2018 Annual Report
2019 Proxy Statement
1
2
3
Annual Report
Proxy Statement
Form 10-K
i
Message from Our
President and CEO
Strategy
ii
iii Performance
iv Good Governance
v Meet the HP Board
vi Meet HP’s Executives
vii Stockholder Engagement
viii Sustainable Impact
xii Our Compensation Philosophy
11 Corporate Governance
36 Audit Matters
38 Executive Compensation
63 Ownership of our Stock
65 Stockholder Proposals
68 Other Matters
Part I
2
26 Part II
121 Part III
122 Part IV
The HP Inc. BoardThe HP Board of DirectorsAbout usOur vision is to create technology that makes life better for everyone, everywhere — every person, every organization, and every community around the globe. This motivates us — inspires us — to do what we do. To make what we make. To invent, and to reinvent. To engineer experiences that amaze. We won’t stop pushing ahead, because you won’t stop pushing ahead. You’re reinventing how you work. How you play. How you live. With our technology, you’ll reinvent your world. This is our calling. This is a new HP.Keep reinventing.Fiscal 2018 Board (not pictured: Yoky Matsuoka) Message from Our President and CEO
Delivering on our reinvention
Dion J. Weisler
President and CEO
“I am truly energized
about the future
of HP.”
Dear Stockholders:
Looking back at the past few years, I’m enormously proud of how far we’ve come. We set out on a journey
to reinvent everything about our company – from our brand and our products, to our culture and the role
we play in the communities we serve.
Our 2018 results demonstrate the incredible progress we’ve made. It was an exceptional year for HP and
a clear indication that our strategy is paying off. We are innovating across our core businesses, capitalizing
on new growth opportunities, and making strategic investments to position our company for success well
into the future.
We drove 12% revenue growth in FY18, adding more than $6.4 billion to our top line. We delivered 22%
non-GAAP diluted net earnings per share (“EPS”) growth, reflecting the strength of our operational
performance, disciplined investment strategy, and prudent cost-management. We generated $4.2 billion
free cash flow and returned $3.5 billion to stockholders in the form of share repurchases and dividends. And
we did all of this while advancing key strategic initiatives that are enhancing our long-term competitiveness.
We are consistently executing and winning with customers and partners, while simultaneously fulfilling the
commitments we made to our shareholders. With our strong financials and industry-leading innovations,
we enter 2019 well positioned to compete across Personal Systems and Printing including 3D Printing.
In Personal Systems, we are reinventing the personal computer (“PC”) experience with amazing
innovations that are setting new standards for the category and driving profitable growth for our business.
Our design and engineering prowess is fueling our momentum in high-value segments such as premium
and gaming. At the same time, we continue to make security a key differentiator by offering the most
secure and manageable PCs. And we are accelerating the shift to more contractual relationships with
customers through the expansion of our award-winning Device as a Service offerings.
In Printing we are driving a renaissance. By leveraging insights, design and innovation we are reinventing
home printing and connecting with new customers. In office print, we are driving innovation across both
product and go-to-market, and similarly to Personal Systems, we are accelerating the shift towards
more contractual business models and Managed Print Services. While in Graphics, we continue to drive
the analog to digital transformation, and demand for more personalized products and experiences is
propelling us toward new sources of growth.
In 3D Printing we have made great strides towards disrupting the $12T manufacturing industry by
expanding our product portfolio and partner ecosystem. In less than 2 years, we’ve become the #1 player
in commercial plastics printing and we continue to pursue new markets and new materials. In 2018 we
again broke new ground by announcing our Metal Jet platform, bringing 3D mass production to the metal
manufacturing industry.
Across each of our businesses, HP is winning in the marketplace. More importantly, we are winning the
right way – operating with a deep sense of purpose and integrity, and having a sustainable impact on our
planet, people and communities around the world. It is not just the right thing to do, it fuels our innovation,
our growth, and creates a stronger and healthier company for the long term.
I am truly energized about the future of HP. By staying true to our strategy, innovating with purpose, and
delivering long term value for our shareholders, I believe there is a world of opportunity ahead.
On behalf of the entire leadership team, our partners and our employees, thank you for your
continued support.
Sincerely,
Dion Weisler
Annual Report
i
Strategy
Delivering on our reinvention
Our journey to keep reinventing
Looking back at the past few years, we are enormously proud of how far we’ve come, and how well
we’ve executed. Our results reinforce our ability to consistently execute and win in the marketplace while
simultaneously fulfilling the commitments we made to our stockholders. But we’re just getting started.
Our strategy remains consistent and spans core, growth, and future. We’re leading in the core, setting
ourselves up for sustained growth and building momentum to capture the future.
Our core businesses operate in incredibly large markets, and are where we make most of our revenue and
operating profit today. Profits from the core enable us to pursue strategic growth in natural adjacencies.
Our growth pillar is the bridge to the third pillar of our strategy, the future. This is pure innovation and
category creation. We’re making investments in research and development and building new businesses
today that will set us up for the long-term future success of HP. We’re confident in our strategy, and
believe it enables us to engineer experiences that amaze and deliver attractive, long-term returns for
our stockholders.
Executing on our strategy and driving financial returns
Looking across our portfolio, there are tremendous opportunities for us to continue driving innovation
and long-term sustainable growth. These opportunities are fueled by trends that are transforming not
only the categories where we operate, but the world at large. We are uniquely positioned to capitalize on
these trends with a powerful innovation engine that is turning customer insights into experiences that
amaze. We are truly energized about the future of HP, but we’re not taking our success, our scale, or our
leadership for granted. As an organization, we remain humble, grounded in the needs of our customers
and our partners, and relentlessly focused on execution.
Our results in fiscal 2018 demonstrate sustained operational performance, a disciplined investment
framework, and prudent cost management. Our core, growth and future strategy is working. And we are
well positioned for continued success across our categories and our regions.
In fiscal 2018, we grew net revenue 12% year-over-year, adding over $6.4 billion of revenue from the prior
year period for a fiscal year net revenue of $58.5 billion. We also delivered strong non-GAAP diluted net
earnings per share growth of 22% to $2.02, generated $4.2 billion in free cash flow, above our previously
provided guidance of at least $3.7 billion, and returned 83%, or $3.5 billion, of that free cash flow to
stockholders through share repurchases and dividends, above the high-end of our long-term range of
50% to 75%.
We generated these results while continuing to invest in our strategic initiatives that are helping to
strengthen our long-term competitiveness. We are consistently executing and winning with customers
and partners while simultaneously fulfilling the commitments we made to our stockholders. With our
winning portfolio and strong financials, we enter fiscal 2019 well positioned to compete across Personal
Systems and Printing including 3D Printing.
Our Three Pillars
Core
Printing
Personal Systems
• Revitalize
consumer
• Lead
commercial
• Drive commercial
• Grow premium
Growth
Printing
Personal Systems
• Disrupt the
• Drive
copier market
• Accelerate
graphics
commercial
transformation
Future
Printing
Personal Systems
• Lead 3D printing
• Create new
immersive
categories
ii
www.hpannualmeeting.com
Performance
How we executed on our commitments
Fiscal 2018
Operating Highlights
• For the full year, Personal Systems
revenue grew 13% year-over-year,
with operating profit growth of 17%
adding more than $200 million to the
bottom line.
• We continued to lead in PC design
including the leather Spectre Folio
which won high praise for design,
versatility and performance; the
Spectre X360 13 which delivers the
world’s longest battery life in a quad
core convertible; and the Spectre
X360 15 which is the most powerful
convertible we’ve ever created.
•
In Gaming, we also launched our latest
OMEN desktop and our remote service
called Game Stream that turns the
OMEN PC into a cloudbased gaming
server to enable experiences on the go.
• Our Device as a Service (“DaaS”)
offerings continue to deliver to our
customers and lead the industry,
winning HP one of the highest honors in
the technology services industry for our
DaaS innovations.
• For the full year, Printing revenue was
up 11% year-over-year, with growth in
all regions and across businesses.
• We introduced the world’s first smart
home printer, HP Tango. We also
strengthened our leadership in the
office space to drive new contractual
and A3 growth opportunities.
• We further accelerated our penetration
of the copier market by completing the
acquisition of Apogee, providing us with
deep solutions and services expertise.
• We made great strides in 3D Printing,
including expanding our portfolio,
increasing the number of customer
applications tenfold, signing numerous
strategic partnerships, and generating
multi-unit customer orders. Multi Jet
Fusion is now the most used industrial
3D printer in the world.
Americas
44% of net revenue
7% y/y
7% CC(1)
Non-US net revenue was
65% of total net revenue
EMEA
35% of net revenue
17% y/y
12% CC(1)
Asia Pacific
21% of net revenue
16% y/y
15% CC(1)
Personal systems
Personal systems
Printing
Printing
Net revenue
Net revenue
$37.7
$37.7
billion
billion
��������
��������
$1.4
$1.4
billion
billion
Net revenue
Net revenue
$20.8
$20.8
billion
billion
��������
��������
$3.3
$3.3
billion
billion
13% y/y
13% y/y
11% CC(1)
11% CC(1)
3.7% of
3.7% of
net revenue
net revenue
11% y/y
11% y/y
10% CC(1)
10% CC(1)
16.0% of
16.0% of
net revenue
net revenue
7% y/y
7% y/y
Total units
Total units
14% y/y
14% y/y
7% y/y
7% y/y
Units
Units
12% y/y
12% y/y
5% y/y
5% y/y
Units
Units
Notebooks net revenue
Notebooks net revenue
Desktops net revenue
Desktops net revenue
8% y/y
8% y/y
CC(1)
7% y/y
CC(1)
7% y/y
13% y/y
13% y/y
85% y/y
85% y/y
14% y/y
14% y/y
11% y/y
11% y/y
Commercial net revenue
Commercial net revenue
4% y/y
4% y/y
Consumer net revenue
Consumer net revenue
Supplies net revenue
Supplies net revenue
Total hardware units
Total hardware units
Commercial hardware
units(2)
Commercial hardware
units(2)
Consumer hardware
units(2)
Consumer hardware
units(2)
1.
2.
CC = Constant currency; adjusted to eliminate the effects of foreign 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.
Commercial Hardware includes Office Printing Solutions including Samsung branded and OEM hardware,
Graphics Solutions and 3D Printing, excluding supplies. Consumer Hardware includes Home Printing Solutions,
excluding supplies
NOTE: Arrows represent the mathematical direction of the amount the arrow is associated with.
Annual Report
iii
Good Governance
Governance Highlights
Best-Practices
in Governance
Independent board leadership
% Robust board oversight and leadership
by an independent Chairman (more
details in the proxy statement beginning
on page 26).
% Our independent Chairman
participates in a robust stockholder
outreach program.
% Our independent Chairman leads and
coordinates the annual performance
evaluation of the CEO.
% Our independent Chairman oversees
the Board and committee evaluations
and recommends changes to improve
Board, committee, and individual
Director effectiveness
Other governance best practices
% Our Bylaws provide our stockholders
with a proxy access right.
% All members of our committees
are independent.
% Our stockholders owning 15% or more
of our common stock have a right to
call special meetings. We lowered this
right from 25% after engaging with our
stockholders on how they would prefer
to act outside of the annual meeting.
% Directors are elected annually
by majority vote in uncontested
Director elections.
% Each Director nominee has agreed to
resign from the Board in the event that
he or she fails to receive a majority vote.
% We have a robust and ongoing
stockholder outreach program.
% Non-employee Directors are expected
to own Company stock equal to at
least five times their annual cash Board
retainer within five years of joining
the Board.
Recent Governance Updates
HP’s corporate governance policies and practices are continuously evolving – from our time as Hewlett-Packard
Company to our new identity as HP Inc., we’ve always led by example, adopting changes in line with our
commitment to the highest standards of governance. Stockholder input has been key to our progression and as
we continue to evolve our corporate governance policies and practices, we will continue to solicit feedback from
our stockholders regarding our governance profile. The following examples highlight some of the key features
of our corporate governance policies and practices, including updates we have recently made to strengthen our
policies and practices:
• Our Board continues to believe that it is in the current best interests of our stockholders and the Company
to have an independent Chairman. Charles V. (“Chip”) Bergh has served as our independent Chairman since
July 2017.
• We continue to engage in a robust and ongoing stockholder engagement program. In fiscal 2018, in addition
to our CEO and independent Chairman, the Chair of our HRC Committee also met with stockholders during our
stockholder engagement program. As described in detail on our stockholder engagement page on page vii
and within the proxy statement beginning on page 21, we also conducted robust outreach to stockholders
in the fall of 2018 focused specifically on our governance profile and engaged in substantive discussions
regarding desired responses to the 2018 stockholder proposal on stockholder action by written consent.
• Since 2016, our NGSR Committee has reviewed and discussed our environmental, sustainability,
diversity and social impact strategy at every regular meeting of the Committee, providing valuable advice
and insights. As a result, in 2018 HP was awarded the highest possible score during ISS’s first-ever
Environmental & Social (E&S) Disclosure QualityScore review process.
• Effective as of February 7, 2019, we amended our stockholders’ right to call special meetings in our Bylaws
to lower the threshold requirement to call such a meeting from 25% to 15% of our outstanding shares.
We decided to amend this right after extensive outreach to our top 75 stockholders regarding their desired
response to the 2018 stockholder proposal on stockholder action by written consent.
• As part of our commitment to the highest standards of governance, in 2018 we became a signatory to
the Commonsense Principles of Corporate Governance 2.0, a set of corporate governance principles we
and the other signatories believe serve the best interests of U.S. corporations and financial markets. We
have also evaluated our governance practices against the Corporate Governance Principles for U.S. Listed
Companies published by the Investor Stewardship Group (“ISG”), a collective of some of the largest U.S.-
based institutional investors and global asset managers, and we believe that our governance policies and
practices are consistent with the ISG principles.
Annual Meeting Experience
HP’s virtual format for the annual meeting allows stockholders to submit questions and comments in our
stockholder forum both before and during the meeting. We respond to all stockholder submissions received
through the forum in writing on our investor relations website. The virtual meeting format allows our
stockholders to engage with us no matter where they live in the world, and is accessible and available on any
internet-connected device, be it a phone, a tablet, or a computer. We’re able to reach a base of stockholders
that is broader than just those who can afford to travel to an in-person meeting. The virtual meeting gives
us the opportunity to respond in thoughtful detail to every question all of our stockholders may have, rather
than just the limited number of questions stockholders are able to ask at in-person meetings, which are
answered on the fly.
All of these benefits of a virtual meeting allow our
stockholders to have truly robust engagement with HP.
Please join us for our Virtual Annual
Meeting at www.hpannualmeeting.com or
https://hp.onlineshareholdermeeting.com
Contact the HP Board*
You can reach us by emailing us at
bod@hp.com or by writing to us at:
The HP Board of Directors
1501 Page Mill Road
Palo Alto, CA
94304
*
All directors have access to this correspondence. In accordance with instructions from the Board, the Secretary to the Board reviews all correspondence, organizes the communications
for review by the Board and posts communications to the full Board or to individual directors, as appropriate. Our independent directors have requested that certain items that are
unrelated to the Board’s duties, such as spam, junk mail, mass mailings, solicitations, resumes and job inquiries, not be posted.
Communications that are intended specifically for the Chairman of the Board, other independent directors or the non-employee directors should be sent to the e-mail address or
street address noted above, to the attention of the Chairman of the Board.
iv
www.hpannualmeeting.com
Meet the HP Board
Leading HP into the future
Aida
Alvarez
Shumeet
Banerji
Robert R.
Bennett
Charles V.
Bergh
Stacy Brown-
Philpot
Stephanie A.
Burns
Mary Anne
Citrino
Yoky
Matsuoka
Stacey
Mobley
Subra
Suresh
Dion J.
Weisler
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3 years
8 years
6 years
4 years
4 years
4 years
4 years
<1 year
4 years
4 years
4 years
Academics
Disruptive
Innovation
Engagement
Finance
Government
International
Business
Operations
Robust Business
Experience
Science
Strategy
Sustainability
Technology
Independent
Diversity
Tenure
(including HP Co.)
North America
Europe
Asia
Australia
International experience
Annual Report
v
Meet HP’s executives
Engineer experiences that amaze
Dion
Weisler
Steve
Fieler
President & Chief
Executive Officer
Chief Financial
Officer
Tracy
Keogh
Alex
Cho
Chief Human
Resources Officer
President,
Personal Systems
Kim M.
Rivera
Enrique
Lores
President, Strategy
and Business
Management and
Chief Legal Officer
President,
Imaging & Printing
Commitments Delivered
+22%
Non-GAAP diluted net EPS Growth1
$4.2B
Free Cash Flow
83%
Return of Capital
Reinventing
Personal Systems
Disrupting $12T Industry
3D Printing
• Outpaced Markets
• Breakthrough Innovation
• Services & Solutions
• Platform Expanded
• Applications Enabled
• HP Metal Jet Announced
Reinventing Print
Trends Driving Transformation
• Predictable Supplies
• Portfolio Innovation
• Advancing Services
• One Life
• Security
• As-A-Service
Operating in
170 Countries
approx.55,000
employees worldwide
as of October 31, 2018
Claire
Bramley
Global Controller
and Head of
Finance Services
over 70 years of history
1.
All non-GAAP numbers have been adjusted to exclude certain items. A reconciliation of specific adjustments to
GAAP results for the current and prior periods is included as a part of a Q4 FY18 earnings presentation available at
https://investor.hp.com
vi
www.hpannualmeeting.com
Stockholder engagement
Dialogue with HP investors
Fiscal 2018 Engagement
In fiscal 2018, we conducted two outreach
in early 2018, as
programs: the first
part of our annual
investor outreach
cycle, and the second in September and
October 2018, as part of our outreach
regarding our governance profile and the
2018 written consent proposal, described
below. Through these two programs, we
met or spoke with institutional investors
representing more than 50% of our
outstanding stock during fiscal 2018 as
well as with proxy advisor firms.
Outreach on Written Consent
HP values input from stockholders throughout the year. We currently afford stockholders the opportunity
to act between annual meetings through the combination of a special meeting right as well as a robust
stockholder outreach program that demonstrates our openness to direct stockholder engagement.
At our 2018 Annual Meeting, holders of 37.5% of our outstanding shares expressed support for an
advisory proposal to provide stockholders with the ability to act by written consent without a meeting
of stockholders. Of the votes cast, 50.4% supported the proposal while 49.2% voted against it, with
0.3% abstaining.
September 2018-January 2019
January 2019
We engaged
with our
75
largest
stockholders
68%
We received feedback
from over 50%
approx.
60%
almost
40%
(almost 30%
of outstanding
shares)
AGAINST
(over 20% of
outstanding
shares)
FOR
% Senior management
% Chair of the Board
% Chair of the HRC
% Member of the NGSRC
Top 20
stockholders
invited to
further engage
over
46%
invited
During these interactions, we discussed HP’s record of strong governance practices and responsiveness to
stockholder concerns. We specifically focused on the 2018 written consent proposal with our stockholders,
explaining the Board’s reasons for opposing the proposal and asking the stockholders to provide their
perspectives on the rationale underlying their particular vote decisions and on potential next steps for HP. Our
stockholders were pleased to be consulted and overall expressed their appreciation of our current corporate
governance profile, long record of engagement with and responsiveness to stockholders, commitment to
transparency, and openness to addressing stockholders’ desires through a more accessible opportunity
to act between annual meetings. Not one of the stockholders with whom we spoke raised any concerns
or issues with the approach we took with respect to seeking additional feedback and conducting further
engagement rather than unilaterally acting without the benefit of such additional outreach.
Our investor calendar
November 2017
February 2018
August 2018
seeking
that effective corporate
We believe
should
regular,
include
governance
constructive
conversations with our
stockholders. Over the past year, the
Board has continued to engage with
stockholders,
and
including
encouraging feedback from stockholders
about our corporate governance practices
by conducting stockholder outreach and
engagement throughout the year. Our
Executive Leadership Team, Chairman
of the Board, Chair of the HRC and other
directors participate
investor and
including our annual
customer events,
corporate governance investor outreach
cycle, highlights of which are outlined to
the right.
in
•
•
Q4 2017 HP Inc. Earnings
Conference Call
Credit Suisse Technology,
Media & Telecom
Conference
December 2017
• 2017 Wells Fargo Tech Summit
•
Global Mizuho Investor
Conference (MIC) 2017
Barclays Global Technology,
Media & Telecommunications
Conference
•
January 2018
• CES 2018
•
Citi 2018 Global
TMT West
Conference
2018 HP Inc.
Sustainability
Webcast
•
Annual
Stockholder
outreach
conducted*
•
•
Q1 2018 HP Inc.
Earnings Conference Call
Morgan Stanley
Technology, Media &
Telecom Conference,
San Francisco
April 2018
•
HP Inc Annual
Stockholder Meeting*
•
Q3 2018 HP Inc. Earnings
Conference Call
September 2018
•
•
•
Citi 2018 Global
Technology Conference
HPQ 3D Printing Metal
Jet Technology Briefing
Deutsche Bank’s
Technology Conference
May 2018
October 2018
HP Securities
Analyst Meeting*
HP Inc. Announces
Fiscal 2019
Financial Outlook
•
•
Q2 2018 HP Inc.
Earnings Conference Call
Bernstein’s 34th Annual
Strategic Decisions
Conference (SDC)
June 2018
•
2018 Bank of America
Merrill Lynch Global
Technology Conference
•
•
*
Stockholder
outreach
regarding
governance
and the
2018 written
consent
proposal
conducted
Event attended by a member of the
HP Board.
Annual Report
vii
Sustainable Impact
Reinventing for impact
Sustainable Impact is at the heart of our reinvention journey—fueling our innovation and growth, and strengthening our business for the long term.
Planet
People
Community
Grow our business, not our footprint–
and support our customers to do
the same
Champion dignity, respect, and
empowerment for all people with
whom we work
Catalyze positive change in communities
where we live, work, and
do business
Our commitment to integrity enables our Sustainable Impact journey
Sustainable Impact Delivers:
Business value
Sustainable
Impact was a key
differentiator for
$700+
million
in new business
38%
Year-over-year
increase in
sales bids with
sustainability
requirements
Employee engagement
87%
of employees agree
that HP is socially
and environmentally
responsible
73%
of employees
agreed that they
see HP values being
demonstrated in
their everyday lives
Recognition
2019
Engaging stakeholders and identifying priorities
For our Sustainable Impact strategy to succeed, we need to hear from everyone our business affects. Key
stakeholders include suppliers, customers, peer companies, public policy makers, industry bodies, NGOs,
sector experts, and others. We engage in ways that are most relevant to their objectives and operations,
including partnerships, sponsorships, collaboration on industry initiatives, customer and supplier
education, supplier capability building programs and audits, employee surveys, white papers – and more.
We conduct periodic materiality assessments, to review relevant environmental, social, and governance
topics, reconfirm our long-standing areas of focus, and clarify and shape our Sustainable Impact strategy
and investments. This enables us to focus on the areas where we can have the greatest positive impact,
determine any gaps, and identify relevant trends and leadership opportunities for our business. We have
set aggressive goals related to several of our most material topics, to manage performance and drive
long-term progress.
Sustainable impact governance
At all levels of the company, starting with our Board of Directors, we embed Sustainable Impact throughout
our strategy, policies, programs, and value chain. The HP Board of Directors’ Nominating, Governance,
and Social Responsibility Committee oversees global citizenship policies and programs as well as other
legal, regulatory, and compliance matters. Our executive leadership team, led by our CEO, has overall
responsibility for Sustainable Impact as part of our business strategy. A team of executives, led by our
Global Head of Sustainability and Product Compliance, set HP’s Sustainable Impact strategy and drives
progress company-wide.
Additional Information
For more information on our efforts in this space and additional detail to the information presented
herein, please view our Sustainable Impact Report at https://www8.hp.com/us/en/hp-information/
global-citizenship/index.html.
viii
www.hpannualmeeting.com
Planet
We are contributing to a more efficient, circular, and
low-carbon economy
Supply chain
Operations
Products and solutions
Suppliers avoided
1.05 million
tonnes
CO2e emissions
since 2010
Maintained
zero
deforestation
associated with HP
brand paper and
developed a packaging
supplier performance
plan to drive progress
in that area
35%
decrease in Scope 1
and 2 GHG emissions,
compared to 2015
50%
renewable electricity
use in our global
operations7
90.9%
landfill diversion rate,
globally
33%
decrease in product
portfolio GHG
emissions intensity,
compared to 2010
18,000+
tonnes
of recycled plastic
used in HP products
in 2017
99,000
tonnes
of recycled plastic
used in 3.8 billion+
Original HP ink and
toner cartridges
through 2017
8%
decrease in materials
use intensity for
personal systems
products, and
6%
decrease in materials
use intensity for
printers, compared
to 2016
Reducing impact for HP, our partners and customers
Carbon
footprint,
2017
37,130,100
tonnes CO2e
Water
footprint,
2017
204,916,000
cubic meters
2%
HP’s carbon
footprint in 2017
increased by 2%
from 2016
1%
HP’s water
footprint in 2017
decreased by 1%
from 2016
Supply chain
Operations
Products and solutions
271,400 tonnes
of hardware and supplies recycled since the
beginning of 2016
HP provides take-back programs in
74 countries and territories worldwide
Annual Report
ix
Rising standards of living and population
growth worldwide present market
opportunities for HP and other companies,
while putting tremendous pressure on
natural resources and the environment.
At HP, we seek to decouple growth from
consumption and drive progress toward
a more efficient, circular, and low-carbon
economy. We aim to deliver the most
environmentally sustainable product and
services portfolio in the IT industry so that
our partners and customers can achieve
more, with less impact.
People
We work with our suppliers to protect and empower all workers in
our supply chain
8%
increase in average supplier
performance on Sustainability
Scorecard, compared to 2016
Expanding supply chain
transparency, published an
industry first
detailed list of our global
recycling vendor sites in 2017
243,600
supplier factory workers
participated in skill-building and
well-being programs since the
beginning of 2015
We are reinventing the standard for diversity and inclusion in
our industry
Board of Directors
Leadership
Investing in future talent
Driving progress from the top - our Board is one
of the most diverse of any technology company
in the United States.
We’ve increased women in our executive levels
7.7% increase in minority
hiring in the United States in the past year,
from 26.8% in 2016 to 34.5% in 2017.
6.5% from 21.7% in
2015 to 28.2% in 2017.
Technical roles
Global functions
21%
women in
IT and
engineering
55%
women in
legal, finance,
HR, and
marketing
85%
$647million
$230 million
of employees feel HP
values diversity
spent with small companies
in 2017
spent with minority- and women-
owned businesses in 2017
Global inequality has the potential to
stagnate economic growth and hold back
innovation. From our supply chain, to our
employees, to our partners and beyond,
we stand for equality and human rights for
all so that business and society can thrive.
x
www.hpannualmeeting.com
Photo credit ©InZone/Georg Schaumberger
We embrace the opportunity and
responsibility to positively impact the
communities where we live, work, and
do business. Through our products
and solutions, global programs, and
key strategic partnerships, we are
working to deliver quality technology-
enabled learning that engages students,
empowers educators.
Community
We partner to deliver quality technology-enabled learning
for millions
Our goal
To help us reach our 2025 goal:
Enable better learning outcomes for
100 million people
by 2025, since the beginning of 2015
Progress
14.5 million people
have benefited from HP’s education
programs through 2017
80+ schools
have received HP
Learning Studios,
impacting 4,000
students in 2017
15+
million people
aimed to be reached by
HP’s World on Wheels
program by 2022
~4,000
Syrian refugee
students
expected to be reached
in the first year of HP’s
partnership with the
Clooney Foundation for
Justice and UNICEF
1 million users
enrollment goal for HP
LIFE, between 2016
and 2025
We invest in helping to build vibrant and resilient communities
HP giving:
Employee engagement:
$4.19 million
in cash and product donations in 2017
$755,000
provided by the HP Foundation to assist
with disaster preparedness, relief, and
recovery efforts in 2017
$1.7 million
in cash donated by employees through our HP
Inspires Giving program, 97.6% matched by the
HP Foundation
5,600+
employees
contributed
89,000+
hours to local volunteer efforts in 2017, with a
value of $3.5 million
Annual Report
xi
Our Compensation Philosophy
A conversation with the HRC Committee
Tracy Keogh, HP’s Chief Human
Resources Officer, talks with Chair of the
HRC Committee Stephanie Burns about
the Company’s executive compensation
program and the Committee’s duties in
overseeing its design and implementation.
The Committee consists of Ms. Burns and
four of our other independent Directors:
Ms. Alvarez, Mr. Banerji, Mr. Bergh and
Mr. Mobley. All bring valuable experience
and understanding of the role that setting
compensation
appropriate
plays in ensuring company performance
and stockholder value.
executive
Components of
Compensation
11%
Base Salary
16%
Annual Incentive
(i.e., Pay-for-
Results (“PfR”))
73%
Long-Term Incentives
including Restricted Stock
Units (“RSUs”) and
Performance-Adjusted
Restricted Stock Units
(“PARSUs”)
information
For more
regarding
compensation details for all of our NEOs,
including our CEO, please see page 31 of
the Proxy Statement for our complete
Compensation Discussion and Analysis.
xii
www.hpannualmeeting.com
TK: Stephanie, so good to have you with us today. You’ve been a member of the HP Board since 2015
and have chaired the HRC Committee since November 2017. Can you talk about the role the HR and
Compensation Committee plays?
SB: Certainly. The Committee oversees and provides strategic direction to management regarding our
pay-for-performance program. The Committee sets Dion’s compensation, and reviews and approves
the compensation of the rest of the leadership team. We also review senior management selections and
oversee succession planning. To do this, the Committee works with its own independent compensation
consultant to help analyze competitive pay practices and market trends, and to generally strengthen the
pay-for-performance relationship and alignment with stockholders. The Committee also gets an update
at every meeting on the key people practices and initiatives going on in the organization. Everything from
employee engagement to workforce planning to key hires is within our remit.
TK: Can you describe HP’s overall philosophy and strategy on executive compensation?
SB: Our compensation program is closely aligned with HP’s company goals. It focuses on driving the right
behaviors while simplifying executive compensation plans. Ultimately it’s designed to help us attract,
retain, and reward the executive team for delivering value to stockholders over the long term. We have
a pay-for-performance philosophy that forms the foundation for all decisions regarding compensation,
with a strong bias towards variable pay in our executive compensation. Our program is also designed to
facilitate strong corporate governance. Our executive compensation is aligned with shareholder value
through equity-based programs, shareholder value-based performance measures (like relative Total
Shareholder Return), and using financial performance measures that executives can control and are
closely correlated with shareholder value over time.
TK: Are there specific elements of our program that you’ve found to showcase our best practices?
SB: HP’s program includes many robust best practices and we are continuously working to improve.
Some specific elements of our program that are best-in-class include:
• We target compensation to approximate the median level among a group of relevant peers, and only
go above this level when performance warrants
• We utilize non-discretionary financial metrics, and specific management objectives in our annual cash
incentive plan, which we believe are correlated to long-term value creation
• We do not use employment contracts with any of our executives, and have consistent and
market-aligned severance
TK: Thanks for that great overview Stephanie.
2019
Proxy Statement
2
Message from the Chairman
To our Stockholders:
We are pleased to invite you to attend the annual meeting of stockholders of HP Inc. on
Tuesday, April 23, 2019 at 2:00 p.m., Pacific Time. This year’s annual meeting will again be a
virtual meeting of stockholders, conducted via live audio webcast. You will be able to attend the
annual meeting of stockholders online and submit questions before and during the meeting
by visiting www.hpannualmeeting.com or https://hp.onlineshareholdermeeting.com. You will
also be able to vote your shares electronically at the annual meeting (other than shares held
through our 401(k) Plan, which must be voted prior to the meeting).
We are embracing the latest technology to provide expanded access, improved communication
and cost savings for our stockholders and the Company. As we’ve learned, hosting a
virtual meeting enables increased stockholder attendance and participation from locations
around the world. In addition, the online format allows us to communicate more effectively
via a pre-meeting forum that you can enter by visiting www.hpannualmeeting.com or
www.proxyvote.com/HP.
Further details about how to attend the meeting online, submit questions before or during the
meeting, and information on the business to be conducted at the annual meeting are included
in the accompanying Notice of Annual Meeting and Proxy Statement.
We are again providing access to our proxy materials online under the U.S. Securities and
Exchange Commission’s “notice and access” rules. As a result, we are mailing to many of our
stockholders a notice instead of a paper copy of this proxy statement and our 2018 Annual
Report. The notice contains instructions on how to access documents online. The notice also
contains instructions on how stockholders can receive a paper copy of our materials, including
this proxy statement, our 2018 Annual Report, and a form of proxy card or voting instruction
card. Those who do not receive a notice, including stockholders who have previously requested
to receive paper copies of proxy materials, will receive a paper copy by mail unless they have
previously requested delivery of materials electronically. This distribution process is more
resource- and cost-efficient.
Your vote is important. Regardless of whether you participate in the annual meeting, we hope
you vote as soon as possible. You may vote by proxy online or by phone, or, if you received
paper copies of the proxy materials by mail, you may also vote by mail by following the
instructions on the proxy card or voting instruction card. Voting online or by phone, written
proxy or voting instruction card ensures your representation at the annual meeting regardless
of whether you attend the virtual meeting.
Thank you for your ongoing support of, and continued interest in, HP Inc.
Sincerely,
Charles “Chip” V. Bergh
Chairman of the Board
Charles “Chip” V. Bergh
Chairman of the Board
“We welcome all our
stockholders to join
and participate in the
meeting, regardless of
location, by accessing
the virtual meeting.
We look forward to
hearing from you
and responding to
your questions.”
Join by internet at either
www.hpannualmeeting.com or
https://hp.onlineshareholdermeeting.com
2
www.hpannualmeeting.com
1501 Page Mill Road
Palo Alto, California 94304
(650) 857-1501
Notice of Annual Meeting of Stockholders
This notice of annual meeting, proxy statement and form of proxy for HP Inc. (“HP” or the “Company”) are being distributed and made available
on or about February 26, 2019.
Time and Date
2:00 p.m., Pacific Time,
on Tuesday, April 23, 2019
Place
Online at www.hpannualmeeting.com or
https://hp.onlineshareholdermeeting.com
Items of Business
Management Proposals
(1) To elect the 11 Directors named in this proxy statement
(2) To ratify the appointment of the independent registered public accounting firm for the fiscal year
ending October 31, 2019
(3) To approve, on an advisory basis, the Company’s executive compensation (“say on pay” vote)
Stockholder Proposals
(4) To consider and vote on a stockholder proposal, if properly presented at the meeting
Voting
(5) Such other business as may properly come before the meeting
Internet
www.hpannualmeeting.com or
www.proxyvote.com/HP prior to the
meeting. During the meeting please
visit www.hpannualmeeting.com or
https://hp.onlineshareholdermeeting.com
Telephone
1-800-690-6903
Mail
You can vote by mail by requesting a
paper copy of the materials, which will
include a proxy card. Return the card
to Vote Processing, c/o Broadridge,
51 Mercedes Way, Edgewood,
NY 11717.
Your vote is very important. Regardless of
whether you plan to virtually attend the
annual meeting, we hope you will vote as
soon as possible. You may vote your shares
over the Internet or via a toll-free telephone
number. If you received a paper copy of a
proxy or voting instruction card by mail, you
may submit your proxy or voting instruction
card for the annual meeting by completing,
signing, dating and returning your proxy or
voting instruction card in the pre-addressed
envelope provided. Stockholders of record
and beneficial owners will be able to vote their
shares electronically at the annual meeting
(other than shares held through the HP Inc.
401(k) Plan, which must be voted prior to the
meeting). For specific instructions on how to
vote your shares, please refer to the section
entitled Questions and Answers—Voting
Information beginning on page 68 of the
proxy statement.
Virtual Meeting Admission
Stockholders of record as of February 22, 2019, will be able to participate in the annual meeting by visiting
our annual meeting website www.hpannualmeeting.com or https://hp.onlineshareholdermeeting.com.
To participate in the annual meeting, you will need the 16-digit control number included on your notice
of Internet availability of the proxy materials, on your proxy card or on the instructions that accompanied
your proxy materials.
The annual meeting will begin promptly at 2:00 p.m., Pacific Time. Online check-in will begin at 1:30 p.m.,
Pacific Time, and you should allow ample time for the online check-in procedures.
Annual Meeting Website and Pre-Meeting Forum
The online format used by HP Inc. for the annual meeting also allows us to communicate more effectively
with you. Stockholders can access our pre-meeting forum, where you can submit questions in advance
of the annual meeting, by visiting our annual meeting website at www.hpannualmeeting.com or
www.proxyvote.com/HP. Stockholders can also access copies of our proxy statement and annual report
at the annual meeting website.
Adjournments and Postponements
Any action on the items of business described above may be considered at the annual meeting at the time
and on the date specified above or at any time and date to which the annual meeting may be properly
adjourned or postponed.
Record Date
You are entitled to vote only if you were an HP Inc. stockholder as of the close of business on
February 22, 2019.
By order of the Board of Directors,
Kim M. Rivera
President, Strategy and Business Management and
Chief Legal Officer, General Counsel and Secretary
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of
Stockholders to Be Held on April 23, 2019. The definitive proxy statement and HP Inc.’s 2018 Annual
Report are available electronically at www.proxyvote.com/HP.
Proxy Statement
3
Proxy Statement Summary
The following is a summary of certain key disclosures in our proxy statement. This is only a summary, and it may not contain all of the information
that is important to you. For more complete information, please review the proxy statement as well as our 2018 Annual Report, which includes
our Annual Report on Form 10-K. References to “HP,” “the Company,” “we,” “us” or “our” refer to HP Inc. (formerly known as Hewlett-Packard
Company (“HP Co.”)).
Management
Proposal No. 1
Election of Directors
The Board recommends a vote FOR each Director nominee
• Our Board is committed to independent oversight of HP.
• 10 of our 11 Director nominees are independent.
• Our Board is led by an independent Chairman.
• Key information regarding all of our 11 Board nominees is summarized in the table below.
Further information beginning on page 11.
Name
Principal Occupation
Aida M. Alvarez Independent
Chair, Latino Community Foundation
Shumeet Banerji Independent
Co-Founder and Partner, Condorcet, LP
Robert R. Bennett Independent
Managing Director, Hilltop Investments, LLC
Charles “Chip” V. Bergh Independent
President and Chief Executive Officer,
Levi Strauss & Co.
Stacy Brown-Philpot Independent
Chief Executive Officer, TaskRabbit
Stephanie A. Burns Independent
Former Chief Executive Officer and Chairman,
Dow Corning
Mary Anne Citrino Independent
Senior Advisor and former Senior Managing Director,
The Blackstone Group
Yoky Matsuoka Independent
Vice President, Healthcare
Google
Stacey Mobley Independent
Former Senior Vice President,
Chief Administrative Officer and General Counsel,
E.I. du Pont de Nemours and Company
Subra Suresh Independent
President, Nanyang Technological University
Dion J. Weisler
President and Chief Executive Officer, HP Inc.
Age
69
HP Director
Since
2016
Committees
H N
Other Current Public Company/
Public Registrant Boards
K12 Inc.
59
60
61
43
64
59
46
73
62
51
2011
2013
2015
2015
2015
2015
2019
2015
2015
2015
H N
A F
H N
A N
F H
A F
A F
H N
A F
Reliance Industries Ltd.
Discovery Communications, Inc.
Liberty Media Corporation
Levi Strauss & Co.
Nordstrom, Inc.
Corning Incorporated
Kellogg Company
Barclays plc
Royal Ahold Delhaize
Alcoa Corporation
None
None
Singapore Exchange Limited
Thermo Fisher Scientific Inc.
A Audit Committee
F Finance, Investment
H HR and Compensation
N Nominating, Governance and
Chair
and Technology Committee
Committee
Social Responsibility Committee
4
www.hpannualmeeting.com
Board Composition
Independence
9%
Our CEO
91%
Independent
Directors
Gender Diversity
Tenure (inc. HP Co. tenure)
55%
Male
45%
Female
9%
7 years
82%
0-4 years
9%
5-6 years
Governance Highlights
Independent Board Leadership
% Robust board oversight and leadership by an independent
Chairman (more details beginning on page 26).
% Our independent Chairman participates in a robust stockholder
outreach program.
% Our independent Chairman leads and coordinates the annual
performance evaluation of the CEO.
% Our independent Chairman oversees the Board and committee
evaluations and recommends changes to improve Board,
committee, and individual Director effectiveness.
Other Governance Best Practices
% Our Bylaws provide our stockholders with a proxy access right.
% All members of our committees are independent.
% Our stockholders owning 15% or more of our common stock
have a right to call special meetings. We lowered this right from
25% after engaging with our stockholders on how they would
prefer to act outside of the annual meeting.
% Directors are elected annually by majority vote in uncontested
Director elections.
% Each Director nominee has agreed to resign from the Board in
the event that he or she fails to receive a majority vote.
% We have a robust and ongoing stockholder outreach program.
% Non-employee Directors are expected to own Company stock
equal to at least five times their annual cash Board retainer
within five years of joining the Board.
Management
Proposal No. 2
Ratification of Independent Registered Public Accounting Firm
The Board recommends a vote FOR this Proposal
• The Audit Committee of the Board has selected Ernst & Young LLP to act as HP’s registered public accounting firm
for the fiscal year ending October 31, 2019 and seeks ratification of the selection.
Further information beginning on page 36.
Management
Proposal No. 3
Advisory Vote to Approve Executive Compensation (“Say on Pay” Vote)
The Board recommends a vote FOR this Proposal
• Our Board and the HRC Committee are committed to excellence in corporate governance and to an executive
compensation program that aligns the interests of our executives with those of our stockholders. To fulfill
this mission, we have a pay-for-performance philosophy that forms the foundation for decisions regarding
executive compensation.
• Our compensation programs have been structured to balance near-term results with long-term success, and
enable us to attract, retain, focus, and reward our executive team for delivering stockholder value.
Further information, including an overview of the compensation of our Named Executive Officers (“NEOs”),
beginning on page 38.
Proxy Statement
5
Stockholder
Proposal
Stockholder Proposal: Independent Board Chairman
The Board recommends a vote AGAINST this Proposal
• This stockholder proposal, which would require HP to amend its governance documents to require an independent
Chairman of the Board, if properly presented, will be voted on at the annual meeting.
Further information beginning on page 65.
Business Overview and Performance
HP Inc. is 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 and large enterprises, including
customers in the government, health and education sectors. HP is
comprised of the following business segments: Personal Systems,
Printing, and Corporate Investments. In fiscal 2018, HP delivered
profitable growth in both Personal Systems and Printing segments
while investing strategically to fuel growth and capture the future.
Our continued efforts resulted in the following accomplishments:
• Delivered revenue growth and margin expansion in Personal
Systems, driven by innovation and focus on strategic growth areas
such as Device as a Service.
• Executed effectively in Printing with consistent revenue and
profit growth combined with progress in strategic growth areas
including Graphics and A3 printing.
• Continued the integration of Samsung Electronics Co., Ltd.’s
printer business expanding our A3 product portfolio and acquired
Apogee Corporation, which enhanced our ability to deliver
value-added services while accelerating the deployment of our
superior technology into the growing A3 contractual market.
• Strengthened our leadership position in 3D printing by extending
our product portfolio with the addition of full color and metals,
expanding our application ecosystem, and increasing the number
of repeat orders and larger scale customer deployments.
• Returned over $3.5 billion of capital to stockholders in the form of
dividends and share repurchases.
The global-macroeconomic and foreign-currency environment was challenging in fiscal 2018. Nevertheless, as illustrated below for the three
key financial measures used to fund our annual pay-for-performance incentive awards, we exceeded rigorous goals that reflected our business
plan. In the three years since we separated from Hewlett Packard Enterprise “HPE,” ending in fiscal 2018, our relative total shareholder return
(“TSR”) performance has been in the top-quartile of the S&P 500, which attests to the rigor of our goals:
Corporate Revenue
Corporate Net Earnings
Corporate Free Cash Flow
$58.5
billion
(as defined on page 43) compared to a
target goal of $54.7 billion under our annual
incentive plan.
$3.5
billion
(as defined on page 43) compared to a
target goal of $3.2 billion under our annual
incentive plan.
7.1%
(as a percentage of revenue; as defined
on page 43) compared to a target goal of
5.85% under our annual incentive plan.
As a company, we are delivering on our commitments to our
stockholders and optimizing the business to consistently deliver
long-term, sustainable and profitable growth. We are continuing to
grow with profitable market share in our core expansion efforts, to
advance our position in our growth segments, and to invest in future
categories where we can disrupt with innovation and new business
models. At the same time, we are focused on increasing productivity
and taking cost out of the business. We have an incredible channel
network, passionate employees and a culture committed to keep
reinventing. And just as importantly, we are winning the right way
with a sustainable impact framework focused on people, planet and
the communities in which we operate.
6
www.hpannualmeeting.com
Executive Compensation Philosophy
Alignment with Stockholders and Compensation Best Practices
Pay-for-Performance
Corporate Governance
The majority of target total direct compensation for
executives is performance-based as well as equity-based
to align executives’ rewards with stockholder value.
We do not utilize executive employment contracts for
senior officers.
Total direct compensation is targeted at or near the
market median.
We devote significant time to management succession
planning and leadership development efforts.
Actual realized total direct compensation and pay
positioning are designed to fluctuate with, and be
commensurate with, actual annual and long-term
performance recognizing company-wide, business, and
individual results.
Incentive awards are heavily dependent upon our
stock performance and are measured against objective
financial metrics that we believe link either directly or
indirectly to the creation of value for our stockholders.
In addition, 25% of our target annual incentives are
contingent upon the achievement of qualitative objectives
that we believe will contribute to our long-term success.
We balance growth, cash flow, revenue and profit
objectives, as well as short- and long-term objectives
to reward for overall performance that does not
over-emphasize a singular focus.
A significant portion of our long-term incentives are
delivered in the form of performance-adjusted restricted
stock units, referred to as “PARSUs,” which vest only upon
the achievement of relative TSR and EPS objectives.
We validate our pay-for-performance relationship on an
annual basis and our HRC Committee is actively involved in
the review and approval of performance goals under our
incentive plans.
The compensation of peer companies is considered
in order to ensure that pay levels for the NEOs are
appropriate and competitive.
We maintain a market-aligned severance policy for
executives and a conservative change in control policy
which requires a double trigger for execution.
The HRC Committee engages an independent
compensation consultant.
Our compensation programs are designed to mitigate
compensation-related risk (both financial and
reputational) and promote long-term growth for the
organization by determining award payouts based on a
wide range of performance goals.
We maintain strong stock ownership guidelines for
executive officers and non-employee Directors.
We prohibit executive officers and Directors from
engaging in any form of hedging transaction, holding
HP securities in margin accounts and pledging stock
as collateral for loans in a manner that could create
compensation-related risk for the Company.
We conduct a robust stockholder outreach program
throughout the year.
We disclose our corporate performance goals and
achievements relative to these goals.
We do not provide excessive perquisites to our
employees including our executive officers.
The maximum payouts under annual incentive awards and
under long-term incentives (“PARSUs”) are capped.
We do not allow our executives to participate in the
determination of their own compensation.
Proxy Statement
7
Components of Compensation
Our primary focus in compensating executives is on the longer-term and performance-based elements of compensation. The table below
shows our pay components, along with the role and factors for determining each pay component. The percentages are based on the average
percentage among the NEOs including the CEO.
Pay Component
Base Salary
11%
Annual Incentive
(i.e., Pay-for-Results (“PfR”))
16%
Payments to executives for annual PfR
incentive purposes are made under the
Stock Incentive Plan (the “Plan”)
Long-term Incentives
73%
• Restricted Stock Units (“RSUs”)
• Performance-Adjusted Restricted
Stock Units (“PARSUs”)
All others:
• Benefits
• Perquisites
• Severance protection
Role
Determination Factors
• Provides a fixed portion of annual
• Value of role in competitive marketplace
cash income
• Value of role to the Company
• Skills and performance of individual
compared to the market as well as others in
the Company
• Provides a variable and
performance-based portion of annual
cash income
• Target awards based on competitive
marketplace, level of position, skills and
performance of executive
• Focuses executives on annual objectives
that support the long-term strategy and
creation of value
• Actual awards based on achievement
against annual corporate, business unit,
and individual goals as set and approved by
the HRC
• Supports need for long-term
sustained performance
• Aligns interests of executives and
stockholders, reflecting the time-horizon
and risk to investors
• Encourages equity ownership and
• Target awards based on competitive
marketplace, level of position, skills and
performance of the executive
• Actual values based on performance against
corporate goals and total stockholder return
(“TSR”) performance
stockholder alignment
• Retains key employees
• Supports the health and security of our
executives and their ability to save on a
tax-deferred basis
• Enhances executive productivity
• Competitive market practices for similar roles
• Level of executive
• Standards of best-in-class governance
8
www.hpannualmeeting.com
Participation in our Virtual Annual Meeting
HP’s Board considers the appropriate format of the meeting on an
annual basis. HP’s current virtual format allows stockholders to
submit questions and comments in our stockholder forum both
before and during the meeting. We respond to all stockholder
in writing on our
submissions received through the forum
investor relations website. The virtual meeting format allows our
stockholders to engage with us no matter where they live in the
world, and is accessible and available on any internet-connected
device, be it a phone, a tablet, or a computer. We’re able to reach a
base of stockholders that is broader than just those who can afford
to travel to an in-person meeting. The virtual meeting gives us the
opportunity to respond in thoughtful detail to every question all of
our stockholders may have, rather than just the limited number of
questions stockholders are able to ask at in-person meetings, which
are answered on the fly. All of these benefits of a virtual meeting
allow our stockholders to have truly robust engagement with HP.
Previous Virtual Meeting Highlights
'2016
'2017
'2018
7
9
'2016
'2017
'2018
12
13
26
36
Questions answered during
the virtual annual meeting
Total questions asked and answered before
and during the annual meeting
2016
16
stockholder
attendees
2017
21%
2018
28%
Meeting attendance year over year
HP commits to answering every
question received, in writing, within
one week of the annual meeting.
Please visit our HP investor events page at
https://investor.hp.com
read previously
answered questions.
to
us
Please
Meeting
https://hp.onlineshareholdermeeting.com
join
at
www.hpannualmeeting.com
Virtual
our
for
Annual
or
To participate in the annual meeting, you will need
the 16-digit control number included on your notice
of Internet availability of the proxy materials, on your
proxy card or on the instructions that accompanied
your proxy materials.
Stockholders can access our pre-meeting forum, where
you can submit questions in advance of the annual
meeting, by visiting our annual meeting website. All
questions received, both during and prior to the meeting,
are presented as submitted, uncensored and unedited
with the exception of certain personal details for data
protection purposes. If we receive substantially similar
questions, we will group such questions together and
provided a single response to avoid repetition.
We will have technicians ready to assist you with any
technical difficulties you may have accessing the virtual
meeting. If you encounter any difficulties accessing the
virtual meeting during the check-in or meeting time,
please call:
1-855-449-0991 (Toll-free)
1-720-378-5962 (Toll line)
Proxy Statement
9
Table of Contents
CORPORATE GOVERNANCE
Management Proposal No. 1 Election of Directors
Vote Required
Director Election Voting Standard and Resignation Policy
Stockholder Outreach
Response to 2018 Written Consent Proposal
Recent Corporate Governance Updates
Director Independence
Board Leadership Structure
Board Risk Oversight
Executive Sessions
Communications with the Board
Code of Conduct
Director Compensation and Stock Ownership Guidelines
Non-Employee Director Stock Ownership Guidelines
Related-Person Transactions Policies and Procedures
Fiscal 2018 Related-Person Transactions
AUDIT MATTERS
Management Proposal No. 2 Ratification of Independent Registered Public Accounting Firm
Vote Required
Report of the Audit Committee of the Board of Directors
Principal Accountant Fees and Services
Pre-Approval of Audit and Non-Audit Services Policy
EXECUTIVE COMPENSATION
Management Proposal No. 3 Advisory Vote to Approve Executive Compensation
Vote Required
Compensation Discussion and Analysis
Long-term Incentive Compensation
Fiscal 2018 Long-term Incentive Compensation at Target
Fiscal 2019 Compensation Program
Succession Planning
Accounting and Tax Effects
Policy for Recoupment of Performance-Based Incentives
OWNERSHIP OF OUR STOCK
Common Stock Ownership of Certain Beneficial Owners and Management
Section 16(a) Beneficial Ownership Reporting Compliance
STOCKHOLDER PROPOSALS
Stockholder Proposal: Independent Board Chairman
Proposal 4 – Independent Board Chairman
Statement in Opposition
Board Recommendation
Vote Required
OTHER MATTERS
Proxy Materials
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Corporate Governance
Management
Proposal No. 1
Election of Directors
The Board recommends a vote FOR each Director nominee
The Board of Directors of HP Inc. (the “Board”) currently consists of eleven (11) Directors. On the recommendation of the Nominating, Governance
and Social Responsibility (“NGSR”) Committee, the Board has nominated the 11 persons named below for election as Directors this year, each to
serve for a one-year term and until the Director’s successor is elected and qualified or, if earlier, until his or her resignation or removal.
