Discussion and analysis of the financial condition and results of operations by the management of HP INC. (Form 10-Q)

HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

                 Financial Condition and Results of Operations

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

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

•Critical Accounting Policies and Estimates. A discussion of accounting policies
and estimates that we believe are important to understanding the assumptions and
judgments incorporated in our reported financial results.

•Results of Operations. An analysis of our financial results comparing the three
and six months ended April 30, 2022 to the prior-year period. A discussion of
the results of operations is followed by a more detailed discussion of the
results of operations by segment.

•Liquidity and capital resources. An analysis of changes in our cash flows and a discussion of our cash and financial position.

•Contractual and Other Obligations. An overview of contractual obligations,
retirement and post-retirement benefit plan contributions, cost-saving plans,
uncertain tax positions and off-balance sheet arrangements of our operations.

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


                                       40

————————————————– ——————————

  Table of Contents

                            HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

           Financial Condition and Results of Operations (Continued)

OVERVIEW

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

•At Personal Systems, our strategic focus is on

•profitable growth through innovation and market segmentation

•Enhanced innovation in multi-OS, multi-architecture, geography, customer segments and other key attributes

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

• Driving innovation to enable PC productivity and collaboration that will become essential for hybrid work, learn and play.

We believe we are well positioned in the peripherals and remote computing solutions space based on our competitive product range as well as our recent acquisitions.

•In the area of ​​printing, our strategic focus is on

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

•Providing digital printing solutions for graphics segments and applications, including commercial publishing, labels, packaging and textiles; as well as

•Expanding our 3D printing footprint to include digital manufacturing and strategic applications.

In addition to focusing on growing our subscription business, we are also focused on realigning system profitability to deliver higher upfront profit units through our product offerings, including HP+ and Big Tank.

We are focused on growing our gaming, peripherals, workforce solutions, consumer
subscriptions, 3D and industrial graphics businesses. Our ability to innovate is
helping us gain momentum in growth areas like gaming and peripherals, and we see
significant opportunities to drive greater recurring revenues across Personal
Systems and Printing. We have integrated and expanded our Device-as-a-Service
and Managed Print Services offerings to create new Workforce Solutions that help
customers manage and secure hybrid IT ecosystems. We continue to build on strong
assets like Instant Ink to grow our Consumer Subscription business. In
Industrial Graphics, we are driving the shift from analog to digital in segments
like labels and packaging. In Personalization & 3D, we are creating end-to-end
solutions that can capture more value with our differentiated technology.

We continue to experience challenges that are representative of trends and
uncertainties that may affect our business and results of operations. One set of
challenges relates to dynamic market trends that may adversely impact our
product mix. A second set of challenges relates to changes in the competitive
landscape. Our primary competitors are exerting competitive pressure in targeted
areas and are entering new markets, our emerging competitors are introducing new
technologies and business models, and our alliance partners in some businesses
are increasingly becoming our competitors in others. A third set of challenges
relates to business model changes and our go-to-market execution in an evolving
distribution and reseller landscape, with increasing online and omnichannel
presence. Additional challenges we face at the segment level are set forth
below.

•In Personal Systems, we face challenges with industry component availability
which we expect to continue to negatively impact our ability to meet demand at
least in the short-term. Also, as component availability improves we expect the
pricing environment to get more competitive.

•In Printing, we face challenges from a competitive environment, including
non-original supplies (which includes imitation, refill, or remanufactured
alternatives), and we face component constraints and other supply chain
disruptions particularly in printer hardware which we expect to continue to
negatively impact our ability to meet demand at least in the short-term. We also
obtain many Printing components from single source due to technology,
availability, price,

                                       41

————————————————– ——————————

  Table of Contents

                            HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

           Financial Condition and Results of Operations (Continued)

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.

On May 31, 2022, we announced our decision to wind down business operations in
Russia having already suspended all new shipments and paused marketing and
advertising activities. Russia contributed approximately $1.0 billion of total
net revenue in fiscal 2021. Though, we do not have significant operations or
assets in Russia, Belarus or Ukraine, the Russian invasion of Ukraine has
aggravated, and is expected to continue to aggravate supply chain and overall
macroeconomic challenges. A significant escalation or expansion of the
situation's current scope could have a material adverse effect on our business,
results of operations, cash flows or financial position. We continue to be
focused on the safety and security of our employees and their families in the
impacted regions and we have provided, and expect to continue to provide, grants
to support Ukrainian relief efforts.
Our business and financial performance also depend significantly on worldwide
economic conditions. Accordingly, we face global macroeconomic challenges,
particularly in light of the effects of the COVID-19 pandemic as discussed
below, tariff-driven headwinds, uncertainty in the markets, volatility in
exchange rates, inflationary trends and evolving dynamics in the global trade
environment. The full 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 and adapting our business models,
with a particular focus on enhancing our end-to-end processes, analytics and
efficiencies. We also continue to work on optimizing our sales coverage models,
aligning our sales incentives with our strategic goals, improving channel
execution and inventory, production and backlog management, strengthening our
capabilities in our areas of strategic focus, strengthening our pricing
discipline, and developing and capitalizing on market opportunities.

