UNITED STATES
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the fiscal year ended | |||
October 31, | |||
Or | |||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
For the transition period from to | |||
Commission file number 1-4423
HP INC.
Delaware | 94-1081436 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.) | |
1501 Page Mill RoadPalo Alto, California | 94304 | |
(Address of principal executive offices) | (Zip code) |
(650) 857-1501
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common stock, par value $0.01 per share | HPQ | New York Stock Exchange | ||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act
Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the registrant’s common stock held by non-affiliates was $34,578,508,590$30,007,738,276 based on the last sale price of common stock on April 30, 2018.
The number of shares of HP Inc. common stock outstanding as of November 30, 2018January 31, 2020 was 1,553,494,507 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None
Table of Contents Explanatory Note On December 12, 2019, HP In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), certifications by HP’s principal executive officer and principal financial officer are filed as exhibits to this Form 10-K/A under Item 15 of Part IV hereof. Because no financial statements have been included in this Form 10-K/A and this Form 10-K/A does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5 of the certifications have been omitted. We are not including the certifications under Section 906 of the Sarbanes-Oxley Act of 2002 as no financial statements are being filed with this Form 10-K/A. Except as described above, this Form 10-K/A does not modify or update disclosure in, or exhibits to, the Original Form 10-K. Furthermore, this Form 10-K/A does not change any previously reported financial results, nor does it reflect events occurring after the date of the Original Form 10-K. Information not affected by this Form 10-K/A remains unchanged and reflects the disclosures made at the time the Original Form 10-K was filed. Accordingly, this Form 10-K/A should be read in conjunction with the Original Form 10-K and our other filings with the Securities and Exchange Commission (the “SEC”). Website Information This document includes several website references. The information on these websites is not part of this Form 10-K/A. HP Inc. and Subsidiaries iINC. AND SUBSIDIARIES
Form 10-K/A
For the Fiscal Year ended October 31, 2018
Table of Contents Page PART III Page1 PART IItem 1.Item 1A.Item 1B.Item 2.Item 3.Item 4.PART IIItem 5.Item 6.Item 7.Item 7A.Item 8.Item 9.Item 9A.Item 9B.PART IIIItem 10. Directors, Executive Officers and Corporate Governance 1161Item 11. Executive Compensation 1169Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 11637Item 13. Certain Relationships and Related Transactions, and Director Independence 11639Item 14. Principal Accounting Fees and Services 11641PART IV 42 Item 15. 42 Item 16.SignaturesIn this report on Form 10-K, for all periods presented, “we”, “us”, “our”, “company”, “HP” and “HP Inc.” refer to HP Inc. (formerly Hewlett-Packard Company) and its consolidated subsidiaries.Forward-Looking StatementsThis Annual Report on Form 10-K, including “Business” in Item 1 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP Inc. and its consolidated subsidiaries (“HP”) may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, any projections of net revenue, margins, expenses, effective tax rates, net earnings, net earnings per share (“EPS”), cash flows, benefit plan funding, deferred taxes, share repurchases, foreign currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring and other charges; any statements of the plans, strategies and objectives of management for future operations, including, but not limited to, our sustainability goals, the execution of restructuring plans and any resulting cost savings, net revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on HP and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief, including with respect to the timing and expected benefits of acquisitions and other business combination and investment transactions; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the need to address the many challenges facing HP’s businesses; the competitive pressures faced by HP’s businesses; risks associated with executing HP’s strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of HP’s products and the delivery of HP’s services effectively; the protection of HP’s intellectual property assets, including intellectual property licensed from third parties; risks associated with HP’s international operations; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by HP and its suppliers, customers, clients and partners; the hiring and retention of key employees; integration and other risks associated with business combination and investment transactions; the results of the restructuring plans, including estimates and assumptions related to the cost (including any possible disruption of HP’s business) and the anticipated benefits of the restructuring plans; the impact of changes in tax laws, including uncertainties related to the interpretation and application of the Tax Cuts and Jobs Act of 2017 (“TCJA”) on HP’s tax obligations and effective tax rate; the resolution of pending investigations, claims and disputes; and other risks that are described herein, including but not limited to the items discussed in “Risk Factors” in Item 1A of Part I of this report and that are otherwise described or updated from time to time in HP’s other filings with the Securities and Exchange Commission (“the SEC”). HP assumes no obligation and does not intend to update these forward-looking statements.PART IITEM 1. Business.Business OverviewWe 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, small- and medium-sized businesses (“SMBs”) and large enterprises, including customers in the government, health and education sectors.HP was incorporated in 1947 under the laws of the state of California as the successor to a partnership founded in 1939 by William R. Hewlett and David Packard. Effective in May 1998, we changed our state of incorporation from California to Delaware.Separation TransactionOn November 1, 2015, we 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”).At Separation, we 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 going forward, 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.HP Products and Services; Segment InformationWe have three reportable segments: Personal Systems, Printing and Corporate Investments. The Personal Systems segment offers Commercial and Consumer desktop and notebook personal computers (“PCs”), Workstations, thin clients, Commercial mobility devices, retail point-of-sale (“POS”) systems, displays and other related accessories, software, support and services. The Printing segment provides Consumer and Commercial printer hardware, Supplies, solutions and services, as well as scanning devices. Corporate Investments includes HP Labs and certain business incubation projects.In each of the past three fiscal years, notebook PCs, printing supplies and desktop PCs each accounted for more than 10% of our consolidated net revenue.Personal SystemsPersonal Systems offers Commercial and Consumer desktop and notebook PCs, Workstations, thin clients, Commercial mobility devices, retail POS systems, displays and other related accessories, software, support and services. We group Commercial notebooks, Commercial desktops, Commercial services, Commercial mobility devices, Commercial detachables and convertibles, Workstations, retail POS systems and thin clients into Commercial PCs and Consumer notebooks, Consumer desktops, Consumer services and Consumer detachables into Consumer PCs when describing performance in these markets. Both Commercial and Consumer PCs and Commercial mobility devices maintain a multi-operating system, multi-architecture strategies using Microsoft Windows, Google Chrome, Android operating systems and use predominantly processors from Intel Corporation (“Intel”) and Advanced Micro Devices, Inc. (“AMD”).Commercial PCs are optimized for use by customers including enterprise, public sector and SMB customers, with a focus on robust designs, security, serviceability, connectivity, reliability and manageability in networked and cloud-based environments. Commercial PCs include the HP ProBook and HP EliteBook lines of notebooks, convertibles, and detachables, the HP Pro and HP Elite lines of business desktops and all-in-ones, retail POS systems, HP Thin Clients, HP Pro Tablet PCs and the HP notebook, desktop and Chromebook systems. Commercial PCs also include workstations that are designed and optimized for high-performance and demanding application environments including Z desktop workstations, Z all-in-ones and Z mobile workstations. Additionally, we offer a range of services and solutions to enterprise, public sector and SMB customers to help them manage the lifecycle of their PC and mobility installed base.Consumer PCs are optimized for consumer usage, focusing on gaming, consuming multi-media for entertainment, managing personal life activities, staying connected, sharing information, getting things done for work including content creation, staying informed and security and include HP Spectre, HP Envy, HP Pavilion, HP Chromebook, HP Stream, Omen by HP lines of notebooks and hybrids and HP Envy, HP Pavilion and Omen by HP desktops and all-in-one lines.Personal Systems groups its global business capabilities into the following business units when reporting business performance:•Notebooks consists of Consumer notebooks, Commercial notebooks, mobile workstations and Commercial mobility devices;Desktops includes Consumer desktops, Commercial desktops, thin clients, and retail POS systems;Workstations consists of desktop workstations and accessories; andOther consists of Consumer and Commercial services as well as other Personal Systems capabilities.PrintingPrinting provides Consumer and Commercial printer hardware, Supplies, solutions and services, as well as scanning devices. Printing is also focused on imaging solutions in the commercial and industrial markets. Our global business capabilities within Printing are described below:Office Printing Solutions delivers HP’s office printers, Supplies, services, and solutions to SMBs and large enterprises. It also includes Samsung Electronics Co., Ltd (“Samsung”)-branded and Original Equipment Manufacturer (“OEM”) hardware, supplies and solutions. HP goes to market through its extensive channel network and directly with HP sales. Ongoing key initiatives include the 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, home business and micro business 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 technologies like Photo Lifestyle products drive print relevance for a mobile generation.Graphics Solutions delivers large-format, commercial and industrial solutions to print service providers and packaging converters through a wide portfolio of printers and presses (HP DesignJet, HP Latex, HP Scitex, HP Indigo and HP PageWide Web Presses).3D Printing delivers the HP Multi-Jet Fusion 3D Printing Solution designed for prototyping and production of functional parts and functions on an open platform facilitating the development of new 3D printing materials.Printing groups its global business capabilities into the following business units when reporting business performance:Commercial Hardware consists of Office Printing Solutions, Graphics Solutions and 3D Printing, excluding supplies;Consumer Hardware includes Home Printing Solutions, excluding supplies; andSupplies comprises a set of highly innovative consumable products, ranging from Ink and Laser cartridges to media, graphics supplies, 3D printing supplies and Samsung-branded A4 and A3 supplies and OEM supplies, for recurring use in Consumer and Commercial Hardware.Corporate InvestmentsCorporate Investments includes HP Labs and certain business incubation projects.Sales, Marketing and DistributionWe manage our business and report our financial results based on the business segments described above. Our customers are organized by consumer and commercial groups, and purchases of HP products, solutions and services may be fulfilled directly by HP or indirectly through a variety of partners, including:retailers that sell our products to the public through their own physical or Internet stores;resellers that sell our products and services, frequently with their own value-added products or services, to targeted customer groups;distribution partners that supply our products and solutions to resellers; andsystem integrators and other business intermediaries that provide various levels of services, including systems integration work and as-a-service solutions, and typically partner with us on client solutions that require our products and services.The mix of our business conducted by direct sales or channel sales differs by business and region. We believe that customer buying patterns and different regional market conditions require us to tailor our sales, marketing and distribution efforts to the regional and sub-regional specificities for each of our businesses. Each of our businesses and regions manages the definition and execution of its own go-to-market and distribution strategy. We are focused on driving the depth and breadth of our market coverage while identifying efficiencies and productivity gains in both our direct and indirect routes to market. Our businesses collaborate to accomplish strategic and process alignment where appropriate. For example, we typically assign an account manager to manage relationships across our business with large enterprise customers. The account manager is supported by a team of specialists with product and services expertise and drives both direct and indirect sales to their assigned customers. For other customers and for consumers, we typically manage both direct online sales as well as channel relationships with retailers mainly targeting consumers and small businesses and commercial resellers mainly targeting SMBs and mid-market accounts.Manufacturing and MaterialsWe utilize a significant number of outsourced manufacturers (“OMs”) around the world to manufacture HP-designed products. The use of OMs is intended to generate cost efficiencies and reduce time to market for HP-designed products. We usemultiple OMs to maintain flexibility in our supply chain and manufacturing processes. In some circumstances, third-party suppliers produce products that we purchase and resell under the HP brand. Additionally, we manufacture finished products from components and subassemblies that we acquire from a wide range of vendors.We utilize two primary methods of fulfilling demand for products: building products to order and configuring products to order. We build products to order to maximize manufacturing and logistics efficiencies by producing high volumes of basic product configurations. Alternatively, configuring products to order enables units to match a customer’s hardware and software customization requirements. Our inventory management and distribution practices in both building products to order and configuring products to order seek to minimize inventory holding periods by taking delivery of the inventory and manufacturing shortly before the sale or distribution of products to our customers.We purchase materials, supplies and product subassemblies from a substantial number of vendors. For most of our products, we have existing alternate sources of supply or alternate sources of supply are readily available. However, we have relied on sole sources for some laser printer engines, LaserJet supplies, certain customized parts and parts for products with short life cycles (although some of these sources have operations in multiple locations, mitigating the effect of a disruption). For instance, we source the majority of our A4 and a portion of A3 portfolio laser printer engines and laser toner cartridges from Canon. Any decision by either party not to renew our agreement with Canon or to limit or reduce the scope of the agreement could adversely affect our net revenue from LaserJet products; however, we have a long-standing business relationship with Canon and anticipate renewal of this agreement.We are dependent upon Intel and AMD as suppliers of x86 processors and Microsoft for various software products. We believe that disruptions with these suppliers would have industry-wide ramifications, and therefore would not disproportionately disadvantage us relative to our competitors. See “Risk Factors—We depend on third-party suppliers, and our financial results could suffer if we fail to manage our suppliers effectively,” in Item 1A, which is incorporated herein by reference.Like other participants in the information technology (“IT”) industry, we ordinarily acquire materials and components through a combination of blanket and scheduled purchase orders to support our demand requirements for periods averaging 90 to 120 days. From time to time, we may experience significant price volatility or supply constraints for certain components that are not available from multiple sources. We also may acquire component inventory in anticipation of supply constraints or enter into longer-term pricing commitments with vendors to improve the priority, price and availability of supplies. See “Risk Factors—We depend on third-party suppliers, and our financial results could suffer if we fail to manage our suppliers effectively,” in Item 1A, which is incorporated herein by reference.Sustainability also plays an important role in the manufacturing and sourcing of materials and components for our products. We strive to make our products in an ethical and sustainable manner. We have committed to building an efficient, resilient and sustainable supplier network, and we collaborate with our suppliers to improve their labor practices and working conditions, and to reduce the environmental impact of their operations. These actions, together with our broader sustainability program, help us in our effort to meet customer sustainability requirements and comply with regulations, for example, regarding supplier labor practices and conflict minerals disclosures. For more information on our sustainability goals, programs, and performance, we refer you to our annual sustainability report, available on our website (which is not incorporated by reference herein).InternationalOur products and services are available worldwide. We believe this geographic diversity allows us to meet both consumer and enterprise customers’ demand on a worldwide basis and draws on business and technical expertise from a worldwide workforce. This provides stability to our operations, provides revenue streams that may offset geographic economic trends and offers us an opportunity to access new markets for maturing products. In addition, we believe that future growth is dependent in part on our ability to develop products and sales models that target developing countries. In this regard, we believe that our broad geographic presence as well as our focus on diversity and inclusion, gives us a solid base on which to build future growth.Research and DevelopmentInnovation across products, services, business models and processes is a key element of our culture. Our development efforts are focused on designing and developing products, services and solutions that anticipate customers’ changing needs and desires, and emerging technological trends. Our efforts also are focused on identifying the areas where we believe we can make a unique contribution and the areas where partnering with other leading technology companies will leverage our cost structure and maximize our customers’ experiences.HP Labs, together with the various research and development groups within our business segments, is responsible for our research and development efforts. HP Labs is part of our Corporate Investments segment.We anticipate that we will continue to have significant research and development expenditures in the future to support the design and development of innovative, high-quality products and services to maintain and enhance our competitive position.For a discussion of risks attendant to our research and development activities, see “Risk Factors—If we cannot successfully execute our go-to-market strategy and continue to develop, manufacture and market innovative products and services, our business and financial performance may suffer,” in Item 1A, which is incorporated herein by reference.PatentsOur general policy has been to seek patent protection for those inventions likely to be incorporated into our products and services or where obtaining such proprietary rights will improve our competitive position. At October 31, 2018, our worldwide patent portfolio included over 26,000 patents, including patents acquired from Samsung.Patents generally have a term of twenty years from the date they are filed. As our patent portfolio has been built over time, the remaining terms of the individual patents across our patent portfolio vary. We believe that our patents and patent applications are important for maintaining the competitive differentiation of our products and services, enhancing our freedom of action to sell our products and services in markets in which we choose to participate, and maximizing our return on research and development investments. No single patent is essential to HP as a whole or to any of HP’s business segments.In addition to developing our patent portfolio, we license intellectual property (“IP”) from third parties as we deem appropriate. We have also granted and continue to grant to others licenses, and other rights, under our patents when we consider these arrangements to be in our interest. These license arrangements include a number of cross-licenses with third parties.For a discussion of risks attendant to IP rights, see “Risk Factors—Our financial performance may suffer if we cannot continue to develop, license or enforce the intellectual property rights on which our businesses depend,” in Item 1A, which is incorporated herein by reference.BacklogWe believe that backlog is not a meaningful indicator of future business prospects due to our diverse products and services portfolio, including the large volume of products delivered from finished goods or channel partner inventories and the shortening of some product life cycles. Therefore, we believe that backlog information is not material to an understanding of our overall business.SeasonalityGeneral economic conditions have an impact on our business and financial results. From time to time, the markets in which we sell our products and services experience weak economic conditions that may negatively affect sales. We experience some seasonal trends in the sale of our products and services. For example, European sales are often weaker in the summer months and consumer sales are often stronger in the fourth calendar quarter. Demand during the spring and early summer months also may be adversely impacted by market anticipation of seasonal trends. See “Risk Factors—Our uneven sales cycle makes planning and inventory management difficult and future financial results less predictable,” in Item 1A, which is incorporated herein by reference.CompetitionWe encounter strong competition in all areas of our business activity. We compete on the basis of technology, performance, price, quality, reliability, brand, reputation, distribution, range of products and services, ease of use of our products, account relationships, customer training, service and support, security, availability of application software and internet infrastructure offerings, and our sustainability performance.The markets for each of our key business segments are characterized by strong competition among major corporations with long-established positions and a large number of new and rapidly growing firms. Most product life cycles are short, and to remain competitive we must develop new products and services, periodically enhance our existing products and services and compete effectively on the basis of the factors listed above. In addition, we compete with many of our current and potential partners, including OEMs that design, manufacture and often market their products under their own brand names. Our successful management of these competitive partner relationships will be critical to our future success. Moreover, we anticipate that we will have to continue to adjust prices on many of our products and services to stay competitive.We have a broad technology portfolio spanning personal computing and other access devices, imaging and printing-related products and services. We are the leader or among the leaders in each of our key business segments.The competitive environment in which each key segment operates is described below:Personal Systems. The markets in which Personal Systems operates are highly competitive and are characterized by price competition. The PC market unit decline has moderated while market revenue has improved due to higher average selling prices. Our primary competitors are Lenovo Group Limited, Dell Inc., Acer Inc., ASUSTeK Computer Inc., Apple Inc., Toshiba Corporation and Samsung Electronics Co., Ltd. In particular regions, we also experience competition from local companies and from generically-branded or “white box” manufacturers. Our competitive advantages include our broad product portfolio, our innovation and research and development capabilities including security features, our design, our brand and procurement leverage, our ability to cross-sell our portfolio of offerings, our extensive service and support offerings and the accessibility of our products through a broad-based distribution strategy from retail and commercial channels to direct sales.Printing. The markets for printer hardware and associated supplies are highly competitive. Printing’s key customer segments each face competitive market pressures in pricing and the introduction of new products. Our primary competitors include Canon Inc., Lexmark International, Inc., Xerox Corporation Ltd., Seiko Epson Corporation, The Ricoh Company Ltd. and Brother Industries, Ltd. In addition, independent suppliers offer refill and remanufactured alternatives for HP original inkjet and toner supplies, which are often available for lower prices but generally offer lower print quality and reliability. Other competitors also have developed and marketed new compatible cartridges for HP’s laser and inkjet products, particularly outside of the United States where IP protection is inadequate or ineffective. Our competitive advantages include our comprehensive high quality solutions for the home, office and publishing environments, our innovation and research and development capabilities including security features, our brand, and the accessibility of our products through a broad-based distribution strategy from retail and commercial channels to direct sales.For a discussion of risks attendant to these competitive factors, see “Risk Factors—We operate in an intensely competitive industry and competitive pressures could harm our business and financial performance,” in Item 1A, which is incorporated herein by reference.SustainabilityAt HP, we believe in the power of technology to enable people and communities to change the world for the better. Sustainable impact is fundamental to our reinvention journey-fueling our innovation and growth and strengthening our business for the long term.Our approach covers a broad range of sustainability issues across three pillars: Planet, People and Community. We prioritize issues to address based on their relative importance to our culture, business success and sustainable development.Planet. We aim to grow our business, not our footprint - and support our customers to do the same by transforming our entire business to drive a more efficient, circular, and low-carbon economy and enabling our customers to invent the future through our most sustainable portfolio of products and services.People. We champion dignity, respect and empowerment for all people with whom we work by working to embed diversity and inclusion in everything we do and helping to enable all people who help bring our products to market to thrive at work, at home and in their communities.Community. Through our technology, time and resources, we work to catalyze positive change in communities where we live, work and do business. As a result, we aim to unlock opportunity through the power of technology and improve the vitality and resilience of our local communities.Goals. Our current long-term sustainability goals are:PlanetUse 100% renewable electricity in our global operations, with an interim goal of 40% by 2020;Consistent with a science-based reduction target, reduce Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions in our global operations by 25% by 2025, compared to 2015;Reduce first-tier production supplier and product transportation-related GHG emissions intensity (which refers to the portion of first-tier production and product transportation suppliers’ reported GHG emissions attributable to HP divided by HP’s annual net revenue) by 10% by 2025, compared to 2015;Reduce the GHG emissions intensity of HP’s product portfolio (which refers to tonnes CO2e/net revenue arising from the use of more than 95% of HP product units shipped each year) by 25% by 2020, compared to 2010;•Help suppliers cut 2 million tonnes of carbon dioxide equivalent (CO2e) emissions between 2010 and 2025;Achieve zero deforestation associated with HP brand paper and paper-based product packaging (which includes the box that comes with the product and all paper inside the box) by 2020;Recycle 1.2 million tonnes of hardware and supplies by 2025, since the beginning of 2016; andReduce potable water consumption in global operations by 15% by 2025, compared to 2015;PeopleDevelop skills and improve well-being of 500,000 factory workers by 2025, since the beginning of 2015;Double factory participation in our supply chain sustainability programs by 2025, compared to 2015; andMaintain greater than 99% completion rate of annual Integrity at HP (formerly Standards of Business Conduct) training among active HP employees and the Board of Directors.CommunityEnable better learning outcomes for 100 million people by 2025, since the beginning of 2015.For more information on our sustainability goals, programs, and performance, we refer you to our annual sustainability report, available on our website (which is not incorporated by reference herein).EnvironmentOur operations are subject to regulation under various federal, state, local and foreign laws concerning the environment, including laws addressing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, and the cleanup of contaminated sites. We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, and third-party damage or personal injury claims, if we were to violate or become liable under environmental laws.Many of our products are subject to various federal, state, local and foreign laws governing chemical substances in products and their safe use, including laws regulating the manufacture and distribution of chemical substances and laws restricting the presence of certain substances in electronics products. Most of our products also are subject to requirements applicable to their energy consumption. In addition, we face increasing complexity in our product design and procurement operations as we adjust to new and future requirements relating to the chemical and materials composition of our products, and their safe use.We proactively evaluate and at times replace materials in our products and supply chain, taking into account, among other things, published lists of substances of concern, new and upcoming legal requirements, customer preferences and scientific analysis that indicates a potential impact to human health or the environment.We are 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”). We intend for our products to be easily reused and recycled, and we provide many of our customers with reuse and recycling programs.In the event our products become non-compliant with these laws, our products could be restricted from entering certain jurisdictions and we could face other sanctions, including fines.Our operations, supply chain and our products, are expected to become increasingly subject to federal, state, local and foreign laws, regulations and international treaties relating to climate change. We strive to continually improve the energy and carbon efficiency of our operations, supply chain and product portfolio and deliver more cost-effective and less greenhouse gas-intensive technology solutions to our customers. As these and other new laws, regulations, treaties and similar initiatives and programs are adopted and implemented throughout the world, we will be required to comply or potentially face market access limitations or other sanctions, including fines. We believe that technology will be fundamental to finding solutions to achieve compliance with and manage those requirements, and we are collaborating with industry, business groups and governments to find and promote ways that HP technology can be used to address climate change and to facilitate compliance with related laws, regulations and treaties.We are committed to complying with all environmental laws applicable to our operations, products and services and to reducing our environmental impact across all aspects of our business. We meet this commitment with our sustainability policy, our comprehensive environmental, health and safety policy, strict environmental management of our operations and worldwide environmental programs and services.A liability for environmental remediation and other environmental costs is accrued when we consider it probable that a liability has been incurred and the amount of loss can be reasonably estimated. Environmental costs and accruals are presently not material to our operations, cash flows or financial position. Although there is no assurance that existing or future environmental laws applicable to our operations or products will not have a material adverse effect on our operations, cash flows or financial condition, we do not currently anticipate material capital expenditures for environmental control facilities.For a discussion of risks attendant to these environmental factors, see “Risk Factors—Our business is subject to various federal, state, local and foreign laws and regulations that could result in costs or other sanctions that adversely affect our business and results of operations,” in Item 1A, which is incorporated herein by reference. In addition, for a discussion of our environmental contingencies see Note 14, “Litigation and Contingencies” to the Consolidated Financial Statements in Item 8, which is also incorporated herein by reference.Executive OfficersThe following are our current executive officers:Alex Cho; age 46; President, Personal SystemsMr. Cho has served as President, Personal Systems since June 2018. Mr. Cho joined Hewlett-Packard Company in June 2010 as the Vice President and General Manager of the LaserJet Supplies team. In 2014, Mr. Cho transitioned to Global Head and General Manager of Commercial Personal Systems at Hewlett-Packard Company.Steve Fieler; age 45; Chief Financial OfficerMr. Fieler has served as Chief Financial Officer since July 2018. Previously, Mr. Fieler served as Head of Global Treasury since January 2017. Prior to that role, he was Chief Financial Officer at Proteus Digital Health from June 2014 to January 2017.Mr. Fieler served in a range of finance and operational roles at Hewlett-Packard Company prior to its separation, including Vice President, Chief Financial Officer of HP Software from January 2012 to June 2014.Tracy S. Keogh; age 57; Chief Human Resources OfficerMs. Keogh has served as Chief Human Resources Officer since November 2015. Previously, Ms. Keogh served as Executive Vice President, Human Resources of Hewlett-Packard Company from April 2011 to November 2015. Prior to joining Hewlett-Packard Company, Ms. Keogh served as Senior Vice President of Human Resources at Hewitt Associates, a provider of human resources consulting services, from May 2007 until March 2011.Catherine A. Lesjak; age 59; Chief Operating Officer (interim)Ms. Lesjak has served as interim Chief Operating Officer since July 2018. Ms. Lesjak previously served as Chief Financial Officer since November 2015, and as Executive Vice President and Chief Financial Officer of Hewlett-Packard Company from 2007 to November 2015. Ms. Lesjak also served as Hewlett-Packard Company’s interim Chief Executive Officer from August 2010 until November 2010. She also serves as a director of SunPower Corporation.Enrique Lores; age 53; President, Printing, Solutions and ServicesMr. Lores has served as President, Printing, Solutions and Services since November 2015. Throughout his 26-year tenure with Hewlett-Packard Company, Mr. Lores held leadership positions across the organization, most recently leading the Separation Management Office for HP Inc. Previously, Mr. Lores was the Senior Vice President and General Manager for Business Personal Systems. Before his Business Personal Systems role, Mr. Lores was Senior Vice President of Customer Support and Services.Marie Myers; age 50; Global Controller and Head of Finance ServicesMs. Myers has served as Global Controller and Head of Finance Services since November 2015. Prior to that from October 2014 to October 2015, Ms. Myers was in the Separation Management Office at Hewlett-Packard Company and held other key leadership roles at Hewlett-Packard Company, including Vice President for Printing and Personal Systems, HQ and Finance from May 2012 to October 2015 and Vice President of Finance for Personal Systems Group, Americas from March 2010 to May 2012.Kim Rivera; age 50; Chief Legal Officer and General CounselMs. Rivera has served as Chief Legal Officer, General Counsel and Corporate Secretary since November 2015. Prior to joining us, she served as the Chief Legal Officer and Corporate Secretary at DaVita Health Care Partners where she was employed from 2010 to 2015. From 2006 to 2009, she served as Vice President and Associate General Counsel at The Clorox Company. Prior to that, Ms. Rivera served as Vice President Law and Chief Litigation Counsel to Rockwell Automation as well as General Counsel for its Automation Controls and Information Group.Dion J. Weisler; age 51; President and Chief Executive OfficerMr. Weisler has served as President and Chief Executive Officer since November 2015. Previously, he served as Executive Vice President of the Printing and Personal Systems Group of Hewlett-Packard Company from June 2013 to November 2015 and as Senior Vice President and Managing Director, Printing and Personal Systems, Asia Pacific and Japan from January 2012 to June 2013. Prior to joining Hewlett-Packard Company, he was Vice President and Chief Operating Officer of the Product and Mobile Internet Digital Home Groups at Lenovo Group Ltd., a technology company, from January 2008 to December 2011.EmployeesWe had approximately 55,000 employees worldwide as of October 31, 2018.Available InformationOur Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available on our website at http://www.hp.com/investor/home, as soon as reasonably practicable after HP electronically files such reports with, or furnishes those reports to, the Securities and Exchange Commission. HP’s Corporate Governance Guidelines, Board of Directors’ committee charters (including the charters of the Audit Committee, Finance, Investment and Technology Committee, HR and Compensation Committee, and Nominating, Governance and Social Responsibility Committee) and code of ethics entitled “Integrity at HP” (none of which are incorporated by reference herein) are also available at that same location on our website. If the Board grants any waivers from Integrity at HP to any of our directors or executive officers, or if we amend Integrity at HP, we will, if required, disclose these matters via updates to our website at http://www.hp.com/investor/home on a timely basis. We encourage investors to visit our website from time to time, as information is updated and new information is posted. The content of our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our website are intended to be inactive textual references only.Stockholders may request free copies of these documents from:HP Inc.Attention: Investor Relations1501 Page Mill Road,Palo Alto, CA 94304http://www.hp.com/investor/informationrequestAdditional InformationMicrosoft® and Windows® are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries. Intel® is a trademark of Intel Corporation in the United States and/or other countries. AMD is a trademark of Advanced Micro Devices, Inc. Google™ and Google Chrome™ are trademarks of Google LLC. All other trademarks are the property of their respective owners.ITEM 1A. Risk Factors.The following discussion of risk factors contains forward-looking statements. These risk factors may be important for understanding any statement in this Form 10-K or elsewhere. The following information should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and the Consolidated Financial Statements and related notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.Because of the following factors, as well as other variables affecting our results of operations, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.Risks related to our businessIf we are unsuccessful at addressing our business challenges, our business and results of operations may be adversely affected and our ability to invest in and grow our business could be limited.Our business faces many challenges we must address. One set of challenges relates to dynamic and accelerating market trends, which may include declines in the markets in which we operate. A second set of challenges relates to changes in the competitive landscape. Our primary competitors are exerting increased competitive pressure in targeted areas and are entering new markets; our emerging competitors are introducing new technologies and business models; and our alliance partners in some businesses are increasingly becoming our competitors in others. A third set of challenges relates to business model changes and our go-to-market execution. For example, we may fail to develop innovative products and services, maintain the manufacturing quality of our products, manage our distribution network or successfully market new products and services, any of which could adversely affect our business and financial condition.In addition, we have in the recent past and may again in the future face macroeconomic challenges, including weakness in certain geographic regions and global political developments that impact international trade, such as trade disputes and increased tariffs. We may also be vulnerable to increased risks associated with our efforts to address such challenges given the broad range of geographic regions in which we and our customers and partners operate. If we experience these challenges and do not succeed in our efforts to mitigate them, or if these efforts are more costly or time-consuming than expected, our business and results of operations may be adversely affected, which could limit our ability to invest in and grow our business.We operate in an intensely competitive industry and competitive pressures could harm our business and financial performance.We encounter aggressive competition from numerous and varied competitors in all areas of our business, and our competitors have targeted and are expected to continue targeting our key market segments. We compete on the basis of our technology, innovation, performance, price, quality, reliability, brand, reputation, distribution, range of products and services, ease of use of our products, account relationships, customer training, service and support and security. If our products, services, support and cost structure do not enable us to compete successfully, our results of operations and business prospects could be harmed.We have a large portfolio of products and must allocate our financial, personnel and other resources across all of our products while competing with companies that have smaller portfolios or specialize in one or more of our product lines. As a result, we may invest less in certain areas of our business than our competitors, and our competitors may have greater financial, technical and marketing resources available to their products and services compared to the resources allocated to our competing products and services.Companies with whom we have alliances in certain areas may be or may become our competitors in other areas. In addition, companies with whom we have alliances also may acquire or form alliances with our competitors, which could reduce their business with us. If we are unable to effectively manage these complicated relationships with alliance partners, our business and results of operations could be adversely affected.We face aggressive price competition and may have to continue lowering the prices of many of our products and services to stay competitive, while at the same time trying to maintain or improve our revenue and gross margin. In addition, competitors who have a greater presence in some of the lower-cost markets in which we compete, or who can obtain better pricing, more favorable contractual terms and conditions, or more favorable allocations of products and components during periods of limited supply, may be able to offer lower prices than we are able to offer. Our cash flows, results of operations and financial condition may be adversely affected by these and other industry-wide pricing pressures.Industry consolidation may also affect competition by creating larger, more homogeneous and potentially stronger competitors in the markets in which we operate. Additionally, our competitors may affect our business by entering into exclusive arrangements with our existing or potential customers or suppliers.Because our business model is based on providing innovative and high-quality products, we may spend a proportionately greater amount of our revenues on research and development than some of our competitors. If we cannot proportionately decrease our cost structure (apart from research and development expenses) on a timely basis in response to competitive price pressures, our gross margin and, therefore, our profitability could be adversely affected. In addition, if our pricing and other facets of our offerings are not sufficiently competitive, or if there is a negative reception to our product decisions, we may lose market share in certain areas, which could adversely affect our financial performance and business prospects.Even if we are able to maintain or increase market share for a particular product, its financial performance could decline because the product is in a maturing industry or market segment or contains technology that is becoming obsolete. Financial performance could also decline due to increased competition from other types of products. For example, the refill and remanufactured alternatives for some of our LaserJet toner and InkJet cartridges compete with our Printing Supplies business.If we cannot successfully execute our go-to-market strategy and continue to develop, manufacture and market innovative products and services, our business and financial performance may suffer.Our strategy is focused on leveraging our existing portfolio of products and services to meet the demands of a continually changing technological landscape and to offset certain areas of industry decline. To successfully execute this strategy, we must emphasize the aspects of our core business where demand remains strong, identify and capitalize on natural areas of growth, and innovate and develop new products and services that will enable us to expand beyond our existing technology categories. Any failure to successfully execute this strategy, including any failure to invest sufficiently in strategic growth areas, could adversely affect our business, results of operations and financial condition.The process of developing new high-technology products and services and enhancing existing products and services is complex, costly and uncertain, and any failure by us to anticipate customers’ changing needs and emerging technological trends accurately could significantly harm our market share, results of operations and financial condition. For example, to offset industry declines in some of our businesses, our strategy is to successfully grow in adjacencies such as copier printers, maintain our strong position in graphics, scale our 3D Printing, Managed Print Services and Device as a Service businesses and execute on our Personal Systems growth strategy by providing specialized products and services that address the needs of our customers. We must make long-term investments, develop or acquire and appropriately protect intellectual property, and commit significant research and development and other resources before knowing whether our predictions will accurately reflect customer demand for our products and services. Any failure to accurately predict technological and business trends, control research and development costs or execute our innovation strategy could harm our business and financial performance. Our research and development initiatives may not be successful in whole or in part, including research and development projects which we have prioritized with respect to funding and/or personnel.Our industry is subject to rapid and substantial innovation and technological change. Even if we successfully develop new products and technologies, future products and technologies may eventually supplant ours if we are unable to keep pace with technological advances and end-user requirements and preferences and timely enhance our existing products and technologies or develop new ones. Our competitors may also create products that replace ours. As a result, any of our products and technologies may be rendered obsolete or uneconomical.After we develop a product, we must be able to manufacture appropriate volumes quickly while also managing costs and preserving margins. To accomplish this, we must accurately forecast volumes, mixes of products and configurations that meet customer requirements, and we may not succeed at doing so within a given product’s lifecycle or at all. Any delay in the development, production or marketing of a new product, service or solution could result in us not being among the first to market, which could further harm our competitive position.If we cannot continue to produce quality products and services, our reputation, business and financial performance may suffer.In the course of conducting our business, we must address quality and security issues associated with our products and services, including defects in our engineering, design and manufacturing processes, unsatisfactory performance under service contracts, and unsatisfactory performance or malicious acts by third-party contractors or subcontractors or their employees. Our business is also exposed to the risk of defects in third-party components included in our products, including security vulnerabilities, as illustrated by the recent “Spectre” and “Meltdown” side-channel exploit threats. In order to address quality and security issues, we work extensively with our customers and suppliers and engage in product testing to determine the causes of problems and to develop and implement effective solutions. However, the products and services that we offer are complex, and our regular testing and quality control efforts may not be completely effective in controlling or detecting all quality and security issues or errors, particularly with respect to defects or security vulnerabilities in components manufactured by third parties. If we are unable to determine the cause or find an effective solution to address quality and security issues with our products, we may delay shipment to customers, which would delay revenue recognition and receipt of customer payments and could adversely affect our net revenue, cash flows and profitability. In addition, after products are delivered, quality and security issues may require us to repair or replace such products. Addressing quality and security issues can be expensive and may result in additional warranty, repair, replacement and other costs, adversely affecting our financial performance. In the event of security vulnerabilities or other issues with third-party components, we may have to rely on third parties to provide mitigation techniques such as firmware updates. Furthermore, mitigation techniques for vulnerabilities in third-party components may be ineffective or may result in adverse performance, system instability and data loss or corruption. If new or existing customers have difficulty operating our products or are dissatisfied with our services, our results of operations could be adversely affected, and we could face possible claims if we fail to meet our customers’ expectations. In addition, quality and security issues, including those resulting from defects or security vulnerabilities in third-party components, can impair our relationships with new or existing customers and adversely affect our brand and reputation, which could, in turn, adversely affect our results of operations.We are exposed to fluctuations in foreign currency exchange rates, which could adversely impact our results.Currencies other than the U.S. dollar, including the euro, the British pound, Chinese yuan (renminbi) and the Japanese yen, can have an impact on our