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

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

HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

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

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

Critical Accounting Policies and Estimates. A discussion of accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.
Results of Operations. An analysis of our operations financial results comparing the three months ended January 31, 2023 to the prior-year period. A discussion of the results of operations is followed by a more detailed discussion of the results of operations by segment.
Liquidity and Capital Resources. An analysis of changes in our cash flows and a discussion of our liquidity and financial condition.
Contractual and Other Obligations. An overview of contractual obligations, retirement and post-retirement benefit plan contributions, cost-saving plans, uncertain tax positions and off-balance sheet arrangements of our operations.

The discussion of financial condition and results of our operations that follows provides information that will assist the reader in understanding our Consolidated Condensed Financial Statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our Consolidated Condensed Financial Statements. This discussion should be read in conjunction with our Consolidated Condensed Financial Statements and the related notes that appear elsewhere in this document.

HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

OVERVIEW

We are a leading global provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions, and services. We sell to individual consumers, SMBs and large enterprises, including customers in the government, health, and education sectors. We have three reportable segments: Personal Systems, Printing, and Corporate Investments. The Personal Systems segment offers commercial and consumer desktops and notebooks, workstations, thin clients, commercial mobility devices, retail POS systems, displays, hybrid systems (includes video conferencing solutions, cameras, headsets, voice, and related software capabilities), software, support, and services. The Printing segment provides consumer and commercial printer hardware, supplies, solutions and services. Corporate Investments include certain business incubation and investment projects.

In Personal Systems, our strategic focus is on:

◦profitable growth through innovation, market segmentation and simplification of our portfolio

◦enhanced innovation in multi-operating systems, multi-architecture, geography, customer segments and other key attributes;

◦investing in endpoint services and solutions. We are focused on services, including Device as a Service, as the market begins to shift to contractual solutions, and accelerating in attractive adjacencies such as hybrid systems; and

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

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

In Printing, our strategic focus is on:

◦offering innovative printing solutions and contractual solutions to serve consumers, SMBs and large enterprises through our Instant Ink Services, HP+ and Managed Print Services solutions;

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

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

In addition to growing our subscription business, we are also focused on rebalancing system profitability to more upfront profitable hardware sales through our product offerings including HP+ and Big Tank.

We are committed to growing our hybrid systems, gaming, workforce services and solutions, consumer subscriptions, 3D and industrial graphics businesses at a rate faster than our core business with accretive margins in the longer term. Our ability to innovate is helping us gain momentum in growth areas like hybrid systems and gaming, and we see significant opportunities to drive greater recurring revenues across Personal Systems and Printing. Our acquisition of Poly adds to our growth portfolio by bringing industry-leading video conferencing solutions, cameras, headsets, voice and software capabilities. To drive more integration across our commercial services, software and security portfolio, we have created a new Workforce Services and Solutions organization. We continue to build on strong portfolios like Instant Ink to grow our Consumer Subscription business. In Industrial Graphics, we are driving the shift from analog to digital in segments like labels and packaging. In 3D and Personalization, we are creating end-to-end solutions that can capture more value with our differentiated technology.

We continue to experience challenges that are representative of the trends and uncertainties that may affect our industry, generally, and our business and financial results, specifically, and we expect these challenges to continue in the short-term. One set of challenges relates to the current macroeconomic environment and the adverse impact on demand for certain of our products and product mix. A second set of challenges relates to changes in the competitive landscape. Our primary competitors are exerting competitive pressure in targeted areas and are entering new markets, our emerging competitors are introducing new technologies and business models, and our alliance partners in some businesses are increasingly becoming our competitors in others. A third set of challenges relates to business model changes and our go-to-market execution in an evolving distribution and reseller landscape, with increasing online and omnichannel presence. Additional challenges we face at the segment level, and that we expect to continue facing in the short-term, are set forth below.

