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’ Equity (Deficit)	60
Notes to Consolidated Financial Statements	61
Note 1: Overview and Summary of Significant Accounting Policies	61
Note 2: Segment Information	69
Note 3: Restructuring and Other Charges	73
Note 4: Retirement and Post-Retirement Benefit Plans	74
Note 5: Stock-Based Compensation	83
Note 6: Taxes on Earnings	88
Note 7: Supplementary Financial Information	92
Note 8: Goodwill	95
Note 9: Fair Value	96
Note 10: Financial Instruments	99
Note 11: Borrowings	104
Note 12: Stockholders’ Deficit	105
Note 13: Net Earnings Per Share	108
Note 14: Litigation and Contingencies	109
Note 15: Guarantees, Indemnifications and Warranties	114
Note 16: Commitments	115
Note 17: Discontinued Operations	115
Note 18: Divestitures	116
Note 19: Subsequent Events	117
Quarterly Summary	118

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, 2017 and 2016, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended October 31, 2017. 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, 2017 and 2016, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 2017, 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, 2017, 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 14, 2017 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

San Jose, California

December 14, 2017

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, 2017, 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, 2017, 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, 2017 and 2016, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended October 31, 2017 and our report dated December 14, 2017 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

San Jose, California

December 14, 2017

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, 2017, 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, 2017. The effectiveness of HP’s internal control over financial reporting as of October 31, 2017 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 14, 2017		Catherine A. Lesjak Chief Financial Officer December 14, 2017

HP INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

	For the fiscal years ended October 31
	2017				2016				2015
	In millions, except per share amounts
Net revenue	$	52,056			$	48,238			$	51,463
Costs and expenses:
Cost of revenue	42,478				39,240				41,524
Research and development	1,190				1,209				1,191
Selling, general and administrative	4,376				3,833				4,719
Restructuring and other charges	362				205				63
Acquisition-related charges	125				7				1
Amortization of intangible assets	1				16				102
Defined benefit plan settlement charges (credits)	5				179				(57		)
Total costs and expenses	48,537				44,689				47,543
Earnings from continuing operations	3,519				3,549				3,920
Interest and other, net	(243		)		212				(388		)
Earnings from continuing operations before taxes	3,276				3,761				3,532
(Provision for) benefit from taxes	(750		)		(1,095		)		186
Net earnings from continuing operations	2,526				2,666				3,718
Net (loss) earnings from discontinued operations	—				(170		)		836
Net earnings	$	2,526			$	2,496			$	4,554
Net earnings per share:
Basic
Continuing operations	$	1.50			$	1.54			$	2.05
Discontinued operations	—				(0.10		)		0.46
Total basic net earnings per share	$	1.50			$	1.44			$	2.51
Diluted
Continuing operations	$	1.48			$	1.53			$	2.02
Discontinued operations	—				(0.10		)		0.46
Total diluted net earnings per share	$	1.48			$	1.43			$	2.48
Weighted-average shares used to compute net earnings per share:
Basic	1,688				1,730				1,814
Diluted	1,702				1,743				1,836

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
	2017				2016				2015
	In millions
Net earnings	$	2,526			$	2,496			$	4,554
Other comprehensive income (loss) before taxes:
Change in unrealized components of available-for-sale securities:
Unrealized gains (losses) arising during the period	4				1				(17		)
Change in unrealized components of cash flow hedges:
Unrealized (losses) gains arising during the period	(651		)		199				1,091
Losses (gains) reclassified into earnings	199				63				(1,312		)
	(452		)		262				(221		)
Change in unrealized components of defined benefit plans:
Gains (losses) arising during the period	455				(759		)		(548		)
Amortization of actuarial loss and prior service benefit	74				51				443
Curtailments, settlements and other	3				183				115
	532				(525		)		10
Change in cumulative translation adjustment	—				—				(207		)
Other comprehensive income (loss) before taxes	84				(262		)		(435		)
(Provision for) benefit from taxes	(64		)		45				14
Other comprehensive income (loss), net of taxes	20				(217		)		(421		)
Comprehensive income	$	2,546			$	2,279			$	4,133

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

HP INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	As of October 31
	2017				2016
	In millions, except par value
ASSETS
Current assets:
Cash and cash equivalents	$	6,997			$	6,288
Accounts receivable	4,414				4,114
Inventory	5,786				4,484
Other current assets	5,121				3,582
Total current assets	22,318				18,468
Property, plant and equipment	1,878				1,736
Goodwill	5,622				5,622
Other non-current assets	3,095				3,161
Total assets	$	32,913			$	28,987
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Notes payable and short-term borrowings	$	1,072			$	78
Accounts payable	13,279				11,103
Employee compensation and benefits	894				759
Taxes on earnings	214				231
Deferred revenue	1,012				919
Other accrued liabilities	5,941				5,718
Total current liabilities	22,412				18,808
Long-term debt	6,747				6,735
Other non-current liabilities	7,162				7,333
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $0.01 par value (300 shares authorized; none issued)	—				—
Common stock, $0.01 par value (9,600 shares authorized; 1,650 and 1,712 shares issued and outstanding at October 31, 2017, and 2016 respectively)	16				17
Additional paid in capital	380				1,030
Retained deficit	(2,386		)		(3,498		)
Accumulated other comprehensive loss	(1,418		)		(1,438		)
Total stockholders’ deficit	(3,408		)		(3,889		)
Total liabilities and stockholders’ deficit	$	32,913			$	28,987

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
	2017				2016				2015
	In millions
Cash flows from operating activities:
Net earnings	$	2,526			$	2,496			$	4,554
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	354				332				4,061
Stock-based compensation expense	224				182				709
Restructuring and other charges	362				200				1,017
Deferred taxes on earnings	238				401				(700		)
Other, net	134				(32		)		1,426
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(453		)		565				572
Inventory	(1,346		)		(291		)		(330		)
Accounts payable	2,161				928				31
Taxes on earnings	73				106				(137		)
Restructuring and other	(233		)		(157		)		(1,243		)
Other assets and liabilities	(363		)		(1,478		)		(2,934		)
Net cash provided by operating activities	3,677				3,252				7,026
Cash flows from investing activities:
Investment in property, plant and equipment	(402		)		(433		)		(3,603		)
Proceeds from sale of property, plant and equipment	69				6				424
Purchases of available-for-sale securities and other investments	(1,919		)		(126		)		(259		)
Maturities and sales of available-for-sale securities and other investments	535				133				302
Payments made in connection with business acquisitions, net of cash acquired	—				(7		)		(2,644		)
Proceeds from business divestitures, net	—				475				246
Net cash (used in) provided by investing activities	(1,717		)		48				(5,534		)
Cash flows from financing activities:
Proceeds from short-term borrowings with original maturities less than 90 days, net	202				97				74
Proceeds from short-term borrowings with original maturities greater than 90 days	887				—				6,023
Proceeds from debt, net of issuance costs	5				4				14,735
Payment of short term borrowings with original maturities greater than 90 days	(3		)		—				(6,296		)
Payment of debt	(84		)		(2,188		)		(9,571		)
Settlement of cash flow hedges	(9		)		4				(4		)
Net transfer of cash and cash equivalents to Hewlett Packard Enterprise Company	—				(10,375		)		—
Net proceeds (payments) related to stock-based award activities	57				32				(20		)
Repurchase of common stock	(1,412		)		(1,161		)		(2,883		)
Cash dividends paid	(894		)		(858		)		(1,250		)
Net cash (used in) provided by financing activities	(1,251		)		(14,445		)		808
Increase (decrease) in cash and cash equivalents	709				(11,145		)		2,300
Cash and cash equivalents at beginning of period	6,288				17,433				15,133
Cash and cash equivalents at end of period	$	6,997			$	6,288			$	17,433
Supplemental cash flow disclosures:
Income taxes paid, net of refunds	$	438			$	587			$	1,012
Interest expense paid	$	322			$	318			$	532
Supplemental schedule of non-cash activities:
Net assets transferred to Hewlett Packard Enterprise Company	$	—			$	22,144			$	—
Purchase of assets under capital leases	$	200			$	185			$	70

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

HP INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (Deficit)

	Common Stock								Additional Paid-in Capital								Accumulated Other Comprehensive Loss				Total HP Stockholders’ Equity (Deficit)				Non- controlling Interests of Discontinued Operations				Total Stockholders' Equity (Deficit)
	Number of Shares				Par Value					Retained Earnings (Deficit)
	In millions, except number of shares in thousands
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	)
Net earnings													2,526								2,526								2,526
Other comprehensive income, net of taxes																	20				20								20
Comprehensive income																					2,546								2,546
Issuance of common stock in connection with employee stock plans and other	18,532								52												52								52
Repurchases of common stock	(81,043		)		(1		)		(926		)		(520		)						(1,447		)						(1,447		)
Cash dividends declared													(894		)						(894		)						(894		)
Stock-based compensation expense									224												224								224
Balance October 31, 2017	$	1,649,580			$	16			$	380			$	(2,386	)		$	(1,418	)		$	(3,408	)		$	—			$	(3,408	)

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, 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”).

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 4, “Retirement and Post-Retirement Benefit Plans”, Note 5, “Stock-Based Compensation”, Note 6, “Taxes on Earnings”, Note 7, “Supplementary Financial Information”, Note 14, “Litigation and Contingencies” and Note 15, “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. The historical statements of comprehensive income and cash flows and the balances related to stockholders’ deficit have not been revised to reflect the effect of the Separation. For further information on discontinued operations, see Note 17, “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.

Reclassifications

HP has made changes to the alignment of its business units in order to align its business unit financial reporting more closely with its current business structure. HP made these changes to its business unit information in prior reporting periods on an as-is basis. The reporting changes had no impact on previously reported segment net revenue, consolidated net revenue, earnings from continuing operations, net earnings or net earnings per share (“EPS”). See Note 2, “Segment Information”, for a further discussion of HP’s business unit realignments.

