by any amounts due to the employee under HP’s frozen defined contribution Deferred Profit-Sharing Plan (“DPSP”). At October 31, 2016 and 2015, the fair value of plan assets of the DPSP was $606 million and $742 million, respectively. The DPSP obligations are equal to the plan assets and are recognized as an offset to the Pension Plan when HP calculates its defined benefit pension cost and obligations. The Pension Plan and the DPSP both remain entirely with HP post-Separation.

Post-Retirement Benefit Plans

HP sponsors retiree health and welfare benefit plans, of which the most significant are in the United States. Under the HP Inc. Retiree Welfare Benefits Plan, certain pre-2003 retirees and grandfathered participants with continuous service to HP since 2002 are eligible to receive partially-subsidized medical coverage based on years of service at retirement. HP’s share of the premium cost is capped for all subsidized medical coverage provided under the HP Inc. Retiree Welfare Benefits Plan. HP currently leverages the employer group waiver plan process to provide HP Inc. Retiree Welfare Benefits Plan post-65 prescription drug coverage under Medicare Part D, thereby giving HP access to federal subsidies to help pay for retiree benefits.

Certain employees not grandfathered under the above programs, and employees hired after 2002 but before August 2008, are eligible for credits under the HP Inc. Retirement Medical Savings Account Plan (“RMSA”) upon attaining age 45. Credits offered after September 2008 are provided in the form of matching credits on employee contributions made to a voluntary employee beneficiary association. On retirement, former employees may use these credits for the reimbursement of certain eligible medical expenses, including premiums required for coverage.

Defined Contribution Plans

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Retirement and Post-Retirement Benefit Plan (Continued)

HP offers various defined contribution plans for U.S. and non-U.S. employees. Total defined contribution expense was $100 million for fiscal year 2016, $92 million in fiscal year 2015 and $93 million in fiscal year 2014.

U.S. employees are automatically enrolled in the HP Inc. 401(k) Plan when they meet eligibility requirements, unless they decline participation. The quarterly employer matching contributions in the HP Inc. 401(k) Plan are 100% of an employee’s contributions, up to a maximum of 4% of eligible compensation. Effective January 2017, the funding of employer matching contributions will change to be made annually, sometime after the end of the calendar year.

Pension and Post-Retirement Benefit Expense

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

	For the fiscal years ended October 31
	2016				2015				2014				2016				2015				2014				2016				2015				2014
	U.S. Defined Benefit Plans												Non-U.S. Defined Benefit Plans												Post-Retirement Benefit Plans
	In millions
Service cost	$	—			$	1			$	1			$	47			$	208			$	234			$	1			$	5			$	5
Interest cost	543				556				554				20				289				454				20				28				32
Expected return on plan assets	(732		)		(849		)		(811		)		(36		)		(601		)		(776		)		(33		)		(39		)		(34		)
Amortization and deferrals:
Actuarial loss (gain)	55				52				13				28				213				236				(12		)		(11		)		(10		)
Prior service benefit (credit)	—				—				—				(3		)		(15		)		(21		)		(17		)		(19		)		(41		)
Net periodic benefit (credit) cost	(134		)		(240		)		(243		)		56				94				127				(41		)		(36		)		(48		)
Curtailment gain	—				—				—				(1		)		—				(6		)		—				—				—
Settlement loss (gain)	180				(79		)		1				3				—				4				—				—				—
Special termination benefits	—				—				—				—				7				11				4				1				32
Plan expense (credit) allocation(1)	—				—				—				—				25				(6		)		—				28				18
Total benefit cost (credit) from continuing operations	$	46			$	(319	)		$	(242	)		$	58			$	126			$	130			$	(37	)		$	(7	)		$	2
Summary of total benefit (credit) cost:
Continuing operations	$	46			$	(319	)		$	(242	)		$	58			$	126			$	130			$	(37	)		$	(7	)		$	2
Discontinued operations	—				236				17				—				105				125				—				(28		)		(18		)
Total benefit cost (credit)	$	46			$	(83	)		$	(225	)		$	58			$	231			$	255			$	(37	)		$	(35	)		$	(16	)

(1)	Plan expense (credit) allocation relates to the employees of HP covered under Hewlett Packard Enterprise plans or employees of Hewlett Packard Enterprise covered under HP plans.

Lump sum program

During fiscal year 2016, HP offered certain terminated vested participants of the Pension Plan the option of receiving their pension benefit in a one-time voluntary lump sum during a specific window. Approximately 16,000 plan participants elected to receive their benefits and as a result the pension plan trust paid $977 million in lump sum payments to these participants in fiscal year 2016. As a result of the lump sum program, HP recognized a settlement expense of approximately $177 million in October 2016. The resulting re-measurement coincided with annual year end plan remeasurement and no additional net periodic pension cost was incurred in fiscal year 2016.

In January 2015, HP offered certain terminated vested participants of the Pension Plan the option of receiving their pension benefit in a one-time voluntary lump sum during a specified window. Approximately 50% of the eligible participants elected to receive their benefits and as a result the pension plan trust paid $826 million in lump sum payments to these participants in fiscal year 2015. As a result of the lump sum program, HP recognized a settlement credit of approximately $79 million in fiscal year 2015. As a result of the settlement, additional net periodic benefit cost of $20 million was recorded in

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Retirement and Post-Retirement Benefit Plan (Continued)

fiscal year 2015, which offset the actuarial gain from the settlement and was recognized in the Consolidated Statements of Earnings as Defined benefit plan settlement credits.

The weighted-average assumptions used to calculate the total periodic benefit (credit) cost were as follows:

	For the fiscal years ended October 31
	2016			2015			2014			2016			2015			2014			2016			2015			2014
	U.S. Defined Benefit Plans									Non-U.S. Defined Benefit Plans									Post-Retirement Benefit Plans
Discount rate	4.4	%		4.4	%		4.9	%		2.3	%		3.0	%		3.9	%		3.6	%		3.6	%		3.9	%
Expected increase in compensation levels	2.0	%		2.0	%		2.0	%		2.5	%		2.4	%		2.4	%		—			—			—
Expected long-term return on plan assets	6.9	%		7.2	%		7.7	%		5.6	%		6.9	%		7.0	%		8.0	%		9.0	%		8.9	%

Funded Status

The funded status of the defined benefit and post-retirement benefit plans was as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Retirement and Post-Retirement Benefit Plan (Continued)

	As of October 31
	2016				2015				2016				2015				2016				2015
	U.S. Defined Benefit Plans								Non-U.S. Defined Benefit Plans								Post-Retirement Benefit Plans
	In millions
Change in fair value of plan assets:
Fair value of assets — beginning of year	$	11,077			$	11,979			$	853			$	12,472			$	434			$	458
Acquisition/addition of plans	—				(1		)		—				9				—				—
Actual return on plan assets	736				506				(14		)		547				11				45
Employer contributions	32				8				20				487				18				38
Participant contributions	—				—				10				48				48				57
Benefits paid	(339		)		(301		)		(15		)		(297		)		(121		)		(124		)
Settlement	(1,330		)		(1,114		)		(9		)		(9		)		—				—
Currency impact	—				—				4				(737		)		—				—
Transfers to Hewlett Packard Enterprise	—				—				(157		)		(11,667		)	(1)	—				(40		)	(1)
Fair value of assets — end of year	$	10,176			$	11,077			$	692			$	853			$	390			$	434
Change in benefits obligation
Projected benefit obligation — beginning of year	$	12,709			$	13,386			$	1,082			$	13,885			$	597			$	840
Acquisition/addition of plans	—				(1		)		(2		)		4				—				—
Service cost	—				1				47				208				1				5
Interest cost	543				556				20				289				20				28
Participant contributions	—				—				10				48				48				57
Actuarial loss (gain)	561				(170		)		120				48				16				(49		)
Benefits paid	(339		)		(301		)		(15		)		(297		)		(121		)		(126		)
Plan amendments	—				—				—				(7		)		(30		)		—
Curtailment	—				—				(1		)		—				—				—
Settlement	(1,330		)		(1,114		)		(9		)		(9		)		—				—
Special termination benefits	—				—				—				7				4				1
Currency impact	—				—				(4		)		(825		)		—				(9		)
Transfers from Hewlett Packard Enterprise	—				365			(2)	—				—				—				—
Transfers to Hewlett Packard Enterprise	—				(13		)	(1)	(128		)		(12,269		)	(1)	—				(150		)	(1)
Projected benefit obligation — end of year	$	12,144			$	12,709			$	1,120			$	1,082			$	535			$	597
Funded status at end of year	$	(1,968	)		$	(1,632	)		$	(428	)		$	(229	)		$	(145	)		$	(163	)
Accumulated benefit obligation	$	12,144			$	12,708			$	1,013			$	989			—				—

(1)	In fiscal year 2015, in connection with the Separation, HP transferred plan assets and liabilities from HP’s plans to establish the Hewlett Packard Enterprise plans.

(2)	In October 2015, in connection with the Separation, Hewlett Packard Enterprise transferred to HP three unfunded non-qualified U.S. defined benefit plans.

The weighted-average assumptions used to calculate the projected benefit obligations for the fiscal years ended October 31, 2016 and 2015 were as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Retirement and Post-Retirement Benefit Plan (Continued)

	For the fiscal years ended October 31
	2016			2015			2016			2015			2016			2015
	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						Post-Retirement Benefit Plans
Discount rate	4.0	%		4.4	%		1.6	%		2.3	%		3.4	%		3.6	%
Expected increase in compensation levels	2.0	%		2.0	%		2.7	%		2.5	%		—			—

The net amounts of non-current assets and current and non-current liabilities for HP’s defined benefit and post-retirement benefit plans recognized on HP’s Consolidated Balance Sheet were as follows:

	As of October 31
	2016				2015				2016				2015				2016				2015
	U.S. Defined Benefit Plans								Non-U.S. Defined Benefit Plans								Post-Retirement Benefit Plans
									In millions
Non-current assets	$	—			$	—			$	17			$	37			$	—			$	—
Current liabilities	(33		)		(35		)		(5		)		(4		)		(9		)		(43		)
Non-current liabilities	(1,935		)		(1,597		)		(440		)		(262		)		(136		)		(120		)
Funded status at end of year	$	(1,968	)		$	(1,632	)		$	(428	)		$	(229	)		$	(145	)		$	(163	)

The following table summarizes the pre-tax net actuarial loss (gain) and prior service benefit recognized in Accumulated other comprehensive loss for the defined benefit and post-retirement benefit plans.

	As of October 31, 2016
	U.S. Defined Benefit Plans				Non U.S. Defined Benefit Plans				Post-Retirement Benefit Plans
					In millions
Net actuarial loss (gain)	$	1,702			$	456			$	(105	)
Prior service benefit	—				(21		)		(112		)
Total recognized in Accumulated other comprehensive loss (gain)	$	1,702			$	435			$	(217	)

The following table summarizes HP’s pre-tax net actuarial loss (gain) and prior service benefit that are expected to be amortized from Accumulated other comprehensive loss (income) and recognized as components of net periodic benefit cost (credit) during the next fiscal year.

	U.S. Defined Benefit Plans				Non-U.S. Defined Benefit Plans				Post-Retirement Benefit Plans
					In millions
Net actuarial loss (gain)	$	73			$	39			$	(10	)
Prior service benefit	—				(3		)		(19		)
Total expected to be recognized in net periodic benefit cost (credit)	$	73			$	36			$	(29	)

Defined benefit plans with projected benefit obligations exceeding the fair value of plan assets were as follows:

	As of October 31
	2016				2015				2016				2015
	U.S. Defined Benefit Plans								Non-U.S. Defined Benefit Plans
	In millions
Aggregate fair value of plan assets	$	10,176			$	11,077			$	626			$	418
Aggregate projected benefit obligation	$	12,144			$	12,709			$	1,070			$	684

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Retirement and Post-Retirement Benefit Plan (Continued)

Defined benefit plans with accumulated benefit obligations exceeding the fair value of plan assets were as follows:

	As of October 31
	2016				2015				2016				2015
	U.S. Defined Benefit Plans								Non-U.S. Defined Benefit Plans
	In millions
Aggregate fair value of plan assets	$	10,176			$	11,077			$	619			$	409
Aggregate accumulated benefit obligation	$	12,144			$	12,708			$	960			$	609

Fair Value of Plan Assets

The table below sets forth the fair value of plan assets by asset category within the fair value hierarchy as of October 31, 2016. Refer to Note 10, “Fair Value” for details on fair value hierarchy.