In Personal Systems, we face challenges with decline in Personal Systems market due to demand softness and competitive pricing environment.
In Printing, we face challenges from non-original supplies (which includes imitation, refill, or remanufactured alternatives) and competitors with a favorable foreign currency environment. We also obtain many Printing

HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

components from single source due to technology, availability, price, quality, or other considerations. For instance, we source the majority of our A4 and a portion of our A3 portfolio of laser printer engines and laser toner cartridges from Canon. Any decision by either party to not renew our agreement with Canon or to limit or reduce the scope of the agreement could adversely affect our net revenue from LaserJet products; however, we have a long-standing business relationship with Canon and anticipate renewal of this agreement.

To address these challenges, we continue to pursue innovation with a view towards developing new products and services aligned with generating market demand and meeting the needs of our customers and partners. In addition, we continue to work on improving our operations and adapting our business models, with a particular focus on enhancing our end-to-end processes, analytics, efficiencies and simplification of our product portfolio. We also continue to work on optimizing our sales coverage models, aligning our sales incentives with our strategic goals, improving channel execution and inventory, production and backlog management, strengthening our capabilities in our areas of strategic focus, effective cost management, strengthening our pricing discipline, and developing and capitalizing on market opportunities.

Macroeconomic Environment

Our business and financial performance also depend significantly on worldwide economic conditions. We face global macroeconomic challenges, particularly in light of the effects of the ongoing geopolitical conflicts in Ukraine, tensions across the Taiwan Strait, tariff-driven headwinds, uncertainty in the markets, volatility in exchange rates, inflationary trends and evolving dynamics in the global trade environment. During the first quarter of fiscal 2023, we observed significant market uncertainty, budget tightening by large enterprise for information technology hardware, lower consumer spending, inflationary pressures and a weakening U.S. dollar. These market dynamics, which we expect will continue in the short-term, have created new and different demand dynamics and have had significant impacts on our financial results.

In the first quarter of fiscal 2023, we continued to experience overall demand weakness and elevated industry wide reseller inventory, particularly in Personal Systems due to a challenging macroeconomic environment. This decline in revenue of Personal Systems is in line with market trends and we expect this to continue in the short-term. In Printing, we continued to see gradual and uneven recovery in Commercial and Consumer Printing, driven by the slow return of workers to the office. We continued to experience a competitive pricing environment, which we expect to continue in the short-term, due to the macroeconomic environment across Personal Systems and Printing. However, we are seeing improvements in logistics constraints and supply availability and expect these trends to continue. In fiscal 2023, we expect both Personal Systems and Printing markets to decline as compared to fiscal 2022.

In addition to the macroeconomic dynamics, we are exposed to fluctuations in foreign currency exchange rates. We have a large global presence, with approximately 65% of our net revenue coming from outside the United States. As a result, our financial results can be, and particularly in recent periods have been, impacted by fluctuations in foreign currency exchange rates. We expect foreign currency fluctuations to continue to negatively impact our financial results in the fiscal 2023.

On May 31, 2022, we announced our decision to wind down business operations in Russia having already suspended all new shipments and paused our marketing and advertising activities in February 2022. In the second half of fiscal 2022, we recognized a charge of $23 million towards severance, cancellation of contracts, inventory write-downs and other one-time exit charges related to our decision.

We typically experience higher net revenues in our fourth fiscal quarter compared to other quarters in our fiscal year due, in part, to seasonal holiday demand. Historical seasonal patterns may not continue in the future and have been impacted by supply constraints, shifts in customer behavior, continuing impacts of the macroeconomic challenges and different demand dynamics.

For a further discussion of trends, uncertainties and other factors that could impact our operating results, see the section entitled “Risk Factors” in Item 1A of Part I in this Annual Report on Form 10-K.