HP has reclassified certain prior-year amounts to conform to the current-year presentation including the adoption of Accounting Standards Update (“ASU”) 2015-03, “Simplifying the Presentation of Debt Issuance Costs” and ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”.

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.

Recently Adopted Accounting Pronouncements

In January 2017, the Financial Accounting Standard Board (“FASB”) issued guidance, which simplifies the accounting for goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. HP is required to adopt the guidance in the first quarter of fiscal year 2021 using a prospective approach. Earlier adoption is permitted. HP has early adopted this guidance in

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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

the fourth quarter of fiscal year 2017 in connection with its annual goodwill impairment test. The implementation of this guidance did not have an impact on its Consolidated Financial Statements.

In March 2016, the FASB issued guidance, which amends the existing accounting standards for share-based payments, including the accounting for income taxes and forfeitures, as well as the classifications on the statements of cash flows. HP early adopted the amendments in the first quarter of fiscal year 2017. Beginning November 1, 2016, stock-based compensation excess tax benefits or tax deficiencies are reflected in the Consolidated Statements of Earnings as a component of the provision for taxes, whereas they previously were recognized as additional paid-in capital in the stockholders’ deficit in the Consolidated Balance Sheets. HP has elected to continue to estimate forfeitures expected to occur to determine the stock-based compensation expense. Additionally, the Consolidated Statements of Cash Flows now present excess tax benefits as an operating activity rather than as a financing activity, while the payment of withholding taxes on the settlement of stock-based compensation awards is presented as a financing activity rather than as an operating activity, with prior periods adjusted accordingly. This adoption resulted in a change to both cash flow from operating and investing activities of $22 million and $536 million for the years ended October 31, 2016 and 2015 respectively. See Note 6, “Taxes on Earnings”, for additional impact on the Consolidated Financial Statements.

In May 2015, the FASB issued guidance, which amends the existing disclosures for investments measured at net asset value (“NAV”) per share (or its equivalent), as a practical expedient for fair value. This amendment removes the requirement to categorize these investments within the fair value hierarchy. The amendment also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV as a practical expedient. HP adopted the guidance in the first quarter of fiscal year 2017. Other than the change in presentation of certain pension-related assets that use NAV as a practical expedient, which requires retrospective application, the adoption of this new guidance did not have an impact on the Consolidated Financial Statements.

In April 2015, the FASB issued guidance, which 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. HP adopted the guidance prospectively in the first quarter of fiscal year 2017. The implementation of this guidance did not have an impact on the Consolidated Financial Statements.

In April 2015, the FASB issued guidance, which 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 adopted the guidance in the first quarter of fiscal year 2017. The adoption resulted in the reclassification of unamortized debt issuance costs related to HP’s U.S. Dollar Global Notes from “Other non-current assets” to “Long-term debt” within the Consolidated Balance Sheets of $23 million as of October 31, 2016.

Recently Issued Accounting Pronouncements Not Yet Adopted

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

In January 2017, the FASB issued guidance, which amended the existing accounting standards for business combinations. The amendments clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. HP is required to adopt the guidance in the first quarter of fiscal year 2019. Earlier adoption is permitted. HP is currently evaluating the timing and the impact of this guidance on the Consolidated Financial Statements.

In November 2016, the FASB issued guidance, which addresses the presentation of restricted cash in the statement of cash flows. The guidance requires entities to present the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. HP is required to adopt the guidance retrospectively in the first quarter of fiscal year 2019. Earlier adoption is permitted. HP is currently evaluating the timing and the impact of this guidance on the Consolidated Financial Statements.

In October 2016, the FASB issued guidance, which amends the existing accounting for Intra-Entity Transfers of Assets Other Than Inventory. The guidance requires an entity to recognize the income tax consequences of intra-entity transfers, other

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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

than inventory, when the transfer occurs. It also requires modified retrospective transition with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. HP is required to adopt the guidance in the first quarter of fiscal year 2019. Earlier adoption is permitted. HP is currently evaluating the timing and the impact of this guidance on the Consolidated Financial Statements.

In August 2016, the FASB issued guidance, which amends the existing accounting standards for the classification of certain cash receipts and cash payments on the statement of cash flows. HP is required to adopt the guidance in the first quarter of fiscal year 2019. Earlier adoption is permitted. HP is currently evaluating the timing and the impact of this guidance on the 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 timing and the impact of this guidance on the 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 the 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 guidance primarily addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. HP is required to adopt the guidance in the first quarter of fiscal year 2019. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with other amendments related specifically to equity securities without readily determinable fair values applied prospectively. Earlier adoption is permitted. HP is currently evaluating the timing and the impact of this guidance on the Consolidated Financial Statements.

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

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 INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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

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 the 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 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. 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.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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

Retirement and Post-Retirement Plans

HP has various defined benefit, other contributory and non-contributory 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 4, “Retirement and Post-Retirement Benefit Plans” for a full description of these plans and the accounting and funding policies.

Advertising

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 $544 million in fiscal year 2017, $586 million in fiscal year 2016 and $635 million in fiscal year 2015.

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, including those as a result of Separation, and are distinct from ongoing operational costs. These costs primarily relate to information technology costs such as advisory, consulting and non-recurring labor costs.

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% of gross accounts receivable as of October 31, 2017 and 2016. No single customer accounts for more than 10% of gross accounts receivable as of October 31, 2017 or 2016. 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 70% and 78% of HP’s supplier receivables of $951 million and $774 million as of October 31, 2017 and 2016, 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 on the outcome of certain unresolved tax matters, which may not be resolved for several years. The net receivable as of October 31, 2017 and 2016 was $1.7 billion and $1.6 billion, respectively.

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, if required, to reduce the cost of inventory to market (net realizable value) are made, 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.

Business Combinations

HP includes the results of operations of acquired businesses in HP’s consolidated results prospectively from the acquisition date. HP allocates the purchase consideration to the assets acquired, liabilities assumed, and non-controlling interests in the acquired entity generally based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired, liabilities assumed and non-controlling interests in the acquired entity is recorded as goodwill. The primary items that generate goodwill include the value of the synergies between the

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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

acquired company and HP and the value of the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. Acquisition-related charges are recognized separately from the business combination and are expensed as incurred. These charges include, direct expenses such as third-party professional and legal fees, and integration-related costs.

Goodwill

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 quantitative 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, a quantitative impairment test will be performed.

In the quantitative 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 re-evaluates its reporting unit fair values, which may result in an adjustment to the discount rate and/or other assumptions. This re-evaluation 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. If the fair value of the reporting unit is less than its carrying amount, goodwill is impaired and the excess of the reporting unit’s carrying value over the fair value is recognized as an impairment loss.

Debt and Marketable Equity Securities Investments

HP determines the appropriate classification of its investments at the time of purchase and re-evaluates the classifications at each balance sheet date. Debt and marketable equity securities are generally considered available-for-sale. All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. Marketable debt securities with maturities of twelve months or less are classified as short-term investments and marketable debt securities with maturities greater than twelve months are classified based on their availability for use in current operations. Marketable equity securities, including mutual funds, are classified as either short-term or long-term based on the nature of each security and its availability for use in current operations.

Debt and marketable equity securities 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 on 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 10, “Financial Instruments” for a full description of HP’s derivative instrument activities and related accounting policies.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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

Loss Contingencies

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 14, “Litigation and Contingencies” for a full description of HP’s loss contingencies and related accounting policies.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 2: Segment Information

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

HP’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.

A summary description of each segment is as follows:

Personal Systems provides Commercial and Consumer personal computers (“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 use by customers, including enterprise and SMBs, with a focus on robust designs, security, serviceability, connectivity, reliability and manageability in networked environments. Additionally, HP offers a range of services and solutions to enterprise and SMBs 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, gaming and light productivity.

Personal Systems groups its global business capabilities into Notebooks, Desktops, Workstations and Other when reporting business performance.

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

•

Office Printing Solutions delivers HP’s office printers, supplies, services and solutions to SMBs and large enterprises. 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 solutions and award-winning JetIntelligence Laserjet products.

•

Home Printing Solutions delivers innovative printing products and solutions for the home and home business or small office customers utilizing both HP’s Ink and Laser technologies. Initiatives such as Instant Ink and Continuous Ink Supply System provide business model innovation to benefit and expand HP’s existing customer base, while new innovations like Sprocket drive print relevance for a mobile generation.

•	Graphics Solutions offers large-format, commercial and industrial solutions to print service providers and packaging converters through the largest portfolio of printers and presses (HP DesignJet, HP Latex, HP Scitex, HP Indigo and HP PageWide Web Presses).

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

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 2: Segment Information (Continued)

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

•	Commercial Hardware consists of Office Printing Solutions, Graphics Solutions and 3D Printing, excluding supplies;

•	Consumer Hardware includes Home Printing Solutions, excluding supplies; and

•	Supplies comprises a set of highly innovative consumable products, ranging from Ink and Laser print cartridges; and media to graphics supplies and 3D printing supplies, for recurring use in Consumer and Commercial Hardware.

Corporate Investments includes HP Labs and certain business incubation projects.

The accounting policies HP uses to derive segment results are substantially the same as those used by HP in preparing these financial statements. HP derives the results of the business segments directly from its internal management reporting system. Segment net revenue includes revenues from sales to external customers and certain revenues related to Managed Print Services arrangements, which are eliminated for the purposes of reporting HP’s consolidated net revenue.

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

Business Unit Realignment

Effective at the beginning of its first quarter of fiscal year 2017, HP implemented an organizational change to align its business unit financial reporting more closely with its current business structure. This organizational change resulted in the transfer of a portion of LaserJet printers from Commercial to Consumer within the Printing segment. HP reflected this change to its business unit information in prior reporting periods on an as-is basis that resulted in the reclassification of revenues between the Commercial and Consumer business units of Printing. The reporting change had no impact to previously reported segment net revenue, consolidated net revenue, earnings from continuing operations, net earnings or net earnings per share.