	As of October 31, 2016
	U.S. Defined Benefit Plans																Non-U.S. Defined Benefit Plans																Post-Retirement Benefit Plans
	Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
	In millions
Asset Category:
Equity securities(1)	$	1,716			$	59			$	—			$	1,775			$	122			$	4			$	7			$	133			$	—			$	1			$	—			$	1
Debt securities(2)
Corporate	—				3,132				—				3,132				—				124				—				124				—				26				—				26
Government	—				1,782				—				1,782				—				26				—				26				—				42				—				42
Alternative Investments(3)	—				—				1,027				1,027				—				2				11				13				—				—				219				219
Common Contractual Funds (4)	—				1,834				—				1,834				—				277				—				277				—				—				—				—
Real Estate Funds	—				—				—				—				1				24				—				25				—				—				—				—
Insurance Group Annuity Contracts	—				—				—				—				—				2				1				3				—				—				—				—
Common Collective Trusts and 103-12 Investment Entities(5)	—				639				—				639				—				11				—				11				—				51				—				51
Registered Investment Companies(6)	20				103				—				123				30				—				—				30				54				4				—				58
Cash and Cash Equivalents(7)	4				52				—				56				18				—				—				18				—				5				—				5
Other(8)	(169		)		(23		)		—				(192		)		7				16				9				32				(12		)		—				—				(12		)
Total	$	1,571			$	7,578			$	1,027			$	10,176			$	178			$	486			$	28			$	692			$	42			$	129			$	219			$	390

(1)	Investments in publicly-traded equity securities are valued using the closing price on the measurement date as reported on the stock exchange on which the individual securities are traded.

(2)	The fair value for corporate, government and asset-backed debt securities is based on observable inputs of comparable market transactions. For corporate and government debt securities traded on active exchanges, fair value is based on observable quoted prices. Also included in this category is debt issued by national, state and local governments and agencies.

(3)

Alternative Investments primarily include private equities and hedge funds. The valuation of alternative investments, such as limited partnerships and joint ventures, may require significant management judgment. For alternative investments, valuation is based on net asset value (“NAV”) as reported by the Asset Manager and adjusted for cash flows, if necessary. In making such an assessment, a variety of factors are reviewed by management, including but not limited to the timeliness of NAV as reported by the asset manager and changes in general economic and market

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Retirement and Post-Retirement Benefit Plan (Continued)

conditions subsequent to the last NAV reported by the asset manager. Depending on the amount of management judgment, the lack of near-term liquidity, and the absence of quoted market prices, these assets are classified in Level 2 or Level 3 of the fair value hierarchy. Further, depending on how quickly HP can redeem its hedge fund investments, and the extent of any adjustments to NAV, hedge funds are classified in either Level 2 or Level 3 of the fair value hierarchy.

•	Private equities include limited partnerships such as equity, buyout, venture capital, real estate and other similar funds that invest in the United States and internationally where foreign currencies are hedged.

•	Hedge funds include limited partnerships that invest both long and short primarily in common stocks and credit, relative value, event driven equity, distressed debt and macro strategies. Management of the hedge funds has the ability to shift investments from value to growth strategies, from small to large capitalization stocks and bonds, and from a net long position to a net short position.

(4)

The Common Contractual Fund is an investment arrangement in which institutional investors pool their assets. Units may be acquired in six different sub-funds focused on equities, fixed income, alternative investments and emerging markets. Each sub-fund is invested in accordance with the fund’s investment objective and units are issued in relation to each sub-fund. While the sub-funds are not publicly traded, the custodian strikes a net asset value either once or twice a month, depending on the sub-fund. These assets are valued at NAV and classified in Level 2 of the fair value hierarchy.

(5)

Department of Labor 103-12 IE (Investment Entity) designation is for plan assets held by two or more unrelated employee benefit plans which includes limited partnerships and venture capital partnerships. Common collective trusts, interests in 103-12 entities and registered investment companies are valued at NAV. The valuation for some of these assets requires judgment due to the absence of quoted market prices, and these assets are generally classified in Level 2 of the fair value hierarchy.

(6)	Includes publicly and privately traded Registered Investment Entities.

(7)	Includes cash and cash equivalents such as short-term marketable securities. Cash and cash equivalents include money market funds, which are valued based on NAV. Other assets were classified in the fair value hierarchy based on the lowest level input (e.g., quoted prices and observable inputs) that is significant to the fair value measure in its entirety.

(8)	Includes primarily unsettled transactions, international insured contracts, and derivative instruments. Such unsettled transactions relate primarily to fixed income securities settled in the first quarter of fiscal year 2017.

Changes in fair value measurements of Level 3 investments were as follows:

	For the fiscal year ended October 31, 2016
	U.S. Defined Benefit Plans												Non-U.S. Defined Benefit Plans																				Post-Retirement Benefit Plans
	Corporate Debt				Alternative Investments				Total				Non U.S. Equities				Alternative Investments				Insurance Group Annuities				Other				Total				Alternative Investments
	In millions
Beginning balance at October 31, 2015	$	31			$	1,291			$	1,322			$	15			$	16			$	3			$	7			$	41			$	253
Actual return on plan assets:
Relating to assets still held at the reporting date	—				(128		)		(128		)		—				—				—				—				—				(9		)
Relating to assets sold during the period	—				131				131				—				—				—				—				—				14
Purchases, sales, and settlements (net)	(9		)		(267		)		(276		)		—				—				—				—				—				(39		)
Transfers in and/or out of Level 3	(22		)		—				(22		)		(8		)		(5		)		(2		)		2				(13		)		—
Ending balance at October 31, 2016	$	—			$	1,027			$	1,027			$	7			$	11			$	1			$	9			$	28			$	219

The table below sets forth the fair value of plan assets by asset category within the fair value hierarchy as of October 31, 2015.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Retirement and Post-Retirement Benefit Plan (Continued)

	As of October 31, 2015
	U.S. Defined Benefit Plans																Non-U.S. Defined Benefit Plans																Post-Retirement Benefit Plans
	Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
	In millions
Asset Category:
Equity securities(1)	$	2,100			$	60			$	—			$	2,160			$	120			$	97			$	15			$	232			$	—			$	1			$	—			$	1
Debt securities(2)
Corporate	—				3,198				31				3,229				—				260				—				260				—				28				—				28
Government	—				1,712				—				1,712				—				59				—				59				—				39				—				39
Alternative Investments(3)	—				—				1,291				1,291				—				2				16				18				—				—				253				253
Common Contractual Funds(4)	—				1,837				—				1,837				—				182				—				182				—				—				—				—
Real Estate Funds	—				—				—				—				2				25				—				27				—				—				—				—
Insurance Group Annuity Contracts	—				—				—				—				—				5				3				8				—				—				—				—
Common Collective Trusts and 103-12 Investment Entities(5)	—				756				—				756				—				4				—				4				—				59				—				59
Registered Investment Companies(6)	38				176				—				214				30				—				—				30				52				3				—				55
Cash and Cash Equivalents(7)	5				71				—				76				18				—				—				18				4				3				—				7
Other(8)	(153		)		(45		)		—				(198		)		7				1				7				15				(8		)		—				—				(8		)
Total	$	1,990			$	7,765			$	1,322			$	11,077			$	177			$	635			$	41			$	853			$	48			$	133			$	253			$	434

(1)	Investments in publicly-traded equity securities are valued using the closing price on the measurement date as reported on the stock exchange on which the individual securities are traded.

(2)	The fair value for corporate, government and asset-backed debt securities is based on observable inputs of comparable market transactions. For corporate and government debt securities traded on active exchanges, fair value is based on observable quoted prices. Also included in this category is debt issued by national, state and local governments and agencies.

(3)

Alternative Investments primarily include private equities and hedge funds. The valuation of alternative investments, such as limited partnerships and joint ventures, may require significant management judgment. For alternative investments, valuation is based on NAV as reported by the Asset Manager and adjusted for cash flows, if necessary. In making such an assessment, a variety of factors are reviewed by management, including but not limited to the timeliness of NAV as reported by the asset manager and changes in general economic and market conditions subsequent to the last NAV reported by the asset manager. Depending on the amount of management judgment, the lack of near-term liquidity, and the absence of quoted market prices, these assets are classified in Level 2 or Level 3 of the fair value hierarchy. Further, depending on how quickly HP can redeem its hedge fund investments, and the extent of any adjustments to NAV, hedge funds are classified in either Level 2 or Level 3 of the fair value hierarchy.

•	Private equities include limited partnerships such as equity, buyout, venture capital, real estate and other similar funds that invest in the United States and internationally where foreign currencies are hedged.

•	Hedge funds include limited partnerships that invest both long and short primarily in common stocks and credit, relative value, event driven equity, distressed debt and macro strategies. Management of the hedge funds has the ability to shift investments from value to growth strategies, from small to large capitalization stocks and bonds, and from a net long position to a net short position.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Retirement and Post-Retirement Benefit Plan (Continued)

(4)

The Common Contractual Fund is an investment arrangement in which institutional investors pool their assets. Units may be acquired in six different sub-funds focused on equities, fixed income, alternative investments and emerging markets. Each sub-fund is invested in accordance with the fund’s investment objective and units are issued in relation to each sub-fund. While the sub-funds are not publicly traded, the custodian strikes a net asset value either once or twice a month, depending on the sub-fund. These assets are valued at NAV and classified in Level 2 of the fair value hierarchy.

(5)

Department of Labor 103-12 IE (Investment Entity) designation is for plan assets held by two or more unrelated employee benefit plans which includes limited partnerships and venture capital partnerships. Common collective trusts, interests in 103-12 entities and registered investment companies are valued at NAV. The valuation for some of these assets requires judgment due to the absence of quoted market prices, and these assets are generally classified in Level 2 of the fair value hierarchy.

(6)	Includes publicly and privately traded Registered Investment Entities.

(7)	Includes cash and cash equivalents such as short-term marketable securities. Cash and cash equivalents include money market funds, which are valued based on NAV. Other assets were classified in the fair value hierarchy based on the lowest level input (e.g., quoted prices and observable inputs) that is significant to the fair value measure in its entirety.

(8)	Includes primarily unsettled transactions, international insured contracts, and derivative instruments. Such unsettled transactions relate primarily to fixed income securities settled in the first quarter of fiscal year 2016.

Changes in fair value measurements of Level 3 investments were as follows:

	For the fiscal year ended October 31, 2015
	U.S. Defined Benefit Plans												Non-U.S. Defined Benefit Plans																				Post-Retirement Benefit Plans
	Corporate Debt				Alternative Investments				Total				Non U.S. Equities				Alternative Investments				Insurance Group Annuities				Other				Total				Alternative Investments
	In millions
Beginning balance at October 31, 2014	$	7			$	1,409			$	1,416			$	80			$	160			$	35			$	—			$	275			$	272
Actual return on plan assets:
Relating to assets still held at the reporting date	—				(26		)		(26		)		(13		)		(6		)		(7		)		—				(26		)		(2		)
Relating to assets sold during the period	—				144				144				—				(21		)		—				—				(21		)		46
Purchases, sales, and settlements (net)	24				(236		)		(212		)		—				(77		)		—				—				(77		)		(63		)
Transfers in and/or out of Level 3	—				—				—				(52		)		(40		)		(25		)		7				(110		)		—
Ending balance at October 31, 2015	$	31			$	1,291			$	1,322			$	15			$	16			$	3			$	7			$	41			$	253

Plan Asset Allocations

Refer to the fair value hierarchy table above for actual assets allocations across the benefit plans. The weighted-average target asset allocations across the benefit plans represented in the fair value tables above were as follows:

		2016 Target Allocation
Asset Category		U.S. Defined Benefit Plans			Non-U.S. Defined Benefit Plans			Post-Retirement Benefit Plans
Equity-related investments		53.9	%		44.3	%		67.7	%
Debt securities		46.1	%		38.8	%		29.2	%
Real estate		—			6.2	%		2.0	%
Cash and cash equivalents		—			2.7	%		1.1	%
Other		—			8.0	%		—
Total		100.0	%		100.0	%		100.0	%

Investment Policy

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Retirement and Post-Retirement Benefit Plan (Continued)

HP’s investment strategy is to seek a competitive rate of return relative to an appropriate level of risk depending on the funded status of each plan and the timing of expected benefit payments. The majority of the plans’ investment managers employ active investment management strategies with the goal of outperforming the broad markets in which they invest. Risk management practices include diversification across asset classes and investment styles and periodic rebalancing toward asset allocation targets. A number of the plans’ investment managers are authorized to utilize derivatives for investment or liability exposures, and HP may utilize derivatives to effect asset allocation changes or to hedge certain investment or liability exposures.