results as expressed in U.S. dollars. Global economic events, including trade disputes, economic sanctions and emerging market volatility, and associated uncertainty may cause currencies to fluctuate, which may contribute to variations in our sales of products and services in impacted jurisdictions. For example, the United Kingdom’s June 2016 vote to leave the European Union (commonly known as “Brexit”) caused significant volatility in currency exchange rates, especially between the U.S. dollar and the British pound. Continued uncertainty regarding Brexit may result in future exchange rate volatility. In addition, in the event that one or more European countries were to replace the euro with another currency, our sales into such countries, or into Europe generally, would likely be adversely affected until stable exchange rates are established. Accordingly, fluctuations in foreign currency exchange rates, such as the strengthening of the U.S. dollar against the euro or the British pound or the weakness of the Japanese yen, could adversely affect our net revenue growth in future periods. In addition, currency variations can adversely affect margins on sales of our products in countries outside of the United States and products that include components obtained from suppliers located outside of the United States.From time to time, we may use forward contracts and options designated as cash flow hedges to protect against foreign currency exchange rate risks. The effectiveness of our hedges depends on our ability to accurately forecast future cash flows, which is particularly difficult during periods of uncertain demand for our products and services and highly volatile exchange rates. We may incur significant losses from our hedging activities due to factors such as demand volatility. In addition, certain or all of our hedging activities may be ineffective or may not offset any or more than a portion of the adverse financial impact resulting from currency variations. Losses associated with hedging activities also may impact our revenue, financial condition and, to a lesser extent, our cost of sales.Recent global, regional and local economic weakness and uncertainty could adversely affect our business and financial performance.Our business and financial performance depend significantly on worldwide economic conditions and the demand for technology products and services in the markets in which we compete. Recent economic weakness and uncertainty in various markets throughout the world have resulted, and may result in the future, in decreased net revenue, gross margin, earnings or growth rates and in increased expenses and difficulty in managing inventory levels. For example, we have in the past experienced the impacts of macroeconomic weakness across many geographic regions and markets, and we may experience similar impacts in the future. Ongoing U.S. federal government spending limits may continue to reduce demand for our products and services from organizations that receive funding from the U.S. government, and could negatively affectmacroeconomic conditions in the United States, which could further reduce demand for our products and services. Political developments impacting international trade, including continued uncertainty surrounding Brexit, trade disputes and increased tariffs, particularly between the United States and China, may negatively impact markets and cause weaker macroeconomic conditions.Economic weakness and uncertainty may adversely affect demand for our products and services, may result in increased expenses due to higher allowances for doubtful accounts and potential goodwill and asset impairment charges, and may make it more difficult for us to accurately forecast revenue, gross margin, cash flows and expenses.We also have experienced, and may experience in the future, gross margin declines in certain businesses, reflecting the effect of items such as competitive pricing pressures and increases in component and manufacturing costs resulting from higher labor and material costs borne by our manufacturers and suppliers that, as a result of competitive pricing pressures or other factors, we are unable to pass on to our customers. In addition, our business may be disrupted if we are unable to obtain equipment, parts or components from our suppliers—and our suppliers from their suppliers—due to the insolvency of key suppliers or the inability of key suppliers to obtain credit.Economic weakness and uncertainty could cause our expenses to vary materially from our expectations. Any financial turmoil affecting the banking system and financial markets or any significant financial services institution failures could negatively impact our treasury operations, as the financial condition of such parties may deteriorate rapidly and without notice in times of market volatility and disruption. Poor financial performance of asset markets combined with lower interest rates and the adverse effects of fluctuating currency exchange rates could lead to higher pension and post-retirement benefit expenses. Interest and other expenses could vary materially from expectations depending on changes in interest rates, borrowing costs, currency exchange rates, costs of hedging activities and the fair value of derivative instruments. Economic downturns also may lead to future restructuring actions and associated expenses.The net revenue and profitability of our operations have historically varied, which makes our future financial results less predictable.Our net revenue, gross margin and profit vary among our diverse products and services, customer groups and geographic markets and therefore will likely be different in future periods than our current results. Overall gross margins and profitability in any given period are dependent on the product, service, customer and geographic mix reflected in that period’s net revenue, which in turn depends on the overall demand for our products and services. Delays or reductions in hardware and related services spending by our customers or potential customers could have a material adverse effect on demand for our products and services, which could result in a significant decline in net revenue. In addition, net revenue declines in some of our businesses may affect net revenue in our other businesses as we may lose cross-selling opportunities. Competition, lawsuits, investigations, increases in component and manufacturing costs that we are unable to pass on to our customers, component supply disruptions and other risks affecting our businesses may also have a significant impact on our overall gross margin and profitability. In addition, newer geographic markets may be relatively less profitable due to our investments associated with entering those markets and local pricing pressures, and we may have difficulty establishing and maintaining the operating infrastructure necessary to support the high growth rate associated with some of those markets. Market trends, industry shifts, competitive pressures, commoditization of products, increased component or shipping costs, regulatory impacts and other factors may result in reductions in revenue or pressure on gross margins in a given period, which may lead to adjustments to our operations. Moreover, our efforts to address the challenges facing our business could increase the level of variability in our financial results because the rate at which we are able to realize the benefits from those efforts may vary from period to period.If we fail to manage the distribution of our products and services properly, our business and financial performance could suffer.We use a variety of distribution methods to sell our products and services around the world, including third-party resellers and distributors and both direct and indirect sales to enterprise accounts and consumers. Successfully managing the interaction of our direct and indirect channel efforts to reach various potential customer segments for our products and services is a complex process. Moreover, since each distribution method has distinct risks and gross margins, our failure to implement the most advantageous balance in the delivery model for our products and services could adversely affect our net revenue and gross margins and therefore our profitability.Our financial results could be materially adversely affected due to distribution channel conflicts or if the financial conditions of our channel partners were to weaken. Our results of operations may be adversely affected by any conflicts that might arise between our various distribution channels or the loss or deterioration of any alliance or distribution arrangement or reduced assortments of our products. Moreover, some of our wholesale and retail distributors may have insufficient financial resources and may not be able to withstand changes in business conditions, including economic weakness, industry consolidation and market trends. Many of our significant distributors operate on narrow margins and have been negativelyaffected by business pressures in the past. Considerable trade receivables that are not covered by collateral or credit insurance are outstanding with our distribution and retail channel partners. Net revenue from indirect sales could suffer, and we could experience disruptions in distribution, if our distributors’ financial conditions, abilities to borrow funds or operations weaken.Our inventory management is complex, as we continue to sell a significant mix of products through distributors. We must manage both owned and channel inventory effectively, particularly with respect to sales to distributors, which involves forecasting demand and pricing challenges. Distributors may increase orders during periods of product shortages, cancel orders if their inventory is too high or delay orders in anticipation of new products. Distributors also may adjust their orders in response to the supply of our products and the products of our competitors and seasonal fluctuations in end-user demand. Our reliance upon indirect distribution methods may reduce our visibility into demand and pricing trends and issues, and therefore make forecasting more difficult. If we have excess or obsolete inventory, we may have to reduce our prices and write down inventory. Moreover, our use of indirect distribution channels may limit our willingness or ability to adjust prices quickly and otherwise to respond to pricing changes by competitors.We depend on third-party suppliers, and our financial results could suffer if we fail to manage our suppliers effectively.Our operations depend on our ability to anticipate our needs for components, products and services, as well as our suppliers’ ability to deliver sufficient quantities of quality components, products and services at reasonable prices and in time for us to meet critical schedules for the delivery of our own products and services. Given the wide variety of products and services that we offer, the large number of our suppliers and contract manufacturers that are located around the world, and the long lead times required to manufacture, assemble and deliver certain components and products, problems could arise in production, planning and inventory management that could seriously harm our business. Third-party suppliers may have limited financial resources to withstand challenging business conditions, particularly as a result of increased interest rates or emerging market volatility, and our business could be negatively impacted if key suppliers are forced to cease or limit their operations. Due to the international nature of our third-party supplier network, our financial results may also be negatively impacted by increased trade barriers and tariffs. In addition, our ongoing efforts to optimize the efficiency of our supply chain could cause supply disruptions and be more expensive, time-consuming and resource-intensive than expected. Furthermore, certain of our suppliers may decide to discontinue conducting business with us. Other supplier problems that we could face include component shortages, excess supply, risks related to the terms of our contracts with suppliers, risks associated with contingent workers, risks related to supply chain working conditions and materials sourcing and risks related to our relationships with single-source suppliers, each of which is described below.Component shortages. We may experience a shortage of, or a delay in receiving, certain components as a result of strong demand, capacity constraints, supplier financial weaknesses, the inability of suppliers to borrow funds, disputes with suppliers (some of whom are also our customers), disruptions in the operations of component suppliers, other problems experienced by suppliers or problems faced during the transition to new suppliers. For example, our PC business relies heavily upon OMs to manufacture its products and is therefore dependent upon the continuing operations of those OMs to fulfill demand for our PC products. We represent a substantial portion of the business of some of these OMs, and any changes to the nature or volume of our business transactions with a particular OM could adversely affect the operations and financial condition of the OM and lead to shortages or delays in receiving products from that OM. If shortages or delays persist, the price of certain components may increase, we may be exposed to quality issues or the components may not be available at all. We may not be able to secure enough components at reasonable prices or of acceptable quality to build products or provide services in a timely manner in the quantities needed or according to our specifications. Accordingly, our business and financial performance could suffer if we lose time-sensitive sales, incur additional freight costs or are unable to pass on price increases to our customers. If we cannot adequately address supply issues, we might have to re-engineer some product or service offerings, which could result in further costs and delays.Excess supply. In order to secure components for our products or services, at times we may make advance payments to suppliers or enter into non-cancelable commitments with vendors. In addition, we may purchase components strategically in advance of demand to take advantage of favorable pricing or to address concerns about the availability of future components. If we fail to anticipate customer demand properly, a temporary oversupply could result in excess or obsolete components, which could adversely affect our business and financial performance.Contractual terms. As a result of binding long-term price or purchase commitments with vendors, we may be obligated to purchase components or services at prices that are higher than those available in the current market and be limited in our ability to respond to changing market conditions. If we commit to purchasing components or services for prices in excess of the then-current market price, we may be at a disadvantage to competitors who have access to components or services at lower prices, our gross margin could suffer, and we could incur additional charges relating to inventory obsolescence. In addition, many of our competitors obtain products orcomponents from the same OMs and suppliers that we utilize. Our competitors may obtain better pricing, more favorable contractual terms and conditions, and more favorable allocations of products and components during periods of limited supply, and our ability to engage in relationships with certain OMs and suppliers could be limited. The practice employed by our PC business of purchasing product components and transferring those components to OMs may create large supplier receivables with the OMs that, depending on the financial condition of the OMs, may create collectability risks. In addition, certain of our OMs and suppliers may decide to discontinue conducting business with us. Any of these developments could adversely affect our future results of operations and financial condition.Contingent workers. We also rely on third-party suppliers for the provision of contingent workers, and our failure to manage our use of such workers effectively could adversely affect our results of operations. We have been exposed to various legal claims relating to the status of contingent workers in the past and could face similar claims in the future. We may be subject to shortages, oversupply or fixed contractual terms relating to contingent workers. Our ability to manage the size of, and costs associated with, the contingent workforce may be subject to additional constraints imposed by local laws.Working conditions and materials sourcing. We work with our suppliers to improve their labor practices and working conditions, such as by including requirements in our agreements with our suppliers that workers receive fair treatment, safe working conditions and freely chosen employment, that materials are responsibly sourced and that business operations are conducted in an environmentally responsible and ethical way. Brand perception and customer loyalty could be adversely impacted by a supplier’s improper practices or failure to comply with the above-mentioned requirements or those included in our Supplier Code of Conduct, General Specification for the Environment and other related provisions and requirements of our procurement contracts, including supplier audits, reporting of smelters, wood fiber certification (for HP brand paper and product packaging) and GHG emissions, water and waste data.Single-source suppliers. We obtain a significant number of components from single sources due to technology, availability, price, quality or other considerations. For example, we rely on Canon for certain laser printer engines and laser toner cartridges. We also rely on Intel to provide us with a sufficient supply of processors for many of our PCs and workstations, and we rely on AMD to provide us with a sufficient supply of processors for other products. Some of those processors are customized for our products. New products that we introduce may utilize custom components obtained from only one source initially until we have evaluated whether there is a need for additional suppliers. Replacing a single-source supplier could delay production of some products as replacement suppliers may be subject to capacity constraints or other output limitations. For some components, such as customized components and some of the processors that we obtain from Intel, or the laser printer engines and toner cartridges that we obtain from Canon, alternative sources either may not exist or may be unable to produce the quantities of those components necessary to satisfy our production requirements. In addition, we sometimes purchase components from single-source suppliers under short-term agreements that contain favorable pricing and other terms but that may be unilaterally modified or terminated by the supplier with limited notice and with little or no penalty. The performance of such single-source suppliers under those agreements (and the renewal or extension of those agreements upon similar terms) may affect the quality, quantity and price of our components. The loss of a single-source supplier, the deterioration of our relationship with a single-source supplier, or any unilateral modification to the contractual terms under which we are supplied components by a single-source supplier could adversely affect our business and financial performance.Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.Our worldwide operations could be disrupted by earthquakes, telecommunications failures, power or water shortages, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions (whether as a result of climate change or otherwise), medical epidemics or pandemics and other natural or manmade disasters or catastrophic events, for which we are predominantly self-insured. The occurrence of any of these business disruptions could result in significant losses, seriously harm our revenue, profitability and financial condition, adversely affect our competitive position, increase our costs and expenses, and require substantial expenditures and recovery time in order to fully resume operations. Our corporate headquarters and a portion of our research and development activities are located in California, and other critical business operations and some of our suppliers are located in California and Asia, near major earthquake faults known for seismic activity. The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations. We also rely on major logistics hubs primarily in Asia to manufacture and distribute our products, and primarily in the southwestern United States to import products into the Americas region. Our operations could be adversely affected if manufacturing, logistics or other operations in these locations are disrupted for any reason, such as those listed above or other economic, business, labor, environmental, public health, regulatory or political issues. The ultimate impact on us, our significant suppliers and our general infrastructure of being located near locations more vulnerable to the occurrence of the aforementioned business disruptions, such as near major earthquake faults, and beingconsolidated in certain geographical areas is unknown and remains uncertain.Our uneven sales cycle makes planning and inventory management difficult and future financial results less predictable.Our quarterly sales often have reflected a pattern in which a disproportionate percentage of each quarter’s total sales occurs towards the end of the quarter. This uneven sales pattern makes predicting net revenue, earnings, cash flow from operations and working capital for each financial period difficult, increases the risk of unanticipated variations in our quarterly results and financial condition and places pressure on our inventory management and logistics systems. If predicted demand is substantially greater than orders, there may be excess inventory. Alternatively, if orders substantially exceed predicted demand, we may not be able to fulfill all of the orders received in each quarter and such orders may be canceled. Depending on when they occur in a quarter, developments such as a systems failure, component pricing movements, component shortages or global logistics disruptions could adversely impact our inventory levels and results of operations in a manner that is disproportionate to the number of days in the quarter affected.We experience some seasonal trends in the sale of our products that also may produce variations in our quarterly results and financial condition. For example, sales to governments (particularly sales to the U.S. government) are often stronger in the third calendar quarter, and many customers whose fiscal year is the calendar year spend their remaining capital budget authorizations in the fourth calendar quarter prior to new budget constraints in the first calendar quarter of the following year. Consumer sales are often higher in the fourth calendar quarter compared to other quarters due in part to seasonal holiday demand. European sales are often weaker during the summer months. Demand during the spring and early summer also may be adversely impacted by market anticipation of seasonal trends. Moreover, to the extent that we introduce new products in anticipation of seasonal demand trends, our discounting of existing products may adversely affect our gross margin prior to or shortly after such product launches. Typically, our fourth fiscal quarter is our strongest by revenues. Many of the factors that create and affect seasonal trends are beyond our control.Due to the international nature of our business, political or economic changes, uncertainty or other factors could harm our business and financial performance.Approximately 65% of our net revenue for fiscal year 2018 came from outside the United States. In addition, a portion of our business activity is being conducted in emerging markets. Our future business and financial performance could suffer due to a variety of international factors, including:ongoing instability or changes in a country’s or region’s economic, regulatory or political conditions, including inflation, recession, interest rate fluctuations and actual or anticipated military or political conflicts or any other change resulting from Brexit;longer collection cycles and financial instability among customers, the imposition by governments of additional taxes, tariffs or other restrictions on foreign trade or changes in restrictions on trade between the United States and other countries, including the impact of recently imposed tariffs between the United States and China on a wide variety of products;trade regulations and procedures and actions affecting production, shipping, pricing and marketing of products, including policies adopted by the United States or other countries that may champion or otherwise favor domestic companies and technologies over foreign competitors;local labor conditions and regulations, including local labor issues faced by specific suppliers and OEMs;managing a geographically dispersed workforce;changes or uncertainty in the international, national or local regulatory and legal environments;differing technology standards or customer requirements;import, export or other business licensing requirements or requirements relating to making foreign direct investments, which could increase our cost of doing business in certain jurisdictions, prevent us from shipping products to particular countries or markets, affect our ability to obtain favorable terms for components, increase our operating costs or lead to penalties or restrictions;stringent privacy and data protection policies, such as the European Union’s General Data Protection Regulation (“GDPR”);changes in tax laws; andfluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points of exit and entry for our products and shipments.The factors described above also could disrupt our product and component manufacturing and key suppliers located outside of the United States. For example, we rely on manufacturers in Taiwan for the production of notebook computers and other suppliers in Asia for product assembly and manufacture.In many foreign countries, particularly in those with developing economies, there are companies that engage in business practices prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”). Although we implement policies, procedures and training designed to facilitate compliance with these laws, our employees, contractors and agents, as well as those of the companies to which we outsource certain of our business operations, may take actions in violation of our policies. Any such violation, even if prohibited by our policies, could have an adverse effect on our business and reputation.Any failure by us to identify, manage and complete acquisitions, divestitures and other significant transactions successfully could harm our financial results, business and prospects.As part of our business strategy, we may acquire companies or businesses, divest businesses or assets, enter into strategic alliances and joint ventures and make investments to further our business (collectively, “business combination and investment transactions”). Risks associated with business combination and investment transactions include the following, any of which could adversely affect our revenue, gross margin, profitability and financial results:Managing business combination and investment transactions requires varying levels of management resources, which may divert our attention from other business operations.We may not fully realize all of the anticipated benefits of any particular business combination and investment transaction, and the timeframe for realizing the benefits of a particular business combination and investment transaction may depend partially upon the actions of employees, advisors, suppliers, other third-parties or market trends.Certain prior business combination and investment transactions resulted, and in the future any such transactions may result, in significant costs and expenses, including those related to severance pay, early retirement costs, employee benefit costs, goodwill and asset impairment charges, charges from the elimination of duplicative facilities and contracts, asset impairment charges, inventory adjustments, assumed litigation and other liabilities, legal, accounting and financial advisory fees, and required payments to executive officers and key employees under retention plans.Any increased or unexpected costs, unanticipated delays or failures to meet contractual obligations could make business combination and investment transactions less profitable than anticipated or unprofitable.Our ability to conduct due diligence with respect to business combination and investment transactions, and our ability to evaluate the results of such due diligence, is dependent upon the veracity and completeness of statements and disclosures made or actions taken by third parties or their representatives.The pricing and other terms of our contracts for business combination and investment transactions require us to make estimates and assumptions at the time we enter into these contracts, and, during the course of our due diligence, we may not identify all of the factors necessary to estimate accurately our costs, timing and other matters or we may incur costs if a business combination and investment transaction is not consummated.In order to complete a business combination and investment transaction, we may issue common stock, potentially creating dilution for our existing stockholders.We may borrow to finance business combination and investment transactions, and the amount and terms of any potential acquisition-related or other borrowings, as well as other factors, could affect our liquidity and financial condition.Our effective tax rate on an ongoing basis is uncertain, and business combination and investment transactions could adversely impact our effective tax rate.Any announced business combination and investment transaction may not close on the expected timeframe or at all, which may cause our financial results to differ from expectations in a given quarter.Business combination and investment transactions may lead to litigation, which could impact our financial condition and results of operations.If we fail to identify and successfully complete and integrate business combination and investment transactions that further our strategic objectives, we may be required to expend resources to develop products, services and technology internally, which may put us at a competitive disadvantage.We have incurred and will incur additional depreciation and amortization expense over the useful lives of certain assets acquired in connection with business combination and investment transactions, and, to the extent that the value of goodwill, tangible or intangible assets acquired in connection with a business combination and investment transaction becomes impaired,we may be required to incur additional material charges relating to the impairment of those assets. If there are future decreases in our stock price or significant changes in the business climate or results of operations of our reporting units, we may incur additional charges, which may include impairment charges.As part of our business strategy, we regularly evaluate the potential disposition of assets and businesses that may no longer help us meet our objectives. When we decide to sell assets or a business, we may encounter difficulty in finding buyers or alternative exit strategies on acceptable terms in a timely manner, which could delay the achievement of our strategic objectives. We may also dispose of a business at a price or on terms that are less desirable than we had anticipated. In addition, we may experience greater dis-synergies than expected, and the impact of the divestiture on our revenue growth may be larger than projected. After reaching an agreement with a buyer or seller for the acquisition or disposition of a business, we are subject to satisfaction of pre-closing conditions as well as necessary regulatory and governmental approvals on acceptable terms, which, if not satisfied or obtained, may prevent us from completing the transaction. Such regulatory and governmental approvals may be required in diverse jurisdictions around the world, including jurisdictions with opaque regulatory frameworks, and any delays in the timing of such approvals could materially delay the transaction or prevent it from closing.Integrating acquisitions may be difficult and time-consuming. Any failure by us to integrate acquired companies, products or services into our overall business in a timely manner could harm our financial results, business and prospects.In order to pursue our strategy successfully, we must identify candidates for and successfully complete business combination and investment transactions, some of which may be large or complex, and manage post-closing issues such as the integration of acquired businesses, products, services or employees. Integration issues are often time-consuming and expensive and, without proper planning and implementation, could significantly disrupt our business and the acquired business. The challenges involved in integration include:successfully combining product and service offerings and entering or expanding into markets in which we are not experienced or are developing expertise;convincing both our customers and distributors and those of the acquired business that the transaction will not diminish client service standards or business focus;persuading both our customers and distributors and those of the acquired business not to defer purchasing decisions or switch to other suppliers (which could result in our incurring additional obligations in order to address customer uncertainty), minimizing sales force attrition and expanding and coordinating sales, marketing and distribution efforts;consolidating and rationalizing corporate IT infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code and business processes;minimizing the diversion of management attention from ongoing business concerns;persuading employees that business cultures are compatible, maintaining employee morale and retaining key employees, engaging with employee works councils representing an acquired company’s non-U.S. employees, integrating employees, correctly estimating employee benefit costs and implementing restructuring programs;coordinating and combining administrative, manufacturing, research and development and other operations, subsidiaries, facilities and relationships with third-parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures;achieving savings from supply chain integration; andmanaging integration issues shortly after or pending the completion of other independent transactions.We may not achieve some or all of the expected benefits of our restructuring plan and our restructuring may adversely affect our business.We announced a restructuring plan in October 2016, which we amended in May 2018, to realign our cost structure due to the changing nature of our business and to achieve operating efficiencies that we expect to reduce costs. Implementation of the restructuring plan may be costly and disruptive to our business, and we may not be able to obtain the estimated workforce reductions within the projected timing or at all, or the cost savings and benefits that were initially anticipated in connection with our restructuring. Additionally, as a result of our restructuring, we may experience a loss of continuity, loss of accumulated knowledge and/or inefficiency during transitional periods. Reorganization and restructuring can require a significant amount of management and other employees’ time and focus, which may divert attention from operating and growing our business. If we fail to achieve some or all of the expected benefits of restructuring, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows. For more information about our October 2016 restructuring plan, see Note 3 to our Consolidated Financial Statements in Item 8.Our financial performance may suffer if we cannot continue to develop, license or enforce the intellectual property rights on which our businesses depend.We rely upon patent, copyright, trademark, trade secret and other intellectual property (“IP”) laws in the United States, similar laws in other countries, and agreements with our employees, customers, suppliers and other parties, to establish and maintain IP rights in the products and services we sell, provide or otherwise use in our operations. However, any of our IP rights could be challenged, invalidated, infringed or circumvented, or such IP rights may not be sufficient to permit us to take advantage of current market trends or to otherwise provide competitive advantages, either of which could result in costly product redesign efforts, discontinuance of certain product offerings or other harm to our competitive position. For example, our enforcement of our IP rights of our InkJet printer supplies against infringers may be successfully challenged or our IP rights may be successfully circumvented. Further, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States. Therefore, in certain jurisdictions we may be unable to protect our proprietary technology adequately against unauthorized third-party copying or use; this, too, could adversely affect our ability to sell products or services and our competitive position.Our products and services depend in part on IP and technology licensed from third parties.Some of our business and some of our products rely on key technologies developed or licensed by third parties. We may not be able to obtain or continue to obtain licenses and technologies from these third parties at all or on reasonable terms, or such third parties may demand cross-licenses to our IP. Third-party components may become obsolete, defective or incompatible with future versions of our products, or our relationship with the third party may deteriorate, or our agreements with the third party may expire or be terminated. We may face legal or business disputes with licensors that may threaten or lead to the disruption of inbound licensing relationships. In order to remain in compliance with the terms of our licenses, we must carefully monitor and manage our use of third-party components, including both proprietary and open source license terms that may require the licensing or public disclosure of our IP without compensation or on undesirable terms. Additionally, some of these licenses may not be available to us in the future on terms that are acceptable or that allow our product offerings to remain competitive. Our inability to obtain licenses or rights on favorable terms could have a material effect on our business, including our financial condition and results of operations. In addition, it is possible that as a consequence of a merger or acquisition, third parties may obtain licenses to some of our IP rights or our business may be subject to certain restrictions that were not in place prior to such transaction. Because the availability and cost of licenses from third parties depends upon the willingness of third parties to deal with us on the terms we request, there is a risk that third parties who license to our competitors will either refuse to license to us at all, or refuse to license to us on terms equally favorable to those granted to our competitors. Consequently, we may lose a competitive advantage with respect to these IP rights or we may be required to enter into costly arrangements in order to terminate or limit these rights.Third-party claims of IP infringement are commonplace in our industry and successful third-party claims may limit or disrupt our ability to sell our products and services.Third parties also may claim that we or customers indemnified by us are infringing upon their IP rights. For example, patent assertion entities may purchase IP assets for the purpose of asserting claims of infringement and attempting to extract settlements from companies such as us and our customers. If we cannot or do not license allegedly infringed IP at all or on reasonable terms, or if we are required to substitute similar technology from another source, our operations could be adversely affected. Even if we believe that IP claims are without merit, they can be time-consuming and costly to defend against and may divert management’s attention and resources away from our business. Claims of IP infringement also might require us to redesign affected products, enter into costly settlement or license agreements, pay costly damage awards, or face a temporary or permanent injunction prohibiting us from importing, marketing or selling certain of our products. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable or unwilling to uphold its contractual obligations to us. Additionally, claims of IP infringement may adversely impact our brand and reputation and imperil new and existing customer relationships.Further, our results of operations and cash flows have been and could continue to be affected in certain periods and on an ongoing basis by the imposition, accrual and payment of copyright levies or similar fees. In certain countries (primarily in Europe), proceedings are ongoing or have been concluded in which groups representing copyright owners have sought or are seeking to impose upon and collect from us levies upon IT equipment (such as PCs, multifunction devices and printers) alleged to be copying devices under applicable laws. Other such groups have also sought to modify existing levy schemes to increase the amount of the levies that can be collected from us. Other countries that have not imposed levies on these types of devices are expected to extend existing levy schemes, and countries that do not currently have levy schemes may decide to impose copyright levies on these types of devices. The total amount of the copyright levies will depend on the types of products determined to be subject to the levy, the number of units of those products sold during the period covered by the levy, and the per unit fee for each type of product, all of which are affected by several factors, including the outcome of ongoing litigation involving us and other industry participants and possible action by the legislative bodies in the applicable countries, and couldbe substantial. Consequently, the ultimate impact of these copyright levies or similar fees, and our ability to recover such amounts through increased prices, remains uncertain.The allocation of IP rights between Hewlett Packard Enterprise and HP as part of the Separation, and the shared use of certain IP rights following the Separation, could adversely impact our reputation, our ability to enforce certain IP rights that are important to us and our competitive position.In connection with the Separation, Hewlett-Packard Company allocated to each of Hewlett Packard Enterprise and HP the IP assets relevant to their respective businesses. The terms of the Separation include cross-licenses and other arrangements to provide for certain ongoing use of IP in the existing operations of both businesses. For example, through a joint brand holding structure, both Hewlett Packard Enterprise and HP will retain the ability to make ongoing use of certain variations of the legacy Hewlett-Packard and HP branding, respectively. There is a risk that the joint brand holding structure may impair the enforcement of HP’s trademark rights against third parties that infringe them. Furthermore, as a result of this shared use of the legacy branding, there is a risk that conduct or events adversely affecting the reputation of Hewlett Packard Enterprise could also adversely affect the reputation of HP. In addition, as a result of the allocation of IP as part of the Separation, we no longer own IP allocated to Hewlett Packard Enterprise and our resulting IP ownership position could adversely affect our position and options relating to patent enforcement, patent licensing and cross-licensing, our ability to sell our products or services, our competitive position in the industry and our ability to enter new product markets.Our business and financial performance could suffer if we do not manage the risks associated with our services businesses properly.The risks that accompany our services businesses differ from those of our other businesses. For example, the success of our services business depends to a significant degree on attracting clients to our services, retaining these clients and maintaining or increasing the level of revenues from these clients. Our standard services agreements are generally renewable at a customer’s option and/or subject to cancellation rights, with penalties for early termination. We may not be able to retain or renew services contracts with our clients, or our clients may reduce the scope of the services they contract for. Factors that may influence contract termination, non-renewal or reduction include business downturns, dissatisfaction with our services or products attached to services we provide, our retirement or lack of support for our services, our clients selecting alternative technologies to replace us, the cost of our services as compared to the cost of services offered by our competitors, general market conditions or other reasons. We may not be able to replace the revenue and earnings from lost clients or reductions in services. While our services agreements typically include penalties for early termination, these penalties may not fully cover our investments in these businesses in the event a client terminates a services agreement early or reduces the scope of the agreement. Our clients could also delay or terminate implementations or use of our services or choose not to invest in additional services from us in the future. In addition, the pricing and other terms of some of our services agreements require us to make estimates and assumptions at the time we enter into these contracts that could differ from actual results. Any increased or unexpected costs or unanticipated delays in connection with the performance of these engagements, including delays caused by factors outside our control, could make these agreements less profitable or unprofitable, which could have an adverse effect on the product margin of our services business. As a result, we may not generate the revenues we may have anticipated from our services businesses within the timelines anticipated, if at all.Failure to comply with our customer contracts or government contracting regulations could adversely affect our business and results of operations.Our contracts with our customers may include unique and specialized performance requirements. In particular, our contracts with federal, state, provincial and local governmental customers are subject to various procurement regulations, contract provisions and other requirements relating to their formation, administration and performance. Any failure by us to comply with the specific provisions in our customer contracts or any violation of government contracting regulations could result in the imposition of various civil and criminal penalties, which may include termination of contracts, forfeiture of profits, suspension of payments and, in the case of our government contracts, fines and suspension from future government contracting. Such failures could also cause reputational damage to our business. In addition, Hewlett-Packard Company has in the past been, and we may in the future be, subject to qui tam litigation brought by private individuals on behalf of the government relating to our government contracts, which could include claims for treble damages. Further, any negative publicity related to our customer contracts or any proceedings surrounding them, regardless of its accuracy, may damage our business by affecting our ability to compete for new contracts. If our customer contracts are terminated, if we are suspended or disbarred from government work, or if our ability to compete for new contracts is adversely affected, our financial performance could suffer.Our stock price has historically fluctuated and may continue to fluctuate, which may make future prices of our stock difficult to predict.Our stock price, like that of other technology companies, can be volatile. Some of the factors that could affect our stock price are:speculation, coverage or sentiment in the media or the investment community about, or actual changes in, our business, strategic position, market share, organizational structure, operations, financial condition, financial reporting and results, effectiveness of cost-cutting efforts, value or liquidity of our investments, exposure to market volatility, prospects, business combination or investment transactions, future stock price performance, board of directors, executive team, our competitors or our industry in general;the announcement of new, planned or contemplated products, services, technological innovations, acquisitions, divestitures or other significant transactions by us or our competitors;quarterly increases or decreases in net revenue, gross margin, earnings or cash flows, changes in estimates by the investment community or our financial outlook and variations between actual and estimated financial results;announcements of actual and anticipated financial results by our competitors and other companies in the IT industry;developments relating to pending investigations, claims and disputes; andthe timing and amount of our share repurchases.General or industry-specific market conditions or stock market performance or domestic or international macroeconomic and geopolitical factors unrelated to our performance also may affect the price of our stock. For these reasons, investors should not rely on recent or historical trends to predict future stock prices, financial condition, results of operations or cash flows. Additional volatility in the price of our securities could result in the filing of securities class action litigation matters, which could result in substantial costs and the diversion of management time and resources.Failure to maintain our credit ratings could adversely affect our liquidity, capital position, borrowing costs and access to capital markets.Our credit risk is evaluated by the major independent rating agencies. Past downgrades of Hewlett-Packard Company’s ratings increased the cost of borrowing under our credit facilities and reduced market capacity for our commercial paper. Future downgrades could have the same effects, and could also require the posting of additional collateral under some of our derivative contracts. We cannot be assured that we will be able to maintain our current credit ratings, and any additional actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under further review for a downgrade, may further impact us in a similar manner and may have a negative impact on our liquidity, capital position and access to capital markets.We make estimates and assumptions in connection with the preparation of our Consolidated Financial Statements, and any changes to those estimates and assumptions could adversely affect our results of operations.In connection with the preparation of our Consolidated Financial Statements, we use certain estimates and assumptions based on historical experience and other factors. Our most critical accounting estimates are described in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this report. In addition, as discussed in Note 14 to the Consolidated Financial Statements, we make certain estimates, including decisions related to provisions for legal proceedings and other contingencies. While we believe that these estimates and assumptions are reasonable under the circumstances, they are subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could adversely affect our results of operations.Unanticipated changes in our tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could affect our financial performance.We are subject to income and other taxes in the United States and various foreign jurisdictions. Our tax liabilities are affected by the amounts we charge in intercompany transactions for inventory, services, licenses, funding and other items. We are subject to ongoing tax audits in various jurisdictions. Tax authorities may disagree with these intercompany transactions or other matters, and may assess additional taxes or adjust taxable income on our tax returns as a result. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision. However, we cannot assure you that we will accurately predict the outcomes of these audits, and the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and therefore could have a material impact on our tax provision, net income and cash flows. In addition, uncertainties related to the interpretation of the TCJA could materially impact our tax obligations and effective tax rate, as well as our business strategy and tax planning.Our effective tax rate in the future could be adversely affected by changes to our operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities or changes in tax laws. In addition, various tax legislation has been introduced or is being considered that could significantly impact our tax rate, the carrying value of deferred tax assets, or our deferred tax liabilities. For example, the Organization for Economic Cooperation and Development (the “OECD”) has recently recommended changes to numerous long-standing international tax principles. If countries amend their tax laws to adopt certain parts of the OECD guidelines, this may increase tax uncertainty and may adversely impact our tax liabilities. Any of these changes could affect our financial performance.In order to be successful, we must attract, retain, train, motivate, develop and transition key employees, and failure to do so could seriously harm us.In order to be successful, we must attract, be able to hire, retain, train, motivate, develop, transition and deploy qualified executives and other key employees, including those in managerial, technical, development, sales, marketing and IT support positions. Identifying, developing internally or hiring externally, training and retaining qualified executives, engineers and qualified sales representatives are critical to our future, and competition for experienced employees in the IT industry can be intense. In order to attract and retain executives and other key employees in a competitive marketplace, we must provide a competitive compensation package, including cash- and equity-based compensation. Our equity-based incentive awards may contain conditions relating to our stock price performance and our long-term financial performance that make the future value of those awards uncertain. If the anticipated value of such equity-based incentive awards does not materialize, if our equity-based compensation otherwise ceases to be viewed as a valuable benefit, if our total compensation package is not viewed as being competitive, or if we do not obtain the stockholder approval needed to continue granting equity-based incentive awards in the amounts we believe are necessary, our ability to attract, retain and motivate executives and key employees could be weakened. Our failure to successfully hire executives and key employees or the loss of any executives and key employees could have a significant impact on our operations. Further, changes in our management team may be disruptive to our business, and any failure to successfully transition and assimilate key new hires or promoted employees could adversely affect our business and results of operations.System security risks, data protection breaches, cyberattacks, system outages and systems integration issues could disrupt our internal operations or services provided to customers, and any such disruption could reduce our revenue, increase our expenses, damage our reputation and adversely affect our stock price.Experienced computer programmers and hackers, including state-sponsored organizations or nation-states, may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, ransomware and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products, or attempt to fraudulently induce our employees, customers, or others to disclose passwords or other sensitive information or unwittingly provide access to our systems or data. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of the system. The costs to us to eliminate or alleviate cyber or other security problems, including bugs, viruses, worms, malicious software programs and other security vulnerabilities, could be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions. Media or other reports of perceived security vulnerabilities in our network security, even if nothing has actually been attempted or occurred, could also adversely impact our brand and reputation and materially affect our business. While we have developed and implemented security measures and internal controls designed to protect against cyber and other security problems, such measures cannot provide absolute security and may not be successful in preventing future security breaches. In the past, we have experienced data security incidents resulting from unauthorized use of our systems or those of third parties, which to date have not had a material impact on our operations; however, there is no assurance that such impacts will not be material in the future.We manage and store various proprietary information and sensitive or confidential data relating to our business and our customers. Breaches of our security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us, our clients or our customers, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us, our customers or the individuals affected to a risk of loss or misuse of this information, damage our brand and reputation or otherwise harm our business, and result in government enforcement actions and litigation and potential liability for us. For example, the GDPR imposes a strict data protection compliance regime with severe penalties of up to the greater of 4% of worldwide annual turnover and/or €20 million. We also could lose existing or potential customers or incur significant expenses in connection with our customers’ system failures or any actual or perceived security vulnerabilities in our products and services. In addition, the cost and operational consequences of implementing further data protection measures could be significant.Portions of our IT infrastructure, including portions provided by third parties, also may experience interruptions, outages, delays or cessations of service or may produce errors in connection with systems integrations, migration work or other causes from time to time. Any such events could result in business disruptions and the process of remediating them could be more expensive, time-consuming, disruptive and resource intensive than planned. Such disruptions could adversely impact our ability to fulfill orders and respond to customer requests and interrupt other processes. Delayed sales, lower margins or lost customers resulting from these disruptions could reduce our revenue, increase our expenses, damage our reputation and adversely affect our stock price.Terrorist acts, conflicts, wars and geopolitical uncertainties may seriously harm our business and revenue, costs and expenses and financial condition and stock price.Terrorist acts, conflicts or wars (wherever located around the world) may cause damage or disruption to our business, our employees, facilities, partners, suppliers, distributors, resellers or customers or adversely affect our ability to manage logistics, operate our transportation and communication systems or conduct certain other critical business operations. The potential for future attacks, the national and international responses to attacks or perceived threats to national security, and other actual or potential conflicts or wars have created many economic and political uncertainties. In addition, as a major multinational company with headquarters and significant operations located in the United States, actions against or by the United States may impact our business or employees. Although it is impossible to predict the occurrences or consequences of any such events, if they occur, they could result in a decrease in demand for our products, make it difficult or impossible to provide services or deliver products to our customers or to receive components from our suppliers, create delays and inefficiencies in our supply chain and result in the need to impose employee travel restrictions. We are predominantly uninsured for losses and interruptions caused by terrorist acts, conflicts and wars.Our business is subject to various federal, state, local and foreign laws and regulations that could result in costs or other sanctions that adversely affect our business and results of operations.We are subject to various federal, state, local and foreign laws and regulations. For example, we are subject to 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 clean-up of contaminated sites, the content of our products and the recycling, treatment and disposal of our products, including batteries. In particular, we face increasing complexity in our product design and procurement operations as we adjust to new and future requirements relating to the chemical and materials composition of our products, their safe use, the energy consumption associated with those products, climate change laws and regulations, and product take-back legislation. If we were to violate or become liable under environmental laws or if our products become non-compliant with environmental laws, we could incur substantial costs or face other sanctions, which may include restrictions on our products entering certain jurisdictions. Our potential exposure includes fines and civil or criminal sanctions, third-party property damage, personal injury claims and clean-up costs. Further, liability under some environmental laws relating to contaminated sites can be imposed retroactively, on a joint and several basis, and without any finding of noncompliance or fault. The amount and timing of costs to comply with environmental laws are difficult to predict.Some anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.We have provisions in our certificate of incorporation and bylaws each of which could have the effect of rendering more difficult or discouraging an acquisition of HP deemed undesirable by our Board of Directors. These include provisions:authorizing blank check preferred stock, which we could issue with voting, liquidation, dividend and other rights superior to our common stock;limiting the liability of, and providing indemnification to, our directors and officers;specifying that our stockholders may take action only at a duly called annual or special meeting of stockholders and otherwise in accordance with our bylaws and limiting the ability of our stockholders to call special meetings;requiring advance notice of proposals by our stockholders for business to be conducted at stockholder meetings and for nominations of candidates for election to our Board of Directors; andcontrolling the procedures for conduct of our Board of Directors and stockholder meetings and election, appointment and removal of our directors.These provisions, alone or together, could deter or delay hostile takeovers, proxy contests and changes in control or our management. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prevents some stockholders from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control of HP could limit the opportunity for our stockholders to receive a premium for their shares of our stock and also could affect the price that some investors are willing to pay for our stock.Risks Related to the SeparationThe Separation could result in substantial tax liability.We obtained an opinion of outside counsel that, for U.S. federal income tax purposes, the Separation qualified, for both the company and our stockholders, as a tax-free reorganization within the meaning of Sections 368(d)(1)(D) and 355 of the U.S. Internal Revenue Code of 1986, as amended. In addition, we obtained a private letter ruling from the Internal Revenue Service (the “IRS”) and opinions of outside counsel regarding certain matters impacting the U.S. federal income tax treatment of the Separation for the company and certain related transactions as transactions that are generally tax-free for U.S. federal income tax purposes. The opinions of outside counsel and the IRS private letter ruling were based, among other things, on various factual assumptions we have authorized and representations we have made to outside counsel and the IRS. If any of these assumptions or representations are, or become, inaccurate or incomplete, reliance on the opinions and IRS private letter ruling may be affected. An opinion of outside counsel represents their legal judgment but is not binding on the IRS or any court. Accordingly, there can be no assurance that the IRS will not challenge the conclusions reflected in the opinions or that a court would not sustain such a challenge. If the Separation or certain internal transactions undertaken in anticipation of the Separation are determined to be taxable for U.S. federal income tax purposes, we and/or our stockholders that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities.We or Hewlett Packard Enterprise may fail to perform under the transaction agreements executed as part of the Separation.In connection with the Separation, we and Hewlett Packard Enterprise entered into several agreements, including among others a separation and distribution agreement, a tax matters agreement, an employee matters agreement, a real estate matters agreement and a commercial agreement. The separation and distribution agreement, tax matters agreement, employee matters agreement and real estate matters agreement determine the allocation of assets and liabilities between the companies following the Separation for those respective areas and include any necessary indemnifications related to liabilities and obligations. Hewlett Packard Enterprise has spun off or separated certain of its businesses since the Separation, and some of its obligations under these and other agreements have transferred to the successor entities. We will rely on Hewlett Packard Enterprise or its successor entities to satisfy their performance and payment obligations under these agreements. If Hewlett Packard Enterprise or its successor entities has separated are unable to satisfy their obligations under these agreements, we could incur operational difficulties or losses that could have a material and adverse effect on our business, financial condition and results of operations.ITEM 1B. Unresolved Staff Comments.None.ITEM 2. Properties.As of October 31, 2018, we owned or leased approximately 18.3 million square feet of space worldwide, a summary of which is provided below. Fiscal year ended October 31, 2018 Owned Leased Total (square feet in millions) Administration and support 2.1 6.3 8.4 (Percentage) 25 % 75 % 100 % Core data centers, manufacturing plants, research and development facilities and warehouse operations 2.1 6.4 8.5 (Percentage) 25 % 75 % 100 % 4.2 12.7 16.9 (Percentage) 25 % 75 % 100 % (1)Excludes 1.4 million square feet of vacated space, of which 1.0 million square feet is leased to third parties.We believe that our existing properties are in good condition and are suitable for the conduct of our business. Each of our segments Personal Systems, Printing and Corporate Investments uses each of the properties at least in part, and we retain the flexibility to use each of the properties in whole or in part for each of the segments.Principal Executive OfficesOur principal executive offices, including our global headquarters, are located at 1501 Page Mill Road, Palo Alto, California, United States.Headquarters of Geographic OperationsThe locations of our geographic headquarters are as follows:AmericasEurope, Middle East, AfricaAsia PacificPalo Alto, United StatesGeneva, SwitzerlandSingapore43Product Development and ManufacturingThe locations of our major product development, manufacturing, data centers and HP Labs facilities are as follows:AmericasUnited States—Corvallis, San Diego, Boise, Houston, Vancouver, Aguadilla, Puerto RicoEurope, Middle East, AfricaIsrael—Kiryat-Gat, Rehovot, Netanya Spain—BarcelonaAsia PacificChina—Chongqing,Shanghai, Weihai India—Pantnagar Malaysia—Penang Singapore—Singapore South Korea—SuwonTechnology office (HP Labs)United Kingdom—Bristol United States—Palo AltoITEM 3. Legal Proceedings.Information with respect to this item may be found in Note 14, “Litigation and Contingencies” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.ITEM 4. Mine Safety Disclosures.Not applicable.PART IIITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Our common stock is traded on the New York Stock Exchange under the symbol HPQ.For information about dividends, see Item 6, “Selected Financial Data” and Note 12, “Stockholders’ Deficit” to the Consolidated Financial Statements in Item 8.As of November 30, 2018, there were approximately 60,224 stockholders of record.Recent Sales of Unregistered SecuritiesThere were no unregistered sales of equity securities in fiscal year 2018.Issuer Purchases of Equity Securities Total Number of Shares Purchased Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs In thousands, except per share amounts Period August 2018 6,378 $ 23.94 6,378 $ 4,348,890 September 2018 7,195 $ 25.13 7,195 $ 4,168,038 October 2018 10,875 $ 24.36 10,875 $ 3,903,189 Total 24,448 24,448 On October 10, 2016, the Board authorized $3.0 billion for future repurchases of HP’s outstanding shares of common stock. On June 19, 2018, HP’s Board of Directors authorized an additional $4.0 billion for future repurchases of its outstanding shares of common stock. This program, which does not have a specific expiration date, authorizes repurchases in the open market or in private transactions. HP intends to use repurchases from time to time to offset the dilution created by shares issued under employee stock plans and to repurchase shares opportunistically. All share repurchases settled in the fourth quarter of fiscal year 2018 were open market transactions. As of October 31, 2018, HP had approximately $3.9 billion remaining under repurchase authorization.Stock Performance Graph and Cumulative Total ReturnThe graph below shows the cumulative total stockholder return assuming the investment of $100 at the market close on October 31, 2013 (and the reinvestment of dividends thereafter) in each of HP common stock, the S&P 500 Index, and the S&P Information Technology Index. The comparisons in the graph below are based on historical data and are not indicative of, or intended to forecast, future performance of our common stock. 10/13 10/14 10/15 10/16 10/17 10/18 $ 100.00 $ 150.08 $ 115.15 $ 141.74 $ 217.27 $ 249.30 S&P 500 Index $ 100.00 $ 117.26 $ 123.35 $ 128.90 $ 159.35 $ 171.04 S&P Information Technology Index $ 100.00 $ 125.70 $ 139.76 $ 154.89 $ 215.24 $ 241.72 (1) Historical stock prices of HP Inc. prior to the Separation, which occurred on November 1, 2015, have been adjusted to reflect the impact of the Separation. The adjustment was established using the conversion ratio based on the market value of stock on the Separation close at October 31, 2015.ITEM 6. Selected Financial Data.The information set forth below is not necessarily indicative of results of future continuing operations and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and notes thereto included in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, which are incorporated herein by reference, in order to understand further the factors that may affect the comparability of the financial data presented below.HP INC. AND SUBSIDIARIESSelected Financial Data For the fiscal years ended October 31 2018 2017 2016 2015 2014 In millions, except per share amounts Net revenue $ 58,472 $ 52,056 $ 48,238 $ 51,463 $ 56,651 $ 4,064 $ 3,519 $ 3,549 $ 3,920 $ 4,256 Net (loss) earnings from discontinued operations net of taxes $ — $ — $ (170 ) $ 836 $ 2,089 $ 5,327 $ 2,526 $ 2,496 $ 4,554 $ 5,013 Net earnings per share: Basic Continuing operations $ 3.30 $ 1.50 $ 1.54 $ 2.05 $ 1.55 Discontinued operations — — (0.10 ) 0.46 1.11 Total basic net earnings per share $ 3.30 $ 1.50 $ 1.44 $ 2.51 $ 2.66 Diluted Continuing operations $ 3.26 $ 1.48 $ 1.53 $ 2.02 $ 1.53 Discontinued operations — — (0.10 ) 0.46 1.09 Total diluted net earnings per share $ 3.26 $ 1.48 $ 1.43 $ 2.48 $ 2.62 Cash dividends declared per share $ 0.56 $ 0.53 $ 0.50 $ 0.67 $ 0.61 At year-end: $ 34,622 $ 32,913 $ 28,987 $ 106,853 $ 103,158 $ 4,524 $ 6,747 $ 6,735 $ 6,648 $ 15,515 $ 5,987 $ 7,819 $ 6,813 $ 8,842 $ 18,109 (1)Earnings from continuing operations and net earnings include the following items: 2018 2017 2016 2015 2014 In millions Restructuring and other charges $ 132 $ 362 $ 205 $ 63 $ 176 Acquisition-related charges 123 125 7 1 — Amortization of intangible assets 80 1 16 102 129 Defined benefit plan settlement charges (credits) 7 5 179 (57 ) — Total charges before taxes $ 342 $ 493 $ 407 $ 109 $ 305 Total charges, net of taxes $ 265 $ 367 $ 293 $ 113 $ 238 (2)Total assets, for all periods prior to fiscal year 2016, include the total assets of Hewlett Packard Enterprise.(3)The decrease in Long-term debt and Total debt in fiscal year 2018 was due to the payment for the repurchase of approximately $1.85 billion in aggregate principal amount of U.S. Dollar Global Notes. The decrease in Long-term debt and Total debt in fiscal year 2015 was due to the early extinguishment of debt as a result of the Separation of Hewlett Packard Enterprise.HP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of OperationsITEM 7. 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.Separation Transaction. A discussion of the separation of Hewlett Packard Enterprise Company, HP Inc.’s former enterprise technology infrastructure, software, services and financing businesses.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 continuing financial results comparing fiscal year 2018 to fiscal year 2017 and fiscal year 2017 to fiscal year 2016. A discussion of the results of continuing 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.The discussion of financial condition and results of our continuing operations that follows provides information that will assist the reader in understanding our Consolidated 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 Financial Statements. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes that appear elsewhere in this document.HP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)OVERVIEWWe 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 desktop and notebook PCs, workstations, thin clients, Commercial mobility devices, retail POS systems, displays and other related accessories, software, support, and services. The Printing segment provides Consumer and Commercial printer hardware, Supplies, solutions and services, as well as scanning devices. Corporate Investments include HP Labs and certain business incubation projects.In Personal Systems, our strategic focus is on profitable growth through hyper market segmentation with respect to enhanced innovation in multi-operating systems, multi-architecture, geography, customer segments and other key attributes. Additionally, we are investing in premium form factors such as convertible notebooks to meet customer preference for mobile, thinner and lighter devices. We have increased our focus on Device as a Service as the market begins to shift to contractual solutions. We believe that we are well positioned due to our competitive product lineup.In Printing, our strategic growth focus is on shifting to contractual solutions and Graphics, as well as expanding our footprint in the 3D printing marketplace. Business printing includes delivering solutions to SMBs and enterprise customers, such as multi-function and PageWide printers, including our JetIntelligence lineup of LaserJet printers. The shift to contractual solutions includes an increased focus on Managed Print Services and Instant Ink, which presents strong after-market supplies opportunities. In the Graphics space, we are focused on innovations such as our Indigo and Latex product offerings. We plan to continue to focus on shifting the mix in the installed base to higher value units and expanding our innovative Ink, Laser, Graphics and 3D printing programs. We continue to execute on our key initiatives of focusing on high-value products targeted at high usage categories and introducing new revenue delivery models. Our focus is on placing higher value printer units which offer strong annuity of toner and ink, the design and deployment of A3 products and solutions, accelerating growth in Graphic solutions and 3D printing.We continue to experience challenges that are representative of trends and uncertainties that may affect our business and results of operations. One set of challenges relates to dynamic market trends, such as forecasted declining PC Client markets and flat home printing markets. 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 Personal Systems, we face challenges with industry component availability.In Printing, we are seeing signs of stabilization of demand in consumer and commercial markets, but are still experiencing an overall competitive pricing environment. We obtain many components from single sources due to technology, availability, price, quality or other considerations. For instance, we source the majority of our A4 and a portion of our A3 portfolio of laser printer engines and laser toner cartridges from Canon. Any decision by either party to not renew our agreement with Canon or to limit or reduce the scope of the agreement could adversely affect our net revenue from LaserJet products; however, we have a long-standing business relationship with Canon and anticipate renewal of this agreement. We are also seeing increases in commodity costs impacting our bill of materials.Our business and financial performance also depend significantly on worldwide economic conditions. Accordingly, we face global macroeconomic challenges, tariff-driven headwinds, uncertainty in the markets, volatility in exchange rates, weaker macroeconomic conditions and evolving dynamics in the global trade environment. The impact of these and other global macroeconomic challenges on our business cannot be known at this time.To address these challenges, we continue to pursue innovation with a view towards developing new products and services aligned with generating market demand and meeting the needs of our customers and partners. In addition, we continue to work on improving our operations, with a particular focus on enhancing our end-to-end processes and efficiencies. We also continue to work on optimizing our sales coverage models, align our sales incentives with our strategic goals, improve channel execution, strengthen our capabilities in our areas of strategic focus, and develop and capitalize on market opportunities.We typically experience higher net revenues in our fourth quarter compared to other quarters in our fiscal year due in part to seasonal holiday demand. Historical seasonal patterns should not be considered reliable indicators of our future net revenues or financial performance.For a further discussion of trends, uncertainties and other factors that could impact our continuing operating results, see the section entitled “Risk Factors” in Item 1A in this Annual Report on Form 10-K.HP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)SEPARATION TRANSACTIONOn November 1, 2015, we completed the separation of Hewlett Packard Enterprise, Hewlett-Packard Company’s former enterprise technology infrastructure, software, services and financing businesses and entered into a separation and distribution agreement as well as various other agreements that provide a framework for the relationships between HP and Hewlett Packard Enterprise going forward, including among others a tax matters agreement, an employee matters agreement, a real estate matters agreement and a master commercial agreement.CRITICAL ACCOUNTING POLICIES AND ESTIMATESGeneralThe Consolidated Financial Statements of HP are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”), which require 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. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources. Management has discussed the development, selection and disclosure of these estimates with the Audit Committee of HP’s Board of Directors. Management believes that the accounting estimates employed and the resulting amounts are reasonable; however, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows. A summary of significant accounting policies is included in Note 1, “Overview and Summary of Significant Accounting Policies” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.Revenue RecognitionWe recognize 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, as well as when other revenue recognition principles are met, including industry-specific revenue recognition guidance.We enter into contracts to sell our products and services, and while many of our sales agreements contain standard terms and conditions, there are agreements which contain non-standard terms and conditions. Further, many of our arrangements include multiple elements. As a result, significant contract interpretation may be required to determine the appropriate accounting, including the identification of deliverables considered to be separate units of accounting, the allocation of the transaction price among elements in the arrangement and the timing of revenue recognition for each of those elements.We recognize revenue for delivered elements as separate units of accounting when the delivered elements have standalone value to the customer. For elements with no standalone value, we recognize revenue consistent with the pattern of the 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 our 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.We establish the selling prices used for each deliverable based on 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. We establish 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. We evaluate TPE of selling price by reviewing largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers. ESP is established based on management’s judgment considering internal factors such as margin objectives, pricing practices and controls, customer segment pricing strategies and the product life cycle. Consideration is also given to market conditions such as competitor pricing strategies and industry technology life cycles. We may modify orHP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)develop new go-to-market practices in the future, which may result in changes in selling prices, impacting both VSOE of selling price and ESP. In most arrangements with multiple elements, the transaction price is allocated to the individual units of accounting at the inception of the arrangement based on their relative selling price. However, the aforementioned factors may result in a different allocation of the transaction price to deliverables in multiple element arrangements entered into in future periods. This may change the pattern and timing of revenue recognition for identical arrangements executed in future periods, but will not change the total revenue recognized for any given arrangement.We reduce revenue for customer and distributor programs and incentive offerings, including price protection, rebates, promotions, other volume-based incentives and expected returns. Future market conditions and product transitions may require us 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, we estimate the number of customers expected to redeem the incentive based on historical experience and the specific terms and conditions of the incentive.For hardware products, we recognize revenue generated from direct sales to end customers and indirect sales to channel partners (including resellers, distributors and value-added solution providers) when the revenue recognition criteria are satisfied. For indirect sales to channel partners, we recognize revenue at the time of delivery when the channel partner has economic substance apart from HP and HP has completed its obligations related to the sale.We recognize revenue from fixed-price support or maintenance contracts ratably over the contract period.WarrantyWe accrue the estimated cost of product warranties at the time we recognize revenue. We evaluate our warranty obligations on a product group basis. Our standard product warranty terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, we base our estimated warranty obligation on 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 failure outside of our baseline experience. Warranty terms generally range from 90 days to three years for parts, labor and onsite services, depending upon the product. Over the last three fiscal years, the annual warranty expense and actual warranty costs have averaged approximately 1.8% and 2.0% of annual net revenue, respectively.Restructuring and Other ChargesWe have engaged in restructuring actions which require management to estimate the timing and amount of severance and other employee separation costs for workforce reduction programs, fair value of assets made redundant or obsolete, and the fair value of lease cancellation and other exit costs. We accrue for severance and other employee separation costs under these actions when it is probable that benefits will be paid and the amount is reasonably estimable. The rates used in determining severance accruals are based on existing plans, historical experiences and negotiated settlements. Other charges include non-recurring costs that are distinct from ongoing operational costs such as information technology costs incurred in connection with the Separation. For a full description of our restructuring actions, refer to our discussions of restructuring in “Results of Operations” below and in Note 3, “Restructuring and Other Charges” to the Consolidated Financial Statements in Item 8, which are incorporated herein by reference.Retirement and Post-Retirement BenefitsOur pension and other post-retirement benefit costs and obligations depend on various assumptions. Our major assumptions relate primarily to discount rates, mortality rates, expected increases in compensation levels and the expected long-term return on plan assets. The discount rate assumption is based on current investment yields of high-quality fixed-income securities with maturities similar to the expected benefits payment period. Mortality rates help predict the expected life of plan participants and are based on a historical demographic study of the plan. The expected increase in the compensation levels assumption reflects our long-term actual experience and future expectations. The expected long-term return on plan assets is determined based on asset allocations, historical portfolio results, historical asset correlations and management’s expected returns for each asset class. We evaluate our expected return assumptions annually including reviewing current capital market assumptions to assess the reasonableness of the expected long-term return on plan assets. We update the expected long-term return on assets when we observe a sufficient level of evidence that would suggest the long-term expected return has changed. In any fiscal year, significant differences may arise between the actual return and the expected long-term return on plan assets. Historically, differences between the actual return and expected long-term return on plan assets have resulted from changes in target or actual asset allocation, short-term performance relative to expected long-term performance, and to a lesser extent, differences between target and actual investment allocations, the timing of benefit payments compared to expectations, and the use of derivatives intended to effect asset allocation changes or hedge certain investment or liability exposures. For theHP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)recognition of net periodic benefit cost, the calculation of the expected long-term return on plan assets uses the fair value of plan assets as of the beginning of the fiscal year unless updated as a result of interim re-measurement. Our major assumptions vary by plan, and the weighted-average rates used are set forth in Note 4, “Retirement and Post-Retirement Benefit Plans” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference. The following table provides the impact a change of 25 basis points in each of the weighted-average assumptions of the discount rate, expected increase in compensation levels and expected long-term return on plan assets would have had on our net periodic benefit cost for fiscal year 2018: Assumptions: Discount rate $ 8 Expected increase in compensation levels $ 2 Expected long-term return on plan assets $ 30 Taxes on EarningsThe Tax Cuts and Jobs Act (“the TCJA”) made significant changes to the U.S. tax law. The TCJA lowered our U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a one-time transition tax on accumulated foreign earnings. In fiscal year 2018, we recorded a provisional tax benefit of $760 million as a provisional estimate under the SEC Staff Accounting Bulletin (“SAB”) No. 118.In December 2017, the SEC staff issued SAB No. 118, which addresses how a company recognizes provisional estimates when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the TCJA. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. The final impact of the TCJA may differ from the provisional estimates due to changes in interpretations of the TCJA, legislative action to address questions that arise because of the TCJA, changes in accounting standard for income taxes and related interpretations in response to the TCJA, and updates or changes to estimates used in the provisional amounts. In fiscal year 2018, we recorded a provisional tax benefit of $760 million related to the $5.6 billion net benefit for the decrease in our deferred tax liability on unremitted foreign earnings, partially offset by a $3.3 billion net expense for the deemed repatriation tax payable in installments over eight years, a $1.2 billion net expense for the remeasurement of our deferred tax assets and liabilities to the new U.S. statutory tax rate and a $317 million net expense related to realization on U.S. deferred taxes that are expected to be realized at a lower rate. Resolution of the provisional estimates of the TCJA effects that are different from the assumptions made by us could have a material impact on our financial condition and operating results.Prior to the enactment of the TCJA, our effective tax rate included the impact of certain undistributed foreign earnings for which we have not provided U.S. federal taxes because we had planned to reinvest such earnings indefinitely outside the United States. We plan distributions of foreign earnings based on projected cash flow needs as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations. Based on these assumptions, we estimate the amount we expect to indefinitely invest outside the United States and the amounts we expect to distribute to the United States and provide the U.S. federal taxes due on amounts expected to be distributed to the United States. Further, as a result of certain employment actions and capital investments we have undertaken, income from manufacturing activities in certain jurisdictions is subject to reduced tax rates and, in some cases, is wholly exempt from taxes for fiscal years through 2027.Material changes in our estimates of cash, working capital and long-term investment requirements in the various jurisdictions in which we do business could impact how future earnings are repatriated to the United States, and our related future effective tax rate. The effects of the TCJA related to these policies are referenced and discussed in detail in Note 6, “Taxes on Earnings” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.We calculate our current and deferred tax provisions based on estimates and assumptions that could differ from the final positions reflected in our income tax returns. We adjust our current and deferred tax provisions based on income tax returns which are generally filed in the third or fourth quarters of the subsequent fiscal year.We recognize 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 in which we expect the differences to reverse. HP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)We record a valuation allowance to reduce deferred tax assets to the amount that we are more likely than not to realize. In determining the need for a valuation allowance, we consider future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent and feasible tax planning strategies. In the event we were to determine that it is more likely than not that we will be unable to realize all or part of our deferred tax assets in the future, we would increase the valuation allowance and recognize a corresponding charge to earnings or other comprehensive income in the period in which we make such a determination. Likewise, if we later determine that we are more likely than not to realize the deferred tax assets, we would reverse the applicable portion of the previously recognized valuation allowance. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in the jurisdictions in which the deferred tax assets are located.We are subject to income taxes in the United States and approximately 60 other countries, and we are subject to routine corporate income tax audits in many of these jurisdictions. We believe that positions taken on our tax returns are fully supported, but tax authorities may challenge these positions, which may not be fully sustained on examination by the relevant tax authorities. Accordingly, our income tax provision includes amounts intended to satisfy assessments that may result from these challenges. Determining the income tax provision for these potential assessments and recording the related effects requires management judgments and estimates. The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in our income tax provision and, therefore, could have a material impact on our income tax provision, net income and cash flows. Our accrual for uncertain tax positions is attributable primarily to uncertainties concerning the tax treatment of our international operations, including the allocation of income among different jurisdictions, intercompany transactions, pension and related interest. For a further discussion on taxes on earnings, refer to Note 6, “Taxes on Earnings” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference. InventoryWe state our inventory at the lower of cost or market on a first-in, first-out basis. We make adjustments to reduce the cost of inventory to its net realizable value at the product group level for estimated excess or obsolescence. Factors influencing these adjustments include changes in demand, technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues.Business CombinationsWe allocate the fair value of purchase consideration to the assets acquired, liabilities assumed, and non-controlling interests in the acquiree 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 acquiree is recorded as goodwill and may involve engaging independent third-parties to perform an appraisal. When determining the fair values of assets acquired, liabilities assumed, and non-controlling interests in the acquiree, management makes significant estimates and assumptions, especially with respect to intangible assets.Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth rates and margins, attrition rates, future changes in technology and brand awareness, loyalty and position, and discount rates. Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available. GoodwillWe review goodwill for impairment annually during our fourth quarter and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. We can elect to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or perform a quantitative impairment test. Based on a qualitative assessment, if we determine that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, the quantitative impairment test will be performed.In the quantitative impairment test, we compare 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, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows. We base cash flow projections on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. We base 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, we estimate 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. We weight the fair value derived from the market approach depending on the level of comparability of these publicly-tradedHP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)companies to the reporting unit. When market comparables are not meaningful or not available, we estimate the fair value of a reporting unit using only the income approach.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.Our annual goodwill impairment analysis, performed using the qualitative assessment option as of the first day of the fourth quarter of fiscal year 2018, resulted in a conclusion that it was more likely than not that the fair value of our reporting units exceeded their respective carrying values. As a result, we concluded that a quantitative impairment test was not necessary.Fair Value of Derivative InstrumentsWe use derivative instruments to manage a variety of risks, including risks related to foreign currency exchange rates and interest rates. We use forwards, swaps and at times, options to hedge certain foreign currency and interest rate exposures. We do not use derivative instruments for speculative purposes. As of October 31, 2018, the gross notional value of our derivative portfolio was $24 billion. Assets and liabilities related to derivative instruments are measured at fair value and were $515 million and $195 million, respectively, as of October 31, 2018.Fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. The determination of fair value often involves significant judgments about assumptions such as determining an appropriate discount rate that factors in both risk and liquidity premiums, identifying the similarities and differences in market transactions, weighting those differences accordingly and then making the appropriate adjustments to those market transactions to reflect the risks specific to the asset or liability being valued. We generally use industry standard valuation models to measure the fair value of our derivative positions. When prices in active markets are not available for the identical asset or liability, we use 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 currency exchange rates, and forward and spot prices.For a further discussion on fair value measurements and derivative instruments, refer to Note 9, “Fair Value” and Note 10, “Financial Instruments”, respectively, to the Consolidated Financial Statements in Item 8, which are incorporated herein by reference.Loss ContingenciesWe are involved in various lawsuits, claims, investigations and proceedings including those consisting of intellectual property (“IP”), commercial, securities, employment, employee benefits and environmental matters that arise in the ordinary course of business. We record a liability when we believe that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment is required to determine both the probability of having incurred a liability and the estimated amount of the liability. We review these matters at least quarterly and adjust these liabilities to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other updated information and events, pertaining to a particular case. Pursuant to the separation and distribution agreement, we share responsibility with Hewlett Packard Enterprise for certain matters, as discussed in Note 14, “Litigation and Contingencies” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference, and Hewlett Packard Enterprise has agreed to indemnify us in whole or in part with respect to certain matters. Based on our experience, we believe that any damage amounts claimed in the specific litigation and contingencies matters further discussed in Note 14, “Litigation and Contingencies”, are not a meaningful indicator of HP’s potential liability. Litigation is inherently unpredictable. However, we believe we have valid defenses with respect to legal matters pending against us. 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. We believe we have recorded adequate provisions for any such matters and, as of October 31, 2018, it was not reasonably possible that a material loss had been incurred in excess of the amounts recognized in our financial statements.RECENT ACCOUNTING PRONOUNCEMENTSFor a summary of recent accounting pronouncements applicable to our consolidated financial statements see Note 1, “Overview and Summary of Significant Accounting Policies” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.HP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)RESULTS OF OPERATIONSRevenue 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 average exchange rates from the comparative period and hedging activities from the prior-year period and does not adjust for any repricing or demand impacts from changes in foreign currency exchange rates. This information is provided so that net revenue can be viewed with and without the effect of fluctuations in foreign currency exchange rates, which is consistent with how management evaluates our net revenue results and trends, as management does not believe that the excluded items are reflective of ongoing operating results. The constant currency measures are provided in addition to, and not as a substitute for, the year-over-year percentage change in net revenue on a GAAP basis. Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes.Results of operations in dollars and as a percentage of net revenue were as follows: For the fiscal years ended October 31 2018 2017 2016 Dollars in millions Net revenue $ 58,472 100.0 % $ 52,056 100.0 % $ 48,238 100.0 % Cost of revenue 47,803 81.8 % 42,478 81.6 % 39,240 81.3 % Gross profit 10,669 18.2 % 9,578 18.4 % 8,998 18.7 % Research and development 1,404 2.4 % 1,190 2.3 % 1,209 2.5 % Selling, general and administrative 4,859 8.3 % 4,376 8.4 % 3,833 8.0 % Restructuring and other charges 132 0.2 % 362 0.7 % 205 0.4 % Acquisition-related charges 123 0.2 % 125 0.2 % 7 0.0% Amortization of intangible assets 80 0.1 % 1 0.0% 16 0.0% Defined benefit plan settlement charges 7 0.0% 5 0.0% 179 0.4 % Earnings from continuing operations 4,064 7.0 % 3,519 6.8 % 3,549 7.4 % Interest and other, net (1,051 ) (1.8 )% (243 ) (0.5 )% 212 0.4 % Earnings from continuing operations before taxes 3,013 5.2 % 3,276 6.3 % 3,761 7.8 % Benefit from (provision for) taxes 2,314 3.9 % (750 ) (1.4 )% (1,095 ) (2.3 )% Net earnings from continuing operations 5,327 9.1 % 2,526 4.9 % 2,666 5.5 % Net loss from discontinued operations, net of taxes — — (170 ) Net earnings $ 5,327 $ 2,526 $ 2,496 Net RevenueIn fiscal year 2018, total net revenue increased 12.3% (increased 10.1% on a constant currency basis) as compared with fiscal year 2017. Net revenue from the United States increased 6.6% to $20.6 billion and net revenue from outside of the United States increased 15.7% to $37.9 billion. The increase in net revenue was primarily driven by growth in Notebooks, Desktops, Supplies, Commercial Printing Hardware revenue and favorable foreign currency impacts.In fiscal year 2017, total net revenue increased 7.9% (increased 8.7% on a constant currency basis) as compared with fiscal year 2016. Net revenue from the United States increased 7.1% to $19.3 billion and net revenue from outside of the United States increased 8.4% to $32.8 billion. The increase in net revenue was primarily driven by growth in Notebooks, Desktops and Supplies revenue, partially offset by unfavorable foreign currency impacts.A detailed discussion of the factors contributing to the changes in segment net revenue is included under “Segment Information” below. Gross MarginHP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)Our gross margin was 18.2% for fiscal year 2018 compared with 18.4% for fiscal year 2017. The decrease was primarily due to higher Commercial Hardware unit placements in Printing and an increase in commodity and logistics costs in Personal Systems, partially offset by higher pricing in Personal Systems and favorable foreign currency impacts.Our gross margin was 18.4% for fiscal year 2017 compared with 18.7% for fiscal year 2016. The primary factors impacting the gross margin decrease were lower Personal System gross margin driven by higher commodity costs, unfavorable foreign currency impacts and a higher mix of Personal Systems revenue, partially offset by productivity improvements in Printing. A detailed discussion of the factors contributing to the changes in segment gross margins is included under “Segment Information” below. Operating ExpensesResearch and Development (“R&D”)R&D expense increased 18% in fiscal year 2018 compared to fiscal year 2017, primarily due to continuing investment in Printing, including the acquisition of Samsung’s printer business.R&D expense decreased 2% in fiscal year 2017 compared to fiscal year 2016, primarily due to lower spend as a result of the launch of A3 products in fiscal year 2016, partially offset by continuing investment in Printing.Selling, General and Administrative (“SG&A”)SG&A expense increased 11% in fiscal year 2018 as compared to fiscal year 2017, primarily driven by incremental go-to-market investments to support revenue growth, including the acquisition of Samsung’s printer business.SG&A expense increased 14% in fiscal year 2017 as compared to fiscal year 2016, primarily due to a gain from the divestiture of marketing optimization assets in fiscal year 2016 and an increase in field selling costs.Restructuring and other ChargesRestructuring and other charges decreased by $230 million in fiscal year 2018 compared to the prior-year period, primarily due to lower charges from our restructuring plan announced in October 2016 (the “Fiscal 2017 Plan”) and amended in May 2018.Restructuring and other charges increased by $157 million in fiscal year 2017 compared to the prior-year period, primarily due to the Fiscal 2017 Plan and certain non-recurring costs, including those as a result of the Separation.Acquisition-related ChargesAcquisition-related charges for the fiscal years 2018, 2017 and 2016 relate primarily to third-party professional and legal fees, and integration-related costs, as well as fair value adjustments of certain acquired assets such as inventory.Amortization of Intangible AssetsAmortization expense increased by $79 million in fiscal year 2018 compared to the prior-year period, due to intangible assets resulting primarily from the acquisition of Samsung’s printer business.Amortization expense decreased by $15 million in fiscal year 2017 compared to the prior-year period, primarily due to assets from prior acquisitions reaching the end of their respective amortization periods.Interest and Other, NetInterest and other, net expense increased by $808 million in fiscal year 2018 compared to the prior-year period, primarily due to the reversal of indemnification receivables from Hewlett Packard Enterprise pertaining to various income tax audit settlements, and loss on extinguishment of debt.Interest and other, net expense increased by $455 million in fiscal year 2017 compared to the prior-year period, primarily due to lower tax indemnification income in fiscal year 2017 from Hewlett Packard Enterprise for certain 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. Benefit from (Provision for) TaxesAs a result of U.S. tax reform, a blended U.S. federal statutory rate of 23% was computed for the fiscal year ending October 31, 2018. Our effective tax rates were (76.8%), 22.9% and 29.1% in fiscal years 2018, 2017 and 2016, respectively. In fiscal year 2018, our effective tax rate generally differs from the U.S. federal statutory rate of 23.3% primarily due to transitional impacts of U.S. tax reform and resolution of various audits and tax litigation. In fiscal years 2017 and 2016, our effective tax rate generally differs from the U.S. federal statutory rate of 35% due to favorable tax rates associated with certain earnings from our operations in lower-tax jurisdictions throughout the world. The jurisdictions with favorable tax rates that had the most significant impact on our effective tax rate in the periods presented were Puerto Rico, Singapore, China, Malaysia andHP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)Ireland. The gross income tax benefits related to these favorable tax rates are in addition to transitional impacts of U.S. tax reform and resolution of various audits and tax litigation. Additionally, the overall effective tax rate in fiscal year 2017 was impacted by adjustments to valuation allowances and state income taxes, and the overall effective tax rate in fiscal year 2016 was impacted by adjustments to valuation allowances and uncertain tax positions.For a reconciliation of our effective tax rate to the U.S. federal statutory rate of 23.3% in fiscal year 2018 and 35% in fiscal years 2017 and 2016 and further explanation of our provision for taxes, see Note 6, “Taxes on Earnings” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.In fiscal year 2018, we recorded $2.8 billion of net income tax benefit related to discrete items in the provision for taxes which include impacts of the TCJA. As discussed in the Note 6 “Taxes on Earnings” to the Consolidated Financial Statements in Item 8 of this report, we have not yet completed our analysis of the full impact of the TCJA. However, as of October 31, 2018, we recorded a provisional tax benefit of $760 million related to $5.6 billion net benefit for the decrease in our deferred tax liability on unremitted foreign earnings, partially offset by $3.3 billion net expense for the deemed repatriation tax payable in installments over eight years, a $1.2 billion net expense for the remeasurement of our deferred assets and liabilities to the new U.S. statutory tax rate and a $317 million net expense related to realization on U.S. deferred taxes that are expected to be realized at a lower rate. Fiscal year 2018 also included tax benefits related to audit settlements of $1.5 billion and valuation allowance releases of $601 million pertaining to a change in our ability to utilize certain foreign and U.S. deferred tax assets due to a change in our geographic earnings mix. These benefits were partially offset by other net tax charges of $34 million. In fiscal year 2018, in addition to the discrete items mentioned above, we recorded excess tax benefits of $42 million on stock options, restricted stock units and performance-adjusted restricted stock units.In fiscal year 2017, we recorded $72 million of net income tax benefit 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, we 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.In fiscal year 2016, we 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 position charges of $525 million related to pre-Separation tax matters. In addition, we recorded $62 million of net tax benefits on restructuring 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.Segment InformationA description of the products and services for each segment can be found in Note 2, “Segment Information,” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference. Future changes to this organizational structure may result in changes to the segments disclosed.RealignmentEffective at the beginning of its first quarter of fiscal year 2018, HP implemented an organizational change to align its segment and business unit financial reporting more closely with its current business structure. The organizational change resulted in the transfer of long-life consumables from Commercial to Supplies within the Printing segment. Certain revenues related to service arrangements, which are being eliminated for the purposes of reporting HP’s consolidated net revenue, have now been reclassified from Other to segments. HP has reflected this change to its segment and business unit information in prior reporting periods on an as-if basis. The reporting change had no impact on previously reported consolidated net revenue, earnings from operations, net earnings or net EPS.Personal Systems For the fiscal years ended October 31 2018 2017 2016 Dollars in millions Net revenue $ 37,661 $ 33,321 $ 29,946 Earnings from operations $ 1,411 $ 1,210 $ 1,150 Earnings from operations as a % of net revenue 3.7 % 3.6 % 3.8 % HP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued) The components of net revenue and the weighted net revenue change by business unit were as follows: For the fiscal years ended October 31 Net Revenue Weighted