Segment Operating Results from Continuing Operations

	Personal Systems				Printing				Corporate Investments				Total Segments				Eliminations and Other				Total
	In millions
2017
Net revenue	$	33,374			$	18,801			$	8			$	52,183			$	(127	)		$	52,056
Earnings (loss) from continuing operations	$	1,213			$	3,161			$	(87	)		$	4,287
2016
Net revenue	$	29,987			$	18,260			$	7			$	48,254			$	(16	)	(1)	$	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

(1) For the fiscal year 2016, the amount includes the recognition of revenue previously deferred in relation to sales to the

pre-Separation finance entity.

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

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 2: Segment Information (Continued)

	For the fiscal years ended October 31
	2017				2016				2015
					In millions
Net revenue:
Total segments	$	52,183			$	48,254			$	52,772
Net revenue eliminations and other	(127		)		(16		)		(1,309		)
Total net revenue	$	52,056			$	48,238			$	51,463
Earnings from continuing operations before taxes:
Total segment earnings from operations	$	4,287			$	4,180			$	4,744
Corporate and unallocated costs and eliminations	(51		)		(42		)		(503		)
Stock-based compensation expense	(224		)		(182		)		(212		)
Restructuring and other charges	(362		)		(205		)		(63		)
Acquisition-related charges	(125		)		(7		)		(1		)
Amortization of intangible assets	(1		)		(16		)		(102		)
Defined benefit plan settlement (charges) credits	(5		)		(179		)		57
Interest and other, net	(243		)		212				(388		)
Total earnings from continuing operations before taxes	$	3,276			$	3,761			$	3,532

Segment Assets

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 were as follows:

	As of October 31
	2017				2016
	In millions
Personal Systems	$	12,156			$	10,686
Printing	10,548				9,959
Corporate Investments	3				1
Corporate and unallocated assets	10,206				8,341
Total assets	$	32,913			$	28,987

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 2017, 2016 and 2015, 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
	2017				2016				2015
					In millions
United States	$	19,321			$	18,042			$	17,746
Other countries	32,735				30,196				33,717
Total net revenue	$	52,056			$	48,238			$	51,463

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 2: Segment Information (Continued)

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

	As of October 31
	2017				2016
	In millions
United States	$	866			$	737
Singapore	372				314
Other countries	640				685
Total net property, plant and equipment	$	1,878			$	1,736

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

Net revenue by segment and business unit was as follows:

	For the fiscal years ended October 31
	2017				2016				2015
					In millions
Notebooks	$	19,782			$	16,982			$	17,271
Desktops	10,298				9,956				10,941
Workstations	2,042				1,870				2,018
Other	1,252				1,179				1,290
Personal Systems	33,374				29,987				31,520
Supplies	12,416				11,875				13,979
Commercial Hardware	3,973				4,035				4,350
Consumer Hardware	2,412				2,350				2,903
Printing	18,801				18,260				21,232
Corporate Investments	8				7				20
Total segment net revenue	52,183				48,254				52,772
Net revenue eliminations and other	(127		)		(16		)		(1,309		)
Total net revenue	$	52,056			$	48,238			$	51,463

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 3: Restructuring and Other Charges

Summary of Restructuring Plans

HP’s restructuring activities in fiscal years 2017, 2016 and 2015 summarized by plan were as follows:

	Fiscal 2017 Plan								Fiscal 2015 Plan								Fiscal 2012 Plan
	Severance				Infrastructure and other(1)				Severance and PRP(2)				Infrastructure and other				Severance and EER(3)				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
Charges	117				94				15				—				1				—				227
Cash payments	(68		)		(23		)		(36		)		(2		)		(5		)		—				(134		)
Non-cash and other adjustments	3				(52		)		6				—				—				—				(43		)
Accrued balance as of October 31, 2017	$	76			$	19			$	6			$	2			$	3			$	2			$	108
Total costs incurred to date as of October 31, 2017	$	141			$	94			$	171			$	27			$	1,075			$	44			$	1,552
Reflected in Consolidated Balance Sheets:
Other accrued liabilities	$	76			$	19			$	6			$	2			$	3			$	1			$	107
Other non-current liabilities	$	—			$	—			$	—			$	—			$	—			$	1			$	1

(1)	Infrastructure and other includes asset impairment charges of $52 million in fiscal year 2017 associated with the consolidation of manufacturing into global hubs.

(2)	PRP represents Phased Retirement Program.

(3)	EER represents Enhanced Early Retirement.

Fiscal 2017 Plan

On October 10, 2016, HP’s Board of Directors approved a restructuring plan (the “Fiscal 2017 Plan”) which it 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 labor and non-labor actions. HP estimates that approximately half of the expected cumulative pre-tax costs will relate to severance and the remaining will relate to infrastructure, non-labor actions and other charges, as described below. 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 included labor and non-labor actions. The Fiscal 2015 Plan was considered substantially complete as of October 31, 2016 and HP does not expect any further activity associated with this plan. Approximately 3,000 employees exited by the end of fiscal year 2016.

Fiscal 2012 Plan

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

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 3: Restructuring and Other Charges (Continued)

Other charges

Other charges include non-recurring costs, including those as a result of the Separation, and are distinct from ongoing operational costs. These costs primarily relate to information technology costs such as advisory, consulting and non-recurring labor costs. HP incurred $135 million and $30 million of other charges in fiscal year 2017 and 2016, respectively. There were no other charges incurred in fiscal year 2015.

Note 4: 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, 2017 and 2016, the fair value of plan assets of the DPSP was $580 million and $606 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 for partially subsidized medical coverage under the above programs, and employees hired after 2002 but before August 2008, are eligible for credits under the HP Inc. Retiree Welfare Benefits Plan. Credits offered after September 2008 are provided in the form of matching credits on employee contributions made to a voluntary employee beneficiary association upon attaining age 45 or as part of early retirement programs. 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 offers various defined contribution plans for U.S. and non-U.S. employees. Total defined contribution expense was $103 million in fiscal year 2017, $100 million in fiscal year 2016 and $92 million in fiscal year 2015.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 4: Retirement and Post-Retirement Benefit Plan (Continued)

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

Pension and Post-Retirement Benefit Expense

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

	For the fiscal years ended October 31
	2017				2016				2015				2017				2016				2015				2017				2016				2015
	U.S. Defined Benefit Plans												Non-U.S. Defined Benefit Plans												Post-Retirement Benefit Plans
	In millions
Service cost	$	—			$	—			$	1			$	48			$	47			$	208			$	1			$	1			$	5
Interest cost	469				543				556				18				20				289				18				20				28
Expected return on plan assets	(677		)		(732		)		(849		)		(31		)		(36		)		(601		)		(26		)		(33		)		(39		)
Amortization and deferrals:
Actuarial loss (gain)	73				55				52				40				28				213				(17		)		(12		)		(11		)
Prior service credit	—				—				—				(3		)		(3		)		(15		)		(19		)		(17		)		(19		)
Net periodic benefit (credit) cost	(135		)		(134		)		(240		)		72				56				94				(43		)		(41		)		(36		)
Curtailment gain	—				—				—				—				(1		)		—				—				—				—
Settlement loss (gain)	3				180				(79		)		2				3				—				—				—				—
Special termination benefits	—				—				—				—				—				7				—				4				1
Plan expense allocation(1)	—				—				—				—				—				25				—				—				28
Total benefit (credit) cost from continuing operations	$	(132	)		$	46			$	(319	)		$	74			$	58			$	126			$	(43	)		$	(37	)		$	(7	)
Summary of total benefit (credit) cost:
Continuing operations	$	(132	)		$	46			$	(319	)		$	74			$	58			$	126			$	(43	)		$	(37	)		$	(7	)
Discontinued operations	—				—				236				—				—				105				—				—				(28		)
Total benefit (credit) cost	$	(132	)		$	46			$	(83	)		$	74			$	58			$	231			$	(43	)		$	(37	)		$	(35	)

(1)	Plan expense 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 re-measurement 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 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.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 4: Retirement and Post-Retirement Benefit Plan (Continued)

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

	For the fiscal years ended October 31
	2017			2016			2015			2017			2016			2015			2017			2016			2015
	U.S. Defined Benefit Plans									Non-U.S. Defined Benefit Plans									Post-Retirement Benefit Plans
Discount rate	4.0	%		4.4	%		4.4	%		1.6	%		2.3	%		3.0	%		3.4	%		3.6	%		3.6	%
Expected increase in compensation levels	2.0	%		2.0	%		2.0	%		2.7	%		2.5	%		2.4	%		—			—			—
Expected long-term return on plan assets	6.9	%		6.9	%		7.2	%		4.4	%		5.6	%		6.9	%		7.3	%		8.0	%		9.0	%

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 4: Retirement and Post-Retirement Benefit Plan (Continued)

	As of October 31
	2017				2016				2017				2016				2017				2016
	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	$	10,176			$	11,077			$	692			$	853			$	390			$	434
Actual return on plan assets	1,223				736				86				(14		)		26				11
Employer contributions	33				32				27				20				9				18
Participant contributions	—				—				10				10				53				48
Benefits paid	(583		)		(339		)		(14		)		(15		)		(127		)		(121		)
Settlement	(11		)		(1,330		)		(6		)		(9		)		—				—
Currency impact	—				—				20				4				—				—
Transfers to Hewlett Packard Enterprise	—				—				—				(157		)		—				—
Fair value of assets — end of year	$	10,838			$	10,176			$	815			$	692			$	351			$	390
Change in benefits obligation
Projected benefit obligation — beginning of year	$	12,144			$	12,709			$	1,120			$	1,082			$	535			$	597
Acquisition/addition of plans	—				—				—				(2		)		—				—
Service cost	—				—				48				47				1				1
Interest cost	469				543				18				20				18				20
Participant contributions	—				—				10				10				53				48
Actuarial loss (gain)	247				561				(77		)		120				(17		)		16
Benefits paid	(583		)		(339		)		(14		)		(15		)		(127		)		(121		)
Plan amendments	—				—				(3		)		—				—				(30		)
Curtailment	—				—				—				(1		)		—				—
Settlement	(11		)		(1,330		)		(6		)		(9		)		—				—
Special termination benefits	—				—				—				—				—				4
Currency impact	—				—				36				(4		)		—				—
Transfers to Hewlett Packard Enterprise	—				—				—				(128		)		—				—
Projected benefit obligation — end of year	$	12,266			$	12,144			$	1,132			$	1,120			$	463			$	535
Funded status at end of year	$	(1,428	)		$	(1,968	)		$	(317	)		$	(428	)		$	(112	)		$	(145	)
Accumulated benefit obligation	$	12,266			$	12,144			$	1,014			$	1,013			—				—