The target asset allocation selected for each U.S. plan reflects a risk/return profile HP believes is appropriate relative to each plan’s liability structure and return goals. HP conducts periodic asset-liability studies for U.S. plans in order to model various potential asset allocations in comparison to each plan’s forecasted liabilities and liquidity needs. HP invests a portion of the U.S. defined benefit plan assets and post-retirement benefit plan assets in private market securities such as private equity funds to provide diversification and a higher expected return on assets.

Outside the United States, asset allocation decisions are typically made by an independent board of trustees for the specific plan. As in the United States, investment objectives are designed to generate returns that will enable the plan to meet its future obligations. In some countries, local regulations may restrict asset allocations, typically leading to a higher percentage of investment in fixed income securities than would otherwise be deployed. HP reviews the investment strategy and provides a recommended list of investment managers for each country plan, with final decisions on asset allocation and investment managers made by the board of trustees for the specific plan.

Basis for Expected Long-Term Rate of Return on Plan Assets

The expected long-term rate of return on plan assets reflects the expected returns for each major asset class in which the plan invests and the weight of each asset class in the target mix. Expected asset returns reflect the current yield on government bonds, risk premiums for each asset class and expected real returns which considers each country’s specific inflation outlook. Because HP’s investment policy is to employ primarily active investment managers who seek to outperform the broader market, the expected returns are adjusted to reflect the expected additional returns net of fees.

Future Contributions and Funding Policy

In fiscal year 2017, HP expects to contribute approximately $26 million to its non-U.S. pension plans, $33 million to cover benefit payments to U.S. non-qualified plan participants and $9 million to cover benefit claims for HP’s post-retirement benefit plans. 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.

Estimated Future Benefits Payments

As of October 31, 2016, HP estimates that the future benefits payments for the retirement and post-retirement plans are as follows:

Fiscal year		U.S. Defined Benefit Plans				Non-U.S. Defined Benefit Plans				Post-Retirement Benefit Plans
		In millions
2017		$	687			$	27			$	80
2018		635				24				61
2019		648				28				51
2020		674				29				47
2021		702				28				44
Next five fiscal years to October 31, 2026		3,685				188				167

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Stock-Based Compensation

HP’s stock-based compensation plans include incentive compensation plans and an employee stock purchase plan (“ESPP”).

Stock-Based Compensation Expense and Related Income Tax Benefits for Continuing Operations

Stock-based compensation expense and the resulting tax benefits for continuing operations were as follows:

	For the fiscal years ended October 31
	2016				2015				2014
	In millions
Stock-based compensation expense	$	182			$	212			$	196
Income tax benefit	(63		)		(62		)		(65		)
Stock-based compensation expense, net of tax	$	119			$	150			$	131

In connection with the Separation and in accordance with the employee matters agreement, HP has made certain adjustments to the exercise price and number of stock-based compensation awards with the intention of preserving the intrinsic value of the awards prior to the Separation. Exercisable and non-exercisable stock options have been converted to similar awards of the entity where the employee is working post-separation. Restricted stock unit awards and performance-contingent awards have been adjusted to provide holders with restricted stock units awards and performance-contingent awards in the c

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Stock-Based Compensation (Continued)

ompany that employs such employee following the Separation. The pre-tax stock-based compensation expense due to the adjustments was $2 million in fiscal year 2016. All outstanding restricted stock awards and stock options for employees transferred to Hewlett Packard Enterprise were cancelled in connection with the Separation. The restricted stock awards activity and stock options activity for fiscal years 2015 and 2014 in the tables below include discontinued operations, as the awards were not cancelled until the Separation became effective in the first quarter of fiscal year 2016.

In connection with the Separation, the Board of Directors approved amendments to certain outstanding long-term incentive awards on July 29, 2015. The amendments provided for the accelerated vesting on September 17, 2015 of certain stock-based awards that were otherwise scheduled to vest between September 18, 2015 and December 31, 2015. The pre-tax stock-based compensation expense due to the acceleration for continuing operations was approximately $23 million in fiscal year 2015.

Cash received from option exercises and purchases under the Hewlett-Packard Company 2011 Employee Stock Purchase Plan (the “2011 ESPP”) was $48 million in fiscal year 2016, $206 million in fiscal year 2015 and $143 million in fiscal year 2014. The benefit realized for the tax deduction from option exercises in fiscal years 2016, 2015 and 2014 was $9 million, $30 million and $9 million, respectively.

Stock-Based Incentive Compensation Plans

HP’s stock-based incentive compensation plans include equity plans adopted in 2004 and 2000, as amended (“principal equity plans”), as well as various equity plans assumed through acquisitions under which stock-based awards are outstanding. Stock-based awards granted from the principal equity plans include restricted stock awards, stock options and performance-based awards. Employees meeting certain employment qualifications are eligible to receive stock-based awards.

Restricted stock awards are non-vested stock awards that may include grants of restricted stock or restricted stock units. Restricted stock awards and cash-settled awards are generally subject to forfeiture if employment terminates prior to the lapse of the restrictions. Such awards generally vest one to three years from the date of grant. During the vesting period, ownership of the restricted stock cannot be transferred. Restricted stock has the same dividend and voting rights as common stock and is considered to be issued and outstanding upon grant. The dividends paid on restricted stock are non-forfeitable. Restricted stock units do not have the voting rights of common stock, and the shares underlying restricted stock units are not considered issued and outstanding upon grant. However, shares underlying restricted stock units are included in the calculation of diluted net EPS. Restricted stock units have forfeitable dividend equivalent rights equal to the dividend paid on common stock. HP expenses the fair value of restricted stock awards ratably over the period during which the restrictions lapse. The majority of restricted stock

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Stock-Based Compensation (Continued)

units issued by HP contain only service vesting conditions. However, starting in fiscal year 2014, HP began granting performance-adjusted restricted stock units that vest only on the satisfaction of both service and market conditions prior to the expiration of the awards.

Stock options granted under the principal equity plans are generally non-qualified stock options, but the principal equity plans permit some options granted to qualify as incentive stock options under the U.S. Internal Revenue Code. Stock options generally vest over three to four years from the date of grant. The exercise price of a stock option is equal to the closing price of HP’s stock on the option grant date. The majority of stock options issued by HP contain only service vesting conditions. However, starting in fiscal year 2011, HP began granting performance-contingent stock options that vest only on the satisfaction of both service and market conditions prior to the expiration of the awards.

Restricted Stock Awards

HP uses the closing stock price on the grant date to estimate the fair value of service-based restricted stock units. 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 the Monte Carlo simulation model. The weighted-average fair value and the assumptions used to measure fair value of restricted stock units subject to performance-adjusted vesting conditions in the Monte Carlo simulation model were as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Stock-Based Compensation (Continued)

	For the fiscal years ended October 31
	2016				2015				2014
Weighted-average fair value(1)	$	13			$	47			$	37
Expected volatility(2)	32.5		%		33.6		%		24.8		%
Risk-free interest rate(3)	1.2		%		1.0		%		0.4		%
Expected performance period in years(4)	2.9				2.9				1.3

(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.

A summary of restricted stock awards activity is as follows:

	As of October 31
	2016							2015							2014
	Shares			Weighted- Average Grant Date Fair Value Per Share				Shares			Weighted- Average Grant Date Fair Value Per Share				Shares			Weighted- Average Grant Date Fair Value Per Share
	In thousands							In thousands							In thousands
Outstanding at beginning of year	29,717			$	32			40,808			$	24			32,262			$	21
Granted and assumed through acquisition	29,286			$	10			26,991			$	35			26,036			$	28
Vested	(4,161	)		$	13			(34,177	)		$	26			(14,253	)		$	24
Awards cancelled due to Separation	(23,926	)		$	32			—			$	—			—			$	—
Forfeited	(2,206	)		$	14			(3,905	)		$	29			(3,237	)		$	22
Outstanding at end of year	28,710			$	13			29,717			$	32			40,808			$	24

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Stock-Based Compensation (Continued)

In fiscal year 2015, HP assumed approximately 8 million shares of restricted stock units through acquisition with a weighted-average grant date fair value of $33 per share.

The total grant date fair value of restricted stock awards vested in fiscal years 2016, 2015 and 2014 was $54 million, $889 million and $338 million, respectively. As of October 31, 2016, total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock awards for continuing operations was $180 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.4 years.

Stock Options

HP utilizes the Black-Scholes-Merton option pricing formula 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. The weighted-average fair value and the assumptions used to measure fair value were as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Stock-Based Compensation (Continued)

	For the fiscal years ended October 31
	2016				2015				2014
Weighted-average fair value(1)	$	4			$	8			$	7
Expected volatility(2)	36.2		%		26.8		%		33.1		%
Risk-free interest rate(3)	1.8		%		1.7		%		1.8		%
Expected dividend yield(4)	3.5		%		1.8		%		2.1		%
Expected term in years(5)	6.0				5.9				5.7

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

(2)

For all awards granted in fiscal year 2016, expected volatility was estimated using the leverage-adjusted average of the term-matching volatilities of peer companies due to the lack of volume of forward traded options, which precluded the use of implied volatility. For all awards granted in fiscal year 2015, expected volatility was estimated using the implied volatility derived from options traded on HP’s common stock. For awards granted in fiscal year 2014, expected volatility for awards subject to service-based vesting was estimated using the implied volatility derived from options traded on HP’s common stock, whereas for performance-contingent awards, expected volatility was estimated using the historical volatility of 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)

For awards subject to service-based vesting, due to the lack of historical exercise and post-vesting termination patterns of the post-Separation employee base, the expected term was estimated using a simplified method for all awards granted in fiscal year 2016 and the expected term was estimated using historical exercise and post-vesting termination patterns for all awards granted in fiscal years 2015 and 2014; and for performance-contingent awards, the expected term represents an output from the lattice model.

A summary of stock options activity is as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Stock-Based Compensation (Continued)

	As of October 31
	2016													2015													2014
	Shares			Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value				Shares			Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value				Shares			Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
	In thousands							In years		In millions				In thousands							In years		In millions				In thousands							In years		In millions
Outstanding at beginning of year	36,278			$	26									57,853			$	27									84,042			$	27
Granted and assumed through acquisitions	25,425			$	6									9,086			$	36									9,575			$	28
Exercised	(4,714	)		$	8									(12,845	)		$	19									(11,145	)		$	18
Awards cancelled due to Separation	(26,252	)		$	26									—			$	—									—			$	—
Forfeited/cancelled/expired	(2,519	)		$	17									(17,816	)		$	40									(24,619	)		$	31
Outstanding at end of year	28,218			$	12			5.0		$	73			36,278			$	26			5.1		$	153			57,853			$	27			4.3		$	629
Vested and expected to vest at end of year	26,850			$	12			4.9		$	71			34,973			$	26			5.0		$	152			54,166			$	27			4.1		$	571
Exercisable at end of year	15,418			$	11			3.7		$	62			25,630			$	24			4.4		$	146			30,459			$	33			2.3		$	197

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that option holders would have received had all option holders exercised their options on the last trading day of fiscal years 2016, 2015 and 2014. The aggregate intrinsic value is the difference between HP’s closing stock price on the last trading day of the fiscal year and the exercise price, multiplied by the number of in-the-money options. The total intrinsic value of options exercised in fiscal years 2016, 2015 and 2014 was $26 million, $214 million and $151 million, respectively. The total grant date fair value of options vested in fiscal years 2016, 2015 and 2014 was $11 million, $131 million and $82 million, respectively.