Transformation Update

In November 2022, we announced our Future Ready Plan (the “Fiscal 2023 Plan”) to become a more digitally enabled company, focus investments on key growth opportunities and simplify our operating model. The new Fiscal 2023 plan is expected to run for three years through end of fiscal 2025. The three key elements of our Fiscal 2023 plan are digital transformation, portfolio optimization, and operational efficiency. We expect to invest some of the savings from these efforts across our businesses to be more efficient and advance our positions in Personal Systems and Printing, while also disrupting new industries where we see attractive growth opportunities. We also plan to use some of these savings to partially offset headwinds we expect to continue to see across our businesses in fiscal 2023 as a result of macroeconomic factors.

HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

We are on-track to achieve our targeted gross annual run-rate structural cost savings by the end of fiscal 2023. During the first quarter of fiscal 2023, we continued to digitize our customer support engagement using artificial intelligence (AI) based interactive voice response technology to deliver a more seamless and connected experience. We took actions, including headcount reductions, to optimize our cost in supply chain for core Printing, and also announced a voluntary enhanced early retirement program in the United States offering employees the opportunity to early retire.

For more information on our Fiscal 2023 Plan, see Note 3, “Restructuring and Other Charges,” and Note 4, “Retirement and Post-Retirement Benefit Plans,” to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

MD&A is based on our Consolidated Condensed Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent liabilities. As of January 31, 2023, the impact of current macroeconomic factors on our business continued to unfold. As a result, many of our estimates and assumptions required increased judgment and may carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change in future periods. Management believes that there have been no significant changes during the three months ended January 31, 2023 to the items that we disclosed as our critical accounting policies and estimates in MD&A in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, except as mentioned in Note 1, “Basis of Presentation”.

ACCOUNTING PRONOUNCEMENTS

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

HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

RESULTS OF OPERATIONS

Revenue from our international operations has historically represented, and we expect will continue to represent, a majority of our overall net revenue. As a result, our net revenue growth has been impacted, and we expect it will continue to be impacted, by fluctuations in foreign currency exchange rates. In order to provide a framework for assessing performance excluding the impact of foreign currency fluctuations, we supplement the year-over-year percentage change in net revenue with the year-over-year percentage change in net revenue on a constant currency basis, which excludes the effect of foreign currency exchange fluctuations calculated by translating current period revenues using monthly exchange rates from the comparative period and excluding any hedging impact recognized in the current period, and without adjusting for any repricing or demand impacts from changes in foreign currency exchange rates. This information is provided so that net revenue can be viewed with and without the effect of fluctuations in foreign currency exchange rates, which is consistent with how management evaluates our net revenue results and trends, as management does not believe that the excluded items are reflective of ongoing operating results. The constant currency measures are provided in addition to, and not as a substitute for, the year-over-year percentage change in net revenue on a GAAP basis. Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes.

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


	Three months ended January 31
	2023				2022
	Dollars		% of Net Revenue		Dollars		% of Net Revenue
	Dollars in millions
Net revenue	$	13,828	100.0	%	$	17,028	100.0	%
Cost of revenue	11,019		79.7	%	13,643		80.1	%
Gross profit	2,809		20.3	%	3,385		19.9	%
Research and development	403		2.9	%	418		2.5	%
Selling, general and administrative	1,331		9.6	%	1,468		8.6	%
Restructuring and other charges	141		1.1	%	68		0.4	%
Acquisition and divestiture charges	84		0.6	%	20		0.1	%
Amortization of intangible assets	85		0.6	%	52		0.3	%
Earnings from operations	765		5.5	%	1,359		8.0	%
Interest and other, net	(181)		(1.3)	%	(32)		(0.2)	%
Earnings before taxes	584		4.2	%	1,327		7.8	%
Provision for taxes	(97)		(0.7)	%	(241)		(1.4)	%
Net earnings	$	487	3.5	%	$	1,086	6.4	%

Three months ended January 31, 2023 compared with three months ended January 31, 2022

Net Revenue

Net revenue decreased 18.8% (decreased 14.7% on a constant currency basis). U.S. net revenue decreased 16.1% to $4.7 billion, and net revenue from international operations decreased 20.1% to $9.1 billion. The decrease in net revenue was primarily driven by demand softness across Personal Systems and Supplies as well as foreign currency impacts, partially offset by an increase in Commercial Printing.