The weighted-average assumptions used to calculate the projected benefit obligations for the fiscal years ended October 31, 2017 and 2016 were as follows:

	For the fiscal years ended October 31
	2017			2016			2017			2016			2017			2016
	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						Post-Retirement Benefit Plans
Discount rate	3.8	%		4.0	%		2.0	%		1.6	%		3.5	%		3.4	%
Expected increase in compensation levels	2.0	%		2.0	%		2.4	%		2.7	%		—			—

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:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 4: Retirement and Post-Retirement Benefit Plan (Continued)

	As of October 31
	2017				2016				2017				2016				2017				2016
	U.S. Defined Benefit Plans								Non-U.S. Defined Benefit Plans								Post-Retirement Benefit Plans
									In millions
Non-current assets	$	—			$	—			$	18			$	17			$	7			$	—
Current liabilities	(33		)		(33		)		(5		)		(5		)		(7		)		(9		)
Non-current liabilities	(1,395		)		(1,935		)		(330		)		(440		)		(112		)		(136		)
Funded status at end of year	$	(1,428	)		$	(1,968	)		$	(317	)		$	(428	)		$	(112	)		$	(145	)

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, 2017
	U.S. Defined Benefit Plans				Non-U.S. Defined Benefit Plans				Post-Retirement Benefit Plans
					In millions
Net actuarial loss (gain)	$	1,327			$	279			$	(106	)
Prior service benefit	—				(20		)		(93		)
Total recognized in Accumulated other comprehensive loss	$	1,327			$	259			$	(199	)

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 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)	$	59			$	27			$	(17	)
Prior service benefit	—				(5		)		(18		)
Total expected to be recognized in net periodic benefit cost (credit)	$	59			$	22			$	(35	)

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

	As of October 31
	2017				2016				2017				2016
	U.S. Defined Benefit Plans								Non-U.S. Defined Benefit Plans
	In millions
Aggregate fair value of plan assets	$	10,838			$	10,176			$	750			$	626
Aggregate projected benefit obligation	$	12,266			$	12,144			$	1,085			$	1,070

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

	As of October 31
	2017				2016				2017				2016
	U.S. Defined Benefit Plans								Non-U.S. Defined Benefit Plans
	In millions
Aggregate fair value of plan assets	$	10,838			$	10,176			$	554			$	619
Aggregate accumulated benefit obligation	$	12,266			$	12,144			$	777			$	960

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 4: Retirement and Post-Retirement Benefit Plan (Continued)

Fair Value of Plan Assets

Effective November 1, 2016, HP retrospectively adopted ASU 2015-07 "Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)," which removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share as a practical expedient.

The table below sets forth the fair value of plan assets by asset category within the fair value hierarchy as of October 31, 2017. Refer to Note 9, “Fair Value” for details on fair value hierarchy.

	As of October 31, 2017
	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)	$	3,174			$	40			$	—			$	3,214			$	124			$	6			$	—			$	130			$	—			$	—			$	—			$	—
Debt securities(2)
Corporate	—				3,379				—				3,379				—				152				—				152				—				25				—				25
Government	—				2,513				—				2,513				—				84				—				84				—				41				—				41
Real Estate Funds	—				—				—				—				2				51				—				53				—				—				—				—
Insurance Group Annuity Contracts	—				—				—				—				—				7				—				7				—				—				—				—
Common Collective Trusts + 103-12s	—				—				—				—				—				7				—				7				—				—				—				—
Registered Investment Companies(3)	89				—				—				89				—				—				—				—				54				—				—				54
Cash and Cash Equivalents(4)	8				64				—				72				33				—				—				33				—				2				—				2
Other(5)	(172		)		(561		)		—				(733		)		5				9				1				15				(12		)		—				—				(12		)
Net plan assets subject to leveling	$	3,099			$	5,435			$	—			$	8,534			$	164			$	316			$	1			$	481			$	42			$	68			$	—			$	110
Investments using NAV as a Practical Expedient:
Alternative Investments(6)													1,444																13																198
Common Contractual Funds(7)													13																286																—
Common Collective Trusts and 103-12 Investment Entities(8)													732																—																39
Registered Investment Companies(3)													115																35																4
Investments at Fair Value													$	10,838															$	815															$	351

The table below sets forth the fair value of plan assets by asset category within the fair value hierarchy as of October 31, 2016.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 4: Retirement and Post-Retirement Benefit Plan (Continued)

	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			$	106			$	15			$	—			$	121			$	—			$	1			$	—			$	1
Debt securities(2)
Corporate	—				3,132				—				3,132				—				125				—				125				—				26				—				26
Government	—				1,782				—				1,782				—				63				—				63				—				42				—				42
Real Estate Funds	—				—				—				—				1				43				—				44				—				—				—				—
Insurance Group Annuity Contracts	—				—				—				—				—				6				1				7				—				—				—				—
Common Collective Trusts and 103-12 Investments Entities	—				—				—				—				—				7				—				7				—				—				—				—
Registered Investment Companies(3)	20				—				—				20				—				—				—				—				54				—				—				54
Cash and Cash Equivalents(4)	4				52				—				56				18				—				—				18				—				5				—				5
Other(5)	(169		)		(23		)		—				(192		)		7				16				—				23				(12		)		—				—				(12		)
Net plan assets subject to leveling	$	1,571			$	5,002			$	—			$	6,573			$	132			$	275			$	1			$	408			$	42			$	74			$	—			$	116
Investments using NAV as a Practical Expedient:
Alternative Investments(6)													1,027																13																219
Common Contractual Funds(7)													1,834																241																—
Common Collective Trusts and 103-12 Investment Entities(8)													639																—																51
Registered Investment Companies(3)													103																30																4
Investments at Fair Value													$	10,176															$	692															$	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 of 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)	Includes publicly and privately traded Registered Investment Entities.

(4)	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.

(5)	Includes reverse repurchase agreements, unsettled transactions, international insured contracts, and derivative instruments. Such unsettled transactions relate primarily to fixed income securities are settled in the first quarter of the next fiscal year. 2017 is the only year we have reverse repurchase agreements.

(6)

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.

•	Private equities include limited partnerships such as equity, buyout, venture capital, real estate and other similar funds

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 4: Retirement and Post-Retirement Benefit Plan (Continued)

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.

(7)

The Common Contractual Fund is an investment arrangement in which institutional investors pool their assets. Units may be acquired in 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 using NAV as a practical expedient.

(8)	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 using NAV as a practical expedient.

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:

		2017 Target Allocation
Asset Category		U.S. Defined Benefit Plans			Non-U.S. Defined Benefit Plans			Post-Retirement Benefit Plans
Equity-related investments		40.2	%		40.6	%		69.2	%
Debt securities		59.8	%		39.3	%		18.8	%
Real estate		—			6.3	%		2.0	%
Cash and cash equivalents		—			3.8	%		10.0	%
Other		—			10.0	%		—
Total		100.0	%		100.0	%		100.0	%

Investment Policy

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 affect 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

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 4: Retirement and Post-Retirement Benefit Plan (Continued)

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 2018, HP expects to contribute approximately $24 million to its non-U.S. pension plans, $33 million to cover benefit payments to U.S. non-qualified plan participants and $7 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, 2017, 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
2018		$	823			$	28			$	54
2019		664				30				45
2020		676				27				41
2021		695				30				38
2022		720				33				35
Next five fiscal years to October 31, 2027		3,690				210				162

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: 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
	2017				2016				2015
	In millions
Stock-based compensation expense	$	224			$	182			$	212
Income tax benefit	(71		)		(63		)		(62		)
Stock-based compensation expense, net of tax	$	153			$	119			$	150

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 company 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 units and stock options for employees transferred to Hewlett Packard Enterprise were canceled in connection with the Separation. The restricted stock units activity and stock options activity for fiscal year 2015 in the table 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 $118 million in fiscal year 2017, $48 million in fiscal year 2016 and $206 million in fiscal year 2015. The benefit realized for the tax deduction from option exercises in fiscal years 2017, 2016 and 2015 was $15 million, $9 million and $30 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 under 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.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Stock-Based Compensation (Continued)

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 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 Units

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 the fair value of restricted stock units subject to performance-adjusted vesting conditions in the Monte Carlo simulation model were as follows:

	For the fiscal years ended October 31
	2017				2016				2015
Weighted-average fair value(1)	$	20			$	13			$	47
Expected volatility(2)	30.5		%		32.5		%		33.6		%
Risk-free interest rate(3)	1.4		%		1.2		%		1.0		%
Expected performance period in years(4)	2.9				2.9				2.9

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

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

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

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

A summary of restricted stock units activity is as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Stock-Based Compensation (Continued)

	As of October 31
	2017							2016							2015
	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	28,710			$	13			29,717			$	32			40,808			$	24
Granted	15,858			$	16			29,286			$	10			26,991		(1)	$	35
Vested	(11,915	)		$	14			(4,161	)		$	13			(34,177	)		$	26
Awards canceled due to Separation	—			$	—			(23,926	)		$	32			—			$	—
Forfeited	(831	)		$	14			(2,206	)		$	14			(3,905	)		$	29
Outstanding at end of year	31,822			$	14			28,710			$	13			29,717			$	32

(1)	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 units vested in fiscal years 2017, 2016 and 2015 was $162 million, $54 million and $889 million, respectively. As of October 31, 2017, total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock units for continuing operations was $205 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.3 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:

	For the fiscal years ended October 31
	2017				2016				2015
Weighted-average fair value(1)	$	4			$	4			$	8
Expected volatility(2)	28.0		%		36.2		%		26.8		%
Risk-free interest rate(3)	1.9		%		1.8		%		1.7		%
Expected dividend yield(4)	2.8		%		3.5		%		1.8		%
Expected term in years(5)	5.5				6.0				5.9

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

(2)

For all awards granted in fiscal year 2017 and 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.