The following table summarizes significant ranges of outstanding and exercisable stock options:

		As of October 31, 2016
		Options Outstanding									Options Exercisable
Range of Exercise Prices		Shares Outstanding			Weighted- Average Remaining Contractual Term		Weighted- Average Exercise Price				Shares Exercisable			Weighted- Average Exercise Price
		In thousands			In years		In thousands
$0-$9.99		4,970			3.8		$	7			4,964			$	7
$10-$19.99		23,012			5.3		$	14			10,218			$	13
$20-$29.99		236			1.9		$	23			236			$	23
		28,218			5.0		$	12			15,418			$	11

As of October 31, 2016, total unrecognized pre-tax stock-based compensation expense related to stock options for continuing operations was $17 million, which is expected to be recognized over a weighted-average vesting period of 1.7 years.

Employee Stock Purchase Plan

HP sponsors the 2011 ESPP, pursuant to which eligible employees may contribute up to 10% of base compensation, subject to certain income limits, to purchase shares of HP’s common stock.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Stock-Based Compensation (Continued)

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Stock-Based Compensation (Continued)

Pursuant to the terms of the 2011 ESPP, employees purchase stock under the 2011 ESPP at a price equal to 95% of HP’s closing stock price on the purchase date. No stock-based compensation expense was recorded in connection with those purchases because the criteria of a non-compensatory plan were met.

Shares Reserved

Shares available for future grant and shares reserved for future issuance under the stock-based incentive compensation plans and the 2011 ESPP were as follows:

	As of October 31
	2016			2015			2014
	In thousands
Shares available for future grant	453,865			215,949			246,852
Shares reserved for future issuance	510,176			276,481			344,848

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Taxes on Earnings

Provision for Taxes

The domestic and foreign components of earnings from continuing operations before taxes were as follows:

	For the fiscal years ended October 31
	2016				2015				2014
	In millions
U.S.	$	468			$	216			$	1,511
Non-U.S.	3,293				3,316				2,352
	$	3,761			$	3,532			$	3,863

The provision for (benefit from) taxes on earnings from continuing operations was as follows:

	For the fiscal years ended October 31
	2016				2015				2014
	In millions
U.S. federal taxes:
Current	$	439			$	(2,206	)		$	232
Deferred	470				1,069				128
Non-U.S. taxes:
Current	288				431				598
Deferred	(123		)		76				(26		)
State taxes:
Current	(35		)		362				129
Deferred	56				82				(122		)
	$	1,095			$	(186	)		$	939

The differences between the U.S. federal statutory income tax rate and HP’s effective tax rate were as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Taxes on Earnings (Continued)

	For the fiscal years ended October 31
	2016			2015			2014
U.S. federal statutory income tax rate from continuing operations	35.0	%		35.0	%		35.0	%
State income taxes from continuing operations, net of federal tax benefit	1.1	%		(6.1	)%		0.5	%
Lower rates in other jurisdictions, net	(9.3	)%		(1.2	)%		(11.6	)%
Research and development (“R&D”) credit	(2.4	)%		(0.2	)%		(0.2	)%
Valuation allowances	(1.2	)%		(48.0	)%		—
Uncertain tax positions	11.7	%		11.1	%		(1.6	)%
Indemnification Related Items	(4.1	)%		—			—
Other, net	(1.7	)%		4.1	%		2.2	%
	29.1	%		(5.3	)%		24.3	%

The jurisdictions with favorable tax rates that have the most significant effective tax rate impact in the periods presented include Puerto Rico, Singapore, China, Malaysia and Ireland. To the extent that HP plans to reinvest earnings of these jurisdictions indefinitely outside the United States, U.S. taxes have not been provided on those indefinitely reinvested earnings.

In fiscal year 2016, HP recorded $301 million of net income tax charges related to items unique to the year for continuing operations. These amounts primarily include uncertain tax positions charges of $525 million related to pre-separation tax matters. In addition, HP recorded $62 million of net tax benefits on restructuring and other charges, $52 million of net tax benefits related to the release of foreign valuation allowances and $41 million of net tax benefits arising from the retroactive research and development credit provided by the Consolidated Appropriations Act of 2016 signed into law in December 2015 and $70 million of other tax benefit.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Taxes on Earnings (Continued)

In fiscal year 2015, HP recorded $1.2 billion of net income tax benefits related to items unique to the year. These amounts included $1.7 billion of tax benefits due to a release of valuation allowances pertaining to certain U.S. deferred tax assets, $449 million of tax charges related to uncertain tax positions on pension transfers, $70 million of tax benefits related to state tax impacts, and $6 million of income tax charges related to various other items. In addition, HP recorded $33 million of income tax charges on restructuring and pension-related costs.

In fiscal year 2014, HP recorded $69 million of net income tax benefits related to items unique to the year. These amounts included $37 million of income tax benefits related to provision to return adjustments, $25 million of income tax charges related to state rate changes, $41 million of income tax benefits for adjustments related to uncertain tax positions, and $16 million of income tax benefits related to other items.

As a result of certain employment actions and capital investments HP has undertaken, income from manufacturing and services in certain countries is subject to reduced tax rates, and in some cases is wholly exempt from taxes, through 2027. The gross income tax benefits attributable to these actions and investments were estimated to be $341 million ($0.20 diluted net EPS) in fiscal year 2016, $322 million ($0.18 diluted net EPS) in fiscal year 2015 and $596 million ($0.31 diluted net EPS) in fiscal year 2014. The gross income tax benefits were offset partially by accruals of U.S. income taxes on undistributed earnings, among other factors.

Uncertain Tax Positions

A reconciliation of unrecognized tax benefits is as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Taxes on Earnings (Continued)

	As of October 31
	2016				2015				2014
	In millions
Balance at beginning of year	$	6,546			$	1,545			$	1,284
Increases:
For current year’s tax positions	468				2,102				166
For prior years’ tax positions	4,004				5,208				323
Decreases:
For prior years’ tax positions	(62		)		(2,063		)		(113		)
Statute of limitations expirations	—				(46		)		(41		)
Settlements with taxing authorities	(98		)		(200		)		(74		)
Balance at end of year	$	10,858			$	6,546			$	1,545

As of October 31, 2016, the amount of unrecognized tax benefits was $10.9 billion, of which up to $3.9 billion would affect HP’s effective tax rate if realized. As of October 31, 2015 the amount of unrecognized tax benefits was $6.5 billion of which up to $3.2 billion would affect HP’s effective tax rate if realized. HP continues to record its tax liabilities related to uncertain tax positions and certain liabilities for which it has joint and several liability with Hewlett Packard Enterprise. During the twelve months ended October 31, 2016, as part of the Separation, HP distributed $732 million of liabilities related solely to uncertain tax positions associated with Hewlett Packard Enterprise. 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 Statements of Earnings. As of October 31, 2016, HP had accrued $193 million for interest and penalties.

HP engages in continuous discussion and negotiation 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 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 unrecognized tax benefits may be reduced by an amount up to $2.5 billion within the next 12 months.

HP is subject to income tax in the United States and approximately 58 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 IRS is conducting an audit of HP’s 2009, 2010, 2011, 2012, 2013 and 2014 income tax returns. HP has received from the IRS Notices of Deficiency for its fiscal 1999, 2000, 2003, 2004 and 2005 tax years, and Revenue Agent

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Taxes on Earnings (Continued)

Reports (“RAR”) for its fiscal years 2001, 2002, 2006, 2007 and 2008 tax years. The proposed IRS adjustments for these tax years would, if sustained, reduce the benefits of tax refund claims HP has filed for net operating loss carrybacks to earlier fiscal years and tax credit carryforwards to subsequent years by approximately $377 million.

HP is waiting for the Ninth Circuit Court of Appeals to rule on HP’s appeal of an adverse U.S. Tax Court determination related to IRS adjustments for tax years 1999 through 2003. The U.S. Tax Court ruled in May 2012 against HP related to certain tax attributes claimed by HP for the tax years 1999 through 2003. HP appealed the U.S. Tax Court determination by filing a formal Notice of Appeal with the Ninth Circuit Court of Appeals. This case was argued before the Ninth Circuit in November 2016. The Ninth Circuit has not yet issue any determination in this Appeal.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Taxes on Earnings (Continued)

With respect to major state and foreign tax jurisdictions, HP is no longer subject to tax authority examinations for years prior to 1999. No material tax deficiencies have been assessed in major state or foreign tax jurisdictions as of the reporting period.

HP believes it has provided adequate reserves for all tax deficiencies or reductions in tax benefits that could result from federal, state and foreign tax audits. HP regularly assesses the likely outcomes of these audits in order to determine the appropriateness of HP’s tax provision. HP adjusts its uncertain tax positions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular audit. However, income tax audits are inherently unpredictable and there can be no assurance that HP will accurately predict the outcome of these audits. The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in the Provision for taxes and therefore the resolution of one or more of these uncertainties in any particular period could have a material impact on net income or cash flows.

HP has not provided for U.S. federal income and foreign withholding taxes on $20.3 billion of undistributed earnings from non-U.S. operations as of October 31, 2016 because HP intends to reinvest such earnings indefinitely outside of the United States. If HP were to distribute these earnings, foreign tax credits may become available under current law to reduce the resulting U.S. income tax liability. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable. HP will remit non-indefinitely reinvested earnings of its non-U.S. subsidiaries for which deferred U.S. federal and withholding taxes have been provided where excess cash has accumulated and HP determines that it is advantageous for business operations, tax or cash management reasons.

Deferred Income Taxes

The significant components of deferred tax assets and deferred tax liabilities were as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Taxes on Earnings (Continued)

	As of October 31
	2016								2015
	Deferred Tax Assets				Deferred Tax Liabilities				Deferred Tax Assets				Deferred Tax Liabilities
	In millions
Loss and credit carryforwards	$	8,725			$	—			$	7,395			$	(14	)
Unremitted earnings of foreign subsidiaries	—				(5,179		)		—				(5,112		)
Inventory valuation	—				(12		)		5				—
Intercompany transactions—profit in inventory	—				—				7				(110		)
Intercompany transactions—excluding inventory	2,560				—				2,069				—
Fixed assets	274				—				692				(420		)
Warranty	248				—				386				(6		)
Employee and retiree benefits	592				—				1,728				(689		)
Accounts receivable allowance	117				—				100				—
Intangible assets	23				(213		)		—				(126		)
Restructuring and other	17				—				19				—
Deferred revenue	206				—				201				(2		)
Other	399				(99		)		500				(116		)
Gross deferred tax assets and liabilities	13,161				(5,503		)		13,102				(6,595		)
Valuation allowances	(8,520		)		—				(7,114		)		—
Net deferred tax assets and liabilities	$	4,641			$	(5,503	)		$	5,988			$	(6,595	)

In 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-17, “Balance Sheet Classification of Deferred Taxes”, which simplifies the presentation of deferred income taxes. This guidance requires that deferred tax liabilities and a

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Taxes on Earnings (Continued)

ssets be classified as non-current in a classified statement of financial position. HP early adopted the FASB’s new accounting guidance prospectively for the interim period beginning November 1, 2015; thus, the prior reporting period was not retrospectively adjusted.

Current and long-term deferred tax assets and liabilities included in the Consolidated Balance Sheets as follows:

	As of October 31
	2016				2015
	In millions
Current deferred tax assets	$	—			$	1,047
Current deferred tax liabilities	—				(57		)
Long-term deferred tax assets	254				216
Long-term deferred tax liabilities	(1,116		)		(1,813		)
Total	$	(862	)		$	(607	)

Excess tax benefits of approximately zero and $64 million were recorded resulting from the exercise of employee stock options and other employee stock programs during fiscal years 2016 and 2015. Tax deficits of approximately $43 million were recorded in fiscal year 2014. The historical statements of stockholders’ (deficit) equity have not been revised to reflect the effect of the Separation. For further information on discontinued operations, see Note 2, “Discontinued Operations”.