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

HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Gross Margin

Gross margin increased by 0.4 percentage points, primarily driven by lower commodity cost, mix shift towards Printing, partially offset by foreign currency impacts and competitive pricing in Personal Systems.

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

Operating Expenses

Research and Development (“R&D”)

R&D expense decreased 3.6%, primarily due to lower variable compensation partially offset by the Poly acquisition and joint R&D partner funding received in the prior-year period.

Selling, General and Administrative (“SG&A”)

SG&A expense decreased 9.3%, primarily due to lower variable compensation partially offset by the Poly acquisition.

Restructuring and Other Charges

Restructuring and other charges relate primarily to the Fiscal 2023 Plan. For more information, see Note 3, “Restructuring and other charges”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Acquisition and divestiture charges

Acquisition and divestiture charges primarily include direct third-party professional and legal fees, integration and divestiture-related costs, non-cash adjustments to the fair value of certain acquired assets, such as inventory, and certain compensation charges related to cash settlement of restricted stock units and performance-based restricted stock units from acquisitions. Acquisition and divestiture charges increased by $64 million, primarily due to the Poly acquisition.

Amortization of Intangible Assets

Amortization of intangible assets relates primarily to intangible assets resulting from acquisitions. Amortization of intangible assets increased by $33 million, primarily due to the Poly acquisition.

Interest and Other, Net

Interest and other, net expense increased $149 million, primarily due to higher interest expense on debt.

Provision for taxes

Our effective tax rate was 16.6% and 18.2% for the three months ended January 31, 2023 and 2022, respectively. The difference between the U.S. federal statutory tax rate of 21% and our effective tax rate for the three months ended January 31, 2023 and 2022, was primarily due to tax effects of favorable tax rates associated with certain earnings from our operations in lower-tax jurisdictions throughout the world.

During the three months ended January 31, 2023, we recorded $56 million of net income tax benefits related to discrete items in the provision for taxes. These amounts included $30 million of income tax benefits related to restructuring charges, $14 million related to acquisition charges and $12 million of other net tax benefits. During the three months ended January 31, 2023, discrete items in the provision for taxes and excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units were immaterial.

Segment Information

During the first quarter of fiscal 2023, the Company realigned the Personal Systems business units reporting structure. This realignment had no impact to the reportable segments identified by the Company. A description of the products and services for each segment can be found in Note 2, “Segment Information” to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference. Future changes to this organizational structure may result in changes to the segments disclosed.

HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Personal Systems


	Three months ended January 31
	2023			2022			% Change
	Dollars in millions
Net revenue	$	9,215		$	12,196		(24.4)	%
Earnings from operations	$	497		$	954		(47.9)	%
Earnings from operations as a % of net revenue	5.4		%	7.8		%

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


	Three months ended January 31
	Net Revenue				Weighted Net Revenue Change(1)
	2023		2022
	Dollars in millions				Percentage Points
Commercial PS	$	6,429	$	7,857	(11.7)	%
Consumer PS	2,786		4,339		(12.7)	%
Total Personal Systems	$	9,215	$	12,196	(24.4)	%

(1)Weighted Net Revenue Change Percentage Points measures contribution of each business unit towards overall segment revenue growth. It is calculated by dividing the change in revenue of each business unit from the prior-year period by total segment revenue for the prior-year period.

Three months ended January 31, 2023 compared with three months ended January 31, 2022

Personal Systems net revenue decreased 24.4% (decreased 19.7% on a constant currency basis) for the three months ended January 31, 2023. The net revenue decrease was primarily due to 27.9% decrease in commercial and consumer client PCs unit volume due to demand softness, partially offset by increase in revenue driven by the Poly acquisition. The average selling price (“ASPs”) remained flat, primarily due to foreign currency impacts, offset by mix shifts.