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

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Stock-Based Compensation (Continued)

(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 2017 and 2016 and the expected term was estimated using historical exercise and post-vesting termination patterns for all awards granted in fiscal year 2015; and for performance-contingent awards, the expected term represents an output from the lattice model.

A summary of stock options activity is as follows:

	As of October 31
	2017													2016													2015
	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	28,218			$	12									36,278			$	26									57,853			$	27
Granted and assumed through acquisition	104			$	19									25,425			$	6									9,086			$	36
Exercised	(9,407	)		$	11									(4,714	)		$	8									(12,845	)		$	19
Awards canceled due to Separation	—			$	—									(26,252	)		$	26									—			$	—
Forfeited/canceled/expired	(848	)		$	17									(2,519	)		$	17									(17,816	)		$	40
Outstanding at end of year	18,067			$	13			4.2		$	152			28,218			$	12			5.0		$	73			36,278			$	26			5.1		$	153
Vested and expected to vest	17,692			$	13			4.1		$	149			26,850			$	12			4.9		$	71			34,973			$	26			5.0		$	152
Exercisable	10,898			$	12			3.1		$	102			15,418			$	11			3.7		$	62			25,630			$	24			4.4		$	146

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 2017, 2016 and 2015. 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 2017, 2016 and 2015 was $77 million, $26 million and $214 million, respectively. The total grant date fair value of options vested in fiscal years 2017, 2016 and 2015 was $19 million, $11 million and $131 million, respectively.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 5: Stock-Based Compensation (Continued)

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

		As of October 31, 2017
		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		1,226			2.4		$	7			1,226			$	7
$10-$19.99		16,634			4.3		$	14			9,465			$	13
$20-$29.99		207			1.0		$	23			207			$	23
		18,067			4.2		$	13			10,898			$	12

As of October 31, 2017, total unrecognized pre-tax stock-based compensation expense related to stock options for continuing operations was $5.7 million, which is expected to be recognized over a weighted-average vesting period of 0.8 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.

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
	2017			2016			2015
	In thousands
Shares available for future grant	419,071			453,865			215,949
Shares reserved for future issuance	468,531			510,176			276,481

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: 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
	2017				2016				2015
	In millions
U.S.	$	(14	)		$	468			$	216
Non-U.S.	3,290				3,293				3,316
	$	3,276			$	3,761			$	3,532

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

	For the fiscal years ended October 31
	2017				2016				2015
	In millions
U.S. federal taxes:
Current	$	189			$	439			$	(2,206	)
Deferred	197				470				1,069
Non-U.S. taxes:
Current	302				288				431
Deferred	4				(123		)		76
State taxes:
Current	20				(35		)		362
Deferred	38				56				82
	$	750			$	1,095			$	(186	)

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

	For the fiscal years ended October 31
	2017			2016			2015
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	1.4	%		1.1	%		(6.1	)%
Lower rates in other jurisdictions, net	(13.2	)%		(9.3	)%		(1.2	)%
Research and development (“R&D”) credit	(0.5	)%		(2.4	)%		(0.2	)%
Valuation allowances	(1.9	)%		(1.2	)%		(48.0	)%
Uncertain tax positions	0.4	%		11.7	%		11.1	%
Indemnification related items	(0.3	)%		(4.1	)%		—	%
Other, net	2.0	%		(1.7	)%		4.1	%
	22.9	%		29.1	%		(5.3	)%

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 2017, HP recorded $72 million of net income tax benefits related to discrete items in the provision for taxes. These amounts primarily include tax benefits of $84 million related to restructuring and other charges, $12 million related to U.S. federal provision to return adjustments, $45 million related to Samsung acquisition-related charges, and $13 million of other net tax benefits. In addition, HP recorded tax charges of $11 million related to changes in state valuation allowances, $22 million of state provision to return adjustments, and $49 million related to uncertain tax positions.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Taxes on Earnings (Continued)

In fiscal year 2016, HP recorded $301 million of net income tax charges related to discrete items in the provision for taxes 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.

In fiscal year 2015, HP recorded $1.2 billion of net income tax benefits related to discrete items in the provision for taxes for continuing operations. 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 2017, in addition to the discrete items mentioned above, HP recorded excess tax benefits of $19 million on stock options, restricted stock and performance share units, which are reflected in the Consolidated Statements of Earnings as a component of the provision for income taxes as a result of the early adoption of ASU 2016-09 -“Improvements to Employee Share- Based Payment Accounting”. See Note 1, “Basis of Presentation”, for more details regarding the guidance.

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 $471 million ($0.28 diluted net EPS) in fiscal year 2017, $341 million ($0.20 diluted net EPS) in fiscal year 2016 and $322 million ($0.18 diluted net EPS) in fiscal year 2015. 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:

	As of October 31
	2017				2016				2015
	In millions
Balance at beginning of year	$	10,858			$	6,546			$	1,545
Increases:
For current year’s tax positions	52				468				2,102
For prior years’ tax positions	85				4,004				5,208
Decreases:
For prior years’ tax positions	(181		)		(62		)		(2,063		)
Statute of limitations expirations	(1		)		—				(46		)
Settlements with taxing authorities	(5		)		(98		)		(200		)
Balance at end of year	$	10,808			$	10,858			$	6,546

As of October 31, 2017, the amount of unrecognized tax benefits was $10.8 billion, of which up to $3.9 billion would affect HP’s effective tax rate if realized. 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. 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. 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, 2017, HP had accrued $257 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 $2.7 billion within the next 12 months.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Taxes on Earnings (Continued)

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, 2014 and 2015 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 Reports (“RAR”) for its fiscal years 2001, 2002, 2006, 2007 and 2008 tax years. The IRS adjustments 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.

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 Court of Appeals issued its opinion in November 2017 affirming the Tax Court determinations. HP is currently assessing whether or not to further appeal.

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 $21.7 billion of undistributed earnings from non-U.S. operations as of October 31, 2017 because HP intends to reinvest such earnings indefinitely outside of the U.S. 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 6: Taxes on Earnings (Continued)

	As of October 31
	2017								2016
	Deferred Tax Assets				Deferred Tax Liabilities				Deferred Tax Assets				Deferred Tax Liabilities
	In millions
Loss and credit carryforwards	$	9,914			$	—			$	8,725			$	—
Unremitted earnings of foreign subsidiaries	—				(5,554		)		—				(5,179		)
Inventory valuation	7				(34		)		—				(12		)
Intercompany transactions—excluding inventory	1,901				—				2,560				—
Fixed assets	256				(8		)		274				—
Warranty	219				—				248				—
Employee and retiree benefits	519				(3		)		592				—
Accounts receivable allowance	103				—				117				—
Intangible assets	16				(209		)		23				(213		)
Restructuring and other	13				—				17				—
Deferred revenue	231				—				206				—
Other	372				(4		)		399				(99		)
Gross deferred tax assets and liabilities	13,551				(5,812		)		13,161				(5,503		)
Valuation allowances	(8,807		)		—				(8,520		)		—
Net deferred tax assets and liabilities	$	4,744			$	(5,812	)		$	4,641			$	(5,503	)

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

	As of October 31
	2017				2016
	In millions
Long-term deferred tax assets	$	342			$	254
Long-term deferred tax liabilities	(1,410		)		(1,116		)
Total	$	(1,068	)		$	(862	)

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 2017, fiscal year 2016 and fiscal year 2015, HP executed intercompany advanced royalty payment arrangements resulting in advanced payments of $26 million, $1.2 billion, and $3.8 billion, respectively, the result of which was the recognition of zero net U.S. deferred tax assets in fiscal year 2017, 2016 and 2015. 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 12 months for fiscal year 2017, 18 months for fiscal year 2016 and 5 years for fiscal year 2015. Intercompany royalty revenue is eliminated in consolidation.

As of October 31, 2017, HP had $678 million, $2.5 billion and $28.1 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 2024. HP also has capital loss carryforwards of approximately $8 million, which will expire in 2021, and charitable contributions of $30 million, which will expire in 2022. HP has provided a valuation allowance of $93 million and $8.5 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, 2017, HP had recorded deferred tax assets for various tax credit carryforwards as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 6: Taxes on Earnings (Continued)

	Carryforward				Valuation Allowance				Initial Year of Expiration
	In millions
U.S. foreign tax credits	$	1,050			$	—			2022
U.S. R&D and other credits	920				—				2018
Tax credits in state and foreign jurisdictions	288				(115		)		2021
Balance at end of year	$	2,258			$	(115	)

Deferred Tax Asset Valuation Allowance

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

	As of October 31
	2017				2016				2015
	In millions
Balance at beginning of year	$	8,520			$	7,114			$	8,231
Income tax expense (benefit)	297				1,421				(2,183		)
Other comprehensive income, currency translation and charges to other accounts	(10		)		(15		)		1,066
Balance at end of year	$	8,807			$	8,520			$	7,114

Gross deferred tax assets at October 31, 2017, 2016 and 2015, were reduced by valuation allowances of $8.8 billion, $8.5 billion and $7.1 billion, respectively. Total valuation allowance increased by $0.3 billion in fiscal year 2017, and increased by $1.4 billion in fiscal year 2016, both years associated primarily with foreign net operating losses, and decreased by $1.1 billion in fiscal 2015, associated with the release of a valuation allowance against deferred tax assets in the United States.