Vote Required
Each Director nominee who receives more “FOR” votes than
“AGAINST” votes representing shares of HP common stock present in
person or represented by proxy and entitled to be voted at the annual
meeting will be elected.
If you sign your proxy or voting instruction card but do not give
instructions with respect to voting for Directors, your shares will be
voted by Dion J. Weisler, Steven J. Fieler and Kim M. Rivera, as proxy
holders. If you wish to give specific instructions with respect to voting
for Directors, you may do so by indicating your instructions on your
proxy or voting instruction card.
Director Election Voting Standard and Resignation Policy
We have adopted a policy whereby any incumbent Director nominee who receives a greater number of votes “AGAINST” his or her election than
votes “FOR” such election will tender his or her offer of resignation for consideration by the NGSR Committee. The NGSR Committee will then
make a recommendation to the Board regarding the appropriate response to such an offer of resignation.
Identifying and Evaluating Candidates for Directors
The NGSR Committee uses a variety of methods for identifying and
evaluating nominees for Director. The NGSR Committee, in consultation
with the Chairman, regularly assesses the appropriate size of the
Board and whether any vacancies on the Board are expected due to
retirement or otherwise. In the event that vacancies are anticipated,
or otherwise arise, the NGSR Committee considers various potential
candidates for Director. Candidates may come to the attention of
the NGSR Committee through current Board members, professional
search firms, stockholders or other persons. Identified candidates are
evaluated at regular or special meetings of the NGSR Committee and
may be considered at any point during the year. As described above,
the NGSR Committee considers properly submitted stockholder
recommendations of candidates for the Board to be included in our
proxy statement. Following verification of the stockholder status of
individuals proposing candidates, recommendations are considered
collectively by the NGSR Committee at a regularly scheduled meeting,
which is generally the first or second meeting prior to the issuance
of the proxy statement for our annual meeting. If any materials
are provided by a stockholder in connection with the nomination
of a Director candidate, such materials are forwarded to the NGSR
Committee. The NGSR Committee also reviews materials provided
by professional search firms and other parties in connection with a
nominee who is not proposed by a stockholder. In evaluating such
nominations, the NGSR Committee seeks to achieve a balance of
diverse knowledge, experience and capability on the Board. The NGSR
Committee evaluates nominees recommended by stockholders using
the same criteria it uses to evaluate all other candidates. In the case
of Ms. Matsuoka, a third-party professional search firm identified her
as a potential director nominee.
Proxy Statement
11
Corporate Governance
Stockholder Recommendations
The policy of the NGSR Committee is to consider properly submitted
stockholder recommendations of candidates for membership on
the Board as described above under “Identifying and Evaluating
Candidates for Directors.” In evaluating such recommendations, the
NGSR Committee seeks to achieve a balance of diverse knowledge,
experience and capability on the Board and to address the membership
criteria set forth below. Any stockholder recommendations submitted
for consideration by the NGSR Committee should include verification of
Stockholder Nominations
the stockholder status of the person submitting the recommendation
and the recommended candidate’s name and qualifications for Board
membership and should be addressed to:
Corporate Secretary
HP Inc.
1501 Page Mill Road
Palo Alto, California 94304
Fax: 650-275-9138
In addition, our Bylaws permit stockholders to nominate Directors for consideration at an annual stockholder meeting and, under certain
circumstances, to include their nominees in the HP proxy statement. For a description of the process for nominating Directors in accordance
with our Bylaws, see “Questions and Answers—Voting Information.”
Director Nominees and Director Nominees’ Experience and Qualifications
The Board annually reviews the appropriate skills and characteristics
required of Directors in the context of the current composition of the
Board, our operating requirements and the long-term interests of our
stockholders. The Board believes that its members should possess a
variety of skills, professional experience, and backgrounds in order to
effectively oversee our business. In addition, the Board believes that
each Director should possess certain attributes, as reflected in the
Board membership criteria described below.
Our Corporate Governance Guidelines contain the current Board
membership criteria that apply to nominees recommended for
a position on the Board. Under those criteria, members of the
Board should:
• have the highest professional and personal ethics and values,
consistent with our long-standing values and standards;
• have broad experience at the policy-making level in business,
government, education, technology or public service;
• be committed to enhancing stockholder value and represent the
interests of all of our stockholders; and
• have sufficient time to carry out their duties and to provide insight
and practical wisdom based on experience (which means that
Directors’ service on other boards of public companies should
be limited to a number that permits them, given their individual
circumstances, to perform responsibly all Director duties).
In addition, the NGSR Committee takes into account a potential
Director’s ability to contribute to the diversity of background (such as
race, gender, and cultural background) and experience represented
on the Board, and it reviews its effectiveness in balancing these
considerations when assessing the composition of the Board.
Although the Board uses these and other criteria as appropriate
to evaluate potential nominees, it has no stated minimum criteria
for nominees. Our Corporate Governance Guidelines can be
found on our website at https://investor.hp.com/governance/
governance-documents/default.aspx.
All members of the HP Board are provided with opportunities for
in-person and remote Director education on an ongoing basis,
covering a variety on subjects relevant to HP. Recent topics have
included strategy, innovation, people and culture development,
best-practices in governance and leadership, industry updates and
technology trends.
The Board believes that all the nominees named below are highly
qualified, and have the skills and experience required for effective
service on the Board. The biographies describe each Director’s
qualifications and relevant experience in more detail. The biographies
include key qualifications, skills, and attributes most relevant to the
decision to nominate candidates to serve on the Board.
All of the nominees have indicated to us that they will be available
to serve as Directors. In the event that any nominee should become
unavailable, the proxy holders, Dion J. Weisler, Steven J. Fieler and
Kim M. Rivera, will vote for a nominee or nominees designated by the
Board, or the Board may choose to decrease the size of the Board or
leave a vacancy on the Board.
There are no family relationships among our executive officers
and Directors.
12
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Corporate Governance
HP’s Philosophy on Director Skills and Background
Academics
Technology
HP benefits from having leading academics in relevant fields sharing
their expertise and providing valuable guidance on research trends
and emerging areas of innovation.
With our deep history of innovation, we know that design, technology
and user experience add valuable and vital components to our
Board dialogue.
Disruptive Innovation
Operations
At HP we continually seek to reinvent the Print and PC industries to
deliver amazing innovative experiences to our customers - having
disruptive innovators on our Board helps inform our strategy and
drive us forward.
HP operates one of the world’s largest supply chains, spanning a
diverse mix of geographies, suppliers, contractors and partners – we
benefit from Directors who have successfully led complex operations
and can help us to optimize our business model.
Finance
Robust Business Experience
As a Fortune 100 company with a vast financial footprint, it’s essential
that we have Directors with strong financial acumen and experience
to provide sound oversight and guide our investment strategies.
As a large global company serving a diverse set of customer
segments, HP requires a Board well-versed in navigating complexity
and capitalizing on business opportunities to further our innovation
and growth.
Government
Science
Substantive government experience on our Board offers us insight
into the regulatory environment of the many jurisdictions in which
we operate, their legislative and administrative priorities, and the
potential implications for our business.
Cutting edge R&D, science and engineering have been core to HP’s
success for decades – Directors with scientific backgrounds can
provide technical advice and bring a deep understanding of the
innovative core of our company.
International Business
Strategy
HP operates in 180 countries worldwide, making international
business experience a vital perspective on our Board and enabling us
to succeed in the many markets in which we operate.
The dynamic and fast-moving markets in which HP operates globally
require a Board with strong strategic insights gained through
multi-faceted and challenging prior experiences.
Sustainability
Engagement
Sustainability fuels HP’s innovation and growth while strengthening
our business for the long term. Directors with a background and
interest in cutting-edge sustainability initiatives offer important
leadership as we pursue a more sustainable future.
Engagement with our stockholders and customers provides HP’s
Directors with a unique understanding of the Company and the
individuals and institutions we serve worldwide.
Our Directors bring an extraordinary wealth of skills and backgrounds to the Board. From Subra Suresh, an acclaimed scientist whose background
in microfluidics gives him key understanding into the future of technologies including 3D printing, to Stacy Brown-Philpot, CEO of TaskRabbit, a
company at the forefront of today’s personal services-oriented disruptive technology boom, our Board members are advising us based on real
world experiences. MacArthur Fellow Yoky Matsuoka brings her leadership and research and development experiences from acclaimed academic
institutions and industry leading companies. Their skills are complementary. Chip Bergh’s experience at Procter & Gamble and now Levi’s means
he can instantly grasp the complexities of our supply chain while Shumeet Banerji and Mary Anne Citrino both come from financial industry
careers, lending keen eyes to our financial management, risk oversight and investment strategy. Former public company CEOs Stephanie Burns
and Robert Bennett lend the benefit of their experience at the helms of companies and Aida Alvarez and Stacey Mobley provide perspectives
from the fields of government and corporate law, respectively. Together, these Directors and their skills help us to keep reinventing.
Proxy Statement
13
Corporate Governance
International Experience of our Directors
North America
Europe
Asia
Australia
Collective Skills of the Director Nominees
Aida
Alvarez
Shumeet
Banerji
Robert R.
Bennett
Charles V.
Bergh
Stacy Brown-
Philpot
Stephanie
A. Burns
Mary Anne
Citrino
Yoky
Matsuoka
Stacey
Mobley
Subra
Suresh
Dion J.
Weisler
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8 years
6 years
4 years
4 years
4 years
4 years
<1 year
4 years
4 years
4 years
Academics
Disruptive
Innovation
Engagement
Finance
Government
International
Business
Operations
Robust Business
Experience
Science
Strategy
Sustainability
Technology
Independent
Diversity
Tenure
(including HP Co.)
14
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Aida M. Alvarez
Independent Director
Age 69
Director since 2016
HP Board Committees:
HRC
NGSR
Shumeet Banerji
Corporate Governance
Current Role
• Chair, Latino Community Foundation (since 2003)
Current Public Company Boards
• HP
• K12 Inc.
Prior Public Company Boards
• MUFG Americas Holdings Corporation
• Wal-Mart Stores, Inc.
Qualifications:
Prior Business and Other Experience
• 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. 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.
Engagement
Finance
Government
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
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
Independent Director
Age 59
Director since 2011
HP Board Committees:
HRC
NGSR, Chair
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.
Academics
Finance
International
Business
Robust Business
Experience
Strategy
Proxy Statement
15
Corporate Governance
Robert R. Bennett
Qualifications:
Prior Business and Other Experience
• President, Discovery Holding Company
(2005–2008)
• President and Chief Executive Officer,
Liberty Media Corporation (now Liberty
Interactive Corporation) (prior to 2005)
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 60
Director since 2013
HP Board Committees:
Audit
FIT, Chair
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, which allows
him to provide an important perspective to the Board’s discussions on financial and operational
issues. Mr. Bennett also has an in-depth understanding of finance and has held various financial
management positions during the course of his career. He also contributes valuable insight to the
Board due to his experience serving on the boards of both public and private companies.
Finance
Operations
Robust Business
Experience
Strategy
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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 and Public
Registrant Boards
• HP
• Levi Strauss & Co.
Prior Public Company Boards
• VF Corporation
Corporate Governance
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.
International
Business
Operations
Robust Business
Experience
Strategy
Independent Chairman
of the Board
Age 61
Director since 2015
Chairman since 2017
HP Board Committees:
HRC
NGSR
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
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
Independent Director
Age 43
Director since 2015
HP Board Committees:
Audit
NGSR
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.
Disruptive
Innovation
Finance
Operations
Robust Business
Experience
Strategy
Proxy Statement
17
Corporate Governance
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.
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)
Independent Director
Age 64
Director since 2015
HP Board Committees:
FIT
HRC, Chair
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. Dr. Burns also brings
public company governance experience to the Board as a member of boards and board committees
of other public companies.
Finance
International
Business
Operations
Robust Business
Experience
Science
Strategy
Mary Anne Citrino
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)
Current Role
• Senior Advisor and former Senior Managing
Director, The Blackstone Group, 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 59
Director since 2015
HP Board Committees:
Audit, Chair
FIT
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.
Finance
International
Business
Strategy
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Yoky Matsuoka
Current Role
• Vice President, Healthcare at Google, a
subsidiary of Alphabet Inc. (“Alphabet”), a
technology company (since 2018)
Qualifications:
Prior Business and Other Experience
• Chief Technology Officer, Nest, Alphabet
(2010-2015; 2017-2018)
Corporate Governance
Current Public Company Boards
• None
Prior Public Company Boards
• None
• 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
Yoky 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.
Academics
Disruptive
Innovation
Finance
Robust Business
Experience
Science
Technology
Current Role
• Director
Current Public Company Boards
• HP
Prior Public Company Boards
• International Paper Company
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. He also brings public
company governance experience as a member of boards and board committees of other public
and private companies.
International
Business
Operations
Robust Business
Experience
Technology
Proxy Statement
19
Independent Director
Age 46
Director since 2019
HP Board Committees:
Audit
FIT
Stacey Mobley
Independent Director
Age 73
Director since 2015
HP Board Committees:
HRC
NGSR
Corporate Governance
Subra Suresh
Independent Director
Age 62
Director since 2015
HP Board Committees:
Audit
FIT
Dion J. Weisler
President, Chief Executive
Officer and Director
Age 51
Director since 2015
HP Board Committees:
N/A
Current Role
• President, Nanyang Technological University,
autonomous university in Singapore (since
January 2018)
Current Public Company Boards
• HP
• Singapore Exchange Limited
Prior Public Company Boards
• None
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)
• Director, National Science Foundation, a
federal agency charged with advancing science
and engineering research and education
(October 2010–March 2013)
• Dean, School of Engineering, and the Vannevar
Bush Professor of Engineering, Massachusetts
Institute of Technology (2007–2010)
Other Key Qualifications
Mr. Suresh’s experience as the president of a prominent research university and his experience
leading new entrepreneurship, innovations, and creativity efforts bring the Board valuable
insights with respect to strategic opportunities and a robust understanding of the organizational,
scientific, and technological requirements of ongoing innovation.
Academics
Disruptive
Innovation
Finance
Government
Science
Strategy
Technology
Current Role
• President and Chief Executive Officer, HP
(since November 2015)
Current Public Company Boards
• HP
• Thermo Fisher Scientific Inc.
Prior Public Company Boards
• None
Qualifications:
Prior Business and Other Experience
• 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)
• Vice President and Chief Operating Officer,
the Product and Mobile Internet Digital Home
Groups, Lenovo Group Ltd. (January 2008–
December 2011)
Other Key Qualifications
Mr. Weisler’s international business and leadership experience provide the Board with an enhanced
global perspective. Mr. Weisler’s more than 25 years of experience in the information & technology
industry and his position as HP’s Chief Executive Officer provide the Board with valuable industry
insight and expertise.
Disruptive
Innovation
International
Business
Operations
Robust Business
Experience
Strategy
Technology
20
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Stockholder Outreach
We believe that effective corporate governance should include
regular, constructive conversations with our stockholders. Over the
past year, the Board has continued to engage with stockholders,
including seeking and encouraging feedback from stockholders
about our corporate governance practices by conducting stockholder
outreach and engagement throughout the year. Our annual
corporate governance investor outreach cycle, in which the Chair of
the Board, Chair of the HRC and other Directors typically participate,
is outlined below.
Corporate Governance
Our Investor Outreach Calendar
November 2017
• Q4 2017 HP Inc. Earnings Conference Call
• Credit Suisse Technology, Media & Telecom Conference
December 2017
• 2017 Wells Fargo Tech Summit
• Global Mizuho Investor Conference (MIC) 2017
•
Barclays Global Technology, Media & Telecommunications Conference
January 2018
• CES 2018
•
•
Citi 2018 Global TMT West Conference
2018 HP Inc. Sustainability Webcast
February 2018
• Q1 2018 HP Inc. Earnings Conference Call
•
Morgan Stanley Technology, Media & Telecom Conference, San Francisco
April 2018
• HP Inc. Annual Stockholder Meeting
May 2018
• Q2 2018 HP Inc. Earnings Conference Call
•
Bernstein’s 34th Annual Strategic Decisions Conference (SDC)
June 2018
•
2018 Bank of America Merrill Lynch Global Technology Conference
August 2018
•
Q3 2018 HP Inc. Earnings Conference Call
September 2018
•
•
•
Citi 2018 Global Technology Conference
HPQ 3D Printing Metal Jet Technology Briefing
Deutsche Bank’s Technology Conference
October 2018
• HP Securities Analyst Meeting*
•
HP Inc. Announces Fiscal 2019 Financial Outlook
*
Event attended by member(s) of the HP Board.
Annual Stockholder outreach conducted*
Ongoing governance Stockholder outreach conducted
In fiscal 2018, we conducted two outreach programs: the first in early 2018, as part of our annual investor outreach cycle, and the second in
September and October 2018, as part of our outreach regarding our governance profile and the 2018 written consent proposal, described
below. Through these two programs, we met or spoke with institutional investors representing more than 50% of our outstanding stock during
fiscal 2018 as well as with proxy advisor firms.
Proxy Statement
21
Corporate Governance
Response to 2018 Written Consent Proposal
HP values input from stockholders throughout the year. We currently
afford stockholders the opportunity to act between annual meetings
through the combination of a special meeting right as well as a robust
stockholder outreach program that demonstrates our openness
to direct stockholder engagement. At our 2018 Annual Meeting,
holders of 37.5% of our outstanding shares expressed support for
an advisory proposal to provide stockholders with the ability to act
by written consent without a meeting of stockholders. Of the votes
cast, 50.4% supported the proposal while 49.2% voted against it,
with 0.3% abstaining.
In 2018, the Board recommended voting against this proposal for the
following key reasons:
• HP’s commitment to good corporate governance;
• the existing right of HP stockholders to call a special meeting of
stockholders; and
• the Board’s belief that the proposal would circumvent the
protections, procedural safeguards and advantages provided to
all stockholders by stockholder meetings.
The Board remains concerned about the disruptive effect a
stockholder written consent solicitation could have on the Board’s
and stockholders’ ability to thoroughly consider significant corporate
actions and possible alternatives. The Board also is mindful of the
closeness of the written consent proposal vote at the 2018 Annual
Meeting and the significant lack of consensus reflected in the vote, as
well as the importance of respecting the perspectives expressed by all
stockholders. The Board determined that, in light of these and other
concerns raised regarding written consent, the appropriate approach
would be to conduct further engagement with our stockholders to
better understand the vote results and incorporate stockholder
feedback into any actions we might take.
We view our relationships with stockholders and other stakeholders
as fundamental to good corporate governance practices, and we
have a strong record of stockholder engagement and responsiveness
to stockholder concerns. We believe that effective corporate
governance should include regular, constructive conversations with
our stockholders. The Board and management have continued to
seek out and encourage feedback from stockholders about our
corporate governance practices by conducting annual stockholder
outreach and engagement in January 2019. In addition, consistent
with our commitment to soliciting and considering feedback from
stockholders, during September and October 2018, and again in
January 2019, we solicited specific feedback from our stockholders
related to the written consent proposal to better understand how
stockholders think about responsiveness in light of the closeness of
the vote for the proposal. We also sought to assess from stockholders
whether support for the proposal in fact represents a desire for written
consent or was intended to convey other preferences or priorities (for
example, a view that our original 25% threshold for calling a special
meeting was higher than that particular stockholder preferred).
On this particular issue, HP representatives engaged with our
75 largest stockholders in September and October of 2018 and again
in January of 2019, representing over 68% of our outstanding shares
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as of September 2018. We received feedback from stockholders
that represented over 50% of our outstanding shares. Of those that
provided feedback, approximately 60% (representing almost 30% of
our outstanding shares at the time) voted against the proposal and
almost 40% (representing over 20% of our outstanding shares at the
time) voted for the proposal. Senior management and three members
of the Board, including the Chair of the Board and the Chair of the HRC
and a member of the NGSRC, then invited our top 20 stockholders,
representing an aggregate of over 46% of our outstanding shares
at the time, to engage in further discussions during our annual
stockholder outreach program in January 2019.
During these interactions, we discussed HP’s record of strong
governance practices and responsiveness to stockholder concerns.
We specifically focused on the 2018 written consent proposal with
our stockholders, explaining the Board’s reasons for opposing the
proposal and asking the stockholders to provide their perspectives
on the rationale underlying their particular vote decisions and on
potential next steps for HP. Our stockholders were pleased to be
consulted and overall expressed their appreciation of our current
corporate governance profile, long record of engagement with and
responsiveness to stockholders, commitment to transparency,
and openness to addressing stockholders’ desires through a more
accessible opportunity to act between annual meetings. Not one
of the stockholders with whom we spoke raised any concerns or
issues with the approach we took with respect to seeking additional
feedback and conducting further engagement rather than unilaterally
acting without the benefit of such additional outreach.
We heard the following key perspectives from our stockholders.
First, a large majority of the stockholders we consulted prefer
the right to call a special meeting over the right to act by written
consent, expressing the views that the former is more protective of
stockholders, accessible and inclusive, among other reasons. Nearly
76% of the stockholders we conversed with during our engagement
(representing over 38% of our outstanding shares at the time)
preferred that we consider lowering our special meeting threshold
instead of implementing written consent. Many of those with whom
we spoke volunteered that they had voted against the written consent
proposal specifically because HP already afforded stockholders the
right to call a special meeting. Many of these stockholders further
noted they prefer the right to call a special meeting over the right
to act by written consent because, while both provide stockholders
an avenue to be heard outside the annual meeting cycle, special
meetings better facilitate participation of all stockholders to discuss
the topic under consideration through an orderly process.
Regardless of their views on the right to act by written consent,
stockholders believed it was important that the Board appropriately
respond to the various views expressed in the vote outcome regarding
the written consent proposal, including through engagement. Before
taking action, however, the Board wanted to understand how our
stockholders would view the Board unilaterally amending our Bylaws
to lower the special meeting threshold in lieu of adopting written
consent, and whether they would consider this approach responsive
to the close vote outcome on the written consent proposal.
In addition to stockholder feedback, the Board considered the
following factors when considering implementation of the proposal:
• the slim margin by which the proposal passed (50.4% of the votes
cast, representing 37.5% of the outstanding shares), and the
significant number of stockholders that opposed the proposal
(49.2% of the votes cast);
• the lack of consensus among our stockholders regarding whether
written consent would in fact be a desirable feature if included in
our governance profile;
• a nearly identical written consent stockholder proposal having
failed at our 2015 Annual Meeting, with support of only 43.3% of
votes cast;
• our special meeting threshold of 25% was appropriate at the
time Hewlett-Packard Company adopted the right in 2007, and it
continues to be the median threshold for stockholders to call a
special meeting among S&P 500 companies;
• evolving voting policies and guidelines of
investors and
third-party advisory firms regarding the ability to act in between
annual meetings;
• the rights we already provide our stockholders, which include the
right to call a special meeting and nominate Directors to the Board
through proxy access; and
• our current stockholder base and the relatively constant presence
of at least one stockholder that has owned or controlled the vote
of more than ten percent of our outstanding shares over the past
few years, which led the Board to believe a 15% threshold was
appropriate for the right to call a special meeting.
Recent Corporate Governance Updates
HP’s corporate governance policies and practices are continuously
evolving – from our time as Hewlett-Packard Company to our new
identity as HP Inc., we’ve always led by example, adopting changes
in line with our commitment to the highest standards of governance.
Stockholder input has been key to our progression and as we
continue to evolve our corporate governance policies and practices,
we will continue to solicit feedback from our stockholders regarding
our governance profile. The following examples highlight some of
the key features of our corporate governance policies and practices,
including updates we have recently made to strengthen our policies
and practices:
• Our Board continues to believe that it is in the current best interests
of our stockholders and the Company to have an independent
Chairman. Accordingly, Chip Bergh has served as our independent
Chairman since July 2017.
• We continue to engage in a robust and ongoing stockholder
engagement program. In fiscal 2018, in addition to our CEO and
independent Chairman, the Chair of our HRC Committee also met
with stockholders during our stockholder engagement program. In
particular, as described in detail above, we also conducted robust
outreach to stockholders in the fall of 2018 focused specifically
on our governance profile and engaged in substantive discussions
regarding desired responses to the 2018 stockholder proposal on
stockholder action by written consent.
Corporate Governance
During our engagement, all stockholders we conversed with
approved of or did not express an adverse view on the Board’s
process in responding to the stockholder proposal and thoughtful
approach to gathering feedback. Many stockholders even expressed
the view that HP’s then-current governance regime, including the
right for stockholders to call a special meeting at a 25% threshold,
provides appropriate stockholder rights and that the Board did not
need to take any action to provide additional stockholder rights. The
Board and management, however, are mindful of some stockholders’
desires for accessible rights, and therefore concluded that non-action
would not be necessarily responsive to stockholders’ concerns in our
particular circumstances.
Accordingly, the Board determined it would be consistent with the
wishes of the broadest group of our stockholders and responsive
to the vote on the written consent proposal to facilitate the ability
of stockholders to act in between annual meetings. Specifically, the
Board determined, taking into account the feedback received from
stockholders among other factors, to amend the existing stockholder
right to call special meetings in our Bylaws to lower the threshold
requirement to call a special meeting from 25% to 15% of our
outstanding shares in lieu of adopting the right to act by written
consent. This amendment was made effective as of February 7,
2019. We will continue to welcome stockholder feedback on these
and other matters of importance to our investors and will incorporate
such feedback appropriately into our decision-making actions and
approach to engagement and governance.
• Since 2016, our NGSR Committee has reviewed and discussed
our environmental, sustainability, diversity and social impact
strategy at every regular meeting of the Committee, providing
valuable advice and insights. As a result, in 2018 HP was awarded
the highest possible score during ISS’s first-ever Environmental
& Social (E&S) Disclosure QualityScore review process. For more
information on our efforts in this space including our Sustainable
Impact Report please
visit https://www8.hp.com/us/en/
hp-information/global-citizenship/index.html.
• As described above, effective as of January 22, 2019, we have
amended the stockholder right to call special meetings in our
Bylaws to lower the threshold requirement to call such a meeting
from 25% to 15% of our outstanding shares. We decided to amend
this right after extensive outreach to our top 75 stockholders
regarding their desired response to the 2018 stockholder proposal
on stockholder action by written consent.
• As part of our commitment to the highest standards of governance,
in 2018 we became a signatory to the Commonsense Principles
of Corporate Governance 2.0, a set of corporate governance
principles we and the other signatories believe serve the best
interests of U.S. corporations and financial markets.
Proxy Statement
23
Corporate Governance
• We have evaluated our governance practices against the Corporate Governance Principles for U.S. Listed Companies published by the
Investor Stewardship Group (“ISG”), a collective of some of the largest U.S.-based institutional investors and global asset managers, and we
believe that our governance policies and practices are consistent with the ISG principles. The following table shows how certain of our key
governance practices align with the ISG principles:
ISG Principle
Principle 1: Boards are accountable to stockholders.
HP Governance Policy or Practice
• Annual election of each Director, for a one-year term
• Proxy access that allows stockholder to nominate Directors
• Each Director has agreed to tender his or her resignation if they
fail to receive a majority of votes cast
• Annual stockholder outreach program that typically includes the
Chair of the Board, the Chair of the HRC and other Directors
• No poison pill
• Extensive disclosure of our corporate governance and
Board practices
• One share, one vote
• Directors participate in our stockholder outreach programs,
including in our outreach regarding the 2018 written
consent proposal
• Directors are available for stockholder engagement outside our
engagement programs
• Many Directors participate in and attend our annual meeting, at
which management and those Directors present respond to each
stockholder question
Independent Chair of the Board, with clearly
defined responsibilities
•
• Structure for a Lead Independent Director if the Chair is
not independent
• Robust independent key committees and other structures for
facilitating contribution of independent Directors
• Ten of our eleven Director nominees are independent, with our
Director nominees representing diverse backgrounds, skills
and experiences
• Each Board committee is fully independent
• Track record of open dialogue between the Board
and management
• Robust annual self-evaluation program
• Performance-oriented LTI mix with metrics that support our
long-term strategy
• Combination of short- and long-term performance goals
• Executive and Director share ownership requirements
Principle 2:
Principle 3:
Stockholders should be entitled to voting rights in
proportion to their economic interest.
Boards should be responsive to stockholders and be
proactive in order to understand their perspectives.
Principle 4:
Boards should have a strong, independent
leadership structure.
Principle 5:
Boards should adopt structures and practices that
enhance their effectiveness.
Principle 6:
Boards should develop management incentive
structures that are aligned with the long-term
strategy of the company.
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
independence 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 New
York Stock Exchange (“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 the U.S. Securities and
Exchange Commission (the “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.
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Under our Corporate Governance Guidelines, a Director will not be
considered independent in the following 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, step-parents, 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 guided by the standards set
forth above.
Corporate Governance
In making its independence determinations, the Board considered
transactions occurring since the beginning of fiscal 2016 between
HP and entities associated with the independent Directors or their
immediate family members. In addition to the transactions described
below under “Fiscal 2018 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.
• 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 has served as Vice President, Healthcare at
Google, a subsidiary of Alphabet, since 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 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.
• Each of Mr. Banerji, Mr. Bennett, Ms. Brown-Philpot, Ms. 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 2018 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 Mr. Weisler,
(i) each of HP’s independent Directors, including Ms. Alvarez, Mr. Banerji,
Mr. Bennett, Mr. Bergh, Ms. Brown-Philpot, Ms. Burns, Ms. Citrino,
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. Weisler is not independent because of his status as our current
President and CEO.
Proxy Statement
25
Corporate Governance
Board Leadership Structure
The HP Board continuously evaluates its leadership structure. Our
Board continues to believe that it is in the best interests of the
Company and its stockholders to separate the Chairman of the
Board and Chief Executive Officer roles and for our Chairman to
be independent. Currently, Mr. Bergh serves as our independent
Chairman of the Board. Our Board believes that our current structure,
with an independent Chairman, who is well-versed in the needs of a
complex business and has strong, well-defined governance duties,
gives our Board a strong leadership and corporate governance
structure that best serves the needs of HP and its stockholders. The
Board will continue to evaluate its leadership structure on an ongoing
basis and may make changes as appropriate to HP and its future
needs. For additional information regarding HP’s board leadership
structure please read the Board’s Opposition Statement to the
Stockholder Proposal, beginning on page 66.
Independent Chairman
• oversees the planning of the annual Board of Directors calendar
•
in consultation with the CEO and the other Directors, schedules,
approves and sets the agenda for meetings of the Board and
chairs and leads the discussion at such meetings
• has the authority to call meetings of the independent Directors
and schedules, sets the agenda for, and presides at executive
sessions of the independent Directors
• approves information sent to the Board of Directors
• chairs HP’s annual meeting of stockholders
• assists the Chairs of the Board committees in preparing agendas
•
is available in appropriate circumstances to speak on behalf of
the Board and for consultation and direct communication with
major stockholders upon request
for the respective committee meetings
• works with the HRC Committee to coordinate the annual
performance evaluation of the CEO
• provides guidance and oversight to management
• works with the NGSR Committee to oversee the Board and
• helps with the formulation and implementation of HP’s
strategic plan
• serves as the Board liaison to management
committee evaluations and recommends changes to improve the
Board, the committees, and individual Director effectiveness
• performs such other functions and responsibilities as set forth
in the Corporate Governance Guidelines or as requested by the
Board from time to time
Board Risk Oversight
The Board, with the assistance of committees of the Board
as discussed below, reviews and oversees our enterprise risk
management (“ERM”) program. This enterprise-wide program is
designed to enable effective and efficient identification of, and
management’s visibility into, critical enterprise risks. It also facilitates
the incorporation of risk considerations into decision making. The ERM
program was established to clearly define risk management roles
and responsibilities, bring together senior management to discuss
risk, promote visibility and constructive dialogue around risk at the
senior management and Board levels and facilitate appropriate risk
response strategies. Under the ERM program, management develops
a holistic portfolio of our enterprise risks by facilitating business and
function risk assessments, performing targeted risk assessments
and incorporating information regarding specific categories of risk
gathered from various internal HP organizations. Management
then develops risk response plans for risks categorized as needing
management focus and response and monitors other identified
risk focus areas. Management provides regular reports on the risk
portfolio and risk response efforts to senior management and to the
Audit Committee.
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The Board oversees management’s implementation of the ERM program, including reviewing our enterprise risk portfolio and evaluating
management’s approach to addressing identified risks. Various Board committees also have responsibilities for oversight of risk management
that supplement the ERM program as follows:
Corporate Governance
BOARD
�����������������
Considers Risk in Connection with Strategic Planning and Other Matters
AUDIT
Risk oversight
FINANCE,
INVESTMENT
AND TECHNOLOGY
Financial risks
and innovation
opportunities
HR AND
COMPENSATION
Compensation risks
and practices
NOMINATING,
GOVERNANCE
AND SOCIAL
RESPONSIBILITY
Risks associated with
governance structure
and processes
HP Management:
HP Management advises the Board and Board committees of
key risks and the status of ongoing efforts to address these risks
Compensation Risk Assessment
During fiscal 2018, Frederic W. Cook and Co., Inc. (“FW Cook”),
independent compensation consultants to the HRC Committee,
conducted a risk assessment of our executive compensation
programs, policies and processes for all employees, reviewing
our practices relative to market “best practice” and considering
risk mitigation factors. FW Cook concluded that our compensation
programs and practices do not create risks that are reasonably likely
to have a material adverse effect on HP.
Overall, we believe that our compensation programs contain an
appropriate balance of fixed and variable features and short- and
long-term
incentives, as well as complementary metrics with
reasonable, performance-based goals and linear payout curves
under most plans. We believe that these factors, combined with
effective Board and management oversight, operate to mitigate
risk and reduce the likelihood of employees engaging in excessive
risk-taking behavior with respect to the compensation-related
aspects of their jobs.
Proxy Statement
27
Corporate Governance
Current Committee Memberships
Name
Independent Directors
Aida M. Alvarez
Shumeet Banerji
Robert R. Bennett
Charles “Chip” V. Bergh
Stacy Brown-Philpot
Stephanie A. Burns
Mary Anne Citrino
Yoky Matsuoka
Stacey Mobley
Subra Suresh
Other Directors
Dion J. Weisler
— Member
— Audit Committee “financial expert”
Audit
Finance, Investment
and Technology
HR and Compensation
Nominating,
Governance and
Social Responsibility
Chair
Chair
Chair
Chair
During fiscal 2018, the Board held 7 meetings, all of which included
executive sessions. Each incumbent Director serving during fiscal
2018 attended at least 75% of the aggregate of all Board and
applicable committee meetings held during the period that he or
she served as a Director. During fiscal 2018, we had the following
four standing committees, which held the number of meetings
indicated in parentheses during fiscal 2018: Audit Committee (13); FIT
Committee (7); HRC Committee (5); and NGSR Committee (5). All of the
committee charters are available on our investor relations website at
https://investor.hp.com/governance/governance-documents/
default.aspx.
Directors are encouraged to participate in our annual meeting of
stockholders. At our last annual meeting on April 24, 2018, 6 of our
10 then-Directors, all 10 of whom are standing for re-election this
year, attended the meeting.
Audit Committee
We have an Audit Committee established in accordance with the
requirements of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). The Audit Committee represents and assists
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.
• reviewing and approving the scope of the annual independent audit, the audit fee, other audit
services, and the financial statements;
• 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.
Audit & Non-Audit Services;
Financial Statements;
Audit Report
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Corporate Governance
Disclosure Controls;
Internal Controls & Procedures;
Legal Compliance
• reviewing our disclosure controls and procedures, internal controls, information security policies,
internal audit function, and corporate policies with respect to financial information and earnings
guidance; and
Risk Oversight
• overseeing compliance with legal and regulatory requirements.
• 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 NGSR Committee).
Annual Review/Evaluation
• annually reviewing the Audit Committee’s charter and performance.
The Board determined that each of Ms. Citrino, chair of the Audit
Committee, and the other Audit Committee members (Mr. Bennett,
Ms. Brown-Philpot, Ms. Matsuoka and Mr. Suresh) is independent
within the meaning of the 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 an “audit committee financial expert” as defined by the SEC rules.
The report of the Audit Committee is included on page 36.
Finance, Investment and Technology Committee
The FIT Committee provides oversight of the finance and investment functions of HP. The FIT Committee’s responsibilities and duties include,
among other things:
Treasury Matters
M&A Transactions &
Strategic Alliances
• reviewing or overseeing significant treasury matters such as capital structure and allocation
strategy, derivative policy, global liquidity, fixed income investments, borrowings, currency
exposure, dividend policy, share issuances and repurchases, and capital spending.
• assisting the Board in evaluating investment, acquisition, enterprise services, joint venture and
divestiture transactions in which we engage as part of our business strategy from time to time and
reporting and making recommendations to the Board as to scope, direction, quality, investment
levels and execution of such transactions;
• evaluating and revising our approval policies with respect to such transactions;
• overseeing our integration planning and execution and the financial results of such transactions
after integration;
• evaluating the execution, financial results and integration of our completed transactions; and
• overseeing and approving our strategic alliances.
Capitalization; Debt &
Obligations; Swaps
• reviewing or overseeing our capital structure and allocation strategy;
• overseeing our loans and loan guarantees of third-party debt and obligations; and
• annually reviewing and approving certain swaps and other derivative transactions.
Technology Strategies &
Guidance
• making recommendations to the Board as to scope, direction, quality, investment levels, and
execution of our technology strategies;
• overseeing the execution of technology strategies formulated by management; and
• providing guidance on technology as it may pertain to, among other things, market entry and exit,
investments, mergers, acquisitions and divestitures, new business divisions and spin-offs, research
and development investments, and key competitor and partnership strategies.
Proxy Statement
29
Corporate Governance
Nominating, Governance and Social Responsibility Committee
The NGSR Committee oversees, and represents and assists the
Board (and management, as applicable) in fulfilling its responsibilities
relating to, our corporate governance, Director nominations and
elections, HP’s policies and programs relating to global citizenship
and other legal, regulatory and compliance matters relating to
current and emerging political, environmental, global citizenship and
public policy trends. Specific duties and responsibilities of the NGSR
Committee include, among other things:
Board Matters
• developing and recommending to the Board the criteria for identifying and evaluating Director
candidates and periodically reviewing these criteria;
•
identifying and recommending candidates to be nominated for election as Directors at our annual
meeting, consistent with criteria approved by the Board;
• annually assessing the size, structure, functioning, and composition of the Board and recommending
assignments of Directors to Board committees and chairs of Board committees;
•
identifying and recruiting new Directors, establishing procedures for the consideration of Director
candidates recommended by stockholders and considering candidates proposed by stockholders;
• assessing the contributions and independence of Directors in determining whether to recommend
them for election or reelection to the Board; and
• periodically reviewing the Board’s leadership structure, recommending changes to the Board as
appropriate and, if the Chairman of the Board is not independent, making a recommendation to the
independent Directors regarding the appointment of the Lead Independent Director.
HP Governing Documents &
Corporate Governance
Guidelines & Other Policies
• conducting a preliminary review of Director independence and the financial literacy and expertise
of Audit Committee members, and making recommendations to the Board related to such matters;
• developing and regularly reviewing corporate governance principles, including our Corporate
Governance Guidelines;
• reviewing proposed changes to our Certificate of Incorporation, Bylaws and Board committee
charters; and
• establishing policies and procedures for the review and approval of related-person transactions
and conflicts of interest, including the reviewing and approving all potential “related-person
transactions” as defined under SEC rules.
Stockholder Rights
• assessing and making recommendations regarding stockholder rights plans or other stockholder
protections, as appropriate; and
• reviewing stockholder proposals in conjunction with the CEO and recommending Board responses.
Public Policy Trends & Issues
• reviewing emerging corporate governance issues and practices;
•
identifying, evaluating, and monitoring social, political, and environmental trends, issues, concerns,
legislative proposals, and regulatory developments that could significantly affect the public affairs
of HP; and
• reviewing, assessing, reporting, and providing guidance to management and the full Board relating
to activities, policies, and programs with respect to public policy matters and policies and programs
relating to global citizenship, as applicable.
Annual Review/Evaluation
• overseeing the policies relating to, and the manner in which HP conducts, its government
relations activities;
• annually reviewing the NGSR Committee’s charter and performance; and
• overseeing the annual self-evaluation of the Board and its committees.
The Board determined that each of Mr. Banerji, who serves as chair of the NGSR Committee, and the other NGSR Committee members
(Ms. Alvarez, Mr. Bergh, Ms. Brown-Philpot and Mr. Mobley) is independent within the meaning of the NYSE Director independence standards.
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HR and Compensation Committee
The HRC Committee discharges the Board’s responsibilities related to the compensation of our executives and Directors and provides general
oversight of our compensation structure, including our equity compensation plans and benefits programs. Specific duties and responsibilities of
the HRC Committee include, among other things:
Corporate Governance
Executive Compensation,
Stock Ownership &
Performance Reviews
Non- Equity Compensation Plans,
Incentive Plans & Other
Employee Benefit Plans
Director Compensation &
Stock Ownership
Executive Succession
Planning & Leadership
Development
Compensation Consultants
Risk Assessment;
Other Disclosure
• recommending all elements of the CEO’s compensation to the independent members of the Board
for their review and approval;
• reviewing and approving objectives relevant to other executive officer compensation and evaluating
performance and determining the compensation of other executive officers in accordance with
those objectives;
• conducting annual performance evaluation of CEO; soliciting 360 feedback across organization;
• reviewing performance feedback on executive team members;
• approving severance arrangements and other applicable agreements and policies for executive
officers; and
• adopting and monitoring compliance with stock ownership guidelines for executive officers.
• overseeing and monitoring the effectiveness of non-equity-based benefit plan offerings, including
but not limited to non-qualified deferred compensation, fringe benefits, and any perquisites, in
particular those pertaining to Section 16 officers, and approving any material new employee benefit
plan or change to an existing plan that creates a material financial commitment by HP.
• establishing compensation policies and practices for service on the Board and its committees,
including annually reviewing the appropriate level of Director compensation and recommending to
the Board any changes to that compensation; and
• adopting and monitoring compliance with stock ownership guidelines for Directors.
• reviewing senior management selection and overseeing succession planning,
leadership
development, diversity and pay equity; and
• driving CEO succession planning process in partnership with chairman and full board.
• engaging compensation consultants on various topics to understand market perspectives;
• engaging compensation consultant for independent perspective on compensation programs; and
• assessing the independence of all advisors (whether retained by the HRC Committee or management)
that provide advice to the HRC Committee, in accordance with applicable listing standards.
• overseeing, approving, and evaluating HP’s overall human resources and compensation structure,
policies and programs, and assessing whether these establish appropriate incentives and leadership
development opportunities for management and other employees, and confirming they do not
encourage risk taking that is reasonably likely to have a material adverse effect on HP;
• reviewing and discussing with management the Compensation Discussion and Analysis and
performing other reviews and analyses and making additional disclosures as required of
compensation committees by the rules of the SEC or applicable exchange listing requirements; and
• reviewing the results of stockholder advisory votes on HP’s executive compensation program and
recommending to the Board or the NGSR Committee how to respond to such votes.
Annual Review/Evaluation
• overseeing the annual evaluation of the CEO with input from all non-employee Board members; and
People Processes
& Culture
• annually evaluating the HRC Committee’s performance and charter.
• reviewing employee engagement and cultural initiatives including key training and development
programs (executive and manager training, unconscious bias), diversity and inclusion programs and
results of the employee engagement survey; and
• monitoring the key health metrics to evaluate the workforce including workforce diversity, key
hires, turnover and restructuring.
The Board determined that each of Ms. Burns, who serves as chair of the HRC Committee, and the other HRC Committee members (Ms. Alvarez,
Mr. Banerji, Mr. Bergh and Mr. Mobley) is independent within the meaning of the NYSE standards of independence for Directors and compensation
committee members.
Proxy Statement
31
Corporate Governance
Executive Sessions
During fiscal 2018, the Directors regularly met in executive session, including executive sessions of only the independent Directors. In fiscal
2019, HP plans to hold additional executive sessions of only the independent Directors. Throughout fiscal 2018, Mr. Bergh served as independent
Chairman. As such, Mr. Bergh scheduled and chaired each executive session held during fiscal 2018. Any independent Director may request that
an additional executive session be scheduled.
Communications with the Board
Stockholders and other interested parties can contact the HP Board
by email at bod@hp.com or by mail at:
The HP Board of Directors
1501 Page Mill Road
Palo Alto, California 94304
All Directors have access to this correspondence. In accordance with
instructions from the Board, the Secretary to the Board reviews all
correspondence, organizes the communications for review by the
Code of Conduct
Board and posts communications to the full Board or to individual
Directors, as appropriate. Our independent Directors have requested
that certain items that are unrelated to the Board’s duties, such
as spam, junk mail, mass mailings, solicitations, resumes and
job inquiries, not be posted. Communications that are intended
specifically for the Chairman of the Board, other independent
Directors, or the non-employee Directors should be sent to the
e-mail address or street address noted above, to the attention of the
Chairman of the Board.
We maintain a code of business conduct and ethics for Directors, officers and employees known as Integrity at HP, which is available on our
website at https://investor.hp.com/governance/integrity-at-hp/default.aspx. If the Board grants any waivers from our Standards of Business
Conduct to any of 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.
Director Compensation and Stock Ownership Guidelines
Non-employee Director compensation is determined annually by
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 third-party
compensation consultant
the HRC Committee
regarding market practices for Director compensation. Mr. Weisler,
as an employee of the Company, does not receive any separate
compensation for his HP Board activities.
retained by
For the 2018 Board year, which began March 1, 2018, each
non-employee Director was entitled to receive an annual cash retainer
of $105,000, an increase of $5,000 from the previous Board year. For
fiscal 2018, this therefore equaled an aggregate annual retainer of
$103,267, as our board and fiscal years end in February and October,
respectively. 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 2018, one non-employee
Director 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 retainer
of $205,000 for service during the 2018 Board year. Under special
circumstances, the annual equity retainer may be paid in cash.
No annual equity retainer was paid in cash during fiscal 2018.
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 the
stock option awards is determined as of the grant date based on
a Black-Scholes-Merton option pricing formula. Equity grants to
outside Directors are primarily intended to strengthen alignment with
shareholder interests and to reinforce a long-term ownership view
of the company and its value. Retention is not the focus of equity
grants for outside Directors and could cause entrenchment, which is
why the HRC Committee eliminated service-related vesting on equity
awards in July 2017. Non-employee Directors may elect to defer the
settlement of shares received as part of the Director compensation
program until either (a) upon 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 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 settlement of
any stock options received.
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Corporate Governance
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 non-employee Directors may use the Company aircraft for travel
to and from Board meetings and other company events.
The Chairman of the Board receives an additional $200,000 annual
Chairman retainer in recognition of the greater duties that his 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 2018 received cash
retainers for such service. The Board approved annual cash retainers for
committee chairs as follows for chair service during fiscal 2018:
• $25,000 for the Audit Committee Chair from November 1, 2017-
March 1, 2018 - effective March 1, 2018, the committee approved
an increase of $5,000 to the Audit Committee Chair fee, raising it
to $30,000;
• $20,000 for the HRC Committee Chair; and
• $15,000 for Chairs of other Board standing committees.
Fiscal 2018 Director Compensation
Name(3)
Aida Alvarez
Shumeet Banerji
Robert R. Bennett
Charles “Chip” V. Bergh
Stacy Brown-Philpot
Stephanie A. Burns
Mary Anne Citrino
Stacey Mobley
Subra Suresh
Dion J. Weisler(4)
Fees Earned or
Paid in Cash(1)
($)
$103,267
$118,257
$122,257
$233,083
$107,267
$123,253
$135,586
$103,267
$105,267
$
Stock
Awards(2)
($)
$205,004
$205,004
$205,004
$155,014
$205,004
$205,004
$102,502
$205,004
$205,004
Option
Awards(2)
($)
—
$
—
$
—
$
$155,005
—
$
$
—
$102,502
—
$
—
$
—
— $
— $
All Other
Compensation
Total
($)
($)
$— $308,271
$— $323,261
$— $327,261
$— $543,102
$— $312,271
$— $328,257
$— $340,590
$— $308,271
$— $310,271
—
$— $
(1)
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 2018, as well as any additional meeting fees paid during fiscal 2018. See “Additional Information about Fees
Earned or Paid in Cash in Fiscal 2018” below.
(2) Represents the grant date fair value of stock awards and option awards granted in fiscal 2018 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, 2018, as filed with the SEC on December 13, 2018.
See “Additional Information about Non-Employee Director Equity Awards” below.
(3) Ms. Matsuoka was appointed to our Board during our Fiscal 2019 year. Accordingly, she did not receive any compensation during Fiscal 2018.
(4) Mr. Weisler has served as President and CEO of HP since November 1, 2015. Accordingly, he does not receive compensation for his Board service.
Additional Information about Fees Earned or Paid in Cash in Fiscal 2018
Name
Aida Alvarez
Shumeet Banerji
Robert R. Bennett
Charles “Chip” V. Bergh
Stacy Brown-Philpot
Stephanie A. Burns
Mary Anne Citrino
Stacey Mobley
Subra Suresh
Annual
Retainers(1)
($)
$103,267
$103,267
$103,267
$ 33,219
$103,267
$103,267
$103,267
$103,267
$103,267
Committee Chair and
Chairman Fees(2)
($)
$
—
$ 14,990
$ 14,990
$199,863
$
—
$ 19,986
$ 28,318
—
$
—
$
Additional
Meeting Fees(3)
($)
Total
($)
$ — $103,267
$ — $118,257
$4,000
$122,257
$ — $233,082
$4,000
$107,267
$ — $123,253
$4,000
$135,585
$ — $103,267
$105,267
$2,000
Proxy Statement
33
Corporate Governance
(1) 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 2017 through February 2018 Board year and cash annual
retainers earned for service during the first eight months of the March 2018 through February 2019 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 2021. In the case of a
termination of service, Directors can elect to receive the deferred money in the January following the termination of the service if the date occurs prior to the
specified distribution year elected.
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 2017 through February 2018 Board term and fees earned for service during the first eight months of the March 2018 through
February 2019 Board term.
(2)
(3) 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 2018 for service in the 2017 Board term ending February 2018.
Additional meeting fees for the 2018 Board term, if any, will be paid during fiscal 2019.
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 2018, 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 2018:
Name
Aida Alvarez
Shumeet Banerji
Robert R. Bennett
Charles “Chip” V. Bergh
Stacy Brown-Philpot
Stephanie A. Burns
Mary Anne Citrino
Stacey Mobley
Subra Suresh
Stock Awards
Granted During
Fiscal 2018
(#)
9,670
9,670
9,670
7,312
9,670
9,670
4,835
9,670
9,670
Option Awards
Granted During
Fiscal 2018
(#)
0
0
0
32,564
0
0
21,534
0
0
Grant Date
Fair Value of
Stock and
Option Awards
Granted During
Fiscal 2018(1)
($)
$205,004
$205,004
$205,004
$310,019
$205,004
$205,004
$205,004
$205,004
$205,004
Stock Awards
Outstanding
at Fiscal
Year End(2)
(#)
11,061
Option Awards
Outstanding at
Fiscal Year End
(#)
107,218
133,515
22,295
39,577
9,781
27,238
39,577
18,736
(1) Represents the grant date fair value of stock awards and elective options granted in fiscal 2018 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, 2018, as filed with the SEC on December 13, 2018.
Includes dividend equivalent units accrued with respect to share awards granted in fiscal 2018 and RSUs granted in previous years, that have been deferred
at the election of the Director.
(2)
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 their annual cash 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 63 of this proxy statement.
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Related-Person Transactions Policies and Procedures
We have adopted a written policy for approval of transactions
between us and our 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 or not 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 takes into account,
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.
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.
Fiscal 2018 Related-Person Transactions
Corporate Governance
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-persons. 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;
• 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 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 provided to the
NGSR Committee for its review in connection with that committee’s
regularly scheduled meetings.
We enter into commercial transactions with many entities for which our executive officers or Directors serve as Directors and/or employees in
the ordinary course of our business. All of those transactions were pre-approved transactions as defined above. There have otherwise been no
related-person transactions (actual or proposed) since the beginning of HP’s last completed fiscal year.
Proxy Statement
35
Audit Matters
Management
Proposal No. 2
Ratification of Independent Registered Public Accounting Firm
Our Board recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as our independent
registered public accounting firm for the 2019 fiscal year.
The Audit Committee has appointed, and as a matter of good
corporate governance, is requesting ratification by the stockholders
of Ernst & Young LLP as the independent registered public accounting
firm to audit our consolidated financial statements for the fiscal year
ending October 31, 2019. During fiscal 2018, Ernst & Young LLP
served as our independent registered public accounting firm and also
provided certain other audit-related and tax services. See “Principal
Accounting Fees and Services” and “Report of the Audit Committee of
the Board of Directors” below. Representatives of Ernst & Young LLP
are expected to participate in the annual meeting, where they will be
available to respond to appropriate questions and, if they desire, to
make a statement.