In October 2019, we announced cost-reduction and operational efficiency
initiatives intended to simplify the way we work, move closer to our customers
and facilitate specific investment in our business. These were further updated
in February 2020. These efforts included transforming our operating model to
integrate our sales force into a single commercial organization and reducing
structural costs across the Company through our restructuring plan approved in
September 2019 (the "Fiscal 2020 Plan"). We have invested and expect to invest
some of the savings from these efforts across our businesses, including
investing to build our digital capabilities. Over time, we expect these
investments will make us more efficient and allow us to advance our positions in
Personal Systems and Printing, while also disrupting new industries where we see
attractive medium to long-term growth opportunities. However, the rate at which
we are able to invest in our business and the returns that we are able to
achieve from these investments will be affected by many factors, including the
efforts to address the execution, industry and macroeconomic challenges facing
our business as discussed above. As a result, we may experience delays in the
anticipated timing of activities related to these efforts, and the anticipated
benefits of these efforts may not materialize.
In the third year of our program, we continued to look at new cost savings
opportunities and are on track to deliver $1.2 billion dollars in gross run-rate
structural cost reductions by year end. In the third quarter of fiscal year
2021, we completed the initial deployment of our SAP S/4 HANA system, one of the
largest ERP implementations. Also, as part of our end-to-end business planning
and forecasting efforts, we went live with our new cloud-based platform which we
believe will improve our forecasting agility as part of our digital
transformation. We continue to optimize our real estate footprint, including 15
real estate actions in the first half of 2022, as we rebuild and modernize our
key locations, focusing on collaboration and hybrid work for our employees. For
more information on our Fiscal 2020 Plan, see Note 3, "Restructuring and Other
Charges", to the Consolidated Condensed Financial Statements in Item 1 of Part I
of this report, which is incorporated herein by reference.

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 may not continue in the future and have been
impacted by supply constraints, shifts in customer behavior and the continuing
impacts of the COVID-19 pandemic.

Our COVID-19 response

We continue to closely monitor the COVID-19 pandemic, including its resurgence
in key markets. We will continue promoting the health, safety, and well-being of
workers and their loved ones. In response to the COVID-19 pandemic, we have
established a cross-functional COVID-19 program management office that reviews
the latest data from our business and site leaders and identifies and addresses
emerging risks and issues, and we have put in place global policies and
protocols based on
                                       42

————————————————– ——————————

  Table of Contents

                            HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

           Financial Condition and Results of Operations (Continued)

guidance from healthcare experts and public health leaders, which we continue to
review and update. We balance our company-wide approach by assessing risk and
adjusting our response at the site level, taking into consideration each
country's or area's COVID-19 case trends and related measures. We have commenced
a phased approach to returning our employees onsite, which included
modifications to certain of our facilities as we adapt to a hybrid work
environment.

The business impact of the COVID-19 pandemic has created new and different
demand dynamics in the market. Our Personal Systems business benefited from the
hybrid work environment and growth in gaming. For the six months ended April 30,
2022, we saw strong demand in non-Chromebook Commercial PCs, and mix shifts from
low end to premium products. In Consumer PCs, we are seeing softening of demand,
however demand still exceeds pre-pandemic levels. In Printing, Consumer print
demand remained strong despite some softening in Europe, and Commercial print is
expected to continue its gradual improvement as more offices reopen. Also,
favorable pricing has contributed towards higher average selling prices ("ASPs")
in both Personal Systems and Printing. Demand fulfillment has been and is
expected to continue to be impacted by industry wide commodity and component
constraints, ASICs (application specific integrated circuits) that are unique to
our products and manufacturing disruptions in China, and logistics challenges
globally, at least in the short-term.

As the COVID-19 pandemic continues and new variants of the virus emerge, we are
seeing a resurgence of the pandemic in key markets including China. We have
experienced and may experience future disruptions in supply, manufacturing and
logistics, including in Asia, and with our suppliers and outsourcing partners.
The full extent of the impact of the COVID-19 pandemic on our business, results
of operations, cash flows and financial position will depend on many factors
that are not within our control, including, but not limited to: the severity,
duration and scope of the pandemic, including the impact of coronavirus
mutations and resurgences; the effectiveness of actions taken to contain or
mitigate the pandemic and prevent or limit any reoccurrence; the development,
availability and public acceptance of effective treatments or vaccines;
governmental, business and individuals' actions that have been and continue to
be taken in response to the pandemic; general economic uncertainty in key global
markets and financial market volatility; global economic conditions and levels
of economic growth; and the pace of recovery when the COVID-19 pandemic
subsides.