HP periodically engages in intercompany advanced royalty payment arrangements that may result in advance payments between subsidiaries in different tax jurisdictions. When the local tax treatment of the intercompany licensing arrangements differs from U.S. GAAP treatment, deferred taxes are recognized. During fiscal year 2016, HP executed intercompany advanced royalty payment arrangements resulting in advanced payments of $1.2 billion. During fiscal year 2015, HP executed

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Taxes on Earnings (Continued)

intercompany advanced royalty payment arrangements resulting in advanced payments of $3.8 billion, while during fiscal year 2014, HP executed a multi-year intercompany licensing arrangement and an intercompany advanced royalty payment arrangement which resulted in combined advanced payments of $3.8 billion, the result of which was the recognition of zero net U.S. deferred tax assets in fiscal years 2016 and 2015 and $0.6 billion in fiscal year 2014. In these transactions, the payments were received in the United States from a foreign consolidated affiliate, with a deferral of intercompany revenues over the term of the arrangements, which is approximately 18 months for fiscal year 2016, 5 years for fiscal year 2015 and 15 years for fiscal year 2014. Intercompany royalty revenue is eliminated in consolidation.

Separation costs are expenses associated with HP’s plan to separate into two companies. HP recorded a deferred tax asset on these costs and expenses as they were incurred through fiscal year 2015. HP expected a portion of these deferred tax assets associated with separation costs and expenses to be non-deductible expenses, at the time the Separation was executed. Furthermore, HP has also concluded on the legal form of the Separation and in May 2015 announced that Hewlett Packard Enterprise was the spinnee in the United States. In order to reflect the impact of separation activities, HP recorded adjustments to certain deferred and prepaid tax assets as well as income tax liabilities reflecting the impact of separation related activities.

As of October 31, 2016, HP had $627 million, $2.0 billion and $25.3 billion of federal, state and foreign net operating loss carryforwards, respectively. Amounts included in state and foreign net operating loss carryforwards will begin to expire in fiscal year 2018 and amounts included in federal net operating loss carryforwards will begin to expire in 2030. HP also has capital loss carryforwards of approximately $197 million which will expire in 2021. HP has provided a valuation allowance of $87 million and $8.2 billion for deferred tax assets related to state and foreign net operating loss carryforwards, respectively, that HP does not expect to realize.

As of October 31, 2016, HP had recorded deferred tax assets for various tax credit carryforwards as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Taxes on Earnings (Continued)

	Carryforward				Valuation Allowance				Initial Year of Expiration
	In millions
U.S. foreign tax credits	$	6			$	—			2022
U.S. R&D and other credits	2				—				2017
Tax credits in state and foreign jurisdictions	256				(137		)		2017
Balance at end of year	$	264			$	(137	)

Deferred Tax Asset Valuation Allowance

The deferred tax asset valuation allowance and changes were as follows:

	As of October 31
	2016				2015				2014
	In millions
Balance at beginning of year	$	7,114			$	8,231			$	8,196
Income tax expense (benefit)	1,421				(2,183		)		(14		)
Other comprehensive income, currency translation and charges to other accounts	(15		)		1,066				49
Balance at end of year	$	8,520			$	7,114			$	8,231

Gross deferred tax assets at October 31, 2016, 2015 and 2014, were reduced by valuation allowances of $8.5 billion, $7.1 billion and $8.2 billion, respectively. Total valuation allowance increased by $1.4 billion in fiscal year 2016, associated primarily with foreign net operating losses, and decreased by $1.1 billion in fiscal year 2015, associated with the release of a valuation allowance against deferred tax assets in the United States, and increased by $35 million in fiscal 2014 associated primarily with foreign net operating losses.

Tax Matters Agreement and Other Income Tax Matters

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Taxes on Earnings (Continued)

In connection with the Separation, HP entered into the TMA with Hewlett Packard Enterprise effective on November 1, 2015 that governs the rights and obligations of HP and Hewlett Packard Enterprise for certain pre Separation tax liabilities. The TMA provides that HP and Hewlett Packard Enterprise will share certain pre Separation income tax liabilities. In certain jurisdictions, HP and Hewlett Packard Enterprise have joint and several liability for past income tax liabilities and accordingly, HP could be legally liable under applicable tax law for such liabilities and required to make additional tax payments.

In addition, if the distribution of Hewlett Packard Enterprise’s common shares to 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.

Upon completion of the Separation on November 1, 2015, HP recorded net income tax indemnification receivables from Hewlett Packard Enterprise for certain income tax liabilities that HP is jointly and severally liable for, but for which it is indemnified by Hewlett Packard Enterprise under the TMA. The actual amount that Hewlett Packard Enterprise may be obligated to pay HP could vary depending upon the outcome of certain unresolved tax matters, which may not be resolved for several years. The net receivable as of October 31, 2016 was $1.6 billion. In connection with the TMA, Interest and other, net for fiscal year 2016 includes $472 million of changes in the tax indemnifications amounts.

Note 8: Balance Sheet Details

Balance sheet details were as follows:

Accounts Receivable, Net

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 8: Balance Sheet Details (Continued)

	As of October 31
	2016				2015
	In millions
Accounts receivable	$	4,221			$	4,905
Allowance for doubtful accounts	(107		)		(80		)
	$	4,114			$	4,825

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

	As of October 31
	2016				2015				2014
	In millions
Balance at beginning of year	$	80			$	106			$	182
Provision for doubtful accounts	65				19				(25		)
Deductions, net of recoveries	(38		)		(45		)		(51		)
Balance at end of year	$	107			$	80			$	106

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 from the Consolidated 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 Balance Sheets. The recourse obligations as of October 31, 2016, 2015 and 2014 were not material. As of October 31, 2016, 2015 and 2014, HP had $149 million, $93 million and $271 million, respectively, outstanding from the third parties, which is reported in Accounts receivable in the Consolidated Balance Sheets. The costs associated with the sales of trade receivables for fiscal year 2016 were not material.

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

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 8: Balance Sheet Details (Continued)

	As of October 31
	2016				2015				2014
	In millions
Balance at beginning of year	$	93			$	271			$	102
Trade receivables sold	8,222				6,512				5,680
Cash receipts	(8,160		)		(6,671		)		(5,491		)
Foreign currency and other	(6		)		(19		)		(20		)
Balance at end of year	$	149			$	93			$	271

Inventory

	As of October 31
	2016				2015
	In millions
Finished goods	$	3,103			$	2,820
Purchased parts and fabricated assemblies	1,381				1,468
	$	4,484			$	4,288

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 8: Balance Sheet Details (Continued)

Other Current Assets

	As of October 31
	2016				2015
	In millions
Value-added taxes receivable	$	795			$	942
Supplier and other receivables	1,700				1,316
Prepaid and other current assets	1,087				1,193
Deferred tax assets(1)	—				1,047
	$	3,582			$	4,498

(1)	Effective November 1, 2015, HP prospectively adopted ASU 2015-17, “Balance Sheet Classification of Deferred Taxes” and as a result classified all deferred assets and liabilities as non-current.

Property, Plant and Equipment, Net

	As of October 31
	2016				2015
	In millions
Land, buildings and leasehold improvements	$	2,421			$	2,272
Machinery and equipment, including equipment held for lease	3,663				3,459
	6,084				5,731
Accumulated depreciation	(4,348		)		(4,239		)
	$	1,736			$	1,492

Depreciation expense was $316 million, $302 million and $344 million in fiscal years 2016, 2015 and 2014, respectively.

Other Non-Current Assets

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 8: Balance Sheet Details (Continued)

	As of October 31
	2016				2015
	In millions
Tax indemnifications receivable(1)	$	1,591			$	—
Deferred tax assets(2)	254				216
Other	1,339				1,376
	$	3,184			$	1,592

(1)	In connection with the TMA discussed under Note 7, “Taxes on Earnings”.

(2)	Effective November 1, 2015, HP prospectively adopted ASU 2015-17, “Balance Sheet Classification of Deferred Taxes” and as a result classified all deferred assets and liabilities as non-current.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 8: Balance Sheet Details (Continued)

Other Accrued Liabilities

	As of October 31
	2016				2015
	In millions
Other accrued taxes	$	755			$	1,007
Warranty	729				871
Sales and marketing programs	2,312				2,181
Other	1,922				2,182
	$	5,718			$	6,241

Other Non-Current Liabilities

	As of October 31
	2016				2015
	In millions
Pension, post-retirement, and post-employment liabilities	$	2,705			$	2,203
Deferred tax liability	1,116				1,813
Tax liability	1,910				1,803
Deferred revenue	865				812
Other	737				783
	$	7,333			$	7,414

Note 9: Goodwill

Goodwill allocated to HP’s reportable segments and changes in the carrying amount of goodwill were as follows:

	Personal Systems				Printing				Total
	In millions
Balance at October 31, 2014(1)	$	2,588			$	3,103			$	5,691
Dispositions	—				(11		)		(11		)
Balance at October 31, 2015(1)	2,588				3,092				5,680
Acquisitions	5				—				5
Dispositions(2)	—				(63		)		(63		)
Balance at October 31, 2016(1)	$	2,593			$	3,029			$	5,622

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 9: Goodwill (Continued)

(1)	Goodwill is net of accumulated impairment losses of $0.8 billion related to Corporate Investments.

(2)	Divestiture of technology assets, including licensing and distribution rights, for certain software offerings to Open Text Corporation. See Note 18, “Divestitures”.

Goodwill is tested for impairment at the reporting unit level. As of October 31, 2016, our reporting units are consistent with the reportable segments identified in Note 3, “Segment Information.” There were no goodwill impairments in fiscal years 2016 and 2015. HP will continue to evaluate goodwill on an annual basis as of the beginning of its fourth fiscal quarter and whenever events or changes in circumstances indicate there may be a potential impairment.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 10: 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 October 31, 2016																As of October 31, 2015
	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 and Investments:
Time deposits	$	—			$	2,092			$	—			$	2,092			$	—			$	1,111			$	—			$	1,111
Money market funds	2,568				—				—				2,568				4,303				—				—				4,303
Marketable equity securities	5				4				—				9				6				3				—				9
Foreign bonds	—				—				—				—				—				42				—				42
Mutual funds	44				—				—				44				—				—				—				—
Other debt securities	—				2				—				2				—				2				—				2
Derivative Instruments:
Interest rate contracts	—				48				—				48				—				38				—				38
Foreign currency contracts	—				266				11				277				—				213				2				215
Other derivatives	—				—				—				—				—				5				—				5
Total assets	$	2,617			$	2,412			$	11			$	5,040			$	4,309			$	1,414			$	2			$	5,725
Liabilities
Derivative Instruments:
Interest rate contracts	$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Foreign currency contracts	—				94				1				95				—				302				2				304
Other derivatives	—				2				—				2				—				—				—				—
Total liabilities	$	—			$	96			$	1			$	97			$	—			$	302			$	2			$	304

There were no transfers between levels within the fair value hierarchy during fiscal years 2016 and 2015.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 10: 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 NAV, or models utilizing market observable inputs. The fair value of debt investments was 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 forward contracts, interest rate and total return swaps and at times, option contracts to hedge certain foreign currency and interest rate 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 11, “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 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 estimated fair value of HP’s short- and long-term debt was $7.1 billion at October 31, 2016 compared to its carrying amount of $6.8 billion at that date. The estimated fair value of HP’s short- and long-term debt approximated its carrying value of $8.9 billion at October 31, 2015. If measured at fair value in the Consolidated 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 accrued liabilities, the carrying amounts approximate fair value due to their short maturities. If measured at fair value in the Consolidated 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 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 Balance Sheets, these would generally be classified in Level 3 of the fair value hierarchy.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 11: Financial Instruments

Cash Equivalents and Available-for-Sale Investments

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 11: Financial Instruments (Continued)

	As of October 31, 2016																As of October 31, 2015
	Cost				Gross Unrealized Gain				Gross Unrealized Loss				Fair Value				Cost				Gross Unrealized Gain				Gross Unrealized Loss				Fair Value
	In millions
Cash Equivalents:
Time deposits	$	2,092			$	—			$	—			$	2,092			$	1,111			$	—			$	—			$	1,111
Money market funds	2,568				—				—				2,568				4,303				—				—				4,303
Total cash equivalents	4,660				—				—				$	4,660			5,414				—				—				$	5,414
Available-for-Sale Investments:
Equity securities in public companies	1				3				—				4				1				4				—				5
Foreign bonds	—				—				—				—				32				10				—				42
Mutual funds	35				9				—				44				—				—				—				—
Other debt securities	2				—				—				2				2				—				—				2
Total available-for-sale investments	38				12				—				50				35				14				—				49
Total cash equivalents and available-for-sale investments	$	4,698			$	12			$	—			$	4,710			$	5,449			$	14			$	—			$	5,463

All highly liquid investments with original maturities of three months or less at the date of acquisition are considered cash equivalents. As of October 31, 2016 and 2015, the carrying amount of cash equivalents approximated fair value due to the short period of time to maturity. Interest income related to cash, cash equivalents and debt securities was approximately $24 million in fiscal year 2016, $75 million in fiscal year 2015, and $72 million in fiscal year 2014. Time deposits were primarily issued by institutions outside the United States as of October 31, 2016 and 2015. The estimated fair value of the available-for-sale investments may not be representative of values that will be realized in the future.

