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, 2019
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)
(650) 857-1501
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.01 per share
HPQ
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes 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 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-accelerated filer
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 $30,007,738,276 based on the last sale price of common stock on
April 30, 2019.
The number of shares of HP Inc. common stock outstanding as of November 30, 2019 was 1,453,187,484 shares.
DOCUMENT DESCRIPTION
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement related to its 2020 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
within 120 days after Registrant’s fiscal year end of October 31, 2019 are incorporated by reference into Part III of this Report.
10-K PART
III
HP Inc. and Subsidiaries
Form 10-K
For the Fiscal Year ended October 31, 2019
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
26
26
27
27
27
28
30
47
49
121
121
121
122
122
122
122
122
123
131
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, 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 business model and transformation, our sustainability goals, our go-to-market strategy 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, business model changes and transformation;
successfully innovating, developing and executing HP’s go-to-market strategy, including online, omnichannel and contractual sales, in an
evolving distribution and reseller landscape; 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; successfully competing and maintaining
the value proposition of HP’s products, including supplies; the need to manage third-party suppliers, manage HP’s global, multi-tier
distribution network, limit potential misuse of pricing programs by HP’s channel partners, adapt to new or changing marketplaces and
effectively deliver HP’s services; challenges to HP’s ability to accurately forecast inventories, demand and pricing, which may be due to
HP’s multi-tiered channel, sales of HP’s products to unauthorized resellers or unauthorized resale of HP’s products; 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 protection of HP’s intellectual property assets, including intellectual property licensed from third parties; the hiring and retention of
key employees; the impact of macroeconomic and geopolitical trends and events; risks associated with HP’s international operations;
the execution and performance of contracts by HP and its suppliers, customers, clients and partners; the impact of changes in tax laws,
including uncertainties related to the interpretation and application of the Tax Cuts and Jobs Act of 2017 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.
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.
2 I
2019 Form 10-K
As part of the separation of Hewlett Packard Enterprise Company
(“Hewlett Packard Enterprise”), Hewlett-Packard Company’s
former enterprise technology infrastructure, software, services
and financing businesses (the “Separation”) on November 1, 2015,
HP and Hewlett Packard Enterprise entered into a separation and
distribution agreement, an employee matters agreement and
various other agreements which remain enforceable that provide
a framework for the continuing relationships between the parties.
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 and investment 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 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”).
reliability and manageability
Commercial PCs are optimized for use by enterprise, public sector
and SMB customers, with a focus on robust designs, security,
serviceability, connectivity,
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 creating content, staying
informed and security. These systems include HP Spectre, HP
Envy, HP Pavilion, HP Chromebook, HP Stream, Omen by HP lines
of notebooks and hybrids and HP Envy, HP Pavilion desktops and
all-in-one lines, and Omen by HP desktops.
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
consumer desktops,
desktops, thin clients, and retail POS systems;
includes
commercial
• 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 some Samsung Electronics Co., Ltd (“Samsung”)-
branded and Original Equipment Manufacturer (“OEM”) hardware
and solutions. HP goes to market through its extensive channel
network and directly with HP sales.
Home Printing Solutions delivers innovative printing products,
supplies, services and solutions for the home, home business
and micro business customers utilizing both HP’s
Ink and
laser technology from some
Laser technologies (including
Samsung-branded products).
Graphics Solutions delivers large-format, commercial and industrial
solutions and supplies to print service providers and packaging
converters through a wide portfolio of printers and presses (HP
DesignJet, HP Latex, HP Stitch, HP Indigo and HP PageWide Web
Presses) and related components.
2019 Form 10-K
I 3
3D Printing and Digital Manufacturing offers a portfolio of additive
manufacturing solutions and supplies to help customers succeed
in their additive and digital manufacturing journey. HP offers
complete solutions in collaboration with an ecosystem of partners.
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 and Digital Manufacturing,
excluding supplies;
• Consumer Hardware consists of home printing solutions,
excluding supplies; and
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.
• Supplies comprises a set of highly innovative consumable
laser cartridges to
products, ranging from
media, graphics supplies and 3D Printing and Digital
Manufacturing supplies, for recurring use in consumer and
commercial hardware.
ink and
Corporate Investments
Corporate Investments includes HP Labs and certain business
incubation and investment projects.
The mix of our business conducted by direct sales or channel
sales differs by business and geographic market. We believe
that customer buying patterns and different geographic market
conditions require us to tailor our sales, marketing and distribution
efforts to the geographic market and sub-geographic specificities
for each of our businesses. 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 sub-assemblies that we acquire from a wide range of vendors.
We utilize two primary methods of fulfilling demand for products:
building products to order and configuring products to order.
We build products to order to maximize manufacturing and
logistics efficiencies by producing high volumes of basic product
configurations. Alternatively, configuring products to order enables
units to match a customer’s hardware and software customization
requirements. Our
inventory management and distribution
practices in both building products to order and configuring
products to order seek to minimize inventory holding periods by
taking delivery of the inventory and manufacturing shortly before
the sale or distribution of products to our customers.
We purchase materials, supplies and product sub-assemblies 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
4 I
2019 Form 10-K
of these sources have operations in multiple locations, mitigating
the effect of a disruption). For instance, we source the majority of
our A4 and a portion of A3 portfolio laser printer engines and laser
toner cartridges from Canon. Any decision by either party not to
renew our agreement with Canon or to limit or reduce the scope
of the agreement could adversely affect our net revenue from
LaserJet products; however, we have a long-standing business
relationship with Canon and anticipate renewal of this agreement.
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.
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
information technology (“IT”)
Like other participants
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
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.
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 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.
2019 Form 10-K
I 5
Patents
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, 2019, our worldwide patent
portfolio included over 27,000 patents.
Patents generally have a term of twenty years from the date
they are filed. As our patent portfolio has been built over time,
the remaining terms of the individual patents across our patent
portfolio vary. We believe that our patents and patent applications
are important for maintaining the competitive differentiation
of our products and services, enhancing our freedom of action
to sell our products and services in markets in which we choose
to participate, and maximizing our return on research and
development investments. No single patent is essential to HP as a
whole or to any of HP’s business segments.
In addition to developing our patent portfolio, we license intellectual
property (“IP”) from third parties as we deem appropriate. We have
also granted and continue to grant to others licenses, and other
rights, under our patents when we consider these arrangements
to be in our interest. These license arrangements include a number
of cross-licenses with third parties.
For a discussion of risks attendant to IP rights, see “Risk Factors—
Our financial performance may suffer if we cannot continue to
develop, license or enforce the intellectual property rights on
which our businesses depend”, “Risk Factors—Our products and
services depend in part on IP and technology licensed from third
parties” and “Risk Factors—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” 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.
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, innovation,
reputation,
performance, price, quality,
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.
reliability, brand,
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 and introduction of new products and solutions. The
PC market units showed marginal growth. Our primary competitors
6 I
2019 Form 10-K
are Lenovo Group Limited, Dell Inc., Acer Inc., ASUSTeK Computer
Inc., Apple Inc., Toshiba Corporation and Samsung Electronics Co.,
Ltd. In particular geographies, 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 designs, 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 non-original supplies
(including imitation, refill and remanufactured alternatives), which
are often available for lower prices but which can also offer lower
print quality and reliability compared to HP original inkjet and toner
supplies. These and other competing products are often sold
alongside our products through online or omnichannel resellers or
distributors, or such resellers and distributors may highlight the
availability of lower cost non-original supplies. 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,
sustainability, 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, strengthening our business for the long
term and enabling us to develop and deliver the best solutions to
our customers.
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 educational
and economic 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 30% post-consumer recycled content plastic (“RCP”)
across our personal systems and print portfolio by 2025
(which refers to RCP as a percentage of total plastic used
in all HP personal systems, printer hardware, and print
cartridges shipped during the reporting year);
• Use 100% renewable electricity in our global operations by
2035, with an interim goal of 60% by 2025;
• Consistent with a science-based reduction target in line
with 1.5˚C, reduce Scope 1 and Scope 2 greenhouse gas
(“GHG”) emissions in our global operations by 60% by 2025,
compared to 2015;
• Reduce the GHG emissions
intensity of HP’s product
portfolio use (which refers to per unit GHG emissions during
anticipated product lifetime use weighted by contribution of
personal systems and printing products to overall revenue
arising from the use of more than 99% of HP product units
shipped each year) by 30% 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
transportation
emissions
attributable to HP divided by HP’s annual net revenue) by
10% by 2025, compared to 2015;
reported GHG
suppliers’
2019 Form 10-K
I 7
• Help suppliers cut 2 million tonnes of carbon dioxide
Community
• Enable better learning outcomes for 100 million people by
2025, since the beginning of 2015;
• Enroll 1 million HP LIFE (Learning Initiative for Entrepreneurs)
users between 2016 and 2025;
• Contribute $100 million in HP Foundation and employee
community giving cumulatively by 2025 since the beginning
of 2016; and
• Contribute 1.5 million employee volunteering hours
cumulatively by 2025, since the beginning of 2016.
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).
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.
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 are also subject to standards set by public and
private entities related to sustainability issues such as energy
consumption, reusing or recycling. 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 or standards, our products could be restricted from
entering certain jurisdictions or from being procured by certain
governments or private companies, 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, such as carbon pricing or product energy efficiency
requirements. 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 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. We believe that technology will be
fundamental to finding solutions to achieve compliance with
and manage those requirements, and we are collaborating with
8 I
2019 Form 10-K
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. This
commitment is reflected and outlined in 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.
Information about our Executive Officers
The following are our current executive officers:
Claire Bramley; age 42; Global Controller
Ms. Bramley has served as Global Controller since December 2018.
Previously, Ms. Bramley served as the Regional Head of Finance
for Europe-Middle East-Africa from June 2015 to December 2018
and Vice President of Worldwide Financial Planning and Analysis
from May 2013 to June 2015.
Alex Cho; age 47; President, Personal Systems
Mr. Cho has served as President, Personal Systems since June 2018.
From 2014 to 2018, Mr. Cho served as Global Head and General
Manager of Commercial Personal Systems at Hewlett-Packard
Company. Prior to that role, Mr. Cho served as the Vice President
and General Manager of the LaserJet Supplies team from 2010
to 2014.
Steve Fieler; age 46; Chief Financial Officer
Mr. Fieler has served as Chief Financial Officer since July 2018.
Previously, Mr. Fieler served as Head of Global Treasury from
January 2017 to June 2018. 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 58; 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.
Enrique Lores; age 54; President and Chief Executive Officer
Mr. Lores has served as President and Chief Executive Officer since
November 2019. Throughout his 30-year tenure with the company,
Mr. Lores held leadership positions across the organization, most
recently serving as President, Printing, Solutions and Services from
November 2015 to November 2019, and prior to that role, 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.
Kim Rivera; age 51; President, Strategy and Business
Management and Chief Legal Officer
Ms. Rivera has served as President, Strategy and Business
Management and Chief Legal Officer since January 2019.
Previously, she served as Chief Legal Officer and General Counsel
from November 2015 to January 2019. 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.
2019 Form 10-K
I 9
Christoph Schell; age 48; Chief Commercial Officer
Mr. Schell has served as Chief Commercial Officer since
November 2019. From November 2018 to October 2019, he
served as the President of 3D Printing & Digital Manufacturing.
Before that, he served as President of the Americas region
from November 2015 to November 2018 and managed the
Americas region for the HP Print and Personal Systems business
from August 2014 to November 2015. Prior to rejoining HP in
August 2014, Mr. Schell served as Executive Vice President of the
Lighting business in Growth Markets at Philips. Prior to Philips,
Mr. Schell held various roles at HP and Procter & Gamble.
Tuan Tran; age 52; President of Imaging, Printing
and Solutions
Mr. Tran served as President of Imaging, Printing and Solutions
since November 2019. Previously, he served as Global Head &
General Manager of the Office Printing Solutions business from
2016 to November 2019, and Global Head & General Manager of
the LaserJet and Enterprise Solutions business from 2014 to 2016.
Employees
We had approximately 56,000 employees worldwide as of October 31, 2019.
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://investor.hp.com, as soon as reasonably practicable
after HP electronically files such reports with, or furnishes
those reports to, the Securities and Exchange Commission. HP’s
Corporate Governance Guidelines, Board of Directors’ committee
charters (including the charters of the Audit Committee, Finance,
Investment and Technology Committee, HR and Compensation
Committee, and Nominating, Governance and Social Responsibility
Committee) and code of ethics entitled “Integrity at HP” (none of
which are incorporated by reference herein) are also available at
that same location on our website. If the Board grants any waivers
from Integrity at HP to any of our directors or executive officers,
Additional Information
or if we amend Integrity at HP, we will, if required, disclose these
matters via updates to our website at http://investor.hp.com on
a timely basis. We encourage investors to visit our website from
time to time, as information is updated and new information
is posted. The content of our website is not incorporated by
reference into this Annual Report on Form 10-K or in any other
report or document we file with the SEC, and any references to our
website are intended to be inactive textual references only.
Stockholders may request free copies of these documents from:
HP Inc.
Attention: Investor Relations
1501 Page Mill Road,
Palo Alto, CA 94304
http://investor.hp.com/resources/
information-request/default.aspx
Microsoft® and Windows® are either registered trademarks or
trademarks of Microsoft Corporation in the United States and/or
other countries. Intel® is a trademark of Intel Corporation or its
subsidiaries in the United States and/or other countries. AMD is a
trademark of Advanced Micro Devices, Inc. Google™ and Google
Chrome™ are trademarks of Google LLC. All other trademarks are
the property of their respective owners.
Item 1A. Risk Factors.
The following discussion of risk factors contains forward-looking
statements. These risk factors may be important for understanding
any statement in this Form 10-K or elsewhere. The following
information should be read in conjunction with Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and the Consolidated Financial Statements
and related notes in Part II, Item 8, “Financial Statements and
Supplementary Data” of this Form 10-K.
10 I
2019 Form 10-K
Because of the following factors, as well as other variables
affecting our results of operations, past financial performance
may not be a reliable indicator of future performance, and
historical trends should not be used to anticipate results or
trends in future periods.
Risks related to our business
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.
For example, a competitive pricing environment and weakened
market in certain geographies with associated customer pricing
sensitivity has presented market challenges in Printing. 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 global, multi-tier distribution network, limit
potential misuse of pricing programs by our channel partners,
adapt to new or changing marketplaces or successfully market
new products and services, any of which could adversely affect our
business and financial condition.
In addition, we have in the recent past and may again in the future
face macroeconomic challenges, including weakness in certain
geographic regions and global political developments that impact
international trade, such as trade disputes and increased tariffs.
We may also be vulnerable to increased risks associated with
our efforts to address such challenges given the broad range of
geographic markets 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, security, availability of application software and internet
infrastructure offerings, and our sustainability performance. If our
reliability, brand,
products, services, support and cost structure do not enable us
to compete successfully, our results of operations and business
prospects could be harmed.
We have a large portfolio of products and must allocate our
financial, personnel and other resources across all of our products
while competing with companies that have smaller portfolios or
specialize in one or more of our product lines. As a result, we may
invest less in certain areas of our business than our competitors,
and our competitors may have greater financial, technical and
marketing resources available to their products and services
compared to the resources allocated to our competing products
and services.
Companies with whom we have alliances in certain areas may
be or may become our competitors in other areas. In addition,
companies with whom we have alliances also may acquire or form
alliances with our competitors, which could reduce their business
with us. If we are unable to effectively manage these complicated
relationships with alliance partners, our business and results of
operations could be adversely affected.
We face aggressive price competition and may have to continue
lowering the prices of many of our products and services to stay
competitive, while at the same time trying to maintain or improve
our revenue and gross margin. In addition, competitors who have
a greater presence in some of the lower-cost markets in which
we compete, or who can obtain better pricing, more favorable
contractual terms and conditions, or more favorable allocations
of products and components during periods of limited supply,
may be able to offer lower prices than we are able to offer.
Our cash flows, results of operations and financial condition
may be adversely affected by these and other industry-wide
pricing pressures.
Industry consolidation may also affect competition by creating
larger, more homogeneous and potentially stronger competitors
in the markets in which we operate. Additionally, our competitors
may affect our business by entering into exclusive arrangements
with our existing or potential customers or suppliers.
Because our business model is based on providing innovative and
high-quality products, we may spend a proportionately greater
amount of our revenues on research and development than some
of our competitors. If we cannot proportionately decrease our
cost structure (apart from research and development expenses)
on a timely basis in response to competitive price pressures, our
gross margin and, therefore, our profitability could be adversely
affected. In addition, if our pricing and other facets of our offerings
are not sufficiently competitive, or if there is a negative reception
to our product decisions, we may lose market share in certain
areas, which could adversely affect our financial performance and
business prospects.
2019 Form 10-K
I 11
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, non-original supplies (including
imitation, refill or remanufactured alternatives) for some of our
LaserJet toner and InkJet cartridges compete with our Printing
Supplies business.
increasingly using online and omnichannel
Customers are
resellers and distributors to purchase our products. These
resellers and distributors often sell our products alongside
competing products, including non-original supplies, or they
may highlight the availability of lower cost non-original supplies.
We expect this competition will continue, and it may negatively
impact our financial performance, particularly if large commercial
customers purchase competing products instead of HP products.
If we cannot successfully execute our 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,
innovate and develop new products and services that will enable
us to expand beyond our existing technology categories and adapt
to new and changing marketplaces for our products. For example,
our go-to-market strategy, including online, omnichannel and
contractual sales, needs to evolve in-line with market dynamics,
forces and demand. If we cannot innovate, develop and execute
evolutionary strategies in this changing environment, then we
may not be able to successfully compete and maintain the value
proposition of our products, including supplies. 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, cash flows,
results of operations and financial condition. For example, our
strategy includes advancing our position in the Personal Systems
and Printing markets. In Personal Systems, we are focused on
reinventing computing experiences, growing the lifetime value of
our products, and accelerating services and solutions; in Printing,
we are focused on driving print innovation, maximizing the value of
our installed base of printers, accelerating our contractual business
model and pivoting our business models to providing customers
choice. Our strategy also includes disrupting in our industrial
businesses, primarily by expanding our Graphics and 3D Printing
solutions and unlocking new sources of value from microfluidics.
We must optimize our cost structure, make long-term investments,
develop or acquire and appropriately protect intellectual property,
and commit significant research and development and other
resources before knowing whether our predictions will accurately
reflect customer demand for our products and services. Any
failure to accurately predict technological and business trends,
control research and development costs or execute our strategy
could harm our business and financial performance. Our research
and development initiatives or other investments 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, and our customers may not adopt our new
business models.
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. Moreover, new products
and services may not be profitable, and even if they are profitable,
operating margins for some new products and businesses may
not be as high as the margins we have experienced historically.
If we cannot continue to produce high-quality and secure
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 “Spectre” and “Meltdown” side-channel exploit
12 I
2019 Form 10-K
threats. In order to address quality and security issues, we work
extensively with our customers and suppliers and engage in
product testing to determine the causes of problems and to
develop and implement effective solutions. However, the products
and services that we offer are complex, and our regular testing
and quality control efforts may not be completely effective in
controlling or detecting all quality and security issues or errors,
particularly with respect to defects or security vulnerabilities in
components manufactured by third parties.
If we are unable to determine the cause or find an effective
solution to address quality and security issues with our products,
we may delay shipment to customers, which would delay revenue
recognition and receipt of customer payments and could adversely
affect our net revenue, cash flows and profitability. In addition,
after products are delivered, quality and security issues may
require us to repair or replace such products. Addressing quality
and security issues can be expensive and may result in additional
warranty, repair, replacement and other costs, adversely affecting
our financial performance. In the event of security vulnerabilities
or other issues with third-party components, we may have to rely
on third parties to provide mitigation techniques such as firmware
updates. Furthermore, mitigation techniques for vulnerabilities
in third-party components may be ineffective or may result
in adverse performance, system instability and data loss or
corruption. If new or existing customers have difficulty operating
our products or are dissatisfied with our services, our results of
operations could be adversely affected, and we could face possible
claims if we fail to meet our customers’ expectations. In addition,
quality and security issues, including those resulting from defects
or security vulnerabilities in third-party components, can impair
our relationships with new or existing customers and adversely
affect our brand and reputation, which could, in turn, adversely
affect our cash flows, results of operations and financial condition.
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 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, increased tariffs, 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, increased tariffs,
regulatory impacts and other factors may result in reductions in
revenue or pressure on gross margins in a given period, which may
lead to adjustments to our operations. For example, our supplies
business has recently experienced declining revenues due to
declines in market share, installed base and usage, and increased
customer pricing sensitivity. 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.
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 increased tariffs, which could increase the cost
of certain components, products and services that we may not
be able to offset. 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
2019 Form 10-K
I 13
working conditions and materials sourcing and risks related to
our relationships with single-source suppliers, each of which is
described below.
• Component shortages. We may experience a shortage of,
or a delay in receiving, certain components as a result of
strong demand, capacity constraints, supplier financial
weaknesses, the inability of suppliers to borrow funds,
disputes with suppliers (some of whom are also our
customers), disruptions in the operations of component
suppliers, other problems experienced by suppliers or
problems faced during the transition to new suppliers.
For example, our PC business relies heavily upon OMs to
manufacture its products and is therefore dependent upon
the continuing operations of those OMs to fulfill demand
for our PC products. We represent a substantial portion
of the business of some of these OMs, and any changes
to the nature or volume of our business transactions with
a particular OM could adversely affect the operations and
financial condition of the OM and lead to shortages or delays
in receiving products from that OM. If shortages or delays
persist, the price of certain components may increase, we
may be exposed to quality issues or the components may
not be available at all. We may not be able to secure enough
components at reasonable prices or of acceptable quality
to build products or provide services in a timely manner in
the quantities needed or according to our specifications.
Accordingly, our business, cash flows, results of operations
and financial condition could suffer if we lose time-sensitive
sales, incur additional freight costs or are unable to pass on
price increases to our customers. If we cannot adequately
address supply issues, we might have to re-engineer some
product or service offerings, which could result in further
costs and delays.
• Excess supply. In order to secure components for our
products or services, at times we may make advance
payments to suppliers or enter
into non-cancelable
commitments with vendors. In addition, we may purchase
components strategically in advance of demand to take
advantage of favorable pricing or to address concerns about
the availability of future components. If we fail to anticipate
customer demand properly, a temporary oversupply could
result in excess or obsolete components, which could
adversely affect our business and financial performance.
• Contractual terms. As a result of binding long-term price or
purchase commitments with vendors, we may be obligated
to purchase components or services at prices that are higher
than those available in the current market and be limited
in our ability to respond to changing market conditions.
If we commit to purchasing components or services for
prices in excess of the then-current market price, we may
be at a disadvantage to competitors who have access to
14 I
2019 Form 10-K
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
cash flows, 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 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.
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 sales and indirect channel sales 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, any 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.
They may also have difficulty selling our products under new
business models. 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 or if our distributors cannot
successfully compete in the online or omnichannel marketplace.
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. Our forecasts may not accurately predict
demand, and 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,
including a multi-tiered channel, may reduce our visibility into
inventories, demand and pricing trends and issues, and therefore
make forecasting more difficult. Sales of our products by channel
partners to unauthorized resellers or unauthorized resale of our
products could also make our forecasting more difficult and impact
pricing in the market. 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. In addition, factors in
different markets may cause differential discounting between the
geographies where our products are sold, which makes it difficult
to achieve global consistency in pricing and creates the opportunity
for grey marketing.
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
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 by the customer. Depending on when they occur
in a quarter, developments such as a systems failure, component
2019 Form 10-K
I 15
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.
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.
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.
Any failure by us to
identify, manage and complete
acquisitions, divestitures and other significant transactions
successfully could harm our financial results, business
and prospects.
As part of our business strategy, we may acquire companies
or businesses, divest businesses or assets, enter into strategic
alliances and joint ventures and make investments to further our
business (collectively, “business combination and investment
transactions”). Risks associated with business combination and
investment transactions include the following, any of which could
adversely affect our revenue, gross margin, profitability and
financial results:
• Managing business combination and investment transactions
requires varying levels of management resources, which
may divert our attention from other business operations.
• We may not fully realize all of the anticipated benefits of any
particular business combination and investment transaction,
and the timeframe for realizing the benefits of a particular
business combination and
investment transaction may
depend partially upon the actions of employees, advisors,
suppliers, other third-parties or market trends.
• Certain prior business combination and
investment
transactions resulted, and in the future any such transactions
may result, in significant costs and expenses, including those
related to severance pay, early retirement costs, employee
benefit costs, goodwill and asset impairment charges,
charges from the elimination of duplicative facilities and
16 I
2019 Form 10-K
• 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.
• Our due diligence process may fail to identify significant
issues with the acquired company’s product quality, financial
disclosures, accounting practices or internal controls.
• The pricing and other terms of our contracts for business
combination and investment transactions require us to
make estimates and assumptions at the time we enter into
these contracts, and, during the course of our due diligence,
we may not identify all of the factors necessary to estimate
accurately our costs, timing and other matters or we may
incur costs if a business combination and investment
transaction is not consummated.
•
In order to complete a business combination and investment
transaction, we may
issue common stock, potentially
creating dilution for our existing stockholders.
• We may borrow to finance business combination and
investment transactions, and the amount and terms of any
potential acquisition-related or other borrowings, as well as
other factors, could affect our liquidity and financial condition.
• Our effective tax rate on an ongoing basis is uncertain, and
business combination and investment transactions could
adversely impact our effective tax rate.
• Any announced business combination and
investment
transaction may not close on the expected timeframe or
at all, which may cause our financial results to differ from
expectations in a given quarter.
• Business combination and investment transactions may
lead to litigation, which could impact our financial condition
and results of operations.
•
business
combination
identify and successfully complete and
If we fail to
integrate
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.
and
We have incurred and will incur additional depreciation and
amortization expense over the useful lives of certain assets
acquired in connection with business combination and investment
transactions, and, to the extent that the value of goodwill, tangible
or intangible assets acquired in connection with a business
combination and investment transaction becomes impaired, we
may be required to incur additional material charges relating to the
impairment of those assets. If there are future decreases in our
stock price or significant changes in the business climate or results
of operations of our reporting units, we may incur additional
charges, which may include impairment charges.
As part of our business strategy, we regularly evaluate the
potential disposition of assets and businesses that may no
longer help us meet our objectives. When we decide to sell assets
or a business, we may encounter difficulty in finding buyers
or alternative exit strategies on acceptable terms in a timely
manner, which could delay the achievement of our strategic
objectives. We may also dispose of a business at a price or on
terms that are less desirable than we had anticipated. In addition,
we may experience greater dis-synergies than expected, and
the impact of the divestiture on our revenue growth may be
larger than projected. After reaching an agreement with a buyer
or seller for the acquisition or disposition of a business, we
are subject to satisfaction of pre-closing conditions as well as
necessary regulatory and governmental approvals on acceptable
terms, which, if not satisfied or obtained, may prevent us from
completing the transaction. Such regulatory and governmental
approvals may be required in diverse jurisdictions around the
world, including jurisdictions with opaque regulatory frameworks,
and any delays in the timing of such approvals could materially
delay the transaction or prevent it from closing.
Integrating acquisitions may be difficult and time-consuming.
Any failure by us to integrate acquired companies, products
or services into our overall business in a timely manner could
harm our financial results, business and prospects.
In order to pursue our strategy successfully, we must identify
candidates for and successfully complete business combination and
investment transactions, some of which may be large or complex,
and manage post-closing issues such as the integration of acquired
businesses, products, services or employees. Integration issues are
often time-consuming and expensive and, without proper planning
and implementation, could significantly disrupt our business and the
acquired business. The challenges involved in integration include:
• successfully combining product and service offerings and
entering or expanding into markets in which we are not
experienced or are developing expertise;
• convincing both our customers and distributors and those of
the acquired business that the transaction will not diminish
client service standards or business focus;
• persuading both our customers and distributors and those
of the acquired business not to defer purchasing decisions
or switch to other suppliers (which could result in our
incurring additional obligations in order to address customer
uncertainty), minimizing sales force attrition and expanding
and coordinating sales, marketing and distribution efforts;
• consolidating and rationalizing corporate IT infrastructure,
which may
from
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 have undertaken and may undertake
in the future
restructuring plans in order to realign our cost structure due to
the changing nature of our business and to achieve operating
efficiencies that we expect to reduce costs, including the plans
announced in October 2016, which we amended in May 2018, and
the plan announced in October 2019. We began implementing the
2020 restructuring plan in the fourth quarter of fiscal 2019 and
expect to complete the restructuring by the end of fiscal 2022.
Implementation of any 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
restructuring initiatives, we may experience a loss of continuity,
loss of accumulated knowledge and/or inefficiency, adverse
effects on employee morale, loss of key employees and/or other
retention issues during transitional periods. Reorganization and
restructuring can require a significant amount of management
and other employees’ time and focus, which may divert attention
2019 Form 10-K
I 17
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 restructuring plans, 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.
Finally, we may rely on third-parties to enforce certain IP rights.
For instance, we rely on Canon to enforce IP rights associated with
certain LaserJet products. Failure by Canon to do so could impair
our ability to protect our market share for those products.
Third-party claims of IP infringement are commonplace in
our industry and successful third-party claims may limit or
disrupt our ability to sell our products and services.
Third parties also may claim that we or customers indemnified by
us are infringing upon their IP rights. For example, patent assertion
entities may purchase IP assets for the purpose of asserting claims
of infringement and attempting to extract settlements from
companies such as us and our customers. If we cannot or do not
license allegedly infringed IP at all or on reasonable terms, or if we
are required to substitute similar technology from another source,
our operations could be adversely affected. Even if we believe
that IP claims are without merit, they can be time-consuming
and costly to defend against and may divert management’s
attention and resources away from our business. Claims of IP
infringement also might require us to redesign affected products,
enter into costly settlement or license agreements, pay costly
damage awards, or face a temporary or permanent injunction
prohibiting us from importing, marketing or selling certain of our
products. Even if we have an agreement to indemnify us against
such costs, the indemnifying party may be unable or unwilling to
uphold its contractual obligations to us. Additionally, claims of IP
infringement may adversely impact our brand and reputation and
imperil new and existing customer relationships.
Further, our results of operations and cash flows have been
and could continue to be affected in certain periods and on an
ongoing basis by the imposition, accrual and payment of copyright
levies or similar fees. In certain countries (primarily in Europe),
proceedings are ongoing or have been concluded in which groups
representing copyright owners have sought or are seeking to
impose upon and collect from us levies upon IT equipment (such
as PCs, multifunction devices and printers) alleged to be copying
devices under applicable laws. Other such groups have also sought
to modify existing levy schemes to increase the amount of the
levies that can be collected from us. Other countries that have not
18 I
2019 Form 10-K
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.
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.
Individuals or organizations,
including malicious 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.
Such individuals or organizations 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. Breaches of our facilities,
network, or data security could disrupt the security of our systems
and business applications, impair our ability to provide services
to our customers and protect the privacy of their data, result in
product development delays, compromise confidential or technical
business information harming our reputation or competitive
position, result in theft or misuse of our IP or other assets, require
us to allocate more resources to improved technologies, or
otherwise adversely affect our business. Additionally, 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. Moreover, these threats are constantly evolving,
thereby increasing the difficulty of successfully defending against
them or implementing adequate preventative measures. In some
instances, we may have no current capability to detect certain
vulnerabilities, which may allow them to persist in the environment
over long periods of time. 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.
information and
We manage and store various proprietary
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.
2019 Form 10-K
I 19
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.
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.
including those
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,
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-
20 I
2019 Form 10-K
based compensation. Our equity-based incentive awards may
contain conditions relating to our stock price performance and
our long-term financial performance that make the future value
of those awards uncertain. If the anticipated value of such equity-
based incentive awards does not materialize, if our equity-based
compensation otherwise ceases to be viewed as a valuable
benefit, if our total compensation package is not viewed as being
competitive, or if we do not obtain the stockholder approval needed
to continue granting equity-based incentive awards in the amounts
we believe are necessary, our ability to attract, retain and motivate
executives and key employees could be weakened. Our failure to
successfully hire executives and key employees or the loss of any
executives and key employees could have a significant impact on
our operations. Further, changes in our management team may
be disruptive to our business, and any failure to successfully
transition and assimilate key new hires or promoted employees
could adversely affect our business and results of operations.
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 or drive political or national sentiment, weakening
demand for our products and services.
Economic weakness and uncertainty and political or nationalist
sentiment impacting global trade, including the willingness of
non-U.S. consumers to purchase goods or services from U.S.
corporations, 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, or if any of our distributors, including
wholesale and retail distributors, lack sufficient financial resources
to withstand economic weakness.
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.