For a further discussion of trends, uncertainties and other factors that could
impact our operating results, see the section entitled "Risk Factors" in Item 1A
of Part II of this report as well as in Item 1A of Part I in our Annual Report
on Form 10-K for the fiscal year ended October 31, 2021.

RECENT DEVELOPMENTS

On March 25, 2022, we entered into a definitive agreement to acquire
Plantronics, Inc. ("Poly"), a leading global provider of workplace collaboration
solutions, in an all-cash transaction for $40 per share, implying a total
enterprise value of $3.3 billion, inclusive of Poly's net debt. Poly is a leader
in video conferencing solutions, cameras, headsets, voice and software. With the
acquisition, we aim to deliver a complete ecosystem of devices, software, and
digital services to create premium employee experiences, improve workforce
productivity, and provide enterprise customers with better visibility, insights,
security, and manageability across their hybrid IT environments. We expect this
acquisition to close by the end of calendar year 2022, subject to approval by
Poly's shareholders, required regulatory clearances, and the satisfaction of
other customary closing conditions.

CRITICAL ACCOUNTING PRINCIPLES AND ESTIMATES

MD&A is based on our Consolidated Condensed Financial Statements, which have
been prepared in accordance with U.S. GAAP. The preparation of these financial
statements requires management to make estimates, judgments and assumptions that
affect the reported amounts of assets, liabilities, net revenue and expenses,
and the disclosure of contingent liabilities. As of April 30, 2022, the impact
of COVID-19 on our business continued to unfold. As a result, many of our
estimates and assumptions required increased judgment and may carry a higher
degree of variability and volatility. As events continue to evolve and
additional information becomes available, our estimates may change in future
periods. Our management believes that there have been no significant changes
during the six months ended April 30, 2022 to the items that we disclosed as our
critical accounting policies and estimates in MD&A in our Annual Report on
Form 10-K for the fiscal year ended October 31, 2021, except as mentioned in
Note 1, "Basis of Presentation".


ACCOUNTING

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


                                       43

————————————————– ——————————

  Table of Contents

                            HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

           Financial Condition and Results of Operations (Continued)

RESULTS

Revenue from our international operations has historically represented, and we
expect will continue to represent, a majority of our overall net revenue. As a
result, our net revenue growth has been impacted, and we expect it will continue
to be impacted, by fluctuations in foreign currency exchange rates. In order to
provide a framework for assessing performance excluding the impact of foreign
currency fluctuations, we supplement the year-over-year percentage change in net
revenue with the year-over-year percentage change in net revenue on a constant
currency basis, which excludes the effect of foreign currency exchange
fluctuations calculated by translating current period revenues using monthly
average exchange rates from the comparative period and excluding any hedging
impact recognized in the current 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:

                                                               Three months ended April 30                                                       Six months ended April 30
                                                        2022                                    2021                                    2022                                    2021
                                            Dollars              % of Net            Dollars           % of Net              Dollars             % of Net            Dollars           % of Net
                                                                  Revenue                               Revenue                                   Revenue                               Revenue
                                                                                                           Dollars in millions
Net revenue                             $      16,490               100.0  %       $ 15,877               100.0  %       $     33,518               100.0  %       $ 31,523               100.0  %
Cost of revenue                                13,157                79.8  %         12,437                78.3  %             26,800                80.0  %         24,759                78.5  %
Gross profit                                    3,333                20.2  %          3,440                21.7  %              6,718                20.0  %          6,764                21.5  %
Research and development                          425                 2.6  %            514                 3.2  %                843                 2.5  %            985                 3.1  %
Selling, general and administrative             1,464                 8.8  %          1,483                 9.4  %              2,932                 8.7  %          2,859                 9.1  %
Restructuring and other charges                    82                 0.5  %             39                 0.2  %                150                 0.4  %            160                 0.5  %
Acquisition-related charges                        32                 0.2  %             10                 0.1  %                 52                 0.2  %             16                 0.1  %
Amortization of intangible assets                  52                 0.3  %             32                 0.2  %                104                 0.2  %             61                 0.2  %
Earnings from operations                        1,278                 7.8  %          1,362                 8.6  %              2,637                 7.9  %          2,683                 8.5  %
Interest and other, net                           (39)               (0.3) %            (26)               (0.2) %                (71)               (0.2) %            (51)               (0.2) %
Earnings before taxes                           1,239                 7.5  %          1,336                 8.4  %              2,566                 7.7  %          2,632                 8.3  %
Provision for taxes                              (239)               (1.4) %           (108)               (0.7) %               (480)               (1.5) %           (336)               (1.0) %
Net earnings                            $       1,000                 6.1  %       $  1,228                 7.7  %       $      2,086                 6.2  %       $  2,296                 7.3  %