There was no gross unrealized loss as of October 31, 2016 and 2015.

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

	As of October 31, 2016
	Amortized Cost				Fair Value
	In millions
Due in one year	$	2			$	2
Due in one to five years	—				—
Due in more than five years	35				44
	$	37			$	46

Equity securities in privately held companies include cost basis and equity method investments and are included in Other non-current assets in the Consolidated Balance Sheets. These amounted to $16 million and $13 million as of October 31, 2016 and 2015, respectively.

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 exposures. HP may designate its derivative contracts as fair value hedges or cash flow

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 11: Financial Instruments (Continued)

hedges. 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 Balance Sheets. HP classifies cash flows

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 11: Financial Instruments (Continued)

from its derivative programs with the activities that correspond to the underlying hedged items in the Consolidated Statements of Cash Flows.

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 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 $2 million and $138 million as of October 31, 2016 and 2015, 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 October 31, 2016 and 2015.

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 in the Consolidated 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 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 lease or 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) equity in the Consolidated 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 item.

Net Investment Hedges

HP used forward contracts designated as net investment hedges to hedge net investments in certain foreign subsidiaries whose functional currency was the local currency. As part of the Separation, HP disposed of all these foreign subsidiaries and no longer utilizes net investment hedges. HP recorded the effective portion of such derivative instruments together with changes in the fair value of the hedged items in Cumulative translation adjustment as a separate component of stockholders’ (deficit) equity.

Other Derivatives

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 11: Financial Instruments (Continued)

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.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 11: Financial Instruments (Continued)

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

Fair Value of Derivative Instruments in the Consolidated Balance Sheets

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

	As of October 31, 2016																				As of October 31, 2015
	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
Derivatives designated as hedging instruments
Fair value hedges:
Interest rate contracts	$	2,000			$	—			$	48			$	—			$	—			$	3,175			$	1			$	37			$	—			$	—
Cash flow hedges:
Foreign currency contracts	11,852				203				63				52				12				10,859				171				10				165				79
Total derivatives designated as hedging instruments	13,852				203				111				52				12				14,034				172				47				165				79
Derivatives not designated as hedging instruments
Foreign currency contracts	3,934				11				—				31				—				8,955				33				1				37				23
Other derivatives	150				—				—				2				—				173				5				—				—				—
Total derivatives not designated as hedging instruments	4,084				11				—				33				—				9,128				38				1				37				23
Total derivatives	$	17,936			$	214			$	111			$	85			$	12			$	23,162			$	210			$	48			$	202			$	102

Offsetting of Derivative Instruments

HP recognizes all derivative instruments on a gross basis in the Consolidated 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 October 31, 2016 and 2015, information related to the potential effect of HP’s master netting agreements and collateral security agreements was as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 11: Financial Instruments (Continued)

	In the Consolidated Balance Sheets
	(i)				(ii)				(iii) = (i)–(ii)				(iv)				(v)						(vi) = (iii)–(iv)–(v)
	Gross Amount Recognized				Gross Amount Offset				Net Amount Presented				Gross Amounts Not Offset
				Derivatives				Financial Collateral						Net Amount
	In millions
As of October 31, 2016
Derivative assets	$	325			$	—			$	325			$	88			$	189			(1)		$	48
Derivative liabilities	$	97			$	—			$	97			$	88			$	2			(2)		$	7
As of October 31, 2015
Derivative assets	$	258			$	—			$	258			$	162			$	9			(1)		$	87
Derivative liabilities	$	304			$	—			$	304			$	162			$	—			(2)		$	142

(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.

Effect of Derivative Instruments on the Consolidated Statements of Earnings

The pre-tax effect of derivative instruments and related hedged items in a fair value hedging relationship for fiscal years ended October 31, 2016, 2015 and 2014 was as follows:

		Gain (Loss) Recognized in Income on Derivative Instruments and Related Hedged Items
Derivative Instrument		Location		2016				2015				2014				Hedged Item		Location		2016				2015				2014
				In millions																In millions
Interest rate contracts		Interest and other, net		$	10			$	(12	)		$	1			Fixed-rate debt		Interest and other, net		$	(10	)		$	12			$	(1	)

The pre-tax effect of derivative instruments in cash flow and net investment hedging relationships for fiscal years ended October 31, 2016, 2015 and 2014 was as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 11: Financial Instruments (Continued)

	Gain (Loss) Recognized in OCI on Derivatives (Effective Portion)												Gain (Loss) Reclassified from Accumulated OCI Into Earnings (Effective Portion)
	2016				2015				2014				Location		2016				2015				2014
	In millions														In millions
Cash flow hedges:
Foreign currency contracts	$	199			$	610			$	226			Net revenue		$	20			$	995			$	(17	)
													Cost of revenue		(84		)		(156		)		(74		)
													Other operating expenses		1				(3		)		—
													Interest and other, net		—				(4		)		—
Continuing Operations	199				610				226				Earnings from continuing operations		(63		)		832				(91		)
Discontinued Operations	—				481				111				(Loss) earnings from discontinued operations		—				480				(60		)
Total	$	199			$	1,091			$	337			Total		$	(63	)		$	1,312			$	(151	)
Net investment hedges:
Foreign currency contracts													Interest and other, net
Continuing Operations	$	—			$	—			$	—			Continuing Operations		$	—			$	—			$	—
Discontinued Operations	—				228				57				Discontinued Operations		—				—				—
Total	$	—			$	228			$	57			Total		$	—			$	—			$	—

As of October 31, 2016, 2015 and 2014, no portion of the hedging instruments’ gain or loss was excluded from the assessment of effectiveness for fair value, cash flow or net investment hedges. Hedge ineffectiveness for fair value, cash flow and net investment hedges was not material for fiscal years 2016, 2015 and 2014.

As of October 31, 2016, HP expects to reclassify an estimated net Accumulated other comprehensive income of approximately $139 million, net of taxes, to earnings in the next twelve months along with the earnings effects of the related forecasted transactions associated with cash flow hedges.

The pre-tax effect of derivative instruments not designated as hedging instruments on the Consolidated Statements of Earnings for fiscal years 2016, 2015 and 2014 was as follows:

	Gain (Loss) Recognized in Income on Derivatives
	Location		2016				2015				2014
			In millions
Foreign currency contracts	Interest and other, net		$	(34	)		$	293			$	(63	)
Other derivatives	Interest and other, net		(6		)		(1		)		—
Total			$	(40	)		$	292			$	(63	)

Note 12: Borrowings

Notes Payable and Short-Term Borrowings

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 12: Borrowings (Continued)

	As of October 31
	2016							2015
	Amount Outstanding				Weighted-Average Interest Rate			Amount Outstanding				Weighted-Average Interest Rate
	In millions							In millions
Current portion of long-term debt(1)	$	51			4.1	%		$	2,160			3.3	%
Notes payable to banks, lines of credit and other(2)	27				2.0	%		34				4.7	%
	$	78						$	2,194

(1)	During the month of November 2015, HP redeemed and repaid $2.1 billion of fixed-rate U.S. Dollar Global Notes.

(2)	As of October 31, 2016, HP and HP’s subsidiaries had available borrowing resources of $822 million from uncommitted lines of credit for short-term or long-term financing.

Long-Term Debt

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 12: Borrowings (Continued)

	As of October 31
	2016				2015
	In millions
U.S. Dollar Global Notes(1)(2)
2006 Shelf Registration Statement:
$500 issued at discount to par at a price of 99.694% in February 2007 at 5.4%, due March 2017, paid November 2015	$	—			$	162
$750 issued at discount to par at a price of 99.932% in March 2008 at 5.5%, due March 2018, paid November 2015	—				283
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
$1,250 issued at discount to par at a price of 99.799% in May 2011 at 4.3%, due June 2021	1,248				1,248
$1,000 issued at discount to par at a price of 99.816% in September 2011 at 4.375%, due September 2021	999				999
$1,500 issued at discount to par at a price of 99.707% in December 2011 at 4.65%, due December 2021	1,498				1,497
$500 issued at discount to par at a price of 99.771% in March 2012 at 4.05%, due September 2022	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
$650 issued at discount to par at a price of 99.911% in December 2010 at 2.2%, due December 2015, paid November 2015	—				309
$1,000 issued at discount to par at a price of 99.958% in May 2011 at 2.65%, due June 2016, paid November 2015	—				346
$1,300 issued at discount to par at a price of 99.784% in September 2011 at 3.0%, due September 2016, paid November 2015	—				390
$850 issued at discount to par at a price of 99.790% in December 2011 at 3.3%, due December 2016, paid November 2015	—				220
$1,500 issued at discount to par at a price of 99.985% in March 2012 at 2.6%, due September 2017, paid November 2015	—				436
2012 Shelf Registration Statement:
$750 issued at par in January 2014 at three-month USD LIBOR plus 0.94%, due January 2019	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
	6,493				8,638
Other, including capital lease obligations, at 0.51%-8.30%, due in calendar years 2015-2024	244				96
Fair value adjustment related to hedged debt	72				103
Less: current portion	(51		)		(2,160		)
Total long-term debt	$	6,758			$	6,677

(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.

(2)	HP redeemed and repaid $2.1 billion aggregate principal amount outstanding of its U.S. Dollar Global Notes during the month of November 2015.

As disclosed in Note 11, “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.

Interest expense on borrowings recognized as “Interest and other, net” on the Consolidated Statements of Earnings during the fiscal years of 2016, 2015 and 2014 was $273 million, $167 million and $167 million, respectively.

As of October 31, 2016, aggregate future maturities of debt at face value (excluding a fair value adjustment related to hedged debt of $72 million and a discount on debt issuance of $7 million), including capital lease obligations were as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 12: Borrowings (Continued)

Fiscal year	In millions
2017	$	78
2018	66
2019	447
2020	38
2021	2,920
Thereafter	3,222
Total	$	6,771

Extinguishment of Debt

During the month of November 2015, HP redeemed and repaid a total of $2.1 billion fixed-rate U.S. Dollar Global Notes.

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. As of October 31, 2016, 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 $4.0 billion. HP’s euro commercial paper program provides for the issuance of commercial paper outside of the United States denominated in U.S. dollars, euros or British pounds up to a maximum aggregate principal amount of $4.0 billion or the equivalent in those alternative currencies. The combined aggregate principal amount of commercial paper outstanding under those programs at any one time cannot exceed the $4.0 billion authorized by HP’s Board of Directors.

Credit Facility

As of October 31, 2016, HP 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 April 2, 2019. Commitment fees, interest rates and other terms of borrowing under the credit facilities vary based on HP’s external credit ratings. As of October 31, 2016, HP was in compliance with the financial covenants in the credit agreement governing the revolving credit facility.