Tax Matters Agreement and Other Income Tax Matters

In connection with the Separation, HP entered into the tax matters agreement (“TMA”) with Hewlett Packard Enterprise, effective on November 1, 2015, 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 the HP stockholders is determined to be taxable, Hewlett Packard Enterprise and HP would share the tax liability equally, unless the taxability of the distribution is the direct result of action taken by either Hewlett Packard Enterprise or HP subsequent to the distribution, in which case the party causing the distribution to be taxable would be responsible for any taxes imposed on the distribution.

Upon completion of the Separation on November 1, 2015, HP recorded 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, 2017 and October 31, 2016 was $1.7 billion and $1.6 billion, respectively.

Note 7: Supplementary Financial Information

Accounts Receivable

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Supplementary Financial Information (Continued)

	As of October 31
	2017				2016
	In millions
Accounts receivable	$	4,515			$	4,221
Allowance for doubtful accounts	(101		)		(107		)
	$	4,414			$	4,114

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

	As of October 31
	2017				2016				2015
	In millions
Balance at beginning of year	$	107			$	80			$	106
Provision for doubtful accounts	30				65				19
Deductions, net of recoveries	(36		)		(38		)		(45		)
Balance at end of year	$	101			$	107			$	80

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, 2017 and 2016 were not material. The costs associated with the sales of trade receivables for fiscal year 2017 and 2016 were not material.

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

	As of October 31
	2017				2016				2015
	In millions
Balance at beginning of year (1)	$	149			$	93			$	271
Trade receivables sold	9,553				8,222				6,512
Cash receipts	(9,562		)		(8,160		)		(6,671		)
Foreign currency and other	7				(6		)		(19		)
Balance at end of year (1)	$	147			$	149			$	93

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

Inventory

	As of October 31
	2017				2016
	In millions
Finished goods	$	3,857			$	3,103
Purchased parts and fabricated assemblies	1,929				1,381
	$	5,786			$	4,484

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Supplementary Financial Information (Continued)

Other Current Assets

	As of October 31
	2017				2016
	In millions
Value-added taxes receivable	$	857			$	795
Available-for-sale investments (1)	1,149				—
Supplier and other receivables	1,891				1,700
Prepaid and other current assets	1,224				1,087
	$	5,121			$	3,582

(1)	See Note 9, “Fair Value” and Note 10, “Financial Instruments” for detailed information.

Property, Plant and Equipment, Net

	As of October 31
	2017				2016
	In millions
Land, buildings and leasehold improvements	$	2,082			$	2,421
Machinery and equipment, including equipment held for lease	3,876				3,663
	5,958				6,084
Accumulated depreciation	(4,080		)		(4,348		)
	$	1,878			$	1,736

Depreciation expense was $353 million, $316 million and $302 million in fiscal years 2017, 2016 and 2015, respectively.

Other Non-Current Assets

	As of October 31
	2017				2016
	In millions
Tax indemnifications receivable(1)	$	1,695			$	1,591
Deferred tax assets	342				254
Other(2)	1,058				1,316
	$	3,095			$	3,161

(1)	In connection with the TMA discussed under Note 6, “Taxes on Earnings”.

(2)	Includes available-for-sale investments of $61 million and $55 million at October 31, 2017 and 2016, respectively.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 7: Supplementary Financial Information (Continued)

Other Accrued Liabilities

	As of October 31
	2017				2016
	In millions
Other accrued taxes	$	895			$	755
Warranty	660				729
Sales and marketing programs	2,441				2,312
Other	1,945				1,922
	$	5,941			$	5,718

Other Non-Current Liabilities

	As of October 31
	2017				2016
	In millions
Pension, post-retirement, and post-employment liabilities	$	1,999			$	2,705
Deferred tax liability	1,410				1,116
Tax liability	2,005				1,910
Deferred revenue	921				865
Other	827				737
	$	7,162			$	7,333

Interest and other, net

	For the fiscal years ended October 31
	2017				2016				2015
	In millions
Interest expense on borrowings	$	(309	)		$	(273	)		$	(167	)
Tax indemnifications(1)	47				472				—
Foreign exchange loss	(70		)		(76		)		(304		)
Other, net	89				89				83
	$	(243	)		$	212			$	(388	)

(1)	In connection with the TMA discussed under Note 6, “Taxes on Earnings”.

Note 8: Goodwill

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

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

	Personal Systems				Printing				Total
	In millions
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
Acquisitions	—				—				—
Dispositions	—				—				—
Balance at October 31, 2017(1)	$	2,593			$	3,029			$	5,622

(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, 2017, our reporting units are consistent with the reportable segments identified in Note 2, “Segment Information.” There were no goodwill impairments in fiscal years 2017 and 2016. 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.

Note 9: 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.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 9: Fair Value (Continued)

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

	As of October 31, 2017																As of October 31, 2016
	Fair Value Measured Using																Fair Value Measured Using
	Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
	In millions
Assets:
Cash Equivalents:
Corporate debt	$	—			$	1,390			$	—			$	1,390			$	—			$	2,092			$	—			$	2,092
Financial institution instruments	—				6				—				6				—				—				—				—
Government debt(1)	3,902				100				—				4,002				2,568				—				—				2,568
Available-for-Sale Investments:
Corporate debt	—				629				—				629				—				—				—				—
Financial institution instruments	—				78				—				78				—				2				—				2
Government debt(1)	—				442				—				442				—				—				—				—
Mutual funds	49				—				—				49				44				—				—				44
Marketable equity securities	6				6				—				12				5				4				—				9
Derivative Instruments:
Interest rate contracts	—				—				—				—				—				48				—				48
Foreign currency contracts	—				110				10				120				—				266				11				277
Other derivatives	—				1				—				1				—				—				—				—
Total Assets	$	3,957			$	2,762			$	10			$	6,729			$	2,617			$	2,412			$	11			$	5,040
Liabilities:
Derivative Instruments:
Interest rate contracts	$	—			$	12			$	—			$	12			$	—			$	—			$	—			$	—
Foreign currency contracts	—				358				2				360				—				94				1				95
Other derivatives	—				—				—				—				—				2				—				2
Total Liabilities	$	—			$	370			$	2			$	372			$	—			$	96			$	1			$	97

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

There were no transfers between levels within the fair value hierarchy during fiscal years 2017 and 2016.

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 10, “Financial Instruments” for a further discussion of HP’s use of derivative instruments.

Other Fair Value Disclosures

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 9: Fair Value (Continued)

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 $8.1 billion at October 31, 2017 compared to its carrying amount of $7.8 billion at that date. The estimated fair value of HP’s short- and long-term debt was $7.1 billion as compared to its carrying value of $6.8 billion at October 31, 2016. 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 within Level 3 of the fair value hierarchy.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 10: Financial Instruments

Cash Equivalents and Available-for-Sale Investments

	As of October 31, 2017																As of October 31, 2016
	Cost				Gross Unrealized Gain				Gross Unrealized Loss				Fair Value				Cost				Gross Unrealized Gain				Gross Unrealized Loss				Fair Value
	In millions
Cash Equivalents:
Corporate debt	$	1,390			$	—			$	—			$	1,390			$	2,092			$	—			$	—			$	2,092
Financial institution instruments	6				—				—				6				—				—				—				—
Government debt	4,002				—				—				4,002				2,568				—				—				2,568
Total cash equivalents	5,398				—				—				5,398				4,660				—				—				4,660
Available-for-Sale Investments:
Corporate debt(1)	629				—				—				629				—				—				—				—
Financial institution instruments(1)	78				—				—				78				2				—				—				2
Government debt(1)	443				—				(1		)		442				—				—				—				—
Marketable equity securities	5				7				—				12				6				3				—				9
Mutual funds	39				10				—				49				35				9				—				44
Total available-for-sale investments	1,194				17				(1		)		1,210				43				12				—				55
Total cash equivalents and available-for-sale investments	$	6,592			$	17			$	(1	)		$	6,608			$	4,703			$	12			$	—			$	4,715

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

All highly liquid investments with original maturities of three months or less at the date of acquisition are considered cash equivalents. As of October 31, 2017 and 2016, 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 $66 million in fiscal year 2017, $24 million in fiscal year 2016, and $75 million in fiscal year 2015. The estimated fair value of the available-for-sale investments may not be representative of values that will be realized in the future.

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

	As of October 31, 2017
	Amortized Cost				Fair Value
	In millions
Due in one year or less	$	538			$	538
Due in one to five years	612				611
	$	1,150			$	1,149

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 $37 million and $16 million as of October 31, 2017 and 2016, respectively.

Derivative Instruments

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 10: Financial Instruments (Continued)

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 hedges. HP classifies cash flows from its designated derivative contracts with the activities that correspond to the underlying hedged items on the Consolidated Statements of Cash Flows. 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.

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 $258 million and $2 million as of October 31, 2017 and 2016, 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, 2017 and 2016.