Net Revenue
Change
Percentage Points 2018 2017 In millions Notebooks $ 22,547 $ 19,782 8.3 Desktops 11,567 10,298 3.8 Workstations 2,246 2,042 0.6 Other 1,301 1,199 0.3 Total Personal Systems $ 37,661 $ 33,321 13.0 For the fiscal years ended October 31 Net Revenue Weighted
Net Revenue
Change
Percentage Points 2017 2016 In millions Notebooks $ 19,782 $ 16,982 9.4 Desktops 10,298 9,956 1.1 Workstations 2,042 1,870 0.6 Other 1,199 1,138 0.2 Total Personal Systems $ 33,321 $ 29,946 11.3 Fiscal Year 2018 compared with Fiscal Year 2017Personal Systems net revenue increased 13.0% (increased 10.5% on a constant currency basis) in fiscal year 2018 as compared to the prior-year period. The net revenue increase was primarily due to growth in Notebooks and Desktops and favorable foreign currency impacts. The net revenue increase was driven by a 6.6% and 6.0% increase in unit volume and average selling prices (“ASPs”), respectively, as compared to the prior-year period. The increase in unit volume was primarily due to growth in Notebooks and Desktops. The increase in ASPs was primarily due to higher pricing driven by increased commodity and logistics costs, favorable foreign currency impacts and positive mix shifts.Consumer and Commercial revenue increased 11% and 14%, respectively, in fiscal year 2018 as compared to the prior-year period, driven by growth in Notebooks, Desktops and Workstations as a result of higher unit volume combined with higher ASPs.Net revenue increased 14% in Notebooks, 12% in Desktops and 10% in Workstations in fiscal year 2018.Personal Systems earnings from operations as a percentage of net revenue increased by 0.1 percentage points in fiscal year 2018. The increase was primarily due to higher ASPs, partially offset by an increase in commodity and logistics costs.Fiscal Year 2017 compared with Fiscal Year 2016Personal Systems net revenue increased 11.3% (increased 12.2% on a constant currency basis) in fiscal year 2017. The net revenue increase was primarily due to growth in Notebooks, Desktops and Workstations partially offset by unfavorable foreign currency impacts. The net revenue increase was driven by a 6.7% and 4.3% increase in unit volume and ASPs, respectively, as compared to fiscal year 2016. The increase in unit volume was primarily due to growth in Notebooks and Workstations. The increase in ASPs was primarily due to favorable pricing partially offset by unfavorable foreign currency impacts.Consumer revenue increased 16% in fiscal year 2017, driven by growth in Notebooks and Desktops as a result of higher unit volume combined with higher ASPs. Commercial revenue increased 9% in fiscal year 2017, driven by growth in Notebooks and Workstations.Net revenue increased 16% in Notebooks, 9% in Workstations and 3% in Desktops in fiscal year 2017.Personal Systems earnings from operations as a percentage of net revenue decreased by 0.2 percentage points in fiscal year 2017. The decrease was primarily due to a decline in gross margin partially offset by a decrease in operating expenses. The decrease in gross margin was primarily due to an increase in commodity cost and unfavorable foreign currency impactsHP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)partially offset by higher ASPs. Operating expenses as a percentage of net revenue decreased primarily due to operating expense management.Printing For the fiscal years ended October 31 2018 2017 2016 Dollars in millions Net revenue $ 20,805 $ 18,728 $ 18,123 Earnings from operations $ 3,323 $ 3,146 $ 3,114 Earnings from operations as a % of net revenue 16.0 % 16.8 % 17.2 % The components of the net revenue and weighted net revenue change by business unit were as follows: For the fiscal years ended October 31 Net Revenue Weighted
Net Revenue
Change
Percentage Points 2018 2017 In millions Supplies $ 13,575 $ 12,524 5.6 Commercial Hardware 4,674 3,792 4.7 Consumer Hardware 2,556 2,412 0.8 Total Printing $ 20,805 $ 18,728 11.1 For the fiscal years ended October 31 Net Revenue Weighted
Net Revenue
Change
Percentage Points 2017 2016 In millions Supplies $ 12,524 $ 11,981 3.0 Commercial Hardware 3,792 3,792 — Consumer Hardware 2,412 2,350 0.3 Total Printing $ 18,728 $ 18,123 3.3 Fiscal Year 2018 compared with Fiscal Year 2017Printing net revenue increased 11.1% (increased 9.5% on a constant currency basis) for fiscal year 2018. The increase in net revenue was primarily driven by the increase in Supplies and Hardware revenue and favorable foreign currency impacts. Net revenue for Supplies increased 8.4% as compared to the prior-year period, including the acquisition of Samsung’s printer business. Printer unit volume increased 12.7% while ASPs increased 1.6% as compared to the prior-year period. The increase in Printer unit volume was primarily driven by unit increases in Commercial and Consumer Hardware, including the Samsung-branded printers. Printer ASPs increased primarily due to favorable foreign currency impacts, partially offset by the dilution impact from Samsung-branded low-end A4 products.Net revenue for Commercial Hardware increased 23.3% as compared to the prior-year period, including revenue from Samsung branded printers, LaserJet and PageWide printers. The unit volume increased by 84.5% while the ASPs decreased by 34.2%. The unit volume increased primarily due to Samsung-branded printers. The decrease in ASPs was primarily due to the dilution impact from Samsung-branded low-end A4 products.Net revenue for Consumer Hardware increased 6.0% as compared to the prior-year period due to a 3.8% increase in printer unit volume and a 2.4% increase in ASPs. The unit volume increase was driven by InkJet and LaserJet Home business.The increase in ASPs was primarily due to favorable foreign currency impacts.Printing earnings from operations as a percentage of net revenue decreased by 0.8 percentage points for the fiscal year 2018 as compared to the prior-year period, primarily due to an increase in operating expenses and lower gross margin. TheHP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)gross margin decreased primarily due to lower Supplies mix and the dilution impact of Samsung-branded low-end products, partially offset by favorable foreign currency impacts and operational improvements. Operating expenses increased primarily driven by the acquisition of Samsung’s printer business and increases in investments in key growth initiatives and go-to-market.Fiscal Year 2017 compared with Fiscal Year 2016Printing net revenue increased 3.3% (increased 3.9% on a constant currency basis) for fiscal year 2017. The increase in net revenue was primarily driven by the increase in Supplies revenue. Net revenue for Supplies increased 4.5% as compared to the prior-year period, primarily due to the change in the Supplies sales model in the prior-year period and better discount management, partially offset by unfavorable foreign currency impacts. Printer unit volume increased 3.4% while ASPs decreased 0.9% as compared to the prior-year period. The increase in Printer unit volume was primarily driven by unit increases in Consumer Hardware and larger opportunity to place incremental units with positive net present value. Printer ASPs decreased primarily due to unfavorable foreign currency impacts.Net revenue for Commercial Hardware is flat as compared to the prior-year period, driven by a decline in other printing solutions largely due to the divestiture of marketing optimization assets in the prior-year period, offset by revenue from Managed Print Services and 3D Printing in fiscal year 2017. ASPs decreased by 0.1% while unit volume increased by 2.0%. The unit volume increased primarily due to a larger opportunity to place incremental units with positive net present value. The decrease in ASPs was primarily due to unfavorable foreign currency impacts, partially offset by a mix shift to higher-end printers.Net revenue for Consumer Hardware increased 2.6% as compared to the prior-year period due to a 3.5% increase in printer unit volume, partially offset by a 0.4% decrease in ASPs. The unit volume increase was driven by the Home business. The decrease in ASPs was primarily due to unfavorable foreign currency impacts, partially offset by better discount management. Printing earnings from operations as a percentage of net revenue decreased by 0.4 percentage points for the fiscal year 2017 as compared to the prior-year period, primarily due to an increase in operating expenses, partially offset by an improved gross margin. The gross margin increased due to operational improvements, partially offset by unfavorable foreign currency impacts. Operating expenses increased primarily due to a gain from the divestiture of marketing optimization assets in the prior-year period and an increase in marketing investments.Corporate InvestmentsThe loss from operations in Corporate Investments for the fiscal years 2018, 2017 and 2016 was primarily due to expenses associated with HP Labs and our incubation projects.LIQUIDITY AND CAPITAL RESOURCESWe use cash generated by operations as our primary source of liquidity. We believe that internally generated cash flows are generally sufficient to support our operating businesses, capital expenditures, acquisitions, restructuring activities, maturing debt, income tax payments and the payment of stockholder dividends, in addition to investments and share repurchases. We are able to supplement this short-term liquidity, if necessary, with broad access to capital markets and credit facilities made available by various domestic and foreign financial institutions. While our access to capital markets may be constrained and our cost of borrowing may increase under certain business, market and economic conditions, our access to a variety of funding sources to meet our liquidity needs is designed to facilitate continued access to capital resources under all such conditions. Our liquidity is subject to various risks including the risks identified in the section entitled “Risk Factors” in Item 1A and market risks identified in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A, which are incorporated herein by reference.Our cash balances are held in numerous locations throughout the world, with the majority of those amounts held outside of the United States. We utilize a variety of planning and financing strategies in an effort to ensure that our worldwide cash is available when and where it is needed. Our cash position remains strong, and we expect that our cash balances, anticipated cash flow generated from operations and access to capital markets will be sufficient to cover our expected near-term cash outlays.On November 1, 2018, we made a cash payment of $422 million in connection with the acquisition of the Apogee group, a U.K. based office equipment dealer (“OED”) and provider of print, outsourced services, and document and process technology. The cash payment is subject to customary closing and other adjustments and would be finalized in future periods.Amounts held outside of the United States are generally utilized to support non-U.S. liquidity needs, and may from time to time be distributed to the United States. The TCJA made significant changes to the U.S. tax law, including a one-time transition tax on accumulated foreign earnings. The payments associated with this one-time transition tax will be paid over eight years beginning 2019. We expect a significant portion of the cash and cash equivalents held by our foreign subsidiaries will no longer be subject to U.S. income tax consequences upon a subsequent repatriation to the United States as a result of theHP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)transition tax on accumulated foreign earnings. However, a portion of this cash may still be subject to foreign income tax or withholding tax consequences upon repatriation. As we evaluate the impact of the TCJA and the future cash needs of our operations, we may revise the amount of foreign earnings considered to be permanently reinvested in our foreign subsidiaries and how to utilize such funds, including reducing our gross debt level, or other uses.Liquidity Our cash and cash equivalents, marketable debt securities and total debt were as follows: As of October 31 2018 2017 2016 In billions Cash and cash equivalents $ 5.2 $ 7.0 $ 6.3 $ 0.7 $ 1.1 $ — Total debt $ 6.0 $ 7.8 $ 6.8 (1)Includes highly liquid U.S. treasury notes, U.S. agency securities, non-U.S. government bonds, corporate debt securities, money market and other funds. We classify these investments within Other current assets in Consolidated Balance Sheets, including those with maturity dates beyond one year, based on their highly liquid nature and availability for use in current operations.Our key cash flow metrics were as follows: For the fiscal years ended October 31 2018 2017 2016 In millions Net cash provided by operating activities $ 4,528 $ 3,677 $ 3,252 Net cash (used in) provided by investing activities (716 ) (1,717 ) 48 Net cash used in financing activities (5,643 ) (1,251 ) (14,445 ) Net (decrease) increase in cash and cash equivalents $ (1,831 ) $ 709 $ (11,145 ) Operating ActivitiesNet cash provided by operating activities increased by $0.9 billion for fiscal year 2018 as compared to fiscal year 2017. The increase was primarily due to higher earnings from operations and cash generated from working capital management activities.Net cash provided by operating activities increased by $0.4 billion for fiscal year 2017 as compared to fiscal year 2016. The increase was primarily due to higher cash generated from working capital management activities.Working Capital MetricsManagement utilizes current cash conversion cycle information to manage our working capital level. The table below presents the cash conversion cycle: As of October 31 2018 2017 2016 Days of sales outstanding in accounts receivable (“DSO”) 30 29 30 Days of supply in inventory (“DOS”) 43 46 39 Days of purchases outstanding in accounts payable (“DPO”) (105 ) (105 ) (98 ) Cash conversion cycle (32 ) (30 ) (29 ) 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 a long-term sustainable rate include, but are not limited to, changes in business mix, changes in payment terms, extent of receivables factoring, seasonal trends and the timing of revenue recognition and inventory purchases within the period.DSO measures the average number of days our receivables are outstanding. DSO is calculated by dividing ending accounts receivable, net of allowance for doubtful accounts, by a 90-day average of net revenue. For fiscal year 2018, theHP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)increase in DSO compared to fiscal year 2017 was primarily due to unfavorable revenue linearity. For fiscal year 2017, the decrease in DSO compared to fiscal year 2016 was primarily due to strong collections.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 of cost of goods sold. For fiscal year 2018, the DOS was lower primarily due to a focus on inventory management. For fiscal year 2017, the DOS was higher primarily due to leveraging our balance sheet, particularly through higher strategic buys and sea shipments to better assure supply of commodities in short supply.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 of cost of goods sold. For fiscal year 2018, the DPO remained flat compared to fiscal year 2017. For fiscal year 2017, the DPO was higher primarily due to increased inventory purchases and an extension of payment terms with our product suppliers. Investing ActivitiesNet cash used in investing activities decreased by $1.0 billion for fiscal year 2018 as compared to fiscal year 2017, primarily due to a decrease in investments classified as available-for-sale investments within Other current assets by $1.6 billion and collateral related to our derivatives of $0.4 billion, partially offset by the payment of $1.0 billion for the acquisition of Samsung’s printer business.Net cash used in investing activities increased by $1.8 billion for fiscal year 2017 as compared to fiscal year 2016, primarily due to net investment activity of $1.1 billion, classified as available-for-sale investments within Other current assets, collateral of $0.2 billion related to our derivatives and proceeds from a business divestiture of $0.5 billion in fiscal year 2016.Financing ActivitiesNet cash used in financing activities increased by $4.4 billion in fiscal year 2018 compared to fiscal year 2017, primarily due to the payment to repurchase approximately $1.85 billion of debt, higher share repurchase amount of $1.1 billion and higher outstanding commercial paper of $0.9 billion in fiscal year 2017.Net cash used in financing activities decreased by $13.2 billion in fiscal year 2017 compared to fiscal year 2016, as the net cash used in financing activities for the fiscal year 2016 included the cash transfer of $10.4 billion to Hewlett Packard Enterprise in connection with the Separation and the redemption of $2.1 billion of U.S. Dollar Global Notes, and fiscal year 2017 included a higher outstanding commercial paper of $0.9 billion.Capital ResourcesDebt Levels As of October 31 2018 2017 2016 Dollars in millions Short-term debt $ 1,463 $ 1,072 $ 78 Long-term debt $ 4,524 $ 6,747 $ 6,735 Debt-to-equity ratio (9.36)x (2.29)x (1.75)x Weighted-average interest rate 4.3 % 4.0 % 4.2 % 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.Short-term debt increased by $0.4 billion and long-term debt decreased by $2.2 billion for fiscal year 2018 as compared to fiscal year 2017. The net decrease in total debt was primarily due to the payment to repurchase approximately $1.85 billion in aggregate principal amount of U.S. Dollar Global Notes.Short-term debt increased by $1.0 billion for fiscal year 2017 as compared to fiscal year 2016. The net increase in total debt was primarily due to a higher outstanding of commercial paper of $0.9 billion.Our debt-to-equity ratio is calculated as the carrying amount of debt divided by total stockholders’ deficit. Our debt-to-equity ratio changed by 7.07x in fiscal year 2018 compared to fiscal year 2017, primarily due to a decrease in stockholders’ deficit balance of $2.8 billion.Our debt-to-equity ratio changed by 0.54x in fiscal year 2017 compared to fiscal year 2016, due to an increase in total debt balances of $1.0 billion.HP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)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 10, “Financial Instruments” in the Consolidated Financial Statements and notes thereto in Item 8, “Financial Statements and Supplementary Data”.Available Borrowing ResourcesWe had the following resources available to obtain short or long-term financing: As of October 31, 2018 In millions 2016 Shelf Registration Statement Unspecified Uncommitted lines of credit $ 667 As of October 31, 2018, we maintain a senior unsecured committed revolving credit facility with aggregate lending commitments of $4.0 billion, which will be available until March 30, 2023 and is primarily to support the issuance of commercial paper. Funds borrowed under this revolving credit facility may also be used for general corporate purposes. As of October 31, 2018, we had $0.9 billion of commercial paper outstanding.We increased our issuance authorization under our commercial paper program from $4.0 billion to $6.0 billion in November 2017. In December 2017, we also entered into an additional revolving credit facility with certain institutional lenders that provided us with $1.5 billion of available borrowings until November 30, 2018. We elected to terminate this $1.5 billion revolving credit facility early, effective August 17, 2018.For more information on our borrowings, see Note 11, “Borrowings”, to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.Credit RatingsOur credit risk is evaluated by major independent rating agencies based on publicly available information as well as information obtained in our ongoing discussions with them. While we do not have any rating downgrade triggers that would accelerate the maturity of a material amount of our debt, previous downgrades have increased the cost of borrowing under our credit facilities, have reduced market capacity for our commercial paper and have required the posting of additional collateral under some of our derivative contracts. In addition, any further downgrade to our credit ratings by any rating agencies may further impact us in a similar manner, and, depending on the extent of any such downgrade, could have a negative impact on our liquidity and capital position. We can access alternative sources of funding, including drawdowns under our credit facilities, if necessary, to offset potential reductions in the market capacity for our commercial paper.HP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)CONTRACTUAL AND OTHER OBLIGATIONSOur contractual and other obligations as of October 31, 2018, were as follows: Payments Due by Period Total 1-3 Years 3-5 Years More than 5 Years In millions $ 5,573 $ 1,308 $ 1,860 $ 1,205 $ 1,200 2,034 208 372 166 1,288 704 434 244 26 — 1,358 294 423 279 362 520 173 272 69 6 $ 10,189 $ 2,417 $ 3,171 $ 1,745 $ 2,856 (1)Amounts represent the principal cash payments relating to our short-term and long-term debt and do not include any fair value adjustments, discounts or premiums.(2)Amounts represent the expected interest payments relating to our short-term and long-term debt. We have outstanding interest rate swap agreements accounted for as fair value hedges that have the economic effect of changing fixed interest rates associated with some of our U.S. Dollar Global Notes to variable interest rates. The impact of our outstanding interest rate swaps at October 31, 2018 was factored into the calculation of the future interest payments on debt.(3)Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us 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 purchase obligations are related principally to inventory and other items. Purchase obligations exclude agreements that are cancelable without penalty. Purchase obligations also exclude open purchase orders that are routine arrangements entered into in the ordinary course of business as they are difficult to quantify in a meaningful way. Even though open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule, and adjust terms based on our business needs prior to the delivery of goods or performance of services.(4)Amounts represent the operating lease obligations, net of total sublease income of $129 million.(5)Amounts represent the capital lease obligations, including total capital lease interest obligations of $58 million.(6)Retirement and Post-Retirement Benefit Plan Contributions. In fiscal year 2019, we anticipate making contributions of approximately $46 million to non-U.S. pension plans, $32 million to cover benefit payments to U.S. non-qualified pension plan participants and $6 million to cover benefit claims for our post-retirement benefit plans. Our policy is to fund our pension plans so that we meet at least the minimum contribution requirements, as established by local government, funding and taxing authorities. Expected contributions and payments to our pension and post-retirement benefit plans are excluded from the contractual obligations table because they do not represent contractual cash outflows as they are dependent on numerous factors which may result in a wide range of outcomes. For more information on our retirement and post-retirement benefit plans, see Note 4, “Retirement and Post-Retirement Benefit Plans”, to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.(7)Cost Savings Plans. We expect to make future cash payments of approximately $286 million in connection with our cost savings plans through fiscal year 2019. These payments have been excluded from the contractual obligations table because they do not represent contractual cash outflows and there is uncertainty as to the timing of these payments. 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 8, which is incorporated herein by reference.(8)Uncertain Tax Positions. As of October 31, 2018, we had approximately $1.3 billion of recorded liabilities and related interest and penalties pertaining to uncertain tax positions. We are unable to make a reasonable estimate as to when cash settlement with the tax authorities might occur due to the uncertainties related to these tax matters. Payments of these obligations would result from settlements with taxing authorities. For more information on our uncertain tax positions, see Note 6, “Taxes on Earnings”, to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.(9)Payment of one-time transition taxes under the TCJA. The TCJA made significant changes to U.S. tax law resulting in a one-time deemed repatriation transition tax on accumulated foreign earnings of approximately $3.3 billion. We expect theHP INC. AND SUBSIDIARIESManagement’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)actual cash payments for the tax to be much lower as we expect to reduce the overall liability by more than half once tax credits and other balance sheet tax attributes are used.OFF-BALANCE SHEET ARRANGEMENTSAs part of our ongoing business, we have not participated in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We have third-party short-term financing arrangements intended to facilitate the working capital requirements of certain customers. For more information on our third-party short-term financing arrangements, see Note 7 “Supplementary Financial Information” to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.In the normal course of business, we are exposed to foreign currency exchange rate and interest rate risks that could impact our financial position and results of operations. Our risk management strategy with respect to these market risks may include the use of derivative instruments. We use derivative contracts only to manage existing underlying exposures. Accordingly, we do not use derivative contracts for speculative purposes. Our risks, risk management strategy and a sensitivity analysis estimating the effects of changes in fair value for each of these exposures are outlined below.Actual gains and losses in the future may differ materially from the sensitivity analyses based on changes in the timing and amount of foreign currency exchange rate and interest rate movements and our actual exposures and derivatives in place at the time of the change, as well as the effectiveness of the derivative to hedge the related exposure.Foreign currency exchange rate riskWe are exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales, anticipated purchases and assets and liabilities denominated in currencies other than the U.S. dollar. We transact business in approximately 44 currencies worldwide, of which the most significant foreign currencies to our operations for fiscal year 2018 were the euro, Chinese yuan renminbi, the British pound and the Indian rupee. For most currencies, we are a net receiver of the foreign currency and therefore benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to the foreign currency. Even where we are a net receiver of the foreign currency, a weaker U.S. dollar may adversely affect certain expense figures, if taken alone.We use a combination of forward contracts and at times, options designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in our forecasted net revenue and, to a lesser extent in cost of sales. In addition, when debt is denominated in a foreign currency, we may use swaps to exchange the foreign currency principal and interest obligations for U.S. dollar-denominated amounts to manage the exposure to changes in foreign currency exchange rates. We also use other derivatives not designated as hedging instruments consisting primarily of forward contracts to hedge foreign currency balance sheet exposures. Alternatively, we may choose not to hedge the risk associated with our foreign currency exposures, primarily if such exposure acts as a natural hedge for offsetting amounts denominated in the same currency or if the currency is too difficult or too expensive to hedge.We have performed sensitivity analyses for continuing operations as of October 31, 2018 and 2017, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant. The analyses cover all of our foreign currency derivative contracts offset by underlying exposures. The foreign currency exchange rates we used in performing the sensitivity analysis were based on market rates in effect at October 31, 2018 and 2017. The sensitivity analyses indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would result in a foreign exchange fair value loss of $75 million and $64 million at October 31, 2018 and October 31, 2017, respectively.Interest rate riskWe also are exposed to interest rate risk related to debt we have issued and our investment portfolio.We issue long-term debt in either U.S. dollars or foreign currencies based on market conditions at the time of financing. We often use interest rate and/or currency swaps to modify the market risk exposures in connection with the debt to achieve U.S. dollar LIBOR-based floating interest expense. The swap transactions generally involve the exchange of fixed for floating interest payments. However, we may choose not to swap fixed for floating interest payments or may terminate a previously executed swap if we believe a larger proportion of fixed-rate debt would be beneficial.In order to hedge the fair value of certain fixed-rate investments, we may enter into interest rate swaps that convert fixed interest returns into variable interest returns. We may use cash flow hedges to hedge the variability of LIBOR-based interest income received on certain variable-rate investments. We may also enter into interest rate swaps that convert variable rate interest returns into fixed-rate interest returns.We have performed sensitivity analyses as of October 31, 2018 and 2017, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of interest rates across the entire yield curve, with all other variables held constant. The analyses cover our debt, investments and interest rate swaps. The analyses use actual or approximate maturities for the debt, investments and interest rate swaps. The discount rates used were based on the market interest rates in effect at October 31, 2018 and 2017. The sensitivity analyses indicated that a hypothetical 10% adverse movement in interest rates would have resulted in a loss in the fair values of our debt and investments, net of interest rate swaps, of $69 million at October 31, 2018 and $61 million at October 31, 2017.ITEM 8. Financial Statements and Supplementary Data.PageReport of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of HP Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of HP Inc. and subsidiaries (the Company) as of October 31, 2018 and 2017, 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, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2018, 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) (PCAOB), the Company’s internal control over financial reporting as of October 31, 2018, 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 13, 2018 expressed an unqualified opinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ ERNST & YOUNG LLPWe have served as the Company’s auditor since 2000San Jose, CaliforniaDecember 13, 2018Report of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of HP Inc.Opinion on Internal Control over Financial ReportingWe have audited HP Inc. and subsidiaries’ internal control over financial reporting as of October 31, 2018, 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). In our opinion, HP Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of October 31, 2018, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of HP Inc. and subsidiaries as of October 31, 2018 and 2017, 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, 2018, and the related notes and our report dated December 13, 2018 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. 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.Definition and Limitations of Internal Control Over Financial ReportingA 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./s/ ERNST & YOUNG LLPSan Jose, CaliforniaDecember 13, 2018Management’s Report on Internal Control Over Financial ReportingHP’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, 2018, 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, 2018. The effectiveness of HP’s internal control over financial reporting as of October 31, 2018 has been audited by Ernst & Young LLP, HP’s independent registered public accounting firm, as stated in their report which appears on page 52 of this Annual Report on Form 10-K./s/ DION J. WEISLER/s/ STEVE FIELERDion J. WeislerPresident and Chief Executive OfficerDecember 13, 2018Steve FielerChief Financial OfficerDecember 13, 2018HP INC. AND SUBSIDIARIESConsolidated Statements of Earnings For the fiscal years ended October 31 2018 2017 2016 In millions, except per share amounts Net revenue $ 58,472 $ 52,056 $ 48,238 Costs and expenses: Cost of revenue 47,803 42,478 39,240 Research and development 1,404 1,190 1,209 Selling, general and administrative 4,859 4,376 3,833 Restructuring and other charges 132 362 205 Acquisition-related charges 123 125 7 Amortization of intangible assets 80 1 16 Defined benefit plan settlement charges 7 5 179 Total costs and expenses 54,408 48,537 44,689 Earnings from continuing operations 4,064 3,519 3,549 Interest and other, net (1,051 ) (243 ) 212 Earnings from continuing operations before taxes 3,013 3,276 3,761 Benefit from (provision for) taxes 2,314 (750 ) (1,095 ) Net earnings from continuing operations 5,327 2,526 2,666 Net loss from discontinued operations — — (170 ) Net earnings $ 5,327 $ 2,526 $ 2,496 Net earnings per share: Basic Continuing operations $ 3.30 $ 1.50 $ 1.54 Discontinued operations — — (0.10 ) Total basic net earnings per share $ 3.30 $ 1.50 $ 1.44 Diluted Continuing operations $ 3.26 $ 1.48 $ 1.53 Discontinued operations — — (0.10 ) Total diluted net earnings per share $ 3.26 $ 1.48 $ 1.43 Weighted-average shares used to compute net earnings per share: Basic 1,615 1,688 1,730 Diluted 1,634 1,702 1,743 The accompanying notes are an integral part of these Consolidated Financial Statements.HP INC. AND SUBSIDIARIESConsolidated Statements of Comprehensive IncomeFor the fiscal years ended October 31 2018 2017 2016 In millions Net earnings $ 5,327 $ 2,526 $ 2,496 Other comprehensive income (loss) before taxes: Change in unrealized components of available-for-sale securities: Unrealized (losses) gains arising during the period (3 ) 4 1 Gains reclassified into earnings (5 ) — — (8 ) 4 1 Change in unrealized components of cash flow hedges: Unrealized gains (losses) arising during the period 341 (651 ) 199 Losses reclassified into earnings 258 199 63 599 (452 ) 262 Change in unrealized components of defined benefit plans: Gains (losses) arising during the period 11 455 (759 ) Amortization of actuarial loss and prior service benefit 48 74 51 Curtailments, settlements and other 3 3 183 62 532 (525 ) Other comprehensive income (loss) before taxes 653 84 (262 ) (Provision for) Benefit from taxes (80 ) (64 ) 45 Other comprehensive income (loss), net of taxes 573 20 (217 ) Comprehensive income $ 5,900 $ 2,546 $ 2,279 The accompanying notes are an integral part of these Consolidated Financial Statements.HP INC. AND SUBSIDIARIESConsolidated Balance Sheets As of October 31 2018 2017 In millions, except par value ASSETS Current assets: Cash and cash equivalents $ 5,166 $ 6,997 Accounts receivable, net 5,113 4,414 Inventory 6,062 5,786 Other current assets 5,046 5,121 Total current assets 21,387 22,318 Property, plant and equipment, net 2,198 1,878 Goodwill 5,968 5,622 Other non-current assets 5,069 3,095 Total assets $ 34,622 $ 32,913 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Notes payable and short-term borrowings $ 1,463 $ 1,072 Accounts payable 14,816 13,279 Employee compensation and benefits 1,136 894 Taxes on earnings 340 214 Other accrued liabilities 7,376 6,953 Total current liabilities 25,131 22,412 Long-term debt 4,524 6,747 Other non-current liabilities 5,606 7,162 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; 1,560 and 1,650 shares issued and outstanding at October 31, 2018, and 2017 respectively) 16 16 Additional paid-in capital 663 380 Accumulated deficit (473 ) (2,386 ) Accumulated other comprehensive loss (845 ) (1,418 ) Total stockholders’ deficit (639 ) (3,408 ) Total liabilities and stockholders’ deficit $ 34,622 $ 32,913 The accompanying notes are an integral part of these Consolidated Financial Statements.HP INC. AND SUBSIDIARIESConsolidated Statements of Cash Flows For the fiscal years ended October 31 2018 2017 2016 In millions Cash flows from operating activities: Net earnings $ 5,327 $ 2,526 $ 2,496 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 528 354 332 Stock-based compensation expense 268 224 182 Restructuring and other charges 132 362 200 Deferred taxes on earnings (3,653 ) 238 401 Other, net 319 134 (32 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (491 ) (453 ) 565 Inventory (136 ) (1,346 ) (291 ) Accounts payable 1,429 2,161 928 Taxes on earnings 389 73 106 Restructuring and other (237 ) (233 ) (157 ) Other assets and liabilities 653 (363 ) (1,478 ) Net cash provided by operating activities 4,528 3,677 3,252 Cash flows from investing activities: Investment in property, plant and equipment (546 ) (402 ) (433 ) Proceeds from sale of property, plant and equipment 172 69 6 Purchases of available-for-sale securities and other investments (367 ) (1,400 ) (126 ) Maturities and sales of available-for-sale securities and other investments 847 231 133 Collateral posted for derivative instruments (1,165 ) (1,170 ) — Collateral returned for derivative instruments 1,379 955 — Payments made in connection with business acquisitions, net of cash acquired (1,036 ) — (7 ) Proceeds from business divestitures, net — — 475 Net cash (used in) provided by investing activities (716 ) (1,717 ) 48 Cash flows from financing activities: Proceeds from short-term borrowings with original maturities less than 90 days, net 743 202 97 Proceeds from short-term borrowings with original maturities greater than 90 days 712 887 — Proceeds from debt, net of issuance costs — 5 4 Payment of short term borrowings with original maturities greater than 90 days (1,596 ) (3 ) — Payment of debt (2,098 ) (84 ) (2,188 ) Settlement of cash flow hedges — (9 ) 4 Net transfer of cash and cash equivalents to Hewlett Packard Enterprise Company — — (10,375 ) Net proceeds related to stock-based award activities 52 57 32 Repurchase of common stock (2,557 ) (1,412 ) (1,161 ) Cash dividends paid (899 ) (894 ) (858 ) Net cash used in financing activities (5,643 ) (1,251 ) (14,445 ) (Decrease) Increase in cash and cash equivalents (1,831 ) 709 (11,145 ) Cash and cash equivalents at beginning of period 6,997 6,288 17,433 Cash and cash equivalents at end of period $ 5,166 $ 6,997 $ 6,288 Supplemental cash flow disclosures: Income taxes paid, net of refunds $ 951 $ 438 $ 587 Interest expense paid $ 329 $ 322 $ 318 Supplemental schedule of non-cash activities: Net assets transferred to Hewlett Packard Enterprise Company $ — $ — $ 22,144 Purchase of assets under capital leases $ 258 $ 200 $ 185 The accompanying notes are an integral part of these Consolidated Financial Statements.HP INC. AND SUBSIDIARIESConsolidated 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, 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 ) Net earnings 5,327 5,327 5,327 Other comprehensive income, net of taxes 573 573 573 Comprehensive income 5,900 5,900 Issuance of common stock in connection with employee stock plans and other 21,728 47 47 47 Repurchases of common stock (111,038 ) (32 ) (2,515 ) (2,547 ) (2,547 ) Cash dividends declared (899 ) (899 ) (899 ) Stock-based compensation expense 268 268 268 Balance October 31, 2018 1,560,270 $ 16 $ 663 $ (473 ) $ (845 ) $ (639 ) $ — $ (639 ) The accompanying notes are an integral part of these Consolidated Financial Statements.HP INC. AND SUBSIDIARIESNotes to Consolidated Financial StatementsNote 1: Overview and Summary of Significant Accounting PoliciesOverviewIn connection with the Separation, HP entered into a separation and distribution agreement as well as various other agreements with Hewlett Packard Enterprise that provide a framework for the relationships between the parties, including among others a tax matters agreement, an employee matters agreement, a transition service agreement, a real estate matters agreement, a master commercial agreement and an information technology service agreement. For more information on the impacts of these agreements, see Note 7, “Supplementary Financial Information”, Note 14, “Litigation and Contingencies” and Note 15, “Guarantees, Indemnifications and Warranties”.Basis of PresentationThe accompanying Consolidated Financial Statements of HP and its wholly-owned subsidiaries are prepared in conformity with U.S. GAAP.Principles of ConsolidationThe 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.ReclassificationsHP implemented an organizational change to align its segment and business unit financial reporting more closely with its current business structure. HP reflected this change to its segment and business unit information in prior reporting periods on an as-if basis. The reporting changes had no impact on previously reported consolidated net revenue, earnings from operations, net earnings or net EPS. See Note 2, “Segment Information”, for a further discussion of HP’s segment and business unit realignments.Use of EstimatesThe 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 may differ materially from those estimates.Foreign Currency TranslationHP 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 PronouncementsIn August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance, which requires a customer in a cloud computing arrangement (“CCA”) that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a CCA that is a service contract will be amortized over the term of the hosting arrangement beginning when the module or component of the hosting arrangement is ready for its intended use. 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 the guidance in fiscal year 2018 on a prospective basis. The implementation of this guidance did not have a material impact 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 has early adopted this guidance in the fourth quarter of fiscal year 2018. The implementation of this guidance did not have a material impact on the Consolidated Financial Statements.HP INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements (Continued)Note 1: Overview and Summary of Significant Accounting Policies (Continued)
For the fiscal years ended October 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
Net revenue: | |||||||||||
Personal Systems | $ | 37,661 | $ | 33,321 | $ | 29,946 | |||||
Printing | 20,805 | 18,728 | 18,123 | ||||||||
Corporate Investments | 5 | 8 | 7 | ||||||||
Total segments | $ | 58,471 | $ | 52,057 | $ | 48,076 | |||||
Other (1) | 1 | (1 | ) | 162 | |||||||
Total net revenue | $ | 58,472 | $ | 52,056 | $ | 48,238 | |||||
Earnings from continuing operations before taxes: | |||||||||||
Personal Systems | $ | 1,411 | $ | 1,210 | $ | 1,150 | |||||
Printing | 3,323 | 3,146 | 3,114 | ||||||||
Corporate Investments | (82 | ) | (87 | ) | (98 | ) | |||||
Total segment earnings from operations | $ | 4,652 | $ | 4,269 | $ | 4,166 | |||||
Corporate and unallocated costs and other | 22 | (33 | ) | (28 | ) | ||||||
Stock-based compensation expense | (268 | ) | (224 | ) | (182 | ) | |||||
Restructuring and other charges | (132 | ) | (362 | ) | (205 | ) | |||||
Acquisition-related charges | (123 | ) | (125 | ) | (7 | ) | |||||
Amortization of intangible assets | (80 | ) | (1 | ) | (16 | ) | |||||
Defined benefit plan settlement charges | (7 | ) | (5 | ) | (179 | ) | |||||
Interest and other, net | (1,051 | ) | (243 | ) | 212 | ||||||
Total earnings from continuing operations before taxes | $ | 3,013 | $ | 3,276 | $ | 3,761 |
As of October 31 | |||||||
2018 | 2017 | ||||||
In millions | |||||||
Personal Systems | $ | 13,447 | $ | 12,156 | |||
Printing | 13,706 | 10,548 | |||||
Corporate Investments | 5 | 3 | |||||
Corporate and unallocated assets | 7,464 | 10,206 | |||||
Total assets | $ | 34,622 | $ | 32,913 |
For the fiscal years ended October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
United States | $ | 20,602 | $ | 19,321 | $ | 18,042 | |||||
Other countries | 37,870 | 32,735 | 30,196 | ||||||||
Total net revenue | $ | 58,472 | $ | 52,056 | $ | 48,238 |
As of October 31 | |||||||
2018 | 2017 | ||||||
In millions | |||||||
United States | $ | 935 | $ | 866 | |||
Singapore | 371 | 372 | |||||
Other countries | 892 | 640 | |||||
Total property, plant and equipment, net | $ | 2,198 | $ | 1,878 |
For the fiscal years ended October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
Notebooks | $ | 22,547 | $ | 19,782 | $ | 16,982 | |||||
Desktops | 11,567 | 10,298 | 9,956 | ||||||||
Workstations | 2,246 | 2,042 | 1,870 | ||||||||
Other | 1,301 | 1,199 | 1,138 | ||||||||
Personal Systems | 37,661 | 33,321 | 29,946 | ||||||||
Supplies | 13,575 | 12,524 | 11,981 | ||||||||
Commercial Hardware | 4,674 | 3,792 | 3,792 | ||||||||
Consumer Hardware | 2,556 | 2,412 | 2,350 | ||||||||
Printing | 20,805 | 18,728 | 18,123 | ||||||||
Corporate Investments | 5 | 8 | 7 | ||||||||
Total segment net revenue | 58,471 | 52,057 | 48,076 | ||||||||
Other | 1 | (1 | ) | 162 | |||||||
Total net revenue | $ | 58,472 | $ | 52,056 | $ | 48,238 |
Fiscal 2017 Plan | Fiscal 2015 Plan | Fiscal 2012 Plan | |||||||||||||||||||||||||
Severance | Infrastructure and other(1) | Severance and PRP(2) | Infrastructure and other | Severance | Infrastructure and other | Total | |||||||||||||||||||||
In millions | |||||||||||||||||||||||||||
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 | ||||||||||||||||||||
Charges (reversals) | 112 | (13 | ) | — | — | — | — | 99 | |||||||||||||||||||
Cash payments | (136 | ) | (35 | ) | (1 | ) | (2 | ) | (1 | ) | — | (175 | ) | ||||||||||||||
Non-cash and other adjustments | (2 | ) | 29 | — | — | — | — | 27 | |||||||||||||||||||
Accrued balance as of October 31, 2018 | $ | 50 | $ | — | $ | 5 | $ | — | $ | 2 | $ | 2 | $ | 59 | |||||||||||||
Total costs incurred to date as of October 31, 2018 | $ | 253 | $ | 81 | $ | 171 | $ | 27 | $ | 1,075 | $ | 44 | $ | 1,651 | |||||||||||||
Reflected in Consolidated Balance Sheets: | |||||||||||||||||||||||||||
Other accrued liabilities | $ | 50 | $ | — | $ | 5 | $ | — | $ | 2 | $ | 1 | $ | 58 | |||||||||||||
Other non-current liabilities | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1 | $ | 1 |
For the fiscal years ended October 31 | |||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||
U.S. Defined Benefit Plans | Non-U.S. Defined Benefit Plans | Post-Retirement Benefit Plans | |||||||||||||||||||||||||||||||||
In millions | |||||||||||||||||||||||||||||||||||
Service cost | $ | — | $ | — | $ | — | $ | 55 | $ | 48 | $ | 47 | $ | 1 | $ | 1 | $ | 1 | |||||||||||||||||
Interest cost | 452 | 469 | 543 | 24 | 18 | 20 | 15 | 18 | 20 | ||||||||||||||||||||||||||
Expected return on plan assets | (717 | ) | (677 | ) | (732 | ) | (39 | ) | (31 | ) | (36 | ) | (23 | ) | (26 | ) | (33 | ) | |||||||||||||||||
Amortization and deferrals: | |||||||||||||||||||||||||||||||||||
Actuarial loss (gain) | 58 | 73 | 55 | 28 | 40 | 28 | (17 | ) | (17 | ) | (12 | ) | |||||||||||||||||||||||
Prior service credit | — | — | — | (3 | ) | (3 | ) | (3 | ) | (18 | ) | (19 | ) | (17 | ) | ||||||||||||||||||||
Net periodic (credit) benefit cost | (207 | ) | (135 | ) | (134 | ) | 65 | 72 | 56 | (42 | ) | (43 | ) | (41 | ) | ||||||||||||||||||||
Curtailment gain | — | — | — | — | — | (1 | ) | — | — | ||||||||||||||||||||||||||
Settlement loss | 2 | 3 | 180 | 5 | 2 | 3 | — | — | — | ||||||||||||||||||||||||||
Special termination benefits | — | — | — | — | — | — | — | — | 4 | ||||||||||||||||||||||||||
Total (credit) benefit cost | $ | (205 | ) | $ | (132 | ) | $ | 46 | $ | 70 | $ | 74 | $ | 58 | $ | (42 | ) | $ | (43 | ) | $ | (37 | ) |
For the fiscal years ended October 31 | ||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 | ||||||||||||||||||