Net Revenue

For the three months ended April 30, 2022, net revenue increased 3.9% (increased
4.9% on a constant currency basis) as compared to the prior-year period. U.S.
net revenue remained flat at $5.5 billion, while net revenue from international
operations increased 6.1% to $11.0 billion. The increase in net revenue was
primarily driven by growth in Desktops, Notebooks and Workstations, partially
offset by decline in Supplies, Consumer Printing and foreign currency impacts.
The increase was driven by higher ASP's due to favorable pricing and mix shifts,
partially offset by unit decline. Units were down in both Personal Systems and
Printing driven by the continued supply chain challenges and overall
macroeconomic environment.
For the six months ended April 30, 2022, total net revenue increased 6.3%
(increased 6.5% on a constant currency basis) as compared to the prior-year
period. U.S. net revenue decreased 0.3% to $11.1 billion, while net revenue from
international operations increased 10.0% to $22.4 billion. The increase in net
revenue was primarily driven by growth in Notebooks, Desktops and Workstations
partially offset by decline in Consumer Printing and Supplies. The increase was
driven by higher ASP's due to favorable pricing and mix shifts, partially offset
by unit decline. Units were down in both Personal Systems and Printing driven by
the continued supply chain challenges and overall macroeconomic environment.
                                       44

————————————————– ——————————

Table of Contents

                            HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

           Financial Condition and Results of Operations (Continued)

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

gross margin

For both the three months and six ended April 30, 2022, gross margin decreased
by 1.5 percentage points, primarily driven by mix shift towards Personal
Systems, higher commodity costs, foreign currency impacts partially offset by
favorable pricing.

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

operating expenses

Research and Development (“R&D”)

R&D expense decreased 17.3% for the three months ended April 30, 2022, primarily
due to last year's increased investments in Personal Systems.
R&D expense decreased 14.4% for the six months ended April 30, 2022, primarily
due to joint R&D partner funding and last year's increased investments in
Personal Systems.

Sales, General and Administration (“SG&A”)

SG&A expenses decreased 1.3% in the trailing three months April 30, 2022primarily due to lower variable compensation, partially offset by charitable donations.

SG&A expenses increased 2.6% over the past six months April 30, 2022primarily due to investments in go-to-market initiatives and charitable donations.

Restructuring and Other Fees

Restructuring and other charges for the three and six months ended April 30,
2022 relate primarily to the Fiscal 2020 Plan. For more information, see Note 3,
"Restructuring and other charges", to the Consolidated Condensed Financial
Statements in Item 1 of Part I of this report, which is incorporated herein by
reference.

amortization of intangible assets

Amortization of intangible assets for the three and six months ended April 30,
2022 relates primarily to intangible assets resulting from prior acquisitions.
Amortization of intangible assets increased by $20 million and $43 million for
the three and six months ended April 30, 2022, respectively, primarily due to
recent acquisitions including HyperX and Teradici.

Interest and other, net

Interest and other, net expense increased $13 million and $20 million for the
three months and six months ended April 30, 2022, respectively, primarily due to
lower Net Periodic Post-retirement Benefit Credit, higher interest expense on
debt, partially offset by foreign currency movements.

provision for taxes

Our effective tax rate was 19.3% for the three months ended April 30, 2022 and
18.7% for the six months ended April 30, 2022. The difference between the U.S.
federal statutory tax rate of 21% and our effective tax rate for the three and
six months ended April 30, 2022, was primarily due to tax effects of favorable
tax rates associated with certain earnings from our operations in lower-tax
jurisdictions throughout the world.

During the three and six months ended April 30, 2022, we recorded $8 million and
$35 million, respectively, of net income tax charges related to discrete items
in the provision for taxes. These amounts included income tax charges of $18
million related to the filing of tax returns in various jurisdictions for the
six months ended April 30, 2022 and $17 million and $56 million related to
withholding taxes on undistributed foreign earnings for the three and six months
ended April 30, 2022, respectively. These charges were partially offset by
income tax benefits of $20 million and $31 million related to restructuring
charges and $7 million and $8 million related to other tax benefits for the
three and six months ended April 30, 2022, respectively. In addition to the
discrete items mentioned above, we recorded excess tax benefits of $36 million
associated with stock options, restricted stock units and performance-adjusted
restricted stock units for the six months ended April 30, 2022.


                                       45

————————————————– ——————————

  Table of Contents

                            HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

           Financial Condition and Results of Operations (Continued)

segment information

A description of the products and services for each segment can be found in
Note 2, "Segment Information" to the Consolidated Condensed Financial Statements
in Item 1 of Part I of this report, which is incorporated herein by reference.
Future changes to this organizational structure may result in changes to the
segments disclosed.