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 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.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 10: Financial Instruments (Continued)

Other Derivatives

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

For derivative instruments not designated as hedging instruments, HP recognizes changes in fair value of the derivative instrument, as well as the offsetting change in the fair value of the hedged item, in Interest and other, net in the Consolidated 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, 2017																				As of October 31, 2016
	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	$	2,500			$	—			$	—			$	—			$	12			$	2,000			$	—			$	48			$	—			$	—
Cash flow hedges:
Foreign currency contracts	16,149				92				12				245				100				11,852				203				63				52				12
Total derivatives designated as hedging instruments	18,649				92				12				245				112				13,852				203				111				52				12
Derivatives not designated as hedging instruments
Foreign currency contracts	5,801				16				—				15				—				3,934				11				—				31				—
Other derivatives	123				1				—				—				—				150				—				—				2				—
Total derivatives not designated as hedging instruments	5,924				17				—				15				—				4,084				11				—				33				—
Total derivatives	$	24,573			$	109			$	12			$	260			$	112			$	17,936			$	214			$	111			$	85			$	12

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, 2017 and 2016, 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 10: 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, 2017
Derivative assets	$	121			$	—			$	121			$	108			$	4			(1)		$	9
Derivative liabilities	$	372			$	—			$	372			$	108			$	219			(2)		$	45
As of October 31, 2016
Derivative assets	$	325			$	—			$	325			$	88			$	189			(1)		$	48
Derivative liabilities	$	97			$	—			$	97			$	88			$	2			(2)		$	7

(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, 2017, 2016 and 2015 was as follows:

		(Loss) Gain Recognized in Income on Derivative Instruments and Related Hedged Items
Derivative Instrument		Location		2017				2016				2015				Hedged Item		Location		2017				2016				2015
				In millions																In millions
Interest rate contracts		Interest and other, net		$	(60	)		$	10			$	(12	)		Fixed-rate debt		Interest and other, net		$	60			$	(10	)		$	12

The pre-tax effect of derivative instruments in cash flow and net investment hedging relationships for fiscal years ended October 31, 2017, 2016 and 2015 was as follows:

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 10: Financial Instruments (Continued)

(Loss) Gain Recognized in OCI on Derivatives (Effective Portion)													(Loss) Gain Reclassified from Accumulated OCI Into Earnings (Effective Portion)
	2017				2016				2015						2017				2016				2015
	In millions														In millions
Cash flow hedges:
Foreign currency contracts	$	(651	)		$	199			$	610			Net revenue		$	(156	)		$	20			$	995
													Cost of revenue		(35		)		(84		)		(156		)
													Other operating expenses		1				1				(3		)
													Interest and other, net		(9		)		—				(4		)
Continuing Operations	(651		)		199				610				Loss (earnings) from continuing operations		(199		)		(63		)		832
Discontinued Operations	—				—				481				Earnings from discontinued operations		—				—				480
Total	$	(651	)		$	199			$	1,091			Total		$	(199	)		$	(63	)		$	1,312
Net investment hedges:
Foreign currency contracts
Continuing Operations	$	—			$	—			$	—
Discontinued Operations	—				—				228
Total	$	—			$	—			$	228

As of October 31, 2017, 2016 and 2015, 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 2017, 2016 and 2015.

As of October 31, 2017, HP expects to reclassify an estimated net Accumulated other comprehensive income of approximately $159 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 2017, 2016 and 2015 was as follows:

	(Loss) Gain Recognized in Income on Derivatives
	Location		2017				2016				2015
			In millions
Foreign currency contracts	Interest and other, net		$	(32	)		$	(34	)		$	293
Other derivatives	Interest and other, net		3				(6		)		(1		)
Total			$	(29	)		$	(40	)		$	292

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 11: Borrowings

Notes Payable and Short-Term Borrowings

	As of October 31
	2017							2016
	Amount Outstanding				Weighted-Average Interest Rate			Amount Outstanding				Weighted-Average Interest Rate
	In millions							In millions
Commercial paper	$	943			1.8	%		$	—			—	%
Current portion of long-term debt	96				3.5	%		51				4.1	%
Notes payable to banks, lines of credit and other	33				1.5	%		27				2.0	%
	$	1,072						$	78

Long-Term Debt

	As of October 31
	2017				2016
	In millions
U.S. Dollar Global Notes(1)
2009 Shelf Registration Statement:
$1,350 issued at discount to par at a price of 99.827% in December 2010 at 3.75%, due December 2020	$	648			$	648
$1,250 issued at discount to par at a price of 99.799% in May 2011 at 4.3%, due June 2021	1,249				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				1,498
$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
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
	6,494				6,493
Other, including capital lease obligations, at 0.51%-8.49%, due in calendar years 2018-2025	360				244
Fair value adjustment related to hedged debt	8				72
Less: Unamortized debt issuance cost(2)	(19		)		(23		)
Less: current portion of long-term debt	(96		)		(51		)
Total long-term debt	$	6,747			$	6,735

(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) Effective November 1, 2016, HP adopted ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, which amended the presentation of debt issuance costs as a direct deduction from the carrying amount of debt liability.

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

As disclosed in Note 10, “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

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 11: Borrowings (Continued)

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.

As of October 31, 2017, aggregate future maturities of debt at face value (excluding unamortized debt issuance cost of $19 million and discounts on debt issuance of $6 million less fair value adjustment related to hedged debt of $8 million), including capital lease obligations were as follows:

Fiscal year	In millions
2018	$	1,072
2019	505
2020	77
2021	2,949
2022	2,014
Thereafter	1,219
Total	$	7,836

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, 2017, 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, 2017, 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, 2017, HP was in compliance with the financial covenants in the credit agreement governing the revolving credit facility.

Available Borrowing Resources

As of October 31, 2017, HP’s and HP’s subsidiaries had available borrowing resources of $846 million from uncommitted lines of credit in addition to the senior unsecured committed revolving credit facility discussed above.

Note 12: Stockholders’ Deficit

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 $0.53 per share of common stock in fiscal year 2017, $0.50 per share of common stock in fiscal year 2016 and $0.67 per share of common stock in fiscal year 2015.

Share Repurchase Program

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 12: Stockholders’ Deficit (Continued)

HP’s share repurchase program authorizes both open market and private repurchase transactions. In fiscal year 2017, HP executed share repurchases of 80 million shares, which include 1.5 million shares settled in November 2017. In fiscal year 2017, HP settled total shares for $1.4 billion.

In fiscal year 2016, HP executed share repurchases of 100 million shares. In fiscal year 2016, HP settled total shares for $1.2 billion. In fiscal year 2015, HP executed share repurchases of 75 million shares and settled total shares for $2.9 billion.

The shares repurchased in fiscal years 2017, 2016 and 2015 were all open market repurchase transactions. As of October 31, 2017, HP had remaining authorization of approximately $2.5 billion for future share repurchases under the $3.0 billion repurchase authorization approved by HP’s Board of Directors on October 10, 2016.

Taxes related to Other Comprehensive Income (Loss)

	For the fiscal years ended October 31
	2017				2016				2015
	In millions
Tax effect on change in unrealized components of available-for-sale securities:
Tax (provision) benefit on unrealized gains (losses) arising during the period	$	(1	)		$	(3	)		$	2
Tax effect on change in unrealized components of cash flow hedges:
Tax benefit (provision) on unrealized (losses) gains arising during the period	42				32				(294		)
Tax (benefit) provision benefit on losses (gains) reclassified into earnings	(16		)		(1		)		368
	26				31				74
Tax effect on change in unrealized components of defined benefit plans:
Tax (provision) benefit on gains (losses) arising during the period	(140		)		242				5
Tax provision on amortization of actuarial loss and prior service benefit	(21		)		(12		)		(18		)
Tax benefit (provision) on curtailments, settlements and other	72				(213		)		24
	(89		)		17				11
Tax provision on change in cumulative translation adjustment	—				—				(73		)
Tax (provision) benefit on other comprehensive income (loss)	$	(64	)		$	45			$	14

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 12: Stockholders’ Deficit (Continued)

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

	For the fiscal years ended October 31
	2017				2016				2015
	In millions
Other comprehensive income (loss), net of taxes:
Change in unrealized components of available-for-sale securities:
Unrealized gains (losses) arising during the period	$	3			$	(2	)		$	(15	)
Change in unrealized components of cash flow hedges:
Unrealized (losses) gains arising during the period	(609		)		231				797
Losses (gains) reclassified into earnings(1)	183				62				(944		)
	(426		)		293				(147		)
Change in unrealized components of defined benefit plans:
Gains (Losses) arising during the period	315				(517		)		(543		)
Amortization of actuarial loss and prior service benefit(2)	53				39				425
Curtailments, settlements and other	75				(30		)		139
	443				(508		)		21
Change in cumulative translation adjustment	—				—				(280		)
Other comprehensive income (loss), net of taxes	$	20			$	(217	)		$	(421	)

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

	For the fiscal years ended October 31
	2017				2016				2015
	In millions
Net revenue	$	156			$	(20	)		$	(995	)
Cost of revenue	35				84				156
Other operating expenses	(1		)		(1		)		3
Interest and other, net	9				—				4
Loss (earnings) from continuing operations	199				63				(832		)
Earnings from discontinued operations	—				—				(480		)
Total	$	199			$	63			$	(1,312	)

(2) These components are included in the computation of net pension and post-retirement benefit (credit) charges in Note 4,

“Retirement and Post-Retirement Benefit Plans”.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 12: Stockholders’ Deficit (Continued)

The components of accumulated other comprehensive loss, net of taxes as of October 31, 2017 and changes during fiscal year 2017 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				Accumulated other comprehensive loss
	In millions
Balance at beginning of period	$	9			$	186			$	(1,633	)		$	(1,438	)
Other comprehensive income (loss) before reclassifications	3				(609		)		390				(216		)
Reclassifications of loss into earnings	—				183				53				236
Balance at end of period	$	12			$	(240	)		$	(1,190	)		$	(1,418	)

Note 13: 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 units, stock options, performance-based awards and shares purchased under the 2011 employee stock purchase plan.

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
	2017				2016				2015
	In millions, except per share amounts
Numerator:
Net earnings from continuing operations	$	2,526			$	2,666			$	3,718
Net (loss) earnings from discontinued operations	—				(170		)		836
Net earnings	$	2,526			$	2,496			$	4,554
Denominator:
Weighted-average shares used to compute basic net EPS	1,688				1,730				1,814
Dilutive effect of employee stock plans	14				13				22
Weighted-average shares used to compute diluted net EPS	1,702				1,743				1,836
Basic net earnings per share:
Continuing operations	$	1.50			$	1.54			$	2.05
Discontinued operations	—				(0.10		)		0.46
Basic net earnings per share	$	1.50			$	1.44			$	2.51
Diluted net earnings per share:
Continuing operations	$	1.48			$	1.53			$	2.02
Discontinued operations	—				(0.10		)		0.46
Diluted net earnings per share	$	1.48			$	1.43			$	2.48
Anti-dilutive weighted-average options(1)	1				13				23

(1)

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, and average unrecognized compensation cost. The assumed proceeds of a restricted stock unit represent unrecognized compensation cost.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 14: 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, 2017, 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 European Union (“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 Court of Justice of the European Union (“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 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 issued an appealable decision on May 12, 2017 providing that Belgian reprographic copyright levies are due notwithstanding the lack of conformity of the system with EU law in certain aspects. Applicable levies are to be calculated based on the objective speed of each MFD as established by an expert appointed by the Court of Appeal.