U.S. Defined Benefit Plans | Non-U.S. Defined Benefit Plans | Post-Retirement Benefit Plans | ||||||||||||||||||||||||
Discount rate | 3.8 | % | 4.0 | % | 4.4 | % | 2.1 | % | 1.6 | % | 2.3 | % | 3.5 | % | 3.4 | % | 3.6 | % | ||||||||
Expected increase in compensation levels | 2.0 | % | 2.0 | % | 2.0 | % | 2.5 | % | 2.7 | % | 2.5 | % | — | — | — | |||||||||||
Expected long-term return on plan assets | 6.9 | % | 6.9 | % | 6.9 | % | 4.5 | % | 4.4 | % | 5.6 | % | 7.1 | % | 7.3 | % | 8.0 | % |
As of October 31 | |||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
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 | $ | 10,838 | $ | 10,176 | $ | 815 | $ | 692 | $ | 351 | $ | 390 | |||||||||||
Acquisition of plan | — | — | 40 | — | — | — | |||||||||||||||||
Actual return on plan assets | (267 | ) | 1,223 | (2 | ) | 86 | 76 | 26 | |||||||||||||||
Employer contributions | 33 | 33 | 33 | 27 | 4 | 9 | |||||||||||||||||
Participant contributions | — | — | 11 | 10 | 59 | 53 | |||||||||||||||||
Benefits paid | (575 | ) | (583 | ) | (10 | ) | (14 | ) | (102 | ) | (127 | ) | |||||||||||
Settlement | (11 | ) | (11 | ) | (18 | ) | (6 | ) | — | — | |||||||||||||
Currency impact | — | — | (19 | ) | 20 | — | — | ||||||||||||||||
Fair value of assets — end of year | $ | 10,018 | $ | 10,838 | $ | 850 | $ | 815 | $ | 388 | $ | 351 | |||||||||||
Change in benefits obligation | |||||||||||||||||||||||
Projected benefit obligation — beginning of year | $ | 12,266 | $ | 12,144 | $ | 1,132 | $ | 1,120 | $ | 463 | $ | 535 | |||||||||||
Acquisition of plan | — | — | 40 | — | — | — | |||||||||||||||||
Service cost | $ | — | $ | — | $ | 55 | $ | 48 | $ | 1 | $ | 1 | |||||||||||
Interest cost | 452 | 469 | 24 | 18 | 15 | 18 | |||||||||||||||||
Participant contributions | $ | — | $ | — | $ | 11 | $ | 10 | $ | 59 | $ | 53 | |||||||||||
Actuarial (gain) loss | (965 | ) | 247 | 21 | (77 | ) | (39 | ) | (17 | ) | |||||||||||||
Benefits paid | $ | (575 | ) | $ | (583 | ) | $ | (10 | ) | $ | (14 | ) | $ | (102 | ) | $ | (127 | ) | |||||
Plan amendments | — | — | — | (3 | ) | — | — | ||||||||||||||||
Settlement | (11 | ) | (11 | ) | (13 | ) | (6 | ) | — | — | |||||||||||||
Currency impact | — | — | (33 | ) | 36 | — | — | ||||||||||||||||
Projected benefit obligation — end of year | $ | 11,167 | $ | 12,266 | $ | 1,227 | $ | 1,132 | $ | 397 | $ | 463 | |||||||||||
Funded status at end of year | $ | (1,149 | ) | $ | (1,428 | ) | $ | (377 | ) | $ | (317 | ) | $ | (9 | ) | $ | (112 | ) | |||||
Accumulated benefit obligation | $ | 11,167 | $ | 12,266 | $ | 1,099 | $ | 1,014 |
For the fiscal years ended October 31 | |||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||
U.S. Defined Benefit Plans | Non-U.S. Defined Benefit Plans | Post-Retirement Benefit Plans | |||||||||||||||
Discount rate | 4.5 | % | 3.8 | % | 2.0 | % | 2.0 | % | 4.4 | % | 3.5 | % | |||||
Expected increase in compensation levels | 2.0 | % | 2.0 | % | 2.5 | % | 2.4 | % | — | — |
As of October 31 | |||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
U.S. Defined Benefit Plans | Non-U.S. Defined Benefit Plans | Post-Retirement Benefit Plans | |||||||||||||||||||||
In millions | |||||||||||||||||||||||
Non-current assets | $ | — | $ | — | $ | 10 | $ | 18 | $ | 11 | $ | 7 | |||||||||||
Current liabilities | (32 | ) | (33 | ) | (9 | ) | (5 | ) | (6 | ) | (7 | ) | |||||||||||
Non-current liabilities | (1,117 | ) | (1,395 | ) | (378 | ) | (330 | ) | (14 | ) | (112 | ) | |||||||||||
Funded status at end of year | $ | (1,149 | ) | $ | (1,428 | ) | $ | (377 | ) | $ | (317 | ) | $ | (9 | ) | $ | (112 | ) |
As of October 31, 2018 | |||||||||||
U.S. Defined Benefit Plans | Non-U.S. Defined Benefit Plans | Post-Retirement Benefit Plans | |||||||||
In millions | |||||||||||
Net actuarial loss (gain) | $ | 1,285 | $ | 311 | $ | (180 | ) | ||||
Prior service benefit | — | (17 | ) | (74 | ) | ||||||
Total recognized in Accumulated other comprehensive loss (gain) | $ | 1,285 | $ | 294 | $ | (254 | ) |
U.S. Defined Benefit Plans | Non-U.S. Defined Benefit Plans | Post-Retirement Benefit Plans | |||||||||
In millions | |||||||||||
Net actuarial loss (gain) | $ | 59 | $ | 32 | $ | (31 | ) | ||||
Prior service benefit | — | (3 | ) | (13 | ) | ||||||
Total expected to be recognized in net periodic benefit cost (credit) | $ | 59 | $ | 29 | $ | (44 | ) |
As of October 31 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
U.S. Defined Benefit Plans | Non-U.S. Defined Benefit Plans | ||||||||||||||
In millions | |||||||||||||||
Aggregate fair value of plan assets | $ | 10,018 | $ | 10,838 | $ | 800 | $ | 750 | |||||||
Aggregate projected benefit obligation | $ | 11,167 | $ | 12,266 | $ | 1,194 | $ | 1,085 |
As of October 31 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
U.S. Defined Benefit Plans | Non-U.S. Defined Benefit Plans | ||||||||||||||
In millions | |||||||||||||||
Aggregate fair value of plan assets | $ | 10,018 | $ | 10,838 | $ | 734 | $ | 554 | |||||||
Aggregate accumulated benefit obligation | $ | 11,167 | $ | 12,266 | $ | 1,007 | $ | 777 |
As of October 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||
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) | $ | 794 | $ | 48 | $ | — | $ | 842 | $ | 114 | $ | 6 | $ | — | $ | 120 | $ | 1 | $ | — | $ | — | $ | 1 | |||||||||||||||||||||||
Debt securities(2) | |||||||||||||||||||||||||||||||||||||||||||||||
Corporate | — | 4,941 | — | 4,941 | — | 110 | — | 110 | — | 40 | — | 40 | |||||||||||||||||||||||||||||||||||
Government | — | 1,637 | — | 1,637 | — | 28 | — | 28 | — | 54 | — | 54 | |||||||||||||||||||||||||||||||||||
Real Estate Funds | — | — | — | — | 3 | 60 | — | 63 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Insurance Contracts | — | — | — | — | — | 50 | — | 50 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Common Collective Trusts and 103-12s(3) | — | — | — | — | — | 7 | — | 7 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Investment Funds(4) | 253 | — | — | 253 | — | 279 | — | 279 | 55 | — | — | 55 | |||||||||||||||||||||||||||||||||||
Cash and Cash Equivalents(5) | 5 | 139 | — | 144 | 19 | — | — | 19 | — | 4 | — | 4 | |||||||||||||||||||||||||||||||||||
Other(6) | (108 | ) | (233 | ) | — | (341 | ) | 2 | 13 | — | 15 | (13 | ) | — | — | (13 | ) | ||||||||||||||||||||||||||||||
Net plan assets subject to leveling | $ | 944 | $ | 6,532 | $ | — | $ | 7,476 | $ | 138 | $ | 553 | $ | — | $ | 691 | $ | 43 | $ | 98 | $ | — | $ | 141 | |||||||||||||||||||||||
Investments using NAV as a Practical Expedient: | |||||||||||||||||||||||||||||||||||||||||||||||
Alternative Investments(7) | 1,319 | 14 | 220 | ||||||||||||||||||||||||||||||||||||||||||||
Common Contractual Funds(8) | — | 110 | — | ||||||||||||||||||||||||||||||||||||||||||||
Common Collective Trusts and 103-12 Investment Entities(3) | 683 | — | 21 | ||||||||||||||||||||||||||||||||||||||||||||
Investment Funds(4) | 540 | 35 | 6 | ||||||||||||||||||||||||||||||||||||||||||||
Investments at Fair Value | $ | 10,018 | $ | 850 | $ | 388 |
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 | — | 119 | — | 119 | — | 25 | — | 25 | |||||||||||||||||||||||||||||||||||
Government | — | 2,513 | — | 2,513 | — | 32 | — | 32 | — | 41 | — | 41 | |||||||||||||||||||||||||||||||||||
Real Estate Funds | — | — | — | — | 2 | 51 | — | 53 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Insurance Contracts | — | — | — | — | — | 7 | — | 7 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Common Collective Trusts and 103-12 Investments Entities(3) | — | — | — | — | — | 7 | — | 7 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Investment Funds(4) | 89 | — | — | 89 | — | 284 | — | 284 | 54 | — | — | 54 | |||||||||||||||||||||||||||||||||||
Cash and Cash Equivalents(5) | 8 | 64 | — | 72 | 21 | — | — | 21 | — | 2 | — | 2 | |||||||||||||||||||||||||||||||||||
Other(6) | (172 | ) | (561 | ) | — | (733 | ) | 2 | 9 | 1 | 12 | (12 | ) | — | — | (12 | ) | ||||||||||||||||||||||||||||||
Net plan assets subject to leveling | $ | 3,099 | $ | 5,435 | $ | — | $ | 8,534 | $ | 149 | $ | 515 | $ | 1 | $ | 665 | $ | 42 | $ | 68 | $ | — | $ | 110 | |||||||||||||||||||||||
Investments using NAV as a Practical Expedient: | |||||||||||||||||||||||||||||||||||||||||||||||
Alternative Investments(7) | 1,444 | 13 | 198 | ||||||||||||||||||||||||||||||||||||||||||||
Common Contractual Funds(8) | 13 | 102 | — | ||||||||||||||||||||||||||||||||||||||||||||
Common Collective Trusts and 103-12 Investment Entities(3) | 732 | — | 39 | ||||||||||||||||||||||||||||||||||||||||||||
Investment Funds(4) | 115 | 35 | 4 | ||||||||||||||||||||||||||||||||||||||||||||
Investments at Fair Value | $ | 10,838 | $ | 815 | $ | 351 |
2018 Target Allocation | |||||||||
Asset Category | U.S. Defined Benefit Plans | Non-U.S. Defined Benefit Plans | Post-Retirement Benefit Plans | ||||||
Equity-related investments | 30.3 | % | 41.6 | % | 64.1 | % | |||
Debt securities | 69.7 | % | 36.4 | % | 21.5 | % | |||
Real estate | — | 6.1 | % | — | % | ||||
Cash and cash equivalents | — | 3.1 | % | 14.4 | % | ||||
Other | — | 12.8 | % | — | |||||
Total | 100.0 | % | 100.0 | % | 100.0 | % |
Fiscal year | U.S. Defined Benefit Plans | Non-U.S. Defined Benefit Plans | Post-Retirement Benefit Plans | |||||||||
In millions | ||||||||||||
2019 | $ | 687 | $ | 42 | $ | 44 | ||||||
2020 | 644 | 36 | 40 | |||||||||
2021 | 664 | 42 | 37 | |||||||||
2022 | 687 | 40 | 34 | |||||||||
2023 | 719 | 43 | 32 | |||||||||
Next five fiscal years to October 31, 2028 | 3,758 | 298 | 155 |
For the fiscal years ended October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
Stock-based compensation expense | $ | 268 | $ | 224 | $ | 182 | |||||
Income tax benefit | (59 | ) | (71 | ) | (63 | ) | |||||
Stock-based compensation expense, net of tax | $ | 209 | $ | 153 | $ | 119 |
For the fiscal years ended October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
Weighted-average fair value(1) | $ | 24 | $ | 20 | $ | 13 | |||||
Expected volatility(2) | 29.5 | % | 30.5 | % | 32.5 | % | |||||
Risk-free interest rate(3) | 1.9 | % | 1.4 | % | 1.2 | % | |||||
Expected performance period in years(4) | 2.9 | 2.9 | 2.9 |
As of October 31 | ||||||||||||||||||||
2018 | 2017 | 2016 | ||||||||||||||||||
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 | 31,822 | $ | 14 | 28,710 | $ | 13 | 29,717 | $ | 32 | |||||||||||
Granted | 16,364 | $ | 21 | 15,858 | $ | 16 | 29,286 | $ | 10 | |||||||||||
Vested | (15,339 | ) | $ | 15 | (11,915 | ) | $ | 14 | (4,161 | ) | $ | 13 | ||||||||
Awards canceled due to Separation | — | $ | — | — | $ | — | (23,926 | ) | $ | 32 | ||||||||||
Forfeited | (2,063 | ) | $ | 17 | (831 | ) | $ | 14 | (2,206 | ) | $ | 14 | ||||||||
Outstanding at end of year | 30,784 | $ | 18 | 31,822 | $ | 14 | 28,710 | $ | 13 |
For the fiscal years ended October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
Weighted-average fair value(1) | $ | 5 | $ | 4 | $ | 4 | |||||
Expected volatility(2) | 29.4 | % | 28.0 | % | 36.2 | % | |||||
Risk-free interest rate(3) | 2.5 | % | 1.9 | % | 1.8 | % | |||||
Expected dividend yield(4) | 2.6 | % | 2.8 | % | 3.5 | % | |||||
Expected term in years(5) | 5.0 | 5.5 | 6.0 |
As of October 31 | ||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | ||||||||||||||||||||||||||||||||||||
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 | 18,067 | $ | 13 | 28,218 | $ | 12 | 36,278 | $ | 26 | |||||||||||||||||||||||||||||
Granted and assumed through acquisition | 54 | $ | 21 | 104 | $ | 19 | 25,425 | $ | 6 | |||||||||||||||||||||||||||||
Exercised | (10,644 | ) | $ | 13 | (9,407 | ) | $ | 11 | (4,714 | ) | $ | 8 | ||||||||||||||||||||||||||
Awards canceled due to Separation | — | $ | — | — | $ | — | (26,252 | ) | $ | 26 | ||||||||||||||||||||||||||||
Forfeited/canceled/expired | (391 | ) | $ | 16 | (848 | ) | $ | 17 | (2,519 | ) | $ | 17 | ||||||||||||||||||||||||||
Outstanding at end of year | 7,086 | $ | 14 | 4.2 | $ | 73 | 18,067 | $ | 13 | 4.2 | $ | 152 | 28,218 | $ | 12 | 5.0 | $ | 73 | ||||||||||||||||||||
Vested and expected to vest | 7,084 | $ | 14 | 4.2 | $ | 73 | 17,692 | $ | 13 | 4.1 | $ | 149 | 26,850 | $ | 12 | 4.9 | $ | 71 | ||||||||||||||||||||
Exercisable | 4,707 | $ | 14 | 3.7 | $ | 49 | 10,898 | $ | 12 | 3.1 | $ | 102 | 15,418 | $ | 11 | 3.7 | $ | 62 |
As of October 31, 2018 | ||||||||||||||||
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 | 451 | 2.3 | $ | 7 | 451 | $ | 7 | |||||||||
$10-$19.99 | 6,522 | 4.3 | $ | 14 | 4,143 | $ | 14 | |||||||||
$20-$29.99 | 113 | 5.3 | $ | 23 | 113 | $ | 23 | |||||||||
7,086 | 4,707 |
As of October 31 | ||||||||
2018 | 2017 | 2016 | ||||||
In thousands | ||||||||
Shares available for future grant | 305,767 | 419,071 | 453,865 | |||||
Shares reserved for future issuance | 343,076 | 468,531 | 510,176 |
For the fiscal years ended October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
U.S. | $ | 242 | $ | (14 | ) | $ | 468 | ||||
Non-U.S. | 2,771 | 3,290 | 3,293 | ||||||||
$ | 3,013 | $ | 3,276 | $ | 3,761 |
For the fiscal years ended October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
U.S. federal taxes: | |||||||||||
Current | $ | 751 | $ | 189 | $ | 439 | |||||
Deferred | (3,132 | ) | 197 | 470 | |||||||
Non-U.S. taxes: | |||||||||||
Current | 528 | 302 | 288 | ||||||||
Deferred | (563 | ) | 4 | (123 | ) | ||||||
State taxes: | |||||||||||
Current | 61 | 20 | (35 | ) | |||||||
Deferred | 41 | 38 | 56 | ||||||||
$ | (2,314 | ) | $ | 750 | $ | 1,095 |
For the fiscal years ended October 31 | ||||||||
2018 | 2017 | 2016 | ||||||
U.S. federal statutory income tax rate from continuing operations | 23.3 | % | 35.0 | % | 35.0 | % | ||
State income taxes from continuing operations, net of federal tax benefit | 0.5 | % | 1.4 | % | 1.1 | % | ||
Lower rates in other jurisdictions, net | (10.9 | )% | (13.2 | )% | (9.3 | )% | ||
U.S. Tax Reform impacts | (35.8 | )% | — | % | — | % | ||
Research and development (“R&D”) credit | (0.7 | )% | (0.5 | )% | (2.4 | )% | ||
Valuation allowances | (9.3 | )% | (1.9 | )% | (1.2 | )% | ||
Uncertain tax positions and audit settlements | (50.3 | )% | 0.4 | % | 11.7 | % | ||
Indemnification related items | 5.2 | % | (0.3 | )% | (4.1 | )% | ||
Other, net | 1.2 | % | 2.0 | % | (1.7 | )% | ||
(76.8 | )% | 22.9 | % | 29.1 | % |
As of October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
Balance at beginning of year | $ | 10,808 | $ | 10,858 | $ | 6,546 | |||||
Increases: | |||||||||||
For current year’s tax positions | 66 | 52 | 468 | ||||||||
For prior years’ tax positions | 101 | 85 | 4,004 | ||||||||
Decreases: | |||||||||||
For prior years’ tax positions | (248 | ) | (181 | ) | (62 | ) | |||||
Statute of limitations expirations | (3 | ) | (1 | ) | — | ||||||
Settlements with taxing authorities | (2,953 | ) | (5 | ) | (98 | ) | |||||
Balance at end of year | $ | 7,771 | $ | 10,808 | $ | 10,858 |
As of October 31 | |||||||
2018 | 2017 | ||||||
In millions | |||||||
Deferred Tax Assets | |||||||
Loss and credit carryforwards | $ | 8,204 | $ | 9,914 | |||
Intercompany transactions—excluding inventory | 994 | 1,901 | |||||
Fixed assets | 151 | 256 | |||||
Warranty | 194 | 219 | |||||
Employee and retiree benefits | 401 | 519 | |||||
Deferred Revenue | 164 | 231 | |||||
Other | 422 | 511 | |||||
Gross Deferred Tax Assets | 10,530 | 13,551 | |||||
Valuation allowances | (7,906 | ) | (8,807 | ) | |||
Net Deferred Tax Assets | 2,624 | 4,744 | |||||
Deferred Tax Liabilities | |||||||
Unremitted earnings of foreign subsidiaries | (31 | ) | (5,554 | ) | |||
Intangible assets | (229 | ) | (209 | ) | |||
Other | (33 | ) | (49 | ) | |||
Total Deferred Tax Liabilities | (293 | ) | (5,812 | ) | |||
Net Deferred Tax Assets (Liabilities) | $ | 2,331 | $ | (1,068 | ) |
As of October 31 | |||||||
2018 | 2017 | ||||||
In millions | |||||||
Long-term deferred tax assets | $ | 2,431 | $ | 342 | |||
Long-term deferred tax liabilities | (100 | ) | (1,410 | ) | |||
Total | $ | 2,331 | $ | (1,068 | ) |
Gross NOLs | Deferred Taxes on NOLs | Valuation allowance | Initial Year of Expiration | |||||||||
In millions | ||||||||||||
Federal | $ | 456 | $ | 96 | — | 2023 | ||||||
State | 2,644 | 163 | (71 | ) | 2018 | |||||||
Foreign | 26,438 | 7,743 | (7,247 | ) | 2020 | |||||||
Balance at end of year | $ | 29,538 | $ | 8,002 | $ | (7,318 | ) |
Carryforward | Valuation Allowance | Initial Year of Expiration | |||||||
In millions | |||||||||
U.S. foreign tax credits | $ | 7 | $ | — | 2027 | ||||
U.S. R&D and other credits | 3 | — | 2020 | ||||||
Tax credits in state and foreign jurisdictions | 313 | (94 | ) | 2021 | |||||
Balance at end of year | $ | 323 | $ | (94 | ) |
As of October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
Balance at beginning of year | $ | 8,807 | $ | 8,520 | $ | 7,114 | |||||
Income tax (benefit) expense | (897 | ) | 297 | 1,421 | |||||||
Other comprehensive income, currency translation and charges to other accounts | (4 | ) | (10 | ) | (15 | ) | |||||
Balance at end of year | $ | 7,906 | $ | 8,807 | $ | 8,520 |
As of October 31 | |||||||
2018 | 2017 | ||||||
In millions | |||||||
Accounts receivable | $ | 5,242 | $ | 4,515 | |||
Allowance for doubtful accounts | (129 | ) | (101 | ) | |||
$ | 5,113 | $ | 4,414 |
As of October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
Balance at beginning of year | $ | 101 | $ | 107 | $ | 80 | |||||
Provision for doubtful accounts | 57 | 30 | 65 | ||||||||
Deductions, net of recoveries | (29 | ) | (36 | ) | (38 | ) | |||||
Balance at end of year | $ | 129 | $ | 101 | $ | 107 |
As of October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
Balance at beginning of year (1) | $ | 147 | $ | 149 | $ | 93 | |||||
Trade receivables sold | 10,224 | 9,553 | 8,222 | ||||||||
Cash receipts | (10,202 | ) | (9,562 | ) | (8,160 | ) | |||||
Foreign currency and other | (4 | ) | 7 | (6 | ) | ||||||
Balance at end of year (1) | $ | 165 | $ | 147 | $ | 149 |
As of October 31 | |||||||
2018 | 2017 | ||||||
In millions | |||||||
Finished goods | $ | 4,019 | $ | 3,857 | |||
Purchased parts and fabricated assemblies | 2,043 | 1,929 | |||||
$ | 6,062 | $ | 5,786 |
As of October 31 | |||||||
2018 | 2017 | ||||||
In millions | |||||||
Value-added taxes receivable | $ | 865 | $ | 857 | |||
Available-for-sale investments (1) | 711 | 1,149 | |||||
Supplier and other receivables | 2,025 | 1,891 | |||||
Prepaid and other current assets | 1,445 | 1,224 | |||||
$ | 5,046 | $ | 5,121 |
As of October 31 | |||||||
2018 | 2017 | ||||||
In millions | |||||||
Land, buildings and leasehold improvements | $ | 1,893 | $ | 2,082 | |||
Machinery and equipment, including equipment held for lease | 4,216 | 3,876 | |||||
6,109 | 5,958 | ||||||
Accumulated depreciation | (3,911 | ) | (4,080 | ) | |||
$ | 2,198 | $ | 1,878 |
As of October 31 | |||||||
2018 | 2017 | ||||||
In millions | |||||||
Tax indemnifications receivable(1) | $ | 953 | $ | 1,695 | |||
Deferred tax assets(2) | 2,431 | 342 | |||||
Other(3)(4) | 1,685 | 1,058 | |||||
$ | 5,069 | $ | 3,095 |
As of October 31 | |||||||
2018 | 2017 | ||||||
In millions | |||||||
Other accrued taxes | $ | 982 | $ | 895 | |||
Warranty | 673 | 660 | |||||
Deferred revenue | 1,095 | 1,012 | |||||
Sales and marketing programs | 2,758 | 2,441 | |||||
Other | 1,868 | 1,945 | |||||
$ | 7,376 | $ | 6,953 |
As of October 31 | |||||||
2018 | 2017 | ||||||
In millions | |||||||
Pension, post-retirement, and post-employment liabilities | $ | 1,645 | $ | 1,999 | |||
Deferred tax liability(1) | 100 | 1,410 | |||||
Tax liability(1) | 2,063 | 2,005 | |||||
Deferred revenue | 1,005 | 921 | |||||
Other | 793 | 827 | |||||
$ | 5,606 | $ | 7,162 |
For the fiscal years ended October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
Interest expense on borrowings | $ | (312 | ) | $ | (309 | ) | $ | (273 | ) | ||
Loss on extinguishment of debt | (126 | ) | — | — | |||||||
Tax indemnifications(1) | (662 | ) | 47 | 472 | |||||||
Other, net | 49 | 19 | 13 | ||||||||
$ | (1,051 | ) | $ | (243 | ) | $ | 212 |
Personal Systems | Printing | Total | |||||||||
In millions | |||||||||||
Balance at October 31, 2016(1) | $ | 2,593 | $ | 3,029 | $ | 5,622 | |||||
Acquisitions | — | — | — | ||||||||
Balance at October 31, 2017(1) | 2,593 | 3,029 | 5,622 | ||||||||
Acquisitions | 7 | 339 | 346 | ||||||||
Balance at October 31, 2018(1) | $ | 2,600 | $ | 3,368 | $ | 5,968 |
Weighted-Average Useful Lives | As of October 31, 2018 | As of October 31, 2017 | |||||||||||||||||||||||
Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | ||||||||||||||||||||
In years | In millions | ||||||||||||||||||||||||
Customer contracts, customer lists and distribution agreements | 8 | $ | 112 | $ | 88 | $ | 24 | $ | 85 | $ | 84 | $ | 1 | ||||||||||||
Technology and patents | 7 | 601 | 172 | 429 | 98 | 96 | 2 | ||||||||||||||||||
Total intangible assets | $ | 713 | $ | 260 | $ | 453 | $ | 183 | $ | 180 | $ | 3 |
Fiscal year | In millions | |
2019 | 81 | |
2020 | 81 | |
2021 | 80 | |
2022 | 79 | |
2023 | 79 | |
Thereafter | 53 | |
Total | 453 |
As of October 31, 2018 | As of October 31, 2017 | ||||||||||||||||||||||||||||||
Fair Value Measured Using | Fair Value Measured Using | ||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
In millions | |||||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||
Cash Equivalents: | |||||||||||||||||||||||||||||||
Corporate debt | $ | — | $ | 1,620 | $ | — | $ | 1,620 | $ | — | $ | 1,390 | $ | — | $ | 1,390 | |||||||||||||||
Financial institution instruments | — | 9 | — | 9 | — | 6 | — | 6 | |||||||||||||||||||||||
Government debt(1) | 2,217 | 150 | — | 2,367 | 3,902 | 100 | — | 4,002 | |||||||||||||||||||||||
Available-for-Sale Investments: | |||||||||||||||||||||||||||||||
Corporate debt | — | 366 | — | 366 | — | 629 | — | 629 | |||||||||||||||||||||||
Financial institution instruments | — | 32 | — | 32 | — | 78 | — | 78 | |||||||||||||||||||||||
Government debt(1) | — | 313 | — | 313 | — | 442 | — | 442 | |||||||||||||||||||||||
Mutual funds | 47 | — | — | 47 | 49 | — | — | 49 | |||||||||||||||||||||||
Marketable equity securities | 6 | — | — | 6 | 6 | 6 | — | 12 | |||||||||||||||||||||||
Derivative Instruments: | |||||||||||||||||||||||||||||||
Interest rate contracts | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Foreign currency contracts | — | 508 | 7 | 515 | — | 110 | 10 | 120 | |||||||||||||||||||||||
Other derivatives | — | — | — | — | — | 1 | — | 1 | |||||||||||||||||||||||
Total Assets | $ | 2,270 | $ | 2,998 | $ | 7 | $ | 5,275 | $ | 3,957 | $ | 2,762 | $ | 10 | $ | 6,729 | |||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||||
Derivative Instruments: | |||||||||||||||||||||||||||||||
Interest rate contracts | $ | — | $ | 23 | $ | — | $ | 23 | $ | — | $ | 12 | $ | — | $ | 12 | |||||||||||||||
Foreign currency contracts | — | 164 | — | 164 | — | 358 | 2 | 360 | |||||||||||||||||||||||
Other derivatives | — | 8 | — | 8 | — | — | — | — | |||||||||||||||||||||||
Total Liabilities | $ | — | $ | 195 | $ | — | $ | 195 | $ | — | $ | 370 | $ | 2 | $ | 372 |
As of October 31, 2018 | As of October 31, 2017 | ||||||||||||||||||||||||||||||
Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | ||||||||||||||||||||||||
In millions | |||||||||||||||||||||||||||||||
Cash Equivalents: | |||||||||||||||||||||||||||||||
Corporate debt | $ | 1,620 | $ | — | $ | — | $ | 1,620 | $ | 1,390 | $ | — | $ | — | $ | 1,390 | |||||||||||||||
Financial institution instruments | 9 | — | — | 9 | 6 | — | — | 6 | |||||||||||||||||||||||
Government debt | 2,367 | — | — | 2,367 | 4,002 | — | — | 4,002 | |||||||||||||||||||||||
Total cash equivalents | 3,996 | — | — | 3,996 | 5,398 | — | — | 5,398 | |||||||||||||||||||||||
Available-for-Sale Investments: | |||||||||||||||||||||||||||||||
Corporate debt(1) | 368 | — | (2 | ) | 366 | 629 | — | — | 629 | ||||||||||||||||||||||
Financial institution instruments(1) | 32 | — | — | 32 | 78 | — | — | 78 | |||||||||||||||||||||||
Government debt(1) | 314 | — | (1 | ) | 313 | 443 | — | (1 | ) | 442 | |||||||||||||||||||||
Marketable equity securities | 4 | 2 | — | 6 | 5 | 7 | — | 12 | |||||||||||||||||||||||
Mutual funds | 38 | 9 | — | 47 | 39 | 10 | — | 49 | |||||||||||||||||||||||
Total available-for-sale investments | 756 | 11 | (3 | ) | 764 | 1,194 | 17 | (1 | ) | 1,210 | |||||||||||||||||||||
Total cash equivalents and available-for-sale investments | $ | 4,752 | $ | 11 | $ | (3 | ) | $ | 4,760 | $ | 6,592 | $ | 17 | $ | (1 | ) | $ | 6,608 |
As of October 31, 2018 | |||||||
Amortized Cost | Fair Value | ||||||
In millions | |||||||
Due in one year or less | $ | 694 | $ | 691 | |||
Due in one to five years | 20 | 20 | |||||
$ | 714 | $ | 711 |
As of October 31, 2018 | As of October 31, 2017 | ||||||||||||||||||||||||||||||||||||||
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 | $ | 1,000 | $ | — | $ | — | $ | — | $ | 23 | $ | 2,500 | $ | — | $ | — | $ | — | $ | 12 | |||||||||||||||||||
Cash flow hedges: | |||||||||||||||||||||||||||||||||||||||
Foreign currency contracts | 17,147 | 386 | 107 | 86 | 52 | 16,149 | 92 | 12 | 245 | 100 | |||||||||||||||||||||||||||||
Total derivatives designated as hedging instruments | 18,147 | 386 | 107 | 86 | 75 | 18,649 | 92 | 12 | 245 | 112 | |||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments | |||||||||||||||||||||||||||||||||||||||
Foreign currency contracts | 5,437 | 22 | — | 26 | — | 5,801 | 16 | — | 15 | — | |||||||||||||||||||||||||||||
Other derivatives | 71 | — | — | 8 | — | 123 | 1 | — | — | — | |||||||||||||||||||||||||||||
Total derivatives not designated as hedging instruments | 5,508 | 22 | — | 34 | — | 5,924 | 17 | — | 15 | — | |||||||||||||||||||||||||||||
Total derivatives | $ | 23,655 | $ | 408 | $ | 107 | $ | 120 | $ | 75 | $ | 24,573 | $ | 109 | $ | 12 | $ | 260 | $ | 112 |
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, 2018 | |||||||||||||||||||||||||
Derivative assets | $ | 515 | $ | — | $ | 515 | $ | 112 | $ | 299 | (1) | $ | 104 | ||||||||||||
Derivative liabilities | $ | 195 | $ | — | $ | 195 | $ | 112 | $ | 69 | (2) | $ | 14 | ||||||||||||
As of October 31, 2017 | |||||||||||||||||||||||||
Derivative assets | $ | 121 | $ | — | $ | 121 | $ | 108 | $ | 4 | (1) | $ | 9 | ||||||||||||
Derivative liabilities | $ | 372 | $ | — | $ | 372 | $ | 108 | $ | 219 | (2) | $ | 45 |
(Loss) Gain Recognized in Income on Derivative Instruments and Related Hedged Items | ||||||||||||||||||||||||||||||
Derivative Instrument | Location | 2018 | 2017 | 2016 | Hedged Item | Location | 2018 | 2017 | 2016 | |||||||||||||||||||||
In millions | In millions | |||||||||||||||||||||||||||||
Interest rate contracts | Interest and other, net | $ | (11 | ) | $ | (60 | ) | $ | 10 | Fixed-rate debt | Interest and other, net | $ | 11 | $ | 60 | $ | (10 | ) |
Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) | (Loss) Gain Reclassified from Accumulated OCI Into Earnings (Effective Portion) | ||||||||||||||||||||||||
2018 | 2017 | 2016 | 2018 | 2017 | 2016 | ||||||||||||||||||||
In millions | In millions | ||||||||||||||||||||||||
Cash flow hedges: | |||||||||||||||||||||||||
Foreign currency contracts | $ | 341 | $ | (651 | ) | $ | 199 | Net revenue | $ | (239 | ) | $ | (156 | ) | $ | 20 | |||||||||
Cost of revenue | (18 | ) | (35 | ) | (84 | ) | |||||||||||||||||||
Other operating expenses | (1 | ) | 1 | 1 | |||||||||||||||||||||
Interest and other, net | — | (9 | ) | — | |||||||||||||||||||||
Total | $ | 341 | $ | (651 | ) | $ | 199 | Total | $ | (258 | ) | $ | (199 | ) | $ | (63 | ) |
Gain (Loss) Recognized in Income on Derivatives | |||||||||||||
Location | 2018 | 2017 | 2016 | ||||||||||
In millions | |||||||||||||
Foreign currency contracts | Interest and other, net | $ | 35 | $ | (32 | ) | $ | (34 | ) | ||||
Other derivatives | Interest and other, net | (9 | ) | 3 | (6 | ) | |||||||
Total | $ | 26 | $ | (29 | ) | $ | (40 | ) |
As of October 31 | |||||||||||||
2018 | 2017 | ||||||||||||
Amount Outstanding | Weighted-Average Interest Rate | Amount Outstanding | Weighted-Average Interest Rate | ||||||||||
In millions | In millions | ||||||||||||
Commercial paper | $ | 854 | 2.5 | % | $ | 943 | 1.8 | % | |||||
Current portion of long-term debt | 565 | 3.1 | % | 96 | 3.5 | % | |||||||
Notes payable to banks, lines of credit and other | 44 | 1.7 | % | 33 | 1.5 | % | |||||||
$ | 1,463 | $ | 1,072 |
As of October 31 | |||||||
2018 | 2017 | ||||||
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 | 667 | 1,249 | |||||
$1,000 issued at discount to par at a price of 99.816% in September 2011 at 4.375%, due September 2021 | 538 | 999 | |||||
$1,500 issued at discount to par at a price of 99.707% in December 2011 at 4.65%, due December 2021 | 694 | 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 | |||||
4,647 | 6,494 | ||||||
Other, including capital lease obligations, at 0.51%- 8.48%, due in calendar years 2019-2025 | 487 | 360 | |||||
Fair value adjustment related to hedged debt | (28 | ) | 8 | ||||
Unamortized debt issuance cost | (17 | ) | (19 | ) | |||
Current portion of long-term debt | (565 | ) | (96 | ) | |||
Total long-term debt | $ | 4,524 | $ | 6,747 |
Fiscal year | In millions | ||
2019 | $ | 1,463 | |
2020 | 151 | ||
2021 | 1,952 | ||
2022 | 1,239 | ||
2023 | 25 | ||
Thereafter | 1,205 | ||
Total | $ | 6,035 |
For the fiscal years ended October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
Tax effect on change in unrealized components of available-for-sale securities: | |||||||||||
Tax benefit (provision) on unrealized (losses) gains arising during the period | $ | 1 | $ | (1 | ) | $ | (3 | ) | |||
Tax effect on change in unrealized components of cash flow hedges: | |||||||||||
Tax (provision) benefit on unrealized gains (losses) arising during the period | (42 | ) | 42 | 32 | |||||||
Tax benefit on losses reclassified into earnings | (26 | ) | (16 | ) | (1 | ) | |||||
(68 | ) | 26 | 31 | ||||||||
Tax effect on change in unrealized components of defined benefit plans: | |||||||||||
Tax (provision) benefit on gains (losses) arising during the period | — | (140 | ) | 242 | |||||||
Tax provision on amortization of actuarial loss and prior service benefit | (11 | ) | (21 | ) | (12 | ) | |||||
Tax (provision) benefit on curtailments, settlements and other | (2 | ) | 72 | (213 | ) | ||||||
(13 | ) | (89 | ) | 17 | |||||||
Tax (provision) benefit on other comprehensive income (loss) | $ | (80 | ) | $ | (64 | ) | $ | 45 |
For the fiscal years ended October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
Other comprehensive income (loss), net of taxes: | |||||||||||
Change in unrealized components of available-for-sale securities: | |||||||||||
Unrealized (losses) gains arising during the period | $ | (2 | ) | $ | 3 | $ | (2 | ) | |||
Gains reclassified into earnings | (5 | ) | — | — | |||||||
(7 | ) | 3 | (2 | ) | |||||||
Change in unrealized components of cash flow hedges: | |||||||||||
Unrealized gains (losses) arising during the period | 299 | (609 | ) | 231 | |||||||
Losses reclassified into earnings | 232 | 183 | 62 | ||||||||
531 | (426 | ) | 293 | ||||||||
Change in unrealized components of defined benefit plans: | |||||||||||
Gains (Losses) arising during the period | 11 | 315 | (517 | ) | |||||||
Amortization of actuarial loss and prior service benefit(1) | 37 | 53 | 39 | ||||||||
Curtailments, settlements and other | 1 | 75 | (30 | ) | |||||||
49 | 443 | (508 | ) | ||||||||
Other comprehensive income (loss), net of taxes | $ | 573 | $ | 20 | $ | (217 | ) |
Net unrealized gain on available-for-sale securities | Net unrealized (loss) gain on cash flow hedges | Unrealized components of defined benefit plans | Accumulated other comprehensive loss | ||||||||||||
In millions | |||||||||||||||
Balance at beginning of period | $ | 12 | $ | (240 | ) | $ | (1,190 | ) | $ | (1,418 | ) | ||||
Other comprehensive (loss) income before reclassifications | (2 | ) | 299 | 11 | 308 | ||||||||||
Reclassifications of (gain) loss into earnings | (5 | ) | 232 | 38 | 265 | ||||||||||
Balance at end of period | $ | 5 | $ | 291 | $ | (1,141 | ) | $ | (845 | ) |
For the fiscal years ended October 31 | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions, except per share amounts | |||||||||||
Numerator: | |||||||||||
Net earnings from continuing operations | $ | 5,327 | $ | 2,526 | $ | 2,666 | |||||
Net loss from discontinued operations | — | — | (170 | ) | |||||||
Net earnings | $ | 5,327 | $ | 2,526 | $ | 2,496 | |||||
Denominator: | |||||||||||
Weighted-average shares used to compute basic net EPS | 1,615 | 1,688 | 1,730 | ||||||||
Dilutive effect of employee stock plans | 19 | 14 | 13 | ||||||||
Weighted-average shares used to compute diluted net EPS | 1,634 | 1,702 | 1,743 | ||||||||
Basic net earnings per share: | |||||||||||
Continuing operations | $ | 3.30 | $ | 1.50 | $ | 1.54 | |||||
Discontinued operations | — | — | (0.10 | ) | |||||||
Basic net earnings per share | $ | 3.30 | $ | 1.50 | $ | 1.44 | |||||
Diluted net earnings per share: | |||||||||||
Continuing operations | $ | 3.26 | $ | 1.48 | $ | 1.53 | |||||
Discontinued operations | — | — | (0.10 | ) | |||||||
Diluted net earnings per share | $ | 3.26 | $ | 1.48 | $ | 1.43 | |||||
Anti-dilutive weighted-average options(1) | — | 1 | 13 |
As of October 31 | |||||||
2018 | 2017 | ||||||
In millions | |||||||
Balance at beginning of year | $ | 898 | $ | 980 | |||
Accruals for warranties issued | 1,042 | 925 | |||||
Adjustments related to pre-existing warranties (including changes in estimates) | (15 | ) | (8 | ) | |||
Settlements made (in cash or in kind) | (1,010 | ) | (999 | ) | |||
Balance at end of year | $ | 915 | $ | 898 |
Fiscal year | In millions | ||
2019 | $ | 317 | |
2020 | 256 | ||
2021 | 200 | ||
2022 | 162 | ||
2023 | 141 | ||
Thereafter | 411 | ||
Less: Sublease rental income | (129 | ) | |
Total | $ | 1,358 |
Fiscal year | In millions | ||
2019 | $ | 434 | |
2020 | 180 | ||
2021 | 64 | ||
2022 | 24 | ||
2023 | 2 | ||
Thereafter | — | ||
Total | $ | 704 |
For the fiscal years ended October 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
In millions | |||||||||||
Expenses(1) | $ | — | $ | — | $ | 201 | |||||
Interest and other, net(2) | — | (47 | ) | (208 | ) | ||||||
Earnings from discontinued operations before taxes | $ | — | $ | 47 | $ | 7 | |||||
Provision for taxes(2) | — | (47 | ) | (177 | ) | ||||||
Net loss from discontinued operations | $ | — | $ | — | $ | (170 | ) |
In millions | |||
Goodwill | $ | 339 | |
Amortizable intangible assets | 521 | ||
Net assets assumed | 191 | ||
Total fair value of consideration | $ | 1,051 |
For the three-month fiscal periods ended in fiscal year 2018 | |||||||||||||||
January 31 | April 30 | July 31 | October 31 | ||||||||||||
Net revenue | $ | 14,517 | $ | 14,003 | $ | 14,586 | $ | 15,366 | |||||||
Cost of revenue | 11,935 | 11,301 | 11,898 | 12,669 | |||||||||||
Earnings from operations | 973 | 964 | 1,080 | 1,047 | |||||||||||
Net earnings | $ | 1,938 | $ | 1,058 | $ | 880 | $ | 1,451 | |||||||
Net earnings per share:(1) | |||||||||||||||
Basic | $ | 1.17 | $ | 0.65 | $ | 0.55 | $ | 0.92 | |||||||
Diluted | $ | 1.16 | $ | 0.64 | $ | 0.54 | $ | 0.91 | |||||||
Cash dividends paid per share | $ | 0.14 | $ | 0.14 | $ | 0.14 | $ | 0.14 |
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 | |||||||||||
Earnings from operations | 856 | 818 | 955 | 890 | |||||||||||
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 |
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Executive Officers
The names of the executive officers of HP and their ages, titles and biographies as of the date hereof are incorporated by reference from Part I, Item 1, above.
Director Nominees
The followingbiographies describe each Director nominee’s qualifications and relevant experience. The biographies include key qualifications, skills, and attributes most relevant to the decision to nominate candidates to serve on the board at the upcoming annual meeting of HP’s stockholders.
Aida M. Alvarez | ||||||
Most Recent Role —Former Administrator, U.S. Small Business Administration & Cabinet Member | Current Public Company Boards —HP —K12 Inc. —Fastly, Inc. —Oportun, Inc. | Prior Public Company Boards —MUFG Americas Holdings Corporation —Wal-Mart Stores, Inc. —PacifiCare Health Systems Inc. |
Independent Director Age: 70 Director since: 2016 HP Board Committees: HRC, NGSR | Qualifications: Prior Business and Other Experience —Founding Chair, Latino Community Foundation (since 2003) —Administrator, U.S. Small Business Administration (1997–2001) —Director, Office of Federal Housing Enterprise Oversight (1993–1997) —Vice President, First Boston Corporation and Bear Stearns & Co. (prior to 1993) Other Key Qualifications The Honorable Aida Alvarez brings to the Board a wealth of expertise in media, public affairs, finance, and government. She led important financial and government agencies and served in the Cabinet of U.S. President William J. Clinton where she provided strategic feedback to the President. She has also been a public finance executive, has chaired a prominent philanthropic organization and was an award-winning journalist. The Board also benefits from Ms. Alvarez’s knowledge of investment banking and finance. | |||
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2019 Form 10-K | ½ 1 | |
Shumeet Banerji | ||||||
Current Role —Co-founder and Partner of Condorcet, LP, an advisory and investment firm that specializes in developing early stage companies (since 2013) | Current Public Company Boards —HP —Reliance Industries Limited | Prior Public Company Boards —Innocoll AG |
Independent Director Age: 60 Director since: 2011 HP Board Committees: HRC, NGSR (Chair) | Qualifications: Prior Business and Other Experience —Senior Partner, Booz & Company, a consulting company (May 2012–March 2013) —Chief Executive Officer, Booz & Company (July 2008–May 2012) —President of the Worldwide Commercial Business, Booz Allen Hamilton (February 2008–July 2008) —Managing Director, Europe, Booz Allen Hamilton (2007–2008) —Managing Director, United Kingdom, Booz Allen Hamilton (2003–2007) —Faculty, University of Chicago Graduate School of Business Other Key Qualifications Mr. Banerji brings to the Board a robust understanding of the issues facing companies and governments in both mature and emerging markets around the world through his two decades of work with Booz & Company. In particular, Mr. Banerji has valuable experience in addressing a variety of complex issues ranging from corporate strategy, organizational structure, governance, transformational change, operational performance improvement, and merger integration. As CEO of Booz & Company, Mr. Banerji oversaw the separation of Booz & Company from Booz Allen Hamilton. During his career at Booz Allen Hamilton and Booz & Company, he has advised numerous companies on restructuring and M&A, particularly in mature industries. He is the co-author of Cut Costs, Grow Stronger, published by Harvard Business Press in 2009. | |||
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Robert R. Bennett | ||||||
Current Role —Managing Director, Hilltop Investments, LLC, a private investment company (since 2005) | Current Public Company Boards —HP —Discovery Communications, Inc. —Liberty Media Corporation | Prior Public Company Boards —Sprint Corporation —Demand Media, Inc. —Discovery Holding Company —Liberty Interactive Corporation —Sprint Nextel Corporation |
Independent Director Age: 61 Director since: 2013 HP Board Committees: Audit, FIT (Chair) | Qualifications: Prior Business and Other Experience —President, Discovery Holding Company (2005–2008) —President and Chief Executive Officer, Liberty Media Corporation (prior to 2005) Other Key Qualifications Mr. Bennett brings to the Board in-depth knowledge of the media and telecommunications industry and his knowledge of the capital markets and other financial and operational matters from his experience as the president and chief executive officer of another public company. Additionally, as a result of his positions at Liberty Media, Mr. Bennett brings experience leading organizations through significant strategic transactions, including acquisitions, divestitures and integration. Mr. Bennett also has an in-depth understanding of finance and has held various financial management positions during his career including serving as CFO of a public company. He also contributes valuable insight to the Board due to his experience serving on the boards of both public and private companies. | |||
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2 ½ | 2019 Form 10-K | |
Charles “Chip” V. Bergh | ||||||
Current Role —President, Chief Executive Officer, and Director of Levi Strauss & Co., an apparel/retail company (since September 2011) | Current Public Company Boards —HP —Levi Strauss & Co. | Prior Public Company Boards —VF Corporation |
Independent Chairman of the Board Age: 62 Director since: 2015 Chairman since: 2017 HP Board Committees: HRC, NGSR | Qualifications: Prior Business and Other Experience —Group President, Global Male Grooming, Procter & Gamble Co. (2009–September 2011) —In 28 years at Procter & Gamble, Mr. Bergh served in a variety of executive roles, including managing business in multiple regions worldwide Other Key Qualifications Mr. Bergh brings to the Board extensive experience in executive leadership at large global companies and international business management. From his more than 30 years at Levi Strauss and Procter & Gamble, Mr. Bergh has a strong operational and strategic background with significant experience in brand management. He also brings public company governance experience as a board member and chair of boards and board committees of other public and private companies. | |||
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Stacy Brown-Philpot | ||||||
Current Role —Chief Executive Officer, TaskRabbit, an online labor interface company (since April 2016) | Current Public Company Boards —HP —Nordstrom, Inc. | Prior Public Company Boards —None |
Independent Director Age: 44 Director since: 2015 HP Board Committees: Audit, NGSR | Qualifications: Prior Business and Other Experience —Chief Operating Officer, TaskRabbit (January 2013–April 2016) —Entrepreneur-in-Residence, Google Ventures, the venture capital investment arm of Google, Inc., a technology company (“Google”) (May 2012–December 2012) —Senior Director of Global Consumer Operations, Google (2010–May 2012) —Prior to 2010, Ms. Brown-Philpot served in a variety of Director-level positions at Google —Prior to joining Google in 2003, Ms. Brown-Philpot served as a senior analyst and senior associate at the financial firms Goldman Sachs and PwC Other Key Qualifications Ms. Brown-Philpot brings to the Board extensive operational, analytical, financial, and strategic experience. In addition to her current role as CEO of TaskRabbit, Ms. Brown-Philpot’s decade of experience leading various operations at Google and her prior financial experience from her roles at Goldman Sachs and PwC provide unique operational and financial expertise to the Board. | |||
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2019 Form 10-K | ½ 3 | |
Stephanie A. Burns | ||||||
Current Role —Director | Current Public Company Boards —HP —Corning Incorporated —Kellogg Company | Prior Public Company Boards —Dow Corning Corporation —GlaxoSmithKline plc —Manpower, Inc. |
Independent Director Age: 65 Director since: 2015 HP Board Committees: FIT, HRC(Chair) | Qualifications: Prior Business and Other Experience —Chief Executive Officer, Dow Corning Corp., a silicon-based manufacturing company (2004–May 2011) —President, Dow Corning (2003–November 2010) —Executive Vice President, Dow Corning (2000–2003) Other Key Qualifications Dr. Burns has more than 30 years of global innovation and business leadership experience and brings significant expertise in scientific research, product development, issues management, science and technology leadership, and business management to the Board. Her leadership experience includes steering Dow Corning Corporation during an extended bankruptcy and restructuring process. Dr. Burns also brings public company governance experience to the Board as a member of boards and board committees of other public companies. | |||
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Mary Anne Citrino | ||||||
Current Role —Senior Advisor and former Senior Managing Director, Blackstone, an investment firm (since 2004) | Current Public Company Boards —HP —Royal Ahold Delhaize —Alcoa Corporation —Barclays | Prior Public Company Boards —Health Net, Inc. —Dollar Tree Inc. |
Independent Director Age: 60 Director since: 2015 HP Board Committees: AUDIT(Chair), FIT | Qualifications: Prior Business and Other Experience —Managing Director, Global Head of Consumer Products Investment Banking Group, and Co-head of Health Care Services Investment Banking, Morgan Stanley (1986–2004) Other Key Qualifications Ms. Citrino’s more than 30-year career as an investment banker provides the Board with substantial knowledge regarding business operations strategy, as well as valuable financial and investment expertise. She also brings public company governance experience as a member of boards and board committees of other public companies. | |||
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4 ½ | 2019 Form 10-K | |
Richard L. Clemmer | ||||||
Current Role —Chief Executive Officer and Executive Director of NXP Semiconductors N. V., a semiconductor company (since January 2009) | Current Public Company Boards —HP —NCR Corporation —NXP Semiconductors N. V. | Prior Public Company Boards —i2 Technologies, Inc. |
Independent Director Age: 68 Director since: 2020 HP Board Committees: N/A | Qualifications: Prior Business and Other Experience —Senior Advisor, Kohlberg Kravis Roberts & Co. (May 2007-December 2008) —President and Chief Executive Officer, Agere Systems Inc. (October 2005–April 2007) Other Key Qualifications Mr. Clemmer brings to the Board significant leadership experience in the high tech industry, including experience with semiconductor, storage, e-Commerce, and software companies, and brings valuable experience leading organizations through strategic transactions. In his roles at NXP Semiconductors and Agere Systems, Mr. Clemmer has overseen the successful execution of a number of key strategic transactions, including the acquisition and integration of several companies and business units. | |||
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Enrique Lores | ||||||
Current Role —President and Chief Executive Officer, HP (since November 2019) | Current Public Company Boards —HP | Prior Public Company Boards —None |
President, Chief Executive Officer and Director Age: 54 Director since: 2019 HP Board Committees: N/A | Qualifications: Prior Business and Other Experience —President, Imaging and Printing Solutions, HP Inc. (November 2015–October 2019) —Separation Leader, Hewlett-Packard Company (2014–October 2015) —Senior Vice President & General Manager, Business Personal Systems, Hewlett-Packard Company (2013–2014) —Senior Vice President, Worldwide Customer Support & Services, Hewlett-Packard Company (2011–2013) —Senior Vice President, Worldwide Sales and Solutions Partner Organization, Hewlett-Packard Company (2008–2011) —Vice President & General Manager, Large Format Printing, Hewlett-Packard Company (2003–2008) —Vice President, Imaging & Printing Group, EMEA, Hewlett-Packard Company (2001–2003) —Experience in a variety of roles at Hewlett-Packard Company (1989–2003) Other Key Qualifications Mr. Lores’s international business and leadership experience, and his service in multiple facets of the HP business worldwide, provide the Board with an enhanced global perspective. Mr. Lores’s more than 25 years of experience in the information and technology industry with HP, and his position as HP’s Chief Executive Officer, provide the Board with valuable industry insight and expertise. | |||
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2019 Form 10-K | ½ 5 | |
Yoky Matsuoka | ||||||
Current Role —Division CEO, Panasonic Corporation (since October 2019) | Current Public Company Boards —HP | Prior Public Company Boards —None |
Independent Director Age: 47 Director since: 2019 HP Board Committees: AUDIT, FIT | Qualifications: Prior Business and Other Experience —Vice President, Healthcare at Google, a subsidiary of Alphabet Inc. (“Alphabet”), a technology company (2018–October 2019) —Chief Technology Officer, Nest, Alphabet (2010–2015; 2017–2018) —Executive experience in healthcare, Apple Inc., a technology company (May 2016–December 2016) —Chief Executive Officer, Quanttus, a technology company (2015–2016) —Head of Innovation and Co-Founder, Google [X], Alphabet (2009–2010) —Academic experience including professorships at Carnegie Mellon University and the University of Washington (2000–2011) —MacArthur Fellow (2007) Other Key Qualifications Ms. Matsuoka is an accomplished executive and technologist who brings more than two decades of leadership experience to the HP Board. Throughout her career, she has held innovation-centric roles in both Silicon Valley and in academia and brings her strong background in management, strategy and research & development to the Board. | |||
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Stacey Mobley | ||||||
Current Role —Director | Current Public Company Boards —HP | Prior Public Company Boards —International Paper Company —Hewitt Associates, Inc. |
Independent Director Age: 74 Director since: 2015 HP Board Committees: HRC, NGSR | Qualifications: Prior Business and Other Experience —Senior Counsel and Advisor, Dickstein Shapiro, LLP, a law firm (2008–2016) —Senior Vice President, Chief Administrative Officer and General Counsel, E.I. du Pont de Nemours and Company (“DuPont”), a chemical company (1999–2008) —35 years of experience at DuPont (1973–2008) serving in a variety of leadership roles Other Key Qualifications Mr. Mobley’s more than 35 years of legal and senior management experience at DuPont brings a deep understanding of governance, regulations and risk management including the government relations strategies of public companies. He also brings public company governance experience as a member of boards and board committees of other public and private companies. | |||
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6 ½ | 2019 Form 10-K | |
Subra Suresh | ||||||
Current Role —President, Nanyang Technological University, autonomous global research university in Singapore (since January 2018) | Current Public Company Boards —HP —Singapore Exchange Limited | Prior Public Company Boards —None |
Independent Director Age: 63 Director since: 2015 HP Board Committees: AUDIT, FIT | Qualifications: Prior Business and Other Experience —Senior Advisor, Temasek International Private Ltd., an investment company headquartered in Singapore (since September 2017) —President, Carnegie Mellon University, a global research university (July 2013–June 2017) —Independent Director of the Board, Battelle Memorial Institute, Ohio, an international nonprofit that develops and commercializes technology and manages laboratories for government customers (2014–2017) —Director, National Science Foundation, a federal agency charged with advancing science and engineering research and education (October 2010–March 2013) —Dean and the Vannevar Bush Professor of Engineering, School of Engineering (2007-2010), and Professor (1993–2013), Massachusetts Institute of Technology Other Key Qualifications Mr. Suresh is one of the few Americans to have been elected to all three branches of the U.S. National Academies (Engineering, Sciences and Medicine) in recognition of his considerable scientific and technical accomplishments. Mr. Suresh’s experience as the president of two prominent research universities and his experience leading new entrepreneurship and innovation bring the Board valuable insights with respect to strategic opportunities and a robust understanding of the organizational, scientific, and technological requirements of ongoing innovation. | |||
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Other Director(s)
In addition, Dion J. Weisler, 52, who has served as Senior Executive Advisor at HP, a non-executive officer role, since November 1, 2019, is includednot currently standing for re-election at our upcoming annual meeting. Mr. Weisler previously served as our President and Chief Executive Officer between November 2015 and November 2019. Previously, Mr. Weisler served in HP’s Proxy Statement related to its 2019 Annual Meetingvarious roles at our predecessor, Hewlett-Packard Company, including as Executive Vice President, the Printing and Personal Systems Group, Hewlett-Packard Company (June 2013–November 2015), Senior Vice President and Managing Director, Printing and Personal Systems, Asia Pacific and Japan, Hewlett-Packard Company (January 2012–June 2013) and Vice President and Chief Operating Officer, the Product and Mobile Internet Digital Home Groups, Lenovo Group Ltd. (January 2008–December 2011). Mr. Weisler also serves on the board of Stockholders to be filed within 120 days after HP’s fiscal year end of October 31, 2018 (the “Proxy Statement”) and is incorporated herein by reference:
2019 Form 10-K | ½ 7 | |
Table of HP is set forth under “Corporate Governance—Management Proposal No. 1 ElectionContents
Code of Directors.”
We maintain a code of business conduct and ethics for directors,Directors, officers and employees also known as “IntegrityIntegrity at HP”,HP, which is set forth under “Corporate Governance—Management Proposal No. 1 Electionavailable on our website at https://investor.hp.com/governance/integrity-at-hp/default.aspx. If the Board grants any waivers from our Standards of Directors—CodeBusiness Conduct to any of Conduct”our Directors or executive officers, or if we amend our Standards of Business Conduct, we will, if required, disclose these matters via updates to our website on a timely basis.