Vote Required
Ratification of the appointment of Ernst & Young LLP as our
independent registered public accounting firm for the 2019 fiscal
year requires the affirmative vote of a majority of the shares of
HP common stock present in person or represented by proxy and
entitled to be voted at the annual meeting. If the appointment is
not ratified, the Board will consider whether it should select another
independent registered public accounting firm. The members of the
Audit Committee and the Board believe that the continued retention
of Ernst & Young LLP to serve as HP’s independent registered public
accounting firm is in the best interests of HP and its investors.
Report of the Audit Committee of the Board of Directors
The Audit Committee represents and assists the Board in fulfilling its
responsibilities for general oversight of the integrity of HP’s financial
statements, HP’s compliance with legal and regulatory requirements,
the independent registered public accounting firm’s qualifications and
independence, the performance of HP’s internal audit function and
independent registered public accounting firm, and risk assessment
and risk management. The Audit Committee manages HP’s
relationship with its independent registered public accounting firm
(which reports directly to the Audit Committee) and is responsible
for the audit fee negotiations associated with HP’s retention of the
independent registered public accounting firm. The Audit Committee
has the authority to obtain advice and assistance from outside legal,
accounting or other advisors as the Audit Committee deems necessary
to carry out its duties and receives appropriate funding, as determined
by the Audit Committee, from HP for such advice and assistance.
HP’s management is primarily responsible for HP’s internal control and
financial reporting process. HP’s independent registered public accounting
firm, Ernst & Young LLP, is responsible for performing an independent
audit of HP’s consolidated financial statements and issuing opinions on
the conformity of those audited financial statements with United States
generally accepted accounting principles and the effectiveness of HP’s
internal control over financial reporting. The Audit Committee monitors
HP’s financial reporting process and reports to the Board on its findings.
In this context, the Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited
financial statements with HP’s management.
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2. The Audit Committee has discussed with the
independent
registered public accounting firm the matters required to be
discussed under the rules adopted by the Public Company
Accounting Oversight Board (“PCAOB”).
3. The Audit Committee has received from the
independent
registered public accounting firm the written disclosures and
the letter required by the applicable requirements of the
PCAOB regarding the independent registered public accounting
firm’s communications with the Audit Committee concerning
independence and has discussed with the independent registered
public accounting firm its independence.
4. Based on the review and discussions referred to in paragraphs
(1) through (3) above, the Audit Committee recommended to the
Board, and the Board has approved, that the audited financial
statements be included in HP’s Annual Report on Form 10-K for
the fiscal year ended October 31, 2018, for filing with the SEC.
The undersigned members of the Audit Committee have submitted
this Report to the Board of Directors.
AUDIT COMMITTEE
Mary Anne Citrino, Chair
Robert R. Bennett
Stacy Brown-Philpot
Subra Suresh
Principal Accountant Fees and 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 2018 and 2017.
Audit Matters
Audit Fees(1)
Audit-Related Fees(2)
Tax Fees(3)
All Other Fees(4)
Total
2018
2017
In Millions
$15.9
$ 3.3
$
4
$ 0.2
$23.4
$15.3
$ 1.7
$ 3.3
$ 0.3
$20.6
(1) Audit fees represent fees for professional services provided in connection with the audit of our financial statements and review of our quarterly financial
statements and audit services provided in connection with other statutory or regulatory filings.
(2) Audit-related fees for fiscal 2018 consisted primarily of accounting consultations, employee benefit plan audits and other attestation services. Audit-related
fees for fiscal 2017 consisted primarily of accounting consultations, employee benefit plan audits, and other attestation services.
(3) Tax fees consisted primarily of tax advice and tax planning fees of $1.6 million and $3 million for fiscal 2018 and fiscal 2017, respectively. For fiscal 2018 and
fiscal 2017, tax fees also included tax compliance fees of $2.3 million and $0.2 million, respectively.
(4)
For fiscal 2018 and fiscal 2017, all other fees included primarily advisory service fees.
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.
Proxy Statement
37
Executive Compensation
Management
Proposal No. 3
Advisory Vote to Approve Executive Compensation
Our Board recommends a vote FOR the approval of the compensation of our NEOs, including the Compensation
Discussion and Analysis, the compensation tables and narrative discussion following such compensation tables, and
the other related disclosures in this proxy statement.
In accordance with SEC rules, our stockholders are being asked to
approve, on an advisory or non-binding basis, the compensation of
our NEOs as disclosed in this proxy statement pursuant to Item 402
of Regulation S-K — a detailed description of our compensation
program is available in the “Compensation Discussion and Analysis.”
Our Board and the HRC Committee believe that we have created a
compensation program that is tied to performance, aligns with
stockholder interests and merits stockholder support. Accordingly,
we are asking for stockholder approval of the compensation of our
NEOs as disclosed in this proxy statement in the Compensation
Discussion and Analysis, the compensation tables and the narrative
discussion following the compensation tables.
Although this vote is non-binding, the Board and the HRC Committee
value the views of our stockholders and will review the voting
results. If there are significant negative votes, we will take steps to
understand those concerns that influenced the vote, and consider
them in making future decisions about executive compensation. We
currently conduct annual advisory votes on executive compensation,
and expect to conduct the next advisory vote at our next annual
meeting of stockholders in 2020.
Vote Required
The affirmative vote of a majority of the shares of HP common stock present in person or represented by proxy and entitled to be voted on the
proposal at the annual meeting is required for advisory approval of this proposal.
Compensation Discussion and Analysis
Introduction
This Compensation Discussion and Analysis describes our executive compensation philosophy and programs, the compensation decisions the
HRC Committee has made under the program, and the considerations in making those decisions in fiscal 2018.
Named Executive Officers
Our NEOs for fiscal 2018 are:
• Dion J. Weisler, President and CEO;
• Steven J. Fieler, Chief Financial Officer;
• Enrique J. Lores, President, Imaging, Printing and Solutions;
• Kim M. Rivera, President, Strategy and Business Management and
Chief Legal Officer and General Counsel;
• Tracy S. Keogh, Chief Human Resources Officer;
• Catherine A. Lesjak, former Chief Financial Officer and Interim
Chief Operating Officer¹;
• Ron V. Coughlin, former President, Personal Systems²; and
• Jon E. Flaxman, former Chief Operating Officer³.
(1) Ms. Lesjak served as Chief Financial Officer from the beginning of our fiscal year until June 30, 2018 when she was succeeded by Mr. Fieler. She served as
Interim Chief Operating Officer from July 1, 2018 until January 1, 2019, when she was succeeded by Ms. Rivera who was appointed to the role of President,
Strategy and Business Management.
(2) Mr. Coughlin resigned from this role effective June 13, 2018.
(3) Mr. Flaxman served as Chief Operating Officer until he passed away on March 28, 2018.
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 2018 executive compensation structure remained the same as its fiscal 2017 program.
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Executive Compensation
Below are brief highlights of key compensation decisions with respect to NEOs:
Fiscal 2018 NEO Pay Action
Adjusted base salaries
Determined earned
annual incentives for
fiscal 2018 performance
Determined long-term
incentive grants
HRC Committee Decision
Salary changes for NEOs ranged from 0%
to 7.7% based on market competitiveness
and performance.
Annual incentives for fiscal 2018 were
earned, ranging from 165.5% to 180.5%
of target, with the CEO at 178% of target
and the average payout of other NEOs at
170.2%.(1)
At the beginning of the year, the HRC
Committee set target award opportunities
at competitive levels versus peers and
subject to rigorous threshold-to-maximum
performance goals.
long-term
incentives were
Fiscal 2018
granted using a mix of 60% PARSUs and 40%
time-based RSUs. Grant values for all our
NEOs were set at competitive levels versus
peers with appropriate incumbent-specific
variability for performance, experience, and
internal equity.
HRC Committee Rationale
Reflect peer group market positioning, individual experience,
performance, advancement potential, and internal equity.
Earned awards reflected performance against applicable
enterprise-wide, business, and individual goals. The HRC and
management ensured that U.S. tax reform’s effects during fiscal
2018 did not result in any windfalls on earned awards. Goals
were set for the overall Company and businesses against internal
budgets for revenues, net earnings/profits, and free cash flow as
a percentage of revenue. Non-financial individual performance
goals under the Management by Objectives program (“MBOs”)
were set for individuals. The Company delivered strong results in
fiscal 2018, achieving above-target results with respect to each
financial goal. Further, NEOs successfully delivered against their
MBOs as further detailed on pages 43-44.
PARSUs are based on relative TSR compared to the S&P 500 and
Earnings Per Share (“EPS”) during the three year performance
period. The intent was to align pay delivery with stockholder
returns. RSUs vest based on continued service to encourage
stockholder alignment and to support executive retention.
(1) Excluding Mr. Coughlin, who did not receive a performance bonus in fiscal 2018 as he left the company prior to the end of the fiscal year.
Oversight and Authority over Executive Compensation
Role of the HRC Committee and its Advisors
The HRC Committee oversees and provides strategic direction
to management regarding all aspects of our pay program for
senior executives. It makes recommendations regarding the CEO’s
compensation to the independent members of the Board for approval,
and it 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 maintain the same
overall program structure for 2019. We believe that our current
compensation structure incents and rewards achievement of specific
goals, reinforces year-over-year results and provides an attractive
pay-for-performance opportunity that encourages retention and
leadership engagement.
During fiscal 2018, the HRC Committee continued to engage
Frederic W. Cook and Co., Inc. (“FW Cook”) as its independent
compensation consultant. 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 five times in fiscal 2018, and all five of these
meetings included an executive session. FW Cook participated in all
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 Board works with an outside consultant and management
in evaluating and defining pay programs. The Board considered
market competitiveness, business results, experience, and individual
performance in evaluating fiscal 2018 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.
Proxy Statement
39
Executive Compensation
During fiscal 2018, 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
information and analyses provided by
when
Meridian, all of which were also independently reviewed by FW Cook,
as applicable, on the HRC Committee’s behalf.
it evaluated any
During fiscal 2018, 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:
• Companies that are U.S.-based, listed on a major U.S. exchange,
and with executives primarily living in the United States
• Companies in the information technology industry sector, as well
as non-technology peers in industrial, consumer discretionary,
consumer staples, and telecommunications services
• Technology companies with 1/5x to 5x HP’s revenue and
non-technology companies with 1/2x to 3x HP’s revenue
• Companies with non-U.S. revenue greater than or equal to 40%
of total revenue
• Companies with market capitalizations that are within a reasonable
range of HP’s market capitalization
• Companies with comparable organizational complexity (i.e., at least
two operating segments and products and services components)
• Companies with R&D greater than or equal to 2.5% of total revenue
• Companies with primarily B2B, or business-to-business, focus
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
2018, the HRC Committee removed EMC from the peer group due to
its merger with Dell Inc. The peer group for fiscal 2018 consisted of
the following companies:
Fiscal 2018 Peer Group
Company
Amazon.com Inc.
Verizon Communications Inc.
General Electric Company
Microsoft Corporation
IBM Corporation
Procter & Gamble Company
PepsiCo, Inc.
Intel Corporation
HP Inc.
Cisco Systems, Inc.
Honeywell International Inc.
Oracle Corporation
Nike, Inc.
Hewlett Packard Enterprise Company
Qualcomm Incorporated
Western Digital Corporation
Texas Instruments Incorporated
Seagate Technology PLC
Xerox Corporation
Revenue
(Fiscal Year End - $Billions)*
177.9
126.0
122.1
110.4
79.1
66.8
63.5
62.8
58.5
49.3
40.5
39.8
36.4
30.9
22.7
20.6
15.0
11.2
10.3
*
Represents fiscal 2018 reported revenue, except fiscal 2017 reported revenue is provided for Amazon, Verizon, General Electric, IBM, PepsiCo, Intel, Honeywell,
Texas Instruments and Xerox.
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Executive Compensation
Process for Setting and Awarding Executive Compensation
A broad range of facts and circumstances is considered in setting
our overall executive compensation levels. In fiscal 2018, 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 “2018 Annual Incentives” below for a
further description of our results and corresponding incentive payouts.
Listening to our Stockholders on Compensation
HP believes in aligning our compensation with our stockholders’
interests. We regularly engage with our stockholders on a variety
of issues, including their views on best practices in executive
compensation. Some changes during the last few years to our
executive compensation program, shown here, have reflected those
conversations with stockholders.
•
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 Company’s 2018 annual meeting, the Company’s executive
compensation proposal received the support of over 92% of
the votes cast. As part of its 2018 executive compensation
discussions, the Compensation Committee reviewed the advisory
vote result and considered it to be supportive of the Company’s
compensation practices.
Determination of Fiscal 2018 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
2018 the Committee decided to maintain a consistent compensation
structure for executives since it supports the business strategy and
aligns pay with stockholder interests.
2018 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.
The HRC Committee aims to have executive base salaries set at or
near the market median for comparable positions. In fiscal 2018,
salaries comprise on average 11% of our NEOs’ overall compensation,
which is consistent with the practice of our peers. To decide the CEO’s
salary, the HRC Committee reviews analyses and recommendations
provided by FW Cook.
For fiscal 2018, Mr. Weisler’s salary was increased from $1.3 million
to $1.4 million, to better align with the market median. The HRC
Committee did not change Ms. Lesjak’s base salary. Based on market
competitiveness and performance, both Mr. Coughlin’s and
Mr. Lores’ base salaries were increased from $725,000 to $750,000,
Mr. Flaxman’s base salary was increased from $700,000 to $715,000,
Ms. Rivera’s base salary was increased from $645,000 to $675,000 and
Ms. Keogh’s base salary was increased from $600,000 to $630,000.
Mr. Fieler’s base salary was increased from $480,000 to $690,000 in
conjunction with his promotion to CFO on July 1, 2018.
Proxy Statement
41
Executive Compensation
2018 Annual Incentives
The fiscal 2018 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,
individual performance and
MBOs, was used to further drive
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 2018 were set at
200% of salary for the CEO and 125% of salary for the other NEOs.
The HRC and management ensured that U.S. tax reform’s effects
during fiscal 2018 did not result in any windfalls on earned awards.
Fiscal 2018 Annual Incentive Plan
For fiscal 2018, 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 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 $15 million individual cap under the Stock Incentive
Plan. Below this umbrella funding structure, actual payouts were
determined based upon financial metrics and MBOs established and
evaluated by the HRC Committee for Section 16 officers and by the
independent members of the Board for the CEO.
Key Design Elements
Weight
Linkage
Global Functions Executives(3)
Business Unit (“BU”) Executives(4)
Corporate Performance Goals
Maximum
Target
Threshold
Revenue
($ in billions)
Corporate Goals
Net
Earnings/Profit
($ in billions)
25%
25%
Free Cash Flow as a
% of Revenue(1)
(%)
25%
% Payout
Metric(2)
(%)
MBOs
25%
Corporate
Corporate/BU
Corporate
Corporate/BU
Corporate
Corporate
Individual
Individual
—
$54.7
—
—
$3.2
—
—
5.85%
—
Various
Various
Various
250
100
0
(2)
(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 on the basis of competitive harm.
However, goals are set at levels we believe to be achievable in connection with strong performance.
Interpolate 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, Ms. Lesjak, Mr. Flaxman, Ms. Rivera, and Ms. Keogh.
(4) The Business Unit Executives include Mr. Coughlin and Mr. Lores. Specific Business Unit goals are excluded on the basis of 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; and
• 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.
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Executive Compensation
The following chart sets forth the definition of and rationale for each of the financial performance metrics that was used for the Fiscal 2018
Annual Incentive Plan:
Financial Performance Metrics(1)
Corporate Revenue
Business Revenue
Corporate Net Earnings
Business Net Profit (“BNP”)
Corporate Free Cash Flow
Definition
Net revenue as reported in our Annual Report on Form
10-K for fiscal 2018
Segment net revenue as reported in our Annual Report on
Form 10-K for fiscal 2018
Non-GAAP net earnings, as defined and reported in
our fourth quarter fiscal 2018 earnings press release,
excluding bonus net of income tax(2)
Business net profit, excluding bonus net of income tax
Cash flow from operations less net capital expenditures
(gross purchases less retirements) divided by net revenue
(expressed as a percentage of revenue)
Rationale for Metric
Reflects top line financial performance,
which is a strong indicator of our long-term
ability to drive stockholder value
Reflects bottom line financial performance,
which is directly tied to stockholder value
on a short-term basis
Reflects efficiency of cash management
practices, including working capital and
capital expenditures
(2)
(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 takes into account 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.
Fiscal 2018 non-GAAP net earnings of $3.5 billion excludes after-tax costs of $2 billion related to the amortization of intangible assets, restructuring charges,
and acquisition-related charges. Management uses non-GAAP net earnings to evaluate and forecast our performance before gains, losses, or other charges
that are considered by management to be outside of our core business segment operating results. We believe that presenting non-GAAP net earnings provides
investors with greater visibility with respect to the information used by management in its financial and operational decision making. We further believe that
providing this additional non-GAAP information helps investors understand our operating performance and evaluate the efficacy of the methodology and
information used by management to evaluate and measure such performance. This additional non-GAAP information is not intended to be considered in
isolation or as a substitute for GAAP diluted net earnings.
Following fiscal 2018, the HRC Committee reviewed performance against the financial metrics and certified the results as follows:
Fiscal 2018 Annual PfR Incentive Performance Against Financial Metrics(1,2)
Metric
Corporate Revenue
Corporate Net Earnings
Corporate Free Cash Flow (% of revenue)
Total
Weight(3)
25.0%
25.0%
25.0%
75.0%
Target
($ in billions)
$54.7
$ 3.2
Result
($ in billions)
$58.5
$ 3.5
5.85%
7.1%
Percentage of Target
Annual Incentive Funded
40.5%
37.5%
62.5%
140.5%
(1) Mr. Weisler, Mr. Fieler, Ms. Lesjak, Ms. Rivera, Ms. Keogh and Mr. Flaxman received annual PfR incentive payments based on corporate financial metrics.
Mr. Lores received an annual PfR incentive payment based on corporate and business financial metrics. Mr. Coughlin’s annual PfR Incentive goals were based
on corporate and business financial metrics. However, Mr. Coughlin didn’t receive an annual PfR incentive payment since he left the company on June 13,
2018, prior to the end of the fiscal year.
(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: set strategic direction
for the company based on optimizing shareholder value, maintain
supplies stabilization, fully integrate Samsung printing business, grow
profitable share in Personal Systems, accelerate adoption of multi-jet
fusion to extend leadership in 3D printed plastics and announce
technology for metals, engage with all major constituents including
financial analysts, media, key governmental figures, partners and
customers to execute the HP strategy, and ensure 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 had been achieved above
target. Mr. Weisler’s accomplishments included:
• Added $2.2B in market cap over the fiscal year 2018 and out-paced
the S&P 500 by 7 points for the year.
• Beat external expectations on all key metrics: revenue, non-GAAP
EPS and free cash flow, despite several critical challenges through
the year.
Proxy Statement
43
Executive Compensation
•
•
•
In Print, maintained supplies stabilization growing +7% versus
prior year. Integrated Samsung Printing business. Gained share in
A3 printer market and grew the Managed Print Services business
double-digits. In Graphics, entered corrugated post-print market.
In Personal Systems business, delivered profitable share growth
in the core business while expanding Device as a Service offering.
Further, supported the successful transition of Mr. Cho as new
leader of the business.
In 3D print business, achieved #1 position for thermoplastic solutions
above $100k. Introduced HP Metal Jet to take metal 3D printing from
specialized to mass production. Mr. Weisler has also supported the
successful transition of Mr. Schell as leader of the 3D business.
• Mr. Weisler worked to maintain market access and competitive
pricing in the face of 301 tariffs and non-tariff barriers.
• Mr. Weisler continued his emphasis on talent and assignment
planning which helped the successful transition of leaders into
executive leadership positions.
As CEO, Mr. Weisler evaluated the performance of each of the other
Section 16 officers and presented the results of those evaluations to
the HRC Committee at its November 2018 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. Mr. Fieler was eligible for and participated in two different
bonus programs during fiscal 2018 on a pro-rata basis. Prior to his
promotion to CFO, from November 1 to June 30, he participated in
the annual PfR incentive plan for the non-Executive Leadership
Team (“ELT”). In conjunction with his promotion to CFO on July 1,
Mr. Fieler began participating in the annual PfR incentive plan for the
ELT. His MBOs as CFO were approved by the HRC Committee at their
June meeting.
The HRC Committee determined that Mr. Fieler’s MBOs performance
had been achieved at target. Mr. Fieler made a very strong transition
into his new role as CFO. He brought strong operational perspective
and excellent experience in areas such as cash flow. Mr. Fieler is a
thoughtful, strategic and engaged leader and was critical in delivering
against financial expectations.
Ms. Lesjak. Ms. Lesjak served in two important capacities at HP this
year, serving as CFO from November 1 to June 30 and as interim Chief
Operating Officer after July 1. The HRC Committee determined that
Ms. Lesjak’s MBOs performance in both capacities had been achieved
above target. She drove efficiencies in the Finance organization
and was critical in the successful transition of Mr. Fieler as CFO.
Further, Ms. Lesjak was vital in stabilizing the COO organization after
Mr. Flaxman’s passing, leading a complex portfolio of critical business
areas while reenergizing the organization.
Mr. Lores. The HRC Committee determined that Mr. Lores’s MBOs
performance had been achieved above target. Mr. Lores did a great
job in delivering profitable growth in supplies, Graphics Solutions
Business, Managed Print Services and Instant Ink. He significantly
over-performed on Print transformation goals to substantially
improve Print’s cost position. Mr. Lores also did an excellent job
leading Samsung integration and delivering on the first-year plan.
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 counterfeiting, IP protections and Samsung deal close and
integration. She did an excellent job on tariffs, revamping government
relations and internal programs such as Integrity@HP. Ms. Rivera is a
well-respected leader who not only gives solid legal advice but also is
a strong partner in business and technology matters.
Ms. Keogh. The HRC Committee determined that Ms. Keogh’s MBO
performance had been achieved above target. Ms. Keogh’s strong focus
on executive talent development and succession planning set a strong
foundation to support the leadership changes in 2018. Ms. Keogh did
a remarkable job in creating company culture, increasing employee
engagement across the organization, reducing employee attrition and
completing a successful year in outstanding talent acquisition.
Mr. Coughlin. Resigned from HP on June 13, 2018 and was not eligible
to receive the bonus payout for fiscal 2018.
Mr. Flaxman. The HRC Committee determined that Mr. Flaxman’s MBOs
performance had been achieved at target. Mr. Flaxman managed
critical business areas while delivering on key critical projects such
as Enterprise Resource Planning (ERP) and the consolidation of our
robotics capabilities.
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 2018 Annual PfR Incentive Performance Against Non-Financial Metrics (MBOs)
Named Executive Officer
Dion J. Weisler
Steven J. Fieler
Catherine A. Lesjak
Enrique J. Lores
Kim M. Rivera
Tracy S. Keogh
Ron V. Coughlin
Jon E. Flaxman
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Percentage of Target
Annual Incentive
Funded
(%)
37.5
25.0
30.0
40.0
30.0
40.0
n/a
25.0
Weight
(%)
25.0
25.0
25.0
25.0
25.0
25.0
25.0
25.0
Based on the level of performance described above on both the financial and non-financial metrics for fiscal 2018, the payouts to the NEOs
under the annual PfR incentive were as follows:
Fiscal 2018 Annual PfR Incentive Payout
Executive Compensation
Named Executive Officer
Dion J. Weisler
Steven J. Fieler(1)
Catherine A. Lesjak
Enrique J. Lores
Kim M. Rivera
Tracy S. Keogh
Ron V. Coughlin
Jon E. Flaxman(2)
Percentage of Target
Annual Incentive Funded
Total Annual
Incentive Payout
Financial
Metrics
(%)
140.5%
140.5%
140.5%
128.5%
140.5%
140.5%
0.0%
140.5%
Non-Financial
Metrics
(%)
37.5%
25.0%
30.0%
40.0%
30.0%
40.0%
0.0%
25.0%
As % of Target
Annual Incentive
(%)
178.0%
165.5%
170.5%
168.5%
170.5%
180.5%
0.0%
165.5%
Payout
($)
$4,984,348
$ 793,632
$1,811,695
$1,579,331
$1,438,699
$1,421,536
$
—
$ 857,821
(1) Mr. Fieler’s annual PfR incentive target was 60% before his promotion to CFO. On July 1, 2018, Mr. Fieler’s annual PfR incentive target was increased to 125%.
Total Annual Incentive Payout reflects the combined total value of his annual PFR incentive for both roles.
(2) Mr. Flaxman’s incentive payout is based upon the base salary received for the year (prior to his death) and is paid to his beneficiaries.
Long-term Incentive Compensation
The HRC Committee established a total long-term incentive target
value for each NEO in early fiscal 2018 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.
2018 PARSUs
The fiscal 2018-2020 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 2018 and continue through the end
of fiscal 2018, 2019 and 2020. 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 TSR
performance over two years with continued service over two years,
25% of the units are eligible for vesting based on TSR performance
over three years with continued service over three years. This
structure is depicted in the chart below:
2018 PARSUs
Key Design Elements
Weight
Performance Periods(1)
Vesting Periods(2)
Performance Levels:
Max
> Target
Target
Threshold
< Threshold
EPS vs. Internal Goals
16.6% 16.6 % 16.6%
Year 3
Year 2
Year 1
Year 3
Year 3
Year 2
Relative TSR vs. S&P 500
25%
3 Years
Year 3
25%
2 Years
Year 2
Payout
% of Target(3)
Target to be disclosed after
the end of the three-year
performance period
> 90th percentile
70th percentile
50th percentile
25th percentile
< 25th percentile
200%
150%
100%
50%
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.
Proxy Statement
45
Executive Compensation
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 2018) 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 will be weighted equally in determining
earned PARSUs. The first segment (42% of total target units) will
vest after the end of fiscal 2019, 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
2020, 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
2018, see “Executive Compensation—Grants of Plan-Based Awards
in Fiscal 2018.”
2018 RSUs
2018 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.
Fiscal 2018 Long-term Incentive Compensation at Target
The following table shows combined total grant values for grants attributable to fiscal 2018. 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
Dion J. Weisler
Steven J. Fieler
Catherine A. Lesjak
Enrique J. Lores
Kim M. Rivera
Tracy S. Keogh
Ron V. Coughlin
Jon E. Flaxman
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 (2018), for which goals were approved in January 2018. Grant
date fair values for the EPS component for Year 2 and Year 3 are
not included in the grant date fair value reported in the Summary
Compensation Table since EPS goals for those years are approved
in their respective fiscal year. However, the Summary Compensation
Table for fiscal 2018 also includes a portion of the fiscal 2017
PARSUs for which the Year 2 EPS goal was approved in fiscal 2018 –
EPS component Year 2 (2018).
For more information on grants to the NEOs during fiscal 2018,
see “Executive Compensation—Grants of Plan-Based Awards in
Fiscal 2018.”
Actual Performance – Segment 1
Segment
Segment 1 (42%)
PARSUs
$8,100,000
$1,200,000
$3,240,000
$3,000,000
$1,980,000
$1,971,000
$3,210,000
$2,595,000
RSUs
$5,400,000
$1,550,000
$2,160,000
$2,000,000
$1,320,000
$1,314,000
$2,140,000
$1,730,000
Total Fiscal 2018
Long-term Incentive Grant
$13,500,000
$ 2,750,000
$ 5,400,000
$ 5,000,000
$ 3,300,000
$ 3,285,000
$ 5,350,000
$ 4,325,000
2017 PARSUs
The fiscal 2017-2019 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 2017 and continue through the end
of fiscal 2017, 2018 and 2019. 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. 2017 PARSUs have the same vesting structure
as 2018 PARSUs (chart described above). The actual performance
achievement for the one- and two-year periods (i.e., fiscal 2017 and
fiscal 2017–2018) as a percentage of target for the PARSUs as of
October 31, 2018 is summarized in the table below:
EPS vs. Internal Goals
Relative TSR vs. S&P 500(1)
Fiscal 2017 Result
$1.65
Target: $1.60
Payout
141.7%
Fiscal 2017-2018 Results
86th percentile
Payout
191%
(1) Through October 2018, HP’s actual TSR performance was at the 86th percentile of the S&P 500 which corresponds to a payout of 191% of target.
46
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Executive Compensation
2016 PARSUs
The fiscal 2016-2018 PARSUs have a two- and three-year performance period that began at the start of fiscal 2016 and continued through the
end of fiscal 2017 and 2018, respectively. Under this program, 50% of the PARSUs (including dividend equivalent units) are eligible for vesting
based on performance over two years with continued service through such time, and 50% are eligible for vesting based on performance over
three years with continued service through such time. The two- and three-year awards are equally weighted between ROIC and relative TSR.
This structure is depicted in the chart below:
Key Design Elements
Weight
Performance/Vesting Periods(1)
Performance Levels:
Max
> Target
Target
Threshold
< Threshold
HP ROIC vs. Internal Goals
25%
3 years
25%
2 years
HP Relative TSR vs. S&P 500
25%
3 years
25%
2 years
Payout
% of Target(2)
Target disclosed below
> 90th percentile
70th percentile
50th percentile
25th percentile
< 25th percentile
200%
150%
100%
50%
0%
(1) Performance measurement and vesting occur at the end of the two- and three-year periods, subject to continued service.
(2)
Interpolate for performance between discrete points.
The actual performance achievement for the two-year period (i.e., fiscal 2016–2017), as a percentage of target for the HP PARSUs as of
October 31, 2017, was summarized in our proxy statement for fiscal 2017. The actual performance achievement for the three-year period (i.e.,
fiscal 2016–2018) as a percentage of target for the HP PARSUs as of October 31, 2018 is summarized in the table below:
Actual Performance – Segment 2
Segment
Segment 2 (50%)
ROIC vs. Internal Goals
Relative TSR vs. S&P 500(1)
Fiscal 2016-2018
2018(3)
Payout
Results Payout
Percent of
Target Vested
85.2% 87th percentile 193.0%
139.1%
2016
106.1%
2017(2)
108.1%
80.4%
Target: 114% Target:120% Target: 79%
(1) Through October 2018, HP’s actual TSR performance was at the 87th percentile of the S&P 500 which corresponds to a payout of 193% of target.
(2) For the final payout calculation of the fiscal 2017 portion of Segment 2 of the fiscal 2016 PARSU award, the Committee approved using the adjusted ROIC
results of 108.1%, which excludes share repurchases funded by cash in that fiscal year.
(3) Due to the impact of extraordinary items (in particular U.S. tax reform), fiscal 2018 ROIC result was adjusted from ~88% to 80.4%.
Fiscal 2019 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
retention and
leadership engagement. As such, our fiscal 2019 incentive plan is
consistent with our fiscal 2018 plan discussed in this CD&A.
to encourage
Benefits
In fiscal 2019, the HRC Committee plans to continue to carefully
review our talent needs and compensation programs in order to:
• support the current and long-term business strategy;
• continue to align pay with stockholder interests; and
• maintain best-in-class governance standards.
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 2018. 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.
Proxy Statement
47
Executive Compensation
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 taken into account under the
qualified HP 401(k) Plan (the 401(k) deferral limit for calendar 2018
was $18,500) 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 $11,000 in calendar 2018). 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 of 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 practice of not providing any special or
including
supplemental executive defined benefit programs,
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 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.
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 2018, please refer to the All Other Compensation Table on
page 53.
We provide our NEOs with financial counseling services to assist
them in obtaining professional financial advice, which is a common
benefit among our peer group companies, for convenience and
to increase the understanding and effectiveness of our executive
compensation program.
Due to our global presence, we maintain one corporate aircraft. In
the event an 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 2018.
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.
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
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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 the majority of 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
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.
Executive Compensation
Benefits in the Event of a Change in Control
The SPEO also includes change in control terms for our NEOs. In
addition to the benefits provided for involuntary terminations, the
SPEO provides for full vesting of outstanding stock options, RSUs,
Performance Contingent Stock Options (“PCSOs”), 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.
The HRC Committee approved the change of control provisions in the
SPEO as it determined that providing for double trigger and modified
double trigger equity acceleration is consistent with market practice,
will 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 2018, 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.
Further, there is a People Update at each HRC Committee meeting,
which includes a review of key people processes and developments
for that quarter.
included
individual assessments,
In addition, the executive team participated in a robust development
process that
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 more closely 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, Ms. Lesjak and Ms. Keogh are the
only NEOs who have served in roles covered by our stock ownership
guidelines for over five years and their respective ownerships exceed
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 our executive
officers from engaging in any form of hedging transaction (derivatives,
equity swaps, forwards, etc.) 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.
Accounting and Tax Effects
The impact of accounting treatment is considered in developing and implementing our compensation programs, including the accounting
treatment as it applies to amounts awarded or paid to our executives.
Proxy Statement
49
Executive Compensation
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 fiscal year
2018 and 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 the Tax Cuts and Jobs Act. As
such, compensation paid to certain of our executive officers in excess
of $1.0 million will not be deductible unless it qualifies for certain
transition relief applicable for compensation paid pursuant to a
written binding contract that was in effect as of November 2, 2017. In
addition, the Tax Cuts and Jobs Act increased the scope of individuals
subject to the deduction limitation. Thus, compensation originally
intended to satisfy the requirements for exemption from Section
162(m) may not be fully deductible. Although our compensation
program may take into consideration the Section 162(m) rules as a
factor, these considerations will not necessarily limit compensation
to amounts deductible under Section 162(m).
Policy for Recoupment of Performance-Based Incentives
In fiscal 2006, the Board adopted a “clawback” policy that provides
Board discretion to recover certain annual incentives from senior
executives 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
incentive plan document allows for the
law. Additionally, our
recoupment of performance-based annual incentives and long-term
incentives consistent with applicable law and the clawback policy.
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 certain outstanding cash and equity awards for fraud or
misconduct that results in reputational harm to 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 this proxy statement and
in the Annual Report on Form 10-K of HP filed for the fiscal year ended October 31, 2018.
HR and Compensation Committee of the Board of Directors
Stephanie A. Burns, Chair
Aida Alvarez
Shumeet Banerji
Charles “Chip” V. Bergh
Stacey Mobley
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Fiscal 2018 Summary Compensation Table
following
table sets
The
the
forth
compensation of our NEOs for fiscal years 2018, 2017 and 2016,
as applicable. Per SEC reporting guidelines, our NEOs for fiscal 2018
include our CEO, (Mr. Weisler), anyone who served as CFO during
the year (Ms. Lesjak and Mr. Fieler), the next three most highly
information concerning
Executive Compensation
compensated individuals still serving as executive officers at year
end (Mr. Lores, Ms. Rivera, Ms. Keogh), and up to two additional
officers who would have been amongst our top three most highly
compensated had they been employed by HP at year end (Mr. Flaxman
and Mr. Coughlin).
Name and Principal
Position
Dion J. Weisler
President and CEO
Steven J. Fieler(1)
Chief Financial Officer
Catherine A. Lesjak(2)
Interim Chief
Operating Officer
Enrique J. Lores
President, Imaging,
Printing and Solutions
Kim M. Rivera
Chief Legal Officer
Tracy S. Keogh
Chief Human
Resources Officer
Ron V. Coughlin(3)
(Former) President,
Personal Systems
Jon E. Flaxman(4)
(Former) Chief
Operating Officer
Salary(5)
($)
Year
2018 1,400,000
2017 1,300,033
2016 1,200,046
550,000
2018
Option
Stock
Awards(6)
Awards
Bonus
($)
($)
($)
—
— 12,737,004
— 9,841,200
—
— 18,164,053 6,889,397
—
— 2,382,017
Non-Equity
Incentive
Plan
Compensation(7)
($)
4,984,348
3,511,560
2,302,585
793,632
2018
2017
2016
2018
2017
2018
2017
2016
2018
2017
2016
2018
2017
2018
2017
2016
850,000
850,022
850,033
750,000
725,019
—
— 5,121,798
— 4,100,494
—
— 7,573,319 2,758,055
—
— 4,623,686
—
— 3,075,370
—
675,000
645,016
612,004 1,281,250
630,000
600,015
600,023
569,708
725,019
— 3,088,732
2,255,264
5,747,980
— 3,096,651
2,378,294
4,379,891 1,593,592
—
—
— 5,013,148
— 3,690,450
—
414,626
700,018
700,027
— 4,067,821
— 3,075,370
— 3,295,365
—
—
84,496
1,811,695
1,435,012
1,006,092
1,579,331
1,219,035
1,438,699
1,088,921
1,421,536
1,012,950
710,182
—
1,224,612
857,821
1,181,775
839,484
Change
in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(8)
($)
—
—
—
210
—
159,279
434,684
—
—
—
—
—
—
All Other
Compensation(9)
($)
Total
($)
94,182 19,215,534
77,232 14,730,025
140,186 28,696,267
3,745,263
19,404
7,844,256
60,763
39,781
6,584,588
43,877 12,666,060
6,996,990
43,973
5,043,210
23,786
72,927
193,081
304,487
39,800
38,920
38,920
10,800
17,986
5,275,358
4,182,282
7,945,721
5,187,987
4,030,179
7,322,608
5,593,656
5,658,067
—
211,506
557,485
19,680
10,500
10,500
5,359,948
5,179,169
5,487,357
(1) Mr. Fieler was appointed Chief Financial Officer effective July 1, 2018.
(2) Ms. Lesjak served as Chief Financial Officer from the beginning of our fiscal year until June 30, 2018 when she was succeeded by Mr. Fieler. She was appointed
Interim Chief Operating Officer effective July 1, 2018.
(3) Mr. Coughlin resigned from this role effective June 13, 2018.
(4) Mr. Flaxman served as Chief Operating Officer until he passed away on March 28, 2018.
(5) Amounts shown represent base salary earned or paid during the fiscal year, as described under “Compensation Discussion and Analysis—Determination of
Fiscal 2018 Executive Compensation—2018 Base Salary.”
Proxy Statement
51
Executive Compensation
(6) 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 2018, amounts shown
reflect the grant date fair value of the PARSUs for the two- and three-year vesting periods beginning with fiscal 2018 based on the probable outcome of
performance conditions related to these PARSUs at the grant date. The 2018 PARSUs include both internal (EPS) and market-related (TSR) performance goals
as described under the “Compensation Discussion and Analysis—Determination of Fiscal 2018 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 for Year 1 only, for which goals
were approved in January 2018. This value also reflects grant date fair value of the EPS portion of the 2017 PARSU award for Year 2 (fiscal 2018 EPS), for
which goals were approved in January 2018. The table below sets forth the grant date fair value for the 2018 PARSUs granted on December 7, 2017 and the
fiscal 2018 EPS portion of the 2017 PARSUs granted on December 7, 2016:
Name
Dion J. Weisler
Steven J. Fieler
Catherine A. Lesjak
Enrique J. Lores
Kim M. Rivera
Tracy S. Keogh
Ron V. Coughlin
Jon E. Flaxman
Date of
Original
PARSU Grant
12/7/2017
12/7/2016
7/1/2018
12/7/2017
12/7/2016
12/7/2017
12/7/2016
12/7/2017
12/7/2016
12/7/2017
12/7/2016
12/7/2017
12/7/2016
12/7/2017
12/7/2016
Probable Outcome of
Performance Conditions
Grant Date Fair Value
($) *
1,437,505
1,619,509
177,572
575,012
674,799
532,415
506,105
351,388
371,126
349,793
391,389
569,678
607,322
460,533
506,105
Maximum Outcome of
Performance Conditions
Grant Date Fair Value
($)
2,875,010
3,239,017
355,144
1,150,023
1,349,598
1,064,831
1,012,211
702,776
742,253
699,585
782,778
1,139,356
1,214,643
921,066
1,012,211
Market-related
Component Grant Date
Fair Value
($) **
4,279,984
654,449
1,711,994
1,585,172
1,046,219
1,041,469
1,696,138
1,371,179
*
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
2018. The grant date fair value of the 2018 PARSUs Year 1 EPS units awarded on December 7, 2017 and of the 2017 PARSUs Year 2 EPS units awarded
on December 7, 2016 was $23.81 per unit, which was the closing share price of our common stock on January 23, 2018 when the EPS goal was approved.
The grant date fair value of the 2018 PARSUs Year 1 EPS units for Mr. Fieler’s grant on July 1, 2018 was $22.69, the closing stock price on June 29, 2018.
The values of 2018 PARSUs Year 2 and Year 3 EPS units will not be available until January 2019 and January 2020 respectively, and therefore are not
included for fiscal 2018, 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 $23.63 per unit, which was determined using a Monte Carlo simulation model. The significant assumptions used
in this simulation model were a volatility rate of 29.8%, a risk-free interest rate of 1.9%, and a simulation period of 2.9 years. For Mr. Fieler’s grant on
July 1, 2018 the weighted grant date fair value for the TSR component was $27.88 determined using a Monte Carlo simulation assuming volatility rate
of 24.8%, risk-free interest rate of 2.5%, and simulation period of 2.3 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, 2018, as filed
with the SEC on December 13, 2018.
(7) 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).
(8) 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 2018 Pension Benefits Table” below, pension accruals have 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. 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 2018 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.
(9) The amounts shown are detailed in the “Fiscal 2018 All Other Compensation Table” below.
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Fiscal 2018 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.
Executive Compensation
Name
Dion J. Weisler
Steven J. Fieler
Catherine A. Lesjak
Enrique J. Lores
Kim M. Rivera
Tracy S. Keogh
Ron V. Coughlin
Jon E. Flaxman
401(k)
Company
Match(1)
($)
11,000
11,000
11,000
11,000
11,000
11,000
NQDC
Company
Match(2)
($)
10,800
8,404
10,800
10,800
—
10,800
— 10,800
—
6,710
Mobility
Program(3)
($)
12,810
—
—
9,300
40,427
—
—
—
Security
Services/
Systems(4)
($)
984
—
20,963
—
—
—
—
—
Legal
Fees(5)
($)
17,610
—
—
—
—
—
—
—
Personal
Aircraft
Usage(6)
($)
14,742
—
—
—
—
—
—
—
Tax
Gross-Up(7)
($)
10,236
—
—
544
—
—
—
—
Miscellaneous(8)
($)
16,000
Total
AOC
($)
94,182
— 19,404
60,763
43,973
72,927
39,800
— 10,800
19,680
18,000
12,329
21,500
18,000
12,970
(1) Represents matching contributions made under the HP 401(k) Plan that were earned for fiscal year 2018.
(2) Represents matching contributions credited during fiscal 2018 under the HP Executive Deferred Compensation Plan with respect to the 2017 calendar year
(3)
of that plan.
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 Korea business travel. Due to the taxation impact on US taxpayers who travel
to Korea on business and the increase in Korea travel due to the closing of our acquisition of Samsung’s Print business, the HRC 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 due to the fact that
there is an incidental personal benefit.
(5) Represents legal fees paid on behalf of Mr. Weisler for immigration related expenses.
(6) 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.
(7) Represents tax gross up for Korean state and social taxes under HP’s Tax Assistance Program for Korea business travel.
(8)
Includes amounts paid either directly to the executives or on their behalf for financial counseling, tax preparation and estate planning services. For Mr. Flaxman
amounts represent company-paid airfare for his family related to his passing.
Proxy Statement
53
Executive Compensation
Grants of Plan-Based Awards in Fiscal 2018
The following table provides information on annual PfR incentive awards for fiscal 2018 and awards of RSUs and PARSUs granted during fiscal
2018 as a part of our long-term incentive program:
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1)
Estimated Future Payouts
Under Equity
Incentive Plan Awards(2)
Grant
Date
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
28,000
2,800,000
5,600,000
12/7/2017
12/7/2017
12/7/2016
7/1/2018
12/7/2017
7/1/2018
12/7/2017
12/7/2017
12/7/2016
12/7/2017
12/7/2017
12/7/2016
12/7/2017
12/7/2017
12/7/2016
12/7/2017
12/7/2017
12/7/2016
12/7/2017
12/7/2017
12/7/2016
12/7/2017
12/7/2017
12/7/2016
4,795
479,500
1,055,000
10,625
1,062,500
2,125,000
9,375
937,500
1,875,000
8,438
843,750
1,687,500
7,875
787,500
1,575,000
9,375
937,500
1,875,000
8,938
893,750
1,787,500
120,750
34,009
241,499
68,018
482,998
136,036
15,652
31,304
62,608
48,300
14,171
96,600
28,341
193,200
56,682
44,722
10,628
89,444
21,256
178,888
42,512
29,517
7,794
59,033
15,587
118,066
31,174
29,383
8,219
58,765
16,438
117,530
32,876
47,853
12,754
95,705
25,507
191,410
51,014
38,685
10,628
77,369
21,256
154,738
42,512
Name
Dion J. Weisler
PfR
RSU
PARSU
PARSU
Steven J. Fieler
PfR
RSU
RSU
PARSU
Catherine A. Lesjak
PfR
RSU
PARSU
PARSU
Enrique J. Lores
PfR
RSU
PARSU
PARSU
Kim M. Rivera
PfR
RSU
PARSU
PARSU
Tracy S. Keogh
PfR
RSU
PARSU
PARSU
Ron V. Coughlin
PfR
RSU
PARSU
PARSU
Jon E. Flaxman
PfR
RSU
PARSU
PARSU
All Other
Stock
Awards:
Number
of Shares
of Stock
or Units(3)
(#)
257,511
Grant-Date
Fair Value
of Stock
and Option
Awards(2)
($)
5,400,006
5,717,489
1,619,509
35,258
35,765
800,004
749,992
832,021
103,004
95,374
62,947
62,661
102,051
82,499
2,159,994
2,287,005
674,799
1,999,993
2,117,587
506,105
1,319,999
1,397,607
371,126
1,314,001
1,391,261
391,389
2,140,009
2,265,817
607,322
1,730,004
1,831,712
506,105
(1) Amounts represent the range of possible cash payouts for fiscal 2018 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 TSR performance. PARSUs vest as follows: 16.6% of the units are eligible for vesting based on EPS performance on year one with continued
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Executive Compensation
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 TSR performance over
three years with continued service over three years. 2018 PARSU year 1 EPS units and all TSR units are reflected in this table. Further, the 2017 PARSU – fiscal
2018 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 2018
Executive Compensation—Long-Term Incentive Compensation—2018 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.
Outstanding Equity Awards at 2018 Fiscal Year-End
The following table provides information on stock and option awards held by the NEOs as of October 31, 2018:
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
369,020
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Option
Unexercised
Exercise
Unearned
Price(2)
Options(1)
(#)
($)
— 17.29
13.83
525,719
Number of
Shares or
Units of
Stock That
Have Not
Vested(4)
(#)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested(5)
($)
788,653 19,038,083
Option
Expiration
Date(3)
12/9/2022
11/1/2023
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units
or Other
Rights That
Have Not
Vested(6)
(#)
550,882
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested(5)
($)
13,298,291
277,020
—
— 17.29
13.83
202,200
12/9/2022
11/1/2023
318,715
7,693,780
224,452
5,418,271
456,956 11,030,918
38,779
936,125
Name
Dion J. Weisler
Steven J. Fieler
Catherine A. Lesjak
Enrique J. Lores
156,976
12.47 10/29/2023
205,166
4,952,707
189,793
4,581,603
Kim M. Rivera
Tracy S. Keogh
201,284
Ron V. Coughlin
Jon E. Flaxman
230,429
5,562,556
130,899
3,159,902
117,276
17.29
13.83
12/9/2022
11/1/2023
220,105
5,313,335
133,636
3,225,973
0
0
0
0
0
0
0
0
(1) Option awards in this column will fully vest as to one-third of the shares on the third anniversary of November 2, 2015, the respective date of the grant (if
stock price performance conditions have been satisfied), and subject to continued service in each case.
(2) 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.
(3) All options have an eight-year term.
(4) The amounts in this column include shares underlying dividend equivalent units credited with respect to outstanding stock awards through October 31, 2018.
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: November 2, 2018 (156,665 shares plus accrued dividend equivalent shares); December 7, 2018 (184,908 shares plus accrued dividend
equivalent shares); December 9, 2018 (132,123 shares plus accrued dividend equivalent shares); December 7, 2019 (184,909 shares plus accrued
dividend equivalent shares); December 7, 2020 (85,837 shares plus accrued dividend equivalent shares).
Proxy Statement
55
Executive Compensation
• Mr. Fieler: December 7, 2018 (11,921 shares plus accrued dividend equivalent shares); January 3, 2019 (168,350 shares plus accrued dividend
equivalent shares); January 11, 2019 (15,618 shares plus accrued dividend equivalent shares); July 1, 2019 (11,752 shares plus accrued dividend
equivalent shares); December 7, 2019 (11,922 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 (11,922 shares plus accrued dividend equivalent shares) ; July 1, 2021 (11,753 shares plus accrued dividend
equivalent shares).
• Ms. Lesjak: November 2, 2018 (60,256 shares plus accrued dividend equivalent shares); December 7, 2018 (75,614 shares plus accrued dividend
equivalent shares); December 9, 2018 (55,051 shares plus accrued dividend equivalent shares); December 7, 2019 (75,615 shares plus accrued
dividend equivalent shares); December 7, 2020 (34,335 shares plus accrued dividend equivalent shares).
• Mr. Lores: December 7, 2018 (62,751 shares plus accrued dividend equivalent shares); December 9, 2018 (38,536 shares plus accrued dividend
equivalent shares); December 7, 2019 (62,751 shares plus accrued dividend equivalent shares); December 7, 2020 (31,792 shares plus accrued
dividend equivalent shares).
• Ms. Rivera: November 9, 2018 (79,308 shares plus accrued dividend equivalent shares); December 7, 2018 (43,686 shares plus accrued dividend
equivalent shares); December 9, 2018 (28,627 shares plus accrued dividend equivalent shares); December 7, 2019 (43,686 shares plus accrued
dividend equivalent shares); December 7, 2020 (20,983 shares plus accrued dividend equivalent shares).
• Ms. Keogh: November 2, 2018 (34,949 shares plus accrued dividend equivalent shares); December 7, 2018 (44,829 shares plus accrued dividend
equivalent shares); December 9, 2018 (31,930 shares plus accrued dividend equivalent shares); December 10, 2018 (28,936 shares plus accrued
dividend equivalent shares); December 7, 2019 (44,830 shares plus accrued dividend equivalent shares); December 7, 2020 (20,887 shares plus
accrued dividend equivalent shares).
• Mr. Coughlin: has no outstanding equity as all shares were forfeited when he departed the company.
• Mr. Flaxman: All outstanding equity was paid out to his estate/beneficiaries after his death, per appropriate terms.
(5) Value calculated based on the $24.14 closing price of our stock on October 31, 2018.
(6) The amounts in this column include the amounts of PARSUs granted in fiscal 2017 (Year 2 EPS units and 50% of TSR units) and fiscal 2018 (Year 1 EPS
units and all TSR units) plus accrued dividend equivalent shares. The shares are reported at target, except for 2017 PARSUs Year 2 EPS units and 2018
PARSUs Year 1 EPS units since those results have been certified (fiscal 2018 EPS period). Actual payout will be on achievement of performance goals at the
end of the two- and three-year vesting periods.
Option Exercises and Stock Vested in Fiscal 2018
The following table provides information about options exercised and stock awards vested for the NEOs during the fiscal year ended
October 31, 2018:
Name
Dion J. Weisler
Steven J. Fieler
Catherine A. Lesjak
Enrique J. Lores
Kim M. Rivera
Tracy S. Keogh
Ron V. Coughlin
Jon E. Flaxman(4)
Option Awards
Stock Awards(1)
Number of
Shares Acquired
on Exercise
(#)
525,719
—
496,399
530,149
—
234,551
405,836
393,944
Value Realized
on Exercise(2)
($)
3,886,618
—
5,616,378
6,384,161
—
2,268,108
4,704,323
3,801,558
Number of
Shares Acquired
on Vesting
(#)
1,194,116
188,040
512,424
475,522
304,825
327,559
87,343
688,909
Value Realized
on Vesting(3)
($)
27,509,840
4,035,115
11,773,873
11,128,546
6,952,913
7,468,390
1,836,489
15,030,414
(1)
Includes PARSUs, RSUs, and accrued dividend equivalent shares.
(2) Represents the amounts realized based on the difference between the market price of HP stock on the date of grant and the exercise price.
(3) Represents the amounts realized based on the fair market value of our stock on the performance period end date for PARSUs (October 31, 2018) 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.
For Mr. Flaxman the stock awards value realized on vesting, after December 7, 2017, is based on the closing stock price of $21.92, on March 29, 2018, date of
transfer of equity to his estate. The number of options and value recognized on exercise represent actual exercises which occurred before Mr. Flaxman’s death.