                                       46

————————————————– ——————————

  Table of Contents

                            HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

           Financial Condition and Results of Operations (Continued)
Personal Systems

                                                     Three months ended April 30                                   Six months ended April 30
                                             2022               2021              % Change               2022               2021              % Change
                                                                                       Dollars in millions
Net revenue                             $       11,532       $    10,555                9.3  %       $      23,728       $    21,158               12.1 

%

Earnings from operations                $          798       $       710               12.4  %       $       1,755       $     1,468               19.6 

%

Earnings from operations as a % of net          6.9  %           6.7   %                                    7.4  %           6.9   %

revenue


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

                                                         Three months ended April 30                                         Six months ended April 30
                                                    Net Revenue                      Weighted Net                      Net Revenue                      Weighted Net
                                              2022                 2021            Revenue Change(1)              2022                2021            Revenue Change(1)
                                                Dollars in millions                Percentage Points               Dollars in millions                Percentage Points
Notebooks                               $        7,734          $  7,489                          2.3       $      16,155          $ 14,855                          6.1
Desktops                                         2,855             2,225                          6.0               5,662             4,625                          4.9
Workstations                                       494               407                          0.8               1,028               789                          1.1
Other                                              449               434                          0.2                 883               889                            -
Total Personal Systems                  $       11,532          $ 10,555                          9.3       $      23,728          $ 21,158                         12.1


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

Three months passed April 30, 2022 compared to three months ended April 30, 2021

  Personal Systems net revenue increased 9.3% (increased 10.6% on a constant
currency basis) for the three months ended April 30, 2022 as compared to the
prior-year period. The increase was driven by 30.9% increase in ASPs, partially
offset by 16.5% decrease in unit volume. The increase in ASPs was primarily due
to mix shifts to premium and favorable pricing, partially offset by foreign
currency impacts. The decrease in unit volume was primarily driven by a decline
in Notebooks due to lower Chromebooks and softening consumer demand, partially
offset by increases in Desktops and Workstations. Also, units were impacted due
to the continued supply chain challenges and overall macroeconomic environment.

Commercial PCs revenue increased 18.4% primarily driven by higher ASPs and unit
growth in Desktops and Workstations, partially offset by unit decline in
Notebooks due to lower Chromebooks. Consumer PCs net revenue decreased 6.1%
driven by unit declines in Notebooks and Desktops, partially offset by higher
ASPs.

As a result, net sales increased 3.3% for notebooks, 28.3% for desktops and 21.4% for workstations.

  Personal Systems earnings from operations as a percentage of net revenue
increased by 0.2 percentage points, primarily due to a decrease in operating
expenses as a percentage of revenue, partially offset by decrease in gross
margin. The gross margin decreased primarily due to higher costs including
commodity costs, and foreign currency impacts, partially offset by favorable
pricing and mix shifts. Operating expenses as a percentage of revenue decreased
by 1.2 percentage points primarily driven by last year's increased R&D
investments and lower variable compensation.

Six months have passed April 30, 2022 compared to six months ended April 30, 2021

  Personal Systems net revenue increased 12.1% (increased 12.5% on a constant
currency basis) for the six months ended April 30, 2022 as compared to the
prior-year period. The increase was driven by 26.5% increase in ASPs, partially
offset by 11.3% decrease in unit volume. The increase in ASPs was primarily due
to favorable pricing and mix shifts to premium. The decrease in unit volume was
primarily driven by a decline in Notebooks due to lower Chromebooks and
softening consumer demand, partially offset by increases in Desktops and
Workstations. Also, units were impacted due to the continued supply chain
challenges and overall macroeconomic environment.

                                       47

————————————————– ——————————

  Table of Contents

                            HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

           Financial Condition and Results of Operations (Continued)

Commercial PCs revenue increased 22.2% primarily driven by higher ASPs and unit
growth in Desktops and Workstations, partially offset by unit decline in
Notebooks due to lower Chromebooks. Consumer PCs net revenue decreased 3.3%
driven by unit declines in Notebooks and Desktops, partially offset by higher
ASPs.

As a result, net sales increased 8.8% for notebooks, 22.4% for desktops and 30.3% for workstations.

  Personal Systems earnings from operations as a percentage of net revenue
increased by 0.5 percentage points, primarily due to a decrease in operating
expenses as a percentage of revenue, partially offset by decrease in gross
margin. The gross margin decreased primarily due to higher costs including
commodity costs, and foreign currency impacts, partially offset by favorable
pricing and mix shifts. Operating expenses as a percentage of revenue decreased
by 1.0 percentage points primarily driven by joint partner funding and last
year's increased R&D investments.