Commercial PS net revenue decreased 18.2% primarily driven by unit decline due to demand softness, and foreign currency impacts, partially offset by increase in hybrid systems revenue driven by the Poly acquisition.

Consumer PS net revenue decreased 35.8% driven by unit decline due to demand softness and lower ASPs. The lower ASPs were driven by foreign currency impacts and competitive pricing, partially offset by mix shifts.

Personal Systems earnings from operations as a percentage of net revenue decreased by 2.4 percentage points. The decrease was driven by a decline in gross margin and an increase in operating expenses as a percentage of revenue. The gross margin decreased primarily due to foreign currency impacts and competitive pricing, partially offset by lower commodity costs. Operating expenses as a percentage of revenue increased primarily driven by joint R&D partner funding received in the prior-year period and acquisition of Poly, partially offset by lower variable compensation.

Printing


	Three months ended January 31
	2023			2022			% Change
	Dollars in millions
Net revenue	$	4,612		$	4,831		(4.5)	%
Earnings from operations	$	870		$	872		(0.2)	%
Earnings from operations as a % of net revenue	18.9		%	18.1		%

HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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


	Three Months Ended January 31
	Net Revenue				Weighted Net Revenue Change(1)
	2023		2022
	Dollars in millions				Percentage Points
Supplies	$	2,857	$	3,068	(4.4)	%
Commercial Printing	1,056		1,039		0.4	%
Consumer Printing	699		724		(0.5)	%

Total Printing	$	4,612	$	4,831	(4.5)	%

Three months ended January 31, 2023 compared with three months ended January 31, 2022

Printing net revenue decreased 4.5% (decreased 2.2% on a constant currency basis) for the three months ended January 31, 2023. The decrease in net revenue was driven by Supplies and foreign currency impacts, partially offset by Commercial Printing. Net revenue for Supplies decreased 6.9%, primarily due to softening demand driven by market trends. Print hardware ASPs decreased 1.0% and unit volume increased 1.7%. Print hardware ASPs decreased primarily due to foreign currency impacts and mix shifts, partially offset by disciplined pricing in Commercial Printing. The increase in printer unit volume was primarily driven by unit increase in Consumer Printing partially offset by unit decrease in Commercial Printing.

Net revenue for Commercial Printing increased by 1.6%, primarily due to 13.5% increase in ASPs, partially offset by 7.5% decrease in printer unit volume. The increase in ASPs was primarily driven by disciplined pricing and mix shifts, partially offset by foreign currency impacts.

Net revenue for Consumer Printing decreased 3.5%, primarily due to 6.4% decrease in ASPs, partially offset by 3.4% increase in printer unit volume. The decrease in ASPs was primarily driven by foreign currency impacts and competitive pricing.

Printing earnings from operations as a percentage of net revenue increased by 0.8 percentage points. The increase was driven by a lower operating expenses as a percentage of revenue, partially offset by a decline in gross margin. Operating expenses as a percentage of revenue decreased primarily due to lower variable compensation, R&D spend in innovation, and go-to-market initiative expenses. The decline in gross margin is primarily driven by mix shifts and foreign currency impacts.

Corporate Investments

The loss from operations in Corporate Investments for the three months ended January 31, 2023, was primarily due to expenses associated with our incubation projects and investments in digital enablement.

LIQUIDITY AND CAPITAL RESOURCES

We use cash generated by operations as our primary source of liquidity. We believe that current cash, cash flow from operating activities, new borrowings, available commercial paper authorization and the credit facilities will be sufficient to meet HP’s operating cash requirements, planned capital expenditures, interest and principal payments on all borrowings, pension and post-retirement funding requirements, authorized share repurchases and annual dividend payments for the foreseeable future. Additionally, if suitable acquisition opportunities arise, the Company may obtain all or a portion of the required financing through additional borrowings. While our access to capital markets may be constrained and our cost of borrowing may increase under certain business, market and economic conditions, our access to a variety of funding sources to meet our liquidity needs is designed to facilitate continued access to capital resources under all such conditions. Our liquidity is subject to various risks including the risks identified in the section entitled “Risk Factors” in Item 1A of Part I in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022 and the market risks identified in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Item 3 of Part I of this report.