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.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 14: Litigation and Contingencies (Continued)

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

Forsyth, et al. 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. Following a partial motion to dismiss, a motion to strike and a motion to compel arbitration that the defendants filed in November 2016, the plaintiffs amended their complaint. New plaintiffs were added, but the plaintiffs agreed that the class period for the nationwide collective action should be shortened and now starts on December 9, 2014. On January 30, 2017, the defendants filed another partial motion to dismiss and motions to compel arbitration as to several of the plaintiffs. On March 20, 2017, the defendants filed additional motions to compel arbitration as to a number of the opt-in plaintiffs. On September 20, 2017, the Court granted the motions to compel arbitration as to the plaintiffs and opt-ins who signed WFR release agreements (17 individuals), and also stayed the entire case until the arbitrations are completed. The plaintiffs filed a motion for reconsideration, which is still pending.

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

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 14: Litigation and Contingencies (Continued)

the order, HP India deposited an additional $3 million in connection with the parts-related show cause notice so as to avoid certain penalties.

HP India filed appeals of the Commissioner’s orders before the Customs Tribunal along with applications for waiver of the pre-deposit of remaining demand amounts as a condition for hearing the appeals. The Customs Department has also filed cross-appeals before the Customs Tribunal. On January 24, 2013, the Customs Tribunal ordered HP India to deposit an additional $24 million against the products order, which HP India deposited in March 2013. The Customs Tribunal did not order any additional deposit to be made under the parts order. In December 2013, HP India filed applications before the Customs Tribunal seeking early hearing of the appeals as well as an extension of the stay of deposit as to HP India and the individuals already granted until final disposition of the appeals. On February 7, 2014, the application for extension of the stay of deposit was granted by the Customs Tribunal until disposal of the appeals. On October 27, 2014, the Customs Tribunal commenced hearings on the cross-appeals of the Commissioner’s orders. The Customs Tribunal rejected HP India’s request to remand the matter to the Commissioner on procedural grounds. The hearings scheduled to reconvene on April 6, 2015 and again on November 3, 2015 and April 11, 2016 were 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. On August 29, 2017, the Regional Court of Leipzig decided not to admit the matter to trial. If affirmed, this ruling will result in the termination of the prosecution. The German PPO has appealed this decision. The appeal is currently pending with the Higher Regional Court in Dresden.

Class Actions re Authentication of Supplies. Five purported consumer class actions were filed against HP, arising out of the supplies authentication protocol in certain OfficeJet printers. This authentication protocol rejects some third-party ink cartridges that use non-HP security chips. Two of the cases were dismissed, and the remaining cases have been consolidated in the United States District Court for the Northern District of California, captioned In re HP Printer Firmware Update Litigation. The remaining plaintiffs’ operative consolidated complaint was filed on March 22, 2017, alleging eleven causes of action: (1) unfair and unlawful business practices in violation of the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq.; (2) fraudulent business practices in violation of the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq.; (3) violations of the False Advertising Law, Cal. Bus. & Prof. Code § 17500, et seq.; (4) violations of the Consumer Legal Remedies Act, Cal. Civ. Code § 1750, et seq.; (5) violations of the Texas Deceptive Trade Practices ‒ Consumer Protection Act, Tex. Bus. & Com. Code Ann. § 17.01, et seq.; (6) violations of the Washington Consumer Protection Act, Wash. Rev. Code Ann. § 19.86.010, et seq.; (7) violations of the New Jersey Consumer Fraud Act, New Jersey Statutes Ann. 56:8-1, et seq.; (8) violations of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, et seq.; (9) violations of the California Computer Data Access and Fraud Act, Cal. Penal Code § 502; (10) Trespass to Chattels; and (11) Tortious Interference with Contractual Relations and/or Prospective Economic Advantage. The plaintiffs seek to certify a primary class of all persons in the United States who purchased or owned the OfficeJet printers in question, and they alternatively seek to certify subclasses of all such printer purchasers or owners in California, Texas, Washington, and/or New Jersey. On April 21, 2017, HP filed a motion to dismiss the consolidated complaint. The court held a hearing on July 14, 2017. HP’s motion to dismiss remains pending.

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 14: Litigation and Contingencies (Continued)

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. Trial in this matter is scheduled to begin on February 26, 2018. On November 15, 2016, the SEC announced that Stouffer Egan, the former CEO of Autonomy’s U.S.-based operations, settled charges relating to his participation in an accounting scheme to meet internal sales targets and analyst revenue expectations. 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

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 United States Court of Appeals for the Ninth Circuit (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. Oral argument occurred on May 15, 2017. On November 28, 2017, the final approval order was affirmed by the Ninth Circuit.

• 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.)

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 14: Litigation and Contingencies (Continued)

initiated civil proceedings in the U.K. High Court of Justice against two members of Autonomy’s former management, Michael Lynch and Sushovan Hussain. The Particulars of Claim seek damages in excess of $5 billion from Messrs. Lynch and Hussain for breach of their fiduciary duties by causing Autonomy group companies to engage in improper transactions and accounting practices. On October 1, 2015, Messrs. Lynch and Hussain filed their defenses. Mr. Lynch also filed a counterclaim against Autonomy Corporation Limited seeking $160 million in damages, among other things, for alleged misstatements regarding Lynch. The Hewlett Packard Enterprise subsidiary claimants filed their replies to the defenses and the asserted counter-claim on March 11, 2016. The parties are actively engaged in the disclosure process. A six-month trial is scheduled to begin on January 28, 2019.

• 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 Ninth Circuit. Oral argument occurred on May 15, 2017.

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 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

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 14: Litigation and Contingencies (Continued)

arising from the assets assigned to Hewlett Packard Enterprise and for certain environmental matters as detailed in the separation and distribution agreement.

Note 15: 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 6, “Taxes on Earnings” and Note 14, “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, 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
	2017				2016
	In millions
Balance at beginning of year	$	980			$	1,184
Accruals for warranties issued	925				966
Adjustments related to pre-existing warranties (including changes in estimates)	(8		)		(23		)
Settlements made (in cash or in kind)	(999		)		(1,147		)
Balance at end of year	$	898			$	980

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Note 16: 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 2017, 2016 and 2015.

As of October 31, 2017, future minimum operating lease commitments were as follows:

Fiscal year	In millions
2018	$	288
2019	213
2020	147
2021	99
2022	83
Thereafter	401
Less: Sublease rental income	(174		)
Total	$	1,057

Unconditional Purchase Obligations

As of October 31, 2017, HP had unconditional purchase obligations of $1,208 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, 2017, unconditional purchase obligations were as follows:

Fiscal year	In millions
2018	$	728
2019	289
2020	116
2021	52
2022	21
Thereafter	2
Total	$	1,208

Note 17: 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.

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

HP INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

	For the fiscal years ended October 31
	2017				2016				2015
	In millions
Net revenue	$	—			$	—			$	51,892
Cost of revenue(1)	—				—				37,072
Expenses(2)	—				201				13,269
Interest and other, net(3)(4)	(47		)		(208		)		351
Earnings from discontinued operations before taxes	$	47			$	7			$	1,200
Provision for taxes(4)	(47		)		(177		)		(364		)
Net (loss) earnings from discontinued operations	$	—			$	(170	)		$	836

(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 year 2015, 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 2017 and fiscal year 2016 includes changes in the tax indemnifications amounts of $47 million and $208 million, respectively. Provision for taxes for fiscal year 2017 and fiscal year 2016 includes the tax impact relating to the above described changes of $47 million and $201 million, respectively. For more information on tax indemnifications and the TMA, see Note 6, “Taxes on Earnings”.

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

c	For the fiscal year ended October 31, 2015
	In millions
Depreciation and amortization	$	3,657
Purchases of property, plant and equipment	$	3,020

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

Notes to Consolidated Financial Statements (Continued)

Note 19: Subsequent Events

On November 1, 2017, HP made a cash payment of $1.1 billion to Samsung Electronics Co., Ltd. in connection with the acquisition of its printer business. The cash payment is subject to adjustment and is expected to be final during fiscal year 2018.

HP INC. AND SUBSIDIARIES

Quarterly Summary

(Unaudited)

(In millions, except per share amounts)

	For the three-month fiscal periods ended in fiscal year 2017
	January 31				April 30				July 31				October 31
Net revenue	$	12,684			$	12,385			$	13,060			$	13,927
Cost of revenue	10,436				10,002				10,633				11,407
Research and development	296				314				289				291
Selling, general and administrative	1,017				1,087				1,096				1,176
Restructuring and other charges	63				140				46				113
Acquisition-related charges	16				20				40				49
Amortization of intangible assets	—				1				—				—
Defined benefit plan settlement charges	—				3				1				1
Total costs and expenses	11,828				11,567				12,105				13,037
Earnings from operations	856				818				955				890
Interest and other, net	(81		)		(64		)		(56		)		(42		)
Earnings before taxes	775				754				899				848
Provision for taxes	(164		)		(195		)		(203		)		(188		)
Net earnings	$	611			$	559			$	696			$	660
Net earnings per share:(1)
Basic	$	0.36			$	0.33			$	0.41			$	0.40
Diluted	$	0.36			$	0.33			$	0.41			$	0.39
Cash dividends paid per share	$	0.13			$	0.14			$	0.13			$	0.13
Range of per share stock prices on the New York Stock Exchange
Low	$	14.12			$	14.84			$	17.10			$	18.36
High	$	16.25			$	18.83			$	19.58			$	22.31

	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				1,075
Restructuring and other charges	20				100				36				49
Acquisition-related charges	—				—				—				7
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 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

(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.