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 2019 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, changes
or uncertainty in fiscal or monetary policy 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;
• political or nationalist sentiment impacting global trade,
including the willingness of non-U.S. consumers to purchase
goods or services from U.S. corporations;
•
local labor conditions and regulations, including local labor
issues faced by specific suppliers and Original Equipment
Manufacturers (“OEMs”), or changes to immigration and
labor law which may adversely impact our access to technical
and professional talent;
• 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.
Beginning in 2018, the United States commenced certain trade
actions, including imposing tariffs on certain goods imported from
China and other countries, which has resulted in retaliatory tariffs
by China and other countries. Additional tariffs imposed by the
United States on a broader range of imports, or further retaliatory
trade measures taken by China or other countries in response,
could increase the cost of our products and the components
that go into making them. These increased costs could adversely
impact our overall gross margin and profitability. Tariffs could also
make our products more expensive for customers, which could
make our products less competitive and reduce demand.
2019 Form 10-K
I 21
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.
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. Because a majority of our
revenues are generated outside the United States, 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.
Business disruptions could seriously harm our future revenue
and financial condition and increase our costs and expenses.
Our worldwide operations could be disrupted by earthquakes,
telecommunications failures, power or water shortages, tsunamis,
floods, hurricanes, typhoons, fires, extreme weather conditions
(whether as a result of climate change or otherwise), medical
epidemics or pandemics and other natural or manmade disasters
or catastrophic events, for which we are predominantly self-
insured. The occurrence of any of these business disruptions
could result in significant losses, seriously harm our revenue,
profitability and
financial condition, adversely affect our
competitive position, increase our costs and expenses, and
require substantial expenditures and recovery time in order to
fully resume operations. In addition, global climate change may
result in certain natural disasters occurring more frequently or
with greater intensity, such as drought, wildfires, storms, sea-level
rise, and flooding. 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 North and South America. Our operations
and those of our significant suppliers and distributors 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, our distributors 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. Even if our
operations are unaffected or recover quickly, if our customers
cannot timely resume their own operations due to a catastrophic
event, they may reduce or cancel their orders, which may adversely
affect our results of operations.
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
22 I
2019 Form 10-K
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.
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.
Unanticipated changes in our tax provisions, the adoption of
new tax legislation or exposure to additional tax liabilities
could affect our financial performance.
We are subject to income and other taxes in the United States and
various foreign jurisdictions. Our tax liabilities are affected by the
amounts we charge in intercompany transactions for inventory,
services, licenses, funding and other items. We are subject to
ongoing tax audits in various jurisdictions. Tax authorities may
disagree with these intercompany transactions or other matters
and may assess additional taxes or adjust taxable income on our
tax returns as a result. We regularly assess the likely outcomes of
these audits in order to determine the appropriateness of our tax
provision. However, we cannot assure you that we will accurately
predict the outcomes of these audits, and the amounts ultimately
paid upon resolution of audits could be materially different from
the amounts previously included in our income tax expense and
therefore could have a material impact on our tax provision, net
income and cash flows.
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 or in their interpretation or enforcement. In addition,
tax legislation has been introduced or is being considered in
various jurisdictions that could significantly impact our tax rate,
the carrying value of deferred tax assets, or our deferred tax
liabilities. For example, the Organization for Economic Cooperation
and Development (the “OECD”) has recently recommended
changes to numerous long-standing international tax principles. If
countries amend their tax laws to adopt certain parts of the OECD
guidelines, this may increase tax uncertainty and may adversely
impact our tax liabilities. Any of these changes could affect our
financial performance.
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. There can be no assurance that such laws and
regulations will not be changed in ways that will require us to
modify our business models and objectives or affect our returns
on investments by restricting existing activities and products,
subjecting them to escalating costs or prohibiting them outright.
For example, we are subject to laws, regulations and standards
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,
reuse, treatment and disposal of our products, including print
supplies and 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 reparability, reuse and 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
2019 Form 10-K
I 23
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.
Some anti-takeover provisions contained in our certificate of
incorporation and bylaws, as well as provisions of Delaware
law, could impair a takeover attempt.
We have provisions in our certificate of incorporation and bylaws
each of which could have the effect of rendering more difficult
or discouraging an acquisition of HP deemed undesirable by our
Board of Directors. These include provisions:
• authorizing blank check preferred stock, which we could
issue with voting, liquidation, dividend and other rights
superior to our common stock;
•
limiting the liability of, and providing indemnification to, our
directors and officers;
• specifying that our stockholders may take action only at a
duly called annual or special meeting of stockholders and
otherwise in accordance with our bylaws and limiting the
ability of our stockholders to call special meetings;
• requiring advance notice of proposals by our stockholders
for business to be conducted at stockholder meetings and
for nominations of candidates for election to our Board of
Directors; and
• 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
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.
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.
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.
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;
• developments relating to the acquisition proposal made to
us by Xerox Holdings Corporation; and
• the timing and amount of our share repurchases.
24 I
2019 Form 10-K
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. For example,
we make significant estimates and assumptions when accounting
for revenue recognition, taxes on earnings and restructuring
and other charges. 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.
Risks Related to the Separation
The allocation of IP rights between Hewlett Packard
Enterprise and HP as part of the Separation, and the
shared use of certain IP rights following the Separation,
could adversely impact our reputation, our ability to
enforce certain IP rights that are important to us and our
competitive position.
In connection with the Separation, Hewlett-Packard Company
allocated to each of Hewlett Packard Enterprise and HP the IP
assets relevant to their respective businesses. The terms of the
Separation include cross-licenses and other arrangements to
provide for certain ongoing use of IP in the existing operations
of both businesses. For example, through a joint brand holding
structure, both Hewlett Packard Enterprise and HP will retain the
ability to make ongoing use of certain variations of the legacy
Hewlett-Packard and HP branding, respectively. There is a risk
that the joint brand holding structure may impair the enforcement
of HP’s trademark rights against third parties that infringe them.
Furthermore, as a result of this shared use of the legacy branding,
there is a risk that conduct or events adversely affecting the
reputation of Hewlett Packard Enterprise could also adversely
affect the reputation of HP. In addition, as a result of the allocation
of IP as part of the Separation, we no longer own IP allocated
to Hewlett Packard Enterprise and our resulting IP ownership
position could adversely affect our position and options relating
to patent enforcement, patent licensing and cross-licensing, our
ability to sell our products or services, our competitive position in
the industry and our ability to enter new product markets.
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.
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 and an employee
matters agreement. The separation and distribution agreement and
employee 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.
2019 Form 10-K
I 25
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
As of October 31, 2019, 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 1.3 million square feet of vacated space, of which 0.9 million square feet is leased to third parties.
FISCAL YEAR ENDED OCTOBER 31, 2019
OWNED
LEASED
TOTAL
(SQUARE FEET IN MILLIONS)
2.0
24%
2.5
29%
4.5
26%
6.5
76%
6.0
71%
12.5
74%
8.5
100%
8.5
100%
17.0
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, which we lease, 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, Vancouver,
Spring, Aguadilla, Puerto Rico
Europe, Middle East, Africa
Israel—Kiryat-Gat, Rehovot, Netanya
Spain—Barcelona
26 I
2019 Form 10-K
Asia Pacific
China—Weihai, Chongqing, Shanghai
India—Pantnagar, Bangalore
Malaysia—Penang
Singapore—Singapore
South Korea—Suwon
Taiwan—Taipei
Technology office (HP Labs)
United Kingdom—Bristol
United States—Palo Alto
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, 2019, there were approximately 57,918
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 2019.
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 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,109
7,908
10,253
25,270
$19.15
$18.66
$17.25
7,109
7,908
10,253
25,270
$1,823,046
$6,675,457
$6,498,622
2019 Form 10-K
I 27
On June 19, 2018, HP’s Board of Directors authorized $4.0 billion
for future repurchases of its outstanding shares of common
stock. On September 30, 2019, the Board authorized an
additional $5.0 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 2019 were open market transactions. As of
October 31, 2019, HP had approximately $6.5 billion remaining
under repurchase authorizations.
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, 2014 (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
10/2014
10/2015
10/2016
10/2017
10/2018
10/2019
HP Inc.
S&P 500 Index
S&P Information Technology Index
HP Inc.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100.00
$76.72
$94.44
$144.77
$166.11
$123.40
S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100.00
$105.19
$109.93
$135.89
$145.86
$166.75
S&P Information Technology Index . . . . . . . . . . . . . . . . . . . .
$100.00
$111.19
$123.23
$171.24
$192.31
$235.74
10/14
10/15
10/16
10/17
10/18
10/19
(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.
28 I
2019 Form 10-K
HP Inc. and Subsidiaries
Selected Financial Data
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
2016
2015
IN MILLIONS, EXCEPT PER SHARE AMOUNTS
$58,756
$58,472
$52,056
$48,238
$51,463
$3,877
$3,831
$3,368
$3,549
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from continuing operations(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) earnings from discontinued operations net of taxes . . . . . .
Net earnings(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
$—
$—
$(170)
$3,152
$5,327
$2,526
$2,496
Net earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total basic net earnings per share . . . . . . . . . . . . . . . . . . . . . . .
$2.08
$—
$2.08
Diluted
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2.07
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Total diluted net earnings per share . . . . . . . . . . . . . . . . . . . . .
$2.07
$3.30
$—
$3.30
$3.26
$—
$3.26
$1.50
$—
$1.50
$1.48
$—
$1.48
$1.54
$(0.10)
$1.44
$1.53
$(0.10)
$1.43
$3,920
$836
$4,554
$2.05
$0.46
$2.51
$2.02
$0.46
$2.48
Cash dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.64
$0.56
$0.53
$0.50
$0.67
At year-end:
Total assets(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,467
$34,622
$32,913
$28,987
$106,853
$4,780
$4,524
$6,747
$6,735
$6,648
(1) Earnings from continuing operations and net earnings include the following items:
2019
2018
2017
2016
2015
Restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total charges before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total charges, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$275
35
116
$426
$334
(2) Total assets for fiscal year 2015 include the total assets of Hewlett Packard Enterprise.
IN MILLIONS
$362
125
1
$488
$362
$132
123
80
$335
$258
$205
7
16
$228
$161
$63
1
102
$166
$137
(3) The decrease in Long-term 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.
2019 Form 10-K
I 29
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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.
• Critical Accounting Policies and Estimates. A discussion
of accounting policies and estimates that we believe are
important to understanding the assumptions and judgments
incorporated in our reported financial results.
• Results of Operations. An analysis of our financial results
comparing fiscal year 2019 to fiscal year 2018 and fiscal
year 2018 to fiscal year 2017. A discussion of the results of
operations is followed by a more detailed discussion of the
results of operations by segment.
• Liquidity and Capital Resources. An analysis of changes
in our cash flows and a discussion of our liquidity and
financial condition.
Overview
• 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 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.
We are a leading global provider of personal computing and
other access devices, imaging and printing products, and related
individual
technologies, solutions, and services. We sell to
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 and investment projects.
•
In Personal Systems, our strategic focus is on profitable
growth
respect
through market segmentation with
to enhanced
in multi-operating systems,
multi-architecture, geography, customer segments and
other key attributes. Additionally, we are investing in end
point services and solutions. We are focused on services
innovation
including DaaS 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 focus is on Contractual solutions
and Graphics, as well as expanding our footprint in the
In
3D printing and digital manufacturing marketplace.
Contractual solutions we have a continued focus on Managed
Print Services and Instant Ink. In Graphics, we are focused on
innovations such as our Indigo and Latex product offerings.
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 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
30 I
2019 Form 10-K
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
landscape, with
and our go-to-market execution in an evolving distribution and
reseller
increasing online and omnichannel
presence. Additional challenges we face at the segment level are
set forth below.
•
•
In Personal Systems, we face challenges with industry
component availability and a competitive pricing environment.
In Printing, a competitive pricing environment, including
from non-original supplies (which includes imitation, refill
or remanufactured alternatives), and a weakened market
in certain geographies with associated pricing sensitivity of
our customers present challenges. We also face challenges
in Printing due to our multi-tier distribution network,
primarily in EMEA, including limiting grey marketing and the
potential misuse of pricing programs. We also obtain many
Printing 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.
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.
impact of these and other global macroeconomic
The full
challenges on our business cannot be known at this time.
To address these challenges, we continue to pursue innovation
with a view towards developing new products and services
aligned with generating market demand and meeting the needs
of our customers and partners. In addition, we continue to
work on improving our operations and adapting our business
Critical Accounting Policies and Estimates
models, with a particular focus on enhancing our end-to-end
processes, analytics and efficiencies. We also continue to work
on optimizing our sales coverage models, aligning our sales
incentives with our strategic goals, improving channel execution
and inventory management, strengthening our capabilities in our
areas of strategic focus, strengthening our pricing discipline, and
developing and capitalizing on market opportunities.
Specifically, in October 2019, we announced cost-reduction and
operational efficiency initiatives intended to simplify the way
we work, move closer to our customers and facilitate specific
investment in our business. These efforts include transforming
our operating model to integrate our sales force into a single
commercial organization and reducing structural costs across
the company through our restructuring plan approved
in
September 2019 (the “Fiscal 2020 Plan”). We expect to invest
some of the savings from these efforts across our businesses,
including investing to build our digital capabilities. Over time, we
expect these investments will make us more efficient and allow us
to advance our positions in Personal Systems and Printing, while
also disrupting new industries where we see attractive medium
to long-term growth opportunities. However, the rate at which
we are able to invest in our business and the returns that we are
able to achieve from these investments will be affected by many
factors, including the efforts to address the execution, industry
and macroeconomic challenges facing our business as discussed
above. As a result, we may experience delays in the anticipated
timing of activities related to these efforts, and the anticipated
benefits of these efforts may not materialize.
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 operating results, see the section entitled
“Risk Factors” in Item 1A in this Annual Report on Form 10-K.
General
The Consolidated Financial Statements of HP are prepared
in accordance with United States (“U.S.”) generally accepted
(“GAAP”), which require management
accounting principles
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
2019 Form 10-K
I 31
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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 depicting the transfer of promised goods or
services to customers in an amount that reflects the consideration
to which we are expected to be entitled in exchange for those
goods or services. We evaluate customers’ ability to pay based
on various factors like historical payment experience, financial
metrics and customer credit scores.
We enter into contracts to sell our products and services, and
while many of our sales contracts contain standard terms and
conditions, there are contracts which contain non-standard
terms and conditions. Further, many of our arrangements include
multiple performance obligations. As a result, significant contract
interpretation may be required to determine the appropriate
accounting, including the identification of performance obligations
that are distinct, the allocation of the transaction price among
performance obligations in the arrangement and the timing of
transfer of control of promised goods or services for each of those
performance obligations.
32 I
2019 Form 10-K
We evaluate each performance obligation in an arrangement to
determine whether it represents a distinct good or services. A
performance obligation constitutes distinct goods or services when
the customer can benefit from the goods or services either on its
own or together with other resources that are readily available to
the customer and the performance obligation is distinct within the
context of the contract.
Transaction price is the amount of consideration to which we
expect to be entitled in exchange for transferring goods or
services to the customer. If the transaction price includes a variable
amount, we estimate the amount using either the expected value
or most likely amount method. We reduce the transaction price
at the time of revenue recognition for customer and distributor
programs and incentive offerings, rebates, promotions, other
volume-based incentives and expected returns. We use estimates
to determine the expected variable consideration for such
programs based on historical experience, expected consumer
behavior and market conditions.
When a sales arrangement contains multiple performance
obligations, such as hardware and/or services, we allocate
revenue to each performance obligation in proportion to their
selling price. The selling price for each performance obligation is
based on its standalone selling price (“SSP”). We establish SSP
using the price charged for a performance obligation when sold
separately (“observable price”) and, in some instances, using the
price established by management having the relevant authority.
When observable price is not available, we establish SSP 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 technology industry life cycles. We may modify
or develop new go-to-market practices in the future, which may
result in changes in selling prices, impacting standalone selling
price determination applying the aforementioned management
judgments and estimates. 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. In most arrangements with multiple
performance obligations, the transaction price is allocated to each
performance obligation at the inception of the arrangement based
on their relative selling price.
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Revenue is recognized when, or as, a performance obligation is
satisfied by transferring control of a promised good or service to
a customer. We generally invoice the customer upon delivery of
the goods or services and the payments are due as per contract
terms. For fixed price support or maintenance and other service
contracts that are in the nature of stand-ready obligations,
payments are generally received in advance from customers and
revenue is recognized on a straight-line basis over the duration of
the contract. In instances when revenue is derived from sales of
third-party vendor products or services, we record revenue on a
gross basis when we are a principal in the transaction and on a
net basis when we are acting as an agent between the customer
and the vendor. We consider several factors to determine whether
we are acting as a principal or an agent, most notably whether we
are the primary obligor to the customer, have established our own
pricing and have inventory and credit risks.
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% of annual net revenue.
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 and
enhanced early retirement 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 incurred in connection with the Separation
or
information technology rationalization efforts. 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. 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.
2019 Form 10-K
I 33
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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 2019:
CHANGE IN NET PERIODIC
BENEFIT COST
IN MILLIONS
Assumptions:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected increase in compensation levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9
$2
$28
Taxes on Earnings
The Tax Cuts and Jobs Act (“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 December 2017, the SEC staff issued SAB No. 118, which
allows registrants to record provisional amounts during a one
year “measurement period”. In January 2019, we completed
our accounting for the tax effects of the TCJA with no material
changes to the provisional amounts recorded during the
measurement period.
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.
We have elected to treat the Global Minimum Tax inclusions as
period costs.
As a result of certain employment actions and capital investments
we have undertaken, income from manufacturing activities in
certain jurisdictions is subject to reduced tax rates and, in some
cases, is wholly exempt from taxes for fiscal years through 2027.
Material changes in our estimates of cash, working capital and
long-term investment requirements in the various jurisdictions
in which we do business could impact how future earnings are
repatriated to the United States, and our related future effective
tax rate. The effects of the TCJA related to these policies are
referenced and discussed in detail in Note 6, “Taxes on Earnings”
to the Consolidated Financial Statements in Item 8, which is
incorporated herein by reference.
We calculate our current and deferred tax provisions based
on estimates and assumptions that could differ from the final
positions reflected in our income tax returns. We adjust our current
and deferred tax provisions based on income tax returns which are
generally filed in the third or fourth quarters of the subsequent
fiscal year.
We recognize deferred tax assets and liabilities for the expected
tax consequences of temporary differences between the tax bases
of assets and liabilities and their reported amounts using enacted
tax rates in effect for the year in which we expect the differences
to reverse.
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 58 other countries, and we are subject to routine
corporate income tax audits in many of these jurisdictions.
34 I
2019 Form 10-K
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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 domestic 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
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.
2019 Form 10-K
I 35
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Our annual goodwill impairment analysis, performed using the
qualitative assessment option as of the first day of the fourth
quarter of fiscal year 2019, 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, interest
rates and existing assets and liabilities. We use forwards, swaps
and at times, options to hedge certain foreign currency, interest
rate and, return on certain investments exposures. We do not use
derivative instruments for speculative purposes. As of October 31,
2019, 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 $392 million and $166 million,
respectively, as of October 31, 2019.
Fair value is the price we would receive to sell an asset or pay
to transfer a liability in an orderly transaction between market
participants at the measurement date. In the absence of active
markets for the identical assets or liabilities, such measurements
involve developing assumptions based on market observable
data and, in the absence of such data, internal information
that is consistent with what market participants would use in a
hypothetical transaction that occurs at the measurement date. The
determination of fair value often involves significant judgments
about assumptions such as determining an appropriate discount
rate that factors in both risk and liquidity premiums, identifying
the similarities and differences in market transactions, weighting
those differences accordingly and then making the appropriate
adjustments to those market transactions to reflect the risks
specific to the asset or liability being valued. We generally use
industry standard valuation models to measure the fair value of
our derivative positions. When prices in active markets are not
available for the identical asset or liability, we use industry standard
valuation models to measure fair value. Where applicable, these
models project future cash flows and discount the future amounts
to present value using market-based observable inputs, including
interest rate curves, HP and counterparty credit risk, foreign
currency exchange rates, and forward and spot prices.
For a further discussion on fair value measurements and
derivative instruments, refer to Note 9, “Fair Value” and Note 10,
“Financial Instruments”, respectively, to the Consolidated Financial
Statements in Item 8, which are incorporated herein by reference.
Loss 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”
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, 2019, it was not reasonably possible that a material
loss had been incurred in excess of the amounts recognized in our
financial statements.
36 I
2019 Form 10-K
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Recent Accounting Pronouncements
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
international operations has historically
Revenue from our
represented, and we expect will continue to represent, a majority
of our overall net revenue. As a result, our net revenue growth
has been impacted, and we expect it will continue to be impacted,
by fluctuations in foreign currency exchange rates. In order
to provide a framework for assessing performance excluding
the impact of foreign currency fluctuations, we supplement
the year-over-year percentage change in net revenue with the
year-over-year percentage change in net revenue on a constant
currency basis, which excludes the effect of foreign currency
exchange fluctuations calculated by translating current period
revenues using monthly average exchange rates from the
comparative period and hedging activities from the prior-year
period and does not adjust for any repricing or demand impacts
from changes in foreign currency exchange rates. This information
is provided so that net revenue can be viewed with and without
the effect of fluctuations in foreign currency exchange rates,
which is consistent with how management evaluates our net
revenue results and trends, as management does not believe that
the excluded items are reflective of ongoing operating results.
The constant currency measures are provided in addition to, and
not as a substitute for, the year-over-year percentage change
in net revenue on a GAAP basis. Other companies may calculate
and define similarly labeled items differently, which may limit the
usefulness of this measure for comparative purposes.
Results of operations in dollars and as a percentage of net revenue
were as follows:
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
DOLLARS
% OF NET
REVENUE
DOLLARS
% OF NET
REVENUE
DOLLARS
% OF NET
REVENUE
DOLLARS IN MILLIONS
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,756
100.0% $58,472
100.0% $52,056
100.0%
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,586
11,170
1,499
5,368
275
35
116
Earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,877
81.0%
19.0%
2.6%
9.1%
0.4%
0.1%
0.2%
6.6%
47,803
10,669
1,404
5,099
132
123
80
3,831
81.8%
18.2%
2.4%
8.7%
0.2%
0.2%
0.1%
6.6%
42,478
9,578
1,190
4,532
362
125
1
3,368
81.6%
18.4%
2.3%
8.7%
0.7%
0.2%
—%
6.5%
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,354)
(2.3)%
(818)
(1.4)%
(92)
(0.2)%
Earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit from (provision for) taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,523
629
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,152
4.3%
1.1%
5.4%
3,013
2,314
$5,327
5.2%
3.9%
9.1%
3,276
6.3%
(750)
(1.4)%
$2,526
4.9%
2019 Form 10-K
I 37
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Net Revenue
In fiscal year 2019, total net revenue increased 0.5% (increased
2.0% on a constant currency basis) as compared to the
prior-year period. Net revenue from the United States remained
flat at $20.6 billion and net revenue from outside of the United
States increased 0.7% to $38.2 billion. The increase in net revenue
was primarily driven by growth in Notebooks, Desktops and
Workstations in Personal Systems, partially offset by unfavorable
foreign currency impacts and a decline in Printing Supplies.
increased 12.3%
In fiscal year 2018, total net revenue
(increased 10.1% on a constant currency basis) as compared to the
prior-year period. 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.
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 19.0% for fiscal year 2019 compared with
18.2% for fiscal year 2018. The increase was primarily due to
higher rate in Personal Systems driven by lower supply chain costs.
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.
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 7% in fiscal year 2019 compared to the
prior-year period, primarily due to continuing investments in
innovation and key growth initiatives.
R&D expense increased 18% in fiscal year 2018 compared to
the prior-year period, primarily due to continuing investment in
Printing, including the acquisition of Samsung’s printer business.
Selling, General and Administrative (“SG&A”)
SG&A expense increased 5% in fiscal year 2019 as compared to
the prior-year period, primarily driven by increased investments in
key growth initiatives and go-to-market in Personal Systems and
investment in digital infrastructure.
SG&A expense increased 13% in fiscal year 2018 as compared
incremental
to the prior-year period, primarily driven by
go-to-market investments to support revenue growth, including
the acquisition of Samsung’s printer business.
Restructuring and other Charges
Restructuring and other charges increased by $143 million in
fiscal year 2019 compared to the prior-year period, primarily due
to charges from the Fiscal 2020 Plan and the restructuring plan
approved in October 2016 (the “Fiscal 2017 Plan”), which was later
amended in May 2018.
Restructuring and other charges decreased by $230 million in
fiscal year 2018 compared to the prior-year period, primarily due
to lower charges from the Fiscal 2017 Plan.
Acquisition-related Charges
Acquisition-related charges for the fiscal years 2019, 2018 and
2017 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 $36 million in fiscal year
2019 compared to the prior-year period, due to intangible assets
resulting primarily from the acquisition of the Apogee group.
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.
Interest and Other, Net
Interest and other, net expense increased by $536 million in fiscal
year 2019 compared to the prior-year period, primarily due to
tax indemnifications related to the termination of the tax matters
agreement (“TMA”) with Hewlett Packard Enterprise during the
fourth quarter of fiscal year 2019.
38 I
2019 Form 10-K
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Interest and other, net expense increased by $726 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.
offset by uncertain tax position charges of $51 million. In fiscal
year 2019, in addition to the discrete items mentioned above,
we recorded excess tax benefits of $20 million associated with
stock options, restricted stock units and performance-adjusted
restricted stock units.
Benefit from (Provision for) Taxes
Our effective tax rates were (24.9%), (76.8%) and 22.9% in fiscal
years 2019, 2018 and 2017, respectively. In fiscal year 2019, our
effective tax rate generally differs from the U.S. federal statutory
rate of 21% primarily due to the resolution of various audits,
changes in valuation allowances, and impacts of U.S. tax reform.
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 year 2017, our effective tax rate generally
differs from the U.S. federal statutory rate of 35% due to favorable
tax rates associated with certain earnings in lower-tax jurisdictions
throughout the world. The jurisdictions with favorable tax rates
that had the most significant impact on our effective tax rate in the
periods presented were Puerto Rico, Singapore, China, Malaysia
and Ireland. Additionally, the overall effective tax rate in fiscal year
2017 was impacted by adjustments to valuation allowances and
state income taxes.
For a reconciliation of our effective tax rate to the U.S. federal
statutory rate of 21%, 23.3% and 35% in fiscal years 2019,
2018 and 2017, respectively, and further explanation of our
provision for income taxes, see Note 6, “Taxes on Earnings” to the
Consolidated Financial Statements in Item 8, which is incorporated
herein by reference.
In fiscal year 2019, we recorded $1.3 billion of net income tax
benefit related to discrete items in the provision for taxes. This
amount includes tax benefits related to audit settlements of
$1.0 billion, $75 million due to ability to utilize tax attributes,
$57 million of restructuring benefits and net valuation allowance
releases of $94 million. We also recorded benefits of $78 million
related to U.S. tax reform as a result of new guidance issued by the
U.S. Internal Revenue Service (“IRS”). These benefits were partially
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 had not yet completed our analysis of the full
impact of the TCJA. However, as of October 31, 2018, we recorded
a provisional tax benefit of $760 million related to $5.6 billion net
benefit for the decrease in our deferred tax liability on unremitted
foreign earnings, partially offset by $3.3 billion net expense for the
deemed repatriation tax payable in installments over eight years,
a $1.2 billion net expense for the remeasurement of our deferred
assets and liabilities to the new U.S. statutory tax rate and a
$317 million net expense related to realization on U.S. deferred
taxes that are expected to be realized at a lower rate. Fiscal year
2018 also included tax benefits related to audit settlements
of $1.5 billion and valuation allowance releases of $601 million
pertaining to a change in our ability to utilize certain foreign
and U.S. deferred tax assets due to a change in our geographic
earnings mix. These benefits were partially offset by other net
tax charges of $34 million. In fiscal year 2018, in addition to the
discrete items mentioned above, we recorded excess tax benefits
of $42 million associated with 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.
2019 Form 10-K
I 39
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Segment Information
A description of the products and services for each segment can
be found in Note 2, “Segment Information,” to the Consolidated
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 2019,
we implemented an organizational change to align our business
unit financial reporting more closely with our current business
Personal Systems
structure. The organizational change resulted in the transfer of
certain Samsung-branded product categories from Commercial to
Consumer within the Printing segment. We reflected this change to
our business unit information in prior reporting periods on an as-if
basis. The reporting change had no impact to previously reported
segment net revenue, consolidated net revenue, earnings from
operations, net earnings or net earnings per share (“EPS”).
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$38,694
$37,661
$33,321
Earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,898
$1,402
$1,206
Earnings from operations as a % of net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.9%
3.7%
3.6%
The components of net revenue and the weighted net revenue change by business unit were as follows:
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
DOLLARS IN MILLIONS
FOR THE FISCAL YEARS ENDED OCTOBER 31
NET REVENUE
WEIGHTED NET REVENUE
CHANGE PERCENTAGE
POINTS(1)
2019
2018
2017
2019
2018
IN MILLIONS
Notebooks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,928
$22,547
$19,782
Desktops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,046
11,567
10,298
Workstations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,389
1,331
2,246
1,301
2,042
1,199
Total Personal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$38,694
$37,661
$33,321
1.0
1.3
0.4
—
2.7
8.3
3.8
0.6
0.3
13.0
(1) Weighted Net Revenue Change Percentage Points measures contribution of each business unit towards overall segment revenue growth. It is calculated by
dividing the change in revenue of each business unit from the prior-year period by total segment revenue for the prior-year period.
Fiscal Year 2019 compared with Fiscal Year 2018
Personal Systems net revenue increased 2.7% (increased 4.9%
on a constant currency basis) in fiscal year 2019 as compared
to the prior-year period. 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 2.2% increase in unit volume and 0.5%
increase in average selling prices (“ASPs”) 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 positive mix shifts and higher pricing, partially
offset by unfavorable foreign currency impacts. Commercial
40 I
2019 Form 10-K
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
revenue increased 7.0% primarily driven by higher unit volume
partially offset by unfavorable foreign currency impacts, and
consumer revenue decreased by 5.5% primarily driven by lower
unit volume, respectively, in fiscal year 2019 as compared to the
prior-year period.
Net revenue increased 1.7% in Notebooks, 4.1% in Desktops
and 6.4% in Workstations in fiscal year 2019 as compared to the
prior-year period.
Personal Systems earnings from operations as a percentage
of net revenue increased by 1.2 percentage points in fiscal year
2019 as compared to the prior-year period, primarily due to
in an increase in gross margin, partially offset by an increase in
operating expenses. The increase in gross margin was primarily
due to lower supply chain costs and higher ASPs. The increase in
operating expenses was primarily due to increased investments in
key growth initiatives and go-to-market.
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
Printing
Notebooks and Desktops and favorable foreign currency impacts. The net
revenue increase was driven by a 6.6% increase in unit volume and 6.0%
increase in ASPs as compared to the prior-year period. The increase in
unit volume was primarily due to growth in Notebooks and Desktops. The
increase in ASPs was primarily due to higher pricing driven by increased
commodity and logistics costs, favorable foreign currency impacts and
positive mix shifts. Consumer and Commercial revenue increased 11%
and 14%, respectively, in fiscal year 2018 as compared to the prior-year
period, driven by growth in Notebooks, Desktops and Workstations as a
result of higher unit volume combined with higher ASPs.
Net revenue increased 14% in Notebooks, 12% in Desktops and
10% in Workstations in fiscal year 2018 as compared to the
prior-year period.
Personal Systems earnings from operations as a percentage of
net revenue increased by 0.1 percentage points in fiscal year 2018
as compared to the prior-year period. The increase was primarily
due to higher ASPs, partially offset by an increase in commodity
and logistics costs.
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,066
$20,805
$18,728
Earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,202
$3,314
$3,142
Earnings from operations as a % of net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.0%
15.9%
16.8%
The components of the net revenue and weighted net revenue change by business unit were as follows:
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
DOLLARS IN MILLIONS
FOR THE FISCAL YEARS ENDED OCTOBER 31
NET REVENUE
WEIGHTED NET REVENUE
CHANGE PERCENTAGE
POINTS(1)
2019
2018
2017
2019
2018
IN MILLIONS
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,921
$13,575
$12,524
Commercial Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Hardware. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,612
2,533
4,514
2,716
3,792
2,412
Total Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,066
$20,805
$18,728
(3.2)
0.5
(0.9)
(3.6)
5.6
3.9
1.6
11.1
(1) Weighted Net Revenue Change Percentage Points measures the contribution of each business unit towards overall segment revenue growth. It is calculated
by dividing the change in revenue of each business unit from the prior period by total segment revenue for the prior-year period.