Printing

                                                    Three months ended April 30                                  Six months ended April 30
                                            2022               2021             % Change               2022               2021              % Change
                                                                                      Dollars in millions
Net revenue                            $        4,963       $    5,323               (6.8) %       $       9,794       $    10,367               (5.5) %
Earnings from operations               $          958       $      951                0.7  %       $       1,837       $     1,949               (5.7) %

Operating profit in % of net 19.3% 17.9%

                             18.8  %          18.8   %
revenue




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

                                                        Three Months Ended April 30                                      Six months ended April 30
                                                   Net Revenue                   Weighted Net                      Net Revenue                     Weighted Net
                                              2022              2021           Revenue Change(1)             2022                2021            Revenue Change(1)
                                               Dollars in millions             Percentage Points               Dollars in millions               Percentage Points
Supplies                                   $  3,131          $ 3,337                    (3.9)           $      6,199          $  6,483                    (2.7)
Commercial                                    1,042            1,085                    (0.8)                  2,081             2,042                     0.4
Consumer                                        790              901                    (2.1)                  1,514             1,842                    (3.2)

Total Printing                             $  4,963          $ 5,323                    (6.8)           $      9,794          $ 10,367                    (5.5)


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


Three months passed April 30, 2022 compared to three months ended April 30, 2021

Printing net revenue decreased 6.8% (decreased 6.5% on a constant currency
basis) for the three months ended April  30, 2022. Net revenue for Supplies
decreased 6.2%, primarily due to normalization in home printing and gradual
return to office. Also, Supplies revenue was impacted by China lockdowns and the
Russia-Ukraine conflict. Printer ASPs increased 15.5% and unit volume decreased
23.1%. Printer ASPs increased primarily due to favorable pricing and mix shifts.
The decrease in printer unit volume was due to component availability and supply
chain disruptions which continued to limit unit availability for both Commercial
and Consumer, during the three months ended April 30, 2022.

Net revenue for Commercial decreased by 4.0%, primarily due to 17.2% decrease in
printer unit volume, partially offset by 9.6% increase in ASPs. The increase in
ASPs was primarily driven by mix shifts and favorable pricing, partially offset
by foreign currency impacts.

Net revenue for Consumer decreased 12.3%, primarily due to 23.9% decrease in
printer unit volume, partially offset by 14.7% increase in ASPs. The increase in
ASPs was primarily driven by favorable pricing.

Printing earnings from operations as a percentage of net revenue increased by
1.4 percentage points, primarily due to lower operating expenses as a percentage
of revenue and increase in gross margin. The increase in gross margin is
primarily

                                       48

————————————————– ——————————

  Table of Contents

                            HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

           Financial Condition and Results of Operations (Continued)

due to mix shifts and favorable pricing, partially offset by higher commodity
costs. Operating expenses as a percentage of revenue decreased primarily due to
lower variable compensation and go-to-market initiative expenses.

Six months have passed April 30, 2022 compared to six months ended April 30, 2021

Printing net revenue decreased 5.5% (decreased 5.6% on a constant currency
basis) for the six months ended April 30, 2022. Net revenue for Supplies
decreased 4.4%, primarily due to normalization in home printing and gradual
return to office. Also, Supplies revenue was impacted by China lockdowns and
Russia-Ukraine conflict in the second quarter of fiscal 2022. Printer unit
volume decreased 25.5% and ASPs increased 20.1%. The decrease in printer unit
volume was primarily driven by decreases in both Consumer and Commercial due to
component availability and supply chain disruptions. Printer ASPs increased
primarily due to favorable pricing and mix shifts.
Net revenue for Commercial increased by 1.9%, primarily due to 11.9% increase in
ASPs, partially offset by 10.2% decrease in printer unit volume. The increase in
ASPs was primarily driven by favorable pricing and mix shifts.
Net revenue for Consumer decreased 17.8%, primarily due to a 27.5% decrease in
printer unit volume, partially offset by 12.6% increase in ASPs. The increase in
ASPs was primarily driven by favorable pricing and mix shifts.
Printing earnings from operations as a percentage of net revenue remained flat
for the six months ended April 30, 2022, primarily due to decrease in gross
margin offset by lower operating expense as a percentage of revenue. The
decrease in gross margin is driven by higher commodity and supply chain costs,
partially offset by mix shifts and favorable pricing. Further, the hardware
gross margin was impacted by component shortages and supply chain disruptions
which impacted mix and unit availability for both Commercial and Consumer.
Operating expenses as a percentage of revenue decreased primarily due to lower
investments in go-to-market initiative expenses and variable compensation.

business investments

Loss from operations of Corporate Investments for the past three and six months April 30, 2022was primarily due to expenses related to our incubation projects and investments in digital enablement.