(4)
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Fiscal 2018 Pension Benefits Table
The following table provides information about the present value of accumulated pension benefits payable to each NEO:
Executive Compensation
Name
Dion J. Weisler(3)
Steven J. Fieler
Catherine A. Lesjak
Ron V. Coughlin(3)
Jon E. Flaxman(4)
Enrique J. Lores(3)
Kim Rivera(3)
Tracy Keogh(3)
Plan Name(1)
—
CAPP
RP
EBP
—
RP
EBP
—
—
—
Number of Years of
Credited Service
(#)
—
1.3
21.3
21.3
—
26.6
—
—
—
—
Present Value of
Accumulated Benefit(2)
($)
—
$
9,623
$ 427,330
$2,617,417
—
$ 223,064
—
—
—
—
Payments During
Last Fiscal Year
($)
—
—
—
—
—
—
$3,507,461
—
—
—
(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 HP
Pension Plan).
(2) The present value of accumulated benefits is shown at the age 65 unreduced retirement age for the RP and the EBP 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 2018 fiscal
year-end measurement (as of October 31, 2018). The present value is based on a discount rate of 4.54% for the RP (this discount rate also applies for CAPP
but since the benefit is currently unreduced, there is no discounting applied) and 4.02% for the EBP, 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. As of October 31, 2017 (the prior measurement date), the ASC Topic 715-30 assumptions included a discount rate of 3.82% for the RP and 2.99% for
the EBP, lump sum interest rates of 1.96% for the first five years, 3.58% for the next 15 years and 4.35% thereafter, and applicable mortality for lump sums
with the respective mortality improvement scale applied for future years.
(3) Mr. Weisler, Mr. Coughlin, Mr. Lores, Ms. Rivera and Ms. Keogh 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.
(4) Mr. Flaxman passed away in March of 2018 and his EBP benefit was transferred to the EDCP and was paid to his estate/beneficiaries pursuant to the terms
of the EBP. The amount shown for the EBP as paid was the amount transferred to the EDCP on May 14, 2018 and is reflected in the “Executive Contributions
in Last FY” column of the Nonqualified Deferred Compensation Table below. Mr. Flaxman’s wife received the $223,064 for his RP benefits in November 2018
pursuant to the terms of the RP. This payment from the RP is the survivor benefit which is 50% of the benefit that would have been payable to Mr. Flaxman
had he survived to the benefit commencement date for his wife and elected a lump sum.
Narrative to the Fiscal 2018 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 of our U.S.-qualified defined benefit pension plans (and their
non-qualified plan counterparts) in prior years. Benefits previously
accrued by the NEOs under HP pension plans are payable to them
following termination of employment, subject to the terms of the
applicable plan.
Terms of the HP Retirement Plan (RP)
Ms. Lesjak and Mr. Flaxman earned benefits under the RP and the EBP
based on pay and service prior to 2008. 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.
Benefits calculated under the RP are offset by the value of benefits
earned under the HP Deferred Profit Sharing Plan (the “DPSP”) before
November 1, 1993. Together, the RP and the DPSP constitute a
“floor-offset” arrangement for periods before November 1, 1993.
Benefits not payable from the RP and the DPSP due to IRS limits are
paid from the EBP under which benefits are unfunded and unsecured.
When an EBP participant terminates employment, the benefit
liability is transferred to the EDCP, where an account is established
for the participant. That account is then credited with hypothetical
investment earnings (gains or losses) based upon the investment
election made by participants from among investment options similar
to those offered under the HP 401(k) Plan. There is no formula that
would result in above-market earnings or payment of a preferential
interest rate on this benefit.
At the time of distribution, amounts representing EBP benefits are
paid from the EDCP in a lump sum or installment form, according
to pre-existing elections made by those participants, except that
participants with a small benefit or who have not qualified for
retirement status (age 55 with at least 15 years of continuous
service) are paid their EBP benefit in January of the year following
their termination, subject to any delay required by Section 409A of
the Code.
Proxy Statement
57
Executive Compensation
Fiscal 2018 Non-qualified Deferred Compensation Table
The following table provides information about contributions, earnings, withdrawals, distributions, and balances under the EDCP:
Name
Dion J. Weisler
Steven J. Fieler
Catherine A. Lesjak
Enrique J. Lores
Kim M. Rivera
Tracy S. Keogh
Ron V. Coughlin(5)
Jon E. Flaxman(6)
Executive
Contributions
in Last FY(1)
($)
10,800
1,528
11,800
376,284
—
387,885
378,259
3,507,461
Registrant
Contributions
in Last FY(2)
($)
10,800
8,404
10,800
10,800
—
10,800
10,800
—
Aggregate
Earnings
in Last FY
($)
900
(469)
170,443
(37,055)
27
23,178
(44,635)
17,564
Aggregate
Withdrawals/
Distributions(3)
($)
—
—
840,971
—
—
—
—
3,525,024
Aggregate
Balance at FYE(4)
($)
54,251
16,843
1,816,715
1,396,077
25,503
3,042,945
1,011,579
—
(1) The amounts reported here as “Executive Contributions” and “Registrant Contributions” are reported as compensation to such NEO in the “Summary
Compensation Table” above.
(2) The contributions reported here as “Registrant Contributions” were made in fiscal 2018 with respect to calendar year 2017 participant base pay deferrals.
During fiscal 2018, 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 $30,658, Mr. Lores $257,727, Ms. Rivera $21,208, Ms. Keogh $1,253,817, Mr. Coughlin $293,196 and Ms. Lesjak $0 as distributions from her
account have been in excess of plan contributions. 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.
(5) Mr. Coughlin’s balance will be paid to him in January 2019, per the plan guidelines.
(6) Reflects the transfer of Mr. Flaxman’s accrued benefit under the EBP at the time of his death. Pursuant to the terms of the EBP, the accrued amount was
distributed and transferred to his EDCP account and then transferred from his employee EDCP account to an EBP account established for his beneficiaries on
June 18, 2018. It will be paid out to beneficiaries per plan rules in January 2019.
Narrative to the Fiscal 2018 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 (for fiscal
2018 matching contributions, on calendar year 2017 base pay from
$270,000 to $540,000). During fiscal 2018, 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. This approach was applied
to Mr. Coughlin after his voluntary termination from HP this year
and the payout of his EDCP balance will occur in January 2019, as
described in footnote (5) to the NQDC table above. 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. In the event of death,
a participant’s EBP account, distributed from the EDCP, will be
distributed to the participant’s beneficiary in a single lump-sum in the
January following death. This approach was applied to Mr. Flaxman
as described in footnote (6) of the NQDC table above. No withdrawals
are permitted prior to the previously elected distribution date, other
than “hardship” withdrawals as permitted by applicable law.
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.
58
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Potential Payments Upon Termination or Change in Control
The amounts in the following table estimate potential payments due if an NEO had terminated employment with HP effective October 31,
2018 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.
Executive Compensation
Name
Dion J. Weisler
Steven J. Fieler
Catherine A. Lesjak(4)
Enrique J. Lores
Kim M. Rivera
Tracy S. Keogh
Jon Flaxman(5)
Termination Scenario
Voluntary/For Cause
Disability
Retirement
Death
Not for Cause
Change in Control
Voluntary/For Cause
Disability
Retirement
Death
Not for Cause
Change in Control
Voluntary
Disability
Retirement
Death
Not for Cause
Change in Control
Voluntary/For Cause
Disability
Retirement
Death
Not for Cause
Change in Control
Voluntary/For Cause
Disability
Retirement
Death
Not for Cause
Change in Control
Voluntary/For Cause
Disability
Retirement
Death
Not for Cause
Change in Control
Death
Total(1)
$
0
$42,474,691
$
0
$42,474,691
$36,884,144
$52,499,104
$
0
$12,346,862
$
0
$12,346,862
$ 6,771,511
$14,236,823
$10,115,256
$17,112,810
$10,115,256
$17,112,810
$17,209,930
$20,531,988
$
0
$11,181,499
0
$
$11,181,499
$ 8,605,027
$14,058,637
0
$
$ 9,849,268
$
0
$ 9,849,268
$ 8,796,164
$12,524,087
$
0
$10,893,610
0
$
$10,893,610
$ 9,590,349
$13,428,093
$15,080,458
Severance(2)
0
$
0
$
0
$
0
$
$10,024,413
$10,024,413
0
$
0
$
0
$
$
0
$ 1,889,961
$ 1,889,961
0
$
0
$
0
$
$
0
$ 3,419,178
$ 3,419,178
0
$
0
$
0
$
$
0
$ 2,877,138
$ 2,877,138
0
$
0
$
0
$
$
0
$ 2,674,819
$ 2,674,819
0
$
0
$
0
$
$
0
$ 2,534,483
$ 2,534,483
0
$
Long Term Incentive Programs(3)
Restricted
Stock
$
0
$19,038,073
$
0
$19,038,073
$11,620,164
$19,038,073
$
0
$11,030,918
$
0
$11,030,918
$ 4,277,804
$11,030,918
$ 6,102,954
$ 7,693,768
$ 6,102,954
$ 7,693,768
$ 7,693,768
$ 7,693,768
$
0
$ 4,952,703
0
$
$ 4,952,703
$ 2,384,639
$ 4,952,703
0
$
$ 5,562,535
$
0
$ 5,562,535
$ 3,798,614
$ 5,562,535
$
0
$ 5,313,319
0
$
$ 5,313,319
$ 3,465,817
$ 5,313,319
$ 5,663,909
PARSU
$
0
$18,016,455
$
0
$18,016,455
$ 9,819,404
$18,016,455
$
0
$ 1,315,944
$
0
$ 1,315,944
$
603,746
$ 1,315,944
$ 4,012,302
$ 7,334,360
$ 4,012,302
$ 7,334,360
$ 4,012,302
$ 7,334,360
$
0
$ 6,228,796
0
$
$ 6,228,796
$ 3,343,250
$ 6,228,796
0
$
$ 4,286,733
$
0
$ 4,286,733
$ 2,322,731
$ 4,286,733
$
0
$ 4,371,175
0
$
$ 4,371,175
$ 2,380,933
$ 4,371,175
$ 7,701,899
Stock
Options
$
0
$5,420,163
$
0
$5,420,163
$5,420,163
$5,420,163
0
$
0
$
0
$
0
$
0
$
0
$
$
0
$2,084,682
$
0
$2,084,682
$2,084,682
$2,084,682
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
0
$
$
0
$1,209,116
0
$
$1,209,116
$1,209,116
$1,209,116
$1,714,650
(1) Total does not include amounts earned or benefits accumulated due to continued service by the NEO through October 31, 2018, 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 2018 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 “Executive
Compensation—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
Proxy Statement
59
Executive Compensation
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 the exception of launch grant PCSOs, which are
forfeited; all outstanding launch grant PCSOs vested on November 2, 2018. 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.
(4) As of the end of fiscal 2018, Ms. Lesjak is retirement eligible (a minimum age of 55 plus years of service equal to or greater than 70 points). In the event
that Ms. Lesjak retires, she would receive retirement equity treatment in regards to the long-term incentive programs. Values in the “Voluntary” section for
Ms. Lesjak reflect the retirement equity treatment in a voluntary termination.
(5) Amounts reflected for Mr. Flaxman represent the transfer of equity to his estate on March 29, 2018 after his death, valued at $21.92, the closing stock price
on that day. For stock options, this represents the potential value based upon the March 29, 2018 stock price and the option strike price at the time the
options were transferred to Mr. Flaxman’s beneficiaries.
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.
is terminated
Death or Disability Terminations
An NEO who continued in employment through October 31, 2018
whose employment
immediately thereafter due
to death or disability would be eligible (1) to receive his or her full
annual incentive amount earned for fiscal 2018 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 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 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 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 “Executive Compensation—Compensation
Incentive
Discussion and Analysis—Severance and Long-term
Change in Control Plan for Executive Officers.”
Narrative to the Potential Payments Upon Termination or
Change in Control Table
Voluntary or “For Cause” Termination
In general, an NEO who remained employed through October 31, 2018
(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 2018 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, 2018, 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.
“Not for Cause” Termination
A “not for cause” termination of an NEO who remained employed
immediately
through October 31, 2018 and was terminated
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.
60
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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.
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,
Executive Compensation
deferred compensation plans, early retirement plans, workforce
restructuring plans, retention plans in connection with extraordinary
transactions, or similar plans or agreements entered
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.
into
HP Retirement Arrangements
immediately after October 31, 2018 with a
Upon retirement
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.
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.
Any unvested Launch Grants (RSUs or PCSOs) will be forfeited upon
voluntary retirement. 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. As of the end of fiscal 2018, Ms. Lesjak is
eligible to retire under this program. All the other 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. Ms. Lesjak is the only
NEO eligible for the HP matching credits under the RMSA.
Proxy Statement
61
Executive Compensation
Equity Compensation Plan Information
The following table summarizes our equity compensation plan information as of October 31, 2018.
Plan Category
Equity compensation plans approved by HP stockholders
Equity compensation plans not approved by HP stockholders
Total
Common shares
to be issued
upon exercise
of outstanding
options, warrants
and rights(1)
(a)
37,309,092(3)
—
37,309,092
Weighted-
average
exercise price
of outstanding
options, warrants
and rights(2)
(b)
$13.7919
—
$13.7919
Common shares
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
305,766,637(4)(5)
—
305,766,637
(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, 2018. As of October 31, 2018, there were no individual awards of options and RSUs outstanding pursuant to awards assumed in connection
with acquisitions and granted under such plans.
(3)
(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 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.
Includes awards of options and RSUs outstanding under the ESPP, the 2004 Plan and the HP 2000 Stock Plan. Also includes awards of PARSUs representing
3,911,062 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.
Includes (i)223,582,280 shares available for future issuance under the 2004 Plan; (ii) 78,092,366 shares available for future issuance under the 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
these adjustments, 305,766,637 shares were available for future grants as of October 31, 2018.
In January 2018, the Board approved an amendment and restatement of HP’s 2004 Stock Incentive Plan, which included a retirement of 80 million shares
from the plan’s share reserves.
(5)
(4)
CEO Pay Ratio Disclosure
In accordance with SEC rules we are reporting our CEO pay ratio for
the first time. As set forth in the Summary Compensation Table, our
CEO’s annual total compensation for fiscal 2018 was $19,215,534.
Our median employee’s annual total compensation was $79,719,
resulting in a CEO pay ratio of 241:1.
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 identified our employee population as of August 1, 2018,
including employees who joined HP as part of the acquisition
of Samsung Print on November 1, 2018 and excluding ~895
employees on furlough or Leave of Absence, consistent with
SEC rules.
• We utilized annual base salary as the consistently applied
compensation measure as of August 1, 2018 to identify the
median employee.
• We annualized base salary for permanent employees who were
employed for less than the full fiscal year.
• We calculated the median employee’s annual total compensation
for fiscal 2018 using the same methodology that was used
for our named executive officers, as set forth in the Summary
Compensation Table.
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Ownership of our Stock
Common Stock Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of December 31, 2018
(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 51; 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, 2019 (60 days after December 31, 2018) 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, 2019 and any RSUs vesting/settling, as applicable, on or
before March 1, 2019 that may be payable in cash or shares at HP’s
election. Unless otherwise indicated, each person has sole voting and
investment power (or shares such power with his or her spouse) with
respect to the shares set forth in the following table.
Beneficial Ownership Table
Name of Beneficial Owner
Dodge & Cox(1)
Black Rock, Inc.(2)
The Vanguard Group(3)
Aida M. Alvarez
Shumeet Banerji
Robert R. Bennett
Charles “Chip” V. Bergh(4)
Stacy Brown-Philpot
Stephanie A. Burns
Mary Anne Citrino(5)
Yoky Matsuoka
Stacey Mobley
Subra Suresh
Dion J. Weisler(6)
Claire Bramley(7)
Alex Cho(8)
Ron V. Coughlin
Steven J. Fieler
Tracy S. Keogh(9)
Catherine A. Lesjak(10)
Enrique J. Lores(11)
Kim M. Rivera
All current EO and Directors as a Group (17 persons)(12)
Shares of Common Stock
Beneficially Owned
80,636,601
107,109,970
129,764,707
39,244
48,609
60,216
111,452
42,021
51,937
163,802
0
43,810
25,236
2,004,322
30,282
58,378
132,366
200,048
612,683
744,067
410,045
125,899
4,362,007
Percent of Common
Stock Outstanding
5.2%
6.9%
8.35%
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Represents holdings of less than 1% based on shares of our common stock outstanding as of December 31, 2018.
*
(1) Based on the most recently available Schedule 13G/A filed with the SEC on February 14, 2019 by Dodge & Cox. According to its Schedule 13G/A, Dodge & Cox
reported having sole voting power over 76,665,056 shares, shared voting power over no shares, sole dispositive power over 80,636,601 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
Proxy Statement
63
Ownership of our Stock
power to direct the receipt of dividends from, and the proceeds from the sale of, HP’s stock. The Schedule 13G/A contained information as of December 31,
2018 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 4, 2019 by BlackRock, Inc. According to its Schedule 13G/A, BlackRock,
Inc. reported having sole voting power over 90,480,780 shares, shared voting power over no shares, sole dispositive power over 107,109,970 shares and
shared dispositive power over no shares. The Schedule 13G/A contained information as of December 31, 2018 and may not reflect current holdings of HP’s
stock. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
(4)
(5)
(3) Based on the most recently available Schedule 13G/A filed by the Vanguard Group on February 12, 2019. According to its Schedule 13G/A, the Vanguard
Group reported having sole voting power over 1,866,229 shares, shared voting power over 369,753 shares, sole dispositive power over 127,585,308 shares,
and shared dispositive power over 2,179,399 shares. The Schedule 13G/A contained information as of December 31, 2018 and may not reflect current
holdings of HP’s stock. The address for the Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355.
Includes 107,218 shares that Mr. Bergh has the right to acquire by exercise of stock options.
Includes 133,515 shares that Ms. Citrino has the right to acquire by exercise of stock options.
Includes 894,739 shares that Mr. Weisler has the right to acquire by exercise of stock options.
Includes 14,463 shares that Ms. Bramley has the right to acquire by exercise of stock options.
Includes 58,378 shares that Mr. Cho has the right to acquire by exercise of stock options.
Includes 318,560 shares that Ms. Keogh has the right to acquire by exercise of stock options.
Includes 306 shares held by Ms. Lesjak’s spouse and 479,220 shares that Ms. Lesjak has the right to acquire by exercise of stock options.
Includes 156,976 shares that Mr. Lores has the right to acquire by exercise of stock options.
(10)
(11)
(6)
(9)
(8)
(7)
(12)
Includes 2,163,069 shares that current executive officers and Directors have the right to acquire by exercise of stock options.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our Directors, executive officers and holders of more than 10% of HP’s stock to file reports with the
SEC regarding their ownership and changes in ownership of our securities. Based solely upon our examination of the copies of Forms 3, 4, and 5,
and amendments thereto furnished to us and the written representations of our Directors, executive officers and 10% stockholders, we believe
that during fiscal 2018, all of our Directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements.
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Stockholder Proposals
Stockholder
Proposal
Independent Board Chairman
The Board recommends a vote AGAINST this proposal
This stockholder proposal has been submitted by John Chevedden,
2215 Nelson Avenue, No. 205 Redondo Beach, CA 90278 (the
beneficial owner of 200 shares of HP Common Stock). The proponent
has requested we include the proposal and supporting statement in
this proxy statement, and, if properly presented, the proposal will be
voted on at the annual meeting.
Proposal 4 – Independent Board Chairman
Shareholders request our Board of Directors to adopt as policy, and
amend our governing documents as necessary, to require henceforth
that the Chair of the Board of Directors, whenever possible, to be
an independent member of the Board. The Board would have the
discretion to phase in this policy for the next Chief Executive Officer
transition, implemented so it does not violate any existing agreement.
If the Board determines that a Chairman who was independent
when selected is no longer independent, the Board shall select a
new Chairman who satisfies the requirements of the policy within a
reasonable amount of time. Compliance with this policy is waived if
no independent director is available and willing to serve as Chairman.
This proposal requests that all the necessary steps be taken to
accomplish the above.
Supporting Statement: The current HP
Inc. guidelines allow
management to flip flop between an independent chairman and a
non-independent chairman.
Caterpillar is an example of a company changing course and
naming an independent board chairman. Caterpillar had opposed
a shareholder proposal for an independent board chairman at its
annual meeting. Wells Fargo also changed course and named an
independent board chairman.
In the year leading up to the submittal of this proposal our stock
went from $21 to $24. This mild incline may have even been due
almost completely to a June 2018 announcement of additional share
repurchase authorization of up to $4 Billion which is supposed to
increase the price of the stock.
However stock buybacks are a sign of short-termism for executives
− sometimes boosting share price without boosting the underlying
value, profitability, or ingenuity of the firm. A related issue is that
This proposal and supporting statement are quoted verbatim below
and HP is not responsible for any inaccuracies contained in them.
The HP Board recommends a vote AGAINST this proposal and its
opposition statement can be found below.
buybacks draw money away from investment. A dollar spent
repurchasing a share is a dollar that cannot be spent on new machinery,
an acquisition, entry into a new market, or anything else. However the
adoption of this proposal will cost HP Inc. virtually nothing − yet it can
improve board oversight of company performance.
Shareholders also gave 51% support to a 2018 shareholder proposal
for a shareholder right to act by written consent. The 51% vote was
an example of shareholders taking the initiative in improving the
corporate governance of the company while management took a
step backwards and abolished in-person annual meetings. Now our
directors can be on the golf course during the annual meeting as long
as they turn on their phones for a few minutes.
Investor relations can take control of the annual meeting. Investor
relations can screen out the difficult questions and can spoon-feed
vague answers to our CEO to any questions that are not screened out.
There is no way a shareholder can ask for clarification of a vague or
misleading answer on an important issue such as the $4 Billion share
buyback program.
The lack of an in-person annual meeting means that a board meeting
can be scheduled months after the virtual meeting − by which time
any serious issues raised by shareholders under these onerous
conditions will be long forgotten by the directors. Plus a virtual
meeting guarantees that there will be no media coverage for the
benefit of all shareholders.
Please vote to give us a shareholder right to an independent board
chairman to help make up for our management abolishing in-person
annual meetings:
Please vote yes:
Independent Board Chairman - Proposal 4
Proxy Statement
65
Stockholder Proposals
Statement in Opposition
The Board has considered the stockholder proposal and, for the
reasons described below, believes that the proposal is unnecessary
and not in the best interests of the Company and its stockholders.
The Board therefore recommends a vote AGAINST this proposal.
HP currently has an independent Chairman of the Board. The
Board’s existing leadership and board structures enable strong
independent oversight.
Our Board is currently led by an independent Chairman and our
board leadership structure and practices promote effective and
independent Board oversight.
Chairman Role
% Overseeing the planning of the annual Board calendar
% In consultation with the CEO and the other Directors, scheduling,
approving and setting the agenda for meetings of the Board and
chairing and leading the discussion at such meetings
% Chairing HP’s annual meeting of stockholders
% Being available in appropriate circumstances to speak on behalf
of the Board and for consultation and direct communication with
major stockholders upon request
% Providing guidance and oversight to management
% Helping with the formulation and
implementation of HP’s
strategic plan
% Serving as the Board liaison to management
While our Board’s preferred governance structure is to separate
the roles of Chairman and CEO, the Board believes that it should
ultimately have the flexibility to tailor its leadership structure
to HP’s evolving circumstances, and not be limited by this
proposal’s rigid approach.
Our Directors have a fiduciary duty to regularly evaluate and determine
the most appropriate Board leadership structure for HP and our
stockholders in light of HP’s specific and evolving circumstances. HP’s
Corporate Governance Guidelines state that HP prefers a leadership
structure which separates the Chairman and CEO roles, while also
preserving the Board’s flexibility to determine the optimal leadership
structure for HP, including, when and if appropriate, combining the
positions of Chairman and CEO. For example, Mr. Bergh was appointed
in 2017 to the position of independent Chairman when Meg Whitman,
who served as our CEO from 2011-2015 and as our Chairman
from 2015-2017, departed from the Board. As a non-independent
Chairman with historical knowledge as well as wide-ranging business
experience, Ms. Whitman’s appointment was key to HP’s immediate
transition after its spin-off of Hewlett Packard Enterprise Company
in 2015. Following the critical transition period, the company
entered a new phase and the Board determined that Mr. Bergh’s
deep experience in a variety of consumer goods businesses and his
independent acumen would provide vital contributions to HP’s Board
leadership in this changed landscape.
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Since July 2017, our Board has been led by Mr. Charles (“Chip”) V.
Bergh—an independent Chairman who is well-versed in the needs of
our complex business, has provided strong leadership to our Board
and advice to management, promotes the involvement of all our
independent directors in decision-making and has significant authority
as described below. Our Board believes that our current structure best
serves the present needs of HP and our stockholders by providing
a strong governance process, empowerment for our independent
Directors and enhancement of the overall function of the Board.
We have established a robust, well-defined and transparent
mandate for the role of our independent Chairman. Specifically, our
independent Chairman has a broad set of powers and responsibilities
as outlined below.
% Having the authority to call meetings of the independent Directors
and schedules, setting the agenda for, and presiding at executive
sessions of the independent Directors
% Approving information sent to the Board
% Assisting the Chairs of the Board committees in preparing agendas
for the respective committee meetings
% Working with the HRC Committee to coordinate the annual
performance evaluation of the CEO
% Working with the NGSR Committee to oversee the Board and
committee evaluations and recommending changes to improve
the Board, the committees, and individual Director effectiveness
% Performing such other functions and responsibilities as set forth
in the Corporate Governance Guidelines or as requested by the
Board from time to time
The adoption of a policy requiring that the Chairman of the Board
always be an independent Director would limit the Board’s ability to
choose the person best suited for the role at a particular time and
deprive the Board of the ability to act in the best interests of the
Company and all stockholders as circumstances warrant. Importantly,
our Board continuously evaluates its leadership structure and has taken
advantage of the flexibility afforded to it by the Corporate Governance
Guidelines over the years in light of HP’s specific circumstances
during various periods in our history as described above. Unlike the
proposed inflexible mandate of the stockholder proposal, the existing
preference set forth in the Corporate Governance Guidelines does not
limit the Board’s discretion to act in the best interests of HP and our
stockholders by selecting the best possible board leadership structure
based on the relevant facts, circumstances and criteria as they exist
at the time. The Board believes that this flexibility benefits HP and our
stockholders because the Board is in the best position to determine
our leadership structure given its knowledge of HP’s leadership team,
strategic goals, opportunities and challenges.
Importantly, regardless of what leadership structure the Board
may determine to adopt in the future, our Corporate Governance
Guidelines provide for appointment of a Lead Independent Director
in situations where the Chairman of the Board is not independent. As
such, the Board prioritizes independent Board oversight at all times
and believes that eliminating flexibility in the structure of Board
leadership as facts and circumstances change and evolve, as the
proponent requests, is unnecessarily rigid and could adversely impact
the Company’s ability to respond to new challenges.
Stockholder Proposals
We have demonstrated a strong commitment to diversity of
background and experience among our Directors. Our Board has
been significantly refreshed in recent years, with 80% of our Directors
including the current independent Chairman, having joined the Board
from 2015 onwards. Non-employee Directors are expected to own
Company stock equal to at least five times their annual cash Board
retainer within five years of joining the Board.
Stockholders have meaningful proxy access and special meeting
rights which have been strengthened in the past year with the lowering
of our special meeting threshold to 15%. We have no supermajority
voting provisions. We believe that each stockholder’s voice and vote
matter and we ensure equality of access by utilizing a virtual meeting
format, allowing each and every one of our stockholders to join
regardless of location or economic position.
HP and our Board continually engage with stockholders regarding
our corporate governance.
As discussed under “Corporate Governance – Stockholder Outreach,”
our Board engages regularly with our stockholders, both directly
and indirectly, such as through our Director video interview series.
Our Board also seeks feedback from stockholders about our
corporate governance policies and practices by conducting additional
stockholder outreach and engagement throughout the year.
In fiscal 2018, we spoke with or received responses from
stockholders that hold more than 43% of our outstanding shares
as well as with leading proxy advisory firms. Our Board carefully
considers stockholder feedback and makes changes to our corporate
governance policies and practices as appropriate. For example, as
this proposal mentions, in response to the 2018 stockholder support
for a stockholder right to act by written consent, after engaging with
stockholders representing over 50% of our outstanding shares at
the time, stockholders representing over 38% of our outstanding
shares at the time supported our proposal to lower our special
meeting threshold in response to last year’s stockholder vote
and preferred that approach to adopting a written consent right.
As a result, the Board lowered our special meeting threshold to 15%,
providing a robust enhancement to the rights of our stockholders.
For more information on our stockholder engagement, please visit:
https://investor.hp.com.
For the aforementioned reasons, the Board believes that adoption of
this proposal is unnecessary and would not be in the best interests of
HP or our stockholders. Accordingly, the Board recommends that you
vote AGAINST this proposal.
HP’s corporate governance policies and practices further
promote effective, independent Board oversight.
In addition to having an independent Chairman of the Board,
HP’s Board has adopted policies and practices that provide our
stockholders with meaningful rights and further promote Board
independence and effective oversight of management.
As mentioned above, if our Chairman is not independent in the
future, the independent Directors of the Board will appoint a Lead
Independent Director who will have well-defined powers and duties.
We have appointed a Lead Independent Director in such circumstances
in the recent past, and the Lead Independent Director was a vital and
robust part of our Board leadership. If in the future the independent
Directors of the Board were to appoint a Lead Independent Director,
the Board would define the Lead Independent Director’s powers and
duties with thought and consideration to the particular circumstances,
taking into account the experience and skill sets of the Chairman and
such Lead Independent Director to promote Board independence and
effective oversight of management.
Our current Chairman and all members of our key Board committees
are independent. We also ensure that our committees themselves
have robust governance practices, and our key Board committees
are integral features of our commitment to independent Board
leadership. With respect to overall independence of the Board, our
Corporate Governance Guidelines require that a substantial majority of
the Board consist of independent Directors and that the Board include
no more than three Directors who are not independent. Our Board
meets regularly in executive session and the independent Directors
meet in executive session without the presence of management at
least three times a year.
To ensure our Board remains robust and engaged, we have ongoing
Board refreshment reviews and an annual self-evaluation process
to determine whether the Board and its committees are functioning
effectively. Our NGSR Committee also annually evaluates each
individual Director and recommends to the Board whether each
Director should be nominated for election to a further one-year
term. When nominated, our Directors are elected annually, with a
majority voting standard for uncontested elections and a Director
resignation policy.
Board Recommendation
HP’s current, flexible board leadership structure is consistent with
the policies of a majority of large, publicly traded U.S. companies, and
the Board will continue to periodically evaluate the effectiveness of
its leadership structure and make any appropriate future decisions
based upon the best interest of HP and its stockholders at that time.
It is important that our Board can continue to be able to assess all
relevant facts and circumstances, in fulfillment of its fiduciary duty,
to determine the leadership structure that is best suited to meet the
needs of HP in the particular context.
Vote Required
Approval of this stockholder proposal requires the affirmative vote of a majority of the shares of HP common stock present in person or
represented by proxy and entitled to vote on the proposal at the annual meeting.
Proxy Statement
67
Other Matters
Questions and Answers
Proxy Materials
1. Why am I receiving these materials?
5. Why didn’t I receive a notice in the mail about the Internet
We have made these materials available to you or delivered paper
copies to you by mail in connection with our annual meeting of
stockholders, which will take place online on Tuesday, April 23, 2019.
As a stockholder, you are invited to participate in the annual meeting
via live audio webcast and vote on the business items described in
this proxy statement. This proxy statement includes information
that we are required to provide to you under the SEC rules and that is
designed to assist you in voting your shares. See Questions 17 and 18
below for information regarding how you can vote your shares at the
annual meeting or by proxy (without attending the annual meeting).
2. What is included in the proxy materials?
The proxy materials include:
• our proxy statement
for
the 2019 annual meeting of
stockholders; and
• our 2018 Annual Report, which includes our Annual Report on
Form 10-K for the fiscal year ended October 31, 2018.
If you received a paper copy of these materials by mail, the proxy
materials also include a proxy card or a voting instruction card for the
annual meeting. If you received a notice of the Internet availability of
the proxy materials instead of a paper copy of the proxy materials,
see Questions 17 and 18 below for information regarding how you
can vote your shares.
3. What information is contained in this proxy statement?
The information in this proxy statement relates to the proposals to
be voted on at the annual meeting, the voting process, the Board and
Board committees, the compensation of our Directors and certain
executive officers for fiscal 2018 and other required information.
4. Why did I receive a notice in the mail regarding the Internet
availability of the proxy materials instead of a paper copy of
the full set of proxy materials?
This year, we are again using the SEC rule that allows companies
to furnish their proxy materials over the Internet. As a result, we
are mailing to many of our stockholders a notice of the Internet
availability of the proxy materials instead of a paper copy of the proxy
materials. All stockholders receiving the notice will have the ability to
access the proxy materials over the Internet and request to receive
a paper copy of the proxy materials by mail. Instructions on how to
access the proxy materials over the Internet or to request a paper
copy may be found in the notice of the Internet availability of the
proxy materials. In addition, the notice contains instructions on how
you may request access to proxy materials in printed form by mail or
electronically on an ongoing basis.
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availability of the proxy materials?
We are providing some of our stockholders, including stockholders
who have previously requested to receive paper copies of the proxy
materials and some of our stockholders who are living outside of the
United States, with paper copies of the proxy materials instead of a
notice of the Internet availability of the proxy materials.
In addition, we are providing proxy materials or notice of the Internet
availability of the proxy materials by e-mail to those stockholders
who have previously elected delivery of the proxy materials or
notice electronically. Those stockholders should receive an e-mail
containing a link to the website where those materials are available
and a link to the proxy voting website.
6. How can I access the proxy materials over the Internet?
Your notice of the Internet availability of the proxy materials, proxy
card, or voting instruction card will contain instructions on how to:
• view our proxy materials for the annual meeting on the
Internet; and
•
instruct us to send our future proxy materials to you electronically
by e-mail.
• Our proxy materials are available at www.proxyvote.com/HP.
Please have your 16-digit control number available to access them.
Our proxy materials are also publicly available on our dedicated
annual meeting website at www.hpannualmeeting.com.
Your notice of the Internet availability of the proxy materials, proxy
card, or voting instruction card will contain instructions on how you
may request access to proxy materials electronically on an ongoing
basis. Choosing to access your future proxy materials electronically
will help us conserve natural resources and reduce the costs of
distributing our proxy materials. If you choose to access future proxy
materials electronically, you will receive an e-mail with instructions
containing a link to the website where those materials are available
and a link to the proxy voting website. Your election to access proxy
materials by e-mail will remain in effect until you terminate it.
7. How may I obtain a paper copy of the proxy materials?
Stockholders receiving a notice of the Internet availability of the proxy
materials will find instructions about how to obtain a paper copy of
the proxy materials on their notice. Stockholders receiving notice
of the Internet availability of the proxy materials by e-mail will find
instructions about how to obtain a paper copy of the proxy materials
as part of that e-mail. All stockholders who do not receive a notice
or an e-mail will receive a paper copy of the proxy materials by mail.
8. I share an address with another stockholder, and we received
only one paper copy of the proxy materials or notice of the
Internet availability of the proxy materials. How may I obtain
an additional copy?
If you share an address with another stockholder, you may receive
only one paper copy of the proxy materials or notice of the Internet
availability of the proxy materials, as applicable, unless you have
provided contrary instructions. If you are a beneficial owner and wish
to receive a separate set of proxy materials or notice of the Internet
availability of the proxy materials now, please request the additional
copy by contacting your individual broker. If you wish to receive a
separate set of the proxy materials or notice of the Internet availability
of the proxy materials now, please request the additional copy by
contacting Broadridge Financial Solutions, Inc. (“Broadridge”) at:
By Internet: www.proxyvote.com/HP
By telephone: 1-800-579-1639
By e-mail: sendmaterial@proxyvote.com
If you request a separate set of the proxy materials or notice of
Internet availability of the proxy materials by e-mail, please be sure
to include your control number in the subject line. A separate set
of proxy materials or notice of the Internet availability of the proxy
materials, as applicable, will be sent promptly following receipt of
your request.
If you are a stockholder of record and wish to receive a separate set
of proxy materials or notice of the Internet availability of the proxy
materials, as applicable, in the future, please contact our transfer
agent. See Question 22 below.
If you are the beneficial owner of shares held through a broker,
trustee, or other nominee and you wish to receive a separate set
of proxy materials or notice of the Internet availability of the proxy
materials, as applicable, in the future, please call Broadridge at:
1-866-540-7095
All stockholders also may write to HP at the address below to request
a separate set of proxy materials or notice of the Internet availability
of the proxy materials, as applicable:
HP Inc. Materials Request
c/o Kris Valukis – West Corp
11 Farnsworth Street, 4th Floor
Boston, MA 02210
9. I share an address with another stockholder, and we received
more than one paper copy of the proxy materials or notice of
the Internet availability of the proxy materials. How do we
obtain a single copy in the future?
Stockholders of record sharing an address who are receiving multiple
copies of the proxy materials or notice of the Internet availability of
the proxy materials, as applicable, and who wish to receive a single
copy of such materials in the future may contact our transfer agent.
See Question 22 below.
Other Matters
Beneficial owners of shares held through a broker, trustee, or other
nominee sharing an address who are receiving multiple copies of
the proxy materials or notice of the Internet availability of the proxy
materials, as applicable, and who wish to receive a single copy of such
materials in the future may contact Broadridge at:
1-866-540-7095
10. What should I do if I receive more than one notice or e-mail
about the Internet availability of the proxy materials or more
than one paper copy of the proxy materials?
You may receive more than one notice, more than one e-mail, or more
than one paper copy of the proxy materials, including multiple paper
copies of this proxy statement and multiple proxy cards or voting
instruction cards. For example, if you hold your shares in more than
one brokerage account, you may receive a separate notice, a separate
e-mail, or a separate voting instruction card for each brokerage
account in which you hold shares. If you are a stockholder of record
and your shares are registered in more than one name, you may
receive more than one notice, more than one e-mail or more than one
proxy card. To vote all of your shares by proxy, you must complete,
sign, date, and return each proxy card and voting instruction card that
you receive and vote over the Internet the shares represented by
each notice and e-mail that you receive (unless you have requested
and received a proxy card or voting instruction card for the shares
represented by one or more of those notices or e-mails).
11. How may I obtain a copy of HP’s 2018 Form 10-K and other
financial information?
Stockholders may request a free copy of our combined 2018
Annual Report and 2018 Proxy Statement, which includes our 2018
Form 10-K and the financial statements and the financial statement
schedules for the last completed fiscal year, from:
HP Inc. Materials Request
c/o Kris Valukis – West Corp
11 Farnsworth Street, 4th Floor
Boston, MA 02210
https://investor.hp.com/resources/information-request/default.aspx
Alternatively, stockholders can access the 2018 Annual Report on
HP’s Annual Meeting site:
www.hpannualmeeting.com
All of HP’s filings, including the 2018 Form 10-K are also available on
HP’s Investor Relations site:
https://investor.hp.com
We also will furnish any exhibit to the 2018 Form 10-K
specifically requested.
if
Proxy Statement
69
Other Matters
Voting Information
12. What proposals will be voted at the meeting? How does the Board recommend that I vote and what is the voting requirement for
each of the proposals?
Proposals
Election of Directors
Ratification of Independent
Registered Public
Accounting Firm
Advisory Vote to Approve
Executive Compensation
(“Say on Pay” Vote)
Stockholder Proposal:
Independent Board Chairman
Board
Recommendation
FOR EACH NOMINEE
FOR
FOR
AGAINST
Votes Required
Majority of votes cast
Majority of the shares present, in
person or represented by proxy,
and entitled to vote
Majority of the shares present, in
person or represented by proxy,
and entitled to vote
Majority of the shares present, in
person or represented by proxy,
and entitled to vote
Effect of
Abstentions
None
Same as “AGAINST”
Effect of
Broker Non-Votes
None
No Broker Non-Votes
(Routine Matter)
Same as “AGAINST”
None
Same as “AGAINST”
None
We also will consider any other business that properly comes before the annual meeting. See Question 29 below.
13. What are broker non-votes?
If you are the beneficial owner of shares held in the name of a broker,
trustee, or other nominee and do not provide that broker, trustee, or
other nominee with voting instructions, your shares may constitute
“broker non-votes.” Generally, broker non-votes occur on a matter
when a broker is not permitted to vote on that matter without
instructions from the beneficial owner and instructions are not given.
Under the rules of the New York Stock Exchange, brokers, trustees,
or other nominees may generally vote on routine matters but cannot
vote on non-routine matters. Only Proposal No. 2 (ratifying the
appointment of the independent registered public accounting firm) is
considered a routine matter. The other proposals are not considered
routine matters, and without your instructions, your broker cannot
vote your shares. In tabulating the voting results for any particular
proposal, shares that constitute broker non-votes are not considered
entitled to vote on that proposal.
If you provide specific instructions with regard to certain items, your
shares will be voted as you instruct on such items. If you vote by
proxy card or voting instruction card and sign the card without giving
specific instructions, your shares will be voted in accordance with the
recommendations of the Board (FOR all of our nominees to the Board,
FOR ratification of the appointment of our independent registered
public accounting firm, FOR the approval of the compensation of
our named executive officers (“say on pay” vote), and AGAINST the
stockholder proposal regarding an independent chairman).
For any shares you hold in the HP 401(k) Plan, if your voting
instructions are not received by 11:59 p.m., Eastern Time, on April 18,
2019, your shares will be voted in proportion to the way the shares
held by the other HP 401(k) Plan participants are voted, except as
may be otherwise required by law.
14. Is cumulative voting permitted for the election of Directors?
No, you may not cumulate your votes in the election of Directors. At
the 2016 Annual Meeting, our stockholders approved an amendment
to the Certificate of Incorporation eliminating cumulative voting.
Therefore, cumulative voting is no longer available to our stockholders.
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15. What is the difference between holding shares as a
stockholder of record and as a beneficial owner?
Most of our stockholders hold their shares through a broker,
trustee, or other nominee rather than directly in their own name. As
summarized below, there are some distinctions between shares held
of record and those owned beneficially.
• Stockholder of Record—If your shares are registered directly
in your name with our transfer agent, you are considered, with
respect to those shares, the “stockholder of record.” As the
stockholder of record, you have the right to grant your voting
proxy directly to HP or to a third party, or to vote your shares
during the meeting.
• Beneficial Owner—If your shares are held in a brokerage account,
by a trustee, or by another nominee (that is, in “street name”), you are
considered the “beneficial owner” of those shares. As the beneficial
owner of those shares, you have the right to direct your broker,
trustee, or nominee how to vote, or to vote your shares during the
annual meeting (other than shares held in the HP’s 401(k) Plan (the
“HP 401(k) Plan”), which must be voted prior to the annual meeting).
16. Who is entitled to vote and how many shares can I vote?
Each holder of shares of HP common stock issued and outstanding
as of the close of business on February 22, 2019, the record date for
the annual meeting, is entitled to cast one vote per share on all items
being voted upon at the annual meeting. You may vote all shares
owned by you as of this time, including (1) shares held directly in
your name as the stockholder of record, including shares purchased
through our dividend reinvestment program and employee stock
purchase plans, and shares held through our Direct Registration
Service; and (2) shares held for you as the beneficial owner through a
broker, trustee, or other nominee.
On the record date, HP had approximately 1,533,501,819 shares of
common stock issued and outstanding.
17. How can I vote my shares during the annual meeting?
This year’s annual meeting will be held entirely online to allow greater
participation. Stockholders may participate in the annual meeting by
visiting either of the following websites:
www.hpannualmeeting.com or
https://hp.onlineshareholdermeeting.com
To participate in the annual meeting, you will need the 16-digit control
number included on your notice of Internet availability of the proxy
materials, on your proxy card or on the instructions that accompanied
your proxy materials.
19. What is the deadline for voting my shares?
If you hold shares as the stockholder of record, or through HP’s 2011
Employee Stock Purchase Plan (the “ESPP”), your vote by proxy must
be received before the polls close during the annual meeting.
Other Matters
Shares held in your name as the stockholder of record may be voted
electronically during the annual meeting. Shares for which you are
the beneficial owner but not the stockholder of record also may be
voted electronically during the annual meeting, except that shares
held in the HP 401(k) Plan cannot be voted electronically during
the annual meeting. If you hold shares in the HP 401(k) Plan, your
voting instructions must be received by 11:59 p.m., Eastern Time, on
April 18, 2019 for the trustee to vote your shares. However, holders
of shares in the HP 401(k) Plan will still be able to view the annual
meeting webcast and ask questions during the annual meeting.
Even if you plan to participate in the annual meeting online, we
recommend that you also vote by proxy as described below so that
your vote will be counted if you later decide not to participate in the
annual meeting.
18. How can I vote my shares without participating in the
annual meeting?
Whether you hold shares directly as the stockholder of record or
through a broker, trustee, or other nominee as the beneficial owner,
you may direct how your shares are voted without participating in the
annual meeting. There are three ways to vote by proxy:
• VIA THE INTERNET: Stockholders who have received a notice
of the Internet availability of the proxy materials by mail may
submit proxies over the Internet by following the instructions on
the notice. Stockholders who have received notice of the Internet
availability of the proxy materials by e-mail may submit proxies
over the Internet by following the instructions included in the
e-mail. Stockholders who have received a paper copy of a proxy
card or voting instruction card by mail may submit proxies over the
Internet by following the instructions on the proxy card or voting
instruction card.
• VIA TELEPHONE: Stockholders of record who live in the United
States or Canada may submit proxies by telephone by calling
1-800-690-6903 and following the instructions. Stockholders
of record who have received a notice of the Internet availability
of the proxy materials by mail must have the control number
that appears on their notice available when voting. Stockholders
of record who received notice of the Internet availability of the
proxy materials by e-mail must have the control number included
in the e-mail available when voting. Stockholders of record who
have received a proxy card by mail must have the control number
that appears on their proxy card available when voting. Most
stockholders who are beneficial owners of their shares living
in the United States or Canada and who have received a voting
instruction card by mail may vote by phone by calling the number
specified on the voting instruction card provided by their broker,
trustee, or nominee. Those stockholders should check the voting
instruction card for telephone voting availability.
• VIA MAIL: Stockholders who have received a paper copy of a proxy
card or voting instruction card by mail may submit proxies by
completing, signing and dating their proxy card or voting instruction
card and mailing it in the accompanying pre-addressed envelope.
If you hold shares in the HP 401(k) Plan, your voting instructions must
be received by 11:59 p.m., Eastern Time, on April 18, 2019 for the
trustee to vote your shares. If you are the beneficial owner of shares
held through a broker, trustee, or other nominee, please follow the
voting instructions provided by your broker, trustee or nominee.
20. May I change my vote or revoke my proxy?
You may change your vote or revoke your proxy at any time prior to the
vote during the annual meeting, except that any change to your voting
instructions for shares held in the HP 401(k) Plan must be provided by
11:59 p.m., Eastern Time, on April 18, 2019 as described above.
If you are the stockholder of record, you may change your vote by:
(1) granting a new proxy bearing a later date (which automatically
revokes the earlier proxy); (2) providing a written notice of revocation
to the Corporate Secretary at the address below in Question 33 prior
to your shares being voted; or (3) participating in the annual meeting
and voting your shares electronically during the annual meeting.
Participation in the annual meeting will not cause your previously
granted proxy to be revoked unless you specifically make that
request. For shares you hold beneficially in the name of a broker,
trustee, or other nominee, you may change your vote by submitting
new voting instructions to your broker, trustee, or nominee, or by
participating in the meeting and electronically voting your shares
during the meeting (except that shares held in the HP 401(k) Plan
cannot be voted electronically at the annual meeting).
21. Is my vote confidential?
Proxy instructions, ballots and voting tabulations that identify
individual stockholders are handled in a manner that protects your
voting privacy. Your vote will not be disclosed, either within HP or
to third parties, except: (1) as necessary to meet applicable legal
requirements; (2) to allow for the tabulation of votes and certification
of the votes; and (3) to facilitate a successful proxy solicitation.
Occasionally, stockholders provide on their proxy card written
comments, which are then forwarded to management.
22. What if I have questions for our transfer agent?
Please contact our transfer agent, at the phone number or address
listed below, with questions concerning stock certificates, dividend
checks, transfer of ownership, or other matters pertaining to your
stock account.
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
1-800-286-5977 (U.S. and Canada)
1-651-450-4064 (International)
A dividend reinvestment and stock purchase program is also available
through our transfer agent. For information about this program,
please contact our EQ Shareowner Services transfer agent as follows:
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
1-800-286-5977 (U.S. and Canada)
1-651-450-4064 (International)
Proxy Statement
71
Other Matters
23. How can I attend the annual meeting?
27. How many shares must be present or represented to conduct
This year’s annual meeting will be a completely virtual meeting of
stockholders, which will be conducted through an audio webcast. You
are entitled to participate in the annual meeting only if you were an HP
stockholder or joint holder as of the close of business on February 22,
2019 or if you hold a valid proxy for the annual meeting.
You will be able to attend the annual meeting of
stockholders online and submit your questions during
the meeting by visiting www.hpannualmeeting.com or
https://hp.onlineshareholdermeeting.com. You also will be able to
vote your shares electronically at the annual meeting (other than
shares held through the HP 401(k) Plan, which must be voted prior
to the meeting).
To participate in the annual meeting, you will need the 16-digit
control number included on your notice of Internet availability of
the proxy materials, on your proxy card, or on the instructions that
accompanied your proxy materials.
The meeting webcast will begin promptly at 2:00 p.m., Pacific Time.
We encourage you to access the meeting prior to the start time.
Online access to the meeting will open at 1:30 p.m., Pacific Time, and
you should allow ample time to log in to the meeting webcast and
test your computer audio system.
24. What is the pre-meeting forum and how can I access it?
The online format for the annual meeting allows us to communicate
more effectively with you. Our pre-meeting forum, where you
can submit questions in advance of the annual meeting, can
be entered by visiting our dedicated annual meeting website
www.hpannualmeeting.com or by visiting www.proxyvote.com/HP.
The annual meeting website also contains the contents of this proxy
statement in a user-friendly format and has complete PDF copies of
our proxy statement and annual report available for download.
25. Why a virtual meeting?
We are excited to embrace the latest technology to provide
expanded access,
improved communication, and cost savings
for our stockholders and the Company. Hosting a virtual meeting
enables increased stockholder attendance and participation since
stockholders can participate from any location around the world.
You will be able to attend the annual meeting of stockholders online and submit
your questions during the meeting by visiting www.hpannualmeeting.com
or https://hp.onlineshareholdermeeting.com. You also will be able to vote
your shares electronically at the annual meeting (other than shares held
through the HP 401(k) Plan, which must be voted prior to the meeting).
26. What if during the check-in time or during the meeting I
have technical difficulties or trouble accessing the virtual
meeting website?
We will have technicians ready to assist you with any technical
difficulties you may have accessing the virtual meeting. If you
encounter any difficulties accessing the virtual meeting during the
check-in or meeting time, please call:
1-855-449-0991 (Toll-free)
1-720-378-5962 (Toll line)
business at the annual meeting?
The quorum requirement for holding the annual meeting and
transacting business is that holders of a majority of shares of
HP common stock entitled to vote must be present in person or
represented by proxy. Both abstentions and broker non-votes
described previously in Question 13 above are counted for the
purpose of determining the presence of a quorum.
28. What if a quorum is not present at the annual meeting?
If a quorum is not present at the scheduled time of the annual meeting,
then either the chairman of the annual meeting or the stockholders
by vote of the holders of a majority of the stock present in person
or represented by proxy at the annual meeting are authorized by
our Bylaws to adjourn the annual meeting until a quorum is present
or represented.
29. What happens if additional matters are presented at the
annual meeting?
Other than the four items of business described in this proxy
statement, we are not aware of any other business to be acted upon
at the annual meeting. If you grant a proxy, the persons named as
proxy holders, Dion J. Weisler, Steven J. Fieler, and Kim M. Rivera, will
have the discretion to vote your shares on any additional matters
properly presented for a vote at the meeting. If for any reason any
of the nominees named in this proxy statement is not available as
a candidate for Director, the persons named as proxy holders will
vote your proxy for such other candidate or candidates as may be
nominated by the Board or the Board may choose to reduce the size
of the Board or keep a vacancy on the Board.
30. Who will serve as inspector of elections?
inspector of elections will be a representative from an
The
independent firm, Broadridge.
31. Where can I find the voting results of the annual meeting?
We intend to announce preliminary voting results at the annual
meeting and publish final results in a Current Report on Form 8-K to
be filed with the SEC within four business days of the annual meeting.
32. Who will bear the cost of soliciting votes for the
annual meeting?