2019 Form 10-K
I 41
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Fiscal Year 2019 compared with Fiscal Year 2018
Printing net revenue decreased 3.6% (decreased 3.0% on a constant
currency basis) for fiscal year 2019 as compared to prior-year
period. The decline in net revenue was primarily driven by a decline
in Supplies, Consumer Hardware revenue and unfavorable foreign
currency impacts, partially offset by an increase in Commercial
Hardware revenue. Net revenue for Supplies decreased 4.8%
as compared to the prior-year period, primarily due to demand
weakness. Printer unit volume decreased 4.8% compared to the
prior-year period. The decrease in printer unit volume was driven
by unit decrease in Consumer Hardware.
Net revenue for Commercial Hardware
increased 2.2% as
compared to the prior-year period, primarily due to the acquisition
of the Apogee group.
Net revenue for Consumer Hardware decreased 6.7% as compared
to the prior-year period due to a 5.4% decrease in printer unit
volume and 1.7% decrease in ASPs. The unit volume decrease was
driven by InkJet Home Consumer business and LaserJet Home
business. The decrease in ASPs was primarily due to unfavorable
foreign currency impacts.
Printing earnings from operations as a percentage of net revenue
increased by 0.1 percentage points for the fiscal year 2019
as compared to the prior-year period, primarily due to higher
gross margin. The gross margin increased primarily due to rate
improvement in Commercial Hardware partially offset by lower
Supplies revenue.
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 as compared to prior-
year period. 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
Liquidity and Capital Resources
12.7% while ASPs increased 1.7% 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 19.0% as
Net revenue for Commercial Hardware
compared to the prior-year period,
including revenue from
Samsung-branded printers, LaserJet and PageWide printers.
The unit volume increased by 39.6% while the ASPs decreased
by 17.0%. 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 12.6% as compared
to the prior-year period due to a 9.3% increase in printer unit
volume and a 3.4% increase in ASPs. The unit volume increase was
driven by Samsung-branded printers, 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 0.9 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
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.
Corporate Investments
The loss from operations in Corporate Investments for the fiscal
years 2019, 2018 and 2017 was primarily due to expenses
associated with HP Labs and our incubation and investment projects.
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
42 I
2019 Form 10-K
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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 and cash equivalents 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.
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 and began in
fiscal year 2019. We expect a significant portion of the cash and
cash equivalents held by our foreign subsidiaries will no longer
be subject to U.S. income tax consequences upon a subsequent
repatriation to the United States as a result of the transition tax
on accumulated foreign earnings. However, a portion of this
cash may still be subject to foreign income tax or withholding tax
consequences upon repatriation. As we evaluate the future cash
needs of our operations, we may revise the amount of foreign
earnings considered to be permanently reinvested in our foreign
subsidiaries and how to utilize such funds, including reducing our
gross debt level, or other uses.
Liquidity
Our cash and cash equivalents, marketable debt securities and total debt were as follows:
AS OF OCTOBER 31
2019
2018
2017
IN BILLIONS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable debt securities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4.5
$5.2
$— $0.7
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5.1
$6.0
$7.0
$1.1
$7.8
(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:
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,654
$4,528
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(438)
(4,845)
$(629)
(716)
(5,643)
$(1,831)
$3,677
(1,717)
(1,251)
$709
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
2019 Form 10-K
I 43
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Operating Activities
Net cash provided by operating activities increased marginally by
$0.1 billion for fiscal year 2019 as compared to fiscal year 2018.
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.
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”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AS OF OCTOBER 31
2019
2018
2017
35
41
30
43
29
46
Days of purchases outstanding in accounts payable (“DPO”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(107)
(105)
(105)
Cash conversion cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(31)
(32)
(30)
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 years 2019 and 2018,
the increase in DSO compared to fiscal years 2018 and 2017,
respectively, was primarily due to unfavorable revenue linearity.
DOS measures the average number of days from procurement to
sale of our product. DOS is calculated by dividing ending inventory
by a 90-day average of cost of goods sold. For fiscal year 2019, the
decrease in DOS compared to fiscal year 2018 was primarily due to
reduction in inventory driven by reclassification of certain balances
to other current assets pursuant to adoption of the new revenue
standard in the first quarter of fiscal 2019. For fiscal year 2018, the
DOS was lower primarily due to a focus on inventory management.
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 2019, the increase in DPO compared to fiscal year 2018
was higher primarily due to working capital management activities,
partially offset by lower inventory purchasing volume. For fiscal
year 2018, the DPO remained flat compared to fiscal year 2017.
Investing Activities
Net cash used in investing activities decreased by $0.3 billion for
fiscal year 2019 as compared to fiscal year 2018, primarily due to
lower net payments for acquisitions.
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.
Financing Activities
Net cash used in financing activities decreased by $0.8 billion in
fiscal year 2019 compared to fiscal year 2018, primarily due to
lower payment of debt of $1.5 billion, partially offset by a decrease
in outstanding commercial paper amounts of $0.7 billion.
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.
44 I
2019 Form 10-K
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Capital Resources
Debt Levels
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$357
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,780
$1,463
$4,524
$1,072
$6,747
Debt-to-equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4.3)x
4.6%
(9.4)x
4.3%
(2.3)x
4.0%
AS OF OCTOBER 31
2019
2018
2017
DOLLARS IN MILLIONS
We maintain debt levels that we establish through consideration
including cash flow expectations,
of a number of factors,
cash
plans
for
requirements
(including acquisitions), share repurchase activities, our cost of
capital and targeted capital structure.
operations,
investment
Short-term debt decreased by $1.1 billion for fiscal year 2019
as compared to fiscal year 2018, primarily due to a decrease in
outstanding commercial paper amounts of $0.9 billion.
Long-term debt decreased by $2.2 billion for fiscal year 2018
as compared to fiscal year 2017 primarily due to the payment
to repurchase approximately $1.85 billion in aggregate principal
amount of U.S. Dollar Global Notes.
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 5.1x in fiscal year 2019 compared to fiscal year 2018, primarily due
to an increase in stockholders’ deficit balance of $0.6 billion.
Our debt-to-equity ratio changed by 7.1x in fiscal year 2018
compared to fiscal year 2017, primarily due to a decrease in
stockholders’ deficit balance of $2.8 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, 2019
IN MILLIONS
Unspecified
$724
The 2016 Shelf Registration Statement will expire in December 2019,
around which time we expect to file a new shelf registration statement.
borrowed under this revolving credit facility may also be used for
general corporate purposes.
As of October 31, 2019, we maintain a senior unsecured committed
revolving credit facility with aggregate lending commitments
of $4.0 billion, that will be available until March 30, 2023 and is
primarily to support the issuance of commercial paper. Funds
For more
information on our borrowings, see Note 11,
“Borrowings”, to the Consolidated Financial Statements in Item 8,
which is incorporated herein by reference.
2019 Form 10-K
I 45
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Credit Ratings
Our credit risk is evaluated by major independent rating agencies
based upon 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 facility,
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 facility, if necessary, to offset potential reductions
in the market capacity for our commercial paper.
Contractual and Other Obligations
Our contractual and other obligations as of October 31, 2019, 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
1 YEAR OR
LESS
1-3 YEARS
3-5 YEARS
IN MILLIONS
$129
$1,955
$1,245
214
176
284
249
273
178
399
344
157
18
262
80
MORE THAN
5 YEARS
$1,210
1,246
—
395
3
TOTAL
$4,539
1,890
372
1,340
676
$8,817
$1,052
$3,149
$1,762
$2,854
(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, 2019 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 $130 million.
(5) Amounts represent the capital lease obligations, including total capital lease interest obligations of $64 million.
(6) Retirement and Post-Retirement Benefit Plan Contributions. In fiscal year 2020, we expect to contribute approximately $76 million to non-U.S. pension plans,
$36 million to cover benefit payments to U.S. non-qualified 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 required 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.
46 I
2019 Form 10-K
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
(7) Cost Savings Plans. As a result of our approved restructuring plans, including the Fiscal 2020 plan, we expect to make future cash payments of approximately
$1.0 billion. We expect to make future cash payments of $418 million in fiscal year 2020 with remaining cash payments through fiscal year 2023. 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, 2019, we had approximately $509 million of recorded liabilities and related interest and penalties pertaining
to uncertain tax positions. We are unable to make a reasonable estimate as to when cash settlement with the tax authorities might occur due to the
uncertainties related to these tax matters. Payments of these obligations would result from settlements with taxing authorities. For more information on
our uncertain tax positions, see Note 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 gross transition tax of
$3.0 billion on accumulated foreign earnings. 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 existing and future credits and other balance sheet tax attributes are used. The payments associated with this one-time transition tax
will be paid over eight years and began in fiscal year 2019.
Off-Balance Sheet Arrangements
transactions
As part of our ongoing business, we have not participated
in
that generate material relationships with
unconsolidated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose entities,
which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or
limited purposes.
We have third-party short-term financing arrangements intended
to facilitate the working capital requirements of certain customers.
For more information on our third-party short-term financing
arrangements, see Note 7 “Supplementary Financial Information”
to the Consolidated Financial Statements in Item 8, which is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
In the normal course of business, we are exposed to foreign
currency exchange rate and interest rate risks that could impact our
financial position and results of operations. Our risk management
strategy with respect to these market risks may include the use
of derivative instruments. We use derivative contracts only to
manage existing underlying exposures. Accordingly, we do not
use derivative contracts for speculative purposes. Our risks, risk
management strategy and a sensitivity analysis estimating the
effects of changes in fair value for each of these exposures are
outlined below.
Actual gains and losses in the future may differ materially from the
sensitivity analyses based on changes in the timing and amount of
foreign currency exchange rate and interest rate movements and
our actual exposures and derivatives in place at the time of the
change, as well as the effectiveness of the derivative to hedge the
related exposure.
Foreign currency exchange rate risk
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 over 40 currencies worldwide,
of which the most significant foreign currencies to our operations
for fiscal year 2019 were the euro, Chinese yuan renminbi, the
Japanese yen and the British pound. 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-
2019 Form 10-K
I 47
HP Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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, 2019 and 2018, 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, 2019 and 2018.
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 $81 million and $75 million at
October 31, 2019 and October 31, 2018, respectively.
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, 2019
and 2018, 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, 2019 and 2018. 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 $49 million at
October 31, 2019 and $69 million at October 31, 2018.
48 I
2019 Form 10-K
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’ Deficit
Notes to Consolidated Financial Statements
Note 1: 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: Net Earnings Per Share
Note 14: Litigation and Contingencies
Note 15: Guarantees, Indemnifications and Warranties
Note 16: Commitments
Note 17: Acquisitions
Quarterly Summary
Page
50
54
55
56
57
58
60
61
61
70
74
75
84
88
94
98
99
102
107
109
111
111
116
117
118
120
2019 Form 10-K
I 49
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, 2019
and 2018, the related consolidated statements of earnings, comprehensive income, stockholders’ deficit and cash flows for each of
the three years in the period ended October 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period
ended October 31, 2019, 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, 2019, 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 12, 2019 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, the Company changed its method for recognizing revenue as a result
of the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the
amendments effective November 1, 2018 under the modified retrospective method. See below for discussion of our related critical
audit matter.
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are
not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
50 I
2019 Form 10-K
Description of
the Matter
Income Taxes
As described in Notes 1 and 6 of the consolidated financial statements, the Company is subject to income taxes
in the United States and approximately 58 other countries and is subject to routine corporate income tax audits
in many of those jurisdictions. Uncertainty in the Company’s tax positions may arise as tax laws are subject to
interpretation and the Company’s positions are subject to examination by taxing authorities, which may result in
assessments of additional amounts owed. Determining the income tax provision for these potential assessments
and recording the related effects requires significant management judgment in estimating whether a tax position’s
technical merits are more-likely-than-not to be sustained and measuring the amount of tax benefit that qualifies
for recognition.
Additionally, the Company records a valuation allowance to reduce deferred tax assets to the amount which are
more likely than not to be realized. In determining the need for a valuation allowance, the Company considers
certain subjective factors such as future market growth, forecasted earnings, future taxable income, mix of
earnings in the jurisdictions in which they operate and prudent and feasible tax planning strategies.
Our assessment of management’s analyses of the reserve for uncertain tax positions and the realizability of its
deferred tax assets are significant to our audit because the amounts are material to the financial statements and
the assessment process involves significant judgment. For example, management’s assumptions that may be
affected by future market and economic conditions or interpretations of tax laws and legal rulings are challenging
to audit.
How We Addressed
the Matter in
Our Audit
We tested controls over management’s processes relating to the recording of unrecognized tax benefits, including
controls over the Company’s process to assess the technical merits of its uncertain tax positions, and the realizability
of deferred tax assets, including the development of the above described assumptions and judgments.
Our audit procedures included an evaluation of the Company’s key assumptions and judgments and testing the
completeness and accuracy of the underlying data used to determine the amount of unrecognized tax benefits
recognized. For example, we evaluated the measurement of the amounts recorded taking into consideration the
applicable tax laws. We also evaluated the key assumptions and judgments used by management in determining
the need for a valuation allowance and testing the completeness and accuracy of the underlying data used in the
Company’s process. For example, we compared the projections of future taxable income with the actual results
of prior periods as well as management’s consideration of current industry and economic trends. In each of these
areas, we involved our tax professionals to assess the technical merits of the Company’s tax positions. This included
assessing the Company’s correspondence with the relevant tax authorities and evaluating income tax opinions or
other third-party advice obtained by the Company.
2019 Form 10-K
I 51
Revenue Recognition
Description of
the Matter
As described in Note 1 of the consolidated financial statements, the Company enters into certain contracts to sell
their products and services that contain non-standard terms and conditions and multiple performance obligations.
For such contracts, significant interpretation may be required to determine the appropriate accounting, including
the allocation of the transaction price among performance obligations in the arrangement and the timing of the
transfer of control of promised goods or services for each of those performance obligations.
In addition, the Company reduces revenue for customer and distributor programs and incentive offerings including
rebates, promotions, other volume-based incentives and expected returns. The Company uses significant
estimates to determine the expected variable consideration for such programs based on factors like historical
experience, forecasted sales, expected customer behavior and market conditions. Also, as discussed above, the
Company adopted the new revenue recognition standard, which added further complexity and judgment related to
the transition amount recorded at the date of adoption.
Our assessment of management’s evaluation of the appropriate accounting for revenue contracts and the
determination of the variable consideration for sales incentives and implementation of the new revenue
recognition standard are significant to our audit because the amounts are material to the financial statements and
the assessment process involves significant judgment.
How We Addressed
the Matter in
Our Audit
We tested relevant controls over the identified risks related to the Company’s implementation of the new revenue
recognition standard and the accounting for revenue recognition, including the controls to evaluate the appropriate
accounting treatment for contracts containing non-standard terms and conditions and multiple performance
obligations and the controls related to the estimation process to record the variable consideration related to
certain sales incentives.
Our audit procedures included, among others, evaluating how the Company applied the new revenue recognition
standard to its contracts and assessing how the Company applied judgment to determine the transition amount
and disclosures, inspection of contracts entered into during the period, evaluation of management’s judgments
related to the interpretation of certain contract provisions including the identification of performance obligations,
the method of allocating the transaction price to the performance obligations in the arrangement, and the
assessment of the appropriateness of the amount of revenue recognized. We also evaluated the Company’s key
assumptions and judgments and tested the completeness and accuracy of the underlying data used to determine
the variable consideration for sales incentives. This included analyzing data related to the historical experience of
sales incentive payments as well as understanding the current market dynamics that can affect the estimate of
variable consideration to assess the Company’s judgments and estimates.
/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 2000
San Jose, California
December 12, 2019
52 I
2019 Form 10-K
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, 2019, 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, 2019, 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, 2019 and 2018, the related consolidated statements of
earnings, comprehensive income, stockholders’ deficit and cash flows for each of the three years in the period ended October 31, 2019,
and the related notes and our report dated December 12, 2019 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 12, 2019
2019 Form 10-K
I 53
Management’s Report on Internal Control Over Financial Reporting
HP’s management is responsible for establishing and maintaining adequate internal control over financial reporting. 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, 2019, 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, 2019. The effectiveness of HP’s internal control over financial reporting as of October 31, 2019
has been audited by Ernst & Young LLP, HP’s independent registered public accounting firm, as stated in their report which appears on
page 54 of this Annual Report on Form 10-K.
/s/ ENRIQUE LORES
Enrique Lores
President and Chief Executive Officer
December 12, 2019
/s/ STEVE FIELER
Steve Fieler
Chief Financial Officer
December 12, 2019
54 I
2019 Form 10-K
HP Inc. and Subsidiaries
Consolidated Statements of Earnings
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS, EXCEPT PER SHARE AMOUNTS
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,756
$58,472
$52,056
Costs and expenses:
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,586
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit from (provision for) taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,499
5,368
275
35
116
54,879
3,877
(1,354)
2,523
629
47,803
1,404
5,099
132
123
80
54,641
3,831
(818)
3,013
2,314
42,478
1,190
4,532
362
125
1
48,688
3,368
(92)
3,276
(750)
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,152
$5,327
$2,526
Net earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average shares used to compute net earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2.08
$2.07
1,515
1,524
$3.30
$3.26
1,615
1,634
$1.50
$1.48
1,688
1,702
The accompanying notes are an integral part of these Consolidated Financial Statements.
2019 Form 10-K
I 55
HP Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,152
$5,327
$2,526
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
Other comprehensive (loss) income before taxes:
Change in unrealized components of available-for-sale debt securities:
Unrealized gains (losses) arising during the period . . . . . . . . . . . . . . . . . . . . . .
Losses (gains) reclassified into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized components of cash flow hedges:
Unrealized gains (losses) arising during the period . . . . . . . . . . . . . . . . . . . . . .
(Gains) losses reclassified into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized components of defined benefit plans:
(Losses) gains arising during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial loss and prior service benefit . . . . . . . . . . . . . . . . . .
Curtailments, settlements and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
3
4
252
(380)
(128)
(303)
43
42
(218)
4
(338)
(42)
(380)
(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
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,772
$5,900
$2,546
The accompanying notes are an integral part of these Consolidated Financial Statements.
56 I
2019 Form 10-K
HP Inc. and Subsidiaries
Consolidated Balance Sheets
AS OF OCTOBER 31
2019
2018
IN MILLIONS, EXCEPT
PAR VALUE
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,537
$5,166
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,031
5,734
3,875
5,113
6,062
5,046
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,177
21,387
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,794
6,372
4,124
2,198
5,968
5,069
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,467
$34,622
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Notes payable and short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $0.01 par value (300 shares authorized; none issued) . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.01 par value (9,600 shares authorized; 1,458 and 1,560 shares issued and
outstanding at October 31, 2019, and 2018 respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$357
14,793
10,143
25,293
4,780
4,587
—
15
835
(818)
(1,225)
(1,193)
$1,463
14,816
8,852
25,131
4,524
5,606
—
16
663
(473)
(845)
(639)
Total liabilities and stockholders’ deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,467
$34,622
The accompanying notes are an integral part of these Consolidated Financial Statements.
2019 Form 10-K
I 57
HP Inc. and Subsidiaries
Consolidated Statements of Cash Flows
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,152
$5,327
$2,526
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes on earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes on earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
744
297
275
133
254
(761)
(68)
(53)
(851)
(154)
1,686
4,654
(671)
—
(80)
771
(32)
32
(458)
(438)
528
268
132
(3,653)
319
(491)
(136)
1,429
389
(237)
653
354
224
362
238
134
(453)
(1,346)
2,161
73
(233)
(363)
4,528
3,677
(546)
172
(367)
847
(1,165)
1,379
(1,036)
(716)
(402)
69
(1,400)
231
(1,170)
955
—
(1,717)
58 I
2019 Form 10-K
Cash flows from financing activities:
(Payments of) 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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:
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
(856)
—
127
—
(680)
—
(61)
(2,405)
(970)
(4,845)
(629)
5,166
$4,537
743
712
—
(1,596)
(2,098)
—
52
(2,557)
(899)
(5,643)
(1,831)
6,997
$5,166
202
887
5
(3)
(84)
(9)
57
(1,412)
(894)
(1,251)
709
6,288
$6,997
Income taxes paid, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$89
$240
$951
$329
$438
$322
Supplemental schedule of non-cash activities:
Purchase of assets under capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$366
$258
$200
The accompanying notes are an integral part of these Consolidated Financial Statements.
2019 Form 10-K
I 59
HP Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Deficit
COMMON STOCK
NUMBER OF
SHARES
PAR
VALUE
ADDITIONAL
PAID-IN
CAPITAL
ACCUMULATED
DEFICIT
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL
STOCKHOLDERS’
DEFICIT
IN MILLIONS, EXCEPT NUMBER OF SHARES IN THOUSANDS
Balance October 31, 2016 . . . . . . . . . . . . . . . . . . . . 1,712,091
$17
$1,030
$(3,498)
$(1,438)
$(3,889)
2,526
20
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of taxes . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . .
Issuance of common stock in connection
with employee stock plans and other . . . . . . . .
18,532
Repurchases of common stock . . . . . . . . . . . . .
(81,043)
(1)
Cash dividends ($0.53 per common share) . . .
Stock-based compensation expense . . . . . . . .
Balance October 31, 2017 . . . . . . . . . . . . . . . . . . . . 1,649,580
$16
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of taxes . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . .
Issuance of common stock in connection
with employee stock plans and other . . . . . . . .
21,728
Repurchases of common stock . . . . . . . . . . . . .
(111,038)
Cash dividends ($0.56 per common share) . . .
Stock-based compensation expense . . . . . . . .
Balance October 31, 2018 . . . . . . . . . . . . . . . . . . . . 1,560,270
$16
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of taxes . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . .
Issuance of common stock in connection
with employee stock plans and other . . . . . . . .
15,047
Repurchases of common stock . . . . . . . . . . . . .
(117,598)
(1)
Cash dividends ($0.64 per common share) . . .
Stock-based compensation expense . . . . . . . .
Adjustment for adoption of accounting
standards (Note 1). . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Balance October 31, 2019 . . . . . . . . . . . . . . . . . . . . 1,457,719
$15
52
(926)
224
$380
47
(32)
268
$663
(69)
(55)
296
—
$835
(520)
(894)
$(2,386)
5,327
(2,515)
(899)
$(473)
3,152
(2,340)
(968)
2,526
20
2,546
52
(1,447)
(894)
224
$(1,418)
$(3,408)
573
$(845)
(380)
5,327
573
5,900
47
(2,547)
(899)
268
$(639)
3,152
(380)
2,772
(69)
(2,396)
(968)
296
(189)
$(818)
—
(189)
$(1,225)
$(1,193)
The accompanying notes are an integral part of these Consolidated Financial Statements.
60 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
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
Effective at the beginning of its first quarter of fiscal year 2019,
HP implemented an organizational change to align its business unit
financial reporting more closely with its current business structure.
HP reflected this change to its business unit information in prior
reporting periods on an as-if basis. The reporting change had no
impact to previously reported segment net revenue, consolidated
net revenue, earnings from operations, net earnings or net EPS.
HP has reclassified certain prior-year amounts to conform to the
current-year presentation as a result of the adoption of Accounting
Standards Update (“ASU”) 2017-07, “Compensation - Retirement
Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost”. This
adoption had no impact on previously reported consolidated net
revenue, net earnings or net EPS.
For detailed discussion see Note 2, “Segment Information”.
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.
Foreign Currency Translation
liabilities denominated
HP predominantly uses the U.S. dollar as its functional currency.
in non-U.S. dollars are
Assets and
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. Certain foreign subsidiaries designate
the local currency as their functional currency, and HP records
the translation of their assets and liabilities into U.S. dollars at the
balance sheet dates as translation adjustments and includes them
as a component of accumulated other comprehensive loss.
Separation Transaction
In connection with the Separation, HP and Hewlett Packard
Enterprise entered into a separation and distribution agreement,
an employee matters agreement and various other agreements
which remain enforceable that provide a framework for the
continuing relationships between the parties. 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”.
Recently Adopted Accounting Pronouncements
In February 2018, the FASB issued guidance, which eliminates
the stranded tax effects in other comprehensive income resulting
from the TCJA. Because the amendments only relate to the
reclassification of the income tax effects of the TCJA, the underlying
guidance that requires that the effect of a change in tax laws or
rates be included in income from operations is not affected. HP
early adopted this guidance in the third quarter of fiscal year 2019.
The implementation of this guidance resulted in a $69 million
reclassification from accumulated other comprehensive loss to
accumulated deficit.
In March 2017, the Financial Accounting Standards Board
(“FASB”) issued guidance, which addresses the improvement
of the presentation of net periodic pension and net periodic
post-retirement benefit cost. The guidance requires entities to
present the service cost component of net periodic benefit cost in
the same income statement line item as other compensation costs
arising from services rendered during the period. Additionally, the
guidance requires that companies present the other components
of the net periodic benefit cost separately from the line item
that includes service cost and any other subtotal of income from
operations. The amendments in this guidance are to be applied
retrospectively for presentation in the Consolidated Statements
2019 Form 10-K
I 61
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
of Earnings. A practical expedient allows companies to use the
amount disclosed in its pension and other post-retirement plan
note for the prior comparative periods as the estimation basis for
applying the retrospective presentation requirements. HP adopted
this guidance in the first quarter of fiscal year 2019 and elected to
use the practical expedient. The adoption of this guidance has no
impact on net earnings. The reclassification resulted in an increase
in total cost and expenses and a reduction in interest and other, net
of $233 million for the twelve months ended October 31, 2018.
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 adopted this guidance in the first
quarter of fiscal year 2019. The implementation of this guidance
did not have any 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 (Topic 740) 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. HP
adopted this guidance in the first quarter of fiscal year 2019. The
implementation of this guidance resulted in $353 million of net
reduction to its prepaid tax asset adjusted through accumulated
deficit. In the fourth quarter of fiscal year 2019, HP corrected this
impact to $47 million by recording a deferred tax asset adjusted
through accumulated deficit.
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
adopted this guidance in the first quarter of fiscal year 2019. The
implementation of this guidance did not have any impact on its
Consolidated Financial Statements.
In January 2016, the FASB issued guidance, which amends
the existing accounting standards for the recognition and
liabilities.
financial assets and
measurement of
financial
The guidance (Topic 825-10) primarily addresses certain aspects
of recognition, measurement, presentation, and disclosure of
financial instruments. 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. HP
adopted this guidance in the first quarter of fiscal year 2019. The
implementation of this guidance did 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 the entity expects to be entitled in exchange for those
goods or services. HP adopted the new revenue standard in the
first quarter of fiscal year 2019 using the modified retrospective
method applied to contracts that were not completed as of
November 1, 2018. HP recognized the net impact of adoption as
an increase to accumulated deficit by $212 million, net of tax, on
November 1, 2018.
The primary changes that impact the Consolidated Financial
Statements are as below:
Variable consideration - HP estimates the transaction price for
elements of consideration which are variable in nature. Certain
distributor programs and incentive offerings which were recorded
at the date the sales incentives were offered, are now recorded at
the time of revenue recognition based on estimates.
Costs to obtain a contract - The incremental costs to obtain a
contract are primarily comprised of eligible sales commissions
which were previously expensed as incurred. HP has capitalized
such eligible sales commission costs for contracts with terms of
more than one year and amortized those costs over the expected
period of the benefit.
The adoption has led to certain balance sheet reclassifications
pertaining to return asset and liability and repurchase reserves
which impacts accounts receivable, net, inventory, other current
assets and other current liabilities balances.
62 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2017, the FASB issued guidance, which amends the
existing accounting standards for derivatives and hedging.
The amendment improves the financial reporting of hedging
relationships to better represent the economic results of an
entity’s risk management activities in its financial statements and
made certain targeted improvements to simplify the application of
the hedge accounting guidance in current U.S. GAAP. HP is required
to adopt the guidance in the first quarter of fiscal year 2020.
Earlier adoption is permitted. Based on the current assessment,
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 (“Topic 842”), 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 this guidance in the first quarter of fiscal year 2020
and will apply the modified retrospective transition option made
available in July 2018 by the FASB, whereby comparative periods
will not be retrospectively presented in the Consolidated Financial
Statements. HP will also elect the package of practical expedients
not to reassess prior conclusions related to contracts containing
leases, lease classification and initial direct costs and the lessee
practical expedient to combine lease and non-lease components
for certain asset classes.
HP has established a cross-functional implementation team to
assist in determining the scope of impact, identifying changes to
its business processes, implementing a new system solution and
evaluating changes to internal controls to support adoption of the
new standard. HP currently expects the adoption of Topic 842 to
result in an increase in right of use assets and a corresponding
increase in lease liabilities on the Consolidated Balance Sheet of
approximately $1.0 billion to $1.5 billion. Upon adoption, HP will
also record revenue upfront on certain aspects of its MPS and
DaaS offerings and will reflect the financing of these offerings
as cash flows from financing activities on the Statement of Cash
Flows. HP has substantially completed the process of quantifying
the impacts that will result from applying the new guidance, and
the assessment will be finalized during the first quarter of fiscal
year 2020.
Revenue Recognition
General
HP recognizes revenues at a point in time or over time depicting
the transfer of promised goods or services to customers in an
amount that reflects the consideration to which HP expects to be
entitled in exchange for those goods or services. HP follows the
five-step model for revenue recognition as summarized below:
1.
2.
Identify the contract with a customer - A contract with
customer exists when (i) it is approved and signed by
all parties, (ii) each party’s rights and obligations can
be identified, (iii) payment terms are defined, (iv) it has
commercial substance and (v) the customer has the ability
and intent to pay. HP evaluates customers’ ability to pay
based on various factors like historical payment experience,
financial metrics and customer credit scores. While the
majority of our sales contracts contain standard terms and
conditions, there are certain contracts with non-standard
terms and conditions.
Identify the performance obligations in the contract - HP
evaluates each performance obligation in an arrangement
to determine whether it is distinct, such as hardware and/
or service. A performance obligation constitutes distinct
goods or services when the customer can benefit from such
goods or services either on its own or together with other
resources that are readily available to the customer and
the performance obligation is distinct within the context of
the contract.
3. Determine the transaction price - Transaction price is the
amount of consideration to which HP expects to be entitled
in exchange for transferring goods or services to the
2019 Form 10-K
I 63
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
customer. If the transaction price includes a variable amount,
HP estimates the amount it expects to be entitled to using
either the expected value or most likely amount method.
incentive offerings,
HP reduces the transaction price at the time of revenue
recognition
for customer and distributor programs
rebates, promotions, other
and
volume-based incentives and expected returns. HP uses
estimates to determine the expected variable consideration
for such programs based on factors like historical experience,
expected consumer behavior and market conditions.
HP has elected the practical expedient of not accounting
for significant financing components if the period between
revenue recognition and when the customer pays for the
product or service is one year or less.
4. Allocate the transaction price to performance obligations in
the contract - When a sales arrangement contains multiple
performance obligations, such as hardware and/or services,
HP allocates revenue to each performance obligation in
proportion to their selling price. The selling price for each
performance obligation is based on its SSP. HP establishes
SSP using the price charged for a performance obligation
when sold separately (“observable price”) and, in some
instances, using the price established by management
having the relevant authority. When observable price is
not available, HP establishes SSP 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.
5. Recognize revenue when (or as) the performance obligation
is recognized when, or as, a
is satisfied - Revenue
performance obligation is satisfied by transferring control
of a promised good or service to a customer. HP generally
invoices the customer upon delivery of the goods or
services and the payments are due as per contract terms.
For fixed price support or maintenance contracts that are
in the nature of stand-ready obligations, payments are
generally received in advance from customers and revenue
is recognized on a straight-line basis over the duration of
the contract.
HP reports revenue net of any taxes collected from customers and
remitted to government authorities, and the collected taxes are
recorded as other current liabilities until remitted to the relevant
government authority. HP includes costs related to shipping and
handling in cost of revenue.
HP records revenue on a gross basis when HP is a principal in
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.
Hardware
HP transfers control of the products to the customer at the time
the product is delivered to the customer and recognizes revenue
accordingly, unless customer acceptance is uncertain or significant
obligations to the customer remain unfulfilled.
Services
HP recognizes revenue from fixed-price support, maintenance and
other service contracts over time depicting the pattern of service
delivery and recognizes the costs associated with these contracts
as incurred.
Contract Assets and Liabilities
Contract assets are rights to consideration in exchange for
goods or services that HP has transferred to a customer when
such right is conditional on something other than the passage of
time. Such contract assets are not material to HP’s Consolidated
Financial Statements.
Contract liabilities are recorded as deferred revenues when
amounts invoiced to customers are more than the revenues
recognized or when payments are received in advance for fixed
price support or maintenance contracts. The short-term and
long-term deferred revenues are reported within the other current
liabilities and other non-current liabilities respectively.