LIQUIDITY AND CAPITAL RESOURCES

We use cash generated by operations as our primary source of liquidity. The
impacts from the COVID-19 pandemic were originally expected to be temporary,
however, with the emergence of new variants, there remains uncertainty around
the extent and duration of the pandemic and how our liquidity and working
capital needs may be impacted in the future periods as a result. We believe that
current cash, cash flow from operating activities, new borrowings, available
commercial paper authorization and the credit facilities will be sufficient to
meet HP's operating cash requirements, planned capital expenditures, interest
and principal payments on all borrowings, pension and post-retirement funding
requirements, authorized share repurchases and annual dividend payments for the
foreseeable future. Additionally, if suitable acquisition opportunities arise,
the Company may obtain all or a portion of the required financing through
additional borrowings. While our access to capital markets may be constrained
and our cost of borrowing may increase under certain business, market and
economic conditions, our access to a variety of funding sources to meet our
liquidity needs is designed to facilitate continued access to capital resources
under all such conditions. Our liquidity is subject to various risks including
the risks identified in the section entitled "Risk Factors" in Item 1A of Part
II of this report as well as Item 1A of Part I in our Annual Report on Form 10-K
for the fiscal year ended October 31, 2021 and the market risks identified in
the section entitled "Quantitative and Qualitative Disclosures about Market
Risk" in Item 3 of Part I of this report.
On March 25, 2022, we entered into a definitive agreement to acquire Poly, a
leading global provider of workplace collaboration solutions, in an all-cash
transaction for $40 per share, implying a total enterprise value of $3.3
billion, inclusive of Poly's net debt. HP plans to fund the transaction through
a combination of cash and new debt. The transaction is expected to close by the
end of calendar year 2022, pending regulatory reviews, approval by Poly's
shareholders, and other customary closing conditions.

Our cash and cash equivalents balances are held in numerous locations throughout
the world. 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. 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 Tax Cuts and Jobs Act ("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 and began in fiscal year 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 the 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 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.

                                       49

————————————————– ——————————

  Table of Contents

                            HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

           Financial Condition and Results of Operations (Continued)

liquidity

Our cash and cash equivalents and total debt are as follows:

                                             As of
                             April 30, 2022       October 31, 2021
                                          In billions
Cash and cash equivalents   $           4.5      $             4.3

Total debt                  $           9.0      $             7.5


Our key cash flow metrics were as follows:

                                                                           Six months ended April 30
                                                                            2022                 2021
                                                                                  In millions
Net cash provided by operating activities                              $      2,165          $   2,468
Net cash used in investing activities                                          (462)              (315)
Net cash used in financing activities                                        (1,525)            (3,593)
Net increase (decrease) in cash and cash equivalents                   $        178          $  (1,440)


Operating Activities

Compared to the corresponding period in fiscal year 2021, net cash provided by operating activities decreased by $0.3 billion for the past six months
April 30, 2022mainly due to changes in working capital activities.

Key working capital metrics

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

                                                                As of                                                               As of
                                     April 30, 2022           October 31, 2021           Change          April 30, 2021           October 31, 2020           Change           Y/Y Change
Days of sales outstanding in                29                        30                   (1)                  28                        32                   (4)                 1
accounts receivable ("DSO")
Days of supply in inventory ("DOS")         61                        53                    8                   54                        43                   11                  7
Days of purchases outstanding in          (116)                     (108)                  (8)                (110)                     (105)                  (5)                (6)
accounts payable ("DPO")
Cash conversion cycle                      (26)                      (25)                  (1)                 (28)                      (30)                   2                  2

April 30, 2022 compared to April 30, 2021

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

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

DOS measures the average number of days from procurement to sale of our product.
DOS is calculated by dividing ending inventory by a 90-day average cost of
revenue. The increase in DOS was primarily due to higher inventory to mitigate
supply chain constraints in Printing.

DPO measures the average number of days that our liabilities are outstanding. DPO is calculated by dividing ending liabilities by 90-day average cost of sales. The increase in DPO was mainly due to higher inventory and working capital management activities.

                                       50

————————————————– ——————————

  Table of Contents

                            HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

           Financial Condition and Results of Operations (Continued)

investment activity

Compared to the corresponding period in fiscal year 2021, net cash used in
investing activities increased by $0.1 billion for the six months ended
April 30, 2022, primarily due to lower proceeds from sale of investments of $0.3
billion and increase in net investment in property, plant and equipment of $0.2
billion, partially offset by lower collateral posted for derivative instruments
of $0.2 billion and lower net payments for acquisitions of $0.1 billion.

financing activity

Compared to the corresponding period in the 2021 financial year, the cash outflow from financing activities decreased by $2.1 billion for the past six months
April 30, 2022principally due to the issuance of senior unsecured debentures by $2.0 billion and lower share buybacks from $0.5 billionpartially offset by payment towards commercial paper from $0.4 billion.

Share buybacks and dividends

During the six months ended April 30, 2022, HP returned $3.1 billion to the
shareholders in the form of share repurchases of $2.5 billion and cash dividends
of $533 million. As of April 30, 2022, HP had approximately $3.9 billion
remaining under the share repurchase authorizations approved by HP's Board of
Directors.

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

capital resources

level of debt

We maintain debt levels that we establish through consideration of a number of
factors, including cash flow expectations, cash requirements for operations,
investment plans (including acquisitions), share repurchase activities, our cost
of capital and targeted capital structure. Depending on these factors, we may,
from time to time, incur additional indebtedness or refinance existing
indebtedness. Outstanding borrowings increased to $9.0 billion as of April 30,
2022 as compared to $7.5 billion as of October 31, 2021, bearing
weighted-average interest rates of 3.5% and 3.1% for April 30, 2022 and
October 31, 2021, respectively.