Information about the Audit Committee
We have an Audit Committee established in accordance with the requirements of the Exchange Act. The Audit Committee represents and information on HP’s Corporate Governance Guidelinesassists the Board in fulfilling its responsibilities for overseeing our financial reporting processes and the audit of our financial statements. Specific duties and responsibilities of the Audit Committee include, among other things:
Independent Registered Public Accounting Firm | ●appointing, overseeing the work of, evaluating, compensating and retaining the independent registered public accounting firm; ●discussing with the independent registered public accounting firm its relationships with HP and its independence, and periodically considering whether there should be a regular rotation of the accounting firm in order to assure continuing independence; ●overseeing the rotation of the independent registered public accounting firm’s lead audit and concurring partners at least once every five years and the rotation of other audit partners at least once every seven years in accordance with SEC regulations, with the Audit Committee directly involved in the selection of the accounting firm’s lead partner; and ●determining whether to retain or, if appropriate, terminate the independent registered public accounting firm. | |
Audit & Non-Audit Services; Financial Statements; Audit Report | ●reviewing and approving the scope of the annual independent audit, the audit fee, and other audit services; ●preparing the Audit Committee report for inclusion in the annual proxy statement; and ●overseeing our financial reporting processes and the audit of our financial statements, including the integrity of our financial statements. | |
Disclosure Controls; Internal Controls & Procedures; Legal Compliance | ●reviewing our disclosure controls and procedures, internal controls, information and technology security policies, internal audit function, and corporate policies with respect to financial information and earnings guidance; and ●overseeing compliance with legal and regulatory requirements. | |
Risk Oversight | ●reviewing risks facing HP and management’s approach to addressing these risks, including significant risks or exposures relating to litigation and other proceedings and regulatory matters that may have a significant impact on our financial statements; and ●discussing policies with respect to risk assessment and risk management. | |
Related Party Transactions | ●overseeing relevant related party transactions governed by applicable accounting standards (other than related-person transactions addressed by the Nominating, Governance and Social Responsibility (“NGSR”) Committee). | |
Annual Review/Evaluation | ●annually reviewing the Audit Committee’s charter and performance. |
8 ½ | 2019 Form 10-K | |
The Board determined that Ms. Citrino, Chair of the Audit Committee, and each of the other Audit Committee members (Mr. Bennett, Ms. Brown-Philpot, Ms. Matsuoka and Mr. Suresh) are independent within the meaning of the New York Stock Exchange (“NYSE”) and SEC standards of independence for directors and audit committee members, and has satisfied the NYSE financial literacy requirements. The Board also determined that each of Mr. Bennett, Ms. Brown-Philpot, Ms. Citrino and Mr. Suresh is set forth under “—Director Nominees and Director Nominees’ Experience and Qualifications”,“—Recent Corporate Governance Updates” and “—Director Independence.”
Item 11. Executive Compensation.
Compensation Discussion and Analysis
Introduction
This Compensation Discussion and Analysis describes our executive compensation philosophy and program, the compensation decisions the HR and Compensation (“HRC”) Committee has made under the program, and the considerations in making those decisions in fiscal 2019.
Named Executive Officers
Our NEOs for fiscal 2019 are:
● | Dion J. Weisler, former President and CEO; |
● | Steven J. Fieler, Chief Financial Officer; |
● | Enrique J. Lores, President and CEO and former President, Imaging, Printing and Solutions; |
● | Kim M. Rivera, President, Strategy and Business Management and Chief Legal Officer; and |
● | Alex Cho, President, Personal Systems. |
Following the end of fiscal 2019, Mr. Weisler stepped down as our President and CEO on November 1, 2019, and Mr. Lores was appointed to the role. Upon stepping down from such positions, Mr. Weisler continues to be employed by the Company as Senior Executive Advisor, a non-executive officer role, through our 2020 Annual Meeting of Stockholders. Mr. Weisler will also continue to serve as a member of the Board of Directors until the Company’s 2020 Annual Meeting of Stockholders.
Executive Summary
The HRC Committee continues to review and refine our compensation programs to support our evolving business strategy and attract high caliber executive talent. The HRC Committee’s assessment includes regular stockholder engagement and consideration of stockholder feedback. HP’s fiscal 2019 executive compensation structure remained the same as its fiscal 2018 program.
Below are brief highlights of key compensation decisions with respect to NEOs:
We provided competitive target pay opportunities, where amounts and mix were consistent with peers and stable year over year.
Target total direct compensation (“TDC”) consists of base salary, percent-of-salary target annual incentives that would be earned for achieving 100% of goals, and long-term incentive grant-date value. NEO base salaries were unchanged for fiscal 2019, except a 7.4% promotional increase for Ms. Rivera upon being appointed President, Strategy and Business Management in addition to her ongoing role as Chief Legal Officer and Secretary, plus a 3.6% market adjustment for Mr. Weisler, HP’s President and CEO. Target annual incentives were unchanged at 200% of salary for Mr. Weisler and 125% of salary for each of the other NEOs. Regular long-term incentive grant values increased moderately consistent with the market.
We aligned real pay delivery with performance through rigorous goal setting and performance measurement.
While our target TDC opportunities reflect market practice, our real pay delivery reflects performance. Annual incentives reward short-term performance measured against applicable enterprise-wide, business unit, and individual goals. Goals were set for the overall Company and businesses against internal budgets for revenues, net earnings/profit, and free cash flow as a percent of revenue. Non-financial individual performance goals under the Management by Objectives (“MBO”) program were set for each NEO. Meanwhile, regular annual long-term incentive grants were approximately 60% in PARSUs that reward strategic performance measured by relative TSR compared to the S&P 500 and EPS measured in two and three year overlapping segments as explained on pages 16-18; the remaining 40% is in RSUs that are primarily for ownership and retention with the delivered value tied to stock price and reinvested dividend equivalents.
NEOs earned annual incentives averaging 117.2% of target for fiscal 2019.Individual bonuses varied from 93.2% to 150.7% of target and HP’s President & CEO was at 111.5%. The Company achieved above-target results with respect to HP net earnings/profit and free cash flow margin. Revenue results were below target. Further, NEOs successfully delivered against their MBOs as detailed on pages 15-16.
2019 Form 10-K | ½ 9 | |
NEOs received payout for Segment 1 FY18 and Segment 2 FY17 PARSUs (measurement periods ending in fiscal 2019). EPS FY18 and EPS FY19 were above target. Fiscal 2017-2019 relative TSR approximated the 35th percentile of the S&P 500. Fiscal 2018-2019 relative TSR approximated the 15th percentile of the S&P 500.
We regularly engaged with and listened to stockholders, practiced strong governance, and mitigated potential compensation-related risks.
Our executive compensation program is continuously reviewed for peer group alignment and strategic relevance as part of a process that includes ongoing stockholder engagement. At the annual meeting in 2019, our say-on-pay proposal was approved by over 93% of the voted shares, indicating strong stockholder support. Consequently, changes have not been extensive. To ensure alignment with our three-year financial plan, we have moved our long-term performance-based incentives (PARSUs) to a single three-year performance period with full vesting only after three years of service and achievement of financial goals for that timeframe. We are also changing relative TSR from a standalone measure to a “modifier” on earnouts determined based on the three-year performance period. We feel that this will increase focus on line-of-sight strategic performance while continuing close alignment between stockholder value creation and real pay delivery.
We transitioned to a new HP President & CEO at the start of fiscal 2020, successfully executing the Board’s succession-planning process.
After a robust, in-depth succession planning assessment, Mr. Lores was appointed as President and CEO effective November 1, 2019. Mr. Lores’s initial target TDC was set moderately below the peer group median and the HRC Committee’s intent is to move him to the median or above median over the period of the next two-or-three years based on Company and individual performance. Mr. Lores did not receive a promotion grant or any special rewards in connection to his appointment as President and CEO.
Executive Compensation Program Oversight and Authority
Role of the HRC Committee and its Advisor
The HRC Committee continued to retain FW Cook as its independent consultant during fiscal 2019, and to work with them and management on all aspects of our pay program for senior executives. The HRC Committee makes recommendations regarding the CEO’s compensation to the independent members of the Board for approval, and reviews and approves the compensation of the remaining Section 16 officers, including our NEOs. Each HRC Committee member is an independent non-employee Director with significant experience in executive compensation matters.
The HRC Committee continually considers feedback from stockholders and the potential executive compensation implications of evolving business and strategic objectives. Based on these considerations, the HRC determined that it would be appropriate to make some fine-tuning changes in the program structure for 2020 (described further on page 19) that we believe are in our stockholders’ interests. We believe that our current compensation structure and proposed changes incent and reward achievement of specific goals, reinforce year-over-year results and provide an attractive pay-for-performance opportunity that encourages retention and leadership engagement.
FW Cook provides analyses and recommendations that inform the HRC Committee’s decisions; identifies peer group companies for competitive market comparisons; evaluates market pay data and competitive-position benchmarking; provides analyses and inputs on program structure, performance measures, and goals; provides updates on market trends and the regulatory environment as it relates to executive compensation; reviews various management proposals presented to the HRC Committee related to executive and Director compensation; and works with the HRC Committee to validate and strengthen the pay-for-performance relationship and alignment with stockholder interests. FW Cook does not perform other services for HP and will not do so without the prior consent of the HRC Committee chair. FW Cook meets with the HRC Committee chair and the HRC Committee outside the presence of management while in executive session.
The HRC Committee met six times in fiscal 2019, and all six of these meetings included an executive session. FW Cook participated in five of the meetings and, when requested by the HRC Committee chair, in the preparatory meetings and the executive sessions.
Role of Management and the CEO in Setting Executive Compensation
The CEO recommends compensation for Section 16 officers, including NEOs other than himself, for approval by the HRC Committee. The Board considered market competitiveness, business results, experience, and individual performance when evaluating fiscal 2019 NEO compensation and the overall compensation structure. The Chief Human Resources Officer and other members of our executive compensation team, together with members of our finance and legal organizations, work with the CEO to design and develop the compensation program, to recommend changes to existing program provisions applicable to NEOs and other senior executives, as well as financial and other targets to be achieved under those programs, prepare analyses of financial data, peer comparisons and other briefing materials to assist the HRC Committee in making its decisions, and implement the decisions of the HRC Committee.
During fiscal 2019, management continued to engage Meridian Compensation Partners, LLC (“Meridian”) as its compensation consultant. The HRC Committee took into consideration that Meridian provided executive compensation-related services to management when it evaluated any information and analyses provided by Meridian, all of which were also independently reviewed by FW Cook, as applicable, on the HRC Committee’s behalf.
10 ½ | 2019 Form 10-K | |
During fiscal 2019, Mr. Weisler provided input to the HRC Committee regarding performance metrics and the setting of appropriate performance targets for his direct reports. Mr. Weisler also recommended MBOs for the NEOs (other than himself) and the other senior executives who report directly to him. Mr. Weisler is subject to the same financial performance goals as the executives who lead global functions, and Mr. Weisler’s MBOs and compensation are established by the HRC Committee and recommended to the independent members of the Board for approval.
Use of Comparative Compensation Data and Compensation Philosophy
The HRC Committee reviews the compensation of our Section 16 officers in comparison to that of executives in similar positions at our peer group companies. Our peer group includes companies we compete with for executive talent due to our geographical proximity and technology industry overlap. The HRC Committee takes size differentiations into consideration when reviewing the results of market data analysis. The HRC Committee uses this information to evaluate how our pay levels and practices compare to market practices.
When determining the peer group, the following characteristics were considered:
● | Direct talent market peers. |
● | US-based companies in the technology sector (excluding distributors, contract manufacturers and outsourced services/IT consulting) with revenues between ~$10 billion and $250 billion and market cap between ~$7 billion and $175 billion. |
● | Select general industry companies (industrials, consumer products and telecom) generally meeting size and business criteria that are top-brands. |
● | Review of the peer companies chosen by companies within our proposed peer group and peer business similarity, to evaluate relevance. |
We believe the resulting peer group provides HP and the HRC Committee with a valid comparison and benchmark for the Company’s executive compensation program and governance practices. For fiscal 2019, the HRC Committee added Apple (direct peer) and Micron Technology (size-appropriate technology company). The HRC Committee also removed Amazon, Procter & Gamble and Verizon as all exceeded size range and were not direct peers. The HP peer group for fiscal 2019, as approved by HRC Committee, consisted of the following companies:
Fiscal 2019 Peer Group
* | Represents fiscal 2019 reported revenue, except fiscal 2018 reported revenue is provided for General Electric, Honeywell, IBM, Intel, PepsiCo, Texas Instruments and Xerox. |
2019 Form 10-K | ½ 11 | |
Process for Setting and Awarding Executive Compensation
A broad range of facts and circumstances are considered in setting our overall executive compensation levels. In fiscal 2019, the HRC Committee continued to set target compensation levels within a competitive range of the market median, although in some cases lower or higher based on each executive’s situation (e.g., attraction and retention of critical talent). The Board maintains a total CEO target compensation package that approximates the median of our competitive market and is consistent with our pay positioning strategy and pay-for-performance philosophy.
The primary factors considered when determining pay opportunities for our NEOs are market competitiveness, internal equity, and individual performance. The weight given to each factor is not formulaic and may differ from year to year or by individual NEO. For example, when we recruit externally, market competitiveness, experience, and the candidate-specific circumstances may weigh more heavily in the compensation decision process. In contrast, when determining year-over-year compensation changes for current NEOs, internal equity and individual performance may factor more heavily in the decision.
The HRC Committee spends significant time determining the appropriate goals for our annual and long-term incentive plans, which make up the majority of NEO compensation. Management makes an initial recommendation of the goals, which is then assessed by the HRC Committee’s independent compensation consultant and discussed and approved by the HRC Committee. Major factors considered in setting financial goals for each fiscal year are business results from the most recently completed fiscal year, budgets and strategic plans, macroeconomic factors, guidance and analyst expectations, industry performance, conditions or goals specific to a particular business segment, and strategic initiatives. MBOs are set based on major shared and individual strategic, operating, and tactical initiatives.
Following the close of the fiscal year, the HRC Committee reviews actual financial results and MBO performance against the goals that it had set for the applicable plans for that year, with payouts under the plans determined based on performance against the established goals. The HRC Committee meets in executive session to review the MBO performance of the CEO and to determine a recommendation for his annual PfR incentive award to be approved by the independent members of the Board. See “2019 Annual Incentives” below for a further description of our results and corresponding incentive payouts.
Listening to our Stockholders on Compensation
We regularly engage with our stockholders on a variety of issues, including their views on best practices in executive compensation. The following changes to our executive compensation program, shown here, reflect those conversations with stockholders.
● | Starting with new grants in fiscal 2020, to ensure alignment with our three-year financial plan, we have moved our long-term performance-based incentives (PARSUs) to a single three-year performance period with full vesting only after three years of service and achievement of financial goals for that timeframe. We are also changing relative TSR from a standalone measure to a “modifier” on earnouts determined based on the three-year performance period. We feel that this will increase focus on line-of-sight strategic performance while continuing close alignment between stockholder value creation and real pay delivery. |
● | Some changes during the last few years that reflect conversations with stockholders include the following: |
● | Increased focus on enterprise-wide corporate revenue and corporate net earnings/profit in our annual PfR incentive plan to encourage greater collaboration and teamwork among business leaders. |
● | Replaced Return on Invested Capital (“ROIC”) with EPS in our PARSU grants for stronger alignment with stockholder interests and because it is a more appropriate measure for HP after the separation of HPE. |
At the 2019 annual meeting, our annual say-on-pay proposal received the support of over 93% of the votes cast. As part of its 2019 executive compensation discussions, the HRC Committee reviewed the advisory vote result and considered it to be supportive of the Company’s compensation practices.
Determination of Fiscal 2019 Executive Compensation
Under our Total Rewards Program, executive compensation consists of: base salary, annual incentives, long-term incentives, benefits, and perquisites.
The HRC Committee regularly explores ways to improve our executive compensation program by considering stockholder feedback, our current business needs and strategy, and peer group practices. For 2019 the Committee decided to maintain a consistent compensation structure for executives since it supports our business strategy and aligns pay with stockholder interests.
2019 Base Salary
Our executives receive a small percentage of their overall compensation in the form of base salary, which is consistent with our philosophy of tying the majority of pay to performance. The NEOs are paid an amount in the form of base salary sufficient to attract qualified executive talent and maintain a stable management team.
12 ½ | 2019 Form 10-K | |
The HRC Committee aims to set executive base salaries at or near the market median for comparable positions. In fiscal 2019, salaries comprise on average 11% of our NEOs’ overall compensation, consistent with our peers. To decide the CEO’s salary, the HRC Committee reviews analyses and recommendations provided by FW Cook.
For fiscal 2019, Mr. Weisler’s salary was increased from $1.4 million to $ 1.45 million to recognize his contributions and better align with the market median. For fiscal 2019, the HRC Committee did not change the base salary for Mr. Fieler, Mr. Lores or Mr. Cho. During fiscal 2018, Mr. Fieler’s base salary had been increased to $690,000 during July 2018 and Mr. Cho’s base salary had been increased to $675,000 during June 2018 in conjunction with their promotions to CFO and President, Personal Systems, respectively. Ms. Rivera’s base salary was increased from $675,000 to $725,000 due to her new responsibilities as President, Strategy and Business Management while retaining her role as Chief Legal Officer and Secretary.
Changes in Base Salary | ||||||||
EXECUTIVE | FISCAL YEAR-END 2018 BASE SALARY | FISCAL 2019 BASE SALARY | PERCENTAGE |
| ||||
Dion Weisler | $1,400,000 | $1,450,000 | +3.6% | |||||
Steven Fieler | $690,000 | $690,000 | +0.0% | |||||
Enrique Lores | $750,000 | $750,000 | +0.0% | |||||
Kim Rivera | $675,000 | $725,000 | +7.4% | |||||
Alex Cho | $675,000 | $675,000 | +0.0% |
2019 Annual Incentives
The fiscal 2019 annual PfR incentive plan consisted of the following three core financial metrics: revenue, net earnings/profit, and corporate free cash flow as a percentage of revenue. A fourth metric, MBOs, was used to further drive individual performance and achievement of key strategic goals. Each metric was weighted at 25% of the target award value. Each individual metric may fund up to 250% of target; however, the maximum annual PfR incentive for each executive is capped at 200% of target.
The target annual PfR incentive awards for fiscal 2019 were set at 200% of salary for the CEO and 125% of salary for the other NEOs.
For fiscal 2019, the HRC Committee again established an “umbrella” formula governing the maximum bonus and then exercised negative discretion in setting actual bonuses. Under the umbrella formula, each Section 16 officer (including each NEO) was allocated a pro rata share of 0.75% of net earnings based on his or her target annual PfR incentive award, subject to a maximum bonus of 200% of the NEO’s target bonus, and the maximum $15 million individual cap under the Stock Incentive Plan. Below this umbrella funding structure, actual payouts were determined based upon financial metrics and MBOs established and evaluated by the HRC Committee for Section 16 officers (including each NEO) and by the independent members of the Board for the CEO.
Fiscal 2019 Annual Incentive Plan | ||||||||||||
CORPORATE GOALS | ||||||||||||
KEY DESIGN ELEMENTS | REVENUE ($ IN BILLIONS) | NET EARNINGS/ PROFIT ($ IN BILLIONS) | FREE CASH FLOW AS A % OF REVENUE(1) (%) | MBOs | % PAYOUT METRIC(2) (%) | |||||||
Weight | 25% | 25% | 25% | 25% | ||||||||
Linkage | ||||||||||||
Global Functions Executives(3) | Corporate | Corporate | Corporate | Individual | ||||||||
Business Unit (“BU”) Executives(4) | Corporate/BU | Corporate/BU | Corporate | Individual | ||||||||
Corporate Performance Goals | ||||||||||||
Maximum | — | — | — | Various | 250 | |||||||
Target | $60.0 | $3.7 | 6.33% | Various | 100 | |||||||
Threshold | — | — | — | Various | 0 |
(1) | Maximum funding for corporate free cash flow as a percentage of revenue is capped at 150% of target if corporate net earnings/profit achievement was below target and is capped at 100% of target if corporate net earnings/profit achievement was below threshold. If corporate net earnings/profit achievement was above target, the maximum funding level is 250% for this metric. Maximum and threshold information are not disclosed because such disclosure would result in competitive harm. However, goals are set at levels we believe to be achievable in connection with strong performance. |
2019 Form 10-K | ½ 13 | |
(2) | Interpolated for performance between discrete points. Each individual metric may fund up to 250% of target; however, the maximum annual PfR incentive for each executive is capped at 200% of target. As a general administrative discretionary guideline, the HRC Committee may decide that financial funding for Global Functions Executives, including the CEO, cannot exceed the highest funding for a Business Unit Executive. |
(3) | The Global Functions Executives include Mr. Weisler, Mr. Fieler and Ms. Rivera. |
(4) | The Business Unit Executives includes Mr. Lores and Mr. Cho. Specific Business Unit revenue and net earnings/profit goals are not disclosed because such disclosure would result in competitive harm. However, goals are set at levels we believe to be achievable in connection with strong performance. |
The specific metrics, their linkage to corporate results, and the weighting that was placed on each were chosen because the HRC Committee believed that:
● | Performance against these metrics, in combination, enhances value for stockholders, capturing both the top and bottom line, as well as cash and capital efficiency. |
● | A balanced weighting of metrics limits the likelihood of rewarding executives for excessive risk-taking. |
● | Different measures avoid paying for the same performance twice. |
● | MBOs enhance focus on business objectives, such as operational objectives, strategic initiatives, succession planning, and people development, which are important to the long-term success of the Company. |
The following chart sets forth the definition of and rationale for each of the financial performance metrics that was used for the Fiscal 2019 Annual Incentive Plan:
FINANCIAL PERFORMANCE METRICS(1) | DEFINITION | RATIONALE FOR METRIC | ||
Corporate Revenue | Net revenue as reported in our Annual Report on Form 10-K for fiscal 2019 | Reflects top line financial performance, which is a strong indicator of our long-term ability to drive stockholder value | ||
Business Revenue | Segment net revenue as reported in our Annual Report on Form 10-K for fiscal 2019 | |||
Corporate Net Earnings | Non-GAAP net earnings, as defined and reported in our fourth quarter fiscal 2019 earnings press release, excluding bonus net of income tax(2) | Reflects bottom line financial performance, which is directly tied to stockholder value on a short-term basis | ||
Business Net Profit (“BNP”) | Business net profit, excluding bonus net of income tax | |||
Corporate Free Cash Flow | Cash flow from operations less net capital expenditures (gross purchases less retirements) divided by net revenue (expressed as a percentage of revenue) | Reflects efficiency of cash management practices, including working capital and capital expenditures |
(1) | While we report our financial results in accordance with generally accepted accounting principles (“GAAP”), our financial performance targets and results under our incentive plans are sometimes based on non-GAAP financial measures. The financial results, whether GAAP or non-GAAP, may be further adjusted as permitted by those plans and approved by the HRC Committee. We review GAAP to non-GAAP adjustments and any other adjustments with the HRC Committee to ensure performance considers the way the goals were set and executive accountability for performance. These metrics and the related performance targets are relevant only to our executive compensation program and should not be used or applied in other contexts. |
(2) | Fiscal 2019 non-GAAP net earnings of $3.4 billion excludes after-tax costs of $257 million related to restructuring and other charges, acquisition-related charges, amortization of intangible assets, non-operating retirement-related credits/(charges), and tax adjustments. Management uses non-GAAP net earnings to evaluate and forecast our performance before gains, losses, or other charges that are considered by management to be outside of our core business segment operating results. We believe that presenting non-GAAP net earnings provides investors with greater visibility with respect to the information used by management in its financial and operational decision making. We further believe that providing this additional non-GAAP information helps investors understand our operating performance and evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. This additional non-GAAP information is not intended to be considered in isolation or as a substitute for GAAP diluted net earnings. |
14 ½ | 2019 Form 10-K | |
Following fiscal 2019, the HRC Committee reviewed performance against the financial metrics and certified the results as follows:
Fiscal 2019 Annual PfR Incentive Performance Against Financial Metrics(1,2) | ||||||||||
METRIC | WEIGHT(3) | TARGET ($ IN BILLIONS) | RESULT ($ IN BILLIONS) | PERCENTAGE OF TARGET ANNUAL INCENTIVE FUNDED | ||||||
Corporate Revenue | 25.0% | $60.0 | $58.8 | 19.8% | ||||||
Corporate Net Earnings | 25.0% | $3.7 | $3.8 | 25.8% | ||||||
Corporate Free Cash Flow (% of revenue) | 25.0% | 6.33% | 6.78% | 45.9% | ||||||
Total | 75.0% | 91.5% |
(1) | Mr. Weisler, Mr. Fieler and Ms. Rivera received annual PfR incentive payments based on corporate financial metrics. Mr. Lores and Mr. Cho received an annual PfR incentive payment based on corporate and business financial metrics. |
(2) | As a general administrative discretionary guideline, the HRC Committee may decide that financial funding for Global Functions Executives, including the CEO, cannot exceed the highest funding for a Business Unit Executive. |
(3) | The financial metrics were equally weighted to account for 75% of the target annual PfR incentive. |
Mr. Weisler. At the end of the fiscal year, the independent members of the Board evaluated Mr. Weisler’s performance against all of his MBOs, which included, but were not limited to: setting strategic direction for the Company based on optimizing stockholder value, maintaining supplies stabilization, growing profitable share in Personal Systems, engaging with all major constituents including financial analysts, media, key governmental figures, partners and customers to execute the HP strategy, and ensuring HP has a robust evaluation and talent program. After conducting a thorough review of Mr. Weisler’s performance, the independent members of the Board determined that his MBO performance reflected a number of accomplishments but overall had been achieved below target due to Print supplies performance. Mr. Weisler had strong accomplishments, including the following:
● | Maintained the three-pronged Core, Growth, and Future strategy, designed to drive employees across the world towards a common goal. |
● | Expanded Personal Systems revenue in profitable categories and the attach category initiatives. |
● | Accelerated 3D print business through development of industrial go-to-market, applications and focus on key verticals. |
● | Developed and managed an effective plan to address key regulatory/political changes as well as to mitigate US trade/ tariff impacts. |
● | Executed a plan to consistently engage with channel partners, customers, and ecosystem partners to ensure he was getting direct feedback on the HP strategy and product portfolio to enable appropriate adjustments. |
● | Continued to invest across all three waves (Core, Growth and Future) in each business. |
● | Drove digital transformation and created a core competency in software, data analytics and machine learning. |
● | Kept the organization updated and motivated, from the leadership team to the broader employee population, to ensure that all understood the strategy and priorities. Cultivated a growth mindset across the organization with extreme customer focus. |
● | Reinvented go-to-market and customer engagement models to address dramatic shift in buying behaviors. |
● | Continued implementation of modern ERP platform with development of standardized and simplified processes. |
● | Worked closely with external advisors to develop future strategy and a roadmap to accelerate value creation for customers, partners and stockholders. |
● | Worked with the Independent Chair to set the annual Board and Committee objectives, priorities and the Board/ Committee meeting agendas. |
As CEO, Mr. Weisler evaluated the performance of each of the other Section 16 officers (including each of the other NEOs) and presented the results of those evaluations to the HRC Committee at its November 2019 meeting. The evaluations included an analysis of the officers’ performance against all of their MBOs. The HRC Committee reviewed the CEO’s assessment of the degree of attainment of the MBOs of the other Section 16 officers and set their MBO scores. The results of these evaluations for the other NEOs are summarized below.
Mr. Fieler. The HRC Committee determined that Mr. Fieler’s MBOs performance had been achieved below target due to Print supplies performance. Overall, Mr. Fieler demonstrated strategic, thoughtful and engaged leadership in running the Finance function. His strong operational perspective supported the Company through business changes. Mr. Fieler has strong relationships with the investor relations community and is critical to ensuring our results deliver against financial expectations.
2019 Form 10-K | ½ 15 | |
Mr. Lores. The HRC Committee determined that Mr. Lores’s MBOs performance had been achieved below target due to Print supplies performance. Mr. Lores did continue reinventing the Print business with a focus on differentiated innovation, business model transformation and strategic M&A. Over the past year, Mr. Lores did a remarkable job working with the HP Board on a comprehensive global review of the Company strategy and business operations, with a focus on simplifying its operating model, evolving its business models and driving significant improvement in its cost structure while making the Company more digitally enabled and customer centric.
Ms. Rivera. The HRC Committee determined that Ms. Rivera’s MBO performance had been achieved above target. Ms. Rivera worked closely with the businesses on critical matters such as supplies infringements, counterfeit seizures and IP protection. She did an excellent job on corporate governance, tariffs, investigations, launching the “Transformation Management Office” and customer service transformation initiatives. Ms. Rivera is a well-respected leader with a strong understanding of commercial decisions and is a strong partner in business, technology and governance matters.
Mr. Cho. The HRC Committee determined that Mr. Cho’s MBO performance had been achieved above target. Despite the various challenges in the marketplace, Mr. Cho did an excellent job in delivering profits and steady revenue progress. He did a remarkable job in the introduction and roll out of new products such as Dragonfly in Asia. Mr. Cho is a thoughtful and well respected leader in the organization with a strong team to drive the business appropriately.
Based on the findings of these performance evaluations, the HRC Committee (and, in the case of the CEO, the independent members of the Board) evaluated performance against the non-financial metrics for the NEOs as follows:
Fiscal 2019 Annual PfR Incentive Performance Against Non-Financial Metrics (MBOs) | ||||||
NAMED EXECUTIVE OFFICER | WEIGHT (%) | PERCENTAGE OF TARGET ANNUAL INCENTIVE FUNDED (%) | ||||
Dion J. Weisler | 25.0 | 20.0 | ||||
Steven J. Fieler | 25.0 | 20.0 | ||||
Enrique J. Lores | 25.0 | 20.0 | ||||
Kim M. Rivera | 25.0 | 27.5 | ||||
Alex Cho | 25.0 | 37.5 |
Based on the level of performance described above on both the financial and non-financial metrics for fiscal 2019, the payouts to the NEOs under the annual PfR incentive were as follows:
Fiscal 2019 Annual PfR Incentive Payout | ||||||||||
PERCENTAGE OF TARGET ANNUAL INCENTIVE FUNDED | TOTAL ANNUAL INCENTIVE PAYOUT | |||||||||
NAMED EXECUTIVE OFFICER | FINANCIAL METRICS (%) | NON-FINANCIAL METRICS (%) | AS % OF TARGET ANNUAL INCENTIVE (%) | PAYOUT ($) | ||||||
Dion J. Weisler | 91.5 | 20.0 | 111.5 | 3,233,533 | ||||||
Steven J. Fieler | 91.5 | 20.0 | 111.5 | 961,697 | ||||||
Enrique J. Lores | 73.2 | 20.0 | 93.2 | 873,522 | ||||||
Kim M. Rivera | 91.5 | 27.5 | 119.0 | 1,078,448 | ||||||
Alex Cho | 113.2 | 37.5 | 150.7 | 1,271,882 |
Long-term Incentive Compensation
The HRC Committee established a total long-term incentive target value for each NEO in early fiscal 2019 that was 60% weighted in the form of PARSUs and 40% weighted in the form of time-based RSUs. The high proportion of performance-based awards reflects our pay-for-performance philosophy. The time-based awards support retention and are linked to stockholder value and ownership, which are important goals of our executive compensation program.
16 ½ | 2019 Form 10-K | |
2019 PARSUs
The fiscal 2019 PARSUs have the same structure as used in the fiscal 2017 and fiscal 2018 PARSUs. Fiscal 2019 PARSUs have a two-and three-year vesting period, subject to one-, two-, and three-year performance periods that began at the start of fiscal 2019 and continue through the end of fiscal 2019, 2020 and 2021. Under this program, 50% of the PARSUs (including dividend equivalent units) are eligible for vesting based on EPS and 50% are eligible for vesting based on relative TSR performance. These PARSUs vest as follows: 16.6% of the units are eligible for vesting based on EPS performance of year one with continued service over two years, 16.6% of the units are eligible for vesting based on EPS performance of year two with continued service over three years, 16.6% of the units are eligible for vesting based on EPS performance of year three with continued service over three years, 25% of the units are eligible for vesting based on relative TSR performance over two years with continued service over two years, and 25% of the units are eligible for vesting based on relative TSR performance over three years with continued service over three years. This structure is depicted in the chart below:
2019 PARSUs | |||||||||||||||
KEY DESIGN ELEMENTS | EPS VS. INTERNAL GOALS | RELATIVE TSR VS. S&P 500 | PAYOUT | ||||||||||||
Weight | 16.6% | 16.6% | 16.6% | 25% | 25% | ||||||||||
Performance Periods(1) | Year 1 | Year 2 | Year 3 | 2 Years | 3 Years | % of Target | (3) | ||||||||
Vesting Periods(2) | Year 2 | Year 3 | Year 3 | Year 2 | Year 3 | ||||||||||
Performance Levels: | |||||||||||||||
Max | Target to be disclosed after the end of the three-year performance period | > 90th percentile | 200% | ||||||||||||
> Target | 70th percentile | 150% | |||||||||||||
Target | 50th percentile | 100% | |||||||||||||
Threshold | 25th percentile | 50% | |||||||||||||
< Threshold | < 25th percentile | 0% |
(1) | Performance measurement occurs at the end of the one-, two-, and three-year periods. |
(2) | Vesting occurs at the end of the two- and three-year periods, subject to continued service. |
(3) | Interpolate for performance between discrete points. |
EPS was chosen because it is a critical driver of long-term stockholder value and because of our focus on bottom-line profitability in the business transformation strategy. Year 1 (fiscal 2019) EPS goals were set after consideration of historical performance, internal budgets, external expectations, and peer group performance.
Relative TSR was chosen as a performance measure because it is a direct measure of stockholder value and rewards for outperformance relative to the broader market.
EPS and relative TSR are weighted equally in determining earned PARSUs. The first segment (42% of total target units) will vest after the end of fiscal 2020, subject to Year 1 EPS performance and relative TSR performance for the first two years. The second segment (58% of total target units) will vest after the end of fiscal 2021, subject to Year 2 EPS performance, Year 3 EPS performance, and relative TSR performance for the three years.
For more information on grants of PARSUs to the NEOs during fiscal 2019, see “Compensation Tables—Grants of Plan-Based Awards in Fiscal 2019.”
2019 RSUs
2019 RSUs and related dividend equivalent units vest ratably on an annual basis over three years from the grant date. Three-year vesting is common in our industry and supports executive retention and alignment with stockholder value.
2019 Form 10-K | ½ 17 | |
Fiscal 2019 Long-term Incentive Compensation at Target
The following table shows combined total grant values for grants attributable to fiscal 2019. It is important to note that these values are target opportunities to earn future value-based compensation and are not actual earned amounts, which will be determined after three years based on continued employment and performance against the EPS and relative TSR goals.
NAMED EXECUTIVE OFFICER | PARSUs | RSUs | TOTAL FISCAL 2019 LONG-TERM INCENTIVE GRANT | |||||
Dion J. Weisler | $8,700,000 | $5,800,000 | $14,500,000 | |||||
Steven J. Fieler | $2,400,000 | $1,600,000 | $4,000,000 | |||||
Enrique J. Lores | $3,390,000 | $2,260,000 | $5,650,000 | |||||
Kim M. Rivera | $3,000,000 | $2,000,000 | $5,000,000 | |||||
Alex Cho | $2,400,000 | $1,600,000 | $4,000,000 |
Values in the Summary Compensation Table are different than the target values described in the table above. In the Summary Compensation Table, consistent with accounting standards, amounts reflect the grant date fair value for the full TSR component (two and three-year performance period), and the EPS component for Year 1 (2019), for which goals were approved in January 2019. Grant date fair values for the EPS component for Year 2 (2020) and Year 3 (2021) are not included in the Proxy Statementgrant date fair value reported in the Summary Compensation Table since EPS goals for those years are approved in their respective fiscal year.
The Summary Compensation Table for fiscal 2019 also includes a portion of the fiscal 2018 PARSUs Year 2 EPS (2019) and 2017 PARSUs Year 3 EPS (2019) for which the goal was approved in fiscal 2019.
For more information on grants to the NEOs during fiscal 2019, see “Compensation Tables—Grants of Plan-Based Awards in Fiscal 2019.”
2018 PARSUs
2018 PARSUs have the same vesting structure as 2019 PARSUs (chart described above). The actual performance achievement for the one- and two-year periods (i.e., fiscal 2018 and fiscal 2018–2019) as a percentage of target for the PARSUs as of October 31, 2019 is incorporated hereinsummarized in the table below:
EPS VS. INTERNAL GOALS | RELATIVE TSR VS. S&P 500(1) | |||||||||
SEGMENT | FISCAL 2018 RESULT | PAYOUT | FISCAL 2018- 2019 RESULTS | PAYOUT | ||||||
Segment 1 (42%) | $1.94 | 192.9% | 15th percentile | 0.0% | ||||||
Target: $1.81 | ||||||||||
(1) | Through October 2019, HP’s relative TSR performance was at the 15th percentile of the S&P 500 which corresponds to a payout of 0% of target. |
2017 PARSUs
2017 PARSUs have the same vesting structure as 2018 and 2019 PARSUs (chart described above). The actual performance achievement for the two-year period (i.e., fiscal 2017–2018), as a percentage of target for the HP PARSUs as of October 31, 2018, was summarized in our proxy statement for fiscal 2018. The actual performance achievement for the three-year period (i.e., fiscal 2017–2019) as a percentage of target for the HP PARSUs as of October 31, 2019 is summarized in the table below:
EPS VS. INTERNAL GOALS | RELATIVE TSR VS. S&P 500(1) | |||||||||||||
SEGMENT | 2018 | PAYOUT | 2019 | PAYOUT | FISCAL 2017- 2019 RESULTS | PAYOUT | ||||||||
Segment 2 (58%) | $1.94 | 192.9% | $2.23 | 122.7% | 35th percentile | 70.4% | ||||||||
Target: $1.81 | Target: $2.18 | |||||||||||||
(1) | Through October 2019, HP’s relative TSR performance was at the 35th percentile of the S&P 500 which corresponds to a payout of 70.4% of target. |
18 ½ | 2019 Form 10-K | |
CEO Transition
Dion Weisler stepped down from his positions as President and Chief Executive Officer of the Company, effective November 1, 2019. Upon stepping down from such positions, Mr. Weisler continued to be employed by reference:
Fiscal 2020 Compensation Program
The HRC Committee regularly identifies and evaluates ways to improve our executive compensation program. We believe that our current compensation structure effectively aligns real pay delivery with critical financial and strategic non-financial goals, reinforces year-over-year improvement and growth, offers a stable and consistent message to both stockholders and participants, and provides an attractive pay-for-performance opportunity to encourage retention and leadership engagement.
However, as we plan to discuss in further detail in the fiscal 2020 proxy statement, we made the following changes that we believe are in our stockholders’ interests and are appropriate to the characteristics and business strategy of the Company, and to ensure our compensation is tied to our three-year strategic and financial plan:
● | Our annual incentive continues to focus on Revenue Growth, Net Earnings and Cash Flow goals |
● | We have moved to three-year cliff vesting on our Performance Based equity compensation to align with our annual plan |
● | Grants made for 2020 (granted in Dec 2019) will vest in 2022 |
● | The metrics on those performance-based shares consist of EPS with a TSR governor |
● | EPS consists of three annual goals that roll up into our three-year annual EPS plan |
● | Then, a TSR governor is applied to the EPS payout to ensure alignment with our stockholders’ experience |
● | TSR is measured over the full three-year period based on performance against market (S&P 500) |
● | The relative TSR is a market-based governor that adjusts payout so there is alignment with stockholder results |
Fiscal 2021 Compensation Program
As the HRC Committee embarks upon our compensation plan design for 2021 and beyond, we will be looking at the most appropriate measures to continue reinforcing the commitments articulated in our long-term financial plans. While EPS and TSR are important measures that tie management and stockholder interest, key metrics like operating profit and cash flow, could be impactful as three-year measures tied to our long-term incentives. Operating profit and cash flow are critical value drivers to deliver on the long-term commitments we have made to stockholders. The final compensation structure will be discussed in more detail in our 2021 proxy.
Benefits
We do not provide our executives, including the NEOs, with special or supplemental U.S. defined benefit pension or health benefits. Our NEOs receive health and welfare benefits (including retiree medical benefits, if eligibility conditions are met) under the same programs and subject to the same eligibility requirements that apply to our employees generally.
Benefits under all U.S. pension plans were frozen effective December 31, 2007. Benefits under the Electronic Data Systems (“EDS”) Pension Plan ceased upon HP’s acquisition of EDS in 2008. As a result, no NEO or any other HP employee accrued a benefit under any HP U.S. defined benefit pension plan during fiscal 2019. The amounts reported as an increase in pension benefits in the Summary Compensation Table are for those NEOs who previously accrued a benefit in a defined benefit pension plan prior to the cessation of accruals and reflect changes in actuarial values only, not additional benefit accruals.
The NEOs, along with other executives who earn base pay or an annual incentive in excess of certain limits of the Code or greater than $150,000, are eligible to participate in the 2005 Executive Deferred Compensation Plan (the “EDCP”). This plan is maintained to permit executives to defer some of their compensation in order to also defer taxation on such amounts. This is a standard benefit plan also offered by most of our peer group companies. The EDCP permits deferral of base pay in excess of the amount allowed under the qualified HP 401(k) Plan (the 401(k)-deferral limit for calendar 2019 was $19,000) and up to 95% of the annual incentive payable under the Stock Incentive Plan, the PfR Plan and other eligible plans. In addition, we make a 4% matching contribution to the EDCP on base pay contributions in excess of IRS limits up to a maximum of two times that limit (maximum of $11,200 in calendar 2019).
2019 Form 10-K | ½ 19 | |
This is the same percentage of matching contributions those executives are eligible to receive under the 401(k) Plan. In effect, the EDCP permits these executives and all eligible employees to receive a 401(k)-type matching contribution on a portion of base-pay deferrals in excess of IRS limits. Amounts deferred or matched under the EDCP are credited with hypothetical investment earnings based on investment options selected by the participant from among nearly all the proprietary funds available to employees under the 401(k) Plan. No amounts earn above-market returns. Benefits payable under the EDCP are unfunded and unsecured.
Executives are also eligible to have a yearly HP-paid medical exam as part of the HP U.S. executive physical program. This includes a comprehensive exam, thorough health assessment and personalized health advice. This benefit is also offered by our peer group companies.
Consistent with its namedpractice of not providing any special or supplemental executive defined benefit programs, including arrangements that would otherwise provide special benefits to the family of a deceased executive, in 2011 the HRC Committee adopted a policy that, unless approved by our stockholders pursuant to an advisory vote, we will not enter into a new plan, program or agreement or modify an existing plan, program or agreement with a Section 16 officer (including the NEOs) that provides for payments, grants or awards following the death of the officer in the form of unearned salary or unearned annual incentives, accelerated vesting or the continuation in force of unvested equity grants, perquisites, and other payments or awards made in lieu of compensation, except to the extent that such payments, grants or awards are provided or made available to our employees generally.
We provide our executives with financial counseling services to assist them in obtaining professional financial advice, a common benefit among our peer group companies, for convenience and to increase the understanding and effectiveness of our executive compensation program.
Limited Perquisites
We provide a small number of perquisites to our senior executives, including the NEOs. For a list of all perquisites provided to our NEOs for fiscal 2019, please refer to the All Other Compensation Table on page 25.