HP is making this solicitation and will pay the entire cost of preparing,
assembling, printing, mailing, and distributing the notices and these
proxy materials and soliciting votes. In addition to the mailing of the
notices and these proxy materials, the solicitation of proxies or votes
may be made in person, by telephone, or by electronic communication
by our Directors, officers, and employees, who will not receive any
additional compensation for such solicitation activities. We also have
hired Innisfree M&A Incorporated (“Innisfree”) to assist us in the
solicitation of votes described above. We will pay Innisfree a base fee
of $20,000 plus customary costs and expenses for these services. We
have agreed to indemnify Innisfree against certain liabilities arising
out of or in connection with these services. We also will reimburse
brokerage houses and other custodians, nominees and fiduciaries for
forwarding proxy and solicitation materials to stockholders.
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33. What is the deadline to propose actions (other than Director
nominations) for consideration at next year’s annual meeting
of stockholders?
You may submit proposals for consideration at future stockholder
meetings. For a stockholder proposal to be considered for inclusion in
our proxy statement for the annual meeting next year, the Corporate
Secretary must receive the written proposal at our principal executive
offices no later than October 29, 2019. Such proposals also must
comply with SEC regulations under Rule 14a-8 regarding the inclusion
of stockholder proposals in Company-sponsored proxy materials.
Proposals should be addressed to:
Corporate Secretary
HP Inc.
1501 Page Mill Road
Palo Alto, California 94304
Fax: 650-275-9138
For a stockholder proposal that is not intended to be included in our
proxy statement for next year’s annual meeting under Rule 14a-8,
the stockholder must provide the information required by our Bylaws
and give timely notice to the Corporate Secretary in accordance with
our Bylaws, which, in general, require that the notice be received by
the Corporate Secretary:
• not earlier than the close of business on December 25, 2019; and
• not later than the close of business on January 24, 2020.
If the date of the stockholder meeting is moved more than 30 days
before or 60 days after the anniversary of our annual meeting for the
prior year, then notice of a stockholder proposal that is not intended to be
included in our proxy statement under Rule 14a-8 must be received no
earlier than the close of business 120 days prior to the meeting and not
later than the close of business on the later of the following two dates:
• 90 days prior to the meeting; and
• 10 days after public announcement of the meeting date.
Deadlines for the nomination of Director candidates are discussed in
Question 35 below.
34. How may I recommend individuals to serve as Directors and
what is the deadline for a Director recommendation?
You may recommend Director candidates for consideration by
the NGSR Committee. Any such recommendations should include
verification of the stockholder status of the person submitting the
recommendation and the nominee’s name and qualifications for Board
membership and should be directed to the Corporate Secretary at
the address of our principal executive offices set forth in Question 33
above. See “Proposal No. 1—Election of Directors—Director Nominees
and Director Nominees’ Experience and Qualifications” for more
information regarding our Board membership criteria.
A stockholder may send a recommended Director candidate’s name
and information to the Board at any time. Generally, such proposed
candidates are considered at the first or second Board meeting prior
to the issuance of the proxy statement for our annual meeting.
35. How may I nominate individuals to serve as Directors and
what are the deadlines for a Director nomination?
Our Bylaws permit stockholders to nominate Directors for consideration
at an annual meeting. To nominate a Director for consideration at an
annual meeting, a nominating stockholder must provide the information
required by our Bylaws and give timely notice of the nomination to the
Other Matters
Corporate Secretary in accordance with our Bylaws, and each nominee
must meet the qualifications required by our Bylaws. To nominate a
Director for consideration at next year’s annual meeting (but not for
inclusion in our annual proxy statement), in general the notice must
be received by the Corporate Secretary between the close of business
on December 25, 2019 and the close of business on January 24, 2020,
unless the annual meeting is moved by more than 30 days before or 60
days after the anniversary of the prior year’s annual meeting, in which
case the deadline will be as described in Question 33 above.
In addition, our Bylaws provide that under certain circumstances, a
stockholder or group of stockholders may include Director candidates
that they have nominated in our annual meeting proxy statement. These
proxy access provisions of our Bylaws provide, among other things,
that a stockholder or group of up to 20 stockholders seeking to include
Director candidates in our annual meeting proxy statement must own
3% or more of HP’s outstanding common stock continuously for at
least the previous three years. The number of stockholder-nominated
candidates appearing in any annual meeting proxy statement cannot
exceed 20% of the number of Directors then serving on the Board. If 20%
is not a whole number, the maximum number of stockholder-nominated
candidates would be the closest whole number below 20%. Based
on the current Board size of 11 Directors, the maximum number of
proxy access candidates that we would be required to include in our
proxy materials for an annual meeting is two. Nominees submitted
under the proxy access procedures that are later withdrawn or are
included in the proxy materials as Board-nominated candidates will be
counted in determining whether the 20% maximum has been reached.
If the number of stockholder-nominated candidates exceeds 20%,
each nominating stockholder or group of stockholders may select
one nominee for inclusion in our proxy materials until the maximum
number is reached. The order of selection would be determined by the
amount (largest to smallest) of shares of HP common stock held by
each nominating stockholder or group of stockholders. The nominating
stockholder or group of stockholders also must deliver the information
required by our Bylaws, and each nominee must meet the qualifications
required by our Bylaws. Requests to include stockholder-nominated
candidates in our proxy materials for next year’s annual meeting must
be received by the Corporate Secretary:
• not earlier than the close of business on November 25, 2019; and
• not later than the close of business on December 25, 2019.
36. How may I obtain a copy of the provisions of our Bylaws
regarding stockholder proposals and Director nominations?
You may contact the Corporate Secretary at our principal executive
offices for a copy of the relevant Bylaws provisions regarding the
requirements for making stockholder proposals and nominating
Director candidates. Our Bylaws also are available on our investor
relations website at https://investor.hp.com.
37. Who can help answer my questions?
If you have any questions about the annual meeting or how to vote or
revoke your proxy, you should contact our proxy solicitor:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
Stockholders: (877) 750-5838 (U.S. and Canada)
(412) 232-3651 (International)
Banks and brokers (call collect):
(212) 750-5833
Proxy Statement
73
Financial Report20183 UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2018
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.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
94-1081436
(I.R.S. employer identification no.)
1501 Page Mill Road, Palo Alto, California
(Address of principal executive offices)
94304
(Zip code)
Registrant’s telephone number, including area code: (650) 857-1501
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common stock, par value $0.01 per share
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 No
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 No
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 No
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 No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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
Smaller reporting company
Emerging growth company
Non-accelerat���er
Accelerated filer
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 No
The aggregate market value of the registrant’s common stock held by non-affiliates was $34,578,508,590 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, 2018 was 1,553,494,507 shares.
DOCUMENT DESCRIPTION
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement related to its 2019 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
within 120 days after Registrant’s fiscal year end of October 31, 2018 are incorporated by reference into Part III of this Report.
10-K PART
III
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HP Inc. and Subsidiaries
Form 10-K
For the Fiscal Year ended October 31, 2018
Table of Contents
Forward-Looking Statements
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Page
2
2
10
24
25
26
26
26
27
29
48
50
120
120
120
121
121
121
121
121
122
129
In 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.
i
Forward-Looking Statements
This 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 I
Item 1. Business.
Business 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, small- and medium-sized businesses (“SMBs”) and
large enterprises, including customers in the government, health
and education sectors.
Separation Transaction
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.
On November 1, 2015, we completed the separation of Hewlett
Packard Enterprise Company (“Hewlett Packard Enterprise”),
technology
Hewlett-Packard Company’s
former enterprise
infrastructure, software, services and financing businesses (the
“Separation”). In connection with the Separation, Hewlett-Packard
Company changed its name to HP Inc. (“HP”).
2 I
2018 Form 10-K
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 Information
We 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 Systems
Personal 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
Commercial
notebooks, mobile workstations
mobility devices;
and
• Desktops
includes Consumer desktops, Commercial
desktops, thin clients, and retail POS systems;
• Workstations consists of desktop workstations and
accessories; and
• Other consists of Consumer and Commercial services as well
as other Personal Systems capabilities.
Printing
Printing provides Consumer and Commercial printer hardware,
Supplies, solutions and services, as well as scanning devices.
Printing is also focused on imaging solutions in the commercial
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.
2018 Form 10-K
I 3
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;
• Supplies 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.
• Consumer Hardware
includes Home Printing Solutions,
excluding supplies; and
Corporate Investments
Sales, Marketing and Distribution
We 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; and
• system
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.
Corporate Investments includes HP Labs and certain business
incubation projects.
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 Materials
We 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 use multiple
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
inventory management and distribution
requirements. Our
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
4 I
2018 Form 10-K
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.
in the
Like other participants
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).
International
Our 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 Development
Innovation 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.
Patents
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.
Our 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
2018 Form 10-K
I 5
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.
Backlog
We 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.
Seasonality
General 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.
Competition
We 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
6 I
2018 Form 10-K
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
intensely competitive
industry and competitive pressures could harm our business and
financial performance,” in Item 1A, which is incorporated herein
by reference.
in an
Sustainability
At 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:
Planet
• Use 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
supplier and product
first-tier production
transportation-related GHG emissions
(which
intensity
refers to the portion of first-tier production and product
suppliers’
transportation
emissions
attributable to HP divided by HP’s annual net revenue) by
10% by 2025, compared to 2015;
reported GHG
• 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; and
• Reduce potable water consumption in global operations by
15% by 2025, compared to 2015;
People
• Develop 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; and
• Maintain 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.
Community
• Enable 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).
2018 Form 10-K
I 7
Environment
Our 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.
8 I
2018 Form 10-K
Executive Officers
The following are our current executive officers:
Alex Cho; age 46; President, Personal Systems
Mr. 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 Officer
Mr. 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 Officer
Ms. 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
from
August 2010 until November 2010. She also serves as a director
of SunPower Corporation.
interim Chief Executive Officer
Enrique Lores; age 53; President, Printing, Solutions
and Services
Mr. 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 Services
Ms. 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 Counsel
Ms. 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 Officer
Mr. 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.
2018 Form 10-K
I 9
Employees
We had approximately 55,000 employees worldwide as of October 31, 2018.
Available Information
Our 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
Additional Information
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
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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.
Risks Related to Our Business
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.
If 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
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2018 Form 10-K
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.
in an
We operate
industry and
competitive pressures could harm our business and
financial performance.
intensely competitive
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,
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.
reliability, brand,
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
2018 Form 10-K
I 11
our Personal Systems growth strategy by providing specialized
products and services that address the needs of our customers.
investments, develop or acquire
We must make long-term
intellectual property, and commit
and appropriately protect
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.
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2018 Form 10-K
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 affect macroeconomic 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
2018 Form 10-K
I 13
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 negatively affected 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
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2018 Form 10-K
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
into non-cancelable
payments to suppliers or enter
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 or components 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
In
necessary to satisfy our production requirements.
addition, we sometimes purchase components from
2018 Form 10-K
I 15
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,
financial condition, adversely affect our
profitability and
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 being consolidated in certain geographical
areas is unknown and remains uncertain.
Our uneven sales cycle makes planning and inventory
results
management difficult and
less predictable.
financial
future
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
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2018 Form 10-K
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
in our quarterly results
that also may produce variations
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
including
economic, regulatory or political conditions,
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; and
• fluctuations 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
investment
transactions requires varying
levels of management
resources, which may divert our attention from other
business operations.
and
• 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,
2018 Form 10-K
I 17
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
18 I
2018 Form 10-K
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,
from
which may
various acquisitions and integrating software code and
business processes;
include multiple
legacy systems
• 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; and
• managing 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,
2018 Form 10-K
I 19
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 could be 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
20 I
2018 Form 10-K
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; and
• the 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,
2018 Form 10-K
I 21
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
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.
international tax principles.
long-standing
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
22 I
2018 Form 10-K
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.
including
Experienced computer programmers and hackers,
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;
2018 Form 10-K
I 23
• 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; and
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.
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.
• controlling 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
Risks Related to the Separation
The 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.
Item 1B. Unresolved Staff Comments.
None.
24 I
2018 Form 10-K
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.
Administration and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Percentage) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core data centers, manufacturing plants, research and development facilities and
warehouse operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Percentage) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Percentage) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Excludes 1.4 million square feet of vacated space, of which 1.0 million square feet is leased to third parties.
FISCAL YEAR ENDED OCTOBER 31, 2018
OWNED
LEASED
TOTAL
(SQUARE FEET IN MILLIONS)
2.1
25%
2.1
25%
4.2
25%
6.3
75%
6.4
75%
12.7
75%
8.4
100%
8.5
100%
16.9
100%
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 Offices
Our principal executive offices, including our global headquarters, are located at 1501 Page Mill Road, Palo Alto, California, United States.
Headquarters of Geographic Operations
The locations of our geographic headquarters are as follows:
Americas
Europe, Middle East, Africa
Palo Alto, United States
Geneva, Switzerland
Asia Pacific
Singapore
Product Development and Manufacturing
The locations of our major product development, manufacturing, data centers and HP Labs facilities are as follows:
Americas
United States—Corvallis,
San Diego, Boise, Houston,
Vancouver, Aguadilla, Puerto Rico
Asia Pacific
China—Chongqing, Shanghai, Weihai
India—Pantnagar
Malaysia—Penang
Singapore—Singapore
South Korea—Suwon
Europe, Middle East, Africa
Israel—Kiryat-Gat, Rehovot, Netanya
Spain—Barcelona
Technology office (HP Labs)
United Kingdom—Bristol
United States—Palo Alto
2018 Form 10-K
I 25
Item 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 II
Item 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.
As of November 30, 2018, there were approximately 60,224
stockholders of record.
For information about dividends, see Item 6, “Selected Financial
Data” and Note 12, “Stockholders’ Deficit” to the Consolidated
Financial Statements in Item 8.
Recent Sales of Unregistered Securities
There were no unregistered sales of equity securities in fiscal year 2018.
Issuer Purchases of Equity Securities
TOTAL
NUMBER
OF SHARES
PURCHASED
AVERAGE
PRICE PAID
PER SHARE
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,378
7,195
10,875
24,448
$23.94
$25.13
$24.36
6,378
7,195
10,875
24,448
$4,348,890
$4,168,038
$3,903,189
26 I
2018 Form 10-K
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 Return
The 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.
$300
$250
$200
$150
$100
$50
10/2013
10/2014
10/2015
10/2016
10/2017
10/2018
HP Inc.
S&P 500 Index
S&P Information Technology Index
10/13
10/14
10/15
10/16
10/17
10/18
HP Inc.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$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.
2018 Form 10-K
I 27
HP Inc. and Subsidiaries
Selected Financial Data
FOR THE FISCAL YEARS ENDED OCTOBER 31
2018
2017
2016
2015
2014
IN MILLIONS, EXCEPT PER SHARE AMOUNTS
$58,472
$52,056
$48,238
$51,463
$56,651
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from continuing operations(1) . . . . . . . . . . . . . . . . . . . . . . . . .
$4,064
$3,519
$3,549
Net (loss) earnings from discontinued operations net of taxes . . . .
Net earnings(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
$—
$(170)
$5,327
$2,526
$2,496
Net earnings per share:
Basic
$3,920
$836
$4,554
$4,256
$2,089
$5,013
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3.30
$1.50
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Total basic net earnings per share . . . . . . . . . . . . . . . . . . . . .
$3.30
$1.50
Diluted
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3.26
$1.48
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Total diluted net earnings per share . . . . . . . . . . . . . . . . . . .
$3.26
$1.48
$1.54
(0.10)
$1.44
$1.53
(0.10)
$1.43
$2.05
0.46
$2.51
$2.02
0.46
$2.48
$1.55
1.11
$2.66
$1.53
1.09
$2.62
Cash dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.56
$0.53
$0.50
$0.67
$0.61
At year-end:
Total assets(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,622
$32,913
$28,987
$106,853
$103,158
$4,524
$5,987
$6,747
$7,819
$6,735
$6,813
$6,648
$8,842
$15,515
$18,109
(1) Earnings from continuing operations and net earnings include the following items:
2018
2017
2016
2015
2014
Restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit plan settlement charges (credits) . . . . . . . . . . . . . . .
Total charges before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total charges, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$132
123
80
7
$342
$265
IN MILLIONS
$205
7
16
179
$407
$293
$362
125
1
5
$493
$367
$63
1
102
(57)
$109
$113
$176
—
129
—
$305
$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.
28 I
2018 Form 10-K
Item 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.
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 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
in multi-operating systems,
multi-architecture, geography, customer segments and
in
other key attributes. Additionally, we are
premium form factors such as convertible notebooks to
innovation
investing
• 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.
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.
2018 Form 10-K
I 29
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations 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.
Separation Transaction
On November 1, 2015, we completed the separation of Hewlett
Packard Enterprise, Hewlett-Packard Company’s
former
infrastructure, software, services and
enterprise technology
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.
30 I
2018 Form 10-K
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Critical Accounting Policies and Estimates
General
The 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 Recognition
We 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 or 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
2018 Form 10-K
I 31
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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.
Warranty
We 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 Charges
We 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 Benefits
Our 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.
32 I
2018 Form 10-K
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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 the 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:
CHANGE IN NET PERIODIC
BENEFIT COST
IN MILLIONS
Assumptions:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected increase in compensation levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8
$2
$30
Taxes on Earnings
The 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
2018 Form 10-K
I 33
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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.
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.
Inventory
We 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 Combinations
We 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
34 I
2018 Form 10-K
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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.
Goodwill
We 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-traded 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 Instruments
We 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.
2018 Form 10-K
I 35
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Loss Contingencies
We 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”
Recent Accounting Pronouncements
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.
For 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.
Results of Operations
Revenue from our
international operations has historically
represented, and we expect will continue to represent, a majority
of our overall net revenue. As a result, our net revenue growth
has been impacted, and we expect it will continue to be impacted,
by fluctuations in foreign currency exchange rates. In order to
provide a framework for assessing performance excluding the
impact of foreign currency fluctuations, we supplement the year-
over-year percentage change in net revenue with the year-over-
year percentage change in net revenue on a constant currency
basis, which excludes the effect of foreign currency exchange
fluctuations calculated by translating current period revenues
using monthly 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.
36 I
2018 Form 10-K
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Results of operations in dollars and as a percentage of net revenue were as follows:
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,472
100.0% $52,056
100.0% $48,238
100.0%
FOR THE FISCAL YEARS ENDED OCTOBER 31
2018
2017
2016
DOLLARS IN MILLIONS
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit plan settlement charges . . . . . . . . . . . . . . . . . . .
47,803
10,669
1,404
4,859
132
123
80
7
Earnings from continuing operations . . . . . . . . . . . . . . . . . . . .
4,064
81.8%
18.2%
2.4%
8.3%
0.2%
0.2%
0.1%
0.0%
7.0%
42,478
9,578
1,190
4,376
362
125
1
5
3,519
81.6%
18.4%
2.3%
8.4%
0.7%
0.2%
0.0%
0.0%
6.8%
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,051)
(1.8)%
(243)
(0.5)%
39,240
8,998
1,209
3,833
205
7
16
179
3,549
212
3,761
81.3%
18.7%
2.5%
8.0%
0.4%
0.0%
0.0%
0.4%
7.4%
0.4%
7.8%
Earnings from continuing operations before taxes . . . . . . . .
Benefit from (provision for) taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings from continuing operations . . . . . . . . . . . . . .
Net loss from discontinued operations, net of taxes . . . .
3,013
2,314
5,327
—
5.2%
3.9%
9.1%
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,327
3,276
6.3%
(750)
(1.4)%
(1,095)
(2.3)%
2,526
4.9%
2,666
5.5%
—
$2,526
(170)
$2,496
Net Revenue
In 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 Margin
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.
2018 Form 10-K
I 37
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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 Expenses
Research 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 Charges
Restructuring 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 Charges
Acquisition-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 Assets
Amortization 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, Net
Interest 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) Taxes
As 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
38 I
2018 Form 10-K
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) tax rates that had the most significant impact on our effective tax
rate in the periods presented were Puerto Rico, Singapore, China,
Malaysia and 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
Segment Information
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.
A 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.
Realignment
Effective 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.
2018 Form 10-K
I 39
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Personal Systems
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%
The components of net revenue and the weighted net revenue change by business unit were as follows:
FOR THE FISCAL YEARS ENDED OCTOBER 31
2018
2017
2016
DOLLARS IN MILLIONS
FOR THE FISCAL YEARS ENDED OCTOBER 31
NET REVENUE
2018
2017
IN MILLIONS
WEIGHTED NET
REVENUE CHANGE
PERCENTAGE POINTS
Notebooks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,547
$19,782
Desktops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,567
10,298
Workstations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,246
1,301
2,042
1,199
Total Personal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$37,661
$33,321
8.3
3.8
0.6
0.3
13.0
FOR THE FISCAL YEARS ENDED OCTOBER 31
NET REVENUE
2017
2016
IN MILLIONS
WEIGHTED NET
REVENUE CHANGE
PERCENTAGE POINTS
Notebooks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,782
$16,982
Desktops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,298
Workstations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,042
1,199
9,956
1,870
1,138
Total Personal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,321
$29,946
9.4
1.1
0.6
0.2
11.3
Fiscal Year 2018 Compared with Fiscal Year 2017
Personal 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
increased commodity and logistics costs,
pricing driven by
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.
40 I
2018 Form 10-K
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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.
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.
Fiscal Year 2017 Compared with Fiscal Year 2016
Personal 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.
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 impacts partially offset by
higher ASPs. Operating expenses as a percentage of net revenue
decreased primarily due to operating expense management.
Printing
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
2018
2017
2016
DOLLARS IN MILLIONS
FOR THE FISCAL YEARS ENDED OCTOBER 31
WEIGHTED
NET REVENUE
CHANGE
PERCENTAGE
POINTS
NET REVENUE
2018
2017
IN MILLIONS
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,575
$12,524
Commercial Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Hardware. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,674
2,556
3,792
2,412
Total Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,805
$18,728
5.6
4.7
0.8
11.1
2018 Form 10-K
I 41
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
FOR THE FISCAL YEARS ENDED OCTOBER 31
WEIGHTED
NET REVENUE
CHANGE
PERCENTAGE
POINTS
NET REVENUE
2017
2016
IN MILLIONS
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,524
$11,981
Commercial Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Hardware. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,792
2,412
3,792
2,350
Total Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,728
$18,123
3.0
—
0.3
3.3
Fiscal Year 2018 Compared with Fiscal Year 2017
Printing 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.
increased 23.3% as
Net revenue for Commercial Hardware
including revenue from
compared to the prior-year period,
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. The gross margin
42 I
2018 Form 10-K
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 2016
Printing 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.
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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.
Liquidity and Capital Resources
We 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.
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 Investments
The 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.
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 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 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.
2018 Form 10-K
I 43
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Liquidity
Our cash and cash equivalents, marketable debt securities and total debt were as follows:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable debt securities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AS OF OCTOBER 31
2018
2017
2016
IN BILLIONS
$5.2
$0.7
$6.0
$7.0
$1.1
$7.8
$6.3
$—
$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)
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,643)
(1,717)
(1,251)
48
(14,445)
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,831)
$709
$(11,145)
Operating Activities
Net 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 Metrics
Management utilizes current cash conversion cycle information to manage our working capital level. The table below presents the cash
conversion cycle:
Days of sales outstanding in accounts receivable (“DSO”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Days of supply in inventory (“DOS”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
43
29
46
Days of purchases outstanding in accounts payable (“DPO”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(105)
(105)
Cash conversion cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(32)
(30)
30
39
(98)
(29)
AS OF OCTOBER 31
2018
2017
2016
44 I
2018 Form 10-K
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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, the 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.
Capital Resources
Debt Levels
Investing Activities
Net 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 Activities
Net 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.
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,463
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,524
Debt-to-equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9.36)x
Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3%
$1,072
$6,747
(2.29)x
4.0%
$78
$6,735
(1.75)x
4.2%
AS OF OCTOBER 31
2018
2017
2016
DOLLARS IN MILLIONS
2018 Form 10-K
I 45
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) We maintain debt levels that we establish through consideration
of a number of factors, including cash flow expectations, cash
requirements
(including
acquisitions), share repurchase activities, our cost of capital and
targeted capital structure.
investment plans
for operations,
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.
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 Resources
We had the following resources available to obtain short or long-term financing:
2016 Shelf Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncommitted lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AS OF OCTOBER 31, 2018
IN MILLIONS
Unspecified
$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 Ratings
Our 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.
46 I
2018 Form 10-K
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Contractual and Other Obligations
Our contractual and other obligations as of October 31, 2018, were as follows:
Principal payments on debt(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payments on debt(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligations(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total(6)(7)(8)(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PAYMENTS DUE BY PERIOD
TOTAL
1 YEAR OR LESS
1-3 YEARS
3-5 YEARS
$5,573
$1,308
$1,860
$1,205
IN MILLIONS
2,034
704
1,358
520
208
434
294
173
372
244
423
272
166
26
279
69
MORE THAN
5 YEARS
$1,200
1,288
—
362
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 the 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.
2018 Form 10-K
I 47
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) 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 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.
Foreign Currency Exchange Rate Risk
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.
We 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.
48 I
2018 Form 10-K
HP Inc. and SubsidiariesManagement’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Interest Rate Risk
We 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.
2018 Form 10-K
I 49
Item 8. Financial Statements and Supplementary Data.
Table of Contents
Reports of Independent Registered Public Accounting Firm
Management’s Report on Internal Control Over Financial Reporting
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity (Deficit)
Notes to Consolidated Financial Statements
Note 1: Overview and Summary of Significant Accounting Policies
Note 2: Segment Information
Note 3: Restructuring and Other Charges
Note 4: Retirement and Post-Retirement Benefit Plans
Note 5: Stock-Based Compensation
Note 6: Taxes on Earnings
Note 7: Supplementary Financial Information
Note 8: Goodwill and Intangible Assets
Note 9: Fair Value
Note 10: Financial Instruments
Note 11: Borrowings
Note 12: Stockholders’ Deficit
Note 13: Earnings Per Share
Note 14: Litigation and Contingencies
Note 15: Guarantees, Indemnifications and Warranties
Note 16: Commitments
Note 17: Discontinued Operations
Note 18: Acquisitions and Divestitures
Note 19: Subsequent Events
Quarterly Summary
50 I
2018 Form 10-K
Page
51
53
54
55
56
57
59
61
61
68
73
74
83
88
94
98
99
101
105
108
110
111
115
116
117
117
118
119
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of HP Inc.
Opinion on the Financial Statements
We 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 Opinion
These 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 LLP
We have served as the Company’s auditor since 2000
San Jose, California
December 13, 2018
2018 Form 10-K
I 51
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of HP Inc.
Opinion on Internal Control over Financial Reporting
We 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 Opinion
The 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 Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ ERNST & YOUNG LLP
San Jose, California
December 13, 2018
52 I
2018 Form 10-K
Management’s Report on Internal Control Over Financial Reporting
HP’s management is responsible for establishing and maintaining adequate internal control over financial reporting for HP. HP’s internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. HP’s
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of HP; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of HP are being made only in accordance with authorizations of management and directors
of HP; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
HP’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
HP’s management assessed the effectiveness of HP’s internal control over financial reporting as of October 31, 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
Dion J. Weisler
President and Chief Executive Officer
December 13, 2018
/s/ STEVE FIELER
Steve Fieler
Chief Financial Officer
December 13, 2018
2018 Form 10-K
I 53
Consolidated 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit plan settlement charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from continuing operations before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit from (provision for) taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,803
1,404
4,859
132
123
80
7
54,408
4,064
(1,051)
3,013
2,314
5,327
—
42,478
1,190
4,376
362
125
1
5
48,537
3,519
(243)
3,276
(750)
2,526
—
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,327
$2,526
Net earnings per share:
Basic
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total basic net earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total diluted net earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average shares used to compute net earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3.30
—
$3.30
$3.26
—
$3.26
1,615
1,634
$1.50
—
$1.50
$1.48
—
$1.48
1,688
1,702
39,240
1,209
3,833
205
7
16
179
44,689
3,549
212
3,761
(1,095)
2,666
(170)
$2,496
$1.54
(0.10)
$1.44
$1.53
(0.10)
$1.43
1,730
1,743
The accompanying notes are an integral part of these Consolidated Financial Statements.
54 I
2018 Form 10-K
HP Inc. and Subsidiaries Consolidated Statements of Comprehensive Income
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,327
$2,526
$2,496
FOR THE FISCAL YEARS ENDED OCTOBER 31
2018
2017
2016
IN MILLIONS
Other comprehensive income (loss) before taxes:
Change in unrealized components of available-for-sale securities:
Unrealized (losses) gains arising during the period . . . . . . . . . . . . . . . . . . . . . .
Gains reclassified into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized components of cash flow hedges:
Unrealized gains (losses) arising during the period . . . . . . . . . . . . . . . . . . . . . .
Losses reclassified into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized components of defined benefit plans:
Gains (losses) arising during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial loss and prior service benefit . . . . . . . . . . . . . . . . . .
Curtailments, settlements and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Provision for) Benefit from taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)
(5)
(8)
341
258
599
11
48
3
62
653
(80)
573
4
—
4
(651)
199
(452)
455
74
3
532
84
(64)
20
1
—
1
199
63
262
(759)
51
183
(525)
(262)
45
(217)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,900
$2,546
$2,279
The accompanying notes are an integral part of these Consolidated Financial Statements.
2018 Form 10-K
I 55
HP Inc. and Subsidiaries Consolidated Balance Sheets
AS OF OCTOBER 31
2018
2017
IN MILLIONS, EXCEPT
PAR VALUE
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,166
$6,997
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,113
6,062
5,046
4,414
5,786
5,121
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,387
22,318
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,198
5,968
5,069
1,878
5,622
3,095
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,622
$32,913
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Notes payable and short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes on earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,463
14,816
1,136
340
7,376
25,131
4,524
5,606
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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
663
(473)
(845)
(639)
$1,072
13,279
894
214
6,953
22,412
6,747
7,162
—
16
380
(2,386)
(1,418)
(3,408)
Total liabilities and stockholders’ deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,622
$32,913
The accompanying notes are an integral part of these Consolidated Financial Statements.
56 I
2018 Form 10-K
HP Inc. and Subsidiaries Consolidated 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
528
268
132
Deferred taxes on earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,653)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
319
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(491)
(136)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,429
Taxes on earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
389
(237)
653
354
224
362
238
134
(453)
(1,346)
2,161
73
(233)
(363)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,528
3,677
Cash flows from investing activities:
Investment in property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of available-for-sale securities and other investments . . . . . . . . . . . . . . . . . .
Maturities and sales of available-for-sale securities and other investments . . . . . . . . .
Collateral posted for derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collateral returned for derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments made in connection with business acquisitions, net of cash acquired . . . . . .
Proceeds from business divestitures, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . . . .
(546)
172
(367)
847
(1,165)
1,379
(1,036)
—
(716)
(402)
69
(1,400)
231
(1,170)
955
—
—
(1,717)
332
182
200
401
(32)
565
(291)
928
106
(157)
(1,478)
3,252
(433)
6
(126)
133
—
—
(7)
475
48
2018 Form 10-K
I 57
HP Inc. and Subsidiaries Cash flows from financing activities:
Proceeds from short-term borrowings with original maturities less
than 90 days, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from short-term borrowings with original maturities greater
than 90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from debt, net of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of short term borrowings with original maturities greater than 90 days . . . .
Payment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement of cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transfer of cash and cash equivalents to Hewlett Packard Enterprise Company . .
Net proceeds related to stock-based award activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental cash flow disclosures:
Income taxes paid, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental schedule of non-cash activities:
Net assets transferred to Hewlett Packard Enterprise Company . . . . . . . . . . . . . . . . . . . .
Purchase of assets under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FOR THE FISCAL YEARS ENDED OCTOBER 31
2018
2017
2016
IN MILLIONS
743
712
—
(1,596)
(2,098)
—
—
52
(2,557)
(899)
(5,643)
(1,831)
6,997
$5,166
$951
$329
$—
$258
202
887
5
(3)
(84)
(9)
—
57
(1,412)
(894)
(1,251)
709
6,288
$6,997
$438
$322
$—
$200
97
—
4
—
(2,188)
4
(10,375)
32
(1,161)
(858)
(14,445)
(11,145)
17,433
$6,288
$587
$318
$22,144
$185
The accompanying notes are an integral part of these Consolidated Financial Statements.
58 I
2018 Form 10-K
Consolidated Statements of Stockholders’ Equity (Deficit)
COMMON STOCK
NUMBER OF
SHARES
PAR
VALUE
ADDITIONAL
PAID-IN
CAPITAL
RETAINED
EARNINGS
(DEFICIT)
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL HP
STOCKHOLDERS’
EQUITY
(DEFICIT)
NON-
CONTROLLING
INTERESTS OF
DISCONTINUED
OPERATIONS
TOTAL
STOCKHOLDERS’
EQUITY
(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 . . . . . . . . . . .
Net earnings . . . . . . . . . . . . . . . . .
Other comprehensive loss,
net of taxes . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . .
Issuance of common stock
in connection with employee
stock plans and other . . . . . . . . .
Repurchases of
common stock . . . . . . . . . . . . . . .
Cash dividends declared . . . . . . .
Stock-based
compensation expense . . . . . . .
(37,225)
2,496
8,227
29
(99,855)
(1)
(1,144)
(858)
182
5,081
(32,144)
(383)
(32,527)
(217)
2,496
(217)
2,279
29
(1,145)
(858)
182
2,496
(217)
2,279
29
(1,145)
(858)
182
Balance October 31, 2016 . . . . . . . 1,712,091
$17
$1,030 $(3,498)
$(1,438)
$(3,889)
$—
$(3,889)
Net earnings . . . . . . . . . . . . . . . . .
Other comprehensive
income, net of taxes . . . . . . . . . .
Comprehensive income . . . . . . .
Issuance of common stock
in connection with employee
stock plans and other . . . . . . . . .
Repurchases of
common stock . . . . . . . . . . . . . . .
Cash dividends declared . . . . . . .
Stock-based
compensation expense . . . . . . .
20
2,526
(520)
(894)
2,526
20
2,546
52
(1,447)
(894)
224
18,532
52
(81,043)
(1)
(926)
224
2,526
20
2,546
52
(1,447)
(894)
224
2018 Form 10-K
I 59
HP Inc. and Subsidiaries
COMMON STOCK
NUMBER OF
SHARES
PAR
VALUE
ADDITIONAL
PAID-IN
CAPITAL
RETAINED
EARNINGS
(DEFICIT)
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL HP
STOCKHOLDERS’
EQUITY
(DEFICIT)
NON-
CONTROLLING
INTERESTS OF
DISCONTINUED
OPERATIONS
TOTAL
STOCKHOLDERS’
EQUITY
(DEFICIT)
IN MILLIONS, EXCEPT NUMBER OF SHARES IN THOUSANDS
Balance October 31, 2017 . . . . . . . 1,649,580
$16
$380 $(2,386)
$(1,418)
$(3,408)
$—
$(3,408)
Net earnings . . . . . . . . . . . . . . . . .
Other comprehensive
income, net of taxes . . . . . . . . . .
Comprehensive income . . . . . . .
Issuance of common stock
in connection with employee
stock plans and other . . . . . . . . .
Repurchases of
common stock . . . . . . . . . . . . . . .
Cash dividends declared . . . . . . .
Stock-based
compensation expense . . . . . . .
5,327
573
21,728
47
(111,038)
(32)
(2,515)
(899)
268
Balance October 31, 2018 . . . . . . . 1,560,270
$16
$663
$(473)
$(845)
5,327
573
5,900
47
(2,547)
(899)
268
$(639)
$—
5,327
573
5,900
47
(2,547)
(899)
268
$(639)
The accompanying notes are an integral part of these Consolidated Financial Statements.
60 I
2018 Form 10-K
Note 1: Overview and Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
Note 1: Overview and Summary of Significant Accounting Policies
Overview
Foreign Currency Translation
In 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 Presentation
The accompanying Consolidated Financial Statements of HP and
its wholly-owned subsidiaries are prepared in conformity with
U.S. GAAP.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of
HP and its subsidiaries and affiliates in which HP has a controlling
financial interest or is the primary beneficiary. All intercompany
balances and transactions have been eliminated.
Reclassifications
HP 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 Estimates
The preparation of financial statements in accordance with U.S.
GAAP requires management to make estimates and assumptions
that affect the amounts reported in HP’s Consolidated Financial
Statements and accompanying notes. Actual results may differ
materially from those estimates.
HP uses the U.S. dollar as its functional currency. Assets and
liabilities denominated in non-U.S. dollars are remeasured into
U.S. dollars at current exchange rates for monetary assets and
liabilities and at historical exchange rates for nonmonetary assets
and liabilities. Net revenue, costs and expenses denominated in
non-U.S. dollars are recorded in U.S. dollars at monthly average
exchange rates prevailing during the period. HP includes gains
or losses from foreign currency remeasurement in Interest and
other, net in the Consolidated Statements of Earnings.
Recently Adopted Accounting Pronouncements
In 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.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2018, the FASB issued guidance, which eliminates
the stranded tax effects
income
resulting from the TCJA. Because the amendments only relate
to the reclassification of the income tax effects of the TCJA, the
in other comprehensive
2018 Form 10-K
I 61
HP Inc. and Subsidiaries Note 1: Overview and Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements (Continued)
Note 1: Overview and Summary of Significant Accounting Policies (Continued)
underlying guidance that requires that the effect of a change in
tax laws or rates be included in income from continuing operations
is not affected. HP is required to adopt the guidance in the first
quarter of fiscal year 2020. Earlier adoption is permitted. HP is
currently evaluating the timing and the impact of this guidance on
the Consolidated Financial Statements.
In August 2017, the FASB issued guidance, which amends the
existing accounting standards for derivatives and hedging.
The amendment improves the financial reporting of hedging
relationships to better represent the economic results of an
entity’s risk management activities in its financial statements and
made certain targeted improvements to simplify the application of
the hedge accounting guidance in current U.S. GAAP. HP is required
to adopt the guidance in the first quarter of fiscal year 2020. Earlier
adoption is permitted. HP is currently evaluating the timing and
impact of this guidance on the Consolidated Financial Statements.
In November 2016, the FASB issued guidance, which addresses
the presentation of restricted cash in the statement of cash
flows. The guidance requires entities to present the changes in
the total of cash, cash equivalents, restricted cash, and restricted
cash equivalents in the statement of cash flows. As a result,
entities will no longer present transfers between cash and cash
equivalents and restricted cash and restricted cash equivalents in
the statement of cash flows. HP is required to adopt the guidance
retrospectively in the first quarter of fiscal year 2019. Earlier
adoption is permitted. HP will adopt this guidance in the first
quarter of fiscal year 2019. HP expects that the implementation
of this guidance will not have a material impact on its Consolidated
Financial Statements.
In October 2016, the FASB issued guidance, which amends the
existing accounting for Intra-Entity Transfers of Assets Other Than
Inventory. The guidance requires an entity to recognize the income
tax consequences of intra-entity transfers, other than inventory,
when the transfer occurs. It also requires modified retrospective
transition with a cumulative catch-up adjustment to opening
retained earnings in the period of adoption. Earlier adoption is
permitted. HP will adopt the guidance in the first quarter of fiscal
year 2019. HP expects that the implementation of this guidance will
not have a material impact on its Consolidated Financial Statements.
In August 2016, the FASB issued guidance, which amends the
existing accounting standards for the classification of certain cash
receipts and cash payments on the statement of cash flows. HP
is required to adopt the guidance in the first quarter of fiscal year
2019. Earlier adoption is permitted. HP will adopt this guidance
in the first quarter of fiscal year 2019. HP expects that the
implementation of this guidance will not have a material impact on
its Consolidated Financial Statements.
In June 2016, the FASB issued guidance, which requires credit
losses on financial assets measured at amortized cost basis to be
presented at the net amount expected to be collected, not based
on incurred losses. Further, credit losses on available-for-sale
debt securities should be recorded through an allowance for
credit losses limited to the amount by which fair value is below
amortized cost. HP is required to adopt the guidance in the first
quarter of fiscal year 2021. Earlier adoption is permitted. HP is
currently evaluating the timing and the impact of this guidance on
the Consolidated Financial Statements.
In February 2016, the FASB issued guidance, which amends the
existing accounting standards for leases. Consistent with current
guidance, the recognition, measurement, and presentation of
expenses and cash flows arising from a lease by a lessee primarily
will depend on its classification. Under the new guidance, a lessee
will be required to recognize assets and liabilities for all leases
with lease terms of more than twelve months. HP will adopt the
new lease standard in the first quarter of fiscal year 2020 using
a modified retrospective approach. HP is currently evaluating the
impact of this guidance on the Consolidated Financial Statements.
In January 2016, the FASB issued guidance, which amends the
existing accounting standards for the recognition and measurement
of financial assets and financial liabilities. The guidance primarily
addresses certain aspects of
recognition, measurement,
presentation, and disclosure of financial instruments. HP is required
to adopt the guidance in the first quarter of fiscal year 2019. The
amendments should be applied by means of a cumulative-effect
adjustment to the balance sheet as of the beginning of the fiscal
year of adoption, with other amendments related specifically to
equity securities without readily determinable fair values applied
prospectively. Earlier adoption is permitted. HP will adopt this
guidance in the first quarter of fiscal year 2019. HP expects that
the implementation of this guidance will not have a material
impact on its Consolidated Financial Statements.
In May 2014, the FASB issued guidance, which amends the existing
accounting standards for revenue recognition. The amendments
(Topic 606) are based on the principle that revenue should be
recognized to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which
62 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 1: Overview and Summary of Significant Accounting Policies (Continued)
the entity expects to be entitled in exchange for those goods
or services. The amendments may be applied retrospectively
to each prior period presented (“full retrospective method”) or
retrospectively with the cumulative effect recognized as of the
date of initial application (“modified retrospective method”). HP
will adopt the new revenue standard in the first quarter of fiscal
year 2019 and will apply the modified retrospective method.
Based on HP’s assessment, the adoption is not expected to have
a material impact on the amount or timing of revenue recognized
in the Consolidated Financial Statements. Upon adoption, the
standard will affect the timing of accrual for certain distributor
programs and incentive offerings which will be recorded at the
time of revenue recognition rather than when the sales incentives
are offered. HP expects changes in revenue recognition timing for
certain contracts where revenue recognition is currently limited to
the amount not contingent on our future performance. Further,
HP will capitalize eligible sales commission costs and will amortize
these costs over their expected period of benefit. The net impact
to the Consolidated Balance Sheet as of November 1, 2018 is
currently estimated at $220 million addition to retained deficit.
The Consolidated Balance Sheet will have certain reclassifications
impacting accounts receivable, inventory, other current assets,
deferred revenue and other accrued liabilities in line with the
requirements of the new standard.
We have completed our assessment and implemented policies,
processes and controls to meet the standard’s accounting and
disclosure requirements.
Revenue Recognition
General
HP recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred or services are rendered,
the sales price or fee is fixed or determinable, and collectability is
reasonably assured. Additionally, HP recognizes hardware revenue
on sales to channel partners, including resellers, distributors or
value-added solution providers at the time of delivery when the
channel partners have economic substance apart from HP, and HP
has completed its obligations related to the sale.
HP reduces revenue for customer and distributor programs and
incentive offerings, including price protection, rebates, promotions,
other volume-based incentives and expected returns, at the later
of the date of revenue recognition or the date the sales incentive
is offered. Future market conditions and product transitions may
require HP to take actions to increase customer incentive offerings,
possibly resulting in an incremental reduction of revenue at the
time the incentive is offered. For certain incentive programs, HP
estimates the number of customers expected to redeem the
incentive based on historical experience and the specific terms and
conditions of the incentive.
In instances when revenue is derived from sales of third-party
vendor products or services, HP records revenue on a gross basis
when HP is a principal to the transaction and on a net basis when
HP is acting as an agent between the customer and the vendor.
HP considers several factors to determine whether it is acting as
a principal or an agent, most notably whether HP is the primary
obligor to the customer, has established its own pricing and has
inventory and credit risks.
HP reports revenue net of any taxes collected from customers
and remitted to government authorities, with the collected
taxes recorded as current liabilities until remitted to the relevant
government authority.
Multiple element arrangements
When a sales arrangement contains multiple elements or
deliverables, such as hardware and/or services, HP allocates
revenue to each element based on a selling price hierarchy. The
selling price for a deliverable is based on its VSOE of selling price,
if available, TPE, if VSOE of selling price is not available, or ESP if
neither VSOE of selling price nor TPE is available. HP establishes
VSOE of selling price using the price charged for a deliverable when
sold separately and, in rare instances, using the price established
by management having the relevant authority. HP evaluates TPE
of selling price by reviewing largely similar and interchangeable
competitor products or services in standalone sales to similarly
situated customers. HP establishes ESP based on management
judgment considering internal factors such as margin objectives,
pricing practices and controls, customer segment pricing strategies
and the product life-cycle. Consideration is also given to market
conditions such as competitor pricing strategies and technology
industry life cycles.
2018 Form 10-K
I 63
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 1: Overview and Summary of Significant Accounting Policies (Continued)
In most arrangements with multiple elements, HP allocates
the transaction price to the individual units of accounting at the
inception of the arrangement based on their relative selling price.
HP limits the amount of revenue recognized for delivered elements
to the amount that is not contingent on the future delivery of
products or services, future performance obligations or subject to
customer-specified refund or return rights.
HP evaluates each deliverable in an arrangement to determine
whether it represents a separate unit of accounting. A deliverable
constitutes a separate unit of accounting when it has standalone
value to the customer. For deliverables with no standalone
value, HP recognizes revenue consistent with the pattern of
delivery of the final deliverable. If the arrangement includes a
customer-negotiated refund or return right or other contingency
relative to the delivered items, and the delivery and performance
of the undelivered items is considered probable and substantially
within HP’s control, the delivered element constitutes a separate
unit of accounting. In arrangements with combined units of
accounting, changes in the allocation of the transaction price
among elements may impact the timing of revenue recognition for
the contract but will not change the total revenue recognized for
the contract.
Net revenue
Hardware
Under HP’s standard terms and conditions of sale, HP transfers
title and risk of loss to the customer at the time product is delivered
to the customer and recognizes revenue accordingly, unless
customer acceptance is uncertain or significant obligations to the
customer remain. HP reduces revenue for estimated customer
returns, price protection, rebates and other programs offered
under sales agreements established by HP with its distributors
and resellers. HP records revenue from the sale of equipment
under sales-type leases as revenue at the inception of the lease.
HP accrues the estimated cost of post-sale obligations, including
standard product warranties, based on historical experience at the
time HP recognizes revenue.
Services
HP recognizes revenue from fixed-price support or maintenance
contracts ratably over the contract period and recognizes the
costs associated with these contracts as incurred.
Deferred revenue
HP records amounts invoiced to customers in excess of revenue
recognized as deferred revenue until the revenue recognition
criteria are satisfied. Deferred revenue represents amounts invoiced
in advance for product support contracts and product sales.
Shipping and Handling
HP includes costs related to shipping and handling in Cost
of revenue.
Stock-Based Compensation
HP determines stock-based compensation expense based on
the measurement date fair value of the award. HP recognizes
compensation cost only for those awards expected to meet the
service and performance vesting conditions on a straight-line
basis over the requisite service period of the award. HP determines
compensation costs at the aggregate grant level for service-based
awards and at the individual vesting tranche level for awards
with performance and/or market conditions. HP estimates the
forfeiture rate based on its historical experience.
Retirement and Post-Retirement Plans
HP has various defined benefit, other contributory and
non-contributory retirement and post-retirement plans. HP
generally amortizes unrecognized actuarial gains and losses on a
straight-line basis over the average remaining estimated service
life of participants. In limited cases, HP amortizes actuarial gains
and losses using the corridor approach. See Note 4, “Retirement
and Post-Retirement Benefit Plans” for a full description of these
plans and the accounting and funding policies.
Advertising cost
Costs to produce advertising are expensed as incurred during
production. Costs to communicate advertising are expensed
when the advertising is first run. Such costs totaled approximately
$568 million in fiscal year 2018, $544 million in fiscal year 2017 and
$586 million in fiscal year 2016.
Restructuring and Other Charges
HP records charges associated with management-approved
restructuring plans to reorganize one or more of HP’s business
segments, to remove duplicative headcount and infrastructure
64 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 1: Overview and Summary of Significant Accounting Policies (Continued)
associated with business acquisitions or to simplify business
processes and accelerate
innovation. Restructuring charges
can include severance costs to eliminate a specified number
of employees, infrastructure charges to vacate facilities and
consolidate operations, and contract cancellation costs. HP records
restructuring charges based on estimated employee terminations
and site closure and consolidation plans. HP accrues for severance
and other employee separation costs under these actions when it
is probable that benefits will be paid and the amount is reasonably
estimable. The rates used in determining severance accruals are
based on existing plans, historical experiences and negotiated
settlements. Other charges include non-recurring costs, including
those as a result of Separation, and are distinct from ongoing
operational costs. These costs primarily relate to information
technology costs such as advisory, consulting and non-recurring
labor costs.
Taxes on Earnings
HP recognizes deferred tax assets and liabilities for the expected
tax consequences of temporary differences between the tax bases
of assets and liabilities and their reported amounts using enacted
tax rates in effect for the year the differences are expected to
reverse. HP records a valuation allowance to reduce the deferred
tax assets to the amount that is more likely than not to be realized.
HP records accruals for uncertain tax positions when HP believes
that it is not more likely than not that the tax position will be
sustained on examination by the taxing authorities based on the
technical merits of the position. HP makes adjustments to these
accruals when facts and circumstances change, such as the closing
of a tax audit or the refinement of an estimate. The provision for
income taxes includes the effects of adjustments for uncertain tax
positions, as well as any related interest and penalties.
Accounts Receivable
HP establishes an allowance for doubtful accounts for accounts
receivable. HP records a specific reserve for individual accounts
when HP becomes aware of specific customer circumstances,
such as in the case of a bankruptcy filing or deterioration in
the customer’s operating results or financial position. If there
are additional changes in circumstances related to the specific
customer, HP further adjusts estimates of the recoverability of
receivables. HP maintains bad debt reserves for all other customers
based on a variety of factors, including the use of third-party
credit risk models that generate quantitative measures of default
probabilities based on market factors, the financial condition of
customers, the length of time receivables are past due, trends in
the weighted-average risk rating for the portfolio, macroeconomic
conditions, information derived from competitive benchmarking,
significant one-time events and historical experience. The past due
or delinquency status of a receivable is based on the contractual
payment terms of the receivable.
HP has third-party short-term financing arrangements intended to
facilitate the working capital requirements of certain customers.
These financing arrangements, which in certain cases provide for
partial recourse, result in the transfer of HP’s trade receivables
to a third party. HP reflects amounts transferred to, but not
yet collected from, the third party in accounts receivable in the
Consolidated Balance Sheets. For arrangements involving an
element of recourse, the fair value of the recourse obligation
is measured using market data from similar transactions and
reported as a current liability in the Consolidated Balance Sheets.
Concentrations of Risk
Financial instruments that potentially subject HP to significant
concentrations of credit risk consist principally of cash and cash
equivalents, investments, receivables from trade customers and
contract manufacturers and derivatives.
HP maintains cash and cash equivalents, investments, derivatives
and certain other financial instruments with various financial
institutions. These financial institutions are located in many
different geographic regions, and HP’s policy is designed to
limit exposure from any particular institution. As part of its risk
management processes, HP performs periodic evaluations of the
relative credit standing of these financial institutions. HP has not
sustained material credit losses from instruments held at these
financial institutions. HP utilizes derivative contracts to protect
against the effects of foreign currency and interest rate exposures.
Such contracts involve the risk of non-performance by the
counterparty, which could result in a material loss. The likelihood
of which HP deems to be remote.
HP sells a significant portion of its products through third-party
distributors and resellers and, as a result, maintains individually
significant receivable balances with these parties. If the financial
condition or operations of these distributors’ and resellers’ aggregated
business deteriorates substantially, HP’s operating results could be
adversely affected. The ten largest distributor and reseller receivable
balances, which were concentrated primarily in North America and
2018 Form 10-K
I 65
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 1: Overview and Summary of Significant Accounting Policies (Continued)
Europe, collectively represented approximately 39% and 34% of gross
accounts receivable as of October 31, 2018 and 2017, respectively.
No single customer accounts for more than 10% of gross accounts
receivable as of October 31, 2018 or 2017. Credit risk with respect
to other accounts receivable is generally diversified due to HP’s large
customer base and their dispersion across many different industries
and geographic regions. HP performs ongoing credit evaluations of
the financial condition of its third-party distributors, resellers and
other customers and may require collateral, such as letters of credit
and bank guarantees, in certain circumstances.
HP utilizes outsourced manufacturers around the world to
manufacture HP-designed products. HP may purchase product
components from suppliers and sell those components to its
outsourced manufacturers thereby creating receivable balances
from the outsourced manufacturers. The three largest outsourced
manufacturer receivable balances collectively represented 72% and
70% of HP’s supplier receivables of $1,074 million and $951 million
as of October 31, 2018 and 2017, respectively. HP includes the
supplier receivables in Other current assets in the Consolidated
Balance Sheets on a gross basis. HP’s credit risk associated with these
receivables is mitigated wholly or in part, by the amount HP owes to
these outsourced manufacturers, as HP generally has the legal right
to offset its payables to the outsourced manufacturers against these
receivables. HP does not reflect the sale of these components in net
revenue and does not recognize any profit on these component sales
until the related products are sold by HP, at which time any profit is
recognized as a reduction to cost of revenue.
HP obtains a significant number of components from single
source suppliers due to technology, availability, price, quality or
other considerations. The loss of a single source supplier, the
deterioration of HP’s relationship with a single source supplier, or
any unilateral modification to the contractual terms under which
HP is supplied components by a single source supplier could
adversely affect HP’s net revenue and gross margins.
Upon completion of the Separation on November 1, 2015, HP
recorded net income tax indemnification receivables from Hewlett
Packard Enterprise for certain income tax liabilities that HP is
jointly and severally liable for, but for which it is indemnified by
Hewlett Packard Enterprise under the tax matters agreement
(“TMA”). The actual amount that Hewlett Packard Enterprise may
be obligated to pay HP could vary depending on the outcome of
certain unresolved tax matters, which may not be resolved for
several years. The net receivable as of October 31, 2018 and 2017
was $1.0 billion and $1.7 billion, respectively.
66 I
2018 Form 10-K
Inventory
HP values inventory at the lower of cost or market. Cost is
computed using standard cost which approximates actual cost on
a first-in, first-out basis. Adjustments, if required, to reduce the
cost of inventory to market (net realizable value) are made, for
estimated excess, obsolete or impaired balances.
Property, Plant and Equipment, Net
HP reflects property, plant and equipment at cost less accumulated
depreciation. HP capitalizes additions and improvements and
expenses maintenance and repairs as incurred. Depreciation
expense is recognized on a straight-line basis over the estimated
useful lives of the assets. Estimated useful lives are five to
40 years for buildings and improvements and three to 15 years
leasehold
for machinery and equipment. HP depreciates
improvements over the life of the lease or the asset, whichever is
shorter. HP depreciates equipment held for lease over the initial
term of the lease to the equipment’s estimated residual value. On
retirement or disposition, the asset cost and related accumulated
depreciation are removed from the Consolidated Balance Sheets
with any gain or loss recognized in the Consolidated Statements
of Earnings.
Internal Use Software and Cloud Computing Arrangements
HP capitalizes external costs and directly attributable internal
costs to acquire or create internal use software which are
incurred subsequent to the completion of the preliminary project
stage. These costs relate to activities such as software design,
configuration, coding, testing, and installation. Costs related to
post-implementation activities such as training and maintenance
are expensed as incurred. Once the software is substantially
complete and ready for its intended use, capitalized development
costs are amortized straight-line over the estimated useful life of
the software, not to exceed five years.
HP also enters
into certain cloud-based software hosting
arrangements that are accounted for as service contracts. The
most significant of these relates to its current implementation of a
cloud-based enterprise resource planning system. For internal-use
software obtained through a hosting arrangement that is in the
nature of a service contract, HP incurs certain implementation
costs such as integrating, configuring, and software customization,
which are consistent with costs incurred during the application
development stage for on-premise software. HP applies the same
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 1: Overview and Summary of Significant Accounting Policies (Continued)
guidance to determine costs that are eligible for capitalization. For
these arrangements, HP amortizes the capitalized development
costs straight-line over the fixed, non-cancellable term of the
associated hosting arrangement plus any reasonably certain
renewal periods. HP also applies the same impairment model
to both internal-use software and capitalized implementation
costs in a software hosting arrangement that is in the nature of a
service contract.
Business Combinations
HP includes the results of operations of the acquired business in
HP’s consolidated results prospectively from the acquisition date.
HP allocates the purchase consideration to the assets acquired,
liabilities assumed, and non-controlling interests in the acquired
entity generally based on their fair values at the acquisition
date. The excess of the fair value of purchase consideration over
the fair value of these assets acquired, liabilities assumed and
non-controlling interests in the acquired entity is recorded as
goodwill. The primary items that generate goodwill include the
value of the synergies between the acquired company and HP and
the value of the acquired assembled workforce, neither of which
qualify for recognition as an intangible asset. Acquisition-related
charges are recognized separately from the business combination
incurred. These charges primarily
and are expensed as
include, direct third-party professional and legal fees, and
integration-related costs.
Goodwill
HP reviews goodwill for impairment annually during its fourth
quarter and whenever events or changes in circumstances indicate
the carrying amount of goodwill may not be recoverable. HP can
elect to perform a qualitative assessment to test a reporting unit’s
goodwill for impairment or HP can directly perform the quantitative
impairment test. Based on the qualitative assessment, if HP
determines that the fair value of a reporting unit is more likely than
not (i.e., a likelihood of more than 50 percent) to be less than its
carrying amount, a quantitative impairment test will be performed.
In the quantitative
impairment test, HP compares the fair
value of each reporting unit to its carrying amount with the fair
values derived most significantly from the income approach,
and to a lesser extent, the market approach. Under the income
approach, HP estimates the fair value of a reporting unit based
on the present value of estimated future cash flows. HP bases
cash flow projections on management’s estimates of revenue
growth rates and operating margins, taking into consideration
industry and market conditions. HP bases the discount rate on
the weighted-average cost of capital adjusted for the relevant
risk associated with business-specific characteristics and the
uncertainty related to the reporting unit’s ability to execute on the
projected cash flows. Under the market approach, HP estimates
fair value based on market multiples of revenue and earnings
derived from comparable publicly-traded companies with similar
operating and investment characteristics as the reporting unit.
HP weights the fair value derived from the market approach
depending on the level of comparability of these publicly-traded
companies to the reporting unit. When market comparables are
not meaningful or not available, HP estimates the fair value of a
reporting unit using only the income approach.
In order to assess the reasonableness of the estimated fair value
of HP’s reporting units, HP compares the aggregate reporting unit
fair value to HP’s market capitalization on an overall basis and
calculates an implied control premium (the excess of the sum of
the reporting units’ fair value over HP’s market capitalization on
an overall basis). HP evaluates the control premium by comparing
it to observable control premiums from recent comparable
transactions. If the implied control premium is determined to not
be reasonable in light of these recent transactions, HP re-evaluates
its reporting unit fair values, which may result in an adjustment to
the discount rate and/or other assumptions. This re-evaluation
could result in a change to the estimated fair value for certain or
all reporting units.
If the fair value of a reporting unit exceeds the carrying amount
of the net assets assigned to that reporting unit, goodwill is
not impaired. If the fair value of the reporting unit is less than
its carrying amount, goodwill is impaired and the excess of the
reporting unit’s carrying value over the fair value is recognized as
an impairment loss.
Debt and Marketable Equity Securities Investments
HP determines the appropriate classification of its investments
at the time of purchase and re-evaluates the classifications at
each balance sheet date. Debt and marketable equity securities
are generally considered available-for-sale. All highly liquid
investments with maturities of three months or less at the date
of purchase are classified as cash equivalents. Marketable debt
securities with maturities of twelve months or less are classified
as short-term investments and marketable debt securities with
maturities greater than twelve months are classified based
2018 Form 10-K
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HP Inc. and Subsidiaries Note 1: Overview and Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements (Continued)
Note 1: Overview and Summary of Significant Accounting Policies (Continued)
on their availability for use in current operations. Marketable
equity securities, including mutual funds, are classified as either
short-term or long-term based on the nature of each security and
its availability for use in current operations.
Debt and marketable equity securities are reported at fair value
with unrealized gains and losses, net of applicable taxes, in
Accumulated other comprehensive loss
in the Consolidated
Balance Sheets. Realized gains and losses on available-for-sale
securities are calculated based on the specific identification
method and included in Interest and other, net in the Consolidated
Statements of Earnings. HP monitors its investment portfolio
for potential impairment on a quarterly basis. When the carrying
amount of an investment in debt securities exceeds its fair value
and the decline in value is determined to be other-than-temporary
(i.e., when HP does not intend to sell the debt securities and
it is not more likely than not that HP will be required to sell the
debt securities prior to anticipated recovery of its amortized cost
basis), HP records an impairment charge to Interest and other,
net in the amount of the credit loss and the remaining amount, if
any, is recorded in Accumulated other comprehensive loss in the
Consolidated Balance Sheets.
Note 2: Segment Information
HP is a leading global provider of personal computing and other
imaging and printing products, and related
access devices,
technologies, solutions and services. HP sells to
individual
consumers, SMBs and large enterprises, including customers in
the government, health and education sectors.
HP’s operations are organized into three reportable segments:
Personal Systems, Printing and Corporate Investments. HP’s
organizational structure is based on many factors that the
chief operating decision maker uses to evaluate, view and run
its business operations, which include, but are not limited to,
customer base and homogeneity of products and technology.
The segments are based on this organizational structure and
information reviewed by HP’s chief operating decision maker to
evaluate segment results. The chief operating decision maker
uses several metrics to evaluate the performance of the overall
business, including earnings from operations, and uses these
results to allocate resources to each of the segments.
Derivatives
HP uses derivative instruments, primarily forwards, swaps, and
at times, options, to hedge certain foreign currency and interest
rate exposures. HP also may use other derivative instruments not
designated as hedges, such as forwards used to hedge foreign
currency balance sheet exposures. HP does not use derivative
instruments for speculative purposes. See Note 10, “Financial
Instruments” for a full description of HP’s derivative instrument
activities and related accounting policies.
Loss Contingencies
HP is involved in various lawsuits, claims, investigations and
proceedings that arise in the ordinary course of business. HP
records a liability for contingencies when it believes it is both
probable that a liability has been incurred and the amount of the
loss can be reasonably estimated. See Note 14, “Litigation and
Contingencies” for a full description of HP’s loss contingencies and
related accounting policies.
A summary description of each segment is as follows:
Personal 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. HP groups 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. Described below are HP’s global
business capabilities within Personal Systems:
• 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. Additionally, HP offers 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.
68 I
2018 Form 10-K
HP Inc. and Subsidiaries Note 2: Segment Information
Notes to Consolidated Financial Statements (Continued)
Note 2: Segment Information (Continued)
• Consumer PCs are optimized for consumer usage, focusing
on gaming, consuming multi-media for entertainment,
personal
connected, sharing
information, getting things done for work including creating
content, staying informed and security.
life activities, staying
• 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).
Personal Systems groups its global business capabilities into the
following business units when reporting business performance:
• Notebooks consists of Consumer notebooks, Commercial
Commercial
notebooks, Mobile workstations
mobility devices;
and
• Desktops
includes Consumer desktops, Commercial
desktops, thin clients, and retail POS systems;
• Workstations consists of desktop, workstations and
accessories; and
• Other consists of Consumer and Commercial services as well
as other Personal Systems capabilities.
Printing provides Consumer and Commercial printer hardware,
Supplies, solutions and services, as well as scanning devices.
Printing is also focused on imaging solutions in the commercial
and industrial markets. Described below are HP’s global business
capabilities within Printing.
• Office Printing Solutions delivers HP’s office printers,
Supplies, services and solutions to SMBs and
large
enterprises. It also includes Samsung- branded and 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.
• 3D Printing delivers the HP Multi-Jet Fusion 3D Printing
Solution designed for prototyping and production of
functional parts and functioning on an open platform
facilitating the development of new 3D printing materials.
Printing groups its global business capabilities into the following
business units when reporting business performance:
• Commercial Hardware consists of Office Printing Solutions,
Graphics Solutions and 3D Printing, excluding supplies;
• Consumer Hardware
includes Home Printing Solutions,
excluding supplies; and
• Supplies comprises a set of highly innovative consumable
products, ranging from Ink and Laser 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 Investments includes HP Labs and certain business
incubation projects.
The accounting policies HP uses to derive segment results are
substantially the same as those used by HP in preparing these
financial statements. HP derives the results of the business
segments directly from its internal management reporting system.
HP does not allocate certain operating expenses, which it manages
at the corporate level, to its segments. These unallocated
amounts include certain corporate governance costs and market-
related retirement credits, stock-based compensation expense,
restructuring and other charges, acquisition-related charges,
amortization of
intangible assets and defined benefit plan
settlement charges.
Realignment
Effective 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
2018 Form 10-K
I 69
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 2: Segment Information (Continued)
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.
Segment Operating Results from Continuing Operations and the reconciliation to HP consolidated results were as follows:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,471
$52,057
$48,076
1
(1)
162
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,472
$52,056
$48,238
Earnings from continuing operations before taxes:
Personal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,411
3,323
(82)
$1,210
3,146
(87)
$1,150
3,114
(98)
Total segment earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,652
$4,269
$4,166
Corporate and unallocated costs and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit plan settlement charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total earnings from continuing operations before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
(268)
(132)
(123)
(80)
(7)
(1,051)
$3,013
(33)
(224)
(362)
(125)
(1)
(5)
(243)
(28)
(182)
(205)
(7)
(16)
(179)
212
$3,276
$3,761
(1) For the fiscal year 2016, the amount includes the recognition of revenue previously deferred in relation to sales to the pre-Separation finance entity.
70 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 2: Segment Information (Continued)
Segment Assets
HP allocates assets to its business segments based on the segments primarily benefiting from the assets. Total assets by segment and
the reconciliation of segment assets to HP consolidated assets were as follows:
AS OF OCTOBER 31
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
Major Customers
No single customer represented 10% or more of HP’s net revenue in any fiscal year presented.
Geographic Information
Net revenue by country is based upon the sales location that predominately represents the customer location. For each of the fiscal
years of 2018, 2017 and 2016, other than the United States, no country represented more than 10% of HP net revenue.
Net revenue by country in which HP operates was as follows:
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
FOR THE FISCAL YEARS ENDED OCTOBER 31
2018
2017
2016
IN MILLIONS
2018 Form 10-K
I 71
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 2: Segment Information (Continued)
Net property, plant and equipment by country in which HP operates was as follows
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AS OF OCTOBER 31
2018
2017
IN MILLIONS
$935
$866
371
892
372
640
Total property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,198
$1,878
No single country other than those represented above exceeds 10% or more of HP’s total net property, plant and equipment in any fiscal
year presented.
Net revenue by segment and business unit was as follows:
FOR THE FISCAL YEARS ENDED OCTOBER 31
2018
2017
2016
IN MILLIONS
Notebooks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,547
$19,782
$16,982
Desktops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,567
10,298
Workstations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Hardware. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,246
1,301
37,661
13,575
4,674
2,556
2,042
1,199
33,321
12,524
3,792
2,412
9,956
1,870
1,138
29,946
11,981
3,792
2,350
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,805
18,728
18,123
Corporate Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
8
Total segment net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,471
52,057
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
(1)
7
48,076
162
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,472
$52,056
$48,238
72 I
2018 Form 10-K
HP Inc. and Subsidiaries Note 3: Restructuring and Other Charges
Notes to Consolidated Financial Statements (Continued)
Note 3: Restructuring and Other Charges
Summary of Restructuring Plans
HP’s restructuring activities in fiscal years 2018, 2017 and 2016 summarized by plan were as follows:
FISCAL 2017 PLAN
FISCAL 2015 PLAN
FISCAL 2012 PLAN
SEVERANCE
INFRASTRUCTURE
AND OTHER(1)
SEVERANCE
AND PRP(2)
INFRASTRUCTURE
AND OTHER
SEVERANCE
INFRASTRUCTURE
AND OTHER
TOTAL
IN MILLIONS
Accrued balance as of October 31, 2015 . . . . .
$—
Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash and other adjustments . . . . . . . .
Accrued balance as of October 31, 2016 . . . . .
Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash and other adjustments . . . . . . . .
Accrued balance as of October 31, 2017 . . . . .
Charges (reversals) . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash and other adjustments . . . . . . . .
Accrued balance as of October 31, 2018 . . . . .
Total costs incurred to date as of
October 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . .
Reflected in Consolidated Balance Sheets:
Other accrued liabilities . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . .
24
—
—
24
117
(68)
3
76
112
(136)
(2)
$50
$253
$50
$—
$—
—
—
—
—
94
(23)
(52)
19
(13)
(35)
29
$—
$39
117
(122)
(13)
21
15
(36)
6
6
—
(1)
—
$5
$—
27
(4)
(19)
4
—
(2)
—
2
—
(2)
—
$—
$21
7
(30)
9
7
1
(5)
—
3
—
(1)
—
$2
$3
$63
— 175
(1)
(157)
— (23)
2
58
— 227
— (134)
— (43)
2
—
108
99
— (175)
—
$2
27
$59
$81
$171
$27
$1,075
$44 $1,651
$—
$—
$5
$—
$—
$—
$2
$—
$1
$1
$58
$1
(1)
Infrastructure and other includes adjustment of carrying amount of held for sale assets of $52 million in fiscal year 2017 and reversal of adjustments of
$29 million for the fiscal year 2018 associated with the consolidation of manufacturing into global hubs.
(2) PRP represents Phased Retirement Program.
Fiscal 2017 Plan
On October 10, 2016, HP’s Board of Directors approved a
restructuring plan (the “Fiscal 2017 Plan”) which HP expected
would be implemented through fiscal year 2019.
On May 26, 2018, HP’s Board of Directors approved amending
the Fiscal 2017 Plan. HP expects approximately 4,500 to 5,000
employees to exit by the end of fiscal year 2019. HP estimates
that it will incur aggregate pre-tax charges of approximately
$700 million relating to labor and non-labor actions. HP estimates
that approximately half of the expected cumulative pre-tax costs
will relate to severance and the remaining costs will relate to
infrastructure, non-labor actions and other charges.
Fiscal 2015 Plan
In connection with the Separation, on September 14, 2015, HP’s
Board of Directors approved a cost savings plan (the “Fiscal 2015
Plan”) which included labor and non-labor actions. The Fiscal 2015
Plan was considered substantially complete as of October 31, 2016
and HP does not expect any further activity associated with this plan.
2018 Form 10-K
I 73
HP Inc. and Subsidiaries Note 3: Restructuring and Other Charges
Notes to Consolidated Financial Statements (Continued)
Note 3: Restructuring and Other Charges (Continued)
Fiscal 2012 Plan
Other charges
HP initiated a restructuring plan in fiscal year 2012 (the “Fiscal
2012 Plan”), which included severance and infrastructure costs.
The Fiscal 2012 Plan was considered substantially complete as
of October 31, 2016 and HP does not expect any further activity
associated with this plan.
Other charges include non-recurring costs, including those as a
result of the Separation, and are distinct from ongoing operational
costs. These costs primarily relate to information technology costs
such as advisory, consulting and non-recurring labor costs. HP
incurred $33 million, $135 million and $30 million of other charges
in fiscal year 2018, 2017 and 2016, respectively.
Note 4: Retirement and Post-Retirement Benefit Plans
Defined Benefit Plans
HP sponsors a number of defined benefit pension plans worldwide.
The most significant defined benefit plan, the HP Inc. Pension Plan
(“Pension Plan”) is a frozen plan in the United States.
HP reduces the benefit payable to certain U.S. employees under
the Pension Plan for service before 1993, if any, by any amounts
due to the employee under HP’s frozen defined contribution
Deferred Profit-Sharing Plan (“DPSP”). At October 31, 2018 and
2017, the fair value of plan assets of the DPSP was $536 million
and $580 million, respectively. The DPSP obligations are equal to
the plan assets and are recognized as an offset to the Pension
Plan when HP calculates its defined benefit pension cost and
obligations. The Pension Plan and the DPSP both remain entirely
with HP post-Separation.
Post-Retirement Benefit Plans
HP sponsors retiree health and welfare benefit plans, of which
the most significant are in the United States. Under the HP Inc.
Retiree Welfare Benefits Plan, certain pre-2003 retirees and
grandfathered participants with continuous service to HP since
2002 are eligible to receive partially-subsidized medical coverage
based on years of service at retirement. HP’s share of the premium
cost is capped for all subsidized medical coverage provided under
the HP Inc. Retiree Welfare Benefits Plan. HP currently leverages
the employer group waiver plan process to provide HP Inc. Retiree
Welfare Benefits Plan post-65 prescription drug coverage under
Medicare Part D, thereby giving HP access to federal subsidies to
help pay for retiree benefits.
Certain employees not grandfathered for partially subsidized
medical coverage under the above programs, and employees
hired after 2002 but before August 2008, are eligible for credits
under the HP Inc. Retiree Welfare Benefits Plan. Credits offered
after September 2008 are provided in the form of matching
credits on employee contributions made to a voluntary employee
beneficiary association upon attaining age 45 or as part of early
retirement programs. On retirement, former employees may use
these credits for the reimbursement of certain eligible medical
expenses, including premiums required for coverage.
Defined Contribution Plans
HP offers various defined contribution plans for U.S. and non-U.S.
employees. Total defined contribution expense was $110 million in
fiscal year 2018, $103 million in fiscal year 2017 and $100 million
in fiscal year 2016.
U.S. employees are automatically enrolled
Inc.
401(k) Plan when they meet eligibility requirements, unless they
decline participation. The employer matching contributions in the
HP Inc. 401(k) Plan is 100% of an employee’s contributions, up to
a maximum of 4% of eligible compensation.
in the HP
74 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 4: Retirement and Post-Retirement Benefit Plans (Continued)
Pension and Post-Retirement Benefit Expense
The components of HP’s pension and post-retirement (credit) benefit cost recognized in the Consolidated Statements of Earnings were
as follows:
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
IN MILLIONS
POST-RETIREMENT
BENEFIT PLANS
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
452
$—
469
$— $55
543
Expected return on plan assets . . . . . . . . . . . . . . .
(717)
(677)
(732)
Amortization and deferrals:
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . .
Prior service credit . . . . . . . . . . . . . . . . . . . . . . . .
58
—
73
—
55
—
Net periodic (credit) benefit cost . . . . . . . . . . . . . .
(207)
(135)
(134)
Curtailment gain . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special termination benefits . . . . . . . . . . . . . . . . . .
—
2
—
—
3
—
Total (credit) benefit cost . . . . . . . . . . . . . . . . . . . .
$(205) $(132)
—
180
—
$46
$48
18
$47
20
$1
15
$1
18
$1
20
(31)
(36)
(23)
(26)
(33)
40
(3)
72
—
2
—
28
(3)
56
(1)
3
—
(17)
(18)
(42)
—
—
(17)
(19)
(43)
—
—
—
(12)
(17)
(41)
—
—
4
24
(39)
28
(3)
65
—
5
—
$70
$74
$58
$(42)
$(43)
$(37)
Lump sum program
During fiscal year 2016, HP offered certain terminated vested
participants of the Pension Plan the option of receiving their
pension benefit in a one-time voluntary lump sum during a
specific window. Approximately 16,000 plan participants elected
to receive their benefits and as a result the pension plan trust
paid $977 million in lump sum payments to these participants
in fiscal year 2016. As a result of the lump sum program, HP
recognized a settlement expense of approximately $177 million
in October 2016. The resulting re-measurement coincided with
annual year end plan re-measurement and no additional net
periodic pension cost was incurred in fiscal year 2016.
The weighted-average assumptions used to calculate the total periodic benefit (credit) cost were as follows:
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%
2018 Form 10-K
I 75
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 4: Retirement and Post-Retirement Benefit Plans (Continued)
Funded Status
The funded status of the defined benefit and post-retirement benefit plans was as follows:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(267)
1,223
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
—
33
—
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(575)
(583)
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11)
—
(11)
—
40
(2)
33
11
(10)
(18)
(19)
—
86
27
10
(14)
(6)
20
—
76
4
59
—
26
9
53
(102)
(127)
—
—
—
—
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
$—
452
$—
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(965)
—
$—
469
$—
247
40
$55
24
$11
21
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(575)
$(583)
$(10)
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(11)
—
—
(11)
—
—
(13)
(33)
—
$48
18
$10
(77)
$(14)
(3)
(6)
36
—
$1
15
$59
(39)
—
$1
18
$53
(17)
$(102)
$(127)
—
—
—
—
—
—
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
76 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 4: Retirement and Post-Retirement Benefit Plans (Continued)
The weighted-average assumptions used to calculate the projected benefit obligations for the fiscal years ended October 31, 2018 and
2017 were as follows:
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected increase in compensation levels . . . . . . . . . . . . . . . . . . . . . . . . .
4.5%
2.0%
3.8%
2.0%
2.0%
2.5%
2.0%
2.4%
4.4%
3.5%
—
—
The net amounts of non-current assets and current and non-current liabilities for HP’s defined benefit and post-retirement benefit plans
recognized on HP’s Consolidated Balance Sheet were as follows:
AS OF OCTOBER 31
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
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(32)
(33)
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,117)
(1,395)
(9)
(378)
(5)
(330)
(6)
(14)
$7
(7)
(112)
Funded status at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,149)
$(1,428)
$(377)
$(317)
$(9)
$(112)
The following table summarizes the pre-tax net actuarial loss (gain) and prior service benefit recognized in Accumulated other
comprehensive loss for the defined benefit and post-retirement benefit plans.
AS OF OCTOBER 31, 2018
U.S. DEFINED
BENEFIT PLANS
NON-U.S. DEFINED
BENEFIT PLANS
POST-RETIREMENT
BENEFIT PLANS
Net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,285
Prior service benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Total recognized in Accumulated other comprehensive loss (gain) . . . . . . .
$1,285
IN MILLIONS
$311
(17)
$294
$(180)
(74)
$(254)
2018 Form 10-K
I 77
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 4: Retirement and Post-Retirement Benefit Plans (Continued)
The following table summarizes HP’s pre-tax net actuarial loss (gain) and prior service benefit that are expected to be amortized from
Accumulated other comprehensive loss and recognized as components of net periodic benefit cost (credit) during the next fiscal year.
Net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expected to be recognized in net periodic benefit cost (credit) . . . . .
U.S. DEFINED
BENEFIT PLANS
NON-U.S. DEFINED
BENEFIT PLANS
POST-RETIREMENT
BENEFIT PLANS
$59
—
$59
IN MILLIONS
$32
(3)
$29
$(31)
(13)
$(44)
Defined benefit plans with projected benefit obligations exceeding the fair value of plan assets were as follows:
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
Defined benefit plans with accumulated benefit obligations exceeding the fair value of plan assets were as follows:
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
2017
2018
2017
U.S. DEFINED
BENEFIT PLANS
NON-U.S. DEFINED
BENEFIT PLANS
IN MILLIONS
78 I
2018 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 4: Retirement and Post-Retirement Benefit Plans (Continued)
Fair Value of Plan Assets
The table below sets forth the fair value of plan assets by asset category within the fair value hierarchy as of October 31, 2018. Refer to
Note 9, “Fair Value” for details on fair value hierarchy. Per ASU 2015-07, certain investments that are measured at fair value using the
Net Asset Value (NAV) per share as a practical expedient have not been categorized in the fair value hierarchy. The fair value amounts
presented in this table provide a reconciliation of the fair value hierarchy to the total value of plan assets.
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
AS OF OCTOBER 31, 2018
IN MILLIONS
Asset Category:
Equity securities(1) . . . . . . . . . . . . . . . . . $794
Debt securities(2)
$48
$— $842
$114
$6
$— $120
$1
$— $— $1
Corporate. . . . . . . . . . . . . . . . . . . . . .
— 4,941
— 4,941
— 110
— 110 —
Government . . . . . . . . . . . . . . . . . . .
— 1,637
— 1,637
Real Estate Funds . . . . . . . . . . . . . . . . .
Insurance Contracts . . . . . . . . . . . . . . .
Common Collective Trusts
and 103-12s(3) . . . . . . . . . . . . . . . . . . . .
Investment Funds(4) . . . . . . . . . . . . . . .
Cash and Cash Equivalents(5) . . . . . . .
Other(6) . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
253
5
—
139
—
—
—
—
—
—
—
—
253
144
(108)
(233)
— (341)
—
3
—
—
28
60
50
7
— 28 —
— 63 —
— 50 —
—
7 —
— 279
— 279
55
19
2
—
13
— 19 —
— 15
(13)
40
54
—
—
—
—
4
—
— 40
— 54
— —
— —
— —
— 55
—
4
— (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) . . . . . . . . . .
Common Contractual Funds(8) . . . . . .
Common Collective Trusts and
103-12 Investment Entities(3) . . . . . . .
Investment Funds(4) . . . . . . . . . . . . . . .
Investments at Fair Value . . . . . . . . . .
1,319
—
683
540
$10,018
14
110
—
35
$850
220
—
21
6
$388
2018 Form 10-K
I 79
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 4: Retirement and Post-Retirement Benefit Plans (Continued)
The table below sets forth the fair value of plan assets by asset category within the fair value hierarchy as of October 31, 2017.
U.S. DEFINED BENEFIT PLANS
NON-U.S. DEFINED BENEFIT PLANS
POST-RETIREMENT BENEFIT PLANS
LEVEL 1
LEVEL 2 LEVEL 3
TOTAL
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
AS OF OCTOBER 31, 2017
IN MILLIONS
Asset Category:
Equity securities(1) . . . . . . . $3,174
Debt securities(2)
$40
$— $3,214
$124
$6
$— $130
$—
$— $— $—
Corporate. . . . . . . . . . . .
— 3,379
— 3,379
— 119
— 119
Government . . . . . . . . .
— 2,513
— 2,513
Real Estate Funds . . . . . . .
Insurance Contracts . . . . .
Common Collective
Trusts and 103-12
Investments Entities(3) . . .
Investment Funds(4) . . . . .
Cash and Cash
Equivalents(5) . . . . . . . . . . .
Other(6) . . . . . . . . . . . . . . . . .
—
—
—
89
8
—
—
—
—
64
(172)
(561)
Net plan assets subject
to leveling . . . . . . . . . . . . . . $3,099 $5,435
Investments using NAV
as a Practical Expedient:
Alternative
Investments(7) . . . . . . . . . . .
Common Contractual
Funds(8) . . . . . . . . . . . . . . . .
Common Collective
Trusts and 103-12
Investment Entities(3) . . . .
Investment Funds(4) . . . . .
Investments at
Fair Value . . . . . . . . . . . . . .
—
2
—
32
51
7
—
—
—
32
53
7
—
7
—
7
— 284
— 284
—
—
—
—
—
54
21
2
—
9
—
—
21
12
—
(12)
25
41
—
—
—
—
2
—
— 25
— 41
— —
— —
— —
— 54
—
2
— (12)
—
—
—
—
—
—
—
—
—
89
72
(733)
$— $8,534
$149
$515
$1 $665
$42
$68
$— $110
1,444
13
732
115
$10,838
13
102
—
35
$815
198
—
39
4
$351
(1)
Investments in publicly-traded equity securities are valued using the closing price on the measurement date as reported on the stock exchange on which the
individual securities are traded.
(2) The fair value of corporate, government and asset-backed debt securities is based on observable inputs of comparable market transactions. Also included in
this category is debt issued by national, state and local governments and agencies.
(3) Department of Labor 103-12 IE (Investment Entity) designation is for plan assets held by two or more unrelated employee benefit plans which includes
limited partnerships and venture capital partnerships. Certain common collective trusts and interests in 103-12 entities are valued using NAV as a
practical expedient.
80 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 4: Retirement and Post-Retirement Benefit Plans (Continued)
(4)
(5)
Includes publicly traded funds of investment companies that are registered with the SEC, funds that are not publicly traded and a non-U.S. fund-of-fund
arrangement. The non-U.S. fund-of-fund arrangement is a custom portfolio valued at NAV consisting primarily of fixed income and common contractual funds.
Includes cash and cash equivalents such as short-term marketable securities. Cash and cash equivalents include money market funds, which are valued
based on NAV. Other assets were classified in the fair value hierarchy based on the lowest level input (e.g., quoted prices and observable inputs) that is
significant to the fair value measure in its entirety.
(6)
Includes primarily reverse repurchase agreements, unsettled transactions, and derivative instruments.
(7) Alternative Investments primarily include private equities and hedge funds. The valuation of alternative investments, such as limited partnerships and joint
ventures, may require significant management judgment. For alternative investments, valuation is based on NAV as reported by the asset manager or
investment company and adjusted for cash flows, if necessary. In making such an assessment, a variety of factors are reviewed by management, including
but not limited to the timeliness of NAV as reported by the asset manager and changes in general economic and market conditions subsequent to the last
NAV reported by the asset manager.
• Private equities include limited partnerships such as equity, buyout, venture capital, real estate and other similar funds that invest in the United States
and internationally where foreign currencies are hedged.
• Hedge funds include limited partnerships that invest both long and short primarily in common stocks and credit, relative value, event-driven equity,
distressed debt and macro strategies. Management of the hedge funds has the ability to shift investments from value to growth strategies, from small
to large capitalization stocks and bonds, and from a net long position to a net short position.
(8) The Common Contractual Fund is an investment arrangement in which institutional investors pool their assets. Units may be acquired in different sub-funds
focused on equities, fixed income, alternative investments and emerging markets. Each sub-fund is invested in accordance with the fund’s investment
objective and units are issued in relation to each sub-fund. While the sub-funds are not publicly traded, the custodian strikes a NAV either once or twice a
month, depending on the sub-fund. These assets are valued using NAV as a practical expedient.
Plan Asset Allocations
Refer to the fair value hierarchy table above for actual assets allocations across the benefit plans. The weighted-average target asset
allocations across the benefit plans represented in the fair value tables above were as follows:
ASSET CATEGORY
2018 TARGET ALLOCATION
U.S. DEFINED
BENEFIT PLANS
NON-U.S. DEFINED
BENEFIT PLANS
POST-RETIREMENT
BENEFIT PLANS
Equity-related investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30.3%
69.7%
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
41.6%
36.4%
6.1%
3.1%
12.8%
100.0%
64.1%
21.5%
—%
14.4%
—
100.0%
Investment Policy
investment strategy
HP’s
is to seek a competitive rate of
return relative to an appropriate level of risk depending on the
funded status of each plan and the timing of expected benefit
payments. The majority of the plans’ investment managers
employ active investment management strategies with the goal
of outperforming the broad markets in which they invest. Risk
management practices include diversification across asset classes
and investment styles and periodic rebalancing toward asset
allocation targets. A number of the plans’ investment managers
are authorized to utilize derivatives for investment or liability
exposures, and HP may utilize derivatives to affect asset allocation
changes or to hedge certain investment or liability exposures.
The target asset allocation selected for each U.S. plan reflects
a risk/return profile HP believes is appropriate relative to each
plan’s liability structure and return goals. HP conducts periodic
2018 Form 10-K
I 81
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 4: Retirement and Post-Retirement Benefit Plans (Continued)
asset-liability studies for U.S. plans to model various potential
asset allocations in comparison to each plan’s forecasted liabilities
and liquidity needs and to develop a policy glide path which
adjusts the asset allocation with funded status. A 2018 asset-
liability study reconfirmed the current policy glide path for the
U.S. pension plan. Due to higher interest rates and capital market
performance, the U.S. pension plan funded ratio increased and
therefore, the investment portfolio risk was reduced by increasing
fixed income holdings in accordance with the policy glide path.
HP invests a portion of the U.S. defined benefit plan assets and
post-retirement benefit plan assets in private market securities
such as private equity funds to provide diversification and a higher
expected return on assets.
Outside the United States, asset allocation decisions are typically
made by an independent board of trustees for the specific plan.
As in the United States, investment objectives are designed to
generate returns that will enable the plan to meet its future
obligations. In some countries, local regulations may restrict asset
allocations, typically leading to a higher percentage of investment
in fixed income securities than would otherwise be deployed. HP
reviews the investment strategy and provides a recommended list
of investment managers for each country plan, with final decisions
on asset allocation and investment managers made by the board
of trustees for the specific plan.
Estimated Future Benefits Payments
Basis for Expected Long-Term Rate of Return on Plan Assets
The expected long-term rate of return on plan assets reflects
the expected returns for each major asset class in which the
plan invests and the weight of each asset class in the target mix.
Expected asset returns reflect the current yield on government
bonds, risk premiums for each asset class and expected real
returns which considers each country’s specific inflation outlook.
Because HP’s investment policy is to employ primarily active
investment managers who seek to outperform the broader
market, the expected returns are adjusted to reflect the expected
additional returns net of fees.
Future Contributions and Funding Policy
In fiscal year 2019, HP expects to contribute approximately
$46 million to its non-U.S. pension plans, $32 million to cover
benefit payments to U.S. non-qualified plan participants and
$6 million to cover benefit claims for HP’s post-retirement benefit
plans. HP’s policy is to fund its pension plans so that it makes at
least the minimum contribution required by local government,
funding and taxing authorities.
As of October 31, 2018, HP estimates that the future benefits payments for the retirement and post-retirement plans are as follows:
FISCAL YEAR
U.S. DEFINED
BENEFIT PLANS
NON-U.S. DEFINED
BENEFIT PLANS
POST-RETIREMENT
BENEFIT PLANS
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Next five fiscal years to October 31, 2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$687
644
664
687
719
3,758
IN MILLIONS
$42
36
42
40
43
298
$44
40
37
34
32
155
HP’s stock-based compensation plans include incentive compensation plans and an employee stock purchase plan (“ESPP”).
82 I
2018 Form 10-K
HP Inc. and Subsidiaries Note 5: Stock-Based Compensation
Notes to Consolidated Financial Statements (Continued)
Note 5: Stock-Based Compensation
Stock-Based Compensation Expense and Related Income Tax Benefits for Operations
Stock-based compensation expense and the resulting tax benefits for operations were as follows:
Stock-based compensation expense � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Income tax benefit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Stock-based compensation expense, net of tax � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
FOR THE FISCAL YEARS
ENDED OCTOBER 31
2018
2017
2016
IN MILLIONS
$268
(59)
$209
$224
(71)
$153
$182
(63)
$119
In connection with the Separation and in accordance with the
employee matters agreement, HP has made certain adjustments
to the exercise price and number of stock-based compensation
awards with the intention of preserving the intrinsic value of the
awards prior to the Separation� Exercisable and non-exercisable
stock options have been converted to similar awards of the entity
where the employee is working post-separation� Restricted stock
unit awards and performance-contingent awards have been
adjusted to provide holders with restricted stock units awards and
performance-contingent awards in the company that employs
such employee following the Separation� The pre-tax stock-based
compensation expense due to the adjustments was $2 million in
fiscal year 2016� All outstanding restricted stock units and stock
options for employees transferred to Hewlett Packard Enterprise
were canceled in connection with the Separation�
Cash received from option exercises and purchases under the HP
Inc� 2011 Employee Stock Purchase Plan (the “2011 ESPP”) was
$158 million in fiscal year 2018, $118 million in fiscal year 2017
and $48 million in fiscal year 2016� The benefit realized for the
tax deduction from option exercises in fiscal years 2018, 2017 and
2016 was $23 million, $15 million and $9 million, respectively�
Stock-Based Incentive Compensation Plans
HP’s stock-based incentive compensation plans include equity
plans adopted in 2004 and 2000, as amended and restated
(“principal equity plans”), as well as various equity plans assumed
through acquisitions under which stock-based awards are
outstanding� Stock-based awards granted under the principal
equity plans
include restricted stock awards, stock options
and performance-based awards� Employees meeting certain
employment qualifications are eligible to receive stock-based
awards� The aggregate number of shares of HP’s stock authorized
for issuance under the 2004 principal equity plan is 593�1 million�
No further grants may be made under the 2000 principal equity
plan and all outstanding awards under this plan will remain
outstanding according to the terms of the plan�
Restricted stock awards are non-vested stock awards that
may include grants of restricted stock or restricted stock units�
Restricted stock awards and cash-settled awards are generally
subject to forfeiture if employment terminates prior to the lapse
of the restrictions� Such awards generally vest one to three years
from the date of grant� During the vesting period, ownership of
the restricted stock cannot be transferred� Restricted stock has the
same dividend and voting rights as common stock and is considered
to be issued and outstanding upon grant� The dividends paid on
restricted stock are non-forfeitable� Restricted stock units do not
have the voting rights of common stock, and the shares underlying
restricted stock units are not considered issued and outstanding
upon grant� However, shares underlying restricted stock units are
included in the calculation of diluted net EPS� Restricted stock units
have forfeitable dividend equivalent rights equal to the dividend
paid on common stock� HP expenses the fair value of restricted
stock awards ratably over the period during which the restrictions
lapse� The majority of restricted stock units issued by HP contain
only service vesting conditions� However, starting in fiscal year
2014, HP began granting performance-adjusted restricted stock
units that vest only on the satisfaction of both service and the
achievement of certain performance goals including market
conditions prior to the expiration of the awards�
Stock options granted under the principal equity plans are generally
non-qualified stock options, but the principal equity plans permit
some options granted to qualify as incentive stock options under
2018 Form 10-K
I 83
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 5: Stock-Based Compensation (Continued)
the U�S� Internal Revenue Code� Stock options generally vest over
three to four years from the date of grant� The exercise price of a
stock option is equal to the closing price of HP’s stock on the option
grant date� The majority of stock options issued by HP contain only
service vesting conditions� However, starting in fiscal year 2011
through fiscal year 2016, HP granted performance-contingent
stock options that vest only on the satisfaction of both service and
market conditions prior to the expiration of the awards�
Restricted Stock Units
HP uses the closing stock price on the grant date to estimate the
fair value of service-based restricted stock units� HP estimates the
fair value of restricted stock units subject to performance-adjusted
vesting conditions using a combination of the closing stock price on
the grant date and the Monte Carlo simulation model� The weighted-
average fair value and the assumptions used to measure the fair value
of restricted stock units subject to performance-adjusted vesting
conditions in the Monte Carlo simulation model were as follows:
Weighted-average fair value(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Expected volatility(2) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Risk-free interest rate(3) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Expected performance period in years(4) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
FOR THE FISCAL YEARS ENDED
OCTOBER 31
2018
$24
2017
$20
2016
$13
29�5%
30�5%
32�5%
1�9%
2�9
1�4%
2�9
1�2%
2�9
(1) The weighted-average fair value was based on performance-adjusted restricted stock units granted during the period�
(2) The expected volatility was estimated using the historical volatility derived from HP’s common stock�
(3) The risk-free interest rate was estimated based on the yield on U�S� Treasury zero-coupon issues�
(4) The expected performance period was estimated based on the length of the remaining performance period from the grant date�
A summary of restricted stock units activity is as follows:
2018
AS OF OCTOBER 31
2017
2016
WEIGHTED-
AVERAGE
GRANT DATE
FAIR VALUE
PER SHARE
SHARES
IN THOUSANDS
Outstanding at beginning of year � � � � � �
Granted � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
31,822
16,364
Vested � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(15,339)
Awards canceled due to Separation � � � �
Forfeited � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Outstanding at end of year � � � � � � � � � � � �
—
(2,063)
30,784
$14
$21
$15
$—
$17
$18
WEIGHTED-
AVERAGE
GRANT DATE
FAIR VALUE
PER SHARE
$13
$16
$14
$—
$14
$14
SHARES
IN THOUSANDS
29,717
29,286
(4,161)
(23,926)
(2,206)
28,710
SHARES
IN THOUSANDS
28,710
15,858
(11,915)
—
(831)
31,822
WEIGHTED-
AVERAGE
GRANT DATE
FAIR VALUE
PER SHARE
$32
$10
$13
$32
$14
$13
The total grant date fair value of restricted stock units vested in
fiscal years 2018, 2017 and 2016 was $224 million, $162 million
and $54 million, respectively� As of October 31, 2018, total
unrecognized pre-tax stock-based compensation expense
related to non-vested restricted stock units for operations
was $238 million, which is expected to be recognized over the
remaining weighted-average vesting period of 1�4 years�
84 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 5: Stock-Based Compensation (Continued)
Stock Options
HP utilizes the Black-Scholes-Merton option pricing formula to estimate the fair value of stock options subject to service-based vesting
conditions� HP estimates the fair value of stock options subject to performance-contingent vesting conditions using a combination of a
Monte Carlo simulation model and a lattice model as these awards contain market conditions� The weighted-average fair value and the
assumptions used to measure fair value were as follows:
Weighted-average fair value(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Expected volatility(2) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Risk-free interest rate(3) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Expected dividend yield(4) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Expected term in years(5) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(1) The weighted-average fair value was based on stock options granted during the period�
FOR THE FISCAL YEARS ENDED
OCTOBER 31
2018
$5
2017
$4
2016
$4
29�4%
28�0%
36�2%
2�5%
2�6%
5�0
1�9%
2�8%
5�5
1�8%
3�5%
6�0
(2) For all awards granted in fiscal year 2018, expected volatility was estimated based on a blended volatility (50% historical volatility and 50% implied volatility
from traded options on HP’s common stock)� For the awards granted in fiscal year 2017 and 2016, expected volatility was estimated using the leverage-
adjusted average of the term-matching volatilities of peer companies due to the lack of volume of forward traded options, which precluded the use of
implied volatility�
(3) The risk-free interest rate was estimated based on the yield on U�S� Treasury zero-coupon issues�
(4) The expected dividend yield represents a constant dividend yield applied for the duration of the expected term of the award�
(5) For awards subject to service-based vesting, due to the lack of historical exercise and post-vesting termination patterns of the post-Separation employee
base, the expected term was estimated using a simplified method; and for performance-contingent awards, the expected term represents an output from
the lattice model�
2018 Form 10-K
I 85
HP Inc. and Subsidiaries Outstanding
at beginning
of year � � � � � � � �
Granted and
assumed
through
acquisition � � � � �
Notes to Consolidated Financial Statements (Continued)
Note 5: Stock-Based Compensation (Continued)
A summary of stock options activity is as follows:
2018
WEIGHTED-
AVERAGE
EXERCISE
PRICE
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
TERM
AGGREGATE
INTRINSIC
VALUE
SHARES
AS OF OCTOBER 31
2017
WEIGHTED-
AVERAGE
EXERCISE
PRICE
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
TERM
2016
WEIGHTED-
AVERAGE
EXERCISE
PRICE
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
TERM
AGGREGATE
INTRINSIC
VALUE
SHARES
IN YEARS
IN
MILLIONS
IN
THOUSANDS
IN YEARS
IN
MILLIONS
IN
THOUSANDS
IN YEARS
AGGREGATE
INTRINSIC
VALUE
IN
MILLIONS
SHARES
IN
THOUSANDS
18,067
$13
28,218
$12
36,278
$26
Exercised � � � � � �
(10,644)
54
$21
$13
104
(9,407)
$19
$11
25,425
(4,714)
$6
$8
Awards
canceled due
to Separation � �
Forfeited/
canceled/
expired � � � � � � � �
Outstanding at
end of year � � � �
Vested
and expected
to vest � � � � � � � �
Exercisable � � � �
—
$—
—
$—
(26,252)
$26
(391)
7,086
7,084
4,707
$16
$14
$14
$14
(848)
4�2
$73
18,067
4�2
3�7
$73
$49
17,692
10,898
$17
$13
$13
$12
(2,519)
4�2
$152
28,218
4�1
3�1
$149
26,850
$102
15,418
$17
$12
$12
$11
5�0
$73
4�9
3�7
$71
$62
The aggregate intrinsic value in the table above represents the
total pre-tax intrinsic value that option holders would have realized
had all option holders exercised their options on the last trading
day of fiscal years 2018, 2017 and 2016� The aggregate intrinsic
value is the difference between HP’s closing stock price on the
last trading day of the fiscal year and the exercise price, multiplied
by the number of in-the-money options� The total intrinsic value
of options exercised in fiscal years 2018, 2017 and 2016 was
$109 million, $77 million and $26 million, respectively� The total
grant date fair value of options vested in fiscal years 2018, 2017
and 2016 was $12 million, $19 million and $11 million, respectively�
86 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 5: Stock-Based Compensation (Continued)
The following table summarizes significant ranges of outstanding and exercisable stock options:
RANGE OF EXERCISE PRICES
$0-$9�99 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$10-$19�99 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$20-$29�99 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
AS OF OCTOBER 31, 2018
OPTIONS OUTSTANDING
OPTIONS EXERCISABLE
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL TERM
WEIGHTED-
AVERAGE
EXERCISE
PRICE
SHARES
OUTSTANDING
IN THOUSANDS
IN YEARS
SHARES
EXERCISABLE
IN THOUSANDS
WEIGHTED-
AVERAGE
EXERCISE
PRICE
451
6,522
113
7,086
2�3
4�3
5�3
$7
$14
$23
451
4,143
113
4,707
$7
$14
$23
As of October 31, 2018, total unrecognized pre-tax stock-based compensation expense related to stock options for operations was
$0�1 million, which is expected to be recognized over a weighted-average vesting period of less than 1 month�
Employee Stock Purchase Plan
HP sponsors the 2011 ESPP, pursuant to which eligible employees may contribute up to 10% of base compensation, subject to certain
income limits, to purchase shares of HP’s common stock�
Pursuant to the terms of the 2011 ESPP, employees purchase stock under the 2011 ESPP at a price equal to 95% of HP’s closing stock
price on the purchase date� No stock-based compensation expense was recorded in connection with those purchases because the
criteria of a non-compensatory plan were met� The aggregate number of shares of HP’s stock authorized for issuance under the 2011
ESPP is 100 million�
Shares Reserved
Shares available for future grant and shares reserved for future issuance under the stock-based incentive compensation plans and the
2011 ESPP were as follows:
AS OF OCTOBER 31
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
Provision for Taxes
On December 22, 2017, the TCJA was signed by the President
of the United States and enacted into law� The law includes
significant changes to the U�S� corporate income tax system,
including a federal corporate rate reduction from 35% to 21%,
limitations on the deductibility of interest expense and executive
compensation, and the transition of U�S� international taxation
from a worldwide tax system to a territorial tax system� ASC 740,
Accounting for Income Taxes, requires companies to recognize the
effect of tax law changes in the period of enactment even though
the effective date for most provisions is for tax years beginning
after December 31, 2017 (the “Effective Date”), or in the case of
certain other provisions, January 1, 2018�
2018 Form 10-K
I 87
HP Inc. and Subsidiaries Note 6: Taxes on Earnings
Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings
When a U�S� federal tax rate change occurs during a fiscal year,
taxpayers are required to compute a weighted daily average rate
for the fiscal year of enactment� As a result of the TCJA, HP has
calculated a blended U�S� federal statutory corporate income
tax rate of 23% for the fiscal year ending October 31, 2018� The
blended U�S� federal statutory corporate income tax rate of 23%
is the weighted daily average rate between the pre-enactment
U�S� federal statutory tax rate of 35% applicable to HP’s 2018
fiscal year prior to the Effective Date and the post-enactment U�S�
federal statutory tax rate of 21% applicable to the 2018 fiscal year
thereafter� HP expects the U�S� federal statutory rate to be 21% for
fiscal years beginning after October 31, 2018�
Given the significance of the legislation, the SEC staff issued Staff
Accounting Bulletin No� 118 (SAB 118), which allows registrants
to record provisional amounts during a one year “measurement
period”� During the measurement period, impacts of the TCJA are
expected to be recorded at the time a reasonable estimate for all
or a portion of the effects can be made, and provisional amounts
can be recognized and adjusted as information becomes available,
prepared or analyzed�
SAB 118 summarizes a three-step process to be applied at each
reporting period to account for and qualitatively disclose: (1) the
effects of the change in tax law for which accounting is complete;
(2) provisional amounts (or adjustments to provisional amounts)
for the effects of the tax law where accounting is not complete,
but that a reasonable estimate has been determined; and (3) a
reasonable estimate cannot yet be made and therefore taxes are
reflected in accordance with law prior to the enactment of the TCJA�
As of October 31, 2018, HP has not completed its accounting for
the tax effects of the TCJA, however, in certain cases HP has made
a reasonable estimate of the effects for remeasurement on its
existing deferred tax balances and the one-time transition tax,
updated for recently proposed treasury regulations� With respect
to the Global Intangible Low Taxed Income (“Global Minimum Tax”)
provisions, further discussed below, HP has not been able to make
a reasonable estimate and continues to account for this item based
on its existing accounting under ASC 740, Income Taxes, and the
provisions of the tax laws that were in effect immediately prior to
enactment� The impact of the TCJA may differ materially from this
estimate due to changes in interpretations and assumptions HP
has made, additional guidance that may be issued and actions HP
may take as a result of the TCJA� The impacts of HP’s estimates are
described further below�
88 I
2018 Form 10-K
While HP has not yet completed its analysis to the impact on
its deferred tax balances, as of October 31, 2018 HP recorded
provisional income tax expense of $1�2 billion related to the
remeasurement of its deferred tax assets and liabilities at the
new statutory rate and $317 million related to remeasurement of
its U�S� deferred tax assets that are expected to be realized at a
lower rate by recording a valuation allowance� HP is still analyzing
certain aspects of the TCJA and refining its calculations, which
could potentially affect the measurement of these balances or
potentially give rise to new deferred tax amounts�
The TCJA also includes a one-time mandatory deemed repatriation
transition tax on the net accumulated post-1986 earnings and
profits (“E&P”) of a U�S� taxpayer’s foreign subsidiaries� HP has
computed a provisional deemed repatriation tax of approximately
$3�3 billion, of which more than half is expected to be offset
with tax attributes, reducing HP’s cash outlay� The U�S� Treasury
Department recently issued proposed regulations related to this
one-time mandatory deemed repatriation� While HP has not yet
completed its analysis of these proposed regulations, it believes
there will be no material changes to its provisional amounts
as reported for the period ending October 31, 2018� Once HP
completes its evaluation of the potential impact of the proposed
regulations, HP will finalize its provisional amount next quarter
when the measurement period is closed� Companies may elect to
pay this tax over 8 years, and HP intends to make this election�
HP has not yet completed its calculation of the total post-1986
E&P for its foreign subsidiaries� Further, the transition tax is based,
in part, on the amount of those earnings held in cash and other
specified assets� This amount may change when HP finalizes
the calculation of post-1986 E&P previously deferred from U�S�
federal taxation and finalizes the amounts held in cash or other
specified assets� No additional income taxes have been provided
for any remaining undistributed foreign earnings not subject to the
transition tax, or any additional outside basis difference inherent
in these entities, as these amounts continue to be indefinitely
reinvested in foreign operations�
As a result of the deemed repatriation tax noted above, which
is based on HP’s total post-1986 deferred foreign income, HP
redetermined $5�6 billion of its U�S� deferred tax liability on those
unremitted earnings with a provisional tax payable of $3�3 billion,
as noted above� This resulted in a net benefit� This tax benefit is
provisional as HP is still analyzing certain aspects of the legislation
and refining calculations, which could potentially materially affect
the measurement of these amounts�
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
HP has not yet completed the accounting for the realizability of
deferred tax assets� To calculate the realizability of deferred tax
assets, HP has estimated when the existing deferred taxes will be
settled or realized� The realizability of deferred tax assets included
in the financial statements will be subject to further revisions
if the current estimates are different from the actual future
operating results�
In January 2018, the FASB released guidance on the accounting
for tax on the Global Minimum Tax provisions of TCJA� The Global
Minimum Tax provisions impose a tax on foreign income in excess
of a deemed return on tangible assets of foreign corporations�
The guidance indicates that either accounting for deferred taxes
related to Global Minimum Tax inclusions or to treat any taxes on
Global Minimum Tax inclusions as period cost are both acceptable
methods subject to an accounting policy election� HP is still
evaluating whether to make a policy election to treat the Global
Minimum Tax as a period cost or to provide U�S� deferred taxes
on foreign temporary differences that are expected to generate
Global Minimum Tax income when they reverse in future years�
There could be additional changes to HP’s deferred taxes once it
completes its evaluations�
The domestic and foreign components of earnings from continuing operations before taxes were as follows:
U�S� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Non-U�S� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
The (benefit from) provision for taxes on earnings from continuing operations was as follows:
FOR THE FISCAL YEARS ENDED OCTOBER 31
2018
2017
2016
$242
2,771
$3,013
IN MILLIONS
$(14)
3,290
$3,276
$468
3,293
$3,761
FOR THE FISCAL YEARS ENDED OCTOBER 31
2018
2017
2016
IN MILLIONS
U�S� federal taxes:
Current � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$751
(3,132)
$189
197
Non-U�S� taxes:
Current � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
State taxes:
Current � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
528
(563)
61
41
302
4
20
38
$439
470
288
(123)
(35)
56
$(2,314)
$750
$1,095
As a result of U�S� tax reform, HP revised its estimated annual
effective tax rate to reflect the change in the U�S� federal statutory
tax rate from 35% to 21%� Since HP has a fiscal year ending
October 31, it is subject to transitional tax rate rules� Therefore,
a blended rate of 23% was computed as effective for the current
fiscal year�
2018 Form 10-K
I 89
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
The differences between the U�S� federal statutory income tax rate and HP’s effective tax rate were as follows:
FOR THE FISCAL YEARS ENDED OCTOBER 31
U�S� federal statutory income tax rate from continuing operations � � � � � � � � � � � � � � � � � � � � �
State income taxes from continuing operations, net of federal tax benefit � � � � � � � � � � � � � �
Lower rates in other jurisdictions, net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
U�S� Tax Reform impacts � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Research and development (“R&D”) credit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Valuation allowances � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2018
23�3%
0�5%
(10�9)%
(35�8)%
(0�7)%
(9�3)%
Uncertain tax positions and audit settlements � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(50�3)%
Indemnification related items � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other, net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
5�2%
1�2%
(76�8)%
2017
35�0%
1�4%
(13�2)%
—%
(0�5)%
(1�9)%
0�4%
(0�3)%
2�0%
22�9%
2016
35�0%
1�1%
(9�3)%
—%
(2�4)%
(1�2)%
11�7%
(4�1)%
(1�7)%
29�1%
The jurisdictions with favorable tax rates that have the most
significant effective tax rate impact in the periods presented
include Puerto Rico, Singapore, China, Malaysia and Ireland� 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� To the extent that HP
reinvest certain earnings of these jurisdictions indefinitely outside
the United States, U�S� taxes have not been provided on those
indefinitely reinvested earnings�
In fiscal year 2018, HP recorded $2�8 billion of net income tax
benefits related to discrete items in the provision for taxes which
include impacts of the TCJA� As noted above HP has not yet
completed its analysis of the full impact of the TCJA� However,
as of October 31, 2018, HP recorded a provisional tax benefit of
$760 million related to $5�6 billion net benefit for the decrease in
its 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 its deferred assets and liabilities to the
new U�S� statutory tax rate and a $317 million valuation allowance
on net expense related to deferred tax assets that are expected to
be realized at a lower rate� HP also recorded 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, HP recorded excess tax
benefits of $42 million on stock options, restricted stock units and
performance-adjusted restricted stock units�
In fiscal year 2017, HP recorded $72 million of net income tax
benefits related to discrete items in the provision for taxes� These
amounts primarily include tax benefits of $84 million related
to restructuring and other charges, $12 million related to U�S�
federal provision to return adjustments, $45 million related to
Samsung acquisition-related charges, and $13 million of other net
tax benefits� In addition, HP recorded tax charges of $11 million
related to changes in state valuation allowances, $22 million of
state provision to return adjustments, and $49 million related
to uncertain tax positions� In fiscal year 2017, in addition to
the discrete items mentioned above, HP recorded excess tax
benefits of $19 million on stock options, restricted stock units and
performance-adjusted restricted stock units, which are reflected
in the Consolidated Statements of Earnings as a component of the
provision for income taxes�
In fiscal year 2016, HP recorded $301 million of net income tax
charges related to discrete items in the provision for taxes for
continuing operations� These amounts primarily include uncertain
tax positions charges of $525 million related to pre-separation
tax matters� In addition, HP recorded $62 million of net tax
benefits on restructuring and other charges, $52 million of net
tax benefits related to the release of foreign valuation allowances
and $41 million of net tax benefits arising from the retroactive
90 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
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�
As a result of certain employment actions and capital investments
HP has undertaken, income from manufacturing and services in
certain countries is subject to reduced tax rates, and in some cases
is wholly exempt from taxes, through 2027� The gross income
tax benefits attributable to these actions and investments were
estimated to be $578 million ($0�35 diluted EPS) in fiscal year
2018, $471 million ($0�28 diluted net EPS) in fiscal year 2017 and
$341 million ($0�20 diluted net EPS) in fiscal year 2016�
Uncertain Tax Positions
A reconciliation of unrecognized tax benefits is as follows:
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 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
For prior years’ tax positions � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Decreases:
For prior years’ tax positions � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Statute of limitations expirations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
66
101
(248)
(3)
Settlements with taxing authorities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(2,953)
52
85
(181)
(1)
(5)
468
4,004
(62)
—
(98)
Balance at end of year � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$7,771
$10,808
$10,858
As of October 31, 2018, the amount of unrecognized tax benefits
was $7�8 billion, of which up to $1�5 billion would affect HP’s
effective tax rate if realized� As of October 31, 2017, the amount of
unrecognized tax benefits was $10�8 billion of which up to $3�9 billion
would affect HP’s effective tax rate if realized� The amount of
unrecognized tax benefits decreased by $3�0 billion primarily
related to the resolution of various audits� HP recognizes interest
income from favorable settlements and interest expense and
penalties accrued on unrecognized tax benefits in the provision for
taxes in the Consolidated Statements of Earnings� As of October 31,
2018, 2017 and 2016, HP had accrued $160 million, $257 million
and $193 million, respectively, for interest and penalties�
HP engages in continuous discussion and negotiation with taxing
authorities regarding tax matters in various jurisdictions� HP
expects to complete resolution of certain tax years with various
tax authorities within the next 12 months� It is also possible that
other federal, foreign and state tax issues may be concluded within
the next 12 months� HP believes it is reasonably possible that its
existing unrecognized tax benefits may be reduced by an amount
up to $6�4 billion within the next 12 months� These unrecognized
tax benefits have associated gain contingencies which would be
settled in the same period resulting in a net release of $740 million�
HP is subject to income tax in the United States and approximately
60 other countries and is subject to routine corporate income tax
audits in many of these jurisdictions� In addition, HP is subject
to numerous ongoing audits by federal, state and foreign tax
authorities� The U�S� Internal Revenue Service is conducting an
audit of HP’s 2013, 2014 and 2015 income tax returns�
The U�S� Tax Court ruled in May 2012 against HP related to certain
tax attributes claimed by HP for the tax years 1999 through 2003�
HP appealed the U�S� Tax Court determination by filing a formal
Notice of Appeal with the Ninth Circuit Court of Appeals� This case
was argued before the Ninth Circuit in November 2016� The Ninth
Circuit Court of Appeals issued its opinion in November 2017
affirming the Tax Court determinations� HP decided against
further appeal�
With respect to major state and foreign tax jurisdictions, HP is no
longer subject to tax authority examinations for years prior to
1999� No material tax deficiencies have been assessed in major
state or foreign tax jurisdictions as of October 31, 2018�
2018 Form 10-K
I 91
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
HP believes it has provided adequate reserves for all tax deficiencies
or reductions in tax benefits that could result from federal, state
and foreign tax audits� HP regularly assesses the likely outcomes
of these audits in order to determine the appropriateness of HP’s
tax provision� HP adjusts its uncertain tax positions to reflect the
impact of negotiations, settlements, rulings, advice of legal counsel,
and other information and events pertaining to a particular audit�
However, income tax audits are inherently unpredictable and there
can be no assurance that HP will accurately predict the outcome
of these audits� The amounts ultimately paid on resolution of an
audit could be materially different from the amounts previously
included in the Provision for taxes and therefore the resolution of
one or more of these uncertainties in any particular period could
have a material impact on net income or cash flows�
Deferred Income Taxes
income and foreign
HP has not provided for U�S� federal
withholding taxes on $5�4 billion of undistributed earnings from
non-U�S� operations as of October 31, 2018 because HP intends
to reinvest such earnings indefinitely outside of the United States�
Determination of the amount of unrecognized deferred tax liability
related to these earnings is not practicable� The TCJA taxed HP’s
historic earnings and profits of its non-U�S� subsidiaries� HP will
remit these taxed reinvested earnings for which deferred U�S�
federal and withholding taxes have been provided where excess
cash has accumulated and HP determines that it is advantageous
for business operations, tax or cash management reasons�
The significant components of deferred tax assets and deferred tax liabilities were as follows:
AS OF OCTOBER 31
2018
2017
IN MILLIONS
Deferred Tax Assets
Loss and credit carryforwards � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$8,204
Intercompany transactions—excluding inventory � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Fixed assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Warranty � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Employee and retiree benefits � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred Revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
994
151
194
401
164
422
Gross Deferred Tax Assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
10,530
Valuation allowances � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(7,906)
Net Deferred Tax Assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2,624
Deferred Tax Liabilities
Unremitted earnings of foreign subsidiaries � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Intangible assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total Deferred Tax Liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(31)
(229)
(33)
(293)
Net Deferred Tax Assets (Liabilities) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$2,331
$9,914
1,901
256
219
519
231
511
13,551
(8,807)
4,744
(5,554)
(209)
(49)
(5,812)
$(1,068)
92 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
Long-term deferred tax assets and liabilities included in the Consolidated Balance Sheets as follows:
Long-term deferred tax assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$2,431
$342
Long-term deferred tax liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(100)
(1,410)
Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$2,331
$(1,068)
As of October 31, 2018, HP had recorded deferred tax assets for net operating loss carryforwards as follows:
AS OF OCTOBER 31
2018
2017
IN MILLIONS
DEFERRED
TAXES
ON NOLs
VALUATION
ALLOWANCE
INITIAL
YEAR OF
EXPIRATION
Federal � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
State � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
GROSS NOLs
$456
2,644
Foreign � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
26,438
Balance at end of year � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$29,538
IN MILLIONS
$96
163
7,743
$8,002
—
(71)
(7,247)
$(7,318)
As of October 31, 2018, HP had recorded deferred tax assets for various tax credit carryforwards as follows:
U�S� foreign tax credits � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
U�S� R&D and other credits � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Tax credits in state and foreign jurisdictions� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Balance at end of year � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred Tax Asset Valuation Allowance
The deferred tax asset valuation allowance and changes were as follows:
CARRYFORWARD
VALUATION
ALLOWANCE
IN MILLIONS
$7
3
313
$323
$—
—
(94)
$(94)
2023
2018
2020
INITIAL
YEAR OF
EXPIRATION
2027
2020
2021
Balance at beginning of year � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$8,807
$8,520
$7,114
Income tax (benefit) expense � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other comprehensive income, currency translation and charges to other accounts � � � � � � � � � �
(897)
(4)
297
(10)
1,421
(15)
Balance at end of year � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$7,906
$8,807
$8,520
AS OF OCTOBER 31
2018
2017
2016
IN MILLIONS
2018 Form 10-K
I 93
HP Inc. and Subsidiaries Note 6: Taxes on Earnings
Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
Gross deferred tax assets as of October 31, 2018, 2017 and 2016,
were reduced by valuation allowances of $7�9 billion, $8�8 billion
and $8�5 billion, respectively� Total valuation allowance decreased
by $901 million in fiscal year 2018, associated primarily with
foreign net operating losses and U�S� deferred tax assets that are
anticipated to be realized at a lower effective rate than the federal
statutory tax rate due to certain future U�S� international tax
reform implications, and increased by $287 million and $1�4 billion
in fiscal years 2017 and 2016, respectively, associated primarily
with foreign net operating losses�
Note 7: Supplementary Financial Information
Accounts Receivable, net
Accounts receivable � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$5,242
$4,515
Allowance for doubtful accounts � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(129)
(101)
AS OF OCTOBER 31
2018
2017
IN MILLIONS
The allowance for doubtful accounts related to accounts receivable and changes were as follows:
$5,113
$4,414
AS OF OCTOBER 31
2018
2017
2016
IN MILLIONS
Balance at beginning of year � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$101
$107
Provision for doubtful accounts � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deductions, net of recoveries � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
57
(29)
30
(36)
Balance at end of year � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$129
$101
$80
65
(38)
$107
HP has third-party arrangements, consisting of revolving short-
term financing, which provide liquidity to certain partners to
facilitate their working capital requirements� These financing
arrangements, which in certain circumstances may contain partial
recourse, result in a transfer of HP’s receivables and risk, to the
third-party� As these transfers qualify as true sales under the
applicable accounting guidance, the receivables are derecognized
from the Consolidated Balance Sheets upon transfer, and HP
receives a payment for the receivables from the third-party within
a mutually agreed upon time period� For arrangements involving
an element of recourse, the recourse obligation is measured
using market data from the similar transactions and reported as a
current liability in the Consolidated Balance Sheets� The recourse
obligations as of October 31, 2018 and 2017 were not material.
The costs associated with the sales of trade receivables for fiscal
year 2018, 2017 and 2016 were not material�
94 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 7: Supplementary Financial Information (Continued)
The following is a summary of the activity under these arrangements:
Balance at beginning of year(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Trade receivables sold � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
AS OF OCTOBER 31
2018
2017
2016
IN MILLIONS
$147
10,224
$149
9,553
$93
8,222
Cash receipts � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(10,202)
(9,562)
(8,160)
Foreign currency and other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(4)
Balance at end of year(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$165
7
$147
(6)
$149
(1) Amounts outstanding from third parties reported in Accounts Receivable in the Consolidated Balance Sheets�
Inventory
Finished goods � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$4,019
$3,857
Purchased parts and fabricated assemblies � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2,043
1,929
AS OF OCTOBER 31
2018
2017
IN MILLIONS
Other Current Assets
Value-added taxes receivable � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Available-for-sale investments(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Supplier and other receivables� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Prepaid and other current assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(1) See Note 9, “Fair Value” and Note 10, “Financial Instruments” for detailed information�
$6,062
$5,786
AS OF OCTOBER 31
2018
2017
IN MILLIONS
$865
711
2,025
1,445
$857
1,149
1,891
1,224
$5,046
$5,121
2018 Form 10-K
I 95
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 7: Supplementary Financial Information (Continued)
Property, Plant and Equipment, Net
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
6,109
3,876
5,958
Accumulated depreciation � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(3,911)
(4,080)
$2,198
$1,878
Depreciation expense was $448 million, $353 million and $316 million in fiscal years 2018, 2017 and 2016, respectively�
Other Non-Current Assets
Tax indemnifications receivable(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred tax assets(2) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other(3)(4) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
AS OF OCTOBER 31
2018
2017
IN MILLIONS
$953
$1,695
2,431
1,685
342
1,058
$5,069
$3,095
(1) During the twelve months ended October 31, 2018, HP adjusted $676 million of indemnification receivable, pursuant to resolution of various income tax
audit settlements� See Note 15, “Guarantees, Indemnifications and Warranties” for further information�
(2) See Note 6, “Taxes on Earnings” for detailed information�
(3)
(4)
Includes Intangible assets of $453 million as at October 31, 2018, primarily from the acquisition of Samsung’s printer business, see Note 8, “Goodwill and
Intangible Assets” for further information�
Includes marketable equity securities and mutual funds classified as available-for-sale investments of $53 million and $61 million at October 31, 2018 and
2017, respectively�
96 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 7: Supplementary Financial Information (Continued)
Other Accrued Liabilities
Other accrued taxes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Warranty � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Sales and marketing programs � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other Non-Current Liabilities
AS OF OCTOBER 31
2018
2017
IN MILLIONS
$982
673
1,095
2,758
1,868
$895
660
1,012
2,441
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) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Tax liability(1)� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
100
2,063
1,005
793
1,410
2,005
921
827
$5,606
$7,162
(1) See Note 6, “Taxes on Earnings” for detailed information.
Interest and other, net
FOR THE FISCAL YEARS ENDED OCTOBER 31
2018
2017
2016
IN MILLIONS
Interest expense on borrowings � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$(312)
$(309)
$(273)
Loss on extinguishment of debt � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Tax indemnifications(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other, net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(126)
(662)
49
—
47
19
$(1,051)
$(243)
—
472
13
$212
(1) For the fiscal year ended October 31, 2018, includes an adjustment of $676 million of indemnification receivable, pursuant to resolution of various income
tax audit settlements� See Note 15, “Guarantees, Indemnifications and Warranties” for further information�
2018 Form 10-K
I 97
HP Inc. and Subsidiaries
Note 8: Goodwill and Intangible Assets
Notes to Consolidated Financial Statements (Continued)
Note 8: Goodwill and Intangible Assets
Goodwill
Goodwill allocated to HP’s reportable segments and changes in the carrying amount of goodwill were as follows:
PERSONAL
SYSTEMS
PRINTING
TOTAL
IN MILLIONS
Balance at October 31, 2016(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$2,593
$3,029
$5,622
Acquisitions � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Balance at October 31, 2017(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
—
—
—
2,593
3,029
5,622
Acquisitions � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Balance at October 31, 2018(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
7
339
346
$2,600
$3,368
$5,968
(1) Goodwill is net of accumulated impairment losses of $0.8 billion related to Corporate Investments.
Goodwill is tested for impairment at the reporting unit level. As of October 31, 2018, our reporting units are consistent with the reportable segments identified
in Note 2, “Segment Information”. There were no goodwill impairments in fiscal years 2018, 2017 and 2016. Personal Systems had a negative carrying
amount of net assets as of October 31, 2018 and 2017, primarily as a result of a favorable cash conversion cycle. HP will continue to evaluate goodwill on an
annual basis as of the first day of its fourth fiscal quarter and whenever events or changes in circumstances indicate there may be a potential impairment.
Intangible Assets
HP’s acquired intangible assets were composed of:
WEIGHTED-
AVERAGE
USEFUL LIVES
IN YEARS
AS OF OCTOBER 31, 2018
AS OF OCTOBER 31, 2017
GROSS
ACCUMULATED
AMORTIZATION NET GROSS
ACCUMULATED
AMORTIZATION NET
IN MILLIONS
Customer contracts, customer lists and
distribution agreements � � � � � � � � � � � � � � � � � � � � � � � � � � �
Technology and patents � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total intangible assets � � � � � � � � � � � � � � � � � � � � � � � � � � �
8 $112
7 601
$713
$88
172
$24
429
$85
98
$260
$453
$183
$84
96
$180
$1
2
$3
For fiscal year 2018, the increase in gross intangible assets was primarily due to intangible assets resulting from the acquisition of
Samsung’s printer business.
As of October 31, 2018, estimated future amortization expense related to intangible assets was as follows:
FISCAL YEAR
2019 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2020 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2021 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2022 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2023 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Thereafter � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
IN MILLIONS
81
81
80
79
79
53
Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
453
98 I
2018 Form 10-K
HP Inc. and Subsidiaries
Note 9: Fair Value
Notes to Consolidated Financial Statements (Continued)
Note 9: Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction
between market participants at the measurement date.
Fair Value Hierarchy
HP uses valuation techniques that are based upon observable
and unobservable inputs. Observable inputs are developed using
market data such as publicly available information and reflect the
assumptions market participants would use, while unobservable
inputs are developed using the best information available about
the assumptions market participants would use�
Assets and liabilities are classified in the fair value hierarchy
based on the lowest level input that is significant to the fair
value measurement:
Level 1—Quoted prices (unadjusted) in active markets for identical
assets or liabilities�
Level 2—Quoted prices for similar assets or
in
active markets, quoted prices for identical or similar assets
or liabilities in markets that are not active, inputs other than
quoted prices that are observable for the asset or liability and
market-corroborated inputs�
liabilities
Level 3—Unobservable inputs for the asset or liability.
The fair value hierarchy gives the highest priority to observable
inputs and lowest priority to unobservable inputs.
The following table presents HP’s assets and liabilities that are measured at fair value on a recurring basis:
AS OF OCTOBER 31, 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 � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Financial institution instruments � � � � � � � � � � � �
Government debt(1) � � � � � � � � � � � � � � � � � � � � � � � �
Mutual funds � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Marketable equity securities � � � � � � � � � � � � � � � �
Derivative Instruments:
Interest rate contracts � � � � � � � � � � � � � � � � � � � � �
Foreign currency contracts � � � � � � � � � � � � � � � � �
Other derivatives � � � � � � � � � � � � � � � � � � � � � � � � � �
—
—
—
47
6
—
—
—
366
32
313
—
—
—
508
—
—
—
—
—
—
366
32
313
47
6
—
—
7
515
—
—
—
—
—
49
6
—
—
—
629
78
442
—
6
—
110
1
—
—
—
—
—
—
10
—
629
78
442
49
12
—
120
1
Total Assets � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$2,270 $2,998
$7 $5,275 $3,957 $2,762
$10 $6,729
2018 Form 10-K
I 99
HP Inc. and Subsidiaries
Note 9: Fair Value
Notes to Consolidated Financial Statements (Continued)
Note 9: Fair Value (Continued)
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
Liabilities:
Derivative Instruments:
Interest rate contracts � � � � � � � � � � � � � � � � � � � � �
Foreign currency contracts � � � � � � � � � � � � � � � � �
Other derivatives � � � � � � � � � � � � � � � � � � � � � � � � � �
$—
—
—
$23
164
8
$—
$23
$—
$12
$—
—
—
164
8
—
—
358
—
2
—
$12
360
—
Total Liabilities � � � � � � � � � � � � � � � � � � � � � � � � �
$— $195
$— $195
$— $370
$2 $372
(1) Government debt includes instruments such as U.S. treasury notes, U.S. agency securities and non-U.S. government bonds. Money market funds invested in
government debt and trade in active markets are included in Level 1.
There were no transfers between levels within the fair value hierarchy during fiscal years 2018 and 2017.
Valuation Techniques
Cash Equivalents and Investments: HP holds time deposits,
money market funds, mutual funds, other debt securities primarily
consisting of corporate and foreign government notes and bonds,
and common stock and equivalents. HP values cash equivalents
and equity investments using quoted market prices, alternative
including NAV, or models utilizing market
pricing sources,
observable inputs. The fair value of debt investments was based
on quoted market prices or model-driven valuations using inputs
primarily derived from or corroborated by observable market data,
and, in certain instances, valuation models that utilize assumptions
which cannot be corroborated with observable market data.
Derivative Instruments: From time to time, HP uses forward contracts,
interest rate and total return swaps and at times, option contracts to
hedge certain foreign currency and interest rate exposures� HP uses
industry standard valuation models to measure fair value. Where
applicable, these models project future cash flows and discount the
future amounts to present value using market-based observable
inputs, including interest rate curves, HP and counterparty credit risk,
foreign exchange rates, and forward and spot prices for currencies
and interest rates. See Note 10, “Financial Instruments” for a further
discussion of HP’s use of derivative instruments.
Other Fair Value Disclosures
Short- and Long-Term Debt: HP estimates the fair value of its
debt primarily using an expected present value technique, which is
based on observable market inputs using interest rates currently
100 I
2018 Form 10-K
available to companies of similar credit standing for similar terms
and remaining maturities, and considering its own credit risk. The
portion of HP’s debt that is hedged is reflected in the Consolidated
Balance Sheets as an amount equal to the debt’s carrying amount
and a fair value adjustment representing changes in the fair
value of the hedged debt obligations arising from movements in
benchmark interest rates. The estimated fair value of HP’s short-
and long-term debt was $6�0 billion at October 31, 2018 compared
to its carrying amount of $6.0 billion at that date. The estimated
fair value of HP’s short- and long-term debt was $8.1 billion as
compared to its carrying value of $7.8 billion at October 31, 2017.
If measured at fair value in the Consolidated Balance Sheets,
short- and long-term debt would be classified in Level 2 of the fair
value hierarchy.
Other Financial Instruments: For the balance of HP’s financial
instruments, primarily accounts receivable, accounts payable and
financial liabilities included in other accrued liabilities, the carrying
amounts approximate fair value due to their short maturities. If
measured at fair value in the Consolidated Balance Sheets, these
other financial instruments would be classified in Level 2 or Level 3
of the fair value hierarchy.
Non-Marketable Equity Investments and Non-Financial Assets:
HP’s non-marketable equity
investments and non-financial
assets, such as intangible assets, goodwill and property, plant and
equipment, are recorded at fair value in the period an impairment
charge is recognized. If measured at fair value in the Consolidated
Balance Sheets, these would generally be classified within Level 3
of the fair value hierarchy.
HP Inc. and Subsidiaries
Note 10: Financial Instruments
Notes to Consolidated Financial Statements (Continued)
Note 10: Financial Instruments
Cash Equivalents and Available-for-Sale Investments
AS OF OCTOBER 31, 2018
GROSS
UNREALIZED
GAIN
GROSS
UNREALIZED
LOSS
COST
AS OF OCTOBER 31, 2017
GROSS
UNREALIZED
GAIN
GROSS
UNREALIZED
LOSS
FAIR
VALUE
FAIR
VALUE
COST
IN MILLIONS
Cash Equivalents:
Corporate debt � � � � � � � � � � � � � � � � � � � � � � � $1,620
$—
$— $1,620 $1,390
$—
$— $1,390
Financial institution instruments � � � � � � �
9
Government debt� � � � � � � � � � � � � � � � � � � � �
2,367
Total cash equivalents � � � � � � � � � � � � �
3,996
Available-for-Sale Investments:
Corporate debt(1) � � � � � � � � � � � � � � � � � � � � �
Financial institution instruments(1) � � � � � �
Government debt(1) � � � � � � � � � � � � � � � � � � �
Marketable equity securities � � � � � � � � � � �
Mutual funds � � � � � � � � � � � � � � � � � � � � � � � � �
368
32
314
4
38
Total available-for-sale investments
756
Total cash equivalents and available-for-
sale investments � � � � � � � � � � � � � � � � � � � � � � � � $4,752
—
—
—
—
—
—
2
9
11
—
9
6
— 2,367 4,002
— 3,996 5,398
(2)
—
(1)
—
—
(3)
366
629
32
78
313
443
6
47
5
39
764 1,194
—
—
—
—
—
—
7
10
17
—
6
— 4,002
— 5,398
—
—
(1)
—
—
629
78
442
12
49
(1) 1,210
$11
$(3) $4,760 $6,592
$17
$(1) $6,608
(1) HP classifies its marketable debt securities as available-for-sale investments within Other current assets on the Consolidated Balance Sheets, including
those with maturity dates beyond one year, based on their highly liquid nature and availability for use in current operations.
All highly liquid investments with original maturities of three
months or less at the date of acquisition are considered cash
equivalents. As of October 31, 2018 and 2017, the carrying amount
of cash equivalents approximated fair value due to the short
period of time to maturity� Interest income related to cash, cash
equivalents and debt securities was approximately $116 million
in fiscal year 2018, $66 million in fiscal year 2017, and $24 million
in fiscal year 2016. The estimated fair value of the available-for-
sale investments may not be representative of values that will be
realized in the future�
Contractual maturities of investments in available-for-sale debt securities were as follows:
AS OF OCTOBER 31, 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
Equity securities in privately held companies include cost basis and equity method investments and are included in Other non-current
assets in the Consolidated Balance Sheets. These amounted to $36 million and $37 million as of October 31, 2018 and 2017, respectively.
2018 Form 10-K
I 101
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 10: Financial Instruments (Continued)
Derivative Instruments
HP uses derivatives to offset business exposure to foreign currency
and interest rate risk on expected future cash flows and on certain
existing assets and liabilities� As part of its risk management strategy,
HP uses derivative instruments, primarily forward contracts, interest
rate swaps, total return swaps and, at times, option contracts to
hedge certain foreign currency, interest rate and, to a lesser extent,
equity exposures. HP may designate its derivative contracts as fair
value hedges or cash flow hedges. HP classifies cash flows from its
designated derivative contracts with the activities that correspond
to the underlying hedged items. Additionally, for derivatives not
designated as hedging instruments, HP categorizes those economic
hedges as other derivatives. HP recognizes all derivative instruments
at fair value in the Consolidated Balance Sheets.
As a result of its use of derivative instruments, HP is exposed to
the risk that its counterparties will fail to meet their contractual
obligations� Master netting agreements mitigate credit exposure
to counterparties by permitting HP to net amounts due from
HP to counterparty against amounts due to HP from the same
counterparty under certain conditions. To further limit credit
risk, HP has collateral security agreements that allow HP to hold
collateral from, or require HP to post collateral to, counterparties
when aggregate derivative fair values exceed contractually
established thresholds which are generally based on the credit
ratings of HP and its counterparties� If HP’s or the counterparty’s
credit rating falls below a specified credit rating, either party has
the right to request full collateralization of the derivatives’ net
liability position. The fair value of derivatives with credit contingent
features in a net liability position was $68 million and $258 million
as of October 31, 2018 and 2017, respectively, all of which were
fully collateralized within two business days.
Under HP’s derivative contracts, the counterparty can terminate
all outstanding trades following a covered change of control event
affecting HP that results in the surviving entity being rated below a
specified credit rating. This credit contingent provision did not affect
HP’s financial position or cash flows as of October 31, 2018 and 2017.
Fair Value Hedges
HP enters into fair value hedges, such as interest rate swaps, to
reduce the exposure of its debt portfolio to changes in fair value
resulting from changes in interest rates by achieving a primarily
U.S. dollar London Interbank Offered Rate (“LIBOR”)-based floating
interest expense�
102 I
2018 Form 10-K
For derivative instruments that are designated and qualify as
fair value hedges, HP recognizes the change in fair value of the
derivative instrument, as well as the offsetting change in the
fair value of the hedged item, in Interest and other, net in the
Consolidated Statements of Earnings in the period of change.
Cash Flow Hedges
HP uses forward contracts and at times, option contracts
designated as cash flow hedges to protect against the foreign
currency exchange rate risks inherent in its forecasted net revenue
and, to a lesser extent, cost of revenue, operating expenses, and
intercompany loans denominated in currencies other than the U.S.
dollar� HP’s foreign currency cash flow hedges mature generally
within twelve months; however, hedges related to longer-term
procurement arrangements extend several years and forward
contracts associated with intercompany loans extend for the
duration of the lease or loan term, which typically range from two
to five years.
For derivative instruments that are designated and qualify as
cash flow hedges, HP initially records changes in fair value for the
effective portion of the derivative instrument in Accumulated other
comprehensive loss as a separate component of stockholders’
deficit in the Consolidated Balance Sheets and subsequently
reclassifies these amounts into earnings in the period during
which the hedged transaction is recognized in earnings� HP reports
the effective portion of its cash flow hedges in the same financial
statement line item as changes in the fair value of the hedged item.
Other Derivatives
Other derivatives not designated as hedging instruments consist
primarily of forward contracts used to hedge foreign currency-
denominated balance sheet exposures� HP uses total return
swaps to hedge its executive deferred compensation plan liability.
For derivative instruments not designated as hedging instruments,
HP recognizes changes in fair value of the derivative instrument,
as well as the offsetting change in the fair value of the hedged
item, in Interest and other, net in the Consolidated Statements of
Earnings in the period of change.
Hedge Effectiveness
For interest rate swaps designated as fair value hedges, HP
measures hedge effectiveness by offsetting the change in fair value
of the hedged item with the change in fair value of the derivative.
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 10: Financial Instruments (Continued)
For foreign currency options and forward contracts designated as
cash flow hedges, HP measures hedge effectiveness by comparing
the cumulative change in fair value of the hedge contract with the
cumulative change in fair value of the hedged item, both of which
are based on forward rates. HP recognizes any ineffective portion
of the hedge in the Consolidated Statements of Earnings in the
same period in which ineffectiveness occurs. Amounts excluded
from the assessment of effectiveness are recognized in the
Consolidated Statements of Earnings in the period they arise.
Fair Value of Derivative Instruments in the Consolidated Balance Sheets
The gross notional and fair value of derivative instruments in the Consolidated Balance Sheets was as follows:
AS OF OCTOBER 31, 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
Total derivatives designated as
hedging instruments � � � � � � � � � �
18,147
386
107
Derivatives not designated as
hedging instruments
Foreign currency contracts � � � � �
Other derivatives � � � � � � � � � � � � � �
Total derivatives not designated
5,437
71
as hedging instruments � � � � � � � �
5,508
22
—
22
—
—
—
86
86
26
8
34
Total derivatives � � � � � � � � � � � � � �
$23,655
$408
$107
$120
52
75
—
—
—
$75
16,149
18,649
5,801
123
5,924
92
92
16
1
17
$24,573
$109
12
12
—
—
—
$12
245
100
245
112
15
—
15
—
—
—
$260
$112
In March 2018, HP terminated several interest rate swaps with a notional amount of $1.5 billion that were de-designated as fair value
hedges of certain fixed rate debt securities. See Note 11, “Borrowings” for detailed information.
2018 Form 10-K
I 103
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 10: Financial Instruments (Continued)
Offsetting of Derivative Instruments
HP recognizes all derivative instruments on a gross basis in the Consolidated Balance Sheets. HP does not offset the fair value of
its derivative instruments against the fair value of cash collateral posted under its collateral security agreements. As of October 31,
2018 and 2017, information related to the potential effect of HP’s master netting agreements and collateral security agreements was
as follows:
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 � � � � � � � � � � � � � � � � � � �
Derivative liabilities � � � � � � � � � � � � � � � � �
As of October 31, 2017
Derivative assets � � � � � � � � � � � � � � � � � � �
Derivative liabilities � � � � � � � � � � � � � � � � �
$515
$195
$121
$372
$—
$—
$—
$—
$515
$195
$121
$372
$112
$112
$299(1)
$69(2)
$108
$108
$4(1)
$219(2)
$104
$14
$9
$45
(1) Represents the cash collateral posted by counterparties as of the respective reporting date for HP’s asset position, net of derivative amounts that could be
offset, as of, generally, two business days prior to the respective reporting date.
(2) Represents the collateral posted by HP in cash or through re-use of counterparty cash collateral as of the respective reporting date for HP’s liability position,
net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date.
Effect of Derivative Instruments on the Consolidated Statements of Earnings
The pre-tax effect of derivative instruments and related hedged items in a fair value hedging relationship for fiscal years ended
October 31, 2018, 2017 and 2016 was as follows:
DERIVATIVE INSTRUMENT
LOCATION
2018 2017 2016
HEDGED ITEM
LOCATION
2018 2017 2016
(LOSS) GAIN RECOGNIZED IN INCOME ON DERIVATIVE INSTRUMENTS AND RELATED HEDGED ITEMS
IN MILLIONS
IN MILLIONS
Interest rate contracts � � � � � � � � �
Interest and other, net $(11) $(60) $10 Fixed-rate debt Interest and other, net $11 $60 $(10)
104 I
2018 Form 10-K
HP Inc. and Subsidiaries
Note 10: Financial Instruments
Notes to Consolidated Financial Statements (Continued)
Note 10: Financial Instruments (Continued)
The pre-tax effect of derivative instruments in cash flow hedging relationships for fiscal years ended October 31, 2018, 2017 and 2016
was as follows:
GAIN (LOSS) RECOGNIZED IN OCI
ON DERIVATIVES (EFFECTIVE PORTION)
(LOSS) GAIN RECLASSIFIED FROM ACCUMULATED OCI
INTO EARNINGS (EFFECTIVE PORTION)
2018
2017
2016
IN MILLIONS
2018
2017
2016
IN MILLIONS
Cash flow hedges:
Foreign currency contracts � � � �
$341
$(651)
$199
Net revenue � � � � � � � � � � � � � � � � � �
$(239)
$(156)
$ 20
Cost of revenue � � � � � � � � � � � � � � �
Other operating expenses � � � � � �
Interest and other, net � � � � � � � � �
(18)
(1)
—
(35)
(84)
1
(9)
1
—
Total � � � � � � � � � � � � � � � � � � � � �
$341
$(651)
$199
Total � � � � � � � � � � � � � � � � � � � � � �
$(258)
$(199)
$(63)
As of October 31, 2018, 2017 and 2016, no portion of the hedging
instruments’ gain or loss was excluded from the assessment
of effectiveness for fair value or cash flow hedges. Hedge
ineffectiveness for fair value and cash flow hedges was not
material for fiscal years 2018, 2017 and 2016�
As of October 31, 2018, HP expects to reclassify an estimated
net Accumulated other comprehensive income of approximately
$248 million, net of taxes, to earnings in the next twelve months
along with the earnings effects of the related forecasted
transactions associated with cash flow hedges�
The pre-tax effect of derivative instruments not designated as hedging instruments on the Consolidated Statements of Earnings for
fiscal years 2018, 2017 and 2016 was as follows:
Foreign currency contracts � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Interest and other, net
$35
$(32)
$(34)
Other derivatives � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Interest and other, net
(9)
3
(6)
Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$26
$(29)
$(40)
GAIN (LOSS) RECOGNIZED IN INCOME ON DERIVATIVES
LOCATION
2018
2017
2016
IN MILLIONS
Note 11: Borrowings
Notes Payable and Short-Term Borrowings
Commercial paper � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Current portion of long-term debt � � � � � � � � � � � � � � � � �
Notes payable to banks, lines of credit and other � � � �
AS OF OCTOBER 31
2018
2017
AMOUNT
OUTSTANDING
WEIGHTED-AVERAGE
INTEREST RATE
AMOUNT
OUTSTANDING
WEIGHTED-AVERAGE
INTEREST RATE
IN MILLIONS
IN MILLIONS
$854
565
44
$1,463
2�5%
3�1%
1�7%
$943
96
33
$1,072
1�8%
3�5%
1�5%
2018 Form 10-K
I 105
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 11: Borrowings (Continued)
Long-Term Debt
U.S. Dollar Global Notes(1)
2009 Shelf Registration Statement:
AS OF OCTOBER 31
2018
2017
IN MILLIONS
$1,350 issued at discount to par at a price of 99.827% in December 2010 at 3.75%,
due December 2020 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$1,250 issued at discount to par at a price of 99.799% in May 2011 at 4.3%, due June 2021 � � � � � � � � � � � � �
$1,000 issued at discount to par at a price of 99.816% in September 2011 at 4.375%,
due September 2021 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$1,500 issued at discount to par at a price of 99.707% in December 2011 at 4.65%,
due December 2021 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$500 issued at discount to par at a price of 99.771% in March 2012 at 4.05%, due September 2022 � � � � �
$648
667
538
694
499
$648
1,249
999
1,498
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 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other, including capital lease obligations, at 0�51%- 8�48%, due in calendar years 2019-2025 � � � � � � � � � � � � � �
Fair value adjustment related to hedged debt � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Unamortized debt issuance cost � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Current portion of long-term debt � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
300
4,647
487
(28)
(17)
(565)
300
6,494
360
8
(19)
(96)
Total long-term debt � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$4,524
$6,747
(1) HP may redeem some or all of the fixed-rate U.S. Dollar Global Notes at any time in accordance with the terms thereof. The U.S. Dollar Global Notes are senior
unsecured debt�
In December 2016, HP filed a shelf registration statement with the SEC to enable the company to offer for sale, from time to time, in one
or more offerings, an unspecified amount of debt securities, common stock, preferred stock, depositary shares and warrants�
As disclosed in Note 10, “Financial Instruments”, HP uses interest rate swaps to mitigate some of the exposure of its debt portfolio to
changes in fair value resulting from changes in interest rates by achieving a primarily U.S. dollar LIBOR-based floating interest expense.
Interest rates shown in the table of long-term debt have not been adjusted to reflect the impact of any interest rate swaps.
106 I
2018 Form 10-K
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 11: Borrowings (Continued)
As of October 31, 2018, aggregate future maturities of debt at face value (excluding unamortized debt issuance cost of $17 million
and discounts on debt issuance of $3 million less fair value adjustment related to hedged debt of $28 million), including capital lease
obligations were as follows:
FISCAL YEAR
IN MILLIONS
2019 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$1,463
2020 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2021 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2022 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2023 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Thereafter � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
151
1,952
1,239
25
1,205
$6,035
Extinguishment of Debt
In March 2018, HP commenced and completed a cash tender offer
(the “Tender Offer”) to purchase approximately $1.85 billion in
aggregate principal amount of outstanding U.S. Dollar 4.650%
Global Notes due December 9, 2021, 4�375% Global Notes due
September 15, 2021 and 4.300% Global Notes due June 1, 2021.
In connection with the Tender Offer, HP also solicited consents
from holders of its 4�650% Notes due December 2021, (the
“4.650% Notes”) to amend the indenture under which the 4.650%
Notes were issued to, among other things, eliminate substantially
all of the restrictive covenants of the indenture (the “Proposed
Amendments”). Holders of a majority in principal amount of
the outstanding 4�650% Notes consented to the Proposed
Amendments, and as a result, a supplemental indenture was
executed on March 26, 2018 to effect the Proposed Amendments�
This extinguishment of debt resulted in a loss of $126 million ,
which was recorded as “Interest and other, net” on the Consolidated
Statements of Earnings for the year ended October 31, 2018.
Commercial Paper
On November 1, 2015, HP’s Board of Directors authorized HP to
borrow up to a total outstanding principal balance of $4�0 billion,
or the equivalent in foreign currencies for the use and benefit of
HP and HP’s subsidiaries, by the issuance of commercial paper
or through the execution of promissory notes, loan agreements,
letters of credit, agreements for lines of credit or overdraft
facilities� HP increased the issuance authorization under its
commercial paper program from $4�0 billion to $6�0 billion in
November 2017. As of October 31, 2018, HP maintained two
commercial paper programs. HP’s U.S. program provides for
the issuance of U.S. dollar-denominated commercial paper up
to a maximum aggregate principal amount of $6�0 billion� HP’s
euro commercial paper program provides for the issuance of
commercial paper outside of the United States denominated in
U.S. dollars, euros or British pounds up to a maximum aggregate
principal amount of $6.0 billion or the equivalent in those
alternative currencies. The combined aggregate principal amount
of commercial paper outstanding under those programs at any
one time cannot exceed the $6�0 billion authorized by HP’s Board
of Directors�
Credit Facility
As of October 31, 2018, HP maintained a $4.0 billion senior
unsecured committed revolving credit facility to support the
issuance of commercial paper or for general corporate purposes�
Commitments under the revolving credit facility will be available
until March 30, 2023. Commitment fees, interest rates and other
terms of borrowing under the credit facilities vary based on
HP’s external credit ratings� As of October 31, 2018, HP was in
compliance with the financial covenants in the credit agreement
governing the revolving credit facility.
In December 2017, HP also entered into an additional revolving
credit facility with certain institutional lenders that provided HP
with $1.5 billion of available borrowings until November 30, 2018.
HP elected to terminate this $1.5 billion revolving credit facility
early, effective August 17, 2018.
Available Borrowing Resources
As of October 31, 2018, HP and HP’s subsidiaries had available
borrowing resources of $667 million from uncommitted lines of
credit in addition to the senior unsecured committed revolving
credit facility discussed above.
2018 Form 10-K
I 107
HP Inc. and Subsidiaries Note 12: Stockholders’ Deficit
Notes to Consolidated Financial Statements (Continued)
Note 12: Stockholders’ Deficit
Dividends
The stockholders of HP common stock are entitled to receive
dividends when and as declared by HP’s Board of Directors.
Dividends declared were $0.56 per share of common stock in fiscal
year 2018, $0�53 per share of common stock in fiscal year 2017
and $0�50 per share of common stock in fiscal year 2016�
Share Repurchase Program
HP’s share repurchase program authorizes both open market and
private repurchase transactions. In fiscal year 2018, HP executed
share repurchases of 111 million shares and settled total shares
for $2�6 billion� In fiscal year 2017, HP executed share repurchases
of 80 million shares and settled total shares for $1�4 billion� In
Taxes related to Other Comprehensive Income (Loss)
fiscal year 2016, HP executed share repurchases of 100 million
shares and settled total shares for $1.2 billion. Share repurchases
executed during fiscal years 2018 and 2017 included 1�0 million
shares and 1.5 million shares settled in November 2018 and
November 2017, respectively. There were no outstanding shares
executed during fiscal year 2016 settled in November 2016.
The shares repurchased in fiscal years 2018, 2017 and 2016 were
all open market repurchase transactions. 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� As of
October 31, 2018, HP had approximately $3.9 billion remaining
under the share repurchase authorizations approved by HP’s
Board of Directors�
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 � � � � � � � � � � � � � � � � � � � �
Tax benefit on losses reclassified into earnings � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Tax effect on change in unrealized components of defined benefit plans:
Tax (provision) benefit on gains (losses) arising during the period � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Tax provision on amortization of actuarial loss and prior service benefit � � � � � � � � � � � � � � � � � � � � � � � �
Tax (provision) benefit on curtailments, settlements and other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(42)
(26)
(68)
—
(11)
(2)
(13)
42
(16)
26
(140)
(21)
72
(89)
Tax (provision) benefit on other comprehensive income (loss) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$(80)
$(64)
32
(1)
31
242
(12)
(213)
17
$45
108 I
2018 Form 10-K
HP Inc. and Subsidiaries Note 12: Stockholders’ Deficit
Notes to Consolidated Financial Statements (Continued)
Note 12: Stockholders’ Deficit (Continued)
Changes and Reclassifications Related to Other Comprehensive Income (Loss), Net of Taxes
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 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Gains reclassified into earnings � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Change in unrealized components of cash flow hedges:
Unrealized gains (losses) arising during the period � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Losses reclassified into earnings � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Change in unrealized components of defined benefit plans:
Gains (Losses) arising during the period� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Amortization of actuarial loss and prior service benefit(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Curtailments, settlements and other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$(2)
(5)
(7)
299
232
531
11
37
1
49
Other comprehensive income (loss), net of taxes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$573
$3
—
3
(609)
183
(426)
315
53
75
443
$20
$(2)
—
(2)
231
62
293
(517)
39
(30)
(508)
$(217)
(1) These components are included in the computation of net pension and post-retirement benefit (credit) charges in Note 4, “Retirement and Post-Retirement
Benefit Plans”.
The components of accumulated other comprehensive loss, net of taxes as of October 31, 2018 and changes during fiscal year 2018
were as follows:
Balance at beginning of period � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other comprehensive (loss) income before reclassifications � � � � �
Reclassifications of (gain) loss into earnings � � � � � � � � � � � � � � � � � � �
Balance at end of period � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
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
$12
(2)
(5)
$5
$(240)
$(1,190)
$(1,418)
299
232
$291
11
38
308
265
$(1,141)
$(845)
HP calculates basic net EPS using net earnings and the weighted-average number of shares outstanding during the reporting period.
Diluted net EPS includes any dilutive effect of restricted stock units, stock options, performance-based awards and shares purchased
under the 2011 employee stock purchase plan�
2018 Form 10-K
I 109
HP Inc. and Subsidiaries Note 13: Earnings Per Share
Notes to Consolidated Financial Statements (Continued)
Note 13: Earnings Per Share
A reconciliation of the number of shares used for basic and diluted net EPS calculations is as follows:
FOR THE FISCAL YEARS
ENDED OCTOBER 31
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 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Anti-dilutive weighted-average options(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$3�26
$1�48
$1�43
—
1
13
(1) HP excludes stock options and restricted stock units where the assumed proceeds exceed the average market price from the calculation of diluted net
EPS, because their effect would be anti-dilutive. The assumed proceeds of a stock option include the sum of its exercise price, and average unrecognized
compensation cost. The assumed proceeds of a restricted stock unit represent unrecognized compensation cost.
HP is involved in lawsuits, claims, investigations and proceedings,
including those identified below, consisting of IP, commercial,
securities, employment, employee benefits and environmental
matters that arise in the ordinary course of business� HP accrues
a liability when management believes that it is both probable
that a liability has been incurred and the amount of loss can be
reasonably estimated. HP believes it has recorded adequate
provisions for any such matters and, as of October 31, 2018, it was
not reasonably possible that a material loss had been incurred in
excess of the amounts recognized in HP’s financial statements� HP
reviews these matters at least quarterly and adjusts its accruals
to reflect the impact of negotiations, settlements, rulings, advice
of legal counsel, and other information and events pertaining
to a particular case� Pursuant to the separation and distribution
agreement, HP shares responsibility with Hewlett Packard
Enterprise for certain matters, as indicated below, and Hewlett
Packard Enterprise has agreed to indemnify HP in whole or in
part with respect to certain matters� Based on its experience, HP
believes that any damage amounts claimed in the specific matters
discussed below are not a meaningful indicator of HP’s potential
liability. Litigation
inherently unpredictable. However, HP
believes it has valid defenses with respect to legal matters pending
against it. Nevertheless, cash flows or results of operations could
be materially affected in any particular period by the resolution of
one or more of these contingencies�
is
110 I
2018 Form 10-K
HP Inc. and Subsidiaries Note 14: Litigation and Contingencies
Notes to Consolidated Financial Statements (Continued)
Note 14: Litigation and Contingencies
Litigation, Proceedings and Investigations
Copyright Levies. Proceedings are ongoing or have been concluded
involving HP in certain European countries, including litigation in
Belgium and other countries, seeking to impose or modify levies
upon IT equipment (such as multifunction devices (“MFDs”) and
PCs), alleging that these devices enable the production of private
copies of copyrighted materials. The levies are generally based
upon the number of products sold and the per-product amounts
of the levies, which vary. Some European countries that do not yet
have levies on digital devices are expected to implement similar
legislation to enable them to extend existing levy schemes,
while other European countries have phased out levies or are
expected to limit the scope of levy schemes and applicability
in the digital hardware environment, particularly with respect
to sales to business users. HP, other companies and various
industry associations have opposed the extension of levies to the
digital environment and have advocated alternative models of
compensation to rights holders�
Reprobel, a collecting society administering the remuneration
for reprography to Belgian copyright holders, requested by
extrajudicial means that HP amend certain copyright
levy
declarations submitted for inkjet MFDs sold in Belgium from
January 2005 to December 2009 to enable it to collect copyright
levies calculated based on the generally higher copying speed
when the MFDs are operated in draft print mode rather than when
operated in normal print mode� In March 2010, HP filed a lawsuit
against Reprobel in the Court of First Instance of Brussels seeking
a declaratory judgment that no copyright levies are payable on
sales of MFDs in Belgium or, alternatively, that payments already
made by HP are sufficient to comply with its obligations. The
Court of Appeal in Brussels (the “Court of Appeal”) stayed the
proceedings and referred several questions to the Court of Justice
of the European Union (“CJEU”). On November 12, 2015, the CJEU
published its judgment providing that a national legislation such
as the Belgian one at issue in the main proceedings is incompatible
with EU law on multiple legal points, as argued by HP, and returned
the proceedings to the referring court. On May 12, 2017, the Court
of Appeal held that (1) reprographic copyright levies are due
notwithstanding the lack of conformity of the Belgian system with
EU law in certain aspects and (2) the applicable levies are to be
calculated based on the objective speed of each MFD as established
by an expert appointed by the Court of Appeal. HP appealed this
decision before the Belgian Supreme Court on January 18, 2018.
Based on industry opposition to the extension of levies to digital
products, HP’s assessments of the merits of various proceedings
and HP’s estimates of the number of units impacted and the
amounts of the levies, HP has accrued amounts that it believes are
adequate to address the ongoing disputes�
Hewlett-Packard Company v. Oracle Corporation. On June 15, 2011,
HP filed suit against Oracle Corporation (“Oracle”) in California Superior
Court in Santa Clara County in connection with Oracle’s March 2011
announcement that it was discontinuing software support for HP’s
Itanium-based line of mission critical servers. HP asserted, among
other things, that Oracle’s actions breached the contract that was
signed by the parties as part of the settlement of the litigation relating
to Oracle’s hiring of Mark Hurd. The matter eventually progressed
to trial, which was bifurcated into two phases. HP prevailed in the
first phase of the trial, in which the court ruled that the contract at
issue required Oracle to continue to offer its software products on
HP’s Itanium-based servers for as long as HP decided to sell such
servers. The second phase of the trial was then postponed by Oracle’s
appeal of the trial court’s denial of Oracle’s “anti-SLAPP” motion, in
which Oracle argued that HP’s damages claim infringed on Oracle’s
First Amendment rights. On August 27, 2015, the California Court of
Appeals rejected Oracle’s appeal. The matter was remanded to the trial
court for the second phase of the trial, which began on May 23, 2016
and was submitted to the jury on June 29, 2016. On June 30, 2016,
the jury returned a verdict in favor of HP, awarding HP approximately
$3�0 billion in damages, which included approximately $1�7 billion for
past lost profits and $1�3 billion for future lost profits� On October 20,
2016, the court entered judgment for HP for this amount with interest
accruing until the judgment is paid. Oracle’s motion for new trial was
denied on December 19, 2016, and Oracle filed its notice of appeal
from the trial court’s judgment on January 17, 2017. On February 2,
2017, HP filed a notice of cross-appeal challenging the trial court’s
denial of prejudgment interest. The schedule for appellate briefing
and argument has not yet been established� HP expects that the
appeals process could take several years to complete. Litigation is
unpredictable, and there can be no assurance that HP will recover
damages, or that any award of damages will be for the amount
awarded by the jury’s verdict. The amount ultimately awarded, if
any, would be recorded in the period received. No adjustment has
been recorded in the financial statements in relation to this potential
award� Pursuant to the terms of the separation and distribution
agreement, HP and Hewlett Packard Enterprise will share equally in
any recovery from Oracle once Hewlett Packard Enterprise has been
reimbursed for all costs incurred in the prosecution of the action prior
to the Separation.
2018 Form 10-K
I 111
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 14: Litigation and Contingencies (Continued)
Forsyth, et al. vs. HP Inc. and Hewlett Packard Enterprise. This is a
purported class and collective action filed on August 18, 2016 in the
United States District Court, Northern District of California, against
HP and Hewlett Packard Enterprise alleging the defendants violated
the Federal Age Discrimination in Employment Act (“ADEA”), the
California Fair Employment and Housing Act, California public policy
and the California Business and Professions Code by terminating
older workers and replacing them with younger workers� Plaintiffs
seek to certify a nationwide collective class action under the ADEA
comprised of all U.S. residents employed by defendants who had their
employment terminated pursuant to a workforce reduction (“WFR”)
plan on or after May 23, 2012 and who were 40 years of age or older�
Plaintiffs also seek to represent a Rule 23 class under California law
comprised of all persons 40 years or older employed by defendants
in the state of California and terminated pursuant to a WFR plan on or
after May 23, 2012� Following a partial motion to dismiss, a motion
to strike and a motion to compel arbitration that the defendants
filed in November 2016, the plaintiffs amended their complaint. New
plaintiffs were added, but the plaintiffs agreed that the class period for
the nationwide collective action should be shortened and now starts
on December 9, 2014. On January 30, 2017, the defendants filed
another partial motion to dismiss and motions to compel arbitration
as to several of the plaintiffs. On March 20, 2017, the defendants filed
additional motions to compel arbitration as to a number of the opt-
in plaintiffs. On September 20, 2017, the Court granted the motions
to compel arbitration as to the plaintiffs and opt-ins who signed
WFR release agreements, and also stayed the entire case until the
arbitrations are completed. On November 30, 2017, three named
plaintiffs and twelve opt-in plaintiffs filed a single arbitration demand.
An additional arbitration claimant was added later by stipulation� On
December 22, 2017, the defendants filed a motion to (1) stay the
case pending arbitrations and (2) enjoin the demanded arbitration
and require each plaintiff to file a separate arbitration demand� On
February 6, 2018, the Court granted the motion to stay and denied
the motion to enjoin. Pre-arbitration mediation proceedings took
place on October 4 and 5, 2018, and the claims of all 16 arbitration
claimants were resolved. The case will now return to federal court for
the remaining named and opt-in plaintiffs�
Jackson, et al. v. HP Inc. and Hewlett Packard Enterprise. This
putative nationwide class action was filed on July 24, 2017 in federal
district court in San Jose, California. The plaintiffs purport to bring the
lawsuit on behalf of themselves and other similarly situated African-
Americans and individuals over the age of forty. The plaintiffs allege
that the defendants engaged in a pattern and practice of racial and
age discrimination in lay-offs and promotions. The plaintiffs filed an
112 I
2018 Form 10-K
amended complaint on September 29, 2017. On January 12, 2018,
the defendants moved to transfer the matter to the federal district
court in the Northern District of Georgia. The defendants also moved
to dismiss the claims on various grounds and to strike certain aspects
of the proposed class definition. The Court dismissed the action on
the basis of improper venue. On July 23, 2018, the plaintiffs refiled
the case in the Northern District of Georgia� On August 9, 2018, the
plaintiffs also filed a notice of appeal of the dismissal order with the
United States Court of Appeals for the Ninth Circuit. On October 1,
2018, the Georgia court granted the plaintiffs’ unopposed motion
to stay and administratively close the Georgia action until the Ninth
Circuit appeal is decided.
India Directorate of Revenue Intelligence Proceedings. On April 30 and
May 10, 2010, the India Directorate of Revenue Intelligence (the “DRI”)
issued show cause notices to Hewlett-Packard India Sales Private
Limited (“HP India”), a subsidiary of HP, seven HP India employees
and one former HP India employee alleging that HP India underpaid
customs duties while importing products and spare parts into India
and seeking to recover an aggregate of approximately $370 million,
plus penalties� Prior to the issuance of the show cause notices, HP India
deposited approximately $16 million with the DRI and agreed to post a
provisional bond in exchange for the DRI’s agreement to not seize HP
India products and spare parts and to not interrupt the transaction of
business by HP India�
On April 11, 2012, the Bangalore Commissioner of Customs issued
an order on the products-related show cause notice affirming
certain duties and penalties against HP India and the named
individuals of approximately $386 million, of which HP India had
already deposited $9 million� On December 11, 2012, HP India
voluntarily deposited an additional $10 million in connection
with the products-related show cause notice. The differential
duty demand is subject to interest. On April 20, 2012, the
Commissioner issued an order on the parts-related show cause
notice affirming certain duties and penalties against HP India and
certain of the named individuals of approximately $17 million, of
which HP India had already deposited $7 million� After the order,
HP India deposited an additional $3 million in connection with the
parts-related show cause notice so as to avoid certain penalties.
HP India filed appeals of the Commissioner’s orders before
the Customs Tribunal along with applications for waiver of the
pre-deposit of remaining demand amounts as a condition for
hearing the appeals. The Customs Department has also filed
cross-appeals before the Customs Tribunal. On January 24, 2013,
the Customs Tribunal ordered HP India to deposit an additional
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 14: Litigation and Contingencies (Continued)
$24 million against the products order, which HP India deposited
in March 2013. The Customs Tribunal did not order any additional
deposit to be made under the parts order� In December 2013,
HP India filed applications before the Customs Tribunal seeking
early hearing of the appeals as well as an extension of the stay of
deposit as to HP India and the individuals already granted until final
disposition of the appeals� On February 7, 2014, the application
for extension of the stay of deposit was granted by the Customs
Tribunal until disposal of the appeals. On October 27, 2014, the
Customs Tribunal commenced hearings on the cross-appeals of
the Commissioner’s orders. The Customs Tribunal rejected HP
India’s request to remand the matter to the Commissioner on
procedural grounds. The hearings scheduled to reconvene on
April 6, 2015 and again on November 3, 2015 and April 11, 2016
were cancelled at the request of the Customs Tribunal. A hearing
on the merits of the appeal has been scheduled for January 15,
2019� Pursuant to the separation and distribution agreement,
Hewlett Packard Enterprise has agreed to indemnify HP in part,
based on the extent to which any liability arises from the products
and spare parts of Hewlett Packard Enterprise’s businesses.
Class Actions re Authentication of Supplies. Five purported
consumer class actions were filed against HP, arising out of the
supplies authentication protocol in certain OfficeJet printers. This
authentication protocol rejects some third-party ink cartridges that
use non-HP security chips. Two of the cases were dismissed, and
the remaining cases have been consolidated in the United States
District Court for the Northern District of California, captioned In
re HP Printer Firmware Update Litigation. The remaining plaintiffs’
consolidated amended complaint was filed on February 15, 2018,
alleging eleven causes of action: (1) unfair and unlawful business
practices in violation of the Unfair Competition Law, Cal. Bus. &
Prof. Code § 17200, et seq.; (2) fraudulent business practices in
violation of the Unfair Competition Law, Cal. Bus. & Prof. Code §
17200, et seq.; (3) violations of the False Advertising Law, Cal.
Bus. & Prof. Code § 17500, et seq.; (4) violations of the Consumer
Legal Remedies Act, Cal. Civ. Code § 1750, et seq.; (5) violations
of the Texas Deceptive Trade Practices – Consumer Protection
Act, Tex. Bus. & Com. Code Ann. § 17.01, et seq.; (6) violations of
the Washington Consumer Protection Act, Wash. Rev. Code Ann.
§ 19.86.010, et seq.; (7) violations of the New Jersey Consumer
Fraud Act, New Jersey Statutes Ann. 56:8-1, et seq.; (8) violations
of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, et seq.; (9)
violations of the California Computer Data Access and Fraud Act,
Cal. Penal Code § 502; (10) Trespass to Chattels; and (11) Tortious
Interference with Contractual Relations and/or Prospective
Economic Advantage. On February 7, 2018, the plaintiffs moved to
certify an injunctive relief class of “[a]ll persons in California who
own a Class Printer” under the “unfair” prong of the California unfair
competition statute and a class of “[a]ll persons in the United States
who purchased a Class Printer and experienced a print failure while
using a non-HP aftermarket cartridge during the period between
March 1, 2015 and December 31, 2017” under the Computer Fraud
and Abuse Act and common law trespass to chattels� On March 29,
2018, the court granted in part and denied in part HP’s motion to
dismiss. The court dismissed the plaintiffs’ claim under the “unfair”
prong of the California unfair competition statute, claims under
the non-California consumer protection statutes, and claim for
tortious interference with contractual relations and/or prospective
economic advantage. The court also dismissed in part the plaintiffs’
fraud-based claims under the California consumer protection
statutes and computer hacking claims under the Computer Fraud
and Abuse Act and California Computer Data Access and Fraud
Act. The court denied HP’s motion to dismiss with respect to
the plaintiffs’ claim for trespass to chattels and claim under the
“unlawful” prong of the California unfair competition statute. The
court granted the plaintiffs leave to amend on all of the dismissed
claims, except the California Computer Data Access and Fraud
Act claim to the extent it was based on two specific subsections
of that statute. On September 18, 2018, the parties entered
into a Settlement Agreement and Release pursuant to which the
plaintiffs agreed to dismiss all claims against HP in exchange for
a $1�5 million payment to the class and an agreement that HP
would not reinstall the authentication protocol on the printers at
issue. The settlement is subject to the approval of the court. The
plaintiffs filed a motion for preliminary approval of the settlement,
which was granted by the court on November 19, 2018. Notice of
the settlement will be given to the class beginning on January 7,
2019, and class members will have 120 days in which to opt out of
or object to the settlement. A final approval hearing is scheduled
for April 25, 2019�
Autonomy-Related Legal Matters
Investigations. As a result of the findings of an ongoing
investigation, HP has provided information to the U.K. Serious
Fraud Office, the U.S. Department of Justice (“DOJ”) and the SEC
related to the accounting improprieties, disclosure failures and
misrepresentations at Autonomy that occurred prior to and in
connection with HP’s acquisition of Autonomy. On January 19,
2015, the U.K. Serious Fraud Office notified HP that it was closing
its investigation and had decided to cede jurisdiction of the
2018 Form 10-K
I 113
HP Inc. and Subsidiaries Notes to Consolidated Financial Statements (Continued)
Note 14: Litigation and Contingencies (Continued)
investigation to the U.S. authorities. On November 14, 2016,
the DOJ announced that a federal grand jury indicted Sushovan
Hussain, the former CFO of Autonomy. Mr. Hussain was charged
with conspiracy to commit wire fraud, securities fraud, and multiple
counts of wire fraud. The indictment alleged that Mr. Hussain
engaged in a scheme to defraud purchasers and sellers of
securities of Autonomy and HP about the true performance of
Autonomy’s business, its financial condition, and its prospects for
growth. A jury trial commenced on February 26, 2018. On April 30,
2018, the jury found Mr. Hussain guilty of all charges against him.
On November 15, 2016, the SEC announced that Stouffer Egan,
the former CEO of Autonomy’s U.S.-based operations, settled
charges relating to his participation in an accounting scheme to
meet internal sales targets and analyst revenue expectations. On
November 29, 2018, the DOJ announced that a federal grand jury
indicted Michael Lynch, former CEO of Autonomy, and Stephen
Chamberlain, former VP of Finance of Autonomy. Dr. Lynch
and Mr. Chamberlain were charged with conspiracy to commit
wire fraud and multiple counts of wire fraud� HP is continuing to
cooperate with the ongoing enforcement actions�
Autonomy Corporation Limited v. Michael Lynch and Sushovan
Hussain. On April 17, 2015, four former-HP subsidiaries that
became subsidiaries of Hewlett Packard Enterprise at the time of
the Separation (Autonomy Corporation Limited, Hewlett Packard
Vision BV, Autonomy Systems, Limited, and Autonomy, Inc.)
initiated civil proceedings in the U.K. High Court of Justice against
two members of Autonomy’s former management, Michael Lynch
and Sushovan Hussain. The Particulars of Claim seek damages in
excess of $5 billion from Messrs� Lynch and Hussain for breach
of their fiduciary duties by causing Autonomy group companies
to engage in improper transactions and accounting practices� On
October 1, 2015, Messrs� Lynch and Hussain filed their defenses�
Mr. Lynch also filed a counterclaim against Autonomy Corporation
Limited seeking $160 million in damages, among other things,
for alleged misstatements regarding Lynch. The Hewlett Packard
Enterprise subsidiary claimants filed their replies to the defenses
and the asserted counter-claim on March 11, 2016. The parties
are actively engaged in the disclosure process. A six-month trial is
scheduled to begin on March 25, 2019�
Environmental
HP’s operations and products are subject to various federal, state,
local and foreign laws and regulations concerning environmental
protection, including laws addressing the discharge of pollutants
114 I
2018 Form 10-K
into the air and water, the management and disposal of hazardous
substances and wastes, the cleanup of contaminated sites, the
content of HP’s products and the recycling, treatment and disposal
of those products� In particular, HP faces increasing complexity
in its product design and procurement operations as it adjusts
to new and future requirements relating to the chemical and
materials composition of its products, their safe use, and the energy
consumption associated with those products, including requirements
relating to climate change. HP is also subject to legislation in an
increasing number of jurisdictions that makes producers of electrical
goods, including computers and printers, financially responsible for
specified collection, recycling, treatment and disposal of past and
future covered products (sometimes referred to as “product take-
back legislation”). HP could incur substantial costs, its products
could be restricted from entering certain jurisdictions, and it could
face other sanctions, if it were to violate or become liable under
environmental laws or if its products become noncompliant with
environmental laws. HP’s potential exposure includes fines and
civil or criminal sanctions, third-party property damage or personal
injury claims and clean-up costs. The amount and timing of costs to
comply with environmental laws are difficult to predict.
HP is party to, or otherwise involved in, proceedings brought by
U.S. or state environmental agencies under the Comprehensive
Environmental Response, Compensation and Liability Act (“CERCLA”),
known as “Superfund,” or state laws similar to CERCLA, and may
become a party to, or otherwise involved in, proceedings brought
by private parties for contribution towards clean-up costs. HP is also
conducting environmental investigations or remediations at several
current or former operating sites pursuant to administrative orders or
consent agreements with state environmental agencies.
The separation and distribution agreement includes provisions
that provide for the allocation of environmental liabilities between
HP and Hewlett Packard Enterprise including certain remediation
obligations; responsibilities arising from the chemical and materials
composition of their respective products, their safe use and their
energy consumption; obligations under product take back legislation
that addresses the collection, recycling, treatment and disposal of
products; and other environmental matters. HP will generally be
responsible for environmental liabilities related to the properties and
other assets, including products, allocated to HP under the separation
and distribution agreement and other ancillary agreements. Under
these agreements, HP will indemnify Hewlett Packard Enterprise for
liabilities for specified ongoing remediation projects, subject to certain
limitations, and Hewlett Packard Enterprise has a payment obligation
HP Inc. and Subsidiaries Note 14: Litigation and Contingencies
Notes to Consolidated Financial Statements (Continued)
Note 14: Litigation and Contingencies (Continued)
for a specified portion of the cost of those remediation projects.
In addition, HP will share with Hewlett Packard Enterprise other
environmental liabilities as set forth in the separation and distribution
agreement� HP is indemnified in whole or in part by Hewlett Packard
Enterprise for liabilities arising from the assets assigned to Hewlett
Packard Enterprise and for certain environmental matters as detailed
in the separation and distribution agreement�
Note 15: Guarantees, Indemnifications and Warranties
Guarantees
In the ordinary course of business, HP may issue performance
guarantees to certain of its clients, customers and other parties
pursuant to which HP has guaranteed the performance obligations of
third parties. Some of those guarantees may be backed by standby
letters of credit or surety bonds� In general, HP would be obligated
to perform over the term of the guarantee in the event a specified
triggering event occurs as defined by the guarantee. HP believes the
likelihood of having to perform under a material guarantee is remote.
Cross-Indemnifications with Hewlett Packard Enterprise
Under the separation and distribution agreement, HP agreed to
indemnify Hewlett Packard Enterprise, each of its subsidiaries and
each of their respective directors, officers and employees from
and against all liabilities relating to, arising out of or resulting
from, among other matters, the liabilities allocated to HP as part
of the Separation. Hewlett Packard Enterprise similarly agreed to
indemnify HP, each of its subsidiaries and each of their respective
directors, officers and employees from and against all liabilities
relating to, arising out of or resulting from, among other matters,
the liabilities allocated to Hewlett Packard Enterprise as part of the
Separation. HP expects Hewlett Packard Enterprise to fully perform
under the terms of the separation and distribution agreement�
In connection with the Separation, HP entered into the tax matters
agreement (“TMA”) with Hewlett Packard Enterprise, effective on
November 1, 2015. The TMA provides that HP and Hewlett Packard
Enterprise will share certain pre-Separation income tax liabilities. In
addition, if the distribution of Hewlett Packard Enterprise’s common
shares to the HP stockholders is determined to be taxable, Hewlett
Packard Enterprise and HP would share the tax liability equally, unless
the taxability of the distribution is the direct result of action taken by
either Hewlett Packard Enterprise or HP subsequent to the distribution,
in which case the party causing the distribution to be taxable would be
responsible for any taxes imposed on the distribution�
For information on the cross indemnifications related to litigations
effective upon the Separation on November 1, 2015, see Note 14,
“Litigation and Contingencies”, respectively.
Indemnifications
In the ordinary course of business, HP enters into contractual
arrangements under which HP may agree to indemnify a third
party to such arrangement from any losses incurred relating to
the services they perform on behalf of HP or for losses arising
from certain events as defined within the particular contract,
which may include, for example, litigation or claims relating to
past performance. HP also provides indemnifications to certain
vendors and customers against claims of intellectual property
infringement made by third parties arising from the vendors’
and customers’ use of HP’s software products and services and
certain other matters. Some indemnifications may not be subject
to maximum loss clauses� Historically, payments made related to
these indemnifications have been immaterial.
HP records tax indemnification receivables from various third
parties for certain tax liabilities that HP is jointly and severally
liable for, but for which it is indemnified by those same third parties
under existing legal agreements. The actual amount that the third
parties pay may be obligated to pay HP could vary depending on
the outcome of certain unresolved tax matters, which may not be
resolved for several years. The net receivable as of October 31,
2018 was $1�0 billion�
Warranties
HP accrues the estimated cost of product warranties at the
time it recognizes revenue. HP engages in extensive product
quality programs and processes, including actively monitoring
and evaluating the quality of its component suppliers; however,
contractual warranty terms, repair costs, product call rates, average
cost per call, current period product shipments and ongoing product
failure rates, as well as specific product class failures outside of HP’s
baseline experience, affect the estimated warranty obligation�
2018 Form 10-K
I 115
HP Inc. and Subsidiaries Note 15: Guarantees, Indemnifications and Warranties
Notes to Consolidated Financial Statements (Continued)
Note 15: Guarantees, Indemnifications and Warranties (Continued)
HP’s aggregate product warranty liabilities and changes were as follows:
AS OF OCTOBER 31
2018
2017
IN MILLIONS
Balance at beginning of year � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$898
Accruals for warranties issued � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
1,042
$980
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
Lease Commitments
HP leases certain real and personal property under non-cancelable operating leases. Certain leases require HP to pay property taxes,
insurance and routine maintenance and include renewal options and escalation clauses. Rent expense from continuing operations was
approximately $0�2 billion in each of fiscal years 2018, 2017 and 2016�
As of October 31, 2018, future minimum operating lease commitments were as follows:
FISCAL YEAR
IN MILLIONS
2019 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$317
2020 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2021 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2022 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2023 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Thereafter � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
256
200
162
141
411
Less: Sublease rental income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(129)
Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$1,358
Note 16: Commitments
Unconditional Purchase Obligations
As of October 31, 2018, HP had unconditional purchase obligations
of $704 million. These unconditional purchase obligations include
agreements to purchase goods or services that are enforceable
and legally binding on HP and that specify all significant terms,
including fixed or minimum quantities to be purchased, fixed,
minimum or variable price provisions and the approximate timing
of the transaction. These unconditional purchase obligations are
primarily related to inventory and service support. Unconditional
purchase obligations exclude agreements that are cancelable
without penalty�
116 I
2018 Form 10-K
HP Inc. and Subsidiaries Note 16: Commitments
Notes to Consolidated Financial Statements (Continued)
Note 16: Commitments (Continued)
As of October 31, 2018, unconditional purchase obligations were as follows:
FISCAL YEAR
2019 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2020 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2021 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2022 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2023 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Thereafter � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
IN MILLIONS
$434
180
64
24
2
—
Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$704
Note 17: Discontinued Operations
On November 1, 2015, HP completed the Separation of Hewlett Packard Enterprise. After the Separation, HP does not beneficially own
any shares of Hewlett Packard Enterprise common stock.
The following table presents the financial results of HP’s discontinued operations:
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2018
2017
2016
IN MILLIONS
Expenses(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Interest and other, net(2) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Earnings from discontinued operations before taxes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Provision for taxes(2) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net loss from discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$—
—
$—
—
$—
$—
(47)
$47
(47)
$—
$201
(208)
$7
(177)
$(170)
(1) Expenses for fiscal year 2016 were primarily related to separation costs.
In connection with the TMA, Interest and other, net for fiscal year 2017 and fiscal year 2016 relates to changes in the tax indemnifications
amounts. Provision for taxes for fiscal year 2017 and fiscal year 2016 includes the tax impact relating to the above described changes
of $47 million and $201 million, respectively. For further information on tax indemnifications and the TMA, see Note 15, “Guarantees,
Indemnifications and Warranties”.
Note 18: Acquisitions and Divestitures
Acquisitions in Fiscal Year 2018
On November 1, 2017, HP completed the acquisition of Samsung’s
printer business. With this acquisition, HP now offers the industry’s
strongest portfolio of A3 multifunction printers that deliver the
simplicity of printers with the high performance of copiers. The
fully integrated portfolio, including next-generation PageWide
technologies, offers opportunities to grow managed print and
document services as sales models shift from transactional to
contractual. HP reports the financial results of the above business
in the Printing segment�
2018 Form 10-K
I 117
HP Inc. and Subsidiaries Note 18: Acquisitions and Divestitures
Notes to Consolidated Financial Statements (Continued)
Note 18: Acquisitions and Divestitures (Continued)
The table below presents the purchase price allocation.
Goodwill� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Amortizable intangible assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net assets assumed � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
IN MILLIONS
$339
521
191
Total fair value of consideration � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$1,051
Divestitures in prior years
During fiscal year 2016, HP entered into agreements to divest
certain technology assets, including licensing and distribution
rights, for certain software offerings to Open Text Corporation, an
enterprise information management company for $475 million�
These divestitures were substantially completed during the fourth
quarter of fiscal year 2016. The technology assets sold were
previously reported within the Commercial Hardware business
unit within the Printing segment. The total gain recognized from
the divestitures was $401 million. The gains associated with these
divestitures were included in Selling, general and administrative
expenses in the Consolidated Statements of Earnings.
Note 19: Subsequent Events
On November 1, 2018, HP 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.
118 I
2018 Form 10-K
HP Inc. and Subsidiaries HP Inc. and Subsidiaries
Quarterly Summary
(Unaudited)
(In millions, except per share amounts)
FOR THE THREE-MONTH FISCAL PERIODS
ENDED IN FISCAL YEAR 2018
JANUARY 31
APRIL 30
JULY 31
OCTOBER 31
Net revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cost of revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Earnings from operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net earnings � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net earnings per share:(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Basic � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Diluted � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cash dividends paid per share � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$14,517
11,935
973
$1,938
$1�17
$1�16
$0�14
$14,003
11,301
964
$1,058
$0�65
$0�64
$0�14
$14,586
11,898
1,080
$880
$0�55
$0�54
$0�14
$15,366
12,669
1,047
$1,451
$0�92
$0�91
$0�14
FOR THE THREE-MONTH FISCAL PERIODS
ENDED IN FISCAL YEAR 2017
JANUARY 31
APRIL 30
JULY 31
OCTOBER 31
Net revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cost of revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Earnings from operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net earnings � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net earnings per share:(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Basic � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Diluted � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cash dividends paid per share � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$12,684
10,436
856
$611
$0�36
$0�36
$0�13
$12,385
10,002
818
$559
$0�33
$0�33
$0�14
$13,060
10,633
955
$696
$0�41
$0�41
$0�13
$13,927
11,407
890
$660
$0�40
$0�39
$0�13
(1) Net EPS for each quarter is computed using the weighted-average number of shares outstanding during that quarter, while EPS for the fiscal year is computed
using the weighted-average number of shares outstanding during the year. Hence, the sum of the EPS for each of the four quarters may not equal the EPS
for the fiscal year�
2018 Form 10-K
I 119
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None�
Item 9A. Controls and Procedures.
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act
as of the end of the period covered by this report (the “Evaluation
Date”). Based on this evaluation, our principal executive officer
and principal financial officer concluded as of the Evaluation Date
that our disclosure controls and procedures were effective such
that the information relating to HP, including our consolidated
subsidiaries, required to be disclosed in our SEC reports (i) is
recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and (ii) is accumulated
and communicated to HP’s management, including our principal
executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure�
Item 9B. Other Information.
None�
Under the supervision and with the participation of our
management, including our principal executive officer and principal
financial officer, we conducted an evaluation of any changes in our
internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
occurred during our most recently completed fiscal quarter�
Based on that evaluation, our principal executive officer and
principal financial officer concluded that there has not been any
change in our internal control over financial reporting during the
fourth quarter of fiscal year 2018 that has materially affected, or
is reasonably likely to materially affect, our internal control over
financial reporting�
See Management’s Report on Internal Control over Financial
Reporting and the Report of Independent Registered Public
Accounting Firm on our internal control over financial reporting in
Item 8, which are incorporated herein by reference.
120 I
2018 Form 10-K
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
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.
The following information is included in HP’s Proxy Statement
related to its 2019 Annual Meeting 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:
•
Information regarding directors of HP who are standing
for reelection and any persons nominated to become
directors of HP is set forth under “Corporate Governance—
Management Proposal No. 1 Election of Directors.”
•
Information regarding HP’s Audit Committee and designated
“audit committee financial experts” is set forth under
Item 11. Executive Compensation.
The following information is included in the Proxy Statement and
is incorporated herein by reference:
•
•
Information regarding HP’s compensation of its named
executive officers is set forth under “Executive Compensation.”
Information regarding HP’s compensation of its directors
is set forth under “Corporate Governance—Management
“Corporate Governance—Management Proposal No. 1
Election of Directors—Audit Committee.”
•
Information on HP’s code of business conduct and ethics for
directors, officers and employees, also known as “Integrity at
HP”, is set forth under “Corporate Governance—Management
Proposal No. 1 Election of Directors—Code of Conduct” and
information on HP’s Corporate Governance Guidelines is set
forth under “—Director Nominees and Director Nominees’
Experience
Corporate
and Qualifications”,“—Recent
Governance Updates” and “—Director Independence.”
•
Information regarding Section 16(a) beneficial ownership
reporting compliance
is set forth under “Ownership
of Our Stock—Section 16(a) Beneficial Ownership
Reporting Compliance.”
Proposal No. 1 Election of Directors—Director Compensation
and Stock Ownership Guidelines.”
• The report of HP’s HR and Compensation Committee is
set forth under “Executive Compensation—Management
Proposal No. 3 Advisory Vote to Approve Executive
Compensation—HR and Compensation Committee Report
on Executive Compensation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The following information is included in the Proxy Statement and
is incorporated herein by reference:
•
•
Information
regarding security ownership of certain
beneficial owners, directors and executive officers is set
forth under “Ownership of Our Stock—Common Stock
Ownership of Certain Beneficial Owners and Management.”
Information regarding HP’s equity compensation plans,
including both stockholder approved plans and non-
stockholder approved plans, is set forth in the section
entitled “Executive Compensation—Management Proposal
No. 3 Advisory Vote to Approve Executive Compensation—
Equity Compensation Plan Information.”
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The following information is included in the Proxy Statement and
is incorporated herein by reference:
Proposal No. 1 Election of Directors—Fiscal 2017 Related
Person Transactions.”
•
Information regarding transactions with related persons
is set forth under “Corporate Governance—Management
•
Information regarding director independence is set forth
under “Corporate Governance—Management Proposal No.
1 Election of Directors—Director Independence.”
Item 14. Principal Accounting Fees and Services.
Information regarding principal accounting fees and services is
set forth under “Audit Matters—Management Proposal No. 2
Ratification of Independent Registered Public Accounting Firm—
Principal Accounting Fees and Services” in the Proxy Statement,
which information is incorporated herein by reference�
2018 Form 10-K
I 121
Part IV
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this report:
1. All Financial Statements:
The following financial statements are filed as part of this report under Item 8—“Financial Statements and Supplementary Data.”
Reports of Independent Registered Public Accounting Firm
Management’s Report on Internal Control Over Financial Reporting
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ (Deficit) Equity
Notes to Consolidated Financial Statements
Quarterly Summary
2. Financial Statement Schedules:
XX
XX
XX
XX
XX
XX
XX
XX
XX
All schedules are omitted as the required information is not applicable or the information is presented in the Consolidated Financial
Statements and notes thereto in Item 8 above.
3. Exhibits:
122 I
2018 Form 10-K
EXHIBIT
NUMBER
2(a)
2(b)
2(c)
2(d)
2(e)
3(a)
3(b)
3(c)
3(d)
3(e)
4(a)
4(b)
4(c)
4(d)
4(e)
4(f)
4(g)
4(h)
4(i)
EXHIBIT DESCRIPTION
FORM
FILE NO.
EXHIBIT(S)
FILING DATE
INCORPORATED BY REFERENCE
Separation and Distribution Agreement, dated as of
October 31, 2015, by and among Hewlett-Packard
Company, Hewlett Packard Enterprise Company and
the Other Parties Thereto.**
Transition Services Agreement, dated as of
November 1, 2015, by and between Hewlett-Packard
Company and Hewlett Packard Enterprise Company.**
Tax Matters Agreement, dated as of October 31,
2015, by and between Hewlett-Packard Company and
Hewlett Packard Enterprise Company.**
Employee Matters Agreement, dated as of October 31,
2015, by and between Hewlett-Packard Company and
Hewlett Packard Enterprise Company.**
Real Estate Matters Agreement, dated as of
October 31, 2015, by and between Hewlett-Packard
Company and Hewlett Packard Enterprise Company.**
Registrant’s Certificate of Incorporation.
Registrant’s Amendment to the Certificate
of Incorporation�
Registrant’s Certificate of Amendment to the
Certificate of Incorporation.
Registrant’s Certificate of Amendment to the
Certificate of Incorporation.
Registrant’s Amended and Restated Bylaws.
Form of Senior Indenture
Form of Subordinated Indenture.
Form of Registrant’s 3.750% Global Note
due December 1, 2020 and form of related
Officers’ Certificate.
8-K
001-04423
2�1 November 5, 2015
8-K
001-04423
2�2 November 5, 2015
8-K
001-04423
2�3 November 5, 2015
8-K
001-04423
2�4 November 5, 2015
8-K
001-04423
2�5 November 5, 2015
10-Q
10-Q
001-04423
001-04423
3(a)
June 12, 1998
3(b) March 16, 2001
8-K
001-04423
3�2 October 22, 2015
8-K
001-04423
3�1 April 7, 2016
8-K
S-3
S-3
8-K
001-04423
333-215116
333-21516
3�1 July 26, 2017
4�1 December 15, 2016
4�2 December 15, 2016
001-04423
4�2 and 4�3 December 2, 2010
Form of Registrant’s 4.300% Global Note due June 1,
2021 and form of related Officers’ Certificate.
Form of Registrant’s 4.375% Global Note due
September 15, 2021 and 6.000% Global Note
due September 15, 2041 and form of related
Officers’ Certificate.
Form of Registrant’s 4.650% Global Note due
December 9, 2021 and related Officers’ Certificate.
Form of Registrant’s 4.050% Global Note due
September 15, 2022 and related Officers’ Certificate.
Form of Registrant’s 2.750% Global Note due
January 14, 2019 and Floating Rate Global Note due
January 14, 2019 and related Officers’ Certificate.
Specimen certificate for the Registrant’s
common stock�
8-K
001-04423
4�5 and 4�6 June 1, 2011
8-K
001-04423
4�4,
September 19, 2011
4�5 and 4�6
8-K
001-04423
4�3 and 4�4 December 12, 2011
8-K
001-04423
4�2 and 4�3 March 12, 2012
8-K
001-04423
4�1, 4�2 and
4�3
January 14, 2014
8-K/A
001-04423
4�1 June 23, 2006
2018 Form 10-K
I 123
EXHIBIT
NUMBER
4(j)
10(a)
10(b)
10(c)
10(d)
10(e)
10(f)
10(g)
10(h)
10(i)
10(j)
10(k)
10(1)
10(m)
10(n)
10(o)
10(p)
10(q)
10(r)
10(s)
10(t)
EXHIBIT DESCRIPTION
FORM
FILE NO.
EXHIBIT(S)
FILING DATE
INCORPORATED BY REFERENCE
First Supplemental Indenture, dated as of March 26,
2018, to the Indenture, dated as of June 1, 2000, by
and between the Registrant and The Bank of New York
Mellon Trust Company, N.A.
Registrant’s 2004 Stock Incentive Plan.*
Registrant’s Excess Benefit Retirement Plan, amended
and restated as of January 1, 2006.*
Hewlett-Packard Company Cash Account Restoration
Plan, amended and restated as of January 1, 2005.*
10-Q
001-04423
4(j)
June 5, 2018
S-8
8-K
333-114253
001-04423
4�1 April 7, 2004
10�2 September 21, 2006
8-K
001-04423
99�3 November 23, 2005
Registrant’s 2005 Pay-for-Results Plan, as amended.*
10-K
001-04423
10(h) December 14, 2011
Registrant’s Executive Severance Agreement.*
10-Q
001-04423
10(u)(u)
June 13, 2002
Registrant’s Executive Officers Severance Agreement.* 10-Q
001-04423
10(v)(v)
June 13, 2002
Form letter regarding severance offset for restricted
stock and restricted units.*
Form of Agreement Regarding Confidential Information
and Proprietary Developments (California).*
Form of Agreement Regarding Confidential
Information and Proprietary Developments (Texas).*
Form of Stock Option Agreement for Registrant’s 2004
Stock Incentive Plan.*
Form of Option Agreement for Registrant’s 2000
Stock Plan.*
Form of Common Stock Payment Agreement for
Registrant’s 2000 Stock Plan.*
Form of Stock Notification and Award Agreement for
awards of non-qualified stock options.*
First Amendment to the Hewlett-Packard Company
Excess Benefit Retirement Plan.*
Form of Stock Notification and Award Agreement for
awards of non-qualified stock options.*
Form of Agreement Regarding Confidential
Information and Proprietary Developments
(California—new hires).*
Form of Agreement Regarding Confidential
Information and Proprietary Developments
(California—current employees).*
Second Amended and Restated Hewlett-Packard
Company 2004 Stock Incentive Plan, as amended
effective February 28, 2013.*
Form of Stock Notification and Award Agreement for
awards of restricted stock units.*
Form of Stock Notification and Award Agreement for
awards of foreign stock appreciation rights.*
8-K
001-04423
10�2 March 22, 2005
8-K
001-04423
10�2 January 24, 2008
10-Q
001-04423
10(o)(o) March 10, 2008
10-Q
001-04423
10(p)(p) March 10, 2008
10-Q
001-04423
10(t)(t)
June 6, 2008
10-Q
001-04423
10(u)(u)
June 6, 2008
10-K
001-04423
10(y)(y) December 18, 2008
10-Q
001-04423
10(b)(b)(b) March 10, 2009
10-K
001-04423
10(i)(i)(i) December 15, 2010
10-K
001-04423
10(j)(j)(j) December 15, 2010
10-K
001-04423
10(k)(k)(k) December 15, 2010
8-K
001-04423
10�2 March 21, 2013
10-Q
001-04423
10(u)(u) March 11, 2014
10-Q
001-04423
10(v)(v) March 11, 2014
124 I
2018 Form 10-K
EXHIBIT
NUMBER
10(u)
10(v)
10(w)
10(x)
10(y)
10(z)
10(a)(a)
10(b)(b)
10(c)(c)
10(d)(d)
10(e)(e)
10(f)(f)
10(g)(g)
10(h)(h)
10(i)(i)
10(j)(j)
EXHIBIT DESCRIPTION
FORM
FILE NO.
EXHIBIT(S)
FILING DATE
INCORPORATED BY REFERENCE
10-Q
001-04423
10(w)(w) March 11, 2014
10-Q
001-04423
10(x)(x) March 11, 2014
10-Q
001-04423
10(y)(y) March 11, 2014
10-Q
001-04423
10(z)(z) March 11, 2014
10-Q
001-04423
10(a)(a)(a) March 11, 2014
10-Q
001-04423
10(b)(b)(b) March 11, 2014
10-Q
001-04423
10(c)(c)(c) March 11, 2015
10-Q
001-04423
10(d)(d)(d) March 11, 2015
10-Q
001-04423
10(e)(e)(e) March 11, 2015
10-Q
001-04423
10(f)(f)(f) March 11, 2015
10-Q
001-04423
10(g)(g)(g) March 11, 2015
10-Q
001-04423
10(h)(h)(h) March 11, 2015
10-Q
001-04423
10(i)(i)(i) March 11, 2015
10-Q
001-04423
10(b)(b)(b)
June 8, 2015
10-Q
001-04423
10(c)(c)(c)
June 8, 2015
10-Q
001-04423
10(j)(j)
June 5, 2018
Form of Stock Notification and Award Agreement for
long-term cash awards.*
Form of Stock Notification and Award Agreement for
awards of non-qualified stock options.*
Form of Grant Agreement for grants of performance-
adjusted restricted stock units.*
Form of Stock Notification and Award Agreement for
awards of restricted stock.*
Form of Stock Notification and Award Agreement for
awards of performance-contingent non-qualified
stock options.*
Form of Grant Agreement for grants of performance-
contingent non-qualified stock options.*
Form of Grant Agreement for grants of restricted
stock units.*
Form of Grant Agreement for grants of foreign stock
appreciation rights.*
Form of Grant Agreement for grants of long-term
cash awards.*
Form of Grant Agreement for grants of non-qualified
stock options.*
Form of Grant Agreement for grants of performance-
adjusted restricted stock units.*
Form of Grant Agreement for grants of restricted
stock awards.*
Form of Grant Agreement for grants of performance-
contingent non-qualified stock options.*
Term Loan Agreement, dated as of April 30, 2015,
among the Registrant, the lenders named therein and
JPMorgan Chase Bank, N.A., as administrative agent.
Amendment, dated as of June 1, 2015, to the Term
Loan Agreement, dated as of April 30, 2015, among
the Registrant, the lenders named therein and
JPMorgan Chase Bank, N.A., as administrative agent.
Second Amended and Restated Five-Year Credit
Agreement, dated as of April 2, 2014, as Amended and
Restated as of November 1, 2015, as further Amended
and Restated as of March 30, 2018, among the
Registrant, the lenders named therein and Citibank,
N.A., as administrative processing agent and co-
administrative agent, and JPMorgan Chase Bank, N.A.,
as co-administrative agent.
10(k)(k)
10(l)(l)
Form of Grant Agreement for grants of foreign stock
appreciation rights.*
Form of Grant Agreement for grants of performance-
contingent non-qualified stock options.*
10-K
001-04423
10(e)(e)(e) December 16, 2015
10-K
001-04423
10(f)(f)(f) December 16, 2015
2018 Form 10-K
I 125
EXHIBIT
NUMBER
10(m)(m)
10(n)(n)
10(o)(o)
10(p)(p)
10(q)(q)
10(r)(r)
10(s)(s)
10(t)(t)
10(u)(u)
10(v)(v)
EXHIBIT DESCRIPTION
FORM
FILE NO.
EXHIBIT(S)
FILING DATE
INCORPORATED BY REFERENCE
Form of Grant Agreement for grants of non-qualified
stock options.*
Registrant’s 2005 Executive Deferred Compensation
Plan, amended and restated effective
November 1, 2015.*
Registrant’s Severance and Long-Term Incentive
Change in Control Plan for Executive Officers, amended
and restated effective November 1, 2015.*
Form of Stock Notification and Award Agreement for
awards of performance-contingent non-qualified stock
options (launch grant).*
Form of Stock Notification and Award Agreement for
awards of restricted stock units (launch grant).*
Form of Stock Notification and Award Agreement for
awards of restricted stock units.*
Form of Stock Notification and Award Agreement
for awards of performance-adjusted restricted
stock units.*
Form of Amendment to Award Agreements for awards
of restricted stock units or performance-adjusted
restricted stock units, effective January 1, 2016.*
First Amendment to Severance and Long-Term
Incentive Change in Control Plan for Executive
Officers, as amended and restated effective
November 1, 2015.*
Second Amendment to Severance and Long-Term
Incentive Change in Control Plan for Executive
Officers, as amended and restated effective
November 1, 2015.*
10-K
001-04423
10(g)(g)(g) December 16, 2015
10-K/A 001-04423
10(n)(n) December 15, 2017
10-Q
001-04423
10(o)(o) March 3, 2016
10-Q
001-04423
10(p)(p) March 3, 2016
10-Q
001-04423
10(q)(q) March 3, 2016
10-Q
001-04423
10(r)(r) March 3, 2016
10-Q
001-04423
10(s)(s) March 3, 2016
10-Q
001-04423
10(t)(t) March 3, 2016
10-K
001-04423
10(u)(u) December 15, 2016
10-Q
001-04423
10(v)(v) March 2, 2017
10(w)(w)
2017 Amendment to the Hewlett-Packard Company
Cash Account Restoration Plan.*
10(x)(x)
10(y)(y)
10(z)(z)
Second Amendment to the Hewlett-Packard Company
Excess Benefit Retirement Plan.*
Second Amended and Restated HP Inc. 2004 Stock
Incentive Plan, as amended and restated effective
January 23, 2017.*
Form of Grant Agreement for grants of performance-
adjusted restricted stock units (for use from
November 1, 2016).*
10-Q
001-04423
10(w)(w) March 2, 2017
10-Q
001-04423
10(x)(x) March 2, 2017
10-Q
001-04423
10(y)(y) March 2, 2017
10-Q
001-04423
10(z)(z) March 2, 2017
10(a)(a)(a)
Form of Grant Agreement for grants of restricted stock
units (for use from November 1, 2016).*
10-Q
001-04423
10(a)(a)(a) March 2, 2017
10(b)(b)(b) Second Amended and Restated HP Inc. 2004
10-Q
001-04423
10(b)(b)(b) March 1, 2018
Stock Incentive Plan (as amended effective
January 29, 2018).*
10(c)(c)(c)
Form of Grant Agreement for grants of restricted stock
units (for use from November 1, 2017).*
10-Q
001-04423
10(c)(c)(c) March 1, 2018
126 I
2018 Form 10-K
EXHIBIT
NUMBER
EXHIBIT DESCRIPTION
FORM
FILE NO.
EXHIBIT(S)
FILING DATE
10(d)(d)(d) Form of Grant Agreement for grants of performance-
10-Q
001-04423
10(d)(d)(d) March 1, 2018
INCORPORATED BY REFERENCE
10-Q
001-04423
10(e)(e)(e) March 1, 2018
10-Q
001-04423
10(f)(f)(f) March 1, 2018
adjusted restricted stock units (for use from
November 1, 2017).*
10(e)(e)(e)
Form of Grant Agreement for grants of restricted stock
units for directors (for use from November 1, 2017).*
10(f)(f)(f)
Form of Grant Agreement for grants of stock options
for directors (for use from November 1, 2017).*
10(g)(g)(g) Form of Grant Agreement for grants of restricted stock
units (for use from November 1, 2018).*†
10(h)(h)(h) Form of Grant Agreement for grants of performance-
21
23
24
31�1
31�2
32
adjusted restricted stock units (for use from
November 1, 2018).*†
Subsidiaries of the Registrant as of October 31, 2018.†
Consent of Independent Registered Public
Accounting Firm.†
Power of Attorney (included on the signature page)�
Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended.‡
Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended.‡
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.†
101.INS
XBRL Instance Document.‡
101.SCH
XBRL Taxonomy Extension Schema Document.‡
101.CAL
101.DEF
XBRL Taxonomy Extension Calculation
Linkbase Document.‡
XBRL Taxonomy Extension Definition
Linkbase Document.‡
101�LAB
XBRL Taxonomy Extension Label Linkbase Document.‡
101.PRE
XBRL Taxonomy Extension Presentation
Linkbase Document.‡
*
Indicates management contract or compensatory plan, contract or arrangement.
** Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Registration S-K. A copy of any omitted schedule and/or
exhibit will be furnished supplementally to the SEC upon request.
†
Filed herewith.
†† Furnished herewith.
The registrant agrees to furnish to the Commission supplementally upon request a copy of (1) any instrument with respect to long-term debt not
filed herewith as to which the total amount of securities authorized thereunder does not exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis and (2) any omitted schedules to any material plan of acquisition, disposition or reorganization set forth above.
2018 Form 10-K
I 127
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: December 13, 2018
HP INC.
By:
/s/ STEVE FIELER
Steve Fieler
Chief Financial Officer
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steve Fieler, Kim
Rivera and Ruairidh Ross, or any of them, his or her attorneys-in-fact, for such person in any and all capacities, to sign any amendments
to this report and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated�
SIGNATURE
TITLE(S)
DATE
/s/ DION J. WEISLER
Dion J. Weisler
/s/ STEVE FIELER
Steve Fieler
/s/ MARIE E. MYERS
Marie E. Myers
/s/ AIDA ALVAREZ
Aida Alvarez
/s/ SHUMEET BANERJI
Shumeet Banerji
/s/ ROBERT R. BENNETT
Robert R. Bennett
/s/ CHARLES V. BERGH
Charles V. Bergh
128 I
2018 Form 10-K
President and Chief Executive Officer and Director
(Principal Executive Officer)
December 13, 2018
Chief Financial Officer
(Principal Financial Officer)
December 13, 2018
Global Controller and Head of Finance Services
(Principal Accounting Officer)
December 13, 2018
Director
Director
Director
Director
December 13, 2018
December 13, 2018
December 13, 2018
December 13, 2018
SIGNATURE
TITLE(S)
DATE
/s/ STACY BROWN-PHILPOT
Stacy Brown-Philpot
/s/ STEPHANIE BURNS
Stephanie Burns
/s/ MARY ANNE CITRINO
Mary Anne Citrino
/s/ STACEY MOBLEY
Stacey Mobley
/s/ SUBRA SURESH
Subra Suresh
Director
Director
Director
Director
Director
ITEM 16. Form 10-K Summary
None�
December 13, 2018
December 13, 2018
December 13, 2018
December 13, 2018
December 13, 2018
2018 Form 10-K
I 129
FORWARD-LOOKING STATEMENTSThis document 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; 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 described in HP’s Annual Report on Form 10-K for the fiscal year ended October 31, 2018 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. USE OF NON-GAAP FINANCIAL INFORMATIONHP has included non-GAAP financial measures in this document to supplement HP’s consolidated financial statements presented on a generally accepted accounting principles (“GAAP”) basis. Definitions of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the press release announcing our fiscal 2018 full year and fourth quarter results. HP’s management uses net revenue on a constant currency basis, non-GAAP operating profit, non-GAAP net earnings, non-GAAP diluted net earnings per share, and other non-GAAP financial measures to evaluate and forecast HP’s performance before gains, losses or other charges that are considered by HP’s management to be outside of HP’s core business segment operating results. Free cash flow is a liquidity measure that provide useful information to management about the amount of cash available for investment in HP’s businesses, funding acquisitions, repurchasing stock and other purposes. These and the other non-GAAP financial measures that HP uses may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of HP’s results as reported under GAAP. The non-GAAP financial information that we provide also may differ from the non-GAAP information provided by other companies. We compensate for the limitations on our use of these non-GAAP financial measures by relying primarily on our GAAP financial statements and using non-GAAP financial measures only supplementally. We also provide reconciliations of non-GAAP financial measure to the most directly comparable GAAP measure, and we encourage investors to review those reconciliations carefully. We believe that providing these non-GAAP financial measures in addition to the related GAAP measures provides investors with greater transparency to the information used by HP’s management in its financial and operational decision-making and allows investors to see HP’s results “through the eyes” of management. We further believe that providing this information better enables investors to understand HP’s operating performance and financial condition and to evaluate the efficacy of the methodology and information used by HP’s management to evaluate and measure such performance and financial condition.HP’s Investor Relations website at https://investor.hp.com contains a significant amount of information about HP, including financial and other information for investors. HP encourages investors to visit its website from time to time, as information is updated and new information is posted.© Copyright 2019 HP Development Company, LP. The information contained herein is subject to change without notice. This document is provided for information purposes only. The only warranties for HP products and services are set forth in the express warranty statements accompanying such products and services. Nothing herein should be construed as constituting an additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.Prepared by www.argyleteam.com This cover is an HP Indigo digital print, on paper containing 30%
post-consumer recycled paper that is environmentally and socially
responsible sourced from well-managed forests, and independently
certified according to the standards of the Forest Stewardship
Council (FSC®).
By printing this annual report and proxy statement on paper
containing 30% post-consumer recycled waste, the following
environmental savings were achieved:
18 fewer tons of wood was harvested, or the equivalent of
108 trees
46.8 million fewer BTUs of net energy were used over the
life cycle of the paper, enough energy to power an average
US home for 188 days
52 million fewer BTUs of net
energy were used over the
lifecycle of the paper, enough
energy to power an average US
home for 209 days
47,600 fewer pounds CO2 equivalents were released into
the atmosphere, the equivalent of removing 4.3 cars from
the road for one year
Environmental impact
estimates were made
using the Environmental
Paper Network Paper
Calculator Version 4.0.
For more information visit
www.papercalculator.org.
9,800 fewer gallons of water were consumed or degraded
throughout the lifecycle of the paper
430 fewer pounds of solid waste were produced, including
sludge and paper disposed of in landfills and incinerators
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