Cost to obtain a contract and fulfillment cost
Incremental direct costs of obtaining a contract primarily consist
of sales commissions. HP has elected the practical expedient to
expense as incurred the costs to obtain a contract with a benefit
period equal to or less than one year. For contracts with a period
64 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
of benefit greater than one year, HP capitalizes incremental costs
of obtaining a contract with a customer and amortizes these
costs over their expected period of benefit provided such costs
are recoverable.
Fulfillment costs consist of set-up and transition costs related to
other service contracts. These costs generate or enhance resources
of HP that will be used in satisfying the performance obligation in
the future and are capitalized and amortized over the expected
period of the benefit, provided such costs are recoverable.
See Note 7, “Supplementary Financial Information” for details on
net revenue by region, cost to obtain a contract and fulfillment cost,
contract liabilities and value of remaining performance obligations.
CONSOLIDATED BALANCE SHEET ITEMS
ASSETS
Transition disclosure
In accordance with the modified retrospective method transition
requirements, HP has presented the financial statement line items
impacted and adjusted to compare to presentation under the prior
GAAP for the Consolidated Balance Sheet as of October 31, 2019
and for Consolidated Statement of Earnings for fiscal year ended
October 31, 2019.
AS OF OCTOBER 31, 2019
AS REPORTED
EFFECT OF
ADOPTION
BALANCES WITHOUT
ADOPTION OF TOPIC 606
IN MILLIONS
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,031
$(218)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,734
3,875
188
(188)
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,124
$ (31)
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,143
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(818)
$(435)
$ 186
$ 5,813
5,922
3,687
$ 4,093
$ 9,708
$
(632)
CONSOLIDATED STATEMENT OF EARNINGS ITEMS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2019
AS REPORTED
EFFECT OF
ADOPTION
BALANCES WITHOUT
ADOPTION OF TOPIC 606
IN MILLIONS
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,756
$ (33)
$58,723
Earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit from taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,877
2,523
629
(33)
(33)
7
3,844
2,490
636
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,152
$ (26)
$ 3,126
2019 Form 10-K
I 65
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
Opening Balance Sheet Adjustments:
The following table presents the adoption impact of the new accounting standards to HP’s previously reported financial statements:
AS REPORTED ON
OCTOBER 31, 2018
ADJUSTMENTS
UNDER TOPIC 606
OTHER(1)
AS RESTATED ON
NOVEMBER 1, 2018
ASSETS
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) Other includes $47 million adjustment related to Topic 740.
$5,113
6,062
5,046
$5,069
$8,852
(845)
$ (473)
Stock-Based Compensation
Advertising cost
IN MILLIONS
$ 213
$ —
(203)
203
—
(90)
$ 33
$ 43
$ 458
$ —
—
(2)
$(212)
$ (45)
$5,326
5,859
5,159
$5,145
$9,310
(847)
$ (730)
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.
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
$652 million, $568 million and $544 million in fiscal years 2019,
2018 and 2017, respectively.
Restructuring and Other Charges
HP records charges associated with management-approved
restructuring plans to reorganize one or more of HP’s business
segments, to remove duplicative headcount and infrastructure
associated with business acquisitions or to simplify business
processes and accelerate
innovation. Restructuring charges
can include severance costs to reduce a specified number of
employees, enhanced early retirement incentives, infrastructure
charges to vacate facilities and consolidate operations, and
contract cancellation costs. HP records restructuring charges
based on estimated employee terminations, committed early
retirements 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
66 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
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 the Separation or information
technology rationalization efforts, and are distinct from ongoing
operational 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, interest rate and,
on certain investment exposures. Such contracts involve the risk
of non-performance by the counterparty, which could result in a
material loss. The likelihood of which HP deems to be remote.
HP sells a significant portion of its products through third-party
distributors and resellers and, as a result, maintains individually
significant receivable balances with these parties. If the financial
condition or operations of these distributors’ and resellers’
aggregated business deteriorates substantially, HP’s operating
results could be adversely affected. The ten largest distributor and
reseller receivable balances, which were concentrated primarily in
North America and Europe, collectively represented approximately
32% and 39% of gross accounts receivable as of October 31, 2019
and 2018, respectively. No single customer accounts for more
than 10% of gross accounts receivable as of October 31, 2019
or 2018. Credit risk with respect to other accounts receivable is
2019 Form 10-K
I 67
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
generally diversified due to HP’s large customer base and their
industries and geographic
dispersion across many different
markets. 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 77%
and 72% of HP’s supplier receivables of $1,165 million and
$1,074 million as of October 31, 2019 and 2018, 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 TMA was terminated during the fourth quarter of fiscal
year 2019. The net payable as of October 31, 2019 was $98 million
and net receivable as of October 31, 2018 was $1.0 billion.
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
less
HP reflects property, plant and equipment at cost
accumulated depreciation. HP
capitalizes additions and
improvements and expenses maintenance and repairs as incurred.
Depreciation expense is recognized on a straight-line basis over
the estimated useful lives of the assets. Estimated useful lives
are five to 40 years for buildings and improvements and three to
15 years for machinery and equipment. HP depreciates leasehold
improvements over the life of the lease or the asset, whichever is
shorter. HP depreciates equipment held for lease over the initial
term of the lease to the equipment’s estimated residual value. On
retirement or disposition, the asset cost and related accumulated
depreciation are removed from the Consolidated Balance Sheets
with any gain or loss recognized in the Consolidated Statements
of Earnings.
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. For
internal-use software obtained through a hosting arrangement
that is in the nature of a service contract, HP incurs certain
integrating, configuring, and
implementation costs such as
68 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
software customization, which are consistent with costs incurred
during the application development stage for on-premise
software. HP applies the same 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 and are expensed as incurred. These
charges primarily 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.
2019 Form 10-K
I 69
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies (Continued)
Debt and Marketable Equity Securities Investments
HP determines the appropriate classification of its investments
at the time of purchase and re-evaluates the classifications at
each balance sheet date. Debt and marketable equity securities
are generally considered available-for-sale. All highly liquid
investments with maturities of three months or less at the date
of purchase are classified as cash equivalents. Marketable debt
securities with maturities of twelve months or less are classified
as short-term investments and marketable debt securities with
maturities greater than twelve months are classified based
on their availability for use in current operations. Marketable
equity securities, including mutual funds, are classified as either
short-term or long-term based on the nature of each security and
its availability for use in current operations.
Debt and marketable equity securities are reported at fair value
with unrealized gains and losses, net of applicable taxes, in
Accumulated Other Comprehensive Loss, Consolidated Statement
of Earnings and the Consolidated Balance Sheets. Realized gains
and losses on available-for-sale securities are calculated based on
the specific identification method and included in interest and other,
net in the Consolidated Statements of Earnings. HP monitors its
investment portfolio for potential impairment on a quarterly basis.
When the carrying amount of an investment in debt securities
exceeds its fair value and the decline in value is determined to be
other-than-temporary (i.e., when HP does not intend to sell the
debt securities and it is not more likely than not that HP will be
required to sell the debt securities prior to anticipated recovery
of its amortized cost basis), HP records an impairment charge
to Interest and other, net in the amount of the credit loss and
the remaining amount, if any, is recorded in Accumulated other
comprehensive loss in the Consolidated Balance Sheets.
Derivatives
HP uses derivative instruments, primarily forwards, swaps, and at
times, options, to hedge certain foreign currency, interest rate, and
return on certain investment 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.
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 (“CODM”) 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 CODM to evaluate segment results.
The CODM uses several metrics to evaluate the performance of
the overall business, including earnings from operations, and uses
these results to allocate resources to each of the segments.
A summary description of each segment is as follows:
Personal Systems 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 enterprise,
public sector and SMB customers, with a focus on robust
designs, security, serviceability, connectivity, reliability and
manageability in networked and cloud-based environments.
70 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 2: Segment Information (Continued)
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.
• 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 creating
content, staying informed and security.
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
consumer desktops,
desktops, thin clients, and retail POS systems;
includes
commercial
• 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 some Samsung-branded and
OEM hardware and solutions. HP goes to market through
its extensive channel network and directly with HP sales.
• Home Printing Solutions delivers
innovative printing
products, supplies, services and solutions for the home,
home business and micro business customers utilizing both
HP’s Ink and Laser technologies (including laser technology
from some Samsung-branded products).
• Graphics Solutions delivers large-format, commercial and
industrial solutions and supplies to print service providers
and packaging converters through a wide portfolio of printers
and presses (HP DesignJet, HP Latex, HP Stitch, HP Indigo
and HP PageWide Web Presses) and related components.
• 3D Printing & Digital Manufacturing offers a portfolio of
additive manufacturing solutions and supplies to help
customers succeed in their additive and digital manufacturing
journey. HP offers complete solutions in collaboration with
an ecosystem of partners.
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 & Digital Manufacturing,
excluding supplies;
• Consumer Hardware consists of home printing solutions,
excluding supplies; and
• Supplies comprises a set of highly innovative consumable
products, ranging from
laser cartridges to
media, graphics supplies and 3D Printing & Digital
Manufacturing supplies, for recurring use in consumer and
commercial hardware.
ink and
Corporate Investments includes HP Labs and certain business
incubation and investment 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 infrastructure
investments, stock-based compensation expense, restructuring
and other charges, acquisition-related charges and amortization
of intangible assets. Pursuant to the adoption of ASU 2017-07 in
the first quarter of fiscal year of 2019, HP now reclassifies market-
related retirement credits and all other components (excluding the
service cost component) of net periodic benefit cost to Interest and
other, net in Consolidated Statement of Earnings. HP reflected this
change in prior reporting periods on an as-if basis. This adoption
did not have a material impact to previously reported segment
earnings from operations.
2019 Form 10-K
I 71
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 2: Segment Information (Continued)
Realignment
Effective at the beginning of its first quarter of fiscal year 2019,
HP implemented an organizational change to align its business
unit financial reporting more closely with its current business
structure. The organizational change resulted in the transfer of
certain Samsung-branded product categories from Commercial to
Consumer within the Printing segment. HP reflected this change to
its business unit information in prior reporting periods on an as-if
basis. The reporting change had no impact to previously reported
segment net revenue, consolidated net revenue, earnings from
operations, net earnings or net EPS.
Segment Operating Results from Operations and the reconciliation to HP consolidated results were as follows:
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019
2018
2017
IN MILLIONS
Net revenue:
Notebooks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,928
$22,547
$19,782
Desktops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,046
11,567
10,298
Workstations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Hardware. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,389
1,331
38,694
12,921
4,612
2,533
2,246
1,301
37,661
13,575
4,514
2,716
2,042
1,199
33,321
12,524
3,792
2,412
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,066
20,805
18,728
Corporate Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
5
8
Total segment net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,762
58,471
52,057
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6)
1
(1)
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,756
$58,472
$52,056
Earnings before taxes:
Personal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,898
3,202
(96)
$1,402
3,314
(82)
$1,206
3,142
(87)
Total segment earnings from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,004
$4,634
$4,261
Corporate and unallocated costs and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(404)
(297)
(275)
(35)
(116)
(1,354)
$2,523
(200)
(268)
(132)
(123)
(80)
(818)
(181)
(224)
(362)
(125)
(1)
(92)
$3,013
$3,276
72 I
2019 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
2019
2018
IN MILLIONS
Personal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,092
$13,447
Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,309
13,706
Corporate Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
5
Corporate and unallocated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,062
7,464
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,467
$34,622
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 2019, 2018 and 2017, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,605
$20,602
$19,321
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,151
37,870
32,735
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,756
$58,472
$52,056
Net property, plant and equipment by country in which HP operates was as follows:
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AS OF OCTOBER 31
2019
2018
IN MILLIONS
$1,260
$935
372
1,162
371
892
Total property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,794
$2,198
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.
2019 Form 10-K
I 73
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 3: Restructuring and Other Charges
Summary of Restructuring Plans
HP’s restructuring activities in fiscal years 2019, 2018 and 2017 summarized by plan were as follows:
FISCAL 2020 PLAN
FISCAL 2017 PLAN
SEVERANCE
AND EER
INFRASTRUCTURE
AND OTHER
SEVERANCE
INFRASTRUCTURE
AND OTHER(1)
OTHER
PRIOR YEAR
PLANS(2)
TOTAL
IN MILLIONS
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 . . . . . . . . . . . . . . . . . .
Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash and other adjustments . . . . . . . . . . . . . . . . . . . . .
Accrued balance as of October 31, 2019 . . . . . . . . . . . . . . . . . .
Total costs incurred to date as of October 31, 2019 . . . . . . .
Reflected in Consolidated Balance Sheets:
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
82
—
(6)(3)
$76
$82
$76
$—
$24
117
(68)
3
76
112
(136)
(2)
50
137
(122)
(7)
$58
$—
94
(23)
(52)
19
(13)
(35)
29
—
28
(15)
(11)
$2
$34
16
$58
227
(43)
(134)
6
13
—
(43)
108
99
(4)
(175)
—
9
—
27
59
247
(3)
(140)
—
$6
(24)
$142
—
—
—
—
—
—
—
—
—
—
—
$—
$— $390
$109
$1,317 $1,898
$—
$—
$58
$—
$2
$—
$5
$1
$141
$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)
Includes prior-year plans which are substantially complete. HP does not expect any further material activity associated with these plans.
(3)
Includes reclassification of liability related to the Enhanced Early Retirement (“EER”) plan of $6M for certain healthcare and medical savings account benefits
to pension and other post retirement plans. See Note 4 “Retirement and Post-Retirement Benefit Plans” for further information.
Fiscal 2020 Plan
On September 30, 2019, HP’s Board of Directors approved the
Fiscal 2020 Plan intended to optimize and simplify its operating
model and cost structure that HP expects will be implemented
through fiscal 2022. HP expects to reduce global headcount by
approximately 7,000 to 9,000 employees through a combination
of employee exits and voluntary EER. HP estimates that it will incur
pre-tax charges of approximately $1.0 billion relating to labor and
non-labor actions. HP expects to incur approximately $0.9 billion
primarily in labor costs related to workforce reductions and the
remaining costs will relate to infrastructure, non-labor actions and
other charges.
74 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 3: Restructuring and Other Charges (Continued)
Fiscal 2017 Plan
Other charges
On October 10, 2016, HP’s Board of Directors approved the Fiscal
2017 Plan, which included severance costs related to labor actions
and infrastructure costs related to non-labor actions and other
charges. Approximately 5,300 employees exited as part of the
Fiscal 2017 Plan. HP incurred $390 million in severance costs and
$305 million in infrastructure costs related to non-labor and other
charges. The Fiscal 2017 Plan is substantially complete. HP does
not expect any further costs associated with the plan.
Other charges include non-recurring costs, including those as a
result of the Separation or information technology rationalization
efforts, 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
$28 million, $33 million and $135 million of other charges in fiscal
year 2019, 2018 and 2017, 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, 2019 and
2018, the fair value of plan assets of the DPSP was $543 million
and $536 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 $107 million in
fiscal year 2019, $110 million in fiscal year 2018 and $103 million
in fiscal year 2017.
U.S. employees are automatically enrolled in the HP Inc. 401(k)
Plan when they meet eligibility requirements, unless they decline
participation. The employer matching contributions in the HP
Inc. 401(k) Plan is 100% of an employee’s contributions, up to a
maximum of 4% of eligible compensation.
2019 Form 10-K
I 75
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
2019
2018
2017
2019
2018
2017
2019
2018
2017
U.S. DEFINED
BENEFIT PLANS
NON-U.S. DEFINED
BENEFIT PLANS
IN MILLIONS
POST-RETIREMENT
BENEFIT PLANS
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
491
$—
452
$— $57
469
Expected return on plan assets . . . . . . . . . . . . . . .
(581)
(717)
(677)
Amortization and deferrals:
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . .
Prior service benefit . . . . . . . . . . . . . . . . . . . . . .
59
—
58
—
73
—
Net periodic (credit) benefit cost . . . . . . . . . . . . . .
(31)
(207)
(135)
Curtailment gain . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special termination benefits . . . . . . . . . . . . . . . . . .
—
2
—
—
2
—
—
3
—
$55
24
$48
18
$1
17
$1
15
$1
18
(39)
(31)
(22)
(23)
(26)
28
(3)
65
—
5
—
40
(3)
72
—
2
—
(31)
(13)
(48)
—
—
6
(17)
(18)
(42)
—
—
—
(17)
(19)
(43)
—
—
—
24
(37)
31
(3)
72
(22)
1
—
Total (credit) benefit cost . . . . . . . . . . . . . . . . . . . .
$(29) $(205) $(132)
$51
$70
$74
$(42)
$(42)
$(43)
The components of net periodic benefit costs other than the service cost component are included in Interest and other, net in our
Consolidated Statements of Earnings.
The weighted-average assumptions used to calculate the total periodic benefit (credit) cost were as follows:
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
2019
2018
2017
2019
2018
2017
U.S. DEFINED
BENEFIT PLANS
NON-U.S. DEFINED
BENEFIT PLANS
POST-RETIREMENT
BENEFIT PLANS
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.5% 3.8% 4.0% 2.0% 2.1% 1.6% 4.4% 3.5% 3.4%
Expected increase in compensation levels . . . . . . . . . . . .
2.0% 2.0% 2.0% 2.5% 2.5% 2.7% —
—
—
Expected long-term return on plan assets . . . . . . . . . . . .
6.0% 6.9% 6.9% 4.4% 4.5% 4.4% 6.0% 7.1% 7.3%
76 I
2019 Form 10-K
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
2019
2018
2019
2018
2019
2018
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 . . . . . . . . . . . . . . . . .
$10,018
$10,838
$850
$815
$388
$351
Acquisition/deletion of plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,499
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
—
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(523)
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9)
—
—
—
(267)
33
—
(575)
(11)
—
—
(1)
85
44
17
(28)
(4)
—
6
40
(2)
33
11
(10)
(18)
(19)
—
—
44
5
36
—
76
4
59
(69)
(102)
—
—
—
—
—
—
Fair value of assets — end of year . . . . . . . . . . . . . . . . . . . . . .
$12,017
$10,018
$969
$850
$404
$388
Change in benefits obligation
Projected benefit obligation — beginning of year . . . . . . . . .
$11,167
$12,266
$1,227
$1,132
$397
$463
Acquisition/ deletion of plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participant contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special termination benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
491
—
2,065
(523)
—
—
(9)
—
—
—
—
—
452
—
(965)
(575)
—
—
(11)
—
—
—
—
57
24
17
219
(28)
4
(63)
(4)
—
7
(3)
40
55
24
11
21
(10)
—
—
(13)
—
—
(33)
—
1
17
36
35
(69)
(33)
—
—
6
—
—
—
1
15
59
(39)
(102)
—
—
—
—
—
—
Projected benefit obligation — end of year . . . . . . . . . . . . . .
$13,191
$11,167
$1,457
$1,227
Funded status at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,174)
$(1,149)
$(488)
$(377)
$390
$14
$397
$(9)
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,191
$11,167
$1,320
$1,099
2019 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 weighted-average assumptions used to calculate the projected benefit obligations for the fiscal years ended October 31, 2019 and
2018 were as follows:
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2019
2018
2019
2018
U.S. DEFINED
BENEFIT PLANS
NON-U.S. DEFINED
BENEFIT PLANS
POST-RETIREMENT
BENEFIT PLANS
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected increase in compensation levels . . . . . . . . . . . . . . . . . . . . . . . . .
3.2%
2.0%
4.5%
2.0%
1.3%
2.5%
2.0%
2.5%
2.9%
4.4%
—
—
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
2019
2018
2019
2018
2019
2018
U.S. DEFINED
BENEFIT PLANS
NON-U.S. DEFINED
BENEFIT PLANS
POST-RETIREMENT
BENEFIT PLANS
IN MILLIONS
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
$—
$14
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(36)
(32)
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,138)
(1,117)
(7)
(495)
$10
(9)
(378)
Funded status at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,174)
$(1,149)
$(488)
$ (377)
$14
$21
$11
(6)
(1)
(6)
(14)
$(9)
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, 2019
U.S. DEFINED
BENEFIT PLANS
NON-U.S. DEFINED
BENEFIT PLANS
POST-RETIREMENT
BENEFIT PLANS
Net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,371
Prior service benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Total recognized in Accumulated other comprehensive loss (gain) . . . . . . .
$1,371
IN MILLIONS
$413
(12)
$401
$(135)
(94)
$(229)
78 I
2019 Form 10-K
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
$65
—
$65
IN MILLIONS
$42
(2)
$40
$(10)
(12)
$(22)
Defined benefit plans with projected benefit obligations exceeding the fair value of plan assets were as follows:
AS OF OCTOBER 31
2019
2018
2019
2018
U.S. DEFINED
BENEFIT PLANS
NON-U.S. DEFINED
BENEFIT PLANS
IN MILLIONS
Aggregate fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,017
$10,018
$905
$800
Aggregate projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,191
$11,167
$1,410
$1,194
Defined benefit plans with accumulated benefit obligations exceeding the fair value of plan assets were as follows:
Aggregate fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,017
$10,018
$838
$734
Aggregate accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,191
$11,167
$1,226
$1,007
AS OF OCTOBER 31
2019
2018
2019
2018
U.S. DEFINED
BENEFIT PLANS
NON-U.S. DEFINED
BENEFIT PLANS
IN MILLIONS
2019 Form 10-K
I 79
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, 2019. Refer
to Note 9, “Fair Value” for details on fair value hierarchy. 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, 2019
IN MILLIONS
Asset Category:
Equity securities(1) . . . . . . . . . . . . . . . . . $697
Debt securities(2)
$58
$— $755
$132
$8
$— $140
$—
$1
$— $1
Corporate. . . . . . . . . . . . . . . . . . . . . . — 6,098
— 6,098
— 139
Government . . . . . . . . . . . . . . . . . . . — 2,979
— 2,979
Real Estate Funds . . . . . . . . . . . . . . . . . —
Insurance Contracts . . . . . . . . . . . . . . . —
Common Collective Trusts
and 103-12 Investments Entities(3) . . —
Investment Funds(4) . . . . . . . . . . . . . . .
Cash and Cash Equivalents(5) . . . . . . .
Other(6) . . . . . . . . . . . . . . . . . . . . . . . . . . .
324
4
(517)
—
—
—
—
62
—
—
—
—
—
—
—
—
324
66
(488)
— (1,005)
—
1
—
—
19
69
78
7
— 311
18
1
—
16
— 139
— 19
— 70
— 78
—
7
— 311
— 18
—
—
—
—
—
57
—
— 17
(16)
40
61
—
—
—
—
2
—
— 40
— 61
— —
— —
— —
— 57
—
2
— (16)
Net plan assets subject to leveling . . $508 $8,709
$— $9,217
$152
$647
$— $799
$41
$104
$— $145
975
—
1,155
670
$12,017
21
111
—
38
$969
196
—
54
9
$404
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 . . . . . . . . . .
80 I
2019 Form 10-K
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, 2018.
U.S. DEFINED BENEFIT PLANS
NON-U.S. DEFINED BENEFIT PLANS
POST-RETIREMENT BENEFIT PLANS
LEVEL 1 LEVEL 2 LEVEL 3
TOTAL
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
AS OF OCTOBER 31, 2018
IN MILLIONS
$794
$48
$— $842
$114
$6
$— $120
$1
$— $— $1
— 4,941
— 1,637
—
—
—
—
—
253
—
—
5
(108)
139
(233)
— 4,941
— 1,637
—
—
—
—
—
—
—
—
—
253
144
(341)
— 110
28
—
60
3
50
—
—
7
— 279
— 110
28
—
63
—
50
—
—
7
— 279
—
—
—
—
—
—
55
19
2
—
13
19
15
—
(13)
—
40
54
—
—
—
—
4
—
— 40
— 54
— —
— —
— —
— 55
—
4
— (13)
$944 $6,532
$— $7,476
$138
$553
$— $691
$43
$98
$— $141
1,319
—
683
540
$10,018
14
110
—
35
$850
220
—
21
6
$388
Asset Category:
Equity securities(1) . . . . . . . .
Debt securities(2)
Corporate. . . . . . . . . . . . .
Government . . . . . . . . . .
Real Estate Funds . . . . . . . .
Insurance Contracts . . . . . .
Common Collective
Trusts and 103-12s(3) . . . . .
Investment Funds(4) . . . . . .
Cash and Cash
Equivalents(5) . . . . . . . . . . . .
Other(6) . . . . . . . . . . . . . . . . . .
Net plan assets subject
to leveling . . . . . . . . . . . . . . .
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)
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.
(4)
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.
2019 Form 10-K
I 81
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 4: Retirement and Post-Retirement Benefit Plans (Continued)
(5)
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
2019 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.4%
70.6%
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0%
40.6%
36.0%
6.2%
2.4%
14.8%
100.0%
48.2%
36.1%
—%
15.7%
—
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 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
82 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 4: Retirement and Post-Retirement Benefit Plans (Continued)
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 at the beginning of fiscal year 2019,
the investment portfolio interest rate exposure was increased in
accordance with the policy hedge 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.
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.
Retirement Incentive Program
As part of the Fiscal 2020 Plan, HP announced the voluntary
EER program for its U.S. employees in October 2019. Voluntary
participation in the EER program was limited to those employees
who are at least 50 years old with 20 or more years of service at HP.
Employees accepted into the EER program will leave HP on dates
ranging from December 31, 2019 to September 30, 2020. The EER
benefit will be a cash lump sum payment which is calculated based
on years of service at HP at the time of the retirement and ranging
from 13 to 52 weeks of pay.
All employees participating in the EER program are offered
the opportunity to continue health care coverage at the active
employee contribution rates for up to 36 months following
retirement. In addition, HP is providing up to $12,000 in employer
credits under the Retirement Medical Savings Account program.
HP will recognize a special termination benefits expense as
restructuring and other charges.
Future Contributions and Funding Policy
In fiscal year 2020, HP expects to contribute approximately
$76 million to its non-U.S. pension plans, $36 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.
Estimated Future Benefits Payments
As of October 31, 2019, 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
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Next five fiscal years to October 31, 2029 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$730
752
769
788
809
4,020
IN MILLIONS
$40
34
39
40
45
276
$40
36
32
29
28
135
2019 Form 10-K
I 83
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 5: Stock-Based Compensation
HP’s stock-based compensation plans include incentive compensation plans and an employee stock purchase plan.
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
2019
2018
2017
IN MILLIONS
$297
(47)
$250
$268
(59)
$209
$224
(71)
$153
Cash received from option exercises and purchases under the HP
Inc. 2011 Employee Stock Purchase Plan (the “2011 ESPP”) was
$59 million in fiscal year 2019, $158 million in fiscal year 2018
and $118 million in fiscal year 2017. The benefit realized for the
tax deduction from option exercises in fiscal years 2019, 2018 and
2017 was $3 million, $23 million and $15 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
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.
84 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 5: Stock-Based Compensation (Continued)
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
2019
$27
2018
$24
2017
$20
26.5%
29.5%
30.5%
2.7%
2.9
1.9%
2.9
1.4%
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:
2019
AS OF OCTOBER 31
2018
2017
WEIGHTED-
AVERAGE
GRANT DATE
FAIR VALUE
PER SHARE
$18
$22
$16
$20
$21
SHARES
IN THOUSANDS
31,822
16,364
(15,339)
(2,063)
30,784
WEIGHTED-
AVERAGE
GRANT DATE
FAIR VALUE
PER SHARE
$14
$21
$15
$17
$18
SHARES
IN THOUSANDS
28,710
15,858
(11,915)
(831)
31,822
WEIGHTED-
AVERAGE
GRANT DATE
FAIR VALUE
PER SHARE
$13
$16
$14
$14
$14
SHARES
IN THOUSANDS
30,784
17,216
(16,934)
(1,106)
29,960
Outstanding at beginning of year . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at end of year . . . . . . . . . . . .
The total grant date fair value of restricted stock units vested in
fiscal years 2019, 2018 and 2017 was $273 million, $224 million
and $162 million, respectively. As of October 31, 2019, total
unrecognized pre-tax stock-based compensation expense
related to non-vested restricted stock units for operations
was $267 million, which is expected to be recognized over the
remaining weighted-average vesting period of 1.4 years.
2019 Form 10-K
I 85
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
2019
$3
2018
$5
2017
$4
29.8%
29.4%
28.0%
1.7%
3.7%
6.0
2.5%
2.6%
5.0
1.9%
2.8%
5.5
(2) For all awards granted in fiscal year 2019 and 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, 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, the expected term was estimated using a simplified method; and for performance-contingent awards, the
expected term represents an output from the lattice model.
86 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 5: Stock-Based Compensation (Continued)
A summary of stock options activity is as follows:
2019
WEIGHTED-
AVERAGE
EXERCISE
PRICE
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
TERM
AGGREGATE
INTRINSIC
VALUE
SHARES
AS OF OCTOBER 31
2018
WEIGHTED-
AVERAGE
EXERCISE
PRICE
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
TERM
2017
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
$14
$17
$13
$10
$16
$16
$14
18,067
54
(10,644)
(391)
5.7
$15
7,086
5.7
3.6
$15
$15
7,084
4,707
$13
$21
$13
$16
$14
$14
$14
28,218
104
(9,407)
(848)
4.2
$73
18,067
4.2
3.7
$73
$49
17,692
10,898
$12
$19
$11
$17
$13
$13
$12
4.2
$152
4.1
3.1
$149
$102
SHARES
IN
THOUSANDS
Outstanding
at beginning
of year . . . . . . . .
Granted . . . . . . .
7,086
2,451
Exercised . . . . . .
(2,429)
Forfeited/
cancelled/
expired . . . . . . . .
Outstanding at
end of year . . . .
Vested and
expected
to vest . . . . . . . .
Exercisable . . . .
(15)
7,093
7,093
4,707
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 2019, 2018 and 2017. 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 2019,
2018 and 2017 was $20 million, $109 million and $77 million,
respectively. The total grant date fair value of options vested in
fiscal years 2019, 2018 and 2017 was $9 million, $12 million and
$19 million, respectively.
As of October 31, 2019, total unrecognized pre-tax stock-based
compensation expense related to stock options was $8 million,
which is expected to be recognized over a weighted-average
vesting period of 2 years.
2019 Form 10-K
I 87
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
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:
Shares available for future grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
265,135
305,767
419,071
Shares reserved for future issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
301,608
343,076
468,531
AS OF OCTOBER 31
2019
2018
2017
IN THOUSANDS
Note 6: Taxes on Earnings
Provision for Taxes
On December 22, 2017, the TCJA was enacted into law. 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”.
As of January 31, 2019, HP completed its accounting for the tax
effects of the TCJA with no material changes to the provisional
amounts recorded during the measurement period.
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. HP
has elected to treat Global Minimum Tax inclusions as period costs.
The domestic and foreign components of earnings before taxes were as follows:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,021)
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,544
$2,523
IN MILLIONS
$242
2,771
$3,013
$(14)
3,290
$3,276
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
88 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
The (benefit from) provision for taxes on earnings was as follows:
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
U.S. federal taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(987)
149
$751
(3,132)
$189
197
Non-U.S. taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
386
(3)
(160)
(14)
528
(563)
61
41
302
4
20
38
$(629)
$(2,314)
$750
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 23.3% in fiscal year 2018, under transitional tax rate rules, and 21% in fiscal year 2019.
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 operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes from operations, net of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . .
Impact of foreign earnings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign-derived intangible income deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Minimum Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Tax Reform impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development (“R&D”) credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
21.0%
1.5%
(6.4)%
(2.3)%
4.3%
(2.6)%
(1.1)%
(3.7)%
Uncertain tax positions and audit settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(41.1)%
(50.3)%
Indemnification related items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.8%
(1.3)%
5.2%
1.2%
(24.9)%
(76.8)%
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.
In fiscal year 2019, HP recorded $1.3 billion of net income tax
benefits related to discrete items in the provision for taxes. This
amount includes tax benefits related to audit settlements of
$1.0 billion, $75 million due to ability to utilize tax attributes,
$57 million of restructuring benefits and net valuation allowance
releases of $94 million. HP also recorded benefits of $78 million
related to U.S. tax reform as a result of new guidance issued by the
U.S. Internal Revenue Service (“IRS”). These benefits were partially
2019 Form 10-K
I 89
2018
23.3%
0.5%
2017
35.0%
1.4%
(10.9)%
(13.2)%
—%
—%
(35.8)%
(0.7)%
(9.3)%
—%
—%
—%
(0.5)%
(1.9)%
0.4%
(0.3)%
2.0%
22.9%
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
offset by uncertain tax position charges of $51 million. In fiscal
year 2019, in addition to the discrete items mentioned above,
HP recorded excess tax benefits of $20 million associated with
stock options, restricted stock units and performance-adjusted
restricted stock units.