Due to our global presence, we maintain one corporate aircraft. In the event a NEO is accompanied by a guest or family member on the aircraft for personal reasons, as approved by the CEO, the NEO is taxed on the value of this usage according to the relevant Code rules. There is no tax gross-up paid on the income attributable to this value. Among our NEOs, Mr. Weisler is the only executive that used the corporate aircraft for personal use during fiscal 2019, which was for convenience and security.
Our Audit Committee periodically conducts global risk management reviews, which include reviewing home security services of NEOs. Services considered necessary by the Audit Committee may be paid for by HP, due to the range of security issues that may be encountered by key executives of any large, multinational corporation.
Termination and Change in Control Protections
Severance and Long-term Incentive Change in Control Plan for Executive Officers
Our Section 16 officers (including all of the NEOs) are covered by the Severance and Long-term Incentive Change in Control Plan for Executive Officers (“SPEO”), which is intended to protect us and our stockholders, and provide a level of transition assistance in the event of an involuntary termination of employment. Under the SPEO, participants who incur an involuntary termination (i.e., a termination not for cause), and who execute a full and effective release of claims following such termination, are eligible to receive severance benefits in an amount determined as a multiple of base pay, plus the average of the actual annual incentives paid for the preceding three years. In the case of the NEOs other than the CEO, the multiplier is 1.5. In the case of the CEO, the multiplier is 2.0. In all cases, this benefit will not exceed 2.99 times the sum of the executive’s base pay plus target annual incentive as in effect immediately prior to the termination of employment.
Although most of the compensation for our executives is performance-based and largely contingent upon the achievement of financial goals, the HRC Committee continues to believe that the SPEO is appropriate for the attraction and retention of executive talent. In addition, we find it more equitable to offer severance benefits based on a standard formula for the Section 16 officers (including all of the NEOs) because severance often serves as a bridge when employment is involuntarily terminated, and should therefore not be affected by other, longer-term accumulations. As a result, and consistent with the practice of our peer group companies, other compensation decisions are not generally based on the existence of this severance protection.
In addition to the cash benefit, SPEO participants are eligible to receive (1) a pro-rata annual incentive for the year of termination based on actual performance results, at the discretion of the HRC Committee, (2) pro-rata vesting of unvested equity awards (and for performance-based equity awards, only if any applicable performance conditions have been satisfied), and (3) payment of a lump-sum health-benefit stipend of an amount equal to 18 months’ COBRA premiums for continued group medical coverage for the executive and his or her eligible dependents.
Severance Benefits in the Event of a Change in Control
In order to better ensure the retention of our executive leadership team in the event of a potentially disruptive corporate transaction, the SPEO also includes change in control terms for our NEOs. In
20 ½ | 2019 Form 10-K | |
addition to the benefits provided for involuntary terminations, the SPEO provides for full vesting of outstanding stock options, RSUs, and PARSUs upon involuntary termination not for Cause or voluntary termination for Good Reason (as defined in the plan) within 24 months after a change in control (“double trigger”), and in situations where equity awards are not assumed by the surviving corporation (a “modified double trigger”). The SPEO further provides that under a double trigger, PARSUs will vest based on target performance, whereas under a modified double trigger, PARSUs will vest based upon the greater of the number of PARSUs that would vest based on actual performance and the number of PARSUs that would vest pro-rata based upon target performance. We do not provide tax gross ups in connection with terminations, including terminations in the event of a change in control.
The HRC Committee is focused on ensuring that the change of control provisions in the SPEO are consistent with market practice, provide clarity to prospective and current executives, and will help attract and retain talent.
Other Compensation-Related Matters
Succession Planning
Among the HRC Committee’s responsibilities described in its charter is to oversee succession planning and leadership development. The Board plans for succession of the CEO and annually reviews senior management selection and succession planning that is undertaken by the HRC Committee. As part of this process, the independent Directors annually review the HRC Committee’s recommended candidates for senior management positions to see that qualified candidates are available for all positions and that development plans are being utilized to strengthen the skills and qualifications of the candidates. The criteria used when assessing the qualifications of potential CEO successors include, among others, strategic vision and leadership, operational excellence, financial management, executive officer leadership development, ability to motivate employees, and an ability to develop an effective working relationship with the Board. We also host a Board Buddy program through which each executive officer is aligned to a board member as a mentor to aid the executive’s development while giving board members a deeper understanding of the day-to-day operations of the Company.
In fiscal 2019, an executive talent review was conducted along with succession plans for each of the executive leaders. Successors were identified to reflect necessary skill sets, performance, potential, and diversity. Development plans for successors were also established to ensure readiness and will be managed throughout the year. In addition to the annual succession planning process, the HRC Committee participates in an in-depth performance discussion of each executive officer at the time of the annual compensation review. During fiscal 2019, we leveraged our robust, in-depth succession planning to successfully maneuver through various leadership changes on the executive team. We executed a CEO assessment process in partnership with the Board to identify internal and external candidates for Mr. Weisler’s replacement, which led to unanimous Board support for Mr. Lores. We also shifted other executives into new or expanded roles based on business needs and tied to succession and development plans. Further, there is a People Update at each HRC Committee meeting, which includes a review of key people processes and developments for that quarter.
In addition, the executive team participated in a robust development process that included individual assessments, interviews with executive coaches, and an individualized development plan that can be leveraged throughout the year. Development themes for the entire executive team will be addressed during quarterly face-to-face meetings for full team development.
Stock Ownership Guidelines and Prohibition on Hedging
Our stock ownership guidelines are designed to align executives’ interests with those of our stockholders and mitigate compensation-related risk. The current guidelines provide that, within five years of assuming a designated position, the CEO should attain an investment position in our stock equal to seven times his base salary and all other Section 16 officers reporting directly to the CEO should attain an investment position equal to five times their base salaries. Shares counted toward these guidelines include any shares held by the executive directly or through a broker, shares held through the 401(k) Plan, shares held as restricted stock, shares underlying time-vested RSUs, and shares underlying vested but unexercised stock options (50% of the in-the-money value of such options is used for this calculation). Mr. Weisler is the only NEO who has served in a role covered by our stock ownership guidelines for over five years and his ownership exceeds the current guidelines. Our other NEOs are on pace to meet the stock ownership guidelines within the allotted time frame.
The HRC Committee has adopted a policy prohibiting all employees, including executive officers, and Directors from engaging in any form of hedging transaction (derivatives, equity swaps, forwards, etc.) involving Company securities, including, among other things, short sales and transactions involving publicly traded options. In addition, with limited exceptions, our executive officers are prohibited from holding our securities in margin accounts and from pledging our securities as collateral for loans. We believe that these policies further align our executives’ interests with those of our stockholders.
2019 Form 10-K | ½ 21 | |
Accounting and Tax Effects
The impact of accounting treatment is set forthconsidered in developing and implementing our compensation programs, including the accounting treatment as it applies to amounts awarded or paid to our executives.
The impact of federal tax laws on our compensation programs is also considered, including the deductibility of compensation paid to the NEOs, as limited by Section 162(m) of the Code. For prior fiscal years, Section 162(m) included an exception from the deductibility limitation for qualified “performance-based compensation.” This exception, however, has been repealed for tax years beginning in fiscal 2019 under “Executive Compensation.”
Policy for Recoupment of Directors—Director CompensationPerformance-Based Incentives
In fiscal 2006, the Board adopted a “clawback” policy that provides Board discretion to recover certain annual incentives from senior executives (including the NEOs) whose fraud or misconduct resulted in a significant restatement of financial results. The policy specifically allows for the recovery of annual incentives paid at or above target from those senior executives whose fraud or misconduct resulted in the restatement where the annual incentives would have been lower absent the fraud or misconduct, to the extent permitted by applicable law. Additionally, our incentive plan document (and award agreements) allow for the recoupment of performance-based annual incentives and Stock Ownership Guidelines.”
Also, in fiscal 2014, we added a provision to our grant agreements to clarify that equity awards are subject to the clawback policy. Award agreements also provide Board discretion to cause forfeiture of HP’s HRcertain outstanding cash and Compensation Committee is set forth under “Executive Compensation—Management Proposal No. 3 Advisory Voteequity awards for fraud or misconduct that results in reputational harm to Approve Executive Compensation—HP even when such fraud or misconduct does not result in a significant restatement of financial results.
HR and Compensation Committee Report on Executive Compensation
The HRC Committee of the Board of HP has reviewed and discussed with management this Compensation Discussion and Analysis. Based on this review and discussion, it has recommended to the Board that the Compensation Discussion and Analysis be included in the proxy statement and in the Annual Report on Form 10-K of HP filed for the fiscal year ended October 31, 2019.
HR and Compensation Committee of the Board of Directors
Stephanie A. Burns, Chair
Aida Alvarez
Shumeet Banerji
Charles “Chip” V. Bergh
Stacey Mobley
22 ½ | 2019 Form 10-K | |
Compensation Tables
Fiscal 2019 Summary Compensation Table
The following table sets forth information concerning the compensation of our NEOs for fiscal years 2019, 2018, and 2017, as applicable. Per SEC reporting guidelines, our NEOs for fiscal 2019 include our CEO (Mr. Weisler), our CFO (Mr. Fieler), and the next three most highly compensated individuals still serving as executive officers at year end (Mr. Lores, Ms. Rivera, and Mr. Cho) as of the last day of the fiscal year (October 31, 2019).
NAME AND PRINCIPAL POSITION | YEAR | SALARY(2) ($) | STOCK AWARDS(3) ($) | NON-EQUITY INCENTIVE PLAN COMPENSATION(4) ($) | CHANGE IN PENSION VALUE AND NONQUALIFIED DEFERRED COMPENSATION EARNINGS(5) ($) | ALL OTHER COMPENSATION(6) ($) | TOTAL ($) | |||||||||
Dion J. Weisler(1) | ||||||||||||||||
former President and CEO | 2019 | 1,450,000 | 14,531,293 | 3,233,533 | — | 103,146 | 19,317,972 | |||||||||
2018 | 1,400,000 | 12,737,004 | 4,984,348 | — | 94,182 | 19,215,534 | ||||||||||
2017 | 1,300,033 | 9,841,200 | 3,511,560 | — | 77,232 | 14,730,025 | ||||||||||
Steven J. Fieler | ||||||||||||||||
Chief Financial Officer | 2019 | 690,000 | 3,427,818 | 961,697 | 332 | 14,950 | 5,094,797 | |||||||||
2018 | 550,000 | 2,382,017 | 793,632 | 210 | 19,404 | 3,745,263 | ||||||||||
Enrique J. Lores(1) | ||||||||||||||||
President and CEO | ||||||||||||||||
(formerly President, Imaging, | ||||||||||||||||
Printing and Solutions) | 2019 | 750,000 | 5,527,211 | 873,522 | — | 48,155 | 7,198,888 | |||||||||
2018 | 750,000 | 4,623,686 | 1,579,331 | — | 43,973 | 6,996,990 | ||||||||||
2017 | 725,019 | 3,075,370 | 1,219,035 | — | 23,786 | 5,043,210 | ||||||||||
Kim M. Rivera | ||||||||||||||||
President, Strategy and | ||||||||||||||||
Business Management and | ||||||||||||||||
Chief Legal Officer | 2019 | 725,000 | 4,717,598 | 1,078,448 | — | 54,705 | 6,575,751 | |||||||||
2018 | 675,000 | 3,088,732 | 1,438,699 | — | 72,927 | 5,275,358 | ||||||||||
2017 | 645,016 | 2,255,264 | 1,088,921 | — | 193,081 | 4,182,282 | ||||||||||
Alex Cho | ||||||||||||||||
President, Personal Systems | 2019 | 675,000 | 3,427,818 | 1,271,882 | 67,760 | 16,795 | 5,459,255 |
(1) | Mr. Weisler stepped down as our President and Chief Executive Officer on November 1, 2019 at which time Mr. Lores was appointed to the role. Upon stepping down from such positions, Mr. Weisler continues to be employed by the Company as Senior Executive Advisor, a non-executive officer role, until the date of our 2020 Annual Meeting of Stockholders. Mr. Weisler will also continue to serve as a member of the Board of Directors until the Company’s 2020 Annual Meeting of Stockholders. |
(2) | Amounts shown represent base salary earned or paid during the fiscal year, as described under “Compensation Discussion and Analysis—Determination of Fiscal 2019 Executive Compensation—2019 Base Salary.” |
(3) | The grant date fair value of all stock awards has been calculated in accordance with applicable accounting standards. In the case of RSUs, the value is determined by multiplying the number of units granted by the closing price of our stock on the grant date. For PARSUs awarded in fiscal 2019, amounts shown reflect the grant date fair value of the PARSUs for the two- and three-year vesting periods beginning with fiscal 2019 based on the probable outcome of performance conditions related to these PARSUs at the grant date. The 2019 PARSUs include both internal (EPS) and market-related (TSR) performance goals as described under the “Compensation Discussion and Analysis—Determination of Fiscal 2019 Executive Compensation—Long-Term Incentive Compensation.” Consistent with the applicable accounting standards, the grant date fair value of the market related TSR component has been determined using a Monte Carlo simulation model. Further, consistent with accounting standards, grant date fair value reflects the EPS portion of the award |
2019 Form 10-K | ½ 23 | |
for Year 1 only, for which goals were approved in January 2019. This value also reflects grant date fair value of the EPS portion of the 2018 PARSU award for Year 2 (fiscal 2019 EPS) and the EPS portion of the 2017 PARSU award for Year 3 (fiscal 2019 EPS), for which goals were approved in January 2019. The table below sets forth the grant date fair value for the 2019 PARSUs granted on December 7, 2018; the fiscal 2019 EPS portion of the 2018 PARSUs granted on December 7, 2017 and the fiscal 2019 EPS portion of the 2017 PARSUs granted on December 7, 2016: | ||||||||||
NAME | DATE OF ORIGINAL PARSU GRANT | PROBABLE OUTCOME OF PERFORMANCE CONDITIONS GRANT DATE FAIR VALUE ($)* | MAXIMUM OUTCOME OF PERFORMANCE CONDITIONS GRANT DATE FAIR VALUE ($)* | MARKET-RELATED COMPONENT GRANT DATE FAIR VALUE ($)** | ||||||
Dion J. Weisler | 12/7/2018 | 1,223,552 | 2,447,105 | 4,805,041 | ||||||
12/7/2017 | 1,270,894 | 2,541,788 | ||||||||
12/7/2016 | 1,431,800 | 2,863,600 | ||||||||
Steven J. Fieler | 12/7/2018 | 337,537 | 675,074 | 1,325,534 | ||||||
7/1/2018 | 164,737 | 329,475 | ||||||||
Enrique J. Lores | 12/7/2018 | 476,761 | 953,523 | 1,872,307 | ||||||
12/7/2017 | 470,699 | 941,398 | ||||||||
12/7/2016 | 447,439 | 894,878 | ||||||||
Kim M. Rivera | 12/7/2018 | 421,905 | 843,810 | 1,656,910 | ||||||
12/7/2017 | 310,656 | 621,312 | ||||||||
12/7/2016 | 328,127 | 656,255 | ||||||||
Alex Cho | 12/7/2018 | 337,537 | 675,074 | 1,325,534 | ||||||
7/1/2018 | 164,737 | 329,475 |
* | Amounts shown represent the grant date fair value of the PARSUs subject to the internal EPS performance goal (i) based on the probable or target outcome as of the date the goals were set and (ii) based on achieving the maximum level of performance for the performance period beginning in fiscal 2019. The grant date fair value of the 2019 PARSUs Year 1 EPS units awarded on December 7, 2018, of the 2018 PARSUs Year 2 EPS units awarded on December 7, 2017 (or for Mr. Fieler’s and Mr. Cho’s grants, on July 1, 2018) and of the 2017 PARSUs Year 3 EPS units awarded on December 7, 2016 was $21.05 per unit, which was the closing share price of our common stock on January 16, 2019 when the EPS goal was approved. The values of 2019 PARSUs Year 2 and Year 3 EPS units will not be available until January 2020 and January 2021 respectively, and therefore are not included for fiscal 2019, but will be included for their respective fiscal years. | |
** | Amounts shown represent the grant date fair value of PARSUs subject to the market related TSR goal component of the PARSUs, for which expense recognition is not subject to probable or maximum outcome assumptions. The grant date fair value of the market related TSR goal component of the PARSUs granted December 7, 2018 was $27.56 per unit, which was determined using a Monte Carlo simulation model. The significant assumptions used in this simulation model were a volatility rate of 26.5%, a risk-free interest rate of 2.7%, and a simulation period of 2.9 years. For information on the assumptions used to calculate the fair value of the awards, refer to Note 5 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019, as filed with the SEC on December 12, 2019. | |
(4) | Amounts shown represent payouts under the annual PfR incentive (amounts earned during the applicable fiscal year but paid after the end of that fiscal year). | |
(5) | Amounts shown represent the increase in the actuarial present value of NEO pension benefits during the applicable fiscal year. As described in more detail under “Narrative to the Fiscal 2019 Pension Benefits Table” below, pension accruals have generally ceased for all NEOs, and NEOs hired after the dates that pension accruals ceased are not eligible to participate in any U.S. defined benefit pension plan. The only exception for the NEOs listed above is that Mr. Cho participates in the International Retirement Guarantee (IRG) which is provided to a small closed group of employees who have transferred between countries with pension/retirement indemnity plans. Mr. Cho will not accrue additional benefits under the IRG unless he transfers outside of the US with HP Inc. for an extended period of time. Accordingly, the amounts reported for the NEOs do not reflect additional accruals but reflect the passage of one more year from the prior present value calculation and changes in other actuarial assumptions. The assumptions used in calculating the changes in pension benefits are described in footnote (2) to the “Fiscal 2019 Pension Benefits Table” below. No HP plan provides for above-market earnings on deferred compensation amounts, so the amounts reported in this column do not reflect any such earnings. | |
(6) | The amounts shown are detailed in the “Fiscal 2019 All Other Compensation Table” below. |
24 ½ | 2019 Form 10-K | |
Fiscal 2019 All Other Compensation Table
The following table provides additional information about the amounts that appear in the “All Other Compensation” column in the “Summary Compensation Table” above.
NAME | 401(k) COMPANY MATCH(1) ($) | NQDC COMPANY MATCH(2) ($) | MOBILITY PROGRAM(3) ($) | SECURITY SERVICES/ SYSTEMS(4) ($) | PERSONAL AIRCRAFT USAGE(5) ($) | NON-U.S. TAX GROSS-UP(6) ($) | MISCELLANEOUS(7) ($) | TOTAL AOC ($) | ||||||||||
Dion J. Weisler | 11,200 | 10,800 | 15,937 | 2,707 | 36,654 | 9,073 | 16,775 | 103,146 | ||||||||||
Steven J. Fieler | 11,200 | — | — | — | — | — | 3,750 | 14,950 | ||||||||||
Enrique J. Lores | 11,200 | 11,000 | 7,895 | — | — | 60 | 18,000 | 48,155 | ||||||||||
Kim M. Rivera | 11,200 | — | 26,796 | — | — | — | 16,709 | 54,705 | ||||||||||
Alex Cho | 11,200 | 4,920 | — | — | — | — | 675 | 16,795 |
(1) | Represents matching contributions made under the HP 401(k) Plan that were earned for fiscal year 2019. |
(2) | Represents matching contributions credited during fiscal 2019 under the HP Executive Deferred Compensation Plan with respect to the 2018 calendar year of that plan. |
(3) | For Ms. Rivera, represents benefits provided under our domestic executive mobility program. For Mr. Weisler and Mr. Lores, represents tax preparation, filing, equalization and compliance services paid under HP’s tax assistance due to business travel in Korea. Due to the taxation impact on US taxpayers who travel to Korea on business and the increase in Korea travel due to our acquisition of Samsung’s Print business, the HRC Committee approved a Tax Assistance Program during its July 2017 meeting that covers our Section 16 officers. The program has the same characteristics as the existing tax equalization program for all other employees. Both programs together ensure a tax neutral scenario for all HP employees who must comply with Korean tax requirements due to business travel to Korea. |
(4) | Represents home security services provided to the NEOs and, consistent with SEC guidance, the expense is reported here as a perquisite since there is an incidental personal benefit. |
(5) | Represents the value of personal usage of HP corporate aircraft. For purposes of reporting the value of such personal usage in this table, we use data provided by an outside firm to calculate the hourly cost of operating each type of aircraft. These costs include the cost of fuel, maintenance, landing and parking fees, crew, catering and supplies. For trips by NEOs that involve mixed personal and business usage, we include the incremental cost of such personal usage (i.e., the excess of the cost of the actual trip over the cost of a hypothetical trip without the personal usage). For income tax purposes, the amounts included in NEO income are calculated based on the standard industry fare level valuation method. No tax gross ups are provided for this imputed income. |
(6) | Represents tax gross up costs for Korean, California state and U.S. social taxes under HP’s Tax Assistance Program for Korea business travel. |
(7) | Includes amounts paid either directly to the executives or on their behalf for financial counseling, tax preparation and estate planning services. |
Grants of Plan-Based Awards in Fiscal 2019
The following table provides information on annual PfR incentive awards for fiscal 2019 and awards of RSUs and PARSUs granted during fiscal 2019 as a part of our long-term incentive program:
GRANT DATE | ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS(1) | ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS(2) | ALL OTHER STOCK AWARDS: NUMBER OF SHARES OF STOCK OR UNITS(3) (#) | GRANT-DATE FAIR VALUE OF STOCK AND OPTION AWARDS(2) ($) | ||||||||||||||||
NAME | THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | THRESHOLD (#) | TARGET (#) | MAXIMUM (#) | ||||||||||||||
Dion J. Weisler | ||||||||||||||||||||
PfR | 29,000 | 2,900,000 | 5,800,000 | |||||||||||||||||
RSU | 12/7/2018 | 252,944 | 5,800,006 | |||||||||||||||||
PARSU | 12/7/2018 | 116,253 | 232,506 | 465,012 | 6,028,593 | |||||||||||||||
PARSU | 12/7/2017 | 30,188 | 60,375 | 120,750 | 1,270,894 | |||||||||||||||
PARSU | 12/7/2016 | 34,010 | 68,019 | 136,038 | 1,431,800 |
2019 Form 10-K | ½ 25 | |
NAME | GRANT DATE | ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS(1) | ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS(2) | ALL OTHER STOCK AWARDS: NUMBER OF SHARES OF STOCK OR UNITS(3) (#) | GRANT-DATE FAIR VALUE OF STOCK AND OPTION AWARDS(2) ($) | |||||||||||||
THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | THRESHOLD (#) | TARGET (#) | MAXIMUM (#) | |||||||||||||
Steven J. Fieler | ||||||||||||||||||
PfR | 8,625 | 862,500 | 1,725,000 | |||||||||||||||
RSU | 12/7/2018 | 69,778 | 1,600,010 | |||||||||||||||
PARSU | 12/7/2018 | 32,070 | 64,140 | 128,280 | 1,663,071 | |||||||||||||
PARSU | 7/1/2018 | 3,913 | 7,826 | 15,652 | 164,737 | |||||||||||||
Enrique J. Lores | ||||||||||||||||||
PfR | 9,375 | 937,500 | 1,875,000 | |||||||||||||||
RSU | 12/7/2018 | 98,561 | 2,260,004 | |||||||||||||||
PARSU | 12/7/2018 | 45,299 | 90,597 | 181,194 | 2,349,069 | |||||||||||||
PARSU | 12/7/2017 | 11,181 | 22,361 | 44,722 | 470,699 | |||||||||||||
PARSU | 12/7/2016 | 10,628 | 21,256 | 42,512 | 447,439 | |||||||||||||
Kim M. Rivera | ||||||||||||||||||
PfR | 9,063 | 906,250 | 1,812,500 | |||||||||||||||
RSU | 12/7/2018 | 87,222 | 2,000,000 | |||||||||||||||
PARSU | 12/7/2018 | 40,087 | 80,174 | 160,348 | 2,078,815 | |||||||||||||
PARSU | 12/7/2017 | 7,379 | 14,758 | 29,516 | 310,656 | |||||||||||||
PARSU | 12/7/2016 | 7,794 | 15,588 | 31,176 | 328,127 | |||||||||||||
Alex Cho | ||||||||||||||||||
PfR | 8,438 | 843,750 | 1,687,500 | |||||||||||||||
RSU | 12/7/2018 | 69,778 | 1,600,010 | |||||||||||||||
PARSU | 12/7/2018 | 32,070 | 64,140 | 128,280 | 1,663,071 | |||||||||||||
PARSU | 7/1/2018 | 3,913 | 7,826 | 15,652 | 164,737 |
(1) | Amounts represent the range of possible cash payouts for fiscal 2019 PfR incentive awards, under the Stock Incentive Plan based upon annual salary. |
(2) | PARSU amounts represent the range of shares that may be released at the end of the two- and three-year vesting periods applicable to the PARSUs assuming achievement of threshold, target, or maximum performance. 50% of the PARSUs are eligible for vesting based on EPS performance and 50% are eligible for vesting based on relative TSR performance. PARSUs vest as follows: 16.6% of the units are eligible for vesting based on EPS performance of year one with continued service over two years, 16.6% of the units are eligible for vesting based on EPS performance of year two with continued service over three years, 16.6% of the units are eligible for vesting based on EPS performance of year three with continued service over three years, 25% of the units are eligible for vesting based on TSR performance over two years with continued service over two years, 25% of the units are eligible for vesting based on relative TSR performance over three years with continued service over three years. 2019 PARSU year 1 EPS units and all relative TSR units are reflected in this table. Further, the 2018 PARSU – fiscal 2019 EPS units and the 2017 PARSU – fiscal 2019 EPS units are also included. If our EPS and relative TSR performance are below threshold for the performance period, no shares will be released for the applicable segment. For additional details, see the discussion of PARSUs under “Compensation Discussion and Analysis—Determination of Fiscal 2019 Executive Compensation—Long-Term Incentive Compensation—2019 PARSUs.” |
(3) | RSUs vest as to one-third of the units on each of the first three anniversaries of the grant date, subject to continued service. |
26 ½ | 2019 Form 10-K | |
Outstanding Equity Awards at 2019 Fiscal Year-End
The following table provides information on stock and option awards held by the NEOs as of October 31, 2019:
OPTION AWARDS | STOCK AWARDS | |||||||||||||||||
NAME | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) UNEXERCISABLE | EQUITY INCENTIVE PLAN AWARDS: NUMBER OF SECURITIES UNDERLYING UNEXERCISED UNEARNED OPTIONS (#) | OPTION EXERCISE PRICE(1) ($) | OPTION EXPIRATION DATE(2) | NUMBER OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED(3) (#) | MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED(4) ($) | EQUITY INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED(5) (#) | EQUITY INCENTIVE PLAN AWARDS: MARKET OR PAYOUT VALUE OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED(4) ($) | |||||||||
Dion J. Weisler | 369,020 | 17.29 | 12/9/2022 | 701,986 | 12,193,497 | 137,827 | 2,394,055 | |||||||||||
525,719 | 13.83 | 11/1/2023 | ||||||||||||||||
Steven J. Fieler | 350,191 | 6,082,818 | 30,913 | 536,959 | ||||||||||||||
Enrique J. Lores | 156,976 | 12.47 | 10/29/2023 | 260,215 | 4,519,935 | 52,783 | 916,841 | |||||||||||
Kim M. Rivera | 203,543 | 3,535,542 | 42,725 | 742,133 | ||||||||||||||
Alex Cho | 9,566 | 17.29 | 12/9/2022 | 179,887 | 3,124,637 | 30,913 | 536,959 | |||||||||||
48,812 | 13.83 | 11/1/2023 |
(1) | Option exercise prices are the fair market value of our stock on the grant date. In connection with the separation of HPE and in accordance with the employee matters agreement, HP 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 were converted to similar awards of the entity where the employee was working post-separation. RSUs and performance-contingent awards were adjusted to provide holders with RSUs and performance-contingent awards in the Company that employs such employee following the separation. |
(2) | All options have an eight-year term. |
(3) | The amounts in this column include shares underlying dividend equivalent units credited with respect to outstanding stock awards through October 31, 2019. The amounts also include PARSUs granted in fiscal 2018 (Year 2 EPS units) and fiscal 2019 (Year 1 EPS units) plus accrued dividend equivalent shares. The 2018 PARSUs Year 2 EPS units and 2019 PARSUs Year 1 EPS units are reported based on actual performance since those results have been certified (fiscal 2019 EPS period). The release dates and release amounts for all unvested stock awards are as follows, assuming continued service and satisfaction of any applicable financial performance conditions: |
● | Mr. Weisler: December 7, 2019 (269,223 shares plus accrued dividend equivalent shares); December 7, 2020 (170,152 shares plus accrued dividend equivalent shares); December 7, 2021 (84,315 shares plus accrued dividend equivalent shares). The number of PARSUs and dividend equivalent shares, as described above, that will be paid out at the end of the two- and three-year vesting periods is 151,874. |
● | Mr. Fieler: December 7, 2019 (35,181 shares plus accrued dividend equivalent shares); January 3, 2020 (168,351 shares plus accrued dividend equivalent shares); January 11, 2020 (15,618 shares plus accrued dividend equivalent shares); July 1, 2020 (11,753 shares plus accrued dividend equivalent shares); December 7, 2020 (35,181 shares plus accrued dividend equivalent shares); July 1, 2021 (11,753 shares plus accrued dividend equivalent shares); December 7, 2021 (23,260 shares plus accrued dividend equivalent shares). The number of PARSUs and dividend equivalent shares, as described above, that will be paid out at the end of the two- and three-year vesting periods is 30,267. |
● | Mr. Lores: December 7, 2019 (95,604 shares plus accrued dividend equivalent shares); December 7, 2020 (64,646 shares plus accrued dividend equivalent shares); December 7, 2021 (32,854 shares plus accrued dividend equivalent shares). The number of PARSUs and dividend equivalent shares, as described above, that will be paid out at the end of the two- and three-year vesting periods is 57,668. |
● | Ms. Rivera: December 7, 2019 (72,760 shares plus accrued dividend equivalent shares); December 7, 2020 (50,057 shares plus accrued dividend equivalent shares); December 7, 2021 (29,074 shares plus accrued dividend equivalent shares). The number of PARSUs and dividend equivalent shares, as described above, that will be paid out at the end of the two- and three-year vesting periods is 44,511. |
● | Mr. Cho: December 7, 2019 (57,968 shares plus accrued dividend equivalent shares); July 1, 2020 (11,753 shares plus accrued dividend equivalent shares); December 7, 2020 (38,360 shares plus accrued dividend equivalent shares); July 1, 2021 (11,753 shares plus accrued dividend equivalent shares); December 7, 2021 (23,260 shares plus accrued dividend equivalent shares). The number of PARSUs and dividend equivalent shares, as described above, that will be paid out at the end of the two- and three-year vesting periods is 30,267. |
2019 Form 10-K | ½ 27 | |
(4) | Value calculated based on the $17.37 closing price of our stock on October 31, 2019. |
(5) | The amounts in this column include the amounts of PARSUs granted in fiscal 2018 (50% of TSR units) and fiscal 2019 (all TSR units) plus accrued dividend equivalent shares. The TSR units are reported based on threshold performance. Actual payout will be on achievement of performance goals at the end of the two- and three-year vesting periods. |
Option Exercises and Stock Vested in Fiscal 2019
The following table provides information about options exercised and stock awards vested for the NEOs during the fiscal year ended October 31, 2019:
OPTION AWARDS | STOCK AWARDS(1) | ||||||||
NAME | NUMBER OF SHARES ACQUIRED ON EXERCISE (#) | VALUE REALIZED ON EXERCISE ($) | NUMBER OF SHARES ACQUIRED ON VESTING (#) | VALUE REALIZED ON VESTING(2) ($) | |||||
Dion J. Weisler | — | — | 942,712 | 19,492,224 | |||||
Steven J. Fieler | — | — | 233,744 | 4,688,198 | |||||
Enrique J. Lores | — | — | 250,258 | 4,943,981 | |||||
Kim M. Rivera | — | — | 264,931 | 5,690,415 | |||||
Alex Cho | — | — | 83,297 | 1,809,716 |
(1) | Includes PARSUs, RSUs, and accrued dividend equivalent shares. |
(2) | Represents the amounts realized based on the fair market value of our stock on the performance period end date for PARSUs (October 31, 2019) and on the vesting date for RSUs and accrued dividend equivalent shares. Fair market value is determined based on the closing price of our stock on the applicable performance period end/vesting date. |
Fiscal 2019 Pension Benefits Table
The following table provides information about the present value of accumulated pension benefits payable to each NEO:
NAME | PLAN NAME(1) | NUMBER OF YEARS OF CREDITED SERVICE (#) | PRESENT VALUE OF ACCUMULATED BENEFIT(2) ($) | PAYMENTS DURING LAST FISCAL YEAR ($) | |||||
Dion J. Weisler(3) | — | — | — | — | |||||
Steven J. Fieler | CAPP | 1.3 | $9,955 | — | |||||
Enrique J. Lores(3) | — | — | — | — | |||||
Kim Rivera(3) | — | — | — | — | |||||
Alex Cho | RP | 7.6 | 91,020 | ||||||
EBP | 7.6 | 12 | |||||||
IRG | 24.3 | 138,518 | — |
(1) | The “RP” and the “EBP” are the qualified HP Retirement Plan and the non-qualified HP Excess Benefit Plan, respectively. “CAPP” is the qualified Cash Account Pension Plan. All benefits are frozen under these plans. The RP and CAPP have been merged into the HP Inc. Pension Plan (formerly known as the Hewlett-Packard Company Retirement Plan). The “IRG” is the International Retirement Guarantee which is a nonqualified plan covering certain highly compensated international transfers. |
(2) | The present value of accumulated benefits is shown at the age 65 unreduced retirement age for the RP, the EBP and the IRG, and the immediate unreduced benefit from the CAPP using the assumptions under Accounting Standards Codification (ASC) Topic 715-30 Defined Benefit Plans—Pension for the 2019 fiscal year-end measurement (as of October 31, 2019). The present value is based on a discount rate of 3.21% for the RP (this discount rate also applies for CAPP but since the benefit is currently unreduced, there is no discounting applied), 2.39% for the EBP and 2.50% for the IRG, lump sum interest rates of 2.13% for the first five years, 3.07% for the next 15 years and 3.65% thereafter, and applicable mortality for lump sums with the respective mortality improvement scale applied for future years. As of October 31, 2018 (the prior measurement date), the ASC Topic 715-30 assumptions included a discount rate of 4.54% for the RP, 4.02% for the EBP, and 4.07% for the IRG, lump sum interest rates of 3.21% for the first five years, 4.26% for the next 15 years and 4.55% thereafter, and applicable mortality for lump sums with the respective mortality improvement scale applied for future years. |
(3) | Mr. Weisler, Mr. Lores and Ms. Rivera are not eligible to receive benefits under any defined benefit pension plan because we ceased benefit accruals under all of our U.S.-qualified defined benefit pension plans prior to the commencement of their employment with HP in the United States. |
28 ½ | 2019 Form 10-K | |
Narrative to the Fiscal 2019 Pension Benefits Table
No NEO currently accrues a benefit under any qualified or non-qualified defined benefit pension plan because we ceased benefit accruals in all our U.S.-qualified defined benefit pension plans (and their non-qualified plan counterparts) in prior years. In the case of Mr. Cho, his IRG benefit is based on the US retirement program and since the US pension plans are frozen there is no accrual under that plan. Benefits previously accrued by Mr. Fieler under CAPP and those accrued by Mr. Cho under the RP, EBP and IRG are payable to them following termination of employment, subject to the terms of the applicable plans.
Terms of the HP Retirement Plan (RP)
Mr. Cho earned benefits under the RP and the EBP based on pay and service prior to 2006. The RP is a traditional defined benefit plan that provided a benefit based on years of service and the participant’s “highest average pay rate,” reduced by a portion of Social Security earnings. “Highest average pay rate” was determined based on the 20 consecutive fiscal quarters when pay was the highest. Pay for this purpose included base pay and bonus, subject to applicable IRS limits. Benefits under the RP may be taken in one of several different annuity forms or in an actuarially equivalent lump sum. Since Mr. Cho became a participant in the RP after November 1, 1993, he has no Deferred Profit Sharing Plan (DPSP) balance to be integrated with the RP.
Benefits not payable from the RP due to IRS limits are paid from the EBP under which benefits are unfunded and unsecured. When an EBP participant with relatively small benefits terminates they are paid their EBP benefit in January of the year following their termination, subject to any delay required by Section 409A of the Code.
Terms of the Cash Account Pension Plan (CAPP)
Mr. Fieler earned benefits under the CAPP based on his compensation beginning in September 2004 through the end of 2005 when benefits were frozen. While interest continues to accrue on the CAPP balance, no pay credits have been applied since the end of 2005. CAPP provided for 4% of pay credits to a cash balance account with interest credited at a 1-year Treasury bill plus 1% interest rate. The CAPP balance can be paid as a lump sum with the appropriate election and spousal consent if married or can be converted to annuity forms of payment.
Terms of the International Retirement Guarantee (IRG)
Employees who transferred internationally at the Company’s request prior to 2000 were put into an international umbrella plan. This plan determines the country of guarantee which is generally the country in which an employee has spent the longest portion of his HP Inc. career. For Mr. Cho, the country of guarantee is currently the U.S. The IRG determines the present value of a full career benefit for Mr. Cho under the HP Inc. sponsored retirement benefit plans that applied to employees working in the U.S., and U.S. Social Security (since the U.S. is his country of guarantee) then offsets the present value of the retirement benefits from plans and social insurance systems in the countries in which he earned retirement benefits (France and the US) for his total period of HP Inc. employment. The net benefit value is payable as a single lump sum amount as soon as practicable after termination or retirement, subject to any delay required by Section 409A of the Code. This is a nonqualified retirement plan.
Fiscal 2019 Non-Qualified Deferred Compensation Table
The following table provides information about contributions, earnings, withdrawals, distributions, and balances under the EDCP:
NAME | EXECUTIVE CONTRIBUTIONS IN LAST FY(1) ($) | REGISTRANT CONTRIBUTIONS IN LAST FY(1)(2) ($) | AGGREGATE EARNINGS IN LAST FY ($) | AGGREGATE WITHDRAWALS/ DISTRIBUTIONS(3) ($) | AGGREGATE BALANCE AT FYE(4) ($) | |||||
Dion J. Weisler | 10,800 | 10,800 | 3,854 | — | 79,705 | |||||
Steven J. Fieler | — | — | 1,829 | — | 18,672 | |||||
Enrique J. Lores | 595,866 | 11,000 | 186,131 | — | 2,189,074 | |||||
Kim M. Rivera | — | — | 2,810 | — | 28,313 | |||||
Alex Cho | 10,320 | 4,920 | 2,698 | — | 35,985 | |||||
(1) | The amounts reported here as “Executive Contributions” and “Registrant Contributions” are reported as compensation to such NEO in the “Salary” and “Non-Equity Incentive Plan Compensation” columns in the “Summary Compensation Table” above. |
(2) | The contributions reported here as “Registrant Contributions” were made in fiscal 2019 with respect to calendar year 2018 participant base pay deferrals. During fiscal 2019, the NEOs were eligible to receive a 4% matching contribution on base pay deferrals that exceeded the IRS limit that applies to the qualified HP 401(k) Plan up to a maximum of two times that limit. |
(3) | The distributions reported here were made pursuant to participant elections made prior to the time that the amounts were deferred in accordance with plan rules. |
(4) | Of these balances, the following amount was reported as compensation to such NEO in the Summary Compensation Table in prior proxy statements: Mr. Weisler $52,258, Mr. Lores $644,811, Ms. Rivera $8,840, Mr. Fieler $9,932, and Mr. Cho $0. The information reported in this footnote is provided to clarify the extent to which amounts payable as deferred compensation represent compensation reported in our prior proxy statements, rather than additional earned compensation. |
2019 Form 10-K | ½ 29 | |
Narrative to the Fiscal 2019 Non-qualified Deferred Compensation Table
HP sponsors the EDCP, a non-qualified deferred compensation plan that permits eligible U.S. employees to defer base pay in excess of the amount taken into account under the qualified HP 401(k) Plan and bonus amounts of up to 95% of the annual PfR incentive bonus payable under the annual PfR incentive plan. In addition, a matching contribution is available under the plan to eligible employees. The matching contribution applies to base pay deferrals on compensation above the IRS limit that applies to the qualified HP 401(k) Plan, up to a maximum of two times that compensation limit (matching contributions made in fiscal year 2019 pertained to base pay from $275,000 to $550,000 during calendar year 2018). During fiscal 2019, the NEOs were eligible for a matching contribution of up to 4% on base pay contributions in excess of the IRS limit, up to a maximum of two times that limit.
Upon becoming eligible for participation or during the annual enrollment period, employees must specify the amount of base pay and/or the percentage of bonus to be deferred, as well as the time and form of payment. If termination of employment occurs before retirement (defined as at least age 55 with 15 years of continuous service), distribution is made in the form of a lump sum in January of the year following the year of termination, subject to any delay required under Section 409A of the Code. At retirement (or earlier, if properly elected), benefits are paid according to the distribution election made by the participant at the time of the deferral election, subject to any delay required under Section 409A of the Code. In the event of death, the remaining vested EDCP account balance will be paid to the designated beneficiary, or otherwise in accordance with the EDCP provisions, in a single lump-sum payment in the month following the month of death.
Amounts deferred or credited under the EDCP are credited with hypothetical investment earnings based on participant investment elections made from among the investment options available under the HP 401(k) Plan. Accounts maintained for participants under the EDCP are not held in trust, and all such accounts are subject to the claims of general creditors of HP. No amounts are credited with above-market earnings.
Potential Payments Upon Termination or Change in Control
The amounts in the following table estimate potential payments due if a NEO had terminated employment with HP effective October 31, 2019 under each of the circumstances specified below. These amounts are in addition to benefits generally available to U.S. employees upon termination of employment, such as distributions from the retirement plans and the HP 401(k) Plan and payment of accrued vacation where required.