Available Borrowing Resources

As of October 31, 2016, HP’s and HP’s subsidiaries had available borrowing resources of $822 million from uncommitted lines of credit in addition to the senior unsecured committed revolving credit facility discussed above.

Note 13: Stockholders’ (Deficit) Equity

Dividends

The stockholders of HP common stock are entitled to receive dividends when and as declared by HP’s Board of Directors. Dividends declared were $0.50 per share of common stock in fiscal year 2016, $0.67 per share of common stock in fiscal year 2015 and $0.61 per share of common stock in fiscal year 2014.

Share Repurchase Program

HP’s share repurchase program authorizes both open market and private repurchase transactions. In fiscal year 2016, HP executed share repurchases of 100 million shares. In fiscal year 2016, HP settled total shares for $1.2 billion

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 13: Stockholders’ (Deficit) Equity (Continued)

In fiscal year 2015, HP executed share repurchases of 75 million shares which included 0.5 million shares settled in November 2015. In fiscal year 2015, HP settled total shares for $2.9 billion. In fiscal year 2014, HP executed share repurchases of 92 million shares and settled total shares for $2.7 billion.

The shares repurchased in fiscal years 2016, 2015 and 2014 were all open market repurchase transactions. On October 10, 2016, the Board authorized an additional $3.0 billion for future repurchases of its outstanding shares of common stock. HP intends to use the additional authorization to repurchase its shares from time to time to offset the dilution created by shares issued under employee stock plans and to repurchase shares opportunistically. As of October 31, 2016, HP had approximately $3.8 billion remaining under repurchase authorization.

Taxes related to Other Comprehensive (Loss) Income

	For the fiscal years ended October 31
	2016				2015				2014
	In millions
Tax (provision) benefit on change in unrealized gains (losses) on available-for-sale securities:
Tax (provision) benefit on unrealized gains (losses) arising during the period	$	(3	)		$	2			$	(1	)
	(3		)		2				(1		)
Tax benefit (provision) on change in unrealized components of cash flow hedges:
Tax benefit (provision) on unrealized (losses) gains arising during the period	32				(294		)		(174		)
Tax (provision) benefit on (gains) losses reclassified into earnings	(1		)		368				(18		)
	31				74				(192		)
Tax benefit on change in unrealized components of defined benefit plans:
Tax benefit on losses arising during the period	242				5				181
Tax provision on amortization of actuarial loss and prior service benefit	(12		)		(18		)		(18		)
Tax (provision) benefit on curtailments, settlements and other	(213		)		24				(9		)
	17				11				154
Tax provision on change in cumulative translation adjustment	—				(73		)		(27		)
Tax benefit (provision) on other comprehensive (loss) income	$	45			$	14			$	(66	)

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 13: Stockholders’ (Deficit) Equity (Continued)

Changes and reclassifications related to Other Comprehensive loss, net of taxes

	For the fiscal years ended October 31
	2016				2015				2014
	In millions
Other comprehensive loss, net of taxes:
Change in unrealized (losses) gains on available-for-sale securities:
Unrealized (losses) gains arising during the period	$	(2	)		$	(15	)		$	6
Gains reclassified into earnings	—				—				(1		)
	(2		)		(15		)		5
Change in unrealized components of cash flow hedges:
Unrealized gains arising during the period	231				797				163
Losses (gain) reclassified into earnings(1)	62				(944		)		133
	293				(147		)		296
Change in unrealized components of defined benefit plans:
Losses arising during the period	(517		)		(543		)		(2,575		)
Amortization of actuarial loss and prior service benefit	39				425				241
Curtailments, settlements and other	(30		)		139				42
	(508		)		21				(2,292		)
Change in cumulative translation adjustment	—				(280		)		(112		)
Other comprehensive loss, net of taxes	$	(217	)		$	(421	)		$	(2,103	)

(1)	Reclassification of pre-tax (gains) losses on cash flow hedges into the Consolidated Statements of Earnings was as follows:

	For the fiscal years ended October 31
	2016				2015				2014
	In millions
Net revenue	$	(20	)		$	(995	)		$	17
Cost of revenue	84				156				74
Other operating expenses	(1		)		3				—
Interest and other, net	—				4				—
Earnings from continuing operations	63				(832		)		91
(Loss) earnings from discontinued operations	—				(480		)		60
Total	$	63			$	(1,312	)		$	151

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 13: Stockholders’ (Deficit) Equity (Continued)

The components of accumulated other comprehensive loss, net of taxes as of October 31, 2016 and changes during fiscal year 2016 were as follows:

	Net unrealized gain on available-for-sale securities				Net unrealized gain (loss) on cash flow hedges				Unrealized components of defined benefit plans				Cumulative translation adjustment				Accumulated other comprehensive loss
	In millions
Balance at beginning of period	$	66			$	(39	)		$	(5,355	)		$	(974	)		$	(6,302	)
Separation of Hewlett Packard Enterprise(1)	(55		)		(68		)		4,230				974				5,081
Other comprehensive (loss) income before reclassifications	(2		)		231				(547		)		—				(318		)
Reclassifications of losses into earnings	—				62				39				—				101
Balance at end of period	$	9			$	186			$	(1,633	)		$	—			$	(1,438	)

(1)	Represents amounts reclassified to retained earnings and distributed to Hewlett Packard Enterprise in connection with the Separation on November 1, 2015.

Note 14: 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, stock options, performance-based awards and shares purchased under the 2011 ESPP.

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

	For the fiscal years ended October 31
	2016				2015				2014
	In millions, except per share amounts
Numerator:
Net earnings from continuing operations	$	2,666			$	3,718			$	2,924
Net (loss) earnings from discontinued operations	(170		)		836				2,089
Net earnings(1)	$	2,496			$	4,554			$	5,013
Denominator:
Weighted-average shares used to compute basic net EPS	1,730				1,814				1,882
Dilutive effect of employee stock plans	13				22				30
Weighted-average shares used to compute diluted net EPS	1,743				1,836				1,912
Basic net earnings (loss) per share:
Continuing operations	$	1.54			$	2.05			$	1.55
Discontinued operations	(0.10		)		0.46				1.11
Basic net earnings per share	$	1.44			$	2.51			$	2.66
Diluted net earnings (loss) per share:
Continuing operations	$	1.53			$	2.02			$	1.53
Discontinued operations	(0.10		)		0.46				1.09
Diluted net earnings per share	$	1.43			$	2.48			$	2.62
Anti-dilutive weighted-average options(2)	13				23				26

(1)	HP considers restricted stock that provides the holder with a non-forfeitable right to receive dividends to be participating securities. As of October 31, 2016 and 2015, there were no participating securities outstanding. For fiscal year 2014, the net earnings allocated to participating securities were not significant.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 14: Earnings Per Share (Continued)

(2)

HP excludes 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, average unrecognized compensation cost and excess tax benefits. The assumed proceeds of a restricted stock unit include the sum of its average unrecognized compensation cost and excess tax benefits.

Note 15: Litigation and Contingencies

HP is involved in lawsuits, claims, investigations and proceedings, including those identified below, consisting of 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 October 31, 2016, 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 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 cooperative society with the authority to collect and distribute 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 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 French-speaking chambers of the Court of First Instance of Brussels seeking a declaratory judgment that no copyright levies are payable on sales of MFDs in Belgium or, alternatively, that copyright levies payable on such MFDs must be assessed based on the copying speed when operated in the normal print mode set by default in the device. On November 16, 2012, the court issued a decision holding that Belgium law is not in conformity with EU law in a number of respects and ordered that, by November 2013, Reprobel substantiate that the amounts claimed by Reprobel are commensurate with the harm resulting from legitimate copying under the reprographic exception. HP subsequently appealed that court decision to the Courts of Appeal in Brussels seeking to confirm that the Belgian law is not in conformity with EU law and that, if Belgian law is interpreted in a manner consistent with EU law, no payments by HP are required or, alternatively, the payments already made by HP are sufficient to comply with its obligations under Belgian law. On October 23, 2013, the Court of Appeal in Brussels stayed the proceedings and referred several questions to the CJEU relating to whether the Belgian reprographic copyright levies system is in conformity with EU law. The case was heard by the CJEU on January 29, 2015 and on November 12, 2015, the CJEU published its judgment providing that a national legislation such as the

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Note 15: Litigation and Contingencies (Continued)

Belgian one at issue in the main proceedings is incompatible with EU law on multiple legal points, as argued by HP. The Court of Appeal in Brussels now has to rule on the litigation between HP and Reprobel following the answers provided by the CJEU.

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Notes to Consolidated Financial Statements (Continued)

Note 15: Litigation and Contingencies (Continued)

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 has filed a motion for a new trial and has publicly stated that it will appeal the jury’s verdict. HP expects that any 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. vs. 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 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 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. On November 14, 2016, the defendants filed a partial motion to dismiss and a motion to compel arbitration as to one plaintiff. On November 15, 2016, the defendants filed a motion to strike the class definition so as to shorten the class period.

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.

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Note 15: Litigation and Contingencies (Continued)

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 cancelled at the request of the Customs Tribunal. 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 and Other Anti-Corruption Investigations. The German Public Prosecutor’s Office (“German PPO”) has been conducting an investigation into allegations that current 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. The Regional Court of Leipzig will determine whether the matter should be admitted to trial. The Polish Central Anti-Corruption Bureau is also investigating potential corrupt actions by a former employee of Hewlett-Packard Polska Sp. z o.o., a former indirect subsidiary of HP, in connection with certain public-sector transactions in Poland. Criminal proceedings are pending before the Regional Court in Warsaw against a number of individuals, including the former employee of Hewlett-Packard Polska Sp. Z o.o, on charges of bribery and bid-rigging. HP is cooperating with these investigating agencies.

Cement & Concrete Workers District Council Pension Fund v. Hewlett-Packard Company, et al. is a putative securities class action filed on August 3, 2012 in the United States District Court for the Northern District of California alleging, among other things, that from November 13, 2007 to August 6, 2010 the defendants violated Sections 10(b) and 20(a) of the Exchange Act by making statements regarding HP’s Standards of Business Conduct (“SBC”) that were false and misleading because Mr. Hurd, who was serving as HP’s Chairman and Chief Executive Officer during that period, had been violating the SBC and concealing his misbehavior in a manner that jeopardized his continued employment with HP. On February 7, 2013, the defendants moved to dismiss the amended complaint. On August 9, 2013, the court granted the defendants’ motion to dismiss with leave to amend the complaint by September 9, 2013. The plaintiff filed an amended complaint on September 9, 2013, and the defendants moved to dismiss that complaint on October 24, 2013. On June 25, 2014, the court issued an order granting the defendants’ motions to dismiss and on July 25, 2014, plaintiff filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit. On November 4, 2014, the plaintiff-appellant filed its opening brief in the United States Court of Appeals for the Ninth Circuit. HP filed its answering brief on January 16, 2015 and the plaintiff-appellant’s reply brief was filed on March 2, 2015. The appellate court heard oral argument on July 7, 2016.

Class Actions re Authentication of Supplies

Four purported consumer class actions have been 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.

On September 23, 2016, Bayse v. HP, Inc. was filed in the United States District Court for the Northern District of Alabama alleging claims for injunctive relief, negligence and/or wantonness, breach of warranty, and violations of the Sherman Act - 15 U.S.C. § 1, et seq. Plaintiffs seek to certify a class of all persons in the United States who purchased and/or otherwise owned a printer manufactured and/or sold by HP in the OfficeJet, OfficeJet Pro and/or OfficeJet Pro X line of printers, any time between September 18, 2009 and September 18, 2016.

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On September 28, 2016, Doty v. HP, Inc. was filed in the United States District Court for the Central District of California alleging claims for violations of California’s False Advertising Law, Cal. Bus. & Prof. Code § 17500, et seq. and Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq. Plaintiffs added a claim under the Consumer Legal Remedies Act, Cal. Civ. Code § 1750, et seq. on October 31, 2016. Plaintiffs seek to certify a class of all United States citizens who, between the applicable statute of limitations and the present, had an HP printer that was modified to reject third party-ink cartridges.