In March 2022, we issued $2.0 billion in aggregate principal amount of senior
unsecured notes across various maturities. For more information on the new
notes, see Note 9, "Borrowings", to the Consolidated Condensed Financial
Statements in Item 1 of Part I of this report, which is incorporated herein by
reference.

Our weighted-average interest rate reflects the effective rate on our borrowings
prevailing during the period and reflects the effect of interest rate swaps. For
more information on our interest rate swaps, see Note 8, "Financial
Instruments", to the Consolidated Condensed Financial Statements in Item 1 of
Part I of this report, which is incorporated herein by reference.
As of April 30, 2022, we maintained the 5-year sustainability-linked senior
unsecured committed revolving credit facility with aggregate lending commitments
of $5.0 billion which will be available until May 26, 2026. Funds borrowed under
the revolving credit facility may be used for general corporate purposes.

Available Lending Resources

As of April 30, 2022, we had available borrowing resources of $550 million from
uncommitted lines of credit in addition to the revolving credit facility.
The amendment to our 2019 Shelf Registration Statement to convert to a
non-automatic shelf registration statement was declared effective by the SEC on
February 25, 2021 and, as of April 30, 2022, enables us to offer for sale, from
time to time, in one or more offerings, $3.0 billion, in the aggregate, of debt
securities, common stock, preferred stock, depository shares and warrants.
For more information on our borrowings, see Note 9, "Borrowings", to the
Consolidated Condensed Financial Statements in Item 1 of Part I of this report,
which is incorporated herein by reference.

credit ratings

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


                                       51

————————————————– ——————————

  Table of Contents

                            HP INC. AND SUBSIDIARIES

                    Management's Discussion and Analysis of

           Financial Condition and Results of Operations (Continued)

CONTRACTUAL AND OTHER OBLIGATIONS

Payments of principal and interest on debt

In March 2022, we issued $2.0 billion in aggregate principal amount of senior
unsecured notes across various maturities. As a result, our future principal
payments on debt increased from $7.6 billion as at October 31, 2021 to $9.1
billion as at April 30, 2022 and future interest payments on debt increased from
$2.3 billion as at October 31, 2021 to $2.9 billion as at April 30, 2022. For
more information on the new notes, see Note 9, "Borrowings", to the Consolidated
Condensed Financial Statements in Item 1 of Part I of this report, which is
incorporated herein by reference.

Unconditional acceptance obligation

Purchase obligations include agreements to purchase goods or services that are
enforceable and legally binding on HP and that specify all significant terms,
including fixed or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of the transaction. These
unconditional purchase obligations are primarily related to inventory and
service support. Unconditional purchase obligations exclude agreements that are
cancellable without penalty. As of April 30, 2022, the Company had outstanding
purchase commitments of $5.4 billion. The majority of these commitments are due
within five years, see Note 14, "Commitments", to the Consolidated Condensed
Financial Statements in Item 1 of Part I of this report, which is incorporated
herein by reference.

Retirement and Retirement Plan Contributions

As of April 30, 2022, we anticipate making contributions for the remainder of
fiscal year 2022 of approximately $25 million to our non-U.S. pension plans,
$21 million to cover benefit payments to U.S. non-qualified pension plan
participants and $2 million to cover benefit claims for our post-retirement
benefit plans. Our policy is to fund our pension plans so that we meet the
minimum contribution required by local government, funding and taxing
authorities. For more information on our retirement and post-retirement benefit
plans, see Note 4, "Retirement and Post-Retirement Benefit Plans", to the
Consolidated Condensed Financial Statements in Item 1 of Part I of this report,
which is incorporated herein by reference.

cost savings plan

As a result of our approved restructuring plans, we expect to make future cash
payments of approximately $0.1 billion. For more information on our
restructuring activities that are part of our cost improvements, see Note 3,
"Restructuring and Other Charges", to the Consolidated Condensed Financial
Statements in Item 1 of Part I of this report, which is incorporated herein by
reference.

Uncertain Tax Positions

As of April 30, 2022, we had approximately $634 million of recorded liabilities
and related interest and penalties pertaining to uncertain tax positions. We are
unable to make a reasonable estimate as to when cash settlement with the tax
authorities might occur due to the uncertainties related to these tax matters.
Payments of these obligations would result from settlements with taxing
authorities. For more information on our uncertain tax positions, see Note 5,
"Taxes on Earnings", to the Consolidated Condensed Financial Statements in
Item 1 of Part I of this report, which is incorporated herein by reference.

Off-Balance Sheet Arrangements

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

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 6, "Supplementary
Financial Information", to the Consolidated Condensed Financial Statements in
Item 1 of Part I of this report, which is incorporated herein by reference.


                                       52

————————————————– ——————————

Table of Contents

© Edgar Online, Source insights

Comments are closed.