Amounts held outside of the U.S. are generally utilized to support non-U.S. liquidity needs and may from time to time be distributed to the U.S. Repatriations of amounts held outside the U.S. generally will not be taxable from a U.S. federal tax perspective but may be subject to state income or foreign withholding tax upon repatriation. As we evaluate the future cash

HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

needs of our operations, we may revise the amount of foreign earnings considered to be permanently reinvested in our foreign subsidiaries and how to utilize such funds, including reducing our gross debt level, or other uses.

Liquidity

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


	As of
	January 31, 2023		October 31, 2022
	In millions
Cash and cash equivalents	$	1,405	$	3,145
Restricted cash	$	364	$	—
Total debt	$	10,759	$	11,014

Our key cash flow metrics were as follows:


	Three months ended January 31
	2023		2022
	In millions
Net cash (used in) provided by operating activities	$	(16)	$	1,657
Net cash used in investing activities	(435)		(280)
Net cash used in financing activities	(925)		(2,282)
Net decrease in cash, cash equivalents and restricted cash	$	(1,376)	$	(905)

Operating Activities

Compared to the corresponding period in fiscal year 2022, net cash provided by operating activities decreased by $1.7 billion for the three months ended January 31, 2023, primarily due to unfavorable working capital changes and lower net earnings, partially offset by amounts collected and held on behalf of a third party for trade receivables previously sold and lower employee variable compensation payments.

Key Working Capital Metrics

Management utilizes current cash conversion cycle information to manage our working capital level. Our working capital metrics and cash conversion cycle impacts were as follows:


	As of			As of
	January 31, 2023	October 31, 2022	Change	January 31, 2022	October 31, 2021	Change	Y/Y Change
Days of sales outstanding in accounts receivable (“DSO”)	28	28	—	27	30	(3)	1
Days of supply in inventory (“DOS”)	60	57	3	59	53	6	1
Days of purchases outstanding in accounts payable (“DPO”)	(110)	(114)	4	(119)	(108)	(11)	9
Cash conversion cycle	(22)	(29)	7	(33)	(25)	(8)	11

January 31, 2023 as compared to January 31, 2022

The cash conversion cycle is the sum of days of DSO and DOS less DPO. Items which may cause the cash conversion cycle in a particular period to differ from historical trends include, but are not limited to, changes in business mix, changes in payment terms and timing, extent of receivables factoring, macroeconomic factors, seasonal trends and the timing of revenue recognition and inventory purchases within the period.

DSO measures the average number of days our receivables are outstanding. DSO is calculated by dividing ending accounts receivable, net of allowance for credit losses, by a 90-day average net revenue. The increase in DSO was primarily due to unfavorable revenue linearity, partially offset by higher factoring.

HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

DOS measures the average number of days from procurement to sale of our product. DOS is calculated by dividing ending inventory by a 90-day average cost of goods sold. The increase in DOS was primarily due to higher inventory in Print, offset by lower inventory in Personal Systems.

DPO measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing ending accounts payable by a 90-day average cost of goods sold. The decrease in DPO was primarily due to lower purchasing volume in Personal Systems.

Investing Activities

Compared to the corresponding period in fiscal year 2022, net cash used in investing activities increased by $0.2 billion for the three months ended January 31, 2023, primarily due to collateral posted for derivatives instruments of $0.3 billion, partially offset by decrease in net investment in property, plant and equipment of $0.1 billion.

Financing Activities

Compared to the corresponding period in fiscal year 2022, net cash used in financing activities decreased by $1.4 billion for the three months ended January 31, 2023, primarily due to lower share repurchases of $1.4 billion and short term borrowing activity of $0.6 billion, partially offset by debt repurchase/redemption and settlement of $0.5 billion.