On October 7, 2016, San Miguel v. HP Inc. was filed in the United States District Court for the Northern District of California alleging claims for violation of California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq. and for unjust enrichment. Plaintiffs seek to certify a class of all persons in the United States who own one or more HP printer or device in any of the following categories: OfficeJet 6220 series; OfficeJet Pro 6230 series; OfficeJet 6820 series; OfficeJet Pro 6830 series; OfficeJet 8600 series; and OfficeJet Pro X series.

On November 9, 2016, Ware v. HP Inc. was filed in the United States District Court for the Northern District of California alleging claims for violation of California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq. and for unjust enrichment. Plaintiffs seek to certify a class of all persons in the United States who own one or more HP printer or device in any of the following categories: OfficeJet 6220 series; OfficeJet Pro 6230 series; OfficeJet 6820 series; OfficeJet Pro 6830 series; OfficeJet 8600 series; and OfficeJet Pro X series.

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, on charges of conspiracy to commit wire fraud and multiple counts of wire fraud. The indictment alleges that 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. On November 15, 2016, the SEC announced that Stouffer Egan, the former CEO of Autonomy’s US-based operations, settled charges relating to his participation in an accounting scheme to meet internal sales targets and analyst revenue expectations. HP is continuing to cooperate with the ongoing enforcement actions.

Litigation. As described below, HP is involved in various stockholder litigation relating to, among other things, its October 2011 acquisition of Autonomy and its November 20, 2012 announcement that it recorded a non-cash charge for the impairment of goodwill and intangible assets within Hewlett Packard Enterprise’s software segment of approximately $8.8 billion in the fourth quarter of its 2012 fiscal year and HP’s statements that, based on HP’s findings from an ongoing investigation, the majority of this impairment charge related to accounting improprieties, misrepresentations to the market and disclosure failures at Autonomy that occurred prior to and in connection with HP’s acquisition of Autonomy and the impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long term. This stockholder litigation was commenced against, among others, certain current and former HP executive officers, certain current and former members of HP’s Board of Directors and certain advisors to HP. The plaintiffs in these litigation matters are seeking to recover certain compensation paid by HP to the defendants and/or other damages. Pursuant to the separation and distribution agreement, HP and Hewlett Packard Enterprise share equally the cost and any damages arising from these litigation matters. These matters include the following:

• In re Hewlett-Packard Shareholder Derivative Litigation (the “Federal Court Derivative Action”) consists of seven consolidated lawsuits filed beginning on November 26, 2012 in the United States District Court for the Northern District of California alleging, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act by concealing material information and making false statements related to HP’s acquisition of Autonomy and the financial performance of HP’s enterprise services business. The lawsuits also allege that the defendants breached their fiduciary duties, wasted corporate assets and were unjustly enriched in connection with HP’s acquisition of Autonomy and by causing HP to repurchase its own stock at allegedly inflated prices between August 2011 and October 2012. One lawsuit further alleges that certain individual defendants engaged in or assisted insider trading and thereby breached their fiduciary duties, were unjustly

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Note 15: Litigation and Contingencies (Continued)

enriched and violated Sections 25402 and 25403 of the California Corporations Code. On May 3, 2013, the lead plaintiff filed a consolidated complaint alleging, among other things, that the defendants concealed material information and made false statements related to HP’s acquisition of Autonomy and Autonomy’s Intelligent Data Operating Layer technology and thereby violated Sections 10(b) and 20(a) of the Exchange Act, breached their fiduciary duties, engaged in “abuse of control” over HP, corporate waste and were unjustly enriched. The litigation was stayed until June 2014. The lead plaintiff filed a stipulation of proposed settlement on June 30, 2014. The court declined to grant preliminary approval to this settlement, and, on December 19, 2014, also declined to grant preliminary approval to a revised version of the settlement. On January 22, 2015, the lead plaintiff moved for preliminary approval of a further revised version of the settlement. On March 13, 2015, the court issued an order granting preliminary approval to the settlement. On July 24, 2015, the court held a hearing to entertain any remaining objections to the settlement and decide whether to grant final approval of the settlement. On July 30, 2015, the court granted final approval to the settlement and denied all remaining objections to the settlement. Three objectors to the settlement appealed the court’s final approval order to the Ninth Circuit. Plaintiffs-appellants filed their opening briefs on December 30, 2015. HP’s response brief was filed on February 29, 2016, and the reply briefs were filed on May 12, 2016.

• Autonomy Corporation Limited v. Michael Lynch and Sushovan Hussain. On April 17, 2015, four HP subsidiaries (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 HP subsidiary claimants filed their replies to the defenses and the asserted counter-claim on March 11, 2016.

• In re HP ERISA Litigation consists of three consolidated putative class actions filed beginning on December 6, 2012 in the United States District Court for the Northern District of California alleging, among other things, that from August 18, 2011 to November 22, 2012, the defendants breached their fiduciary obligations to HP’s 401(k) Plan and its participants and thereby violated Sections 404(a)(1) and 405(a) of the Employee Retirement Income Security Act of 1974, as amended, by concealing negative information regarding the financial performance of Autonomy and HP’s enterprise services business and by failing to restrict participants from investing in HP stock. On August 16, 2013, HP filed a motion to dismiss the lawsuit. On March 31, 2014, the court granted HP’s motion to dismiss this action with leave to amend. On July 16, 2014, the plaintiffs filed a second amended complaint containing substantially similar allegations and seeking substantially similar relief as the first amended complaint. On June 15, 2015, the court granted HP’s motion to dismiss the second amended complaint in its entirety and denied plaintiffs leave to file another amended complaint. On July 2, 2015, plaintiffs appealed the court’s order to the United States Court of Appeals for the Ninth Circuit.

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 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

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Note 15: Litigation and Contingencies (Continued)

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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 16: 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.

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 IP 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 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 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 the cross-indemnifications related to the tax matter agreements and litigations effective upon the Separation on November 1, 2015, see Note 7, “Taxes on Earnings” and Note 15, “Litigation and Contingencies”, 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,

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Note 16: Guarantees, Indemnifications and Warranties (Continued)

contractual warranty terms, repair costs, product call rates, average cost per call, current period product shipments and ongoing product failure rates, as well as specific product class failures outside of HP’s baseline experience, affect the estimated warranty obligation.

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

	As of October 31
	2016				2015
	In millions
Balance at beginning of year	$	1,184			$	1,385
Accruals for warranties issued	966				1,134
Adjustments related to pre-existing warranties (including changes in estimates)	(23		)		(16		)
Settlements made (in cash or in kind)	(1,147		)		(1,319		)
Balance at end of year	$	980			$	1,184

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Notes to Consolidated Financial Statements (Continued)

Note 17: Commitments

Lease Commitments

HP leases certain real and personal property under non-cancelable operating leases. Certain leases require HP to pay property taxes, insurance and routine maintenance and include renewal options and escalation clauses. Rent expense from continuing operations was approximately $0.2 billion in each of fiscal years 2016, 2015 and 2014.

As of October 31, 2016, future minimum operating lease commitments were as follows:

Fiscal year	In millions
2017	$	199
2018	204
2019	175
2020	136
2021	75
Thereafter	279
Less: Sublease rental income	(218		)
Total	$	850

Unconditional Purchase Obligations

As of October 31, 2016, HP had unconditional purchase obligations of $249 million. These unconditional purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on HP and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction. These unconditional purchase obligations are primarily related to inventory and service support. Unconditional purchase obligations exclude agreements that are cancelable without penalty.

As of October 31, 2016, future unconditional purchase obligations were as follows:

Fiscal year	In millions
2017	$	63
2018	61
2019	38
2020	38
2021	38
Thereafter	11
Total	$	249

Note 18: Divestitures

During fiscal year 2016, HP entered into agreements to divest certain technology assets, including licensing and distribution rights, for certain software offerings to Open Text Corporation, an enterprise information management company for $475 million. These divestitures were substantially completed during the fourth quarter of fiscal year 2016. The technology assets sold were previously reported within the Commercial Hardware business unit within the Printing segment. The total gain recognized from the divestitures was $401 million. The gains associated with these divestitures were included in Selling, general and administrative expenses in the Consolidated Statements of Earnings.

HP INC. AND SUBSIDIARIES

Quarterly Summary

(Unaudited)

(In millions, except per share amounts)

	For the three-month fiscal periods ended in fiscal year 2016
	January 31				April 30				July 31				October 31
Net revenue	$	12,246			$	11,588			$	11,892			$	12,512
Cost of revenue	9,961				9,338				9,720				10,221
Research and development	292				301				298				318
Selling, general and administrative	1,037				1,002				719				1,082
Restructuring and other charges	20				100				36				49
Amortization of intangible assets	8				6				2				—
Defined benefit plan settlement charges	—				—				—				179
Total costs and expenses	11,318				10,747				10,775				11,849
Earnings from continuing operations	928				841				1,117				663
Interest and other, net	(94		)		(5		)		(36		)		347
Earnings from continuing operations before taxes	834				836				1,081				1,010
Provision for taxes	(184		)		(176		)		(238		)		(497		)
Net earnings from continuing operations	650				660				843				513
Net loss from discontinued operations	(58		)		(31		)		(60		)		(21		)
Net earnings	$	592			$	629			$	783			$	492
Net earnings (loss) per share:(1)
Basic
Continuing operations	$	0.37			$	0.38			$	0.49			$	0.30
Discontinued operations	(0.04		)		(0.01		)		(0.03		)		(0.01		)
Total basic net earnings per share	$	0.33			$	0.37			$	0.46			$	0.29
Diluted
Continuing operations	$	0.36			$	0.38			$	0.49			$	0.30
Discontinued operations	(0.03		)		(0.02		)		(0.04		)		(0.02		)
Total diluted net earnings per share	$	0.33			$	0.36			$	0.45			$	0.28
Cash dividends paid per share	$	0.12			$	0.12			$	0.12			$	0.12
Range of per share stock prices on the New York Stock Exchange
Low	$	9.24			$	8.91			$	11.31			$	13.55
High	$	14.82			$	12.96			$	14.27			$	15.88

	For the three-month fiscal periods ended in fiscal year 2015
	January 31				April 30				July 31				October 31
Net revenue	$	13,858			$	12,977			$	12,362			$	12,266
Cost of revenue	11,173				10,415				10,036				9,900
Research and development	304				305				300				282
Selling, general and administrative	1,222				1,228				1,058				1,212
Amortization of intangible assets	27				25				24				26
Restructuring and other charges	14				7				1				41
Defined benefit plan settlement (credits) charges	—				—				(64		)		7
Total costs and expenses	12,740				11,980				11,355				11,468
Earnings from continuing operations	1,118				997				1,007				798
Interest and other, net	(121		)		(78		)		(90		)		(99		)
Earnings from continuing operations before taxes	997				919				917				699
(Provision for) benefit from taxes	(227		)		(186		)		(217		)		816
Net earnings from continuing operations	770				733				700				1,515
Net earnings (loss) from discontinued operations	596				278				154				(192		)
Net earnings	$	1,366			$	1,011			$	854			$	1,323
Net earnings (loss) per share:(1)
Basic
Continuing operations	$	0.42			$	0.41			$	0.39			$	0.84
Discontinued operations	0.33				0.15				0.08				(0.11		)
Total basic net earnings per share	$	0.75			$	0.56			$	0.47			$	0.73
Diluted
Continuing operations	$	0.41			$	0.40			$	0.39			$	0.83
Discontinued operations	0.32				0.15				0.08				(0.10		)
Total diluted net earnings per share	$	0.73			$	0.55			$	0.47			$	0.73
Cash dividends paid per share	$	0.16			$	0.16			$	0.18			$	0.18
Range of per share stock prices on the New York Stock Exchange
Low	$	35.77			$	31.00			$	29.52			$	24.30
High	$	41.10			$	38.86			$	35.60			$	30.78

(1)	Net EPS for each quarter is computed using the weighted-average number of shares outstanding during that quarter, while EPS for the fiscal year is computed using the weighted-average number of shares outstanding during the year. Hence, the sum of the EPS for each of the four quarters may not equal the EPS for the fiscal year.