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. HP had 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 associated with stock options, restricted stock units
and performance-adjusted restricted stock units.
Uncertain Tax Positions
A reconciliation of unrecognized tax benefits is as follows:
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 associated with 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.
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 $386 million ($0.25 diluted EPS) in fiscal year
2019, $578 million ($0.35 diluted net EPS) in fiscal year 2018 and
$471 million ($0.28 diluted net EPS) in fiscal year 2017.
FOR THE FISCAL YEARS ENDED
OCTOBER 31
2019
2018
2017
IN MILLIONS
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,771
$10,808
$10,858
Increases:
For current year’s tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For prior years’ tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases:
For prior years’ tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statute of limitations expirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79
172
(37)
(15)
66
101
(248)
(3)
Settlements with taxing authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,041)
(2,953)
52
85
(181)
(1)
(5)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$929
$7,771
$10,808
90 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
As of October 31, 2019, the amount of unrecognized tax benefits
was $929 million, of which up to $803 million would affect HP’s
effective tax rate if realized. 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. The amount of
unrecognized tax benefits decreased by $6.8 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,
2019, 2018 and 2017, HP had accrued $56 million, $160 million
and $257 million, respectively, for interest and penalties.
HP engages in continuous discussion and negotiation with taxing
authorities regarding tax matters in various jurisdictions. While
HP does not expect complete resolution of certain tax years with
various tax authorities in the next 12 months, it is reasonably
possible that its existing unrecognized tax benefits may be reduced
by an immaterial amount within the next 12 months.
HP is subject to income tax in the United States and approximately 58
other countries and is subject to routine corporate income tax audits
in many of these jurisdictions. In addition, HP is subject to numerous
ongoing audits by federal, state and foreign tax authorities. The IRS is
conducting an audit of HP’s 2016 income tax return.
With respect to major state and foreign tax jurisdictions, HP is no
longer subject to tax authority examinations for years prior to
2002. No material tax deficiencies have been assessed in major
state or foreign tax jurisdictions as of October 31, 2019.
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. In fiscal year 2018, HP
decided against further appeal.
HP believes it has provided adequate reserves for all tax deficiencies
or reductions in tax benefits that could result from federal, state
and foreign tax audits. HP regularly assesses the likely outcomes
of these audits in order to determine the appropriateness of HP’s
tax provision. HP adjusts its uncertain tax positions to reflect the
impact of negotiations, settlements, rulings, advice of legal counsel,
and other information and events pertaining to a particular audit.
However, income tax audits are inherently unpredictable and there
can be no assurance that HP will accurately predict the outcome
of these audits. The amounts ultimately paid on resolution of an
audit could be materially different from the amounts previously
included in the Provision for taxes and therefore the resolution of
one or more of these uncertainties in any particular period could
have a material impact on net income or cash flows.
HP has not provided for U.S. federal
income and foreign
withholding taxes on $5.7 billion of undistributed earnings from
non-U.S. operations as of October 31, 2019 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.
2019 Form 10-K
I 91
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
Deferred Income Taxes
The significant components of deferred tax assets and deferred tax liabilities were as follows:
AS OF OCTOBER 31
2019
2018
IN MILLIONS
Deferred Tax Assets
Loss and credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,856
$8,204
Intercompany transactions—excluding inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and retiree benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
714
115
195
396
145
193
420
556
994
151
194
401
164
—
—
422
Gross Deferred Tax Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,590
10,530
Valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,930)
(7,906)
Total Deferred Tax Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,660
2,624
Deferred Tax Liabilities
Unremitted earnings of foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(27)
—
(73)
Total Deferred Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(100)
(31)
(229)
(33)
(293)
Net Deferred Tax Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,560
$2,331
Deferred tax assets and liabilities included in the Consolidated Balance Sheets as follows:
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,620
$2,431
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(60)
(100)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,560
$2,331
AS OF OCTOBER 31
2019
2018
IN MILLIONS
92 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 6: Taxes on Earnings (Continued)
As of October 31, 2019, HP had recorded deferred tax assets for net operating loss carryforwards as follows:
DEFERRED
TAXES
ON NOLs
VALUATION
ALLOWANCE
INITIAL
YEAR OF
EXPIRATION
GROSS NOLs
IN MILLIONS
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$372
2,634
26,317
$29,323
$78
167
7,434
$7,679
$(19)
(62)
(7,357)
$(7,438)
2023
2019
2021
As of October 31, 2019, HP had recorded deferred tax assets for various tax credit carryforwards as follows:
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
$307
$307
$(42)
$(42)
INITIAL
YEAR OF
EXPIRATION
2021
FOR THE FISCAL
YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,906
$8,807
$8,520
Income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, currency translation and charges to other accounts . . . . . . . . . . . . .
(339)
363
(897)
(4)
297
(10)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,930
$7,906
$8,807
Gross deferred tax assets as of October 31, 2019, 2018 and 2017
were reduced by valuation allowances of $7.9 billion, $7.9 billion
and $8.8 billion, respectively. In fiscal year 2019, the deferred
tax asset valuation allowance increased by $24 million primarily
associated with the recognition of the income tax consequences of
intra-entity transfers other than inventory, see Note 1, “Summary
of Significant Accounting Policies” for detailed information. This
increase was partially offset by the impact of tax rate changes
in foreign jurisdictions and state valuation allowance releases. In
fiscal year 2018, the deferred tax valuation allowance decreased
by $901 million primarily associated 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.
In fiscal year 2017, the deferred tax asset valuation allowance
increased by $287 million primarily associated with foreign net
operating losses.
2019 Form 10-K
I 93
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 7: Supplementary Financial Information
Accounts Receivable, net
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,142
$5,242
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(111)
(129)
AS OF OCTOBER 31
2019
2018
IN MILLIONS
The allowance for doubtful accounts related to accounts receivable and changes were as follows:
$6,031
$5,113
FOR THE FISCAL
YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$129
$101
$107
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductions, net of recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60
(78)
57
(29)
30
(36)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$111
$129
$101
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 de-recognized
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, 2019 and 2018 were not material.
The costs associated with the sales of trade receivables for fiscal
year 2019, 2018 and 2017 were not material.
The following is a summary of the activity under these arrangements:
FOR THE FISCAL
YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
Balance at beginning of year(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$165
$147
Trade receivables sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,257
10,224
$149
9,553
Cash receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10,186)
(10,202)
(9,562)
Foreign currency and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
(4)
$235
$165
7
$147
(1) Amounts outstanding from third parties reported in Accounts Receivable in the Consolidated Balance Sheets.
94 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 7: Supplementary Financial Information (Continued)
Inventory
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,855
$4,019
Purchased parts and fabricated assemblies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,879
2,043
AS OF OCTOBER 31
2019
2018
IN MILLIONS
Other Current Assets
$5,734
$6,062
AS OF OCTOBER 31
2019
2018
IN MILLIONS
Supplier and other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,951
$2,025
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Value-added taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale investments(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) See Note 9 “Fair Value” and Note 10, “Financial Instruments” for detailed information.
Property, Plant and Equipment, Net
967
957
—
1,445
865
711
$3,875
$5,046
AS OF OCTOBER 31
2019
2018
IN MILLIONS
Land, buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,977
$1,893
Machinery and equipment, including equipment held for lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,060
7,037
4,216
6,109
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,243)
(3,911)
$2,794
$2,198
Depreciation expense was $623 million, $448 million and $353 million in fiscal years 2019, 2018 and 2017, respectively.
2019 Form 10-K
I 95
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 7: Supplementary Financial Information (Continued)
Other Non-Current Assets
Deferred tax assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax indemnifications receivable(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AS OF OCTOBER 31
2019
2018
IN MILLIONS
$2,620
$2,431
42
661
801
953
453
1,232
$4,124
$5,069
(1) See Note 6, “Taxes on Earnings” for detailed information.
(2) See Note 15, “Guarantees, Indemnifications and Warranties” for detailed information.
(3) See Note 8, “Goodwill and Intangible Assets” for detailed information.
(4)
Includes marketable equity securities and mutual funds classified as available-for-sale investments of $56 million and $53 million at October 31, 2019 and
2018, respectively. See Note 10, “Financial Instruments” for detailed information
Other Current Liabilities
AS OF OCTOBER 31
2019
2018
IN MILLIONS
Sales and marketing programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,361
$2,758
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,178
1,095
Employee compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,103
1,060
663
237
1,136
982
673
340
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,541
1,868
$10,143
$8,852
96 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 7: Supplementary Financial Information (Continued)
Other Non-Current Liabilities
AS OF OCTOBER 31
2019
2018
IN MILLIONS
Tax liability(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$848
$2,063
Pension, post-retirement, and post-employment liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,762
1,069
60
848
1,645
1,005
100
793
$4,587
$5,606
(1) See Note 6, “Taxes on Earnings” for detailed information.
Interest and other, net
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
Tax indemnifications(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,186)
$(662)
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Interest expense on borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(242)
74
(126)
(312)
282
$(1,354)
$(818)
$47
—
(309)
170
$(92)
(1) Fiscal year ended October 31, 2019 and 2018, includes an adjustment of $764 million and $676 million respectively, of indemnification receivable, primarily
related to resolution of various income tax audit settlements. Fiscal year ended October 31, 2019, also includes an adjustment of $417 million pursuant to
the termination of the TMA with Hewlett Packard Enterprise. See Note 15, “Guarantees, Indemnifications and Warranties” for further information.
Net Revenue by Region
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25,244
$25,644
$23,891
Europe, Middle East and Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia-Pacific and Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,275
13,237
20,470
12,358
17,507
10,658
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,756
$58,472
$52,056
FOR THE FISCAL YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
2019 Form 10-K
I 97
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 7: Supplementary Financial Information (Continued)
Value of Remaining Performance Obligations
Costs of Obtaining Contracts
As of October 31, 2019, the estimated value of transaction price
allocated to remaining performance obligations was $4.4 billion.
HP expects to recognize approximately $1.8 billion of the unearned
amount in next 12 months and $2.6 billion thereafter.
HP has elected the practical expedients and accordingly does not
disclose the aggregate amount of the transaction price allocated
to remaining performance obligations if:
• the contract has an original expected duration of one year
or less; or
• the revenue from the performance obligation is recognized
over time on an as-invoiced basis when the amount
corresponds directly with the value to the customer; or
• the portion of the transaction price that
is variable
in nature is allocated entirely to a wholly unsatisfied
performance obligation.
The remaining performance obligations are subject to change
and may be affected by various factors, such as termination of
contracts, contract modifications and adjustment for currency.
Note 8: Goodwill and Intangible Assets
Goodwill
As of October 31, 2019, deferred contract fulfillment and
acquisition costs balances were $47 million and $30 million,
included in Other Current Assets and Other Non-Current Assets,
respectively, in the Consolidated Balance Sheet. During the
twelve months ended October 31, 2019, the Company amortized
$108 million of these costs.
Contract Liabilities
As of October 31, 2019 and November 1, 2018, HP’s contract
liabilities balances were $2.1 billion and $1.9 billion, included
in Other Current Liabilities and Other Non-Current Liabilities,
respectively, in the Consolidated Balance Sheet.
The increase in the contract liabilities balance for fiscal year 2019
is primarily driven by sales of fixed price support and maintenance
services, partially offset by $922 million of revenue recognized
that were included in the opening contract liabilities balance as of
November 1, 2018.
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, 2017(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,593
$3,029
$5,622
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at October 31, 2018(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
339
346
2,600
3,368
5,968
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at October 31, 2019(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
—
386
5
399
5
$2,613
$3,759
$6,372
(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, 2019, our reporting units are consistent with the
reportable segments identified in Note 2, “Segment Information”.
There were no goodwill impairments in fiscal years 2019, 2018
and 2017. Personal Systems had a negative carrying amount of
net assets as of October 31, 2019 and 2018, primarily as a result
of a favorable cash conversion cycle.
98 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 8: Goodwill and Intangible Assets (Continued)
Intangible Assets
HP’s acquired intangible assets were composed of:
AS OF OCTOBER 31, 2019
AS OF OCTOBER 31, 2018
GROSS
ACCUMULATED
AMORTIZATION
ACCUMULATED
AMORTIZATION
NET
NET
GROSS
IN MILLIONS
Customer contracts, customer lists and distribution
agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology, patents and trade name . . . . . . . . . . . . . . . . . . . . . . . .
$385
652
$122
$263
$112
254
398
601
$88
172
$24
429
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,037
$376
$661
$713
$260
$453
For fiscal year 2019, the increase in gross intangible assets was primarily due to intangible assets resulting from the acquisition of the
Apogee group.
The weighted-average useful lives of intangible assets acquired during the period are as follows:
Customer contracts, customer lists and distribution agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology, patents and trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of October 31, 2019, estimated future amortization expense related to intangible assets was as follows
FISCAL YEAR
WEIGHTED-AVERAGE
USEFUL LIFE
10
7
IN MILLIONS
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$114
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
116
116
114
80
121
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$661
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:
2019 Form 10-K
I 99
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 9: Fair Value (Continued)
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, 2019
AS OF OCTOBER 31, 2018
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$— $1,283
$— $1,283
$— $1,620
$— $1,620
Financial institution instruments . . . . . . . . . . . .
—
Government debt(1) . . . . . . . . . . . . . . . . . . . . . . . .
2,422
Available-for-Sale Investments:
Corporate debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial institution instruments . . . . . . . . . . . .
Government debt(1) . . . . . . . . . . . . . . . . . . . . . . . .
Marketable equity securities and
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative Instruments:
Interest rate contracts . . . . . . . . . . . . . . . . . . . . .
Foreign currency contracts . . . . . . . . . . . . . . . . .
Other derivatives . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
6
—
—
—
—
—
—
—
—
50
4
381
7
—
—
—
— 2,422
2,217
—
—
—
—
—
—
—
—
—
—
56
4
381
7
—
—
—
53
—
—
—
9
150
366
32
313
—
—
508
—
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,428
$1,725
$— $4,153
$2,270
$2,998
—
9
— 2,367
—
—
—
—
—
7
—
$7
366
32
313
53
—
515
—
$5,275
Liabilities:
Derivative Instruments:
Interest rate contracts . . . . . . . . . . . . . . . . . . . . .
Foreign currency contracts . . . . . . . . . . . . . . . . .
Other derivatives . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
—
—
$—
$—
$—
$—
$23
$—
165
1
—
—
165
1
—
—
164
8
—
—
$23
164
8
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
$— $166
$— $166
$— $195
$— $195
(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.
100 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 9: Fair Value (Continued)
Valuation Techniques
Cash Equivalents and Investments: HP holds time deposits, money
market funds, mutual funds, other debt securities primarily consisting
of corporate and foreign government notes and bonds, and common
stock and equivalents. HP values cash equivalents and equity
investments using quoted market prices, alternative pricing sources,
including net asset value, or models utilizing market observable
inputs. The fair value of debt investments was based on quoted
market prices or model-driven valuations using inputs primarily
derived from or corroborated by observable market data, and, in
certain instances, valuation models that utilize assumptions which
cannot be corroborated with observable market data.
Derivative Instruments: From time to time, HP uses forward
contracts, interest rate and total return swaps and, in the past,
option contracts to hedge certain foreign currency interest rate and
return on certain investment 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
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 fair value of HP’s short- and long-
term debt was $5.4 billion at October 31, 2019 compared to its
carrying amount of $5.1 billion at that date. The fair value of HP’s
short- and long-term debt was $6.0 billion as compared to its
carrying value of $6.0 billion at October 31, 2018. 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 current liabilities on the
Consolidated Balance Sheets, 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 are measured at cost
less impairment, adjusted for observable price changes. HP’s 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.
2019 Form 10-K
I 101
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 10: Financial Instruments
Cash Equivalents and Available-for-Sale Investments
AS OF OCTOBER 31, 2019
GROSS
UNREALIZED
GAIN
GROSS
UNREALIZED
LOSS
COST
AS OF OCTOBER 31, 2018
GROSS
UNREALIZED
GAIN
GROSS
UNREALIZED
LOSS
FAIR
VALUE
FAIR
VALUE
COST
IN MILLIONS
Cash Equivalents:
Corporate debt . . . . . . . . . . . . . . . . . . . . . . . . $1,283
$—
$— $1,283 $1,620
$—
$— $1,620
Financial institution instruments . . . . . . . .
—
Government debt. . . . . . . . . . . . . . . . . . . . . .
2,422
Total cash equivalents . . . . . . . . . . . . . .
3,705
Available-for-Sale Investments:
Corporate debt(1) . . . . . . . . . . . . . . . . . . . . . .
Financial institution instruments(1) . . . . . . .
Government debt(1) . . . . . . . . . . . . . . . . . . . .
Marketable equity securities and
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . .
Total available-for-sale
investments . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
40
40
Total cash equivalents and
available-for-sale investments . . . . . . . . . . . . $3,745
—
—
—
—
—
—
16
16
—
—
9
— 2,422 2,367
— 3,705 3,996
—
—
—
—
—
—
368
32
314
—
56
42
—
56
756
—
—
—
—
—
—
11
11
—
9
— 2,367
— 3,996
(2)
—
(1)
—
366
32
313
53
(3)
764
$16
$— $3,761 $4,752
$11
$(3) $4,760
(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, 2019 and 2018, 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 $80 million in
fiscal year 2019, $116 million in fiscal year 2018, and $66 million
in fiscal year 2017. The estimated fair value of the available-for-
sale investments may not be representative of values that will be
realized in the future.
Equity securities in privately held companies are included in Other
non-current assets in the Consolidated Balance Sheets. These
amounted to $46 million and $36 million as of October 31, 2019
and 2018, respectively.
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, return on certain investment exposures. HP may designate
its derivative contracts as fair value hedges or cash flow hedges
and classifies the cash flows 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.
102 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 10: Financial Instruments (Continued)
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’s
custodian 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 $45 million
and $68 million as of October 31, 2019 and 2018, 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, 2019
and 2018.
Fair Value Hedges
HP enters into fair value hedges, such as interest rate swaps, to
reduce the exposure of its debt portfolio to changes in fair value
resulting from changes in interest rates by achieving a primarily
U.S. dollar London Interbank Offered Rate (“LIBOR”)-based floating
interest expense.
For derivative instruments that are designated and qualify as
fair value hedges, HP recognizes the change in fair value of the
derivative instrument, as well as the offsetting change in the
fair value of the hedged item, in Interest and other, net in the
Consolidated Statements of Earnings in the period of change.
Cash Flow Hedges
HP uses forward contracts and at times, option contracts
designated as cash flow hedges to protect against the foreign
currency exchange rate risks inherent in its forecasted net revenue
and, to a lesser extent, cost of revenue and operating expenses.
HP’s foreign currency cash flow hedges mature predominantly
within twelve months; however, hedges related to long-term
procurement arrangements extend several 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.
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.
2019 Form 10-K
I 103
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 10: Financial Instruments (Continued)
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, 2019
AS OF OCTOBER 31, 2018
OUTSTANDING
GROSS
NOTIONAL
OTHER
CURRENT
ASSETS
OTHER
NON-
CURRENT
ASSETS
OTHER
CURRENT
LIABILITIES
OTHER
NON-
CURRENT
LIABILITIES
OUTSTANDING
GROSS
NOTIONAL
OTHER
CURRENT
ASSETS
OTHER
NON-
CURRENT
ASSETS
OTHER
CURRENT
LIABILITIES
OTHER
NON-
CURRENT
LIABILITIES
IN MILLIONS
Derivatives designated as
hedging instruments
Fair value hedges:
Interest rate contracts . . . . . . .
$750
$—
$4
$—
$—
$1,000
$—
$—
$—
$23
Cash flow hedges:
Foreign currency contracts . . . .
15,639
260
111
123
Total derivatives designated as
hedging instruments . . . . . . . .
Derivatives not designated as
hedging instruments
Foreign currency contracts . . . .
Other derivatives . . . . . . . . . . .
Total derivatives not designated
as hedging instruments . . . . . .
16,389
260
115
123
7,146
134
7,280
10
7
17
—
—
—
14
1
15
Total derivatives . . . . . . . . . . . .
$23,669
$277
$115
$138
28
28
—
—
—
$28
17,147
386
107
18,147
386
107
5,437
122
5,559
22
—
22
—
—
—
86
86
26
8
34
$23,706
$408
$107
$120
52
75
—
—
—
$75
104 I
2019 Form 10-K
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,
2019 and 2018, 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, 2019
Derivative assets . . . . . . . . . . . . . . . . . . . . . . . .
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . .
As of October 31, 2018
Derivative assets . . . . . . . . . . . . . . . . . . . . . . . .
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . .
$392
$166
$515
$195
$—
$—
$—
$—
$392
$166
$515
$195
$113
$113
$112
$112
$259(1)
$43(2)
$299(1)
$69(2)
$20
$10
$104
$14
(1) Represents the cash collateral posted by counterparties as of the respective reporting date for HP’s asset position, net of derivative amounts that could be
offset, as of, generally, two business days prior to the respective reporting date.
(2) Represents the collateral posted by HP through re-use of counterparty cash collateral as of the respective reporting date for HP’s liability position, net of
derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date.
Effect of Derivative Instruments on the Consolidated Statements of Earnings
The pre-tax effect of derivative instruments and related hedged items in a fair value hedging relationship for fiscal years ended
October 31, 2019, 2018 and 2017 was as follows:
DERIVATIVE INSTRUMENT
LOCATION
2019 2018 2017
HEDGED ITEM
LOCATION
2019 2018 2017
GAIN (LOSS) RECOGNIZED IN INCOME ON DERIVATIVE INSTRUMENTS AND RELATED HEDGED ITEMS
IN MILLIONS
IN MILLIONS
Interest rate contracts . . . . . . . . . . Interest and other, net $27 $(11) $(60) Fixed-rate debt Interest and other, net $(27) $11 $60
2019 Form 10-K
I 105
HP Inc. and Subsidiaries
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, 2019, 2018 and 2017
was as follows:
GAIN (LOSS) RECOGNIZED IN OCI
ON DERIVATIVES (EFFECTIVE PORTION)
GAIN (LOSS) RECLASSIFIED FROM ACCUMULATED OCI
INTO EARNINGS (EFFECTIVE PORTION)
2019
2018
2017
IN MILLIONS
2019
2018
2017
IN MILLIONS
Cash flow hedges:
Foreign currency contracts . . . .
$252
$ 341
$(651)
Net revenue . . . . . . . . . . . . . . . . .
$ 425
$(239)
$(156)
Cost of revenue . . . . . . . . . . . . . .
Other operating expenses . . . . .
Interest and other, net . . . . . . . .
(43)
(2)
—
(18)
(1)
—
(35)
1
(9)
Total . . . . . . . . . . . . . . . . . . . . .
$252
$ 341
$(651)
Total . . . . . . . . . . . . . . . . . . . . .
$ 380
$(258)
$(199)
As of October 31, 2019, 2018 and 2017, 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 2019, 2018 and 2017.
As of October 31, 2019, HP expects to reclassify an estimated accumulated other comprehensive income of approximately $104 million,
net of taxes, to earnings within the next twelve months associated with cash flow hedges along with the earnings effects of the related
forecasted transactions. The amounts ultimately reclassified into earnings could be different from the amounts previously included in
accumulated OCI based on the change of market rate, and therefore could have different impact on earnings.
The pre-tax effect of derivative instruments not designated as hedging instruments recognized in Interest and other, net in the
Consolidated Statements of Earnings for fiscal years 2019, 2018 and 2017 was as follows:
Foreign currency contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other, net
$(119)
$35
$(32)
Other derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other, net
14
(9)
3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(105)
$26
$(29)
(LOSS) GAIN RECOGNIZED IN INCOME ON DERIVATIVES
LOCATION
2019
2018
2017
IN MILLIONS
106 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 11: Borrowings
Notes Payable and Short-Term Borrowings
AS OF OCTOBER 31
2019
2018
AMOUNT
OUTSTANDING
WEIGHTED-AVERAGE
INTEREST RATE
AMOUNT
OUTSTANDING
WEIGHTED-AVERAGE
INTEREST RATE
IN MILLIONS
IN MILLIONS
$—
307
50
$357
—%
3.6%
2.0%
$854
565
44
$1,463
2.5%
3.1%
1.7%
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt . . . . . . . . . . . . . . . . .
Notes payable to banks, lines of credit and other . . . .
Long-Term Debt
U.S. Dollar Global Notes(1)
2009 Shelf Registration Statement:
AS OF OCTOBER 31
2019
2018
IN MILLIONS
$648
667
$648
667
538
695
499
538
694
499
$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 . . . . .
$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 . . . . . . . . . .
$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%-8.43%, due in calendar years 2019-2029 . . . . . . . . . . . . . .
Fair value adjustment related to hedged debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt issuance cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
4,246
853
4
(16)
(307)
102
300
4,647
487
(28)
(17)
(565)
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,780
$4,524
(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.
2019 Form 10-K
I 107
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 11: Borrowings (Continued)
In December 2016, HP filed a shelf registration statement (the
“2016 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.
As of October 31, 2019, aggregate future maturities of debt at face value (excluding unamortized debt issuance cost of $16 million
and discounts on debt issuance of $2 million less fair value adjustment related to hedged debt of $4 million), including capital lease
obligations were as follows:
FISCAL YEAR
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IN MILLIONS
$357
251
2,015
1,273
42
1,213
$5,151
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
As of October 31, 2019, 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
108 I
2019 Form 10-K
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, 2019, 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, 2019, HP was in
compliance with the financial covenants in the credit agreement
governing the revolving credit facility.
Available Borrowing Resources
As of October 31, 2019, HP and HP’s subsidiaries had available
borrowing resources of $724 million from uncommitted lines of
credit in addition to the senior unsecured committed revolving
credit facility discussed above.
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 12: Stockholders’ Deficit
Share Repurchase Program
HP’s share repurchase program authorizes both open market and
private repurchase transactions. In fiscal year 2019, HP executed
share repurchases of 118 million shares and settled total shares for
$2.4 billion. 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. Share repurchases executed
during fiscal years 2019, 2018, and 2017 included 0.9 million shares,
1.0 million shares, and 1.5 million shares settled in November 2019,
November 2018, and November 2017, respectively.
Taxes related to Other Comprehensive (Loss) Income
The shares repurchased in fiscal years 2019, 2018 and 2017 were all
open market repurchase transactions. On June 19, 2018, HP’s Board
of Directors authorized $4.0 billion for future repurchases of its
outstanding shares of common stock. On September 30, 2019, the
Board authorized an additional $5.0 billion for future repurchases
of its outstanding shares of common stock. As of October 31,
2019, HP had approximately $6.5 billion remaining under the share
repurchase authorizations approved by HP’s Board of Directors.
FOR THE FISCAL YEARS
ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
Tax effect on change in unrealized components of available-for-sale debt securities:
Tax (provision) benefit on unrealized gains (losses) arising during the period . . . . . . . . . . . . . . . . . . . . . . .
$—
$1
$(1)
Tax effect on change in unrealized components of cash flow hedges:
Tax (provision) benefit on unrealized gains (losses) arising during the period . . . . . . . . . . . . . . . . . . . . . . .
(37)
Tax provision (benefit) on (gains) losses reclassified into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect on change in unrealized components of defined benefit plans:
Tax benefit (provision) on (losses) gains arising during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax provision on amortization of actuarial loss and prior service benefit . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
9
64
(11)
Tax (provision) benefit on curtailments, settlements and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(104)
Tax effect on change in cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(51)
—
(42)
(26)
(68)
42
(16)
26
— (140)
(11)
(2)
(13)
—
(21)
72
(89)
—
Tax (provision) benefit on other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(42)
$(80)
$(64)
2019 Form 10-K
I 109
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 12: Stockholders’ Deficit (Continued)
Changes and reclassifications related to Other Comprehensive (Loss) Income, net of taxes
FOR THE FISCAL
YEARS ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS
Other comprehensive (loss) income, net of taxes:
Change in unrealized components of available-for-sale debt securities:
Unrealized gains (losses) arising during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses (gains) reclassified into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized components of cash flow hedges:
Unrealized gains (losses) arising during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gains) losses reclassified into earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized components of defined benefit plans:
(Losses) gains arising during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial loss and prior service benefit(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailments, settlements and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in cumulative translation adjustment:
$1
3
4
215
(334)
(119)
(239)
32
(62)
(269)
4
$(2)
(5)
(7)
299
232
531
11
37
1
49
—
Other comprehensive (loss) income, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(380)
$573
$3
—
3
(609)
183
(426)
315
53
75
443
—
$20
(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, 2019 and changes during fiscal year 2019
were as follows:
NET UNREALIZED
GAINS ON
AVAILABLE-FOR-
SALE SECURITIES
NET
UNREALIZED
GAINS (LOSSES)
ON CASH
FLOW HEDGES
UNREALIZED
COMPONENTS
OF DEFINED
BENEFIT PLANS
CHANGE IN
CUMULATIVE
TRANSLATION
ADJUSTMENT
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
IN MILLIONS
Balance at beginning of period . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassifications of losses (gains) into earnings . .
Reclassifications of curtailments, settlements
and other into earnings . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . .
$5
1
3
—
$9
$291
$(1,141)
$—
$(845)
215
(334)
—
$172
(239)
32
(62)
$(1,410)
4
—
—
$4
(19)
(299)
(62)
$(1,225)
110 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 13: Earnings Per Share
HP calculates basic net EPS using net earnings and the weighted-average number of shares outstanding during the reporting period.
Diluted net EPS includes any dilutive effect of restricted stock units, stock options, performance-based awards and shares purchased
under the 2011 employee stock purchase plan.
A reconciliation of the number of shares used for basic and diluted net EPS calculations is as follows:
FOR THE FISCAL YEARS
ENDED OCTOBER 31
2019
2018
2017
IN MILLIONS, EXCEPT PER
SHARE AMOUNTS
Numerator:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,152 $5,327 $2,526
Denominator:
Weighted-average shares used to compute basic net EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,515
1,615
1,688
Dilutive effect of employee stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
19
14
Weighted-average shares used to compute diluted net EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,524
1,634
1,702
Net earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.08 $ 3.30 $ 1.50
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.07 $ 3.26 $ 1.48
Anti-dilutive weighted-average stock-based compensation awards(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
7
1
(1) HP excludes from the calculation of diluted net EPS stock options and restricted stock units where the assumed proceeds exceed the average market
price, 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.
Note 14: Litigation and Contingencies
HP is involved in lawsuits, claims, investigations and proceedings,
including those identified below, consisting of IP, commercial,
securities, employment, employee benefits and environmental
matters that arise in the ordinary course of business. HP accrues
a liability when management believes that it is both probable
that a liability has been incurred and the amount of loss can be
reasonably estimated. HP believes it has recorded adequate
provisions for any such matters and, as of October 31, 2019, 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
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
2019 Form 10-K
I 111
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 14: Litigation and Contingencies (Continued)
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.
112 I
2019 Form 10-K
Company
v. Oracle
Corporation. On
Hewlett-Packard
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
included
HP approximately $3.0 billion
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 case is fully briefed and awaiting the
Court of Appeals to schedule oral argument. 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.
in damages, which
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. Between
November 2018 and April 2019, an additional 154 individuals filed
consents to opt-in to the action as party-plaintiffs. Of the new opt-
ins, 145 signed separation agreements that include class waivers
and mandatory arbitration provisions. The addition of these
opt-ins brings the total number of named and opt-in plaintiffs to
193. Mediation proceedings took place in June 2019 with respect
to the 145 opt-ins who signed separation agreements, and the
parties are continuing to engage in settlement discussions. The
stay of the litigation remains in place.
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 40.
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 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.
Intelligence Proceedings. On
India Directorate of Revenue
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
2019 Form 10-K
I 113
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 14: Litigation and Contingencies (Continued)
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
$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 canceled at
the request of the Customs Tribunal. A hearing on the merits of
the appeal scheduled for January 15, 2019 has been cancelled.
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.
Neodron Patent Litigation. United States. On May 21, 2019,
Neodron Ltd. (“Neodron”) filed a patent infringement lawsuit
against Hewlett Packard Enterprise in U.S. District Court for
the Western District of Texas. On the same day, Neodron
filed a companion complaint with the U.S. International Trade
Commission (“ITC”) pursuant to Section 337 of the Tariff Act
of 1930 against seven sets of respondents, including Hewlett
Packard Enterprise. On May 23 and June 14, 2019, Neodron
filed amended complaints in the ITC and the Western District of
Texas, respectively, to replace Hewlett Packard Enterprise with
114 I
2019 Form 10-K
HP. Both complaints allege that certain touch-controlled devices
infringe four patents owned by Neodron. On June 19, 2019, the
ITC instituted an investigation. The ITC hearing is scheduled to
begin on March 23, 2020, and the ITC’s target date for completion
of the investigation is October 26, 2020. The district court action
is stayed pending resolution of the ITC proceedings. In the ITC
proceeding, Neodron seeks an order enjoining HP from importing,
selling for importation, or selling after importation certain touch-
controlled notebook computers and tablets. On June 28, 2019,
Neodron filed a second lawsuit in the Western District of Texas,
asserting four additional patents against HP touch-controlled
devices. Neodron amended its complaint in the second lawsuit to
assert a total of eight patents against HP touch-controlled devices.