Share Repurchases and Dividends

During the three months ended January 31, 2023, HP returned $0.4 billion to the shareholders in the form of share repurchases of $0.1 billion and cash dividends of $0.3 billion. As of January 31, 2023, HP had approximately $2.0 billion remaining under the share repurchase authorizations approved by HP’s Board of Directors.

For more information on our share repurchases, see Note 10, “Stockholders’ Deficit”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Capital Resources

Debt Levels

We maintain debt levels that we establish through consideration of a number of factors, including cash flow expectations, cash requirements for operations, investment plans (including acquisitions), share repurchase activities, our cost of capital and targeted capital structure. Depending on these factors, we may, from time to time, incur additional indebtedness or refinance existing indebtedness. Outstanding borrowings decreased to $10.8 billion as of January 31, 2023 as compared to $11.0 billion as of October 31, 2022, bearing weighted-average interest rates of 3.9% and 3.7% for January 31, 2023 and October 31, 2022, respectively.

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

As of January 31, 2023, we maintained the 5-year sustainability-linked senior unsecured committed revolving credit facility with aggregate lending commitments of $5.0 billion which will be available until May 26, 2026. Funds borrowed under the revolving credit facility may be used for general corporate purposes.

Available Borrowing Resources

As of January 31, 2023, we had available borrowing resources of $975 million from uncommitted lines of credit in addition to the revolving credit facility.

In December 2022, we filed a non-automatic shelf registration statement (the “2022 Shelf Registration Statement”) with the SEC to enable us, once the 2022 Shelf Registration Statement is declared effective by the SEC, to offer for sale, from time to time, in one or more offerings, $3.0 billion, in the aggregate, of debt securities, common stock, preferred stock, depository shares and warrants.

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

Credit Ratings

Our credit risk is evaluated by major independent rating agencies based upon publicly available information as well as information they obtain during our ongoing discussions. While we currently do not have any rating downgrade triggers that would accelerate the maturity of a material amount of our debt, a downgrade from our current credit rating may increase the cost of borrowing under our credit facility, reduce market capacity for our commercial paper, require the posting of additional collateral under some of our derivative contracts and may have a negative impact on our liquidity and capital position,

HP INC. AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

depending on the extent of such downgrade. We can access alternative sources of funding, including drawdowns under our credit facility, if necessary, to offset potential reductions in the market capacity for our commercial paper.

CONTRACTUAL AND OTHER OBLIGATIONS

Retirement and Post-Retirement Benefit Plan Contributions

As of January 31, 2023, we anticipate making contributions for the remainder of fiscal year 2023 of approximately $23 million to our non-U.S. pension plans, $26 million to cover benefit payments to U.S. non-qualified pension plan participants and $3 million to cover benefit claims for our post-retirement benefit plans. Our policy is to fund our pension plans so that we meet the minimum contribution required by local government, funding and taxing authorities. For more information on our retirement and post-retirement benefit plans, see Note 4, “Retirement and Post-Retirement Benefit Plans”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Cost Savings Plan

As a result of our approved restructuring plans, we expect to make future cash payments of approximately $0.7 billion. We expect to make future cash payments of $0.3 billion in fiscal year 2023 with remaining cash payments through fiscal year 2025. For more information on our restructuring activities that are part of our cost improvements, see Note 3, “Restructuring and Other Charges”, to the Consolidated Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Uncertain Tax Positions

As of January 31, 2023, we had approximately $628 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions. We are unable to make a reasonable estimate as to when cash settlement with the tax authorities might occur due to the uncertainties related to these tax matters. Payments of these obligations would result from settlements with taxing authorities. For more information on our uncertain tax positions, see Note 5, “Taxes on Earnings”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Off-balance sheet arrangements

As part of our ongoing business, we have not participated in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

HP utilizes certain third-party arrangements in the normal course of business as part of HPs cash and liquidity management and also to provide liquidity to certain partners to facilitate their working capital requirements. For more information on our third-party short-term financing arrangements, see Note 6, “Supplementary Financial Information”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

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