LONG TERM INCENTIVE PROGRAMS(3) | ||||||||||||||
NAME | TERMINATION SCENARIO | TOTAL(1) | SEVERANCE(2) | STOCK OPTIONS | RESTRICTED STOCK | PARSU | ||||||||
Dion J. Weisler | Voluntary/For Cause | $0 | $0 | $0 | $0 | $0 | ||||||||
Disability | $20,173,559 | $0 | $0 | $9,555,432 | $10,618,127 | |||||||||
Retirement | $0 | $0 | $0 | $0 | $0 | |||||||||
Death | $20,173,559 | $0 | $0 | $9,555,432 | $10,618,127 | |||||||||
Not for Cause | $20,357,645 | $10,743,471 | $0 | $4,565,618 | $5,048,556 | |||||||||
Change in Control | $30,917,030 | $10,743,471 | $0 | $9,555,432 | $10,618,127 | |||||||||
Steven J. Fieler | Voluntary/For Cause | $0 | $0 | $0 | $0 | $0 | ||||||||
Disability | $7,872,629 | $0 | $0 | $5,557,079 | $2,315,550 | |||||||||
Retirement | $0 | $0 | $0 | $0 | $0 | |||||||||
Death | $7,872,629 | $0 | $0 | $5,557,079 | $2,315,550 | |||||||||
Not for Cause | $6,944,192 | $2,375,340 | $0 | $3,542,785 | $1,026,067 | |||||||||
Change in Control | $10,247,969 | $2,375,340 | $0 | $5,557,079 | $2,315,550 | |||||||||
Enrique J. Lores | Voluntary/For Cause | $0 | $0 | $0 | $0 | $0 | ||||||||
Disability | $7,575,972 | $0 | $0 | $3,518,240 | $4,057,732 | |||||||||
Retirement | $0 | $0 | $0 | $0 | $0 | |||||||||
Death | $7,575,972 | $0 | $0 | $3,518,240 | $4,057,732 | |||||||||
Not for Cause | $6,522,615 | $2,984,787 | $0 | $1,618,241 | $1,919,587 | |||||||||
Change in Control | $10,560,759 | $2,984,787 | $0 | $3,518,240 | $4,057,732 |
30 ½ | 2019 Form 10-K | |
LONG TERM INCENTIVE PROGRAMS(3) | ||||||||||||||
NAME | TERMINATION SCENARIO | TOTAL(1) | SEVERANCE(2) | STOCK OPTIONS | RESTRICTED STOCK | PARSU | ||||||||
Kim M. Rivera | Voluntary/For Cause | $0 | $0 | $0 | $0 | $0 | ||||||||
Disability | $6,009,261 | $0 | $0 | $2,762,376 | $3,246,885 | |||||||||
Retirement | $0 | $0 | $0 | $0 | $0 | |||||||||
Death | $6,009,261 | $0 | $0 | $2,762,376 | $3,246,885 | |||||||||
Not for Cause | $5,620,679 | $2,898,601 | $0 | $1,228,911 | $1,493,167 | |||||||||
Change in Control | $8,907,862 | $2,898,601 | $0 | $2,762,376 | $3,246,885 | |||||||||
Alex Cho | Voluntary/For Cause | $0 | $0 | $0 | $0 | $0 | ||||||||
Disability | $4,914,434 | $0 | $0 | $2,598,884 | $2,315,550 | |||||||||
Retirement | $0 | $0 | $0 | $0 | $0 | |||||||||
Death | $4,914,434 | $0 | $0 | $2,598,884 | $2,315,550 | |||||||||
Not for Cause | $4,413,889 | $2,335,895 | $0 | $1,051,927 | $1,026,067 | |||||||||
Change in Control | $7,250,329 | $2,335,895 | $0 | $2,598,884 | $2,315,550 | |||||||||
(1) | Total does not include amounts earned or benefits accumulated due to continued service by the NEO through October 31, 2019, including vested stock options, PCSOs, RSUs, PARSUs, accrued retirement benefits, and vested balances in the EDCP, as those amounts are detailed in the preceding tables. Total also does not include amounts the NEO was eligible to receive under the annual PfR incentive with respect to fiscal 2019 performance. |
(2) | The amounts reported are the cash benefits payable in the event of a qualifying termination under the SPEO: for CEO, 2x multiple of base pay plus the average of the actual annual incentives paid for the preceding three years; for other NEOs, 1.5x multiple of base pay plus the average of the actual annual incentives paid for the preceding three years, and includes 18 months’ COBRA premiums for continued group medical coverage for the NEOs and their eligible dependents. |
(3) | Upon an involuntary termination not for cause, covered executives receive pro-rata vesting on unvested equity awards as discussed under “Compensation Discussion and Analysis—Severance and Long-term Incentive Change in Control Plan for Executive Officers.” Full vesting of PARSUs based on performance at target levels (to the extent that the actual performance period has not been completed) applies in the event of a termination due to death or disability for all grant recipients. Pro-rata vesting of PARSUs based on actual performance applies in the event of a termination due to retirement for all grant recipients. To calculate the value of unvested PARSUs for purposes of this table, target performance is used unless the performance period has been completed and the results have been certified. Full vesting of unvested PCSOs applies in the event of a termination due to death or disability for all grant recipients. PCSOs vest pro-rata in the event of a termination due to retirement. With respect to the treatment of equity in the event of a change in control of HP, the information reported reflects the SPEO approved change in control terms. |
Narrative to the Potential Payments Upon Termination or Change in Control Table
HP Severance Plan for Executive Officers
An executive will be deemed to have incurred a qualifying termination for purposes of the SPEO if he or she is involuntarily terminated without cause and executes a full release of claims in a form satisfactory to HP promptly following termination. For purposes of the SPEO, “cause” means an executive’s material neglect (other than as a result of illness or disability) of his or her duties or responsibilities to HP or conduct (including action or failure to act) that is not in the best interest of, or is injurious to, HP. The material terms of the SPEO are described under “Compensation Discussion and Analysis—Severance and Long-term Incentive Change in Control Plan for Executive Officers.”
Voluntary or “For Cause” Termination
In general, an NEO who remained employed through October 31, 2019 (the last day of the fiscal year) but voluntarily terminated employment immediately thereafter, or was terminated immediately thereafter in a “for cause” termination, would be eligible (1) to receive his or her annual incentive amount earned for fiscal 2019 under the annual PfR incentive (subject to any discretionary downward adjustment or elimination by the HRC Committee prior to actual payment, and to any applicable clawback policy), (2) to exercise his or her vested stock options up to three months following a voluntary termination, and up to the date of termination in the case of termination “for cause,” (3) to receive a distribution of vested amounts deferred or credited under the EDCP, and (4) to receive a distribution of his or her vested benefits, if any, under the HP 401(k) and pension plans. An NEO who terminated employment before October 31, 2019, either voluntarily or in a “for cause” termination, would generally not have been eligible to receive any amount under the annual PfR incentive with respect to the fiscal year in which the termination occurred, except that the HRC Committee has the discretion to make payment of prorated bonus amounts to individuals on leave of absence or in non-pay status, as well as in connection with certain voluntary severance incentives, workforce reductions, and similar programs.
2019 Form 10-K | ½ 31 | |
“Not for Cause” Termination
A “not for cause” termination of an NEO who remained employed through October 31, 2019 and was terminated immediately thereafter would qualify the NEO for the amounts described above under a “voluntary” termination in addition to benefits under the SPEO if the NEO signs the required release of claims in favor of HP.
In addition to the cash severance benefits and pro-rata equity awards payable under the SPEO, the NEO would be eligible to exercise vested stock options up to one year after termination and receive distributions of vested, accrued benefits from HP deferred compensation and pension plans.
Termination Following a Change in Control
In the event of a change in control of HP, RSUs, stock options, and PCSOs will vest in full if the successor does not assume such awards or if an individual is terminated without Cause or terminates with Good Reason within 24 months of a change in control. Outstanding PARSUs will vest in full upon a termination in connection with or following a change in control, assuming target performance level. Upon failure of the successor to assume outstanding PARSUs in connection with a change in control, the PARSUs will vest in full based on the better of (i) pro-rata vesting at target, and (ii) 100% of units vesting based on actual performance as determined by the Committee within 30 days of change in control.
Death or Disability Terminations
An NEO who continued in employment through October 31, 2019 whose employment is terminated immediately thereafter due to death or disability would be eligible (1) to receive his or her full annual incentive amount earned for fiscal 2019 under the annual PfR incentive determined by HP in its sole discretion, (2) to receive a distribution of vested amounts deferred or credited under the EDCP, and (3) to receive a distribution of his or her vested benefits under the HP 401(k) and pension plans.
Upon termination due to death or disability, equity awards held by the NEO may vest in full. If termination is due to disability, RSUs, stock options, and PCSOs will vest in full, subject to satisfaction of applicable performance conditions, and, in the case of stock options and PCSOs, must be exercised within three years of termination or by the original expiration date, if earlier; all unvested portions of the PARSUs, including any amounts for dividend equivalent payments, shall vest based on performance at target levels. If termination is due to the NEO’s death, RSUs, stock options, and PCSOs will vest in full and, in the case of stock options and PCSOs, must be exercised within one year of termination or by the original expiration date, if earlier; all unvested portions of the PARSUs, including any amounts for dividend equivalent payments, shall vest based on performance at target levels.
HP Severance Policy for Senior Executives
Under the HP Severance Policy for Senior Executives adopted by the Board in July 2003 (the “HP Severance Policy”), HP will seek stockholder approval for future severance agreements, if any, with certain senior executives that provide specified benefits in an amount exceeding 2.99 times the sum of the executive’s current annual base salary plus annual target cash bonus, in each case as in effect immediately prior to the time of such executive’s termination. Individuals subject to this policy consist of the Section 16 officers designated by the Board. In implementing this policy, the Board may elect to seek stockholder approval after the material terms of the relevant severance agreement are agreed upon.
For purposes of determining the amounts subject to the HP Severance Policy, benefits subject to the limit generally include cash separation payments that directly relate to extraordinary benefits that are not available to groups of employees other than the Section 16 officers upon termination of employment. Benefits that have been earned or accrued, as well as prorated bonuses, accelerated stock or option vesting, and other benefits that are consistent with our practices applicable to employees other than the Section 16 officers, are not counted against the limit. Specifically, benefits subject to the HP Severance Policy include: (a) separation payments based on a multiplier of salary plus target bonus, or cash amounts payable for the uncompleted portion of employment agreements; (b) the value of any service period credited to a Section 16 officer in excess of the period of service actually provided by such Section 16 officer for purposes of any employee benefit plan; (c) the value of benefits and perquisites that are inconsistent with our practices applicable to one or more groups of employees in addition to, or other than, the Section 16 officers (“Company Practices”); and (d) the value of any accelerated vesting of any stock options, stock appreciation rights, restricted stock, RSUs, or long-term cash incentives that is inconsistent with Company Practices. The following benefits are not subject to the HP Severance Policy, either because they have been previously earned or accrued by the employee or because they are consistent with Company Practices: (i) compensation and benefits earned, accrued, deferred or otherwise provided for employment services rendered on or prior to the date of termination of employment pursuant to bonus, retirement, deferred compensation, or other benefit plans (e.g., 401(k) Plan distributions, payments pursuant to retirement plans, distributions under deferred compensation plans or payments for accrued benefits such as unused vacation days), and any amounts earned with respect to such compensation and benefits in accordance with the terms of the applicable plan; (ii) payments of prorated portions of bonuses or prorated long-term incentive payments that are consistent with Company Practices; (iii) acceleration of the vesting of stock options, stock appreciation rights, restricted stock, RSUs or long-term cash incentives that is consistent with Company Practices; (iv) payments or benefits required to be provided by law; and (v) benefits and perquisites provided in accordance with the terms of any benefit plan, program, or arrangement sponsored by HP or its affiliates that are consistent with Company Practices.
32 ½ | 2019 Form 10-K | |
For purposes of the HP Severance Policy, future severance agreements include any severance agreements or employment agreements containing severance provisions that we may enter into after the adoption of the HP Severance Policy by the Board, as well as agreements renewing, modifying, or extending such agreements. Future severance agreements do not include retirement plans, deferred compensation plans, early retirement plans, workforce restructuring plans, retention plans in connection with extraordinary transactions, or similar plans or agreements entered into in connection with any of the foregoing, provided that such plans or agreements are applicable to one or more groups of employees in addition to the Section 16 officers.
HP Retirement Arrangements
Upon retirement immediately after October 31, 2019 with a minimum age of 55 and years of combined age and service equal to or greater than 70, HP employees in the United States receive full vesting of time-based options granted under our stock plans with a post-termination exercise period of up to three years or the original expiration date, whichever comes first, as well as full vesting of RSUs (other than RSUs granted under a retention agreement on or after June 25, 2019). PCSOs will receive prorated vesting if the stock price appreciation conditions are met and may vest on a prorated basis post-termination to the end of the performance period, subject to stock price appreciation conditions and certain post-employment restrictions. Awards under the PARSU program, if any, are paid on a prorated basis to participants at the end of the performance period based on actual results, and bonuses, if any, under the annual PfR incentive plan may be paid in prorated amounts at the discretion of management based on actual results. In accordance with Section 409A of the Code, certain amounts payable upon retirement (or other termination) of the NEOs and other key employees will not be paid out for at least six months following termination of employment.
We sponsor two retiree medical programs in the United States, one of which provides subsidized coverage for eligible participants based on years of service. Eligibility for this program requires that participants have been continuously employed by HP since January 1, 2003 and have met other age and service requirements. None of the NEOs are eligible for this program.
The other U.S. retiree medical program we sponsor provides eligible retirees with access to coverage at group rates only, with no direct subsidy provided by HP. All the NEOs could be eligible for this program if they retire from HP on or after age 55 with at least ten years of qualifying service or if they retire at any age with combined age plus service equal to 80 or more years. In addition, beginning at age 45, eligible U.S. employees may participate in the HP Retirement Medical Savings Account Plan (the “RMSA”), under which certain participants are eligible to receive HP matching credits of up to $1,200 per year, up to a lifetime maximum of $12,000, which can be used to cover the cost of such retiree medical coverage (or other qualifying medical expenses) if the employee meets the eligibility requirements for HP retiree medical benefits. None of the NEOs are eligible for the HP matching credits under the RMSA.
CEO Pay Ratio Disclosure
In accordance with SEC rules we are reporting our CEO pay ratio. As set forth in the Summary Compensation Table, our CEO’s annual total compensation for fiscal 2019 was $19,317,972. Our median employee’s annual total compensation was $75,013, resulting in a CEO pay ratio of 258:1.
In calculating the CEO pay ratio, the SEC rules allow companies to adopt a variety of methodologies, apply certain exclusions, and make reasonable estimates and assumptions reflecting their unique employee populations. Therefore, our reported CEO pay ratio may not be comparable to CEO pay ratios reported by other companies due to differences in industries and geographical dispersion, as well as the different estimates, assumptions, and methodologies applied by other companies in calculating their CEO pay ratios.
Our CEO pay ratio is based on the following methodology:
● | We are using the same median employee for our fiscal 2019 pay ratio calculation as we used in fiscal 2018, as there have been no changes in employee population or compensation arrangements, such as any mergers, spinoffs, or mass layoffs, that would result in a significant change to our pay ratio disclosure. |
● | We calculated the median employee’s annual total compensation for fiscal 2019 using the same methodology that was used for our named executive officers, as set forth in the Summary Compensation Table. |
Director Compensation and Stock Ownership Guidelines
Non-employee Director compensation is determined annually by the independent members of the Board acting on the recommendation of the HRC Committee. In formulating its recommendation, the HRC Committee considers market data for our peer group and input from the independent compensation consultant retained by the HRC Committee. Mr. Weisler and Mr. Lores, as employees of the Company, do not receive any separate compensation for their HP Board service.
For the 2019 Board year, which began March 1, 2019 (and therefore approximates the period between annual stockholder meetings when non-employee Directors are regularly elected), each non-employee Director was entitled to receive an annual cash Board retainer of $105,000. Non-employee Directors may elect to defer up to 50% of their annual cash retainer. Additionally, in lieu of the annual cash retainer, non-employee Directors may elect to receive an equivalent value of equity either entirely in fully vested shares or in equal values of shares and stock options. For fiscal 2019, two non-employee Directors elected to receive an equivalent value of equity in shares and stock options, and two non-employee Directors elected to defer their annual cash retainer.
Each non-employee Director also received an annual equity Board retainer of $215,000 for service during the 2019 Board year, with regular grants on the date of the annual stockholder
2019 Form 10-K | ½ 33 | |
meeting. Under special circumstances, the annual equity retainer may be paid in cash. No annual equity retainer was paid in cash during fiscal 2019. Typically, the annual equity retainer is paid at the election of the Director either entirely in fully vested shares or in equal values of shares and stock options. The number of shares subject to the equity awards is determined based on the fair market value of our stock on the grant date, and the number of shares subject to stock option awards is determined as of the grant date based on a Black-Scholes-Merton option pricing formula. Equity grants to non-employee Directors are primarily intended to strengthen alignment with stockholder interests and to reinforce a long-term ownership view of the Company and its value. Retention is not the focus of equity grants for non-employee Directors and could cause entrenchment, which is why service-related vesting on equity awards was eliminated in July 2017. Non-employee Directors may elect to defer the settlement of shares received as part of the program until either (a) the first to occur of the Director’s death, disability (as defined in Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)) or when the non-employee Director no longer serves as a member of the HP Board (a “Separation From Service” as defined in Section 409A of the Code) or (b) April 1 of a given year; however, non-employee Directors may not defer the issuance of shares received upon the exercise of their stock options.
The Chairman of the Board receives an additional $200,000 annual cash retainer in recognition of the greater duties that the position requires. In addition to the regular annual cash and equity retainers, and the Chairman retainer described above, the non-employee Directors who served as chairs of standing committees during fiscal 2019 received cash retainers for such service. The Board approved annual cash retainers for committee chairs as follows for chair service during fiscal 2019:
● | $35,000 for the Audit Committee Chair; |
● | $25,000 for the HRC Committee Chair; |
● | $20,000 for the Nominating, Governance and Social Responsibility Committee Chair; and |
● | $20,000 for Chairs of other Board standing committees. |
Each non-employee Director also receives $2,000 for Board meetings attended in excess of ten meetings per Board year (which begins in March and ends the following February), and $2,000 for each committee meeting attended in excess of a total of ten meetings of each committee per Board year.
Non-employee Directors are reimbursed for their expenses in connection with attending Board meetings including expenses related to spouses when spouses are invited to attend Board events, and they may use the Company aircraft for travel to and from Board meetings and other Company events.
Fiscal 2019 Director Compensation
NAME(1) | FEES EARNED OR PAID IN CASH(2) ($) | STOCK AWARDS(3) ($) | OPTION AWARDS(3) ($) | ALL OTHER COMPENSATION ($) | TOTAL ($) | |||||||
Aida Alvarez | $104,928 | $215,003 | $— | $— | $319,931 | |||||||
Shumeet Banerji | $123,253 | $215,003 | $— | $— | $338,256 | |||||||
Robert R. Bennett | $125,253 | $215,003 | $— | $— | $340,256 | |||||||
Charles “Chip” V. Bergh | $199,863 | $160,017 | $160,002 | $— | $519,882 | |||||||
Stacy Brown-Philpot | $106,928 | $215,003 | $— | $— | $321,931 | |||||||
Stephanie A. Burns | $128,250 | $215,003 | $— | $— | $343,253 | |||||||
Mary Anne Citrino | $142,243 | $107,502 | $107,501 | $— | $357,246 | |||||||
Yoky Matsuoka | $82,418 | $344,182 | $— | $— | $426,600 | |||||||
Stacey Mobley | $104,928 | $215,003 | $— | $— | $319,931 | |||||||
Subra Suresh | $106,928 | $215,003 | $— | $— | $321,931 | |||||||
Dion J. Weisler(4) | $— | $— | $— | $— | $— |
(1) | Mr. Clemmer was appointed to our Board during our Fiscal 2020 year. Accordingly, he did not receive any compensation during Fiscal 2019. |
(2) | For purposes of determining Director compensation, the Board year begins in March and ends the following February, which does not coincide with our November through October fiscal year. Cash amounts included in the table above represent the portion of the annual retainers and committee chair fees earned with respect to service during fiscal 2019, as well as any additional meeting fees paid during fiscal 2019. See “Additional Information about Fees Earned or Paid in Cash in Fiscal 2019” below. |
34 ½ | 2019 Form 10-K | |
(3) | Represents the grant date fair value of stock awards and option awards granted in fiscal 2019 calculated in accordance with applicable accounting standards relating to share-based payment awards. For awards of shares, that amount is calculated by multiplying the closing price of HP’s stock on the date of grant by the number of shares awarded. For elective options, that amount is calculated by multiplying the Black-Scholes-Merton value determined as of the date of grant by the number of options awarded. For information on the assumptions used to calculate the value of the stock awards, refer to Note 5 to our Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019, as filed with the SEC on December 12, 2019. See “Additional Information about Non-Employee Director Equity Awards” below. |
(4) | Mr. Weisler served as President and CEO of HP until November 1, 2019, the first day of our 2020 fiscal year. Accordingly, he did not receive compensation for his Board service during Fiscal 2019. |
Additional Information about Fees Earned or Paid in Cash in Fiscal 2019
NAME | ANNUAL RETAINERS(a) ($) | COMMITTEE CHAIR AND CHAIRMAN FEES(b) ($) | ADDITIONAL MEETING FEES(c) ($) | TOTAL ($) | ||||||
Aida Alvarez | $104,928 | $0 | $0 | $104,928 | ||||||
Shumeet Banerji | $104,928 | $18,325 | $0 | $123,253 | ||||||
Robert R. Bennett | $104,928 | $18,325 | $2,000 | $125,253 | ||||||
Charles “Chip” V. Bergh | $0 | $199,863 | $0 | $199,863 | ||||||
Stacy Brown-Philpot | $104,928 | $0 | $2,000 | $106,928 | ||||||
Stephanie A. Burns | $104,928 | $23,322 | $0 | $128,250 | ||||||
Mary Anne Citrino | $104,928 | $33,315 | $4,000 | $142,243 | ||||||
Yoky Matsuoka | $82,418 | $0 | $0 | $82,418 | ||||||
Stacey Mobley | $104,928 | $0 | $0 | $104,928 | ||||||
Subra Suresh | $104,928 | $0 | $2,000 | $106,928 |
(a) | The Board year begins in March and ends the following February, which does not coincide with HP’s November through October fiscal year. The dollar amounts shown include cash annual retainers earned for service during the last four months of the March 2018 through February 2019 Board year and cash annual retainers earned for service during the first eight months of the March 2019 through February 2020 Board year. This also includes cash earned in the period described that was deferred by Director election into the 2005 Executive Deferred Compensation Plan, which provides that Directors may elect when to receive their deferred cash annual retainer. Directors may not receive their deferred cash annual retainer earlier than January 2022. In the case of a termination of service, Directors can elect to receive the deferred money in the January following the termination of service if the date occurs prior to the specified distribution year elected. |
(b) | Committee chair fees are calculated based on service during each Board term. The dollar amounts shown include such fees earned for service during the last four months of the March 2018 through February 2019 Board term and fees earned for service during the first eight months of the March 2019 through February 2020 Board term. |
(c) | Additional meeting fees are calculated based on the number of designated Board meetings and the number of committee meetings attended during each Board term. The dollar amounts shown include any additional meeting fees paid during fiscal 2019 for service in the 2018 Board term ending February 2019. Additional meeting fees for the 2019 Board term, if any, will be paid during fiscal 2020. |
2019 Form 10-K | ½ 35 | |
Additional Information about Non-Employee Director Equity Awards
The following table provides additional information about non-employee Director equity awards, including the stock awards and elective options made to non-employee Directors during fiscal 2019, the grant date fair value of each of those awards and the number of stock awards and option awards outstanding as of the end of fiscal 2019:
NAME | STOCK AWARDS GRANTED DURING FISCAL 2019 (#) | OPTION AWARDS GRANTED DURING FISCAL 2019 (#) | GRANT DATE FAIR VALUE OF STOCK AND OPTION AWARDS GRANTED DURING FISCAL 2019(a) ($) | STOCK AWARDS OUTSTANDING AT FISCAL YEAR END(b) (#) | OPTION AWARDS OUTSTANDING AT FISCAL YEAR END (#) | |||||||
Aida Alvarez | 10,702 | 0 | $215,003 | 11,402 | 0 | |||||||
Shumeet Banerji | 10,702 | 0 | $215,003 | 0 | 0 | |||||||
Robert R. Bennett | 10,702 | 0 | $215,003 | 10,875 | 0 | |||||||
Charles “Chip” V. Bergh | 7,965 | 38,930 | $320,019 | 31,073 | 146,148 | |||||||
Stacy Brown-Philpot | 10,702 | 0 | $215,003 | 51,663 | 0 | |||||||
Stephanie A. Burns | 10,702 | 0 | $215,003 | 20,966 | 0 | |||||||
Mary Anne Citrino | 5,351 | 26,156 | $215,003 | 33,506 | 159,671 | |||||||
Yoky Matsuoka | 17,138 | 0 | $344,182 | 0 | 0 | |||||||
Stacey Mobley | 10,702 | 0 | $215,003 | 51,663 | 0 | |||||||
Subra Suresh | 10,702 | 0 | $215,003 | 19,295 | 0 |
(a) | Represents the grant date fair value of stock awards and elective options granted in fiscal 2019 calculated in accordance with applicable accounting standards. For stock awards, that number is calculated by multiplying the closing price of HP’s stock on the date of grant by the number of shares awarded. For elective options, that amount is calculated by multiplying the Black-Scholes-Merton value determined as of the date of grant by the number of options awarded. For information on the assumptions used to calculate the value of the stock awards, refer to Note 5 to our Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019, as filed with the SEC on December 12, 2019. |
(b) | Includes dividend equivalent units accrued with respect to share awards granted in fiscal 2019 and RSUs granted in previous years that have been deferred at the election of the Director. |
Non-Employee Director Stock Ownership Guidelines
Under our stock ownership guidelines, non-employee Directors are required to accumulate, within five years of election to the Board, shares of HP’s stock equal in value to at least five times the amount of the annual cash Board retainer. Shares counted toward these guidelines include any shares held by the Director directly or indirectly, including deferred vested awards.
All non-employee Directors with more than five years of service have met our stock ownership guidelines and all non-employee Directors with less than five years of service have either met or are on track to meet our stock ownership guidelines within the required time based on current trading prices of HP’s stock. See “Common Stock Ownership of Certain Beneficial Owners and Management” on page 37 of this Form 10-K/A.
36 ½ | 2019 Form 10-K | |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity Compensation Plan Information
The following table summarizes our equity compensation plan information is included in the Proxy Statement and is incorporated herein by reference:
PLAN CATEGORY | COMMON SHARES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS(1) (A) | WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS(2) (B) | COMMON SHARES AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (A)) (C) | |||||||
Equity compensation plans approved by HP stockholders | 36,472,053 | (3) | $15.4187 | 265,135,483 | (4) | |||||
Equity compensation plans not approved by HP stockholders | — | — | — | |||||||
Total | 36,472,053 | $15.4187 | 265,135,483 |
(1) | This column does not reflect awards of options and RSUs assumed in acquisitions where the plans governing the awards were not available for future awards as of October 31, 2019. As of October 31, 2019, there were no individual awards of options or RSUs outstanding pursuant to awards assumed in connection with acquisitions and granted under such plans. |
(2) | This column does not reflect the exercise price of shares underlying the assumed options referred to in footnote (1) to this table or the purchase price of shares to be purchased pursuant to the HP Inc. 2011 Employee Stock Purchase Plan (the “2011 ESPP”) or the legacy HP Employee Stock Purchase Plan (the “Legacy ESPP”). In addition, the weighted-average exercise price does not take into account the shares issuable upon vesting of outstanding awards of RSUs and PARSUs, which have no exercise price. |
(3) | Includes awards of options and RSUs outstanding under the 2004 Plan and 2011 ESPP. Also includes awards of PARSUs representing 4,465,608 shares that may be issued under the 2004 Plan. Each PARSU award reflects a target number of shares that may be issued to the award recipient. HP determines the actual number of shares the recipient receives at the end of a three-year performance period based on results achieved compared with Company performance goals and stockholder return relative to the market. The actual number of shares that a grant recipient receives at the end of the period may range from 0% to 200% of the target number of shares. |
(4) | Includes (i) 184,508,645 shares available for future issuance under the 2004 Plan; (ii) 76,534,847 shares available for future issuance under the 2011 ESPP; (iii) 2,725,611 shares available for future issuances under the Legacy ESPP, a plan under which employee stock purchases are no longer made; and (iv) 1,366,380 shares are reserved for issuance under our Service Anniversary Stock Plan, a plan under which awards are no longer granted. Taking into account the enumerated unavailable shares from the Legacy ESPP and the Service Anniversary Stock Plan, a total of 265,135,483 shares were available for future grants as of October 31, 2019. |
Common Stock Ownership of Certain Beneficial Owners and Management.”Management
The following table sets forth information as of December 31, 2019 (or as of the date otherwise indicated below) concerning beneficial ownership by:
● | holders of more than 5% of HP’s outstanding shares of common stock; |
● | our Directors and nominees; |
● | each of the named executive officers listed in the Summary Compensation Table on page 23; and |
● | all of our Directors and executive officers as a group. |
The information provided in the table is based on our records, information filed with the SEC and information provided to HP, except where otherwise noted.
The number of shares beneficially owned by each entity or individual is determined under SEC rules, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the entity or individual has sole or shared voting or investment power and also any shares that the entity or individual has the right to acquire as of March 1, 2020 (60 days after December 31, 2019) through the exercise of any stock options, through the vesting/settlement of RSUs payable in shares, or upon the exercise of other rights. Beneficial ownership excludes options or other rights vesting after March 1, 2020
2019 Form 10-K | ½ 37 | |
and any RSUs vesting/settling, as applicable, on or before March 1, 2020 that may be payable in cash or shares at HP’s equity compensation plans, including both stockholder approved planselection. Unless otherwise indicated, each person has sole voting and non-stockholder approved plans, isinvestment power (or shares such power with his or her spouse) with respect to the shares set forth in the section entitled “Executive Compensation—Management Proposal No. 3 Advisory Vote to Approve Executive Compensation—Equity Compensation Plan Information.”following table.
Beneficial Ownership Table
NAME OF BENEFICIAL OWNER | SHARES OF COMMON STOCK BENEFICIALLY OWNED | PERCENT OF COMMON STOCK OUTSTANDING | ||||
Dodge & Cox(1) | 146,883,601 | 10.1% | ||||
BlackRock, Inc.(2) | 99,903,361 | 6.9% | ||||
The Vanguard Group(3) | 129,732,144 | 8.9% | ||||
Aida M. Alvarez | 50,698 | * | ||||
Shumeet Banerji | 31,311 | * | ||||
Robert R. Bennett | 71,091 | * | ||||
Charles “Chip” V. Bergh(4) | 150,382 | * | ||||
Stacy Brown-Philpot | 51,663 | * | ||||
Stephanie A. Burns | 63,233 | * | ||||
Mary Anne Citrino(5) | 197,682 | * | ||||
Richard L. Clemmer | 4,000 | * | ||||
Yoky Matsuoka | 17,138 | * | ||||
Stacey Mobley | 51,663 | * | ||||
Subra Suresh | 36,924 | * | ||||
Dion J. Weisler(6) | 1,767,869 | * | ||||
Alex Cho(7) | 88,582 | * | ||||
Steven J. Fieler(8) | 341,859 | * | ||||
Enrique J. Lores(9) | 540,626 | * | ||||
Kim M. Rivera | 203,223 | * | ||||
All current Executive Officers and Directors as a Group (20 persons)(10) | 4,555,175 | * |
* | Represents holdings of less than 1% based on shares of our common stock outstanding as of December 31, 2019. |
(1) | Based on the most recently available Schedule 13G/A filed with the SEC on February 10, 2020 by Dodge & Cox. According to its Schedule 13G/A, Dodge & Cox reported having sole voting power over 140,708,785 shares, shared voting power over no shares, sole dispositive power over 146,883,601 shares and shared dispositive power over no shares. The securities reported on the Schedule 13G/A are beneficially owned by clients of Dodge & Cox, which clients may include investment companies registered under the Investment Company Act of 1940 and other managed accounts, and which clients have the right to receive or the power to direct the receipt of dividends from, and the proceeds from the sale of, HP’s stock. Dodge & Cox Stock Fund, an investment company registered under the Investment Company Act of 1940, has an interest of 91,145,478 shares. The Schedule 13G/A contained information as of January 31, 2020 and may not reflect current holdings of HP’s stock. The address of Dodge & Cox is 555 California Street, 40th Floor, San Francisco, CA 94104. |
(2) | Based on the most recently available Schedule 13G/A filed with the SEC on February 5, 2020 by BlackRock, Inc. According to its Schedule 13G/A, BlackRock, Inc. reported having sole voting power over 83,693,896 shares, shared voting power over no shares, sole dispositive power over 99,903,361 shares and shared dispositive power over no shares. The Schedule 13G/A contained information as of December 31, 2019 and may not reflect current holdings of HP’s stock. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. |
(3) | Based on the most recently available Schedule 13G/A filed by the Vanguard Group on February 12, 2020. According to its Schedule 13G/A, the Vanguard Group reported having sole voting power over 2,199,101 shares, shared voting power over 460,709 shares, sole dispositive power over 127,188,851 shares, and shared dispositive power over 2,543,293 shares. The Schedule 13G/A contained information as of December 31, 2019 and may not reflect current holdings of HP’s stock. The address for the Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355. |
(4) | Includes 146,148 shares that Mr. Bergh has the right to acquire by exercise of stock options. |
(5) | Includes 159,671 shares that Ms. Citrino has the right to acquire by exercise of stock options. |
(6) | Includes 894,739 shares that Mr. Weisler has the right to acquire by exercise of stock options. |
(7) | Includes 58,378 shares that Mr. Cho has the right to acquire by exercise of stock options. |
(8) | Includes 198,332 shares that Mr. Fieler has the right to acquire by settlement of Restricted Stock Units. |
(9) | Includes 156,976 shares that Mr. Lores has the right to acquire by exercise of stock options. |
(10) | Includes 1,790,132 shares that current executive officers and Directors have the right to acquire by exercise of stock options and 198,332 shares that current executive officers and Directors have the right to acquire by settlement of Restricted Stock Units. |
38 ½ | 2019 Form 10-K | |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Director Independence
Our Corporate Governance Guidelines, which are available on our website at https://investor.hp.com/governance/governance-documents/default.aspx, provide that a substantial majority of the Board will consist of independent Directors and that the Board can include no more than three Directors who are not independent Directors. The following information is includedindependence standards can be found as Exhibit A to our Corporate Governance Guidelines. Our Director independence standards are consistent with, and in some respects more stringent than, the NYSE director independence standards. In addition, each member of the Audit Committee meets the heightened independence standards required for audit committee members under the applicable listing and SEC standards and each member of the HRC Committee meets the heightened independence standards required for compensation committee members under the applicable listing standards and SEC standards.
Under our Corporate Governance Guidelines, a Director will not be considered independent in the Proxy Statementfollowing circumstances:
● | The Director is, or has been within the last three years, an employee of HP, or an immediate family member of the Director is, or has been within the last three years, an executive officer of HP. |
● | The Director has been employed as an executive officer of HP, its subsidiaries or affiliates within the last five years. |
● | The Director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from HP, other than compensation for Board service, compensation received by a Director’s immediate family member for service as a non-executive employee of HP, and pension or other forms of deferred compensation for prior service with HP that is not contingent on continued service. |
● | (A) The Director or an immediate family member is a current partner of the firm that is HP’s internal or external auditor; (B) the Director is a current employee of such a firm; (C) the Director has an immediate family member who is a current employee of such a firm and who personally worked on HP’s audit; or (D) the Director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on HP’s audit within that time. |
● | The Director or an immediate family member is, or has been in the past three years, employed as an executive officer of another company where any of HP’s present executive officers at the same time serves or has served on that company’s compensation committee. |
● | The Director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, HP for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues. |
● | The Director is affiliated with a charitable organization that receives significant contributions from HP. |
● | The Director has a personal services contract with HP or an executive officer of HP. |
For these purposes, an “immediate family” member includes a person’s spouse, parents, stepparents, children, step-children, siblings, mother and father-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares the Director’s home.
In determining independence, the Board reviews whether Directors have any material relationship with HP. An independent Director must not have any material relationship with HP, either directly or as a partner, stockholder or officer of an organization that has a relationship with HP, nor any relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a Director. In assessing the materiality of a Director’s relationship to HP, the Board considers all relevant facts and circumstances, including consideration of the issues from the Director’s standpoint and from the perspective of the persons or organizations with which the Director has an affiliation, and is incorporated hereinguided by reference:the standards set forth above.
In making its independence determinations, the Board considered transactions occurring since the beginning of fiscal 2017 between HP and entities associated with the independent Directors or their immediate family members. In addition to the transactions described below under “Fiscal 2019 Related-Person Transactions,” if any, the Board’s independence determinations included consideration of the following transactions:
Current Directors:
● | Mr. Bergh has served as President and Chief Executive Officer and a Director of Levi Strauss & Co. since September 2011. HP has entered into transactions for the purchase and sale of goods and services in the ordinary course of its business during the past three fiscal years with Levi Strauss & Co. The amount that HP paid in each of the last three fiscal years to Levi Strauss & Co., and the amount received in each fiscal year by HP from Levi Strauss & Co., did not, in any of the previous three fiscal years, exceed the greater of $1 million or 2% of either company’s consolidated gross revenues. |
2019 Form 10-K | ½ 39 | |
● | Mr. Clemmer has served as Chief Executive Officer and Executive Director of NXP Semiconductors N.V. since January 2009. HP has entered into transactions for the purchase and sale of goods and services in the ordinary course of its business during the past three fiscal years with NXP Semiconductors N.V. The amount that HP paid in each of the last three fiscal years to NXP Semiconductors N.V.,and the amount received in each fiscal year by HP from NXP Semiconductors N.V., did not, in any of the previous three fiscal years, exceed the greater of $1 million or 2% of either company’s consolidated gross revenues. |
● | Mr. Suresh has served as President of Nanyang Technological University since January 2018. HP has entered into transactions for the purchase and sale of goods and services in the ordinary course of its business during the past three fiscal years with Nanyang Technological University. The amount that HP paid in each of the last three fiscal years to Nanyang Technological University, and the amount received in each fiscal year by HP from Nanyang Technological University, did not, in any of the previous three fiscal years, exceed the greater of $1 million or 2% of either entity’s consolidated gross revenues. |
● | Ms. Matsuoka served as Vice President, Healthcare at Google, a subsidiary of Alphabet, from 2018 to October 2019. HP has entered into transactions for the purchase and sale of goods and services in the ordinary course of its business during the past three fiscal years with Google and Alphabet. The amount that HP paid in each of the last three fiscal years to Google and Alphabet, and the amount received in each fiscal year by HP from Google and Alphabet, did not, in any of the previous three fiscal years, exceed the greater of $1 million or 2% of either company’s consolidated gross revenues. |
● | Ms. Matsuoka has served as Division CEO at Panasonic since October 2019. HP has entered into transactions for the purchase and sale of goods and services in the ordinary course of its business during the past three fiscal years with Panasonic. The amount that HP paid in each of the last three fiscal years to Panasonic, and the amount received in each fiscal year by HP from Panasonic, did not, in any of the previous three fiscal years, exceed the greater of $1 million or 2% of either company’s consolidated gross revenues. |
● | Each of Mr. Banerji, Mr. Bennett, Ms. Brown-Philpot, Dr. Burns, Ms. Citrino, Ms. Matsuoka, and Mr. Mobley, or one of their immediate family members, is a non-employee director, trustee or advisory board member of another company that did business with HP at some time during the past three fiscal years. These business relationships were as a supplier or purchaser of goods or services in the ordinary course of business. |
As a result of this review, the Board has determined the transactions described above and below under “Fiscal 2019 Related-Person Transactions,” if any, would not interfere with the Director’s exercise of independent judgment in carrying out the responsibilities of a Director. The Board has also determined that, with the exception of Messrs. Lores and Weisler, (i) each of HP’s remaining Directors, including Ms. Alvarez, Mr. Banerji, Mr. Bennett, Mr. Bergh, Ms. Brown-Philpot, Dr. Burns, Ms. Citrino, Mr. Clemmer, Ms. Matsuoka, Mr. Mobley and Mr. Suresh, and (ii) each of the members of the Audit Committee, the HRC Committee and the NGSR Committee, has (or had) no material relationship with HP (either directly or as a partner, stockholder or officer of an organization that has a relationship with HP) and is (or was) independent within the meaning of the NYSE and our Director independence standards. The Board has determined that Mr. Lores is not independent because of his status as our current President and CEO, and Mr. Weisler is not independent due to his prior service as our President and CEO until November 1, 2019 and his subsequent role as Senior Executive Advisor to the Company.
Related Person Transactions Policies and Procedures
Related Person Transactions Policy
We have adopted a written policy for approval of transactions between us and our non-employee Directors, Director nominees, executive officers, beneficial owners of more than 5% of HP’s stock, and their respective immediate family members where the amount involved in the transaction exceeds or is expected to exceed $100,000 in a single calendar year.
The policy provides that the NGSR Committee reviews certain transactions subject to the policy and decides whether to approve or ratify those transactions. In doing so, the NGSR Committee determines whether the transaction is in the best interests of HP. In making that determination, the NGSR Committee considers, among other factors it deems appropriate:
● | the extent of the related-person’s interest in the transaction; |
● | whether the transaction is on terms generally available to an unaffiliated third party under the same or similar circumstances; |
● | the benefits to HP; |
● | the impact or potential impact on a Director’s independence in the event the related person is a Director, an immediate family member of a Director or an entity in which a Director is a partner, 10% stockholder or executive officer; |
● | the availability of other sources for comparable products or services; and |
● | the terms of the transaction. |
40 ½ | 2019 Form 10-K | |
The NGSR Committee has delegated authority to the Chair of the NGSR Committee to pre-approve or ratify transactions where the aggregate amount involved is expected to be less than $1 million.
A summary of any new transactions pre-approved by the Chair is provided to the full NGSR Committee for its review at each of the NGSR Committee’s regularly scheduled meetings.
The NGSR Committee has adopted standing pre-approvals under the policy for limited transactions with related personspersons. Pre-approved transactions include:
● | compensation of executive officers that is excluded from reporting under SEC rules where the HRC Committee approved (or recommended that the Board approve) such compensation; |
● | non-employee Director compensation; |
● | transactions with another company with a value that does not exceed the greater of $1 million or 2% of the other company’s annual revenues, where the related-person has an interest only as an employee (other than executive officer), Director or beneficial holder of less than 10% of the other company’s shares; |
● | contributions to a charity in an amount that does not exceed the greater of $1 million or 2% of the charity’s annual receipts, where the related person has an interest only as an employee (other than executive officer) or non-employee Director; and |
● | transactions where all stockholders receive proportional benefits. |
A summary of new transactions covered by the standing pre-approvals relating to other companies (as described above) is set forth under “Corporate Governance—Management Proposal No. 1 Electionprovided to the NGSR Committee for its review in connection with that committee’s regularly scheduled meetings.
Fiscal 2019 Related-Person Transactions
We enter into commercial transactions with many entities for which our executive officers or non-employee Directors serve as non-employee Directors and/or employees in the ordinary course of Directors—Fiscal 2017 Related Person Transactions.”
Item 14. Principal Accounting Fees and Services.
Principal AccountingAccountant Fees and Services”Services
Fees incurred by HP for Ernst & Young LLP
The following table shows the fees paid or accrued by HP for audit and other services provided by Ernst & Young LLP for fiscal 2019 and 2018. All fees paid to Ernst & Young LLP were pre-approved in accordance with the Proxy Statement, which information is incorporated herein by reference.
2019 | 2018 | |||||
IN MILLIONS | ||||||
Audit Fees(1) | $15.9 | $15.9 | ||||
Audit-Related Fees(2) | $2.4 | $3.3 | ||||
Tax Fees(3) | $2.9 | $4 | ||||
All Other Fees(4) | $— | $0.2 | ||||
Total | $21.2 | $23.4 |
our financial statements and review of our quarterly financial statements and audit services provided in connection with other statutory or regulatory filings. | |
(2) | |
accounting consultations, employee benefit plan audits, and other attestation services. | ||||||||||
$2.3 million, respectively. | ||||||||||
Pre-Approval of Audit and Non-Audit Services Policy
The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve audit-related and non-audit services not prohibited by law to be performed by our independent registered public accounting firm and associated fees up to a maximum for any one service of $250,000, provided that the chair shall report any decisions to pre-approve services and fees to the full Audit Committee at its next regular meeting.
½ 41 | |||||||||||
Part IV
Item 15. Exhibits.
The following documents are included as exhibits to this Form 10-K/A. Those exhibits incorporated by reference are indicated as such in the parenthetical following the description. All other exhibits are included herewith.
(31.1)# | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||
The cover page from this Amendment No. 1 on Form 10-K/A, formatted in Inline XBRL. |
# | Filed herewith. |
2019 Form 10-K | |||||||||||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 27, 2020 | HP INC. | |||
By: | /s/ STEVE FIELER | |||
Steve Fieler |
Chief Financial Officer |
2019 Form 10-K | ||||