Neodron seeks unspecified damages and a permanent injunction,
among other remedies.
Germany. On October 29, 2019, Neodron served HP with a claim
of patent infringement at the Munich State Court in Germany.
The patent asserted in the German case is related to a patent
asserted in the ITC. This case will consist of an initial hearing in
March 2020 and formal hearing in late 2020. If the German
court finds infringement of a valid patent, the court may issue an
injunction as part of any remedy.
Slingshot Printing LLC Litigation. On June 11, 2019, Slingshot
Printing LLC filed three complaints in U.S. District Court in the
Western District of Texas alleging HP infringes or has infringed
sixteen patents. On September 20, 2019, Slingshot filed a fourth
complaint and amended the three earlier complaints, alleging
that HP infringes or has infringed thirty-two patents. The accused
products include inkjet printers, cartridges, and printheads. The
complaints seek monetary damages.
Parziale v. HP, Inc. On August 27, 2019, a purported consumer
class action was filed against HP arising out of the supplies
authentication protocol in certain OfficeJet printers. The complaint,
which was filed in the United States District Court for the Northern
District of California, captioned Parziale v. HP, Inc., alleges two
causes of action under Florida Consumer Protection statutes:
(1) violation of the Florida Deceptive and Unfair Trade Practices Act,
F.S.A. §§ 501.201 et seq., and (2) violation of the Florida Misleading
Advertisement Law, F.S.A. §§ 817.41 et seq. The named plaintiff, a
Florida resident who purchased OfficeJet printers in Florida, seeks
to represent a nationwide class of “[a]ll United States Citizens who,
between the applicable statute of limitations and the present, had
an HP Printer that was modified to reject third party ink cartridges
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 14: Litigation and Contingencies (Continued)
or refilled HP ink cartridges.” On October 30, 2019, HP moved to
dismiss the complaint. On November 13, 2019, plaintiff filed an
amended complaint, adding the following new causes of action
to the case: (1) violation of the Computer Fraud and Abuse Act,
18 U.S.C. § 1030 et seq., (2) trespass to chattels, and (3) tortious
interference with business relations.
Autonomy-Related Legal Matters
Investigations. As a result of the findings of an ongoing
investigation, HP has provided information to the U.K. Serious
Fraud Office, the U.S. Department of Justice (“DOJ”) and the
SEC related to the accounting improprieties, disclosure failures
and misrepresentations at Autonomy that occurred prior
to and in connection with HP’s acquisition of Autonomy. On
January 19, 2015, the U.K. Serious Fraud Office notified HP that it
was closing its investigation and had decided to cede jurisdiction of
the investigation to the U.S. authorities. On November 14, 2016,
the DOJ announced that a federal grand jury indicted Sushovan
Hussain, the former CFO of Autonomy. 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. Trial began
on March 25, 2019 and is scheduled to continue through the
remainder of 2019.
Environmental
HP’s 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.
For example, HP is 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 HP’s products and the recycling, treatment and
disposal of those products, including batteries. 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, the energy consumption associated with those products,
climate change laws and regulations, and product repairability,
reuse and 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
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.
if
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
2019 Form 10-K
I 115
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 14: Litigation and Contingencies (Continued)
brought by private parties for contribution towards clean-up
costs. HP is also conducting environmental investigations or
remediations at several current or former operating sites pursuant
to administrative orders or consent agreements with state
environmental agencies.
The separation and distribution agreement includes provisions
that provide for the allocation of environmental liabilities between
HP and Hewlett Packard Enterprise including certain remediation
obligations; responsibilities arising from the chemical and
materials composition of their respective products, their safe use
and their energy consumption; obligations under product take
back legislation that addresses the collection, recycling, treatment
and disposal of products; and other environmental matters. HP
will generally be responsible for environmental liabilities related
to the properties and other assets, including products, allocated
to HP under the separation and distribution agreement and other
ancillary agreements. Under these agreements, HP will indemnify
Hewlett Packard Enterprise for liabilities for specified ongoing
remediation projects, subject to certain limitations, and Hewlett
Packard Enterprise has a payment obligation for a specified
portion of the cost of those remediation projects. In addition, HP
will share with Hewlett Packard Enterprise other environmental
liabilities as set forth in the separation and distribution agreement.
HP is indemnified in whole or in part by Hewlett Packard Enterprise
for liabilities 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.
For information on cross-indemnifications with Hewlett Packard
Enterprise for
litigation matters, see Note 14, “Litigation
and Contingencies”.
116 I
2019 Form 10-K
In connection with the Separation, HP entered into the TMA with
Hewlett Packard Enterprise, effective on November 1, 2015.
The TMA provided that HP and Hewlett Packard Enterprise will
share certain pre-Separation income tax liabilities. The TMA was
terminated during the fourth quarter of fiscal year 2019.
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. HP records a tax indemnification
payable to various third parties under these agreements when
management believes that it is both probable that a liability has
been incurred and the amount can be reasonably estimated. The
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 15: Guarantees, Indemnifications and Warranties (Continued)
actual amount that the parties pay or may be obligated to pay could
vary depending on the outcome of certain unresolved tax matters,
which may not be resolved for several years. The net payable and
net receivable as of October 31, 2019 and October 31, 2018 were
$57 million and $1.0 billion, respectively. During fiscal year 2019,
$1.0 billion of indemnification receivables was reduced primarily
due to resolution of various tax matters amounting to $0.8 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.
HP’s aggregate product warranty liabilities and changes were as follows:
FOR THE FISCAL YEARS
ENDED OCTOBER 31
2019
2018
IN MILLIONS
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
915
$
898
Accruals for warranties issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,051
1,042
Adjustments related to pre-existing warranties (including changes in estimates) . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)
(15)
Settlements made (in cash or in kind) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,041)
(1,010)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
922
$
915
Note 16: Commitments
Lease Commitments
HP leases certain real and personal property under non-cancelable operating leases. Certain leases require HP to pay property taxes,
insurance and routine maintenance and include renewal options and escalation clauses. Rent expense was approximately $0.2 billion in
each of fiscal years 2019, 2018 and 2017.
As of October 31, 2019, future minimum operating lease commitments were as follows:
FISCAL YEAR
IN MILLIONS
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$310
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
242
192
162
126
438
Less: Sublease rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(130)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,340
2019 Form 10-K
I 117
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 16: Commitments (Continued)
Unconditional Purchase Obligations
As of October 31, 2019, HP had unconditional purchase obligations
of $372 million. These unconditional purchase obligations include
agreements to purchase goods or services that are enforceable
and legally binding on HP and that specify all significant terms,
including fixed or minimum quantities to be purchased, fixed,
minimum or variable price provisions and the approximate timing
of the transaction. These unconditional purchase obligations are
primarily related to inventory and service support. Unconditional
purchase obligations exclude agreements that are cancelable
without penalty.
As of October 31, 2019, unconditional purchase obligations were as follows:
FISCAL YEAR
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IN MILLIONS
$176
111
67
18
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$372
Note 17: Acquisitions
Acquisitions in Fiscal Year 2019
On November 1, 2018, HP completed the acquisition of the
Apogee group. This acquisition furthers HP’s plan to disrupt the
A3 copier market and builds on its printing strategy to enhance
its A3 and A4 product portfolio; build differentiated solutions
The table below presents the purchase price allocation.
and tools to expand its MPS, and invest in its direct and indirect
go-to-market capabilities. Apogee augments HP’s services
portfolio in contractual office printing and MPS, where solutions
are increasingly important for SMBs. HP reports the financial
results of the above business in the Printing segment.
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortizable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total fair value of consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IN MILLIONS
$382
292
(196)
$478
118 I
2019 Form 10-K
HP Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 17: Acquisitions (Continued)
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
The table below presents the purchase price allocation.
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.
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortizable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IN MILLIONS
$339
521
191
Total fair value of consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,051
2019 Form 10-K
I 119
HP Inc. and Subsidiaries
Quarterly Summary
(Unaudited)
(In millions, except per share amounts)
FOR THE THREE-MONTH FISCAL PERIODS
ENDED IN FISCAL YEAR 2019
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,710
12,098
926
$803
$0.52
$0.51
$0.16
$14,036
11,307
928
$782
$0.51
$0.51
$0.16
$14,603
11,698
1,079
$1,179
$0.79
$0.78
$0.16
$15,407
12,483
944
$388
$0.26
$0.26
$0.16
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
913
$1,938
$1.17
$1.16
$0.14
$14,003
11,301
906
$1,058
$0.65
$0.64
$0.14
$14,586
11,898
1,018
$880
$0.55
$0.54
$0.14
$15,366
12,669
994
$1,451
$0.92
$0.91
$0.14
(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.
120 I
2019 Form 10-K
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 required to be disclosed by us 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.
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 2019 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.
Disclosure Under Section 13(r) of the Securities Exchange Act of 1934, as amended
Section 13(r) of the Securities Exchange Act of 1934, as amended,
requires issuers to disclose certain types of dealings by the issuer
or its affiliates relating to Iran or with certain individuals or entities
that are subject to sanctions under U.S. law.
HP acquired the Apogee group, a U.K. based office equipment
dealer, on November 1, 2018. As disclosed in our Quarterly Report
on Form 10-Q for the quarter ended January 31, 2019, during
the first quarter of 2019, HP discovered that its newly acquired
subsidiary processed two service calls during November 2018,
shortly after the acquisition, for toner replacement on behalf
of Bank Saderat plc, with which it had a legacy contract. Bank
Saderat plc is subject to U.S. sanctions pursuant to Executive
Order 13224. The combined total value of the transactions was
£85.52 ($112.92). We are unable to accurately calculate the net
profit attributable to these transactions. Following HP’s discovery
of these transactions and at HP’s direction, Apogee terminated
the contract with Bank Saderat plc. As disclosed in our Quarterly
Report on Form 10-Q for the quarter ended April 30, 2019,
during the second quarter of 2019, HP discovered that its newly
acquired subsidiary had invoiced one payment and accepted two
payments from Bank Sepah International plc shortly after the
acquisition, under a legacy contract for copier services. Bank Sepah
International plc is subject to U.S. sanctions pursuant to Executive
Order 13382. The combined total value of the transactions was
£72.49 ($92.78). We are unable to accurately calculate the net
profit attributable to these transactions. Following HP’s discovery
of these transactions and at HP’s direction, Apogee terminated the
contract with Bank Sepah International plc. HP has disclosed these
transactions to the relevant authorities.
2019 Form 10-K
I 121
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, 2019 (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.”
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
Proposal No. 1 Election of Directors—Director Compensation
and Stock Ownership Guidelines.”
Information regarding HP’s Audit Committee and designated
“audit committee financial experts”
is set forth under
“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 and Qualifications” and “—Director Independence.”
• 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:
Information regarding director independence is set forth
under “Corporate Governance—Management Proposal
No. 1 Election of Directors—Director Independence.”
•
•
Information regarding transactions with related persons
is set forth under “Corporate Governance—Management
Proposal No. 1 Election of Directors—Fiscal 2019
Related-Person Transactions.”
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.
122 I
2019 Form 10-K
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:
50
54
55
56
57
58
60
61
120
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:
2019 Form 10-K
I 123
EXHIBIT
NUMBER
2(a)
2(b)
2(d)
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.**
Employee 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.
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.
Specimen certificate for the Registrant’s
common stock.
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.
8-K
001-04423
2.1 November 5, 2015
8-K
001-04423
2.2 November 5, 2015
8-K
001-04423
2.4 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 February 7, 2019
4.1 December 15, 2016
4.2 December 15, 2016
001-04423
4.2 and 4.3 December 2, 2010
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/A
001-04423
4.1 June 23, 2006
10-Q
001-04423
4(j)
June 5, 2018
4(j)
Description of HP Inc.’s securities.†
124 I
2019 Form 10-K
EXHIBIT
NUMBER
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)
10(u)
10(v)
10(w)
INCORPORATED BY REFERENCE
EXHIBIT DESCRIPTION
FORM
FILE NO.
EXHIBIT(S)
FILING DATE
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.*
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.*
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.*
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
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
2019 Form 10-K
I 125
EXHIBIT
NUMBER
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)
10(k)(k)
EXHIBIT DESCRIPTION
FORM
FILE NO.
EXHIBIT(S)
FILING DATE
INCORPORATED BY REFERENCE
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-K
001-04423
10(c)(c)(c) March 11, 2015
10-K
001-04423
10(d)(d)(d) March 11, 2015
10-K
001-04423
10(e)(e)(e) March 11, 2015
8-K
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
10-Q
001-04423
10(k)(k) March 5, 2019
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, 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.**
Amendment No. 1, dated March 1, 2019 to 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(l)(l)
Form of Grant Agreement for grants of foreign stock
appreciation rights.*
10-K
001-04423
10(e)(e)(e) December 16, 2015
126 I
2019 Form 10-K
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)
10(w)(w)
10(x)(x)
10(y)(y)
10(z)(z)
10(a)(a)(a)
10(b)(b)(b)
10(c)(c)(c)
EXHIBIT DESCRIPTION
FORM
FILE NO.
EXHIBIT(S)
FILING DATE
INCORPORATED BY REFERENCE
Form of Grant Agreement for grants of performance-
contingent non-qualified stock options.*
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.*
2017 Amendment to the Hewlett-Packard Company
Cash Account Restoration Plan.*
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).*
Form of Grant Agreement for grants of restricted stock
units (for use from November 1, 2016).*
Second Amended and Restated HP Inc. 2004
Stock Incentive Plan (as amended effective
January 29, 2018).*
10-K
001-04423
10(f)(f)(f) December 16, 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-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-Q
001-04423
10(a)(a)(a) March 2, 2017
10-Q
001-04423
10(b)(b)(b) March 1, 2018
2019 Form 10-K
I 127
INCORPORATED BY REFERENCE
EXHIBIT
NUMBER
10(d)(d)(d)
10(e)(e)(e)
10(f)(f)(f)
10(g)(g)(g)
10(h)(h)(h)
10(i)(i)(i)
10(j)(j)(j)
10(k)(k)(k)
10(l)(l)(l)
EXHIBIT DESCRIPTION
FORM
FILE NO.
EXHIBIT(S)
FILING DATE
Form of Grant Agreement for grants of restricted stock
units (for use from November 1, 2017).*
Form of Grant Agreement for grants of performance-
adjusted restricted stock units (for use from
November 1, 2017).*
Form of Grant Agreement for grants of restricted stock
units for directors (for use from November 1, 2017).*
Form of Grant Agreement for grants of stock options
for directors (for use from November 1, 2017).*
Form of Grant Agreement for grants of restricted stock
units (for use from November 1, 2018).*
Form of Grant Agreement for grants of performance-
adjusted restricted stock units (for use from
November 1, 2018).*
Form of Grant Agreement for grants of stock options
for directors (for use from November 1, 2018).*
Form of Grant Agreement for grants of restricted stock
units for directors (for use from November 1, 2018).*
Form of Grant Agreement for grants of restricted stock
units (for use from July 1, 2019).*
10-Q
001-04423
10(c)(c)(c) March 1, 2018
10-Q
001-04423
10(d)(d)(d) March 1, 2018
10-Q
001-04423
10(e)(e)(e) March 1, 2018
10-Q
001-04423
10(f)(f)(f) March 1, 2018
10-K
001-04423
10(g)(g)(g) December 13, 2018
10-K
001-04423
10(h)(h)(h) December 13, 2018
10-Q
001-04423
10.(j)(j)(j) March 5, 2019
10-Q
001-04423
10.(k)(k)(k) March 5, 2019
10-Q
001-04423
10.(l)(l)(l) August 29, 2019
10(m)(m)(m)
Form of Grant Agreement for grants of non-qualified
stock options.*†
10(n)(n)(n)
Form of Retention Grant Agreement for grants of
non-qualified stock options.*†
21
23
24
31.1
31.2
32
101.INS
Subsidiaries of the Registrant as of October 31, 2019.†
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.††
XBRL Instance Document - the instance document
does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline
XBRL document.†
101.SCH
Inline XBRL Taxonomy Extension Schema Document.†
128 I
2019 Form 10-K
EXHIBIT
NUMBER
101.CAL
101.DEF
101.LAB
101.PRE
104
EXHIBIT DESCRIPTION
FORM
FILE NO.
EXHIBIT(S)
FILING DATE
INCORPORATED BY REFERENCE
Inline XBRL Taxonomy Extension Calculation
Linkbase Document.†
Inline XBRL Taxonomy Extension Definition
Linkbase Document.†
Inline XBRL Taxonomy Extension Label
Linkbase Document.†
Inline XBRL Taxonomy Extension Presentation
Linkbase Document.†
The cover page from the Company’s Annual Report
on Form 10-K for the fiscal year ended October 31,
2019, formatted in Inline XBRL (included within the
Exhibit 101 attachments).
*
Indicates management contract or compensatory plan, contract or arrangement.
** Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) 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.
2019 Form 10-K
I 129
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 12, 2019
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
President and Chief Executive Officer and Director
(Principal Executive Officer)
December 12, 2019
/s/ ENRIQUE LORES
Enrique Lores
/s/ STEVE FIELER
Steve Fieler
Chief Financial Officer
(Principal Financial Officer)
/s/ CLAIRE BRAMLEY
Claire Bramley
Global Controller
(Principal Accounting Officer)
December 12, 2019
December 12, 2019
/s/ AIDA ALVAREZ
Aida Alvarez
Director
December 12, 2019
/s/ SHUMEET BANERJI
Director
Shumeet Banerji
/s/ ROBERT R. BENNETT
Director
Robert R. Bennett
/s/ CHARLES V. BERGH
Director
Charles V. Bergh
130 I
2019 Form 10-K
December 12, 2019
December 12, 2019
December 12, 2019
SIGNATURE
TITLE(S)
DATE
/s/ STACY BROWN-PHILPOT
Director
Stacy Brown-Philpot
/s/ STEPHANIE BURNS
Director
Stephanie Burns
/s/ MARY ANNE CITRINO
Director
Mary Anne Citrino
/s/ YOKY MATSUOKA
Director
Yoky Matsuoka
/s/ STACEY MOBLEY
Director
Stacey Mobley
December 12, 2019
December 12, 2019
December 12, 2019
December 12, 2019
December 12, 2019
/s/ SUBRA SURESH
Director
December 12, 2019
Subra Suresh
/s/ DION WEISLER
Dion Weisler
Item 16. Form 10-K Summary
None.
Director
December 12, 2019
2019 Form 10-K
I 131
This page intentionally left blank.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
October 31, 2019
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)
(650) 857-1501
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.01 per share
HPQ
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes 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 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-accelerated filer
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 $30,007,738,276 based on the last sale price of common stock on
April 30, 2019.
The number of shares of HP Inc. common stock outstanding as of January 31, 2020 was 1,433,345,730 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None
This page intentionally left blank.
Explanatory Note
On December 12, 2019, HP Inc. filed its Annual Report on Form 10-K for the fiscal year ended October 31, 2019 (the “Original Form 10-K”).
HP Inc. is filing this Amendment No. 1 on Form 10-K/A (the “Form 10-K/A”) because it will not file its definitive proxy statement within
120 days after the end of its fiscal year ended October 31, 2019. This Form 10-K/A amends and restates in its entirety Part III, Items
10 through 14 of the Original Form 10-K, to include information previously omitted from the Original Form 10-K in reliance on General
Instruction G(3) to Form 10-K. The reference on the cover page of the Original Form 10-K to the incorporation by reference of portions
of HP Inc.’s definitive proxy statement into Part III of the Original Form 10-K is hereby deleted. In this Form 10-K/A, unless the context
indicates otherwise, the designations “HP,” the “Company,” “we,” “us” or “our” refer to HP Inc. and its consolidated subsidiaries.
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), certifications by
HP’s principal executive officer and principal financial officer are filed as exhibits to this Form 10-K/A under Item 15 of Part IV hereof.
Because no financial statements have been included in this Form 10-K/A and this Form 10-K/A does not contain or amend any disclosure
with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5 of the certifications have been omitted. We are not including
the certifications under Section 906 of the Sarbanes-Oxley Act of 2002 as no financial statements are being filed with this Form 10-K/A.
Except as described above, this Form 10-K/A does not modify or update disclosure in, or exhibits to, the Original Form 10-K. Furthermore,
this Form 10-K/A does not change any previously reported financial results, nor does it reflect events occurring after the date of the
Original Form 10-K. Information not affected by this Form 10-K/A remains unchanged and reflects the disclosures made at the time the
Original Form 10-K was filed. Accordingly, this Form 10-K/A should be read in conjunction with the Original Form 10-K and our other
filings with the Securities and Exchange Commission (the “SEC”).
Website Information
This document includes several website references. The information on these websites is not part of this Form 10-K/A.
HP Inc. and Subsidiaries
Form 10-K/A
For the Fiscal Year ended October 31, 2019
Table of Contents
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
Signatures
Page
1
1
9
37
39
41
42
42
43
i
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Executive Officers
The names of the executive officers of HP and their ages, titles and biographies as of the date hereof are incorporated by reference from
Part I, Item 1, of the Original Form 10-K.
Director Nominees
The biographies describe each Director nominee’s qualifications and relevant experience. The biographies include key qualifications,
skills, and attributes most relevant to the decision to nominate candidates to serve on the board at the upcoming annual meeting of
HP’s stockholders.
Aida M. Alvarez
Most Recent Role
— Former Administrator,
U.S. Small Business
Administration &
Cabinet Member
Current Public Company Boards
— HP
— K12 Inc.
— Fastly, Inc.
— Oportun, Inc.
Prior Public Company Boards
— MUFG Americas
Holdings Corporation
— Wal-Mart Stores, Inc.
— PacifiCare Health
Systems Inc.
Independent Director
Age: 70
Director since: 2016
HP Board Committees:
HRC, NGSR
GOVERNMENT
FINANCE
STRATEGY
ROBUST BUSINESS
EXPERIENCE
Qualifications:
Prior Business and Other Experience
— Founding Chair, Latino Community Foundation (since 2003)
— Administrator, U.S. Small Business Administration (1997–2001)
— Director, Office of Federal Housing Enterprise Oversight (1993–1997)
— Vice President, First Boston Corporation and Bear Stearns & Co. (prior to 1993)
Other Key Qualifications
The Honorable Aida Alvarez brings to the Board a wealth of expertise in media, public affairs, finance,
and government. She led important financial and government agencies and served in the Cabinet
of U.S. President William J. Clinton where she provided strategic feedback to the President. She has
also been a public finance executive, has chaired a prominent philanthropic organization and was
an award-winning journalist. The Board also benefits from Ms. Alvarez’s knowledge of investment
banking and finance.
2019 Form 10-K
I 1
Shumeet Banerji
Current Role
— Co-founder and Partner of
Condorcet, LP, an advisory
and investment firm that
specializes in developing
early stage companies
(since 2013)
Current Public Company Boards
— HP
— Reliance Industries Limited
Prior Public Company Boards
— Innocoll AG
Independent Director
Age: 60
Director since: 2011
HP Board Committees:
HRC, NGSR (Chair)
CAPITAL
ALLOCATION
INTERNATIONAL
BUSINESS
FINANCE
STRATEGIC
TRANSACTIONS; M&A
ROBUST BUSINESS
EXPERIENCE
STRATEGY
Qualifications:
Prior Business and Other Experience
— Senior Partner, Booz & Company, a consulting company (May 2012–March 2013)
— Chief Executive Officer, Booz & Company (July 2008–May 2012)
— President of the Worldwide Commercial Business, Booz Allen Hamilton (February 2008–July 2008)
— Managing Director, Europe, Booz Allen Hamilton (2007–2008)
— Managing Director, United Kingdom, Booz Allen Hamilton (2003–2007)
— Faculty, University of Chicago Graduate School of Business
Other Key Qualifications
Mr. Banerji brings to the Board a robust understanding of the issues facing companies and governments in
both mature and emerging markets around the world through his two decades of work with Booz & Company.
In particular, Mr. Banerji has valuable experience in addressing a variety of complex issues ranging from
corporate strategy, organizational structure, governance, transformational change, operational performance
improvement, and merger integration. As CEO of Booz & Company, Mr. Banerji oversaw the separation of
Booz & Company from Booz Allen Hamilton. During his career at Booz Allen Hamilton and Booz & Company,
he has advised numerous companies on restructuring and M&A, particularly in mature industries. He is the
co-author of Cut Costs, Grow Stronger, published by Harvard Business Press in 2009.
Robert R. Bennett
Current Role
— Managing Director, Hilltop
Investments, LLC, a private
investment company
(since 2005)
Current Public Company Boards
— HP
— Discovery
Communications, Inc.
— Liberty Media Corporation
Prior Public Company Boards
— Sprint Corporation
— Demand Media, Inc.
— Discovery Holding Company
— Liberty Interactive
Corporation
— Sprint Nextel Corporation
Independent Director
Age: 61
Director since: 2013
HP Board Committees:
Audit, FIT (Chair)
Qualifications:
Prior Business and Other Experience
— President, Discovery Holding Company (2005–2008)
— President and Chief Executive Officer, Liberty Media Corporation (prior to 2005)
Other Key Qualifications
Mr. Bennett brings to the Board in-depth knowledge of the media and telecommunications industry
and his knowledge of the capital markets and other financial and operational matters from his
experience as the president and chief executive officer of another public company. Additionally, as a
result of his positions at Liberty Media, Mr. Bennett brings experience leading organizations through
significant strategic transactions, including acquisitions, divestitures and integration. Mr. Bennett
also has an in-depth understanding of finance and has held various financial management positions
during his career including serving as CFO of a public company. He also contributes valuable insight to
the Board due to his experience serving on the boards of both public and private companies.
CAPITAL
ALLOCATION
OPERATIONS
FINANCE
STRATEGIC
TRANSACTIONS; M&A
ROBUST BUSINESS
EXPERIENCE
STRATEGY
INTERNATIONAL
BUSINESS
2 I
2019 Form 10-K
Charles “Chip” V. Bergh
Current Role
— President, Chief Executive
Officer, and Director of
Levi Strauss & Co., an
apparel/retail company
(since September 2011)
Current Public Company Boards
— HP
— Levi Strauss & Co.
Prior Public Company Boards
— VF Corporation
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.
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
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.
2019 Form 10-K
I 3
Independent Chairman of
the Board
Age: 62
Director since: 2015
Chairman since: 2017
HP Board Committees:
HRC, NGSR
CAPITAL
ALLOCATION
INTERNATIONAL
BUSINESS
CUSTOMER
EXPERIENCE
ROBUST BUSINESS
EXPERIENCE
OPERATIONS
STRATEGIC
TRANSACTIONS; M&A
STRATEGY
Independent Director
Age: 44
Director since: 2015
HP Board Committees:
Audit, NGSR
CUSTOMER
EXPERIENCE
FINANCE
OPERATIONS
STRATEGY
TECHNOLOGY
DISRUPTIVE
INNOVATION
INTERNATIONAL
BUSINESS
ROBUST BUSINESS
EXPERIENCE
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)
Other Key Qualifications
Dr. Burns has more than 30 years of global innovation and business leadership experience and brings
significant expertise in scientific research, product development, issues management, science and
technology leadership, and business management to the Board. Her leadership experience includes
steering Dow Corning Corporation during an extended bankruptcy and restructuring process.
Dr. Burns also brings public company governance experience to the Board as a member of boards
and board committees of other public companies.
Mary Anne Citrino
Current Role
— Senior Advisor and former
Senior Managing Director,
Blackstone, an investment
firm (since 2004)
Current Public Company Boards
— HP
— Royal Ahold Delhaize
— Alcoa Corporation
— Barclays
Prior Public Company Boards
— Health Net, Inc.
— Dollar Tree Inc.
Qualifications:
Prior Business and Other Experience
— Managing Director, Global Head of Consumer Products Investment Banking Group, and Co-head
of Health Care Services Investment Banking, Morgan Stanley (1986–2004)
Other Key Qualifications
Ms. Citrino’s more than 30-year career as an investment banker provides the Board with substantial
knowledge regarding business operations strategy, as well as valuable financial and investment
expertise. She also brings public company governance experience as a member of boards and board
committees of other public companies.
Independent Director
Age: 65
Director since: 2015
HP Board Committees:
FIT, HRC (Chair)
CAPITAL
ALLOCATION
FINANCE
INTERNATIONAL
BUSINESS
CUSTOMER
EXPERIENCE
OPERATIONS
ROBUST BUSINESS
EXPERIENCE
SCIENCE
STRATEGY
STRATEGIC
TRANSACTIONS; M&A
TECHNOLOGY
Independent Director
Age: 60
Director since: 2015
HP Board Committees:
AUDIT (Chair), FIT
CAPITAL
ALLOCATION
INTERNATIONAL
BUSINESS
FINANCE
STRATEGIC
TRANSACTIONS; M&A
ROBUST BUSINESS
EXPERIENCE
STRATEGY
4 I
2019 Form 10-K
Richard L. Clemmer
Current Role
— Chief Executive Officer and
Executive Director of NXP
Semiconductors N. V., a
semiconductor company
(since January 2009)
Current Public Company Boards
— HP
— NCR Corporation
— NXP Semiconductors N. V.
Prior Public Company Boards
— i2 Technologies, Inc.
Qualifications:
Prior Business and Other Experience
— Senior Advisor, Kohlberg Kravis Roberts & Co. (May 2007-December 2008)
— President and Chief Executive Officer, Agere Systems Inc. (October 2005–April 2007)
Other Key Qualifications
Mr. Clemmer brings to the Board significant leadership experience in the high tech industry, including
experience with semiconductor, storage, e-Commerce, and software companies, and brings valuable
experience leading organizations through strategic transactions. In his roles at NXP Semiconductors
and Agere Systems, Mr. Clemmer has overseen the successful execution of a number of key strategic
transactions, including the acquisition and integration of several companies and business units.
Independent Director
Age: 68
Director since: 2020
HP Board Committees:
N/A
CAPITAL
ALLOCATION
ROBUST BUSINESS
EXPERIENCE
FINANCE
STRATEGIC
TRANSACTIONS; M&A
INTERNATIONAL
BUSINESS
STRATEGY
OPERATIONS
TECHNOLOGY
Enrique Lores
Current Role
— President and Chief
Executive Officer, HP
(since November 2019)
Current Public Company Boards
— HP
Prior Public Company Boards
— None
President, Chief Executive
Officer and Director
Age: 54
Director since: 2019
HP Board Committees:
N/A
CUSTOMER
EXPERIENCE
DISRUPTIVE
INNOVATION
OPERATIONS
INTERNATIONAL
BUSINESS
Qualifications:
Prior Business and Other Experience
— President, Imaging and Printing Solutions, HP Inc. (November 2015–October 2019)
— Separation Leader, Hewlett-Packard Company (2014–October 2015)
— Senior Vice President & General Manager, Business Personal Systems, Hewlett-Packard
Company (2013–2014)
— Senior Vice President, Worldwide Customer Support & Services, Hewlett-Packard
Company (2011–2013)
— Senior Vice President, Worldwide Sales and Solutions Partner Organization, Hewlett-Packard
Company (2008–2011)
— Vice President & General Manager, Large Format Printing, Hewlett-Packard Company (2003–2008)
— Vice President, Imaging & Printing Group, EMEA, Hewlett-Packard Company (2001–2003)
— Experience in a variety of roles at Hewlett-Packard Company (1989–2003)
TECHNOLOGY
STRATEGY
ROBUST BUSINESS
EXPERIENCE
STRATEGIC
TRANSACTIONS; M&A
Other Key Qualifications
Mr. Lores’s international business and leadership experience, and his service in multiple facets of the
HP business worldwide, provide the Board with an enhanced global perspective. Mr. Lores’s more
than 25 years of experience in the information and technology industry with HP, and his position as
HP’s Chief Executive Officer, provide the Board with valuable industry insight and expertise.
2019 Form 10-K
I 5
Yoky Matsuoka
Current Role
— Division CEO, Panasonic
Corporation (since
October 2019)
Current Public Company Boards
— HP
Prior Public Company Boards
— None
Independent Director
Age: 47
Director since: 2019
HP Board Committees:
AUDIT, FIT
ACADEMICS
CUSTOMER
EXPERIENCE
DISRUPTIVE
INNOVATION
ROBUST BUSINESS
EXPERIENCE
SCIENCE
TECHNOLOGY
STRATEGY
Qualifications:
Prior Business and Other Experience
— Vice President, Healthcare at Google, a subsidiary of Alphabet Inc. (“Alphabet”), a technology
company (2018–October 2019)
— Chief Technology Officer, Nest, Alphabet (2010–2015; 2017–2018)
— Executive experience in healthcare, Apple Inc., a technology company (May 2016–December 2016)
— Chief Executive Officer, Quanttus, a technology company (2015–2016)
— Head of Innovation and Co-Founder, Google [X], Alphabet (2009–2010)
— Academic experience including professorships at Carnegie Mellon University and the University
of Washington (2000–2011)
— MacArthur Fellow (2007)
Other Key Qualifications
Ms. Matsuoka is an accomplished executive and technologist who brings more than two decades of
leadership experience to the HP Board. Throughout her career, she has held innovation-centric roles
in both Silicon Valley and in academia and brings her strong background in management, strategy
and research & development to the Board.
Stacey Mobley
Current Role
— Director
Current Public Company Boards
— HP
Prior Public Company Boards
— International
Paper Company
— Hewitt Associates, Inc.
Independent Director
Age: 74
Director since: 2015
HP Board Committees:
HRC, NGSR
INTERNATIONAL
BUSINESS
OPERATIONS
ROBUST
BUSINESS
EXPERIENCE
Qualifications:
Prior Business and Other Experience
— Senior Counsel and Advisor, Dickstein Shapiro, LLP, a law firm (2008–2016)
— Senior Vice President, Chief Administrative Officer and General Counsel, E.I. du Pont de Nemours
and Company (“DuPont”), a chemical company (1999–2008)
— 35 years of experience at DuPont (1973–2008) serving in a variety of leadership roles
Other Key Qualifications
Mr. Mobley’s more than 35 years of legal and senior management experience at DuPont brings a
deep understanding of governance, regulations and risk management including the government
relations strategies of public companies. He also brings public company governance experience as a
member of boards and board committees of other public and private companies.
6 I
2019 Form 10-K
Subra Suresh
Current Role
— President, Nanyang
Technological University,
autonomous global research
university in Singapore
(since January 2018)
Current Public Company Boards
— HP
— Singapore Exchange Limited
Prior Public Company Boards
— None
Independent Director
Age: 63
Director since: 2015
HP Board Committees:
AUDIT, FIT
ACADEMICS
DISRUPTIVE
INNOVATION
Qualifications:
Prior Business and Other Experience
— Senior Advisor, Temasek International Private Ltd., an investment company headquartered in
Singapore (since September 2017)
— President, Carnegie Mellon University, a global research university (July 2013–June 2017)
— Independent Director of the Board, Battelle Memorial Institute, Ohio, an international nonprofit
that develops and commercializes technology and manages laboratories for government
customers (2014–2017)
— Director, National Science Foundation, a federal agency charged with advancing science and
engineering research and education (October 2010–March 2013)
FINANCE
GOVERNMENT
— Dean and the Vannevar Bush Professor of Engineering, School of Engineering (2007-2010), and
Professor (1993–2013), Massachusetts Institute of Technology
SCIENCE
STRATEGY
TECHNOLOGY
Other Key Qualifications
Mr. Suresh is one of the few Americans to have been elected to all three branches of the U.S. National
Academies (Engineering, Sciences and Medicine) in recognition of his considerable scientific and
technical accomplishments. Mr. Suresh’s experience as the president of two prominent research
universities and his experience leading new entrepreneurship and innovation bring the Board valuable
insights with respect to strategic opportunities and a robust understanding of the organizational,
scientific, and technological requirements of ongoing innovation.
Other Director(s)
In addition, Dion J. Weisler, 52, who has served as Senior Executive
Advisor at HP, a non-executive officer role, since November 1,
2019, is not currently standing for re-election at our upcoming
annual meeting. Mr. Weisler previously served as our President
and Chief Executive Officer between November 2015 and
November 2019. Previously, Mr. Weisler served in various roles
at our predecessor, Hewlett-Packard Company, including as
Executive Vice President, the Printing and Personal Systems
Group, Hewlett-Packard Company (June 2013–November 2015),
Senior Vice President and Managing Director, Printing and Personal
Systems, Asia Pacific and Japan, Hewlett-Packard Company
(January 2012–June 2013) and Vice President and Chief Operating
Officer, the Product and Mobile Internet Digital Home Groups,
Lenovo Group Ltd. (January 2008–December 2011). Mr. Weisler
also serves on the board of directors of Thermo Fisher Scientific Inc.
2019 Form 10-K
I 7
Code of Conduct
Directors,
We maintain a code of business conduct and ethics
for
as
and
officers
Integrity at HP, which
is available on our website at
https://investor.hp.com/governance/integrity-at-hp/default.aspx.
employees
known
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.
Information about the Audit Committee
We have an Audit Committee established in accordance with
the requirements of the Exchange Act. The Audit Committee
represents and 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, and other audit services;
• preparing the Audit Committee report for inclusion in the annual proxy statement; and
• overseeing our financial reporting processes and the audit of our financial
statements, including the integrity of our financial statements.
• reviewing our disclosure controls and procedures, internal controls, information
and technology security policies, internal audit function, and corporate policies
with respect to financial information and earnings guidance; and
• overseeing compliance with legal and regulatory requirements.
• 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.
• overseeing relevant related party transactions governed by applicable
accounting standards (other than related-person transactions addressed by the
Nominating, Governance and Social Responsibility (“NGSR”) Committee).
Audit & Non-Audit Services;
Financial Statements; Audit Report . . . .
Disclosure Controls; Internal Controls
& Procedures; Legal Compliance . . . . . . .
Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . .
Related Party Transactions . . . . . . . . . . . .
Annual Review/Evaluation . . . . . . . . . . . .
• annually reviewing the Audit Committee’s charter and performance.
8 I
2019 Form 10-K
The Board determined that Ms. Citrino, Chair of the Audit
Committee, and each of the other Audit Committee members
(Mr. Bennett, Ms. Brown-Philpot, Ms. Matsuoka and Mr. Suresh) are
independent within the meaning of the New York Stock Exchange
(“NYSE”) and SEC standards of independence for directors and
audit committee members, and has satisfied the NYSE financial
literacy requirements. The Board also determined that each of
Mr. Bennett, Ms. Brown-Philpot, Ms. Citrino and Mr. Suresh is an
“audit committee financial expert” as defined by the SEC rules.
Item 11. Executive Compensation.
Compensation Discussion and Analysis
Introduction
This Compensation Discussion and Analysis describes our executive
compensation philosophy and program, the compensation
decisions the HR and Compensation (“HRC”) Committee has
made under the program, and the considerations in making those
decisions in fiscal 2019.
Named Executive Officers
Our NEOs for fiscal 2019 are:
• Dion J. Weisler, former President and CEO;
• Steven J. Fieler, Chief Financial Officer;
• Enrique J. Lores, President and CEO and former President,
Imaging, Printing and Solutions;
• Kim M. Rivera, President, Strategy and Business Management
and Chief Legal Officer; and
• Alex Cho, President, Personal Systems.
Following the end of fiscal 2019, Mr. Weisler stepped down as
our President and CEO on November 1, 2019, and Mr. Lores was
appointed to the role. Upon stepping down from such positions,
Mr. Weisler continues to be employed by the Company as Senior
Executive Advisor, a non-executive officer role, through our 2020
Annual Meeting of Stockholders. Mr. Weisler will also continue to
serve as a member of the Board of Directors until the Company’s
2020 Annual Meeting of Stockholders.
Executive Summary
The HRC Committee continues to review and refine our
compensation programs to support our evolving business strategy
and attract high caliber executive talent. The HRC Committee’s
includes regular stockholder engagement and
assessment
fiscal 2019
consideration of stockholder
executive compensation structure remained the same as its fiscal
2018 program.
feedback. HP’s
Below are brief highlights of key compensation decisions with
respect to NEOs:
We provided competitive target pay opportunities, where
amounts and mix were consistent with peers and stable year
over year.
Target total direct compensation (“TDC”) consists of base salary,
percent-of-salary target annual incentives that would be earned
for achieving 100% of goals, and long-term incentive grant-date
value. NEO base salaries were unchanged for fiscal 2019, except
a 7.4% promotional increase for Ms. Rivera upon being appointed
President, Strategy and Business Management in addition to her
ongoing role as Chief Legal Officer and Secretary, plus a 3.6%
market adjustment for Mr. Weisler, HP’s President and CEO.
Target annual incentives were unchanged at 200% of salary for
Mr. Weisler and 125% of salary for each of the other NEOs. Regular
long-term incentive grant values increased moderately consistent
with the market.
We aligned real pay delivery with performance through
rigorous goal setting and performance measurement.
While our target TDC opportunities reflect market practice,
our real pay delivery reflects performance. Annual incentives
reward short-term performance measured against applicable
enterprise-wide, business unit, and individual goals. Goals were
set for the overall Company and businesses against internal
budgets for revenues, net earnings/profit, and free cash flow as
a percent of revenue. Non-financial individual performance goals
under the Management by Objectives (“MBO”) program were set
for each NEO. Meanwhile, regular annual long-term incentive
grants were approximately 60% in PARSUs that reward strategic
performance measured by relative TSR compared to the S&P 500
and EPS measured in two and three year overlapping segments as
explained on pages 16-18; the remaining 40% is in RSUs that are
primarily for ownership and retention with the delivered value tied
to stock price and reinvested dividend equivalents.
NEOs earned annual incentives averaging 117.2% of target for fiscal
2019. Individual bonuses varied from 93.2% to 150.7% of target
and HP’s President & CEO was at 111.5%. The Company achieved
above-target results with respect to HP net earnings/profit and
free cash flow margin. Revenue results were below target. Further,
NEOs successfully delivered against their MBOs as detailed on
pages 15-16.
2019 Form 10-K
I 9
NEOs received payout for Segment 1 FY18 and Segment 2 FY17
PARSUs (measurement periods ending in fiscal 2019). EPS FY18
and EPS FY19 were above target. Fiscal 2017-2019 relative TSR
approximated the 35th percentile of the S&P 500. Fiscal 2018-2019
relative TSR approximated the 15th percentile of the S&P 500.
We regularly engaged with and listened to stockholders,
practiced strong governance, and mitigated potential
compensation-related risks.
Our executive compensation program is continuously reviewed
for peer group alignment and strategic relevance as part of a
process that includes ongoing stockholder engagement. At the
annual meeting in 2019, our say-on-pay proposal was approved
by over 93% of the voted shares, indicating strong stockholder
support. Consequently, changes have not been extensive. To
ensure alignment with our three-year financial plan, we have
moved our long-term performance-based incentives (PARSUs) to
a single three-year performance period with full vesting only after
three years of service and achievement of financial goals for that
timeframe. We are also changing relative TSR from a standalone
measure to a “modifier” on earnouts determined based on the
three-year performance period. We feel that this will increase
focus on line-of-sight strategic performance while continuing close
alignment between stockholder value creation and real pay delivery.
We transitioned to a new HP President & CEO at the
start of fiscal 2020, successfully executing the Board’s
succession-planning process.
After a robust, in-depth succession planning assessment, Mr. Lores
was appointed as President and CEO effective November 1, 2019.
Mr. Lores’s initial target TDC was set moderately below the peer
group median and the HRC Committee’s intent is to move him to the
median or above median over the period of the next two-or-three
years based on Company and individual performance. Mr. Lores did
not receive a promotion grant or any special rewards in connection
to his appointment as President and CEO.
Executive Compensation Program Oversight and Authority
Role of the HRC Committee and its Advisor
The HRC Committee continued to retain FW Cook as
its
independent consultant during fiscal 2019, and to work with
them and management on all aspects of our pay program for
senior executives. The HRC Committee makes recommendations
regarding the CEO’s compensation to the independent members of
the Board for approval, and reviews and approves the compensation
of the remaining Section 16 officers, including our NEOs. Each HRC
Committee member is an independent non-employee Director with
significant experience in executive compensation matters.
The HRC Committee continually considers feedback from
stockholders and
compensation
implications of evolving business and strategic objectives. Based
the potential executive
on these considerations, the HRC determined that it would be
appropriate to make some fine-tuning changes in the program
structure for 2020 (described further on page 19) that we believe
are in our stockholders’ interests. We believe that our current
compensation structure and proposed changes incent and reward
achievement of specific goals, reinforce year-over-year results
and provide an attractive pay-for-performance opportunity that
encourages retention and leadership engagement.
FW Cook provides analyses and recommendations that inform the
HRC Committee’s decisions; identifies peer group companies for
competitive market comparisons; evaluates market pay data and
competitive-position benchmarking; provides analyses and inputs
on program structure, performance measures, and goals; provides
updates on market trends and the regulatory environment as it
relates to executive compensation; reviews various management
proposals presented to the HRC Committee related to executive
and Director compensation; and works with the HRC Committee
to validate and strengthen the pay-for-performance relationship
and alignment with stockholder interests. FW Cook does not
perform other services for HP and will not do so without the prior
consent of the HRC Committee chair. FW Cook meets with the HRC
Committee chair and the HRC Committee outside the presence of
management while in executive session.
The HRC Committee met six times in fiscal 2019, and all six of these
meetings included an executive session. FW Cook participated in
five of the meetings and, when requested by the HRC Committee
chair, in the preparatory meetings and the executive sessions.
Role of Management and the CEO in Setting Executive Compensation
The CEO recommends compensation for Section 16 officers,
including NEOs other than himself, for approval by the HRC
Committee. The Board considered market competitiveness,
business results, experience, and individual performance when
evaluating fiscal 2019 NEO compensation and the overall
compensation structure. The Chief Human Resources Officer and
other members of our executive compensation team, together
with members of our finance and legal organizations, work with
the CEO to design and develop the compensation program, to
recommend changes to existing program provisions applicable to
NEOs and other senior executives, as well as financial and other
targets to be achieved under those programs, prepare analyses
of financial data, peer comparisons and other briefing materials to
assist the HRC Committee in making its decisions, and implement
the decisions of the HRC Committee.
During fiscal 2019, management continued to engage Meridian
Compensation Partners, LLC (“Meridian”) as its compensation
consultant. The HRC Committee took into consideration that
Meridian provided executive compensation-related services to
management when it evaluated any information and analyses
provided by Meridian, all of which were also independently reviewed
by FW Cook, as applicable, on the HRC Committee’s behalf.
10 I
2019 Form 10-K
During fiscal 2019, Mr. Weisler provided input to the HRC Committee
regarding performance metrics and the setting of appropriate
performance targets for his direct reports. Mr. Weisler also
recommended MBOs for the NEOs (other than himself) and the other
senior executives who report directly to him. Mr. Weisler is subject
to the same financial performance goals as the executives who
lead global functions, and Mr. Weisler’s MBOs and compensation
are established by the HRC Committee and recommended to the
independent members of the Board for approval.
Use of Comparative Compensation Data and
Compensation Philosophy
The HRC Committee reviews the compensation of our Section 16
officers in comparison to that of executives in similar positions at
our peer group companies. Our peer group includes companies
we compete with for executive talent due to our geographical
proximity and technology industry overlap. The HRC Committee
takes size differentiations into consideration when reviewing the
results of market data analysis. The HRC Committee uses this
information to evaluate how our pay levels and practices compare
to market practices.
When determining the peer group, the following characteristics
were considered:
• Direct talent market peers.
• US-based companies in the technology sector (excluding
distributors, contract manufacturers and outsourced
services/IT consulting) with revenues between ~$10 billion
and $250 billion and market cap between ~$7 billion and
$175 billion.
• Select general industry companies (industrials, consumer
products and telecom) generally meeting size and business
criteria that are top-brands.
• Review of the peer companies chosen by companies within
our proposed peer group and peer business similarity, to
evaluate relevance.
We believe the resulting peer group provides HP and the HRC
Committee with a valid comparison and benchmark for the
Company’s executive compensation program and governance
practices. For fiscal 2019, the HRC Committee added Apple
(direct peer) and Micron Technology (size-appropriate technology
company). The HRC Committee also removed Amazon, Procter &
Gamble and Verizon as all exceeded size range and were not direct
peers. The HP peer group for fiscal 2019, as approved by HRC
Committee, consisted of the following companies:
Fiscal 2019 Peer Group
Company
Apple Inc.
Microsoft Corporation
General Electric Company
IBM Corporation
Intel Corporation
PepsiCo, Inc.
HP Inc.
Cisco Systems, Inc.
Honeywell International Inc.
Oracle Corporation
Nike, Inc.
Hewlett Packard Enterprise Company
Qualcomm Incorporated
Micron Technology, Inc.
Western Digital Corporation
Texas Instruments Incorporated
Seagate Technology PLC
Xerox Corporation
Revenue
(FYE - $Bn)*
$260.2
$125.8
$121.6
$79.6
$70.8
$64.7
$58.8
$51.9
$41.8
$39.5
$39.1
$29.1
$24.3
$23.4
$16.6
$15.8
$10.4
$9.8
*
Represents fiscal 2019 reported revenue, except fiscal 2018 reported revenue is provided for General Electric, Honeywell, IBM, Intel, PepsiCo, Texas
Instruments and Xerox.
2019 Form 10-K
I 11
Process for Setting and Awarding Executive Compensation
Listening to our Stockholders on Compensation
A broad range of facts and circumstances are considered in setting
our overall executive compensation levels. In fiscal 2019, the HRC
Committee continued to set target compensation levels within a
competitive range of the market median, although in some cases
lower or higher based on each executive’s situation (e.g., attraction
and retention of critical talent). The Board maintains a total CEO
target compensation package that approximates the median of
our competitive market and is consistent with our pay positioning
strategy and pay-for-performance philosophy.
The primary factors considered when determining pay opportunities
for our NEOs are market competitiveness, internal equity, and
individual performance. The weight given to each factor is not
formulaic and may differ from year to year or by individual NEO.
For example, when we recruit externally, market competitiveness,
experience, and the candidate-specific circumstances may weigh
more heavily in the compensation decision process. In contrast,
when determining year-over-year compensation changes for
current NEOs, internal equity and individual performance may
factor more heavily in the decision.
The HRC Committee spends significant time determining the
appropriate goals for our annual and long-term incentive plans,
which make up the majority of NEO compensation. Management
makes an initial recommendation of the goals, which is then
assessed by the HRC Committee’s independent compensation
consultant and discussed and approved by the HRC Committee.
Major factors considered in setting financial goals for each fiscal
year are business results from the most recently completed
fiscal year, budgets and strategic plans, macroeconomic factors,
guidance and analyst expectations,
industry performance,
conditions or goals specific to a particular business segment,
and strategic initiatives. MBOs are set based on major shared and
individual strategic, operating, and tactical initiatives.
Following the close of the fiscal year, the HRC Committee reviews
actual financial results and MBO performance against the goals
that it had set for the applicable plans for that year, with payouts
under the plans determined based on performance against the
established goals. The HRC Committee meets in executive session
to review the MBO performance of the CEO and to determine
a recommendation for his annual PfR incentive award to be
approved by the independent members of the Board. See “2019
Annual Incentives” below for a further description of our results
and corresponding incentive payouts.
12 I
2019 Form 10-K
We regularly engage with our stockholders on a variety of issues,
including their views on best practices in executive compensation.
The following changes to our executive compensation program,
shown here, reflect those conversations with stockholders.
• Starting with new grants in fiscal 2020, to ensure alignment
with our three-year financial plan, we have moved our
long-term performance-based incentives (PARSUs) to a
single three-year performance period with full vesting only
after three years of service and achievement of financial
goals for that timeframe. We are also changing relative TSR
from a standalone measure to a “modifier” on earnouts
determined based on the three-year performance period.
We feel that this will increase focus on line-of-sight strategic
performance while continuing close alignment between
stockholder value creation and real pay delivery.
• Some changes during the last few years that reflect
conversations with stockholders include the following:
•
Increased focus on enterprise-wide corporate revenue
and corporate net earnings/profit in our annual PfR
incentive plan to encourage greater collaboration and
teamwork among business leaders.
• Replaced Return on Invested Capital (“ROIC”) with
in our PARSU grants for stronger alignment
EPS
with stockholder interests and because it is a more
appropriate measure for HP after the separation of HPE.
At the 2019 annual meeting, our annual say-on-pay proposal
received the support of over 93% of the votes cast. As part of its
2019 executive compensation discussions, the HRC Committee
reviewed the advisory vote result and considered it to be supportive
of the Company’s compensation practices.
Determination of Fiscal 2019 Executive Compensation
Under our Total Rewards Program, executive compensation
consists of: base salary, annual incentives, long-term incentives,
benefits, and perquisites.
The HRC Committee regularly explores ways to improve our
executive compensation program by considering stockholder
feedback, our current business needs and strategy, and peer
group practices. For 2019 the Committee decided to maintain a
consistent compensation structure for executives since it supports
our business strategy and aligns pay with stockholder interests.
2019 Base Salary
Our executives receive a small percentage of their overall
compensation in the form of base salary, which is consistent with
our philosophy of tying the majority of pay to performance. The
NEOs are paid an amount in the form of base salary sufficient
to attract qualified executive talent and maintain a stable
management team.
The HRC Committee aims to set executive base salaries at or near
the market median for comparable positions. In fiscal 2019, salaries
comprise on average 11% of our NEOs’ overall compensation,
consistent with our peers. To decide the CEO’s salary, the HRC
Committee reviews analyses and recommendations provided by
FW Cook.
For fiscal 2019, Mr. Weisler’s salary was increased from $1.4 million
to $ 1.45 million to recognize his contributions and better align
with the market median. For fiscal 2019, the HRC Committee did
not change the base salary for Mr. Fieler, Mr. Lores or Mr. Cho.
During fiscal 2018, Mr. Fieler’s base salary had been increased to
$690,000 during July 2018 and Mr. Cho’s base salary had been
increased to $675,000 during June 2018 in conjunction with their
promotions to CFO and President, Personal Systems, respectively.
increased from $675,000 to
Ms. Rivera’s base salary was
$725,000 due to her new responsibilities as President, Strategy
and Business Management while retaining her role as Chief Legal
Officer and Secretary.
Changes in Base Salary
EXECUTIVE
FISCAL YEAR-END
2018 BASE SALARY
FISCAL 2019
BASE SALARY
PERCENTAGE
CHANGE
Dion Weisler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,400,000
$1,450,000
Steven Fieler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$690,000
$690,000
Enrique Lores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$750,000
$750,000
Kim Rivera . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$675,000
$725,000
Alex Cho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$675,000
$675,000
+3.6%
+0.0%
+0.0%
+7.4%
+0.0%
2019 Annual Incentives
The fiscal 2019 annual PfR incentive plan consisted of the following
three core financial metrics: revenue, net earnings/profit, and
corporate free cash flow as a percentage of revenue. A fourth
metric, MBOs, was used to further drive individual performance
and achievement of key strategic goals. Each metric was weighted
at 25% of the target award value. Each individual metric may fund
up to 250% of target; however, the maximum annual PfR incentive
for each executive is capped at 200% of target.
The target annual PfR incentive awards for fiscal 2019 were set at
200% of salary for the CEO and 125% of salary for the other NEOs.
For fiscal 2019, the HRC Committee again established an
“umbrella” formula governing the maximum bonus and then
exercised negative discretion in setting actual bonuses. Under the
umbrella formula, each Section 16 officer (including each NEO)
was allocated a pro rata share of 0.75% of net earnings based on
his or her target annual PfR incentive award, subject to a maximum
bonus of 200% of the NEO’s target bonus, and the maximum
$15 million individual cap under the Stock Incentive Plan. Below
this umbrella funding structure, actual payouts were determined
based upon financial metrics and MBOs established and evaluated
by the HRC Committee for Section 16 officers (including each NEO)
and by the independent members of the Board for the CEO.
Fiscal 2019 Annual Incentive Plan
KEY DESIGN ELEMENTS
CORPORATE GOALS
REVENUE
($ IN BILLIONS)
NET EARNINGS/
PROFIT
($ IN BILLIONS)
FREE CASH
FLOW AS A %
OF REVENUE(1)
(%)
% PAYOUT
METRIC(2)
(%)
MBOs
Weight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25%
25%
25%
25%
Linkage
Global Functions Executives(3) . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Unit (“BU”) Executives(4) . . . . . . . . . . . . . . . . . . . . . .
Corporate
Corporate
Corporate Individual
Corporate/BU Corporate/BU
Corporate Individual
Corporate Performance Goals
Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Threshold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
$60.0
—
—
$3.7
—
— Various
6.33%
Various
— Various
250
100
0
(1) Maximum funding for corporate free cash flow as a percentage of revenue is capped at 150% of target if corporate net earnings/profit achievement was
below target and is capped at 100% of target if corporate net earnings/profit achievement was below threshold. If corporate net earnings/profit achievement
was above target, the maximum funding level is 250% for this metric. Maximum and threshold information are not disclosed because such disclosure would
result in competitive harm. However, goals are set at levels we believe to be achievable in connection with strong performance.
2019 Form 10-K
I 13
(2)
Interpolated for performance between discrete points. Each individual metric may fund up to 250% of target; however, the maximum annual PfR incentive
for each executive is capped at 200% of target. As a general administrative discretionary guideline, the HRC Committee may decide that financial funding for
Global Functions Executives, including the CEO, cannot exceed the highest funding for a Business Unit Executive.
(3) The Global Functions Executives include Mr. Weisler, Mr. Fieler and Ms. Rivera.
(4) The Business Unit Executives includes Mr. Lores and Mr. Cho. Specific Business Unit revenue and net earnings/profit goals are not disclosed because such
disclosure would result in competitive harm. However, goals are set at levels we believe to be achievable in connection with strong performance.
The specific metrics, their linkage to corporate results, and the
weighting that was placed on each were chosen because the HRC
Committee believed that:
• Performance against
in combination,
enhances value for stockholders, capturing both the top and
bottom line, as well as cash and capital efficiency.
these metrics,
• Different measures avoid paying
for
the
same
performance twice.
• MBOs enhance focus on business objectives, such as
operational objectives, strategic
initiatives, succession
planning, and people development, which are important to
the long-term success of the Company.
• A balanced weighting of metrics limits the likelihood of
rewarding executives for excessive risk-taking.
The following chart sets forth the definition of and rationale for each of the financial performance metrics that was used for the Fiscal
2019 Annual Incentive Plan:
FINANCIAL PERFORMANCE METRICS(1)
DEFINITION
RATIONALE FOR METRIC
Corporate Revenue . . . . . . . . . . . . Net revenue as reported in our Annual Report
Business Revenue . . . . . . . . . . . . .
on Form 10-K for fiscal 2019
Segment net revenue as reported in our Annual
Report on Form 10-K for fiscal 2019
Corporate Net Earnings . . . . . . . . Non-GAAP net earnings, as defined and
reported in our fourth quarter fiscal 2019
earnings press release, excluding bonus net of
income tax(2)
Business Net Profit (“BNP”) . . . . . Business net profit, excluding bonus net of
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
Corporate Free Cash Flow . . . . . .
income tax
Cash flow from operations less net capital
expenditures (gross purchases less
retirements) divided by net revenue (expressed
as a percentage of revenue)
Reflects efficiency of cash management practices,
including working capital and capital expenditures
(1) While we report our financial results in accordance with generally accepted accounting principles (“GAAP”), our financial performance targets and results
under our incentive plans are sometimes based on non-GAAP financial measures. The financial results, whether GAAP or non-GAAP, may be further adjusted
as permitted by those plans and approved by the HRC Committee. We review GAAP to non-GAAP adjustments and any other adjustments with the HRC
Committee to ensure performance considers the way the goals were set and executive accountability for performance. These metrics and the related
performance targets are relevant only to our executive compensation program and should not be used or applied in other contexts.
(2) Fiscal 2019 non-GAAP net earnings of $3.4 billion excludes after-tax costs of $257 million related to restructuring and other charges, acquisition-related
charges, amortization of intangible assets, non-operating retirement-related credits/(charges), and tax adjustments. Management uses non-GAAP
net earnings to evaluate and forecast our performance before gains, losses, or other charges that are considered by management to be outside of our
core business segment operating results. We believe that presenting non-GAAP net earnings provides investors with greater visibility with respect to the
information used by management in its financial and operational decision making. We further believe that providing this additional non-GAAP information
helps investors understand our operating performance and evaluate the efficacy of the methodology and information used by management to evaluate
and measure such performance. This additional non-GAAP information is not intended to be considered in isolation or as a substitute for GAAP diluted
net earnings.
14 I
2019 Form 10-K
Following fiscal 2019, the HRC Committee reviewed performance against the financial metrics and certified the results as follows:
Fiscal 2019 Annual PfR Incentive Performance Against Financial Metrics(1,2)
METRIC
WEIGHT(3)
TARGET
($ IN BILLIONS)
RESULT
($ IN BILLIONS)
Corporate Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Free Cash Flow (% of revenue) . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25.0%
25.0%
25.0%
75.0%
$60.0
$3.7
6.33%
$58.8
$3.8
6.78%
PERCENTAGE OF
TARGET
ANNUAL INCENTIVE
FUNDED
19.8%
25.8%
45.9%
91.5%
(1) Mr. Weisler, Mr. Fieler and Ms. Rivera received annual PfR incentive payments based on corporate financial metrics. Mr. Lores and Mr. Cho received an annual
PfR incentive payment based on corporate and business financial metrics.
(2) As a general administrative discretionary guideline, the HRC Committee may decide that financial funding for Global Functions Executives, including the CEO,
cannot exceed the highest funding for a Business Unit Executive.
(3) The financial metrics were equally weighted to account for 75% of the target annual PfR incentive.
Mr. Weisler. At the end of the fiscal year, the independent members
of the Board evaluated Mr. Weisler’s performance against all of his
MBOs, which included, but were not limited to: setting strategic
direction for the Company based on optimizing stockholder value,
maintaining supplies stabilization, growing profitable share in
Personal Systems, engaging with all major constituents including
financial analysts, media, key governmental figures, partners and
customers to execute the HP strategy, and ensuring HP has a
robust evaluation and talent program. After conducting a thorough
review of Mr. Weisler’s performance, the independent members
of the Board determined that his MBO performance reflected a
number of accomplishments but overall had been achieved below
target due to Print supplies performance. Mr. Weisler had strong
accomplishments, including the following:
• Maintained the three-pronged Core, Growth, and Future
strategy, designed to drive employees across the world
towards a common goal.
• Expanded Personal Systems revenue in profitable categories
and the attach category initiatives.
• Accelerated 3D print business through development
industrial go-to-market, applications and focus on
of
key verticals.
• Developed and managed an effective plan to address key
regulatory/political changes as well as to mitigate US trade/
tariff impacts.
• Executed a plan to consistently engage with channel
partners, customers, and ecosystem partners to ensure he
was getting direct feedback on the HP strategy and product
portfolio to enable appropriate adjustments.
• Continued to invest across all three waves (Core, Growth and
Future) in each business.
• Drove digital transformation and created a core competency
in software, data analytics and machine learning.
• Kept the organization updated and motivated, from the
leadership team to the broader employee population,
to ensure that all understood the strategy and priorities.
Cultivated a growth mindset across the organization with
extreme customer focus.
• Reinvented go-to-market and customer engagement
models to address dramatic shift in buying behaviors.
• Continued implementation of modern ERP platform with
development of standardized and simplified processes.
• Worked closely with external advisors to develop future
strategy and a roadmap to accelerate value creation for
customers, partners and stockholders.
• Worked with the Independent Chair to set the annual
Board and Committee objectives, priorities and the Board/
Committee meeting agendas.
As CEO, Mr. Weisler evaluated the performance of each of the
other Section 16 officers (including each of the other NEOs) and
presented the results of those evaluations to the HRC Committee
at its November 2019 meeting. The evaluations included an
analysis of the officers’ performance against all of their MBOs. The
HRC Committee reviewed the CEO’s assessment of the degree of
attainment of the MBOs of the other Section 16 officers and set
their MBO scores. The results of these evaluations for the other
NEOs are summarized below.
Mr. Fieler. The HRC Committee determined that Mr. Fieler’s MBOs
performance had been achieved below target due to Print supplies
performance. Overall, Mr. Fieler demonstrated strategic, thoughtful
and engaged leadership in running the Finance function. His strong
operational perspective supported the Company through business
changes. Mr. Fieler has strong relationships with the investor
relations community and is critical to ensuring our results deliver
against financial expectations.
2019 Form 10-K
I 15
Mr. Lores. The HRC Committee determined that Mr. Lores’s
MBOs performance had been achieved below target due to Print
supplies performance. Mr. Lores did continue reinventing the Print
business with a focus on differentiated innovation, business model
transformation and strategic M&A. Over the past year, Mr. Lores did
a remarkable job working with the HP Board on a comprehensive
global review of the Company strategy and business operations,
with a focus on simplifying its operating model, evolving its
business models and driving significant improvement in its cost
structure while making the Company more digitally enabled and
customer centric.
Ms. Rivera. The HRC Committee determined that Ms. Rivera’s MBO
performance had been achieved above target. Ms. Rivera worked
closely with the businesses on critical matters such as supplies
infringements, counterfeit seizures and IP protection. She did
an excellent job on corporate governance, tariffs, investigations,
launching the “Transformation Management Office” and customer
service transformation initiatives. Ms. Rivera is a well-respected
leader with a strong understanding of commercial decisions and is
a strong partner in business, technology and governance matters.
Mr. Cho. The HRC Committee determined that Mr. Cho’s MBO
performance had been achieved above target. Despite the
various challenges in the marketplace, Mr. Cho did an excellent
job in delivering profits and steady revenue progress. He did a
remarkable job in the introduction and roll out of new products
such as Dragonfly in Asia. Mr. Cho is a thoughtful and well
respected leader in the organization with a strong team to drive
the business appropriately.
Based on the findings of these performance evaluations, the HRC Committee (and, in the case of the CEO, the independent members of
the Board) evaluated performance against the non-financial metrics for the NEOs as follows:
Fiscal 2019 Annual PfR Incentive Performance Against Non-Financial Metrics (MBOs)
NAMED EXECUTIVE OFFICER
Dion J. Weisler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steven J. Fieler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enrique J. Lores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kim M. Rivera . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alex Cho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PERCENTAGE OF TARGET
ANNUAL INCENTIVE
FUNDED
(%)
20.0
20.0
20.0
27.5
37.5
WEIGHT
(%)
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 2019, the payouts to the
NEOs under the annual PfR incentive were as follows:
Fiscal 2019 Annual PfR Incentive Payout
PERCENTAGE OF TARGET
ANNUAL INCENTIVE FUNDED
TOTAL ANNUAL
INCENTIVE PAYOUT
NAMED EXECUTIVE OFFICER
FINANCIAL
METRICS
(%)
NON-FINANCIAL
METRICS
(%)
AS % OF TARGET
ANNUAL INCENTIVE
(%)
Dion J. Weisler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steven J. Fieler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enrique J. Lores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kim M. Rivera . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91.5
91.5
73.2
91.5
Alex Cho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
113.2
20.0
20.0
20.0
27.5
37.5
111.5
111.5
93.2
119.0
150.7
PAYOUT
($)
3,233,533
961,697
873,522
1,078,448
1,271,882
Long-term Incentive Compensation
The HRC Committee established a total long-term incentive target
value for each NEO in early fiscal 2019 that was 60% weighted in
the form of PARSUs and 40% weighted in the form of time-based
RSUs. The high proportion of performance-based awards
reflects our pay-for-performance philosophy. The time-based
awards support retention and are linked to stockholder value
and ownership, which are important goals of our executive
compensation program.
16 I
2019 Form 10-K
2019 PARSUs
The fiscal 2019 PARSUs have the same structure as used in the
fiscal 2017 and fiscal 2018 PARSUs. Fiscal 2019 PARSUs have
a two-and three-year vesting period, subject to one-, two-, and
three-year performance periods that began at the start of fiscal
2019 and continue through the end of fiscal 2019, 2020 and
2021. Under this program, 50% of the PARSUs (including dividend
equivalent units) are eligible for vesting based on EPS and 50%
are eligible for vesting based on relative TSR performance. These
PARSUs vest as follows: 16.6% of the units are eligible for vesting
based on EPS performance of year one with continued service
over two years, 16.6% of the units are eligible for vesting based
on EPS performance of year two with continued service over
three years, 16.6% of the units are eligible for vesting based on
EPS performance of year three with continued service over three
years, 25% of the units are eligible for vesting based on relative
TSR performance over two years with continued service over
two years, and 25% of the units are eligible for vesting based on
relative TSR performance over three years with continued service
over three years. This structure is depicted in the chart below:
2019 PARSUs
KEY DESIGN ELEMENTS
EPS VS. INTERNAL GOALS
RELATIVE TSR VS. S&P 500
PAYOUT
Weight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Periods(1) . . . . . . . . . . . . . . . . . . . . . . .
Vesting Periods(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.6% 16.6% 16.6%
Year 1
Year 2
Year 2
Year 3
Year 3
Year 3
25%
2 Years
Year 2
25%
3 Years % of Target(3)
Year 3
Performance Levels:
Target to be disclosed after
the end of the three-year
performance period
Max
> Target
Target
Threshold
< Threshold
> 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.
EPS was chosen because it is a critical driver of long-term
stockholder value and because of our focus on bottom-line
profitability in the business transformation strategy. Year 1
(fiscal 2019) EPS goals were set after consideration of historical
performance, internal budgets, external expectations, and peer
group performance.
Relative TSR was chosen as a performance measure because
it is a direct measure of stockholder value and rewards for
outperformance relative to the broader market.
EPS and relative TSR are weighted equally in determining earned
PARSUs. The first segment (42% of total target units) will vest
after the end of fiscal 2020, subject to Year 1 EPS performance
and relative TSR performance for the first two years. The second
segment (58% of total target units) will vest after the end of fiscal
2021, subject to Year 2 EPS performance, Year 3 EPS performance,
and relative TSR performance for the three years.
For more information on grants of PARSUs to the NEOs during
fiscal 2019, see “Compensation Tables—Grants of Plan-Based
Awards in Fiscal 2019.”
2019 RSUs
2019 RSUs and related dividend equivalent units vest ratably
on an annual basis over three years from the grant date. Three-
year vesting is common in our industry and supports executive
retention and alignment with stockholder value.
2019 Form 10-K
I 17
Fiscal 2019 Long-term Incentive Compensation at Target
The following table shows combined total grant values for grants attributable to fiscal 2019. It is important to note that these values are
target opportunities to earn future value-based compensation and are not actual earned amounts, which will be determined after three
years based on continued employment and performance against the EPS and relative TSR goals.
NAMED EXECUTIVE OFFICER
PARSUs
RSUs
Dion J. Weisler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,700,000
$5,800,000
Steven J. Fieler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,400,000
$1,600,000
Enrique J. Lores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,390,000
$2,260,000
Kim M. Rivera . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,000,000
$2,000,000
Alex Cho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,400,000
$1,600,000
TOTAL FISCAL 2019
LONG-TERM INCENTIVE GRANT
$14,500,000
$4,000,000
$5,650,000
$5,000,000
$4,000,000
Values in the Summary Compensation Table are different than
the target values described in the table above. In the Summary
Compensation Table, consistent with accounting standards,
amounts reflect the grant date fair value for the full TSR component
(two and three-year performance period), and the EPS component
for Year 1 (2019), for which goals were approved in January 2019.
Grant date fair values for the EPS component for Year 2 (2020) and
Year 3 (2021) are not included in the grant date fair value reported
in the Summary Compensation Table since EPS goals for those
years are approved in their respective fiscal year.
The Summary Compensation Table for fiscal 2019 also includes
a portion of the fiscal 2018 PARSUs Year 2 EPS (2019) and 2017
PARSUs Year 3 EPS (2019) for which the goal was approved in
fiscal 2019.
For more information on grants to the NEOs during fiscal 2019,
see “Compensation Tables—Grants of Plan-Based Awards in
Fiscal 2019.”
2018 PARSUs
2018 PARSUs have the same vesting structure as 2019 PARSUs (chart described above). The actual performance achievement for the
one- and two-year periods (i.e., fiscal 2018 and fiscal 2018–2019) as a percentage of target for the PARSUs as of October 31, 2019 is
summarized in the table below:
Actual Performance – Segment 1
SEGMENT
EPS VS. INTERNAL GOALS
RELATIVE TSR VS. S&P 500(1)
FISCAL 2018
RESULT
PAYOUT
FISCAL 2018-
2019 RESULTS
PAYOUT
Segment 1 (42%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1.94 192.9% 15th percentile
0.0%
Target: $1.81
(1) Through October 2019, HP’s relative TSR performance was at the 15th percentile of the S&P 500 which corresponds to a payout of 0% of target.
2017 PARSUs
2017 PARSUs have the same vesting structure as 2018 and 2019 PARSUs (chart described above). The actual performance achievement
for the two-year period (i.e., fiscal 2017–2018), as a percentage of target for the HP PARSUs as of October 31, 2018, was summarized
in our proxy statement for fiscal 2018. The actual performance achievement for the three-year period (i.e., fiscal 2017–2019) as a
percentage of target for the HP PARSUs as of October 31, 2019 is summarized in the table below:
Actual Performance – Segment 2
EPS VS. INTERNAL GOALS
SEGMENT
2018
PAYOUT
2019
PAYOUT
RELATIVE TSR VS. S&P 500(1)
FISCAL 2017-
2019 RESULTS
PAYOUT
Segment 2 (58%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1.94 192.9%
$2.23 122.7% 35th percentile
70.4%
Target: $1.81
Target: $2.18
(1) Through October 2019, HP’s relative TSR performance was at the 35th percentile of the S&P 500 which corresponds to a payout of 70.4% of target.
18 I
2019 Form 10-K
CEO Transition
Dion Weisler stepped down from his positions as President and Chief
Executive Officer of the Company, effective November 1, 2019.
Upon stepping down from such positions, Mr. Weisler continued
to be employed by the Company
in a non-executive role
as a Senior Executive Advisor. During the period between
November 1, 2019 through January 31, 2020, Mr. Weisler’s
compensation arrangements remained unchanged from those
in place while he served as President and Chief Executive Officer
of the Company. The Board approved continuing to employ
Mr. Weisler as a Senior Executive Advisor beyond January 31,
2020 through the date of the Company’s 2020 Annual Meeting of
Stockholders with his compensation consisting solely of his base
salary at the monthly rate of $120,833, which was Mr. Weisler’s
base salary rate for fiscal year 2019. Mr. Weisler also continued
to serve as a member of the Board and will continue to do so until
the Company’s 2020 Annual Meeting of Stockholders. He has not
received and will not receive any compensation in connection with
his services as a member of the Board.
Fiscal 2020 Compensation Program
The HRC Committee regularly identifies and evaluates ways to
improve our executive compensation program. We believe that our
current compensation structure effectively aligns real pay delivery
with critical financial and strategic non-financial goals, reinforces
year-over-year improvement and growth, offers a stable and
consistent message to both stockholders and participants, and
provides an attractive pay-for-performance opportunity to
encourage retention and leadership engagement.
However, as we plan to discuss in further detail in the fiscal
2020 proxy statement, we made the following changes that we
believe are in our stockholders’ interests and are appropriate to
the characteristics and business strategy of the Company, and to
ensure our compensation is tied to our three-year strategic and
financial plan:
• Our annual incentive continues to focus on Revenue Growth,
Net Earnings and Cash Flow goals
• We have moved to three-year cliff vesting on our
Performance Based equity compensation to align with our
annual plan
• Grants made for 2020 (granted in Dec 2019) will vest in 2022
• The metrics on those performance-based shares consist of
EPS with a TSR governor
• EPS consists of three annual goals that roll up into our three-
year annual EPS plan
• Then, a TSR governor is applied to the EPS payout to ensure
alignment with our stockholders’ experience
• TSR is measured over the full three-year period based on
performance against market (S&P 500)
• The relative TSR is a market-based governor that adjusts
payout so there is alignment with stockholder results
Fiscal 2021 Compensation Program
As the HRC Committee embarks upon our compensation plan
design for 2021 and beyond, we will be looking at the most
appropriate measures to continue reinforcing the commitments
articulated in our long-term financial plans. While EPS and TSR
are important measures that tie management and stockholder
interest, key metrics like operating profit and cash flow, could be
impactful as three-year measures tied to our long-term incentives.
Operating profit and cash flow are critical value drivers to deliver
on the long-term commitments we have made to stockholders.
The final compensation structure will be discussed in more detail
in our 2021 proxy.
Benefits
We do not provide our executives, including the NEOs, with special
or supplemental U.S. defined benefit pension or health benefits.
Our NEOs receive health and welfare benefits (including retiree
medical benefits, if eligibility conditions are met) under the same
programs and subject to the same eligibility requirements that
apply to our employees generally.
Benefits under all U.S. pension plans were frozen effective
December 31, 2007. Benefits under the Electronic Data Systems
(“EDS”) Pension Plan ceased upon HP’s acquisition of EDS in 2008.
As a result, no NEO or any other HP employee accrued a benefit
under any HP U.S. defined benefit pension plan during fiscal 2019.
The amounts reported as an increase in pension benefits in the
Summary Compensation Table are for those NEOs who previously
accrued a benefit in a defined benefit pension plan prior to the
cessation of accruals and reflect changes in actuarial values only,
not additional benefit accruals.
The NEOs, along with other executives who earn base pay or an
annual incentive in excess of certain limits of the Code or greater
than $150,000, are eligible to participate in the 2005 Executive
Deferred Compensation Plan (the “EDCP”). This plan is maintained
to permit executives to defer some of their compensation in order
to also defer taxation on such amounts. This is a standard benefit
plan also offered by most of our peer group companies. The EDCP
permits deferral of base pay in excess of the amount allowed under
the qualified HP 401(k) Plan (the 401(k)-deferral limit for calendar
2019 was $19,000) and up to 95% of the annual incentive payable
under the Stock Incentive Plan, the PfR Plan and other eligible
plans. In addition, we make a 4% matching contribution to the EDCP
on base pay contributions in excess of IRS limits up to a maximum
of two times that limit (maximum of $11,200 in calendar 2019).
2019 Form 10-K
I 19
This is the same percentage of matching contributions those
executives are eligible to receive under the 401(k) Plan. In effect,
the EDCP permits these executives and all eligible employees to
receive a 401(k)-type matching contribution on a portion of base-
pay deferrals in excess of IRS limits. Amounts deferred or matched
under the EDCP are credited with hypothetical investment earnings
based on investment options selected by the participant from
among nearly all the proprietary funds available to employees
under the 401(k) Plan. No amounts earn above-market returns.
Benefits payable under the EDCP are unfunded and unsecured.
Executives are also eligible to have a yearly HP-paid medical
exam as part of the HP U.S. executive physical program. This
includes a comprehensive exam, thorough health assessment and
personalized health advice. This benefit is also offered by our peer
group companies.
Consistent with its 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 (including the NEOs) that
provides for payments, grants or awards following the death of
the officer in the form of unearned salary or unearned annual
incentives, accelerated vesting or the continuation in force of
unvested equity grants, perquisites, and other payments or
awards made in lieu of compensation, except to the extent that
such payments, grants or awards are provided or made available
to our employees generally.
We provide our executives with financial counseling services to
assist them in obtaining professional financial advice, a common
benefit among our peer group companies, for convenience and
to increase the understanding and effectiveness of our executive
compensation program.
Limited Perquisites
We provide a small number of perquisites to our senior executives,
including the NEOs. For a list of all perquisites provided to our
NEOs for fiscal 2019, please refer to the All Other Compensation
Table on page 25.
Due to our global presence, we maintain one corporate aircraft. In
the event a NEO is accompanied by a guest or family member on
the aircraft for personal reasons, as approved by the CEO, the NEO
is taxed on the value of this usage according to the relevant Code
rules. There is no tax gross-up paid on the income attributable to
this value. Among our NEOs, Mr. Weisler is the only executive that
used the corporate aircraft for personal use during fiscal 2019,
which was for convenience and security.
20 I
2019 Form 10-K
conducts global
Our Audit Committee periodically
risk
management reviews, which include reviewing home security
services of NEOs. Services considered necessary by the Audit
Committee may be paid for by HP, due to the range of security
issues that may be encountered by key executives of any large,
multinational corporation.
Termination and Change in Control Protections
Severance and Long-term Incentive Change in Control Plan for
Executive Officers
Our Section 16 officers (including all of the NEOs) are covered by
the Severance and Long-term Incentive Change in Control Plan
for Executive Officers (“SPEO”), which is intended to protect us
and our stockholders, and provide a level of transition assistance
in the event of an involuntary termination of employment. Under
the SPEO, participants who incur an involuntary termination (i.e.,
a termination not for cause), and who execute a full and effective
release of claims following such termination, are eligible to receive
severance benefits in an amount determined as a multiple of base
pay, plus the average of the actual annual incentives paid for the
preceding three years. In the case of the NEOs other than the CEO,
the multiplier is 1.5. In the case of the CEO, the multiplier is 2.0.
In all cases, this benefit will not exceed 2.99 times the sum of
the executive’s base pay plus target annual incentive as in effect
immediately prior to the termination of employment.
Although most of the compensation for our executives
is
performance-based and largely contingent upon the achievement
of financial goals, the HRC Committee continues to believe that the
SPEO is appropriate for the attraction and retention of executive
talent. In addition, we find it more equitable to offer severance
benefits based on a standard formula for the Section 16 officers
(including all of the NEOs) because severance often serves as a
bridge when employment is involuntarily terminated, and should
therefore not be affected by other, longer-term accumulations.
As a result, and consistent with the practice of our peer group
companies, other compensation decisions are not generally based
on the existence of this severance protection.
In addition to the cash benefit, SPEO participants are eligible to
receive (1) a pro-rata annual incentive for the year of termination
based on actual performance results, at the discretion of the
HRC Committee, (2) pro-rata vesting of unvested equity awards
(and for performance-based equity awards, only if any applicable
performance conditions have been satisfied), and (3) payment
of a lump-sum health-benefit stipend of an amount equal to 18
months’ COBRA premiums for continued group medical coverage
for the executive and his or her eligible dependents.
Severance Benefits in the Event of a Change in Control
In order to better ensure the retention of our executive leadership
team in the event of a potentially disruptive corporate transaction,
the SPEO also includes change in control terms for our NEOs. In
addition to the benefits provided for involuntary terminations,
the SPEO provides for full vesting of outstanding stock options,
RSUs, and PARSUs upon involuntary termination not for Cause or
voluntary termination for Good Reason (as defined in the plan)
within 24 months after a change in control (“double trigger”), and
in situations where equity awards are not assumed by the surviving
corporation (a “modified double trigger”). The SPEO further
provides that under a double trigger, PARSUs will vest based on
target performance, whereas under a modified double trigger,
PARSUs will vest based upon the greater of the number of PARSUs
that would vest based on actual performance and the number of
PARSUs that would vest pro-rata based upon target performance.
We do not provide tax gross ups in connection with terminations,
including terminations in the event of a change in control.
The HRC Committee is focused on ensuring that the change of
control provisions in the SPEO are consistent with market practice,
provide clarity to prospective and current executives, and will help
attract and retain talent.
performance discussion of each executive officer at the time of the
annual compensation review. During fiscal 2019, we leveraged our
robust, in-depth succession planning to successfully maneuver
through various leadership changes on the executive team.
We executed a CEO assessment process in partnership with the
Board to identify internal and external candidates for Mr. Weisler’s
replacement, which led to unanimous Board support for Mr. Lores.
We also shifted other executives into new or expanded roles
based on business needs and tied to succession and development
plans. Further, there is a People Update at each HRC Committee
meeting, which includes a review of key people processes and
developments for that quarter.
In addition, the executive team participated in a robust development
process that included individual assessments, interviews with
executive coaches, and an individualized development plan that
can be leveraged throughout the year. Development themes for
the entire executive team will be addressed during quarterly face-
to-face meetings for full team development.
Other Compensation-Related Matters
Succession Planning
Among the HRC Committee’s responsibilities described in its charter
is to oversee succession planning and leadership development.
The Board plans for succession of the CEO and annually reviews
senior management selection and succession planning that is
undertaken by the HRC Committee. As part of this process, the
independent Directors annually review the HRC Committee’s
recommended candidates for senior management positions to
see that qualified candidates are available for all positions and that
development plans are being utilized to strengthen the skills and
qualifications of the candidates. The criteria used when assessing
the qualifications of potential CEO successors include, among
others, strategic vision and leadership, operational excellence,
financial management, executive officer leadership development,
ability to motivate employees, and an ability to develop an effective
working relationship with the Board. We also host a Board Buddy
program through which each executive officer is aligned to a board
member as a mentor to aid the executive’s development while
giving board members a deeper understanding of the day-to-day
operations of the Company.
In fiscal 2019, an executive talent review was conducted along with
succession plans for each of the executive leaders. Successors
were identified to reflect necessary skill sets, performance,
potential, and diversity. Development plans for successors
were also established to ensure readiness and will be managed
throughout the year.
In addition to the annual succession
planning process, the HRC Committee participates in an in-depth
Stock Ownership Guidelines and Prohibition on Hedging
Our stock ownership guidelines are designed to align executives’
those of our stockholders and mitigate
interests with
compensation-related risk. The current guidelines provide that,
within five years of assuming a designated position, the CEO
should attain an investment position in our stock equal to seven
times his base salary and all other Section 16 officers reporting
directly to the CEO should attain an investment position equal
to five times their base salaries. Shares counted toward these
guidelines include any shares held by the executive directly or
through a broker, shares held through the 401(k) Plan, shares
held as restricted stock, shares underlying time-vested RSUs,
and shares underlying vested but unexercised stock options
(50% of the in-the-money value of such options is used for this
calculation). Mr. Weisler is the only NEO who has served in a role
covered by our stock ownership guidelines for over five years and
his ownership exceeds the current guidelines. Our other NEOs are
on pace to meet the stock ownership guidelines within the allotted
time frame.
The HRC Committee has adopted a policy prohibiting all employees,
including executive officers, and Directors from engaging in any
form of hedging transaction (derivatives, equity swaps, forwards,
etc.) involving Company securities, including, among other things,
short sales and transactions involving publicly traded options.
In addition, with limited exceptions, our executive officers are
prohibited from holding our securities in margin accounts and
from pledging our securities as collateral for loans. We believe that
these policies further align our executives’ interests with those of
our stockholders.
2019 Form 10-K
I 21
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.
The impact of federal tax laws on our compensation programs
is also considered, including the deductibility of compensation
paid to the NEOs, as limited by Section 162(m) of the Code. For
prior fiscal years, Section 162(m) included an exception from
limitation for qualified “performance-based
the deductibility
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 is not 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).
Despite the modifications to Section 162(m), the HRC Committee
intends to continue to implement compensation programs that
it believes are competitive and in the best interests of HP and
its stockholders.
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 (including the NEOs) whose fraud or misconduct
resulted in a significant restatement of financial results. The
policy specifically allows for the recovery of annual incentives
paid at or above target from those senior executives whose fraud
or misconduct resulted in the restatement where the annual
incentives would have been lower absent the fraud or misconduct,
to the extent permitted by applicable law. Additionally, our incentive
plan document (and award agreements) allow for the recoupment
of performance-based annual incentives and 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 the proxy statement and in the Annual Report on Form 10-K of
HP filed for the fiscal year ended October 31, 2019.
HR and Compensation Committee of the Board of Directors
Stephanie A. Burns, Chair
Aida Alvarez
Shumeet Banerji
Charles “Chip” V. Bergh
Stacey Mobley
22 I
2019 Form 10-K
Compensation Tables
Fiscal 2019 Summary Compensation Table
The following table sets forth
information concerning the
compensation of our NEOs for fiscal years 2019, 2018, and 2017,
as applicable. Per SEC reporting guidelines, our NEOs for fiscal
2019 include our CEO (Mr. Weisler), our CFO (Mr. Fieler), and the
next three most highly compensated individuals still serving as
executive officers at year end (Mr. Lores, Ms. Rivera, and Mr. Cho)
as of the last day of the fiscal year (October 31, 2019).
NON-EQUITY
INCENTIVE
PLAN
COMPENSATION(4)
($)
STOCK
AWARDS(3)
($)
CHANGE
IN PENSION
VALUE AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS(5)
($)
ALL OTHER
COMPENSATION(6)
($)
TOTAL
($)
NAME AND PRINCIPAL
POSITION
SALARY(2)
($)
YEAR
Dion J. Weisler(1)
former President and CEO . . . . . . . . 2019 1,450,000 14,531,293
2018 1,400,000 12,737,004
2017 1,300,033
9,841,200
Steven J. Fieler
Chief Financial Officer . . . . . . . . . . . . 2019
690,000
3,427,818
2018
550,000
2,382,017
Enrique J. Lores(1)
President and CEO
(formerly President, Imaging,
Printing and Solutions) . . . . . . . . . . . 2019
750,000
5,527,211
2018
2017
750,000
4,623,686
725,019
3,075,370
Kim M. Rivera
President, Strategy and
Business Management and
Chief Legal Officer . . . . . . . . . . . . . . . 2019
725,000
4,717,598
2018
2017
675,000
3,088,732
645,016
2,255,264
3,233,533
4,984,348
3,511,560
961,697
793,632
873,522
1,579,331
1,219,035
1,078,448
1,438,699
1,088,921
—
—
—
332
210
—
—
—
—
—
—
103,146 19,317,972
94,182 19,215,534
77,232 14,730,025
14,950
5,094,797
19,404
3,745,263
48,155
7,198,888
43,973
6,996,990
23,786
5,043,210
54,705
6,575,751
72,927
5,275,358
193,081
4,182,282
Alex Cho
President, Personal Systems . . . . . 2019
675,000
3,427,818
1,271,882
67,760
16,795
5,459,255
(1) Mr. Weisler stepped down as our President and Chief Executive Officer on November 1, 2019 at which time Mr. Lores was appointed to the role. Upon
stepping down from such positions, Mr. Weisler continues to be employed by the Company as Senior Executive Advisor, a non-executive officer role, until the
date of our 2020 Annual Meeting of Stockholders. Mr. Weisler will also continue to serve as a member of the Board of Directors until the Company’s 2020
Annual Meeting of Stockholders.
(2) Amounts shown represent base salary earned or paid during the fiscal year, as described under “Compensation Discussion and Analysis—Determination of
Fiscal 2019 Executive Compensation—2019 Base Salary.”
(3) The grant date fair value of all stock awards has been calculated in accordance with applicable accounting standards. In the case of RSUs, the value is
determined by multiplying the number of units granted by the closing price of our stock on the grant date. For PARSUs awarded in fiscal 2019, amounts
shown reflect the grant date fair value of the PARSUs for the two- and three-year vesting periods beginning with fiscal 2019 based on the probable
outcome of performance conditions related to these PARSUs at the grant date. The 2019 PARSUs include both internal (EPS) and market-related (TSR)
performance goals as described under the “Compensation Discussion and Analysis—Determination of Fiscal 2019 Executive Compensation—Long-Term
Incentive Compensation.” Consistent with the applicable accounting standards, the grant date fair value of the market related TSR component has been
determined using a Monte Carlo simulation model. Further, consistent with accounting standards, grant date fair value reflects the EPS portion of the award
2019 Form 10-K
I 23
for Year 1 only, for which goals were approved in January 2019. This value also reflects grant date fair value of the EPS portion of the 2018 PARSU award
for Year 2 (fiscal 2019 EPS) and the EPS portion of the 2017 PARSU award for Year 3 (fiscal 2019 EPS), for which goals were approved in January 2019. The
table below sets forth the grant date fair value for the 2019 PARSUs granted on December 7, 2018; the fiscal 2019 EPS portion of the 2018 PARSUs granted
on December 7, 2017 and the fiscal 2019 EPS portion of the 2017 PARSUs granted on December 7, 2016:
NAME
DATE OF
ORIGINAL
PARSU GRANT
PROBABLE OUTCOME OF
PERFORMANCE CONDITIONS
GRANT DATE FAIR VALUE
($)*
MAXIMUM OUTCOME OF
PERFORMANCE CONDITIONS
GRANT DATE FAIR VALUE
($)*
MARKET-RELATED
COMPONENT GRANT DATE
FAIR VALUE
($)**
Dion J. Weisler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12/7/2018
12/7/2017
12/7/2016
Steven J. Fieler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12/7/2018
7/1/2018
Enrique J. Lores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12/7/2018
12/7/2017
12/7/2016
Kim M. Rivera . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12/7/2018
12/7/2017
12/7/2016
Alex Cho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12/7/2018
7/1/2018
1,223,552
1,270,894
1,431,800
337,537
164,737
476,761
470,699
447,439
421,905
310,656
328,127
337,537
164,737
2,447,105
2,541,788
2,863,600
675,074
329,475
953,523
941,398
894,878
843,810
621,312
656,255
675,074
329,475
4,805,041
1,325,534
1,872,307
1,656,910
1,325,534
*
**
Amounts shown represent the grant date fair value of the PARSUs subject to the internal EPS performance goal (i) based on the probable or target
outcome as of the date the goals were set and (ii) based on achieving the maximum level of performance for the performance period beginning in fiscal
2019. The grant date fair value of the 2019 PARSUs Year 1 EPS units awarded on December 7, 2018, of the 2018 PARSUs Year 2 EPS units awarded on
December 7, 2017 (or for Mr. Fieler’s and Mr. Cho’s grants, on July 1, 2018) and of the 2017 PARSUs Year 3 EPS units awarded on December 7, 2016
was $21.05 per unit, which was the closing share price of our common stock on January 16, 2019 when the EPS goal was approved. The values of 2019
PARSUs Year 2 and Year 3 EPS units will not be available until January 2020 and January 2021 respectively, and therefore are not included for fiscal
2019, but will be included for their respective fiscal years.
Amounts shown represent the grant date fair value of PARSUs subject to the market related TSR goal component of the PARSUs, for which expense
recognition is not subject to probable or maximum outcome assumptions. The grant date fair value of the market related TSR goal component of the
PARSUs granted December 7, 2018 was $27.56 per unit, which was determined using a Monte Carlo simulation model. The significant assumptions
used in this simulation model were a volatility rate of 26.5%, a risk-free interest rate of 2.7%, and a simulation period of 2.9 years. For information
on the assumptions used to calculate the fair value of the awards, refer to Note 5 to our consolidated financial statements in our Annual Report on
Form 10-K for the fiscal year ended October 31, 2019, as filed with the SEC on December 12, 2019.
(4) Amounts shown represent payouts under the annual PfR incentive (amounts earned during the applicable fiscal year but paid after the end of that fiscal year).
(5) Amounts shown represent the increase in the actuarial present value of NEO pension benefits during the applicable fiscal year. As described in more detail
under “Narrative to the Fiscal 2019 Pension Benefits Table” below, pension accruals have generally ceased for all NEOs, and NEOs hired after the dates that
pension accruals ceased are not eligible to participate in any U.S. defined benefit pension plan. The only exception for the NEOs listed above is that Mr. Cho
participates in the International Retirement Guarantee (IRG) which is provided to a small closed group of employees who have transferred between countries
with pension/retirement indemnity plans. Mr. Cho will not accrue additional benefits under the IRG unless he transfers outside of the US with HP Inc. for an
extended period of time. Accordingly, the amounts reported for the NEOs do not reflect additional accruals but reflect the passage of one more year from
the prior present value calculation and changes in other actuarial assumptions. The assumptions used in calculating the changes in pension benefits are
described in footnote (2) to the “Fiscal 2019 Pension Benefits Table” below. No HP plan provides for above-market earnings on deferred compensation
amounts, so the amounts reported in this column do not reflect any such earnings.
(6) The amounts shown are detailed in the “Fiscal 2019 All Other Compensation Table” below.
24 I
2019 Form 10-K
Fiscal 2019 All Other Compensation Table
The following table provides additional information about the amounts that appear in the “All Other Compensation” column in the
“Summary Compensation Table” above.
401(k)
COMPANY
MATCH(1)
($)
NQDC
COMPANY
MATCH(2)
($)
MOBILITY
PROGRAM(3)
($)
SECURITY
SERVICES/
SYSTEMS(4)
($)
PERSONAL
AIRCRAFT
USAGE(5)
($)
NON-U.S. TAX
GROSS-UP(6)
($)
MISCELLANEOUS(7)
($)
TOTAL
AOC
($)
NAME
Dion J. Weisler . . . . . . . . . . .
11,200
10,800
15,937
2,707
36,654
9,073
16,775
103,146
Steven J. Fieler . . . . . . . . . .
11,200
—
Enrique J. Lores . . . . . . . . . .
11,200
11,000
—
7,895
Kim M. Rivera . . . . . . . . . . . .
11,200
—
26,796
Alex Cho . . . . . . . . . . . . . . . . .
11,200
4,920
—
—
—
—
—
—
—
—
—
—
60
—
—
3,750
14,950
18,000
48,155
16,709
54,705
675
16,795
(1) Represents matching contributions made under the HP 401(k) Plan that were earned for fiscal year 2019.
(2) Represents matching contributions credited during fiscal 2019 under the HP Executive Deferred Compensation Plan with respect to the 2018 calendar year
of that plan.
(3) For Ms. Rivera, represents benefits provided under our domestic executive mobility program. For Mr. Weisler and Mr. Lores, represents tax preparation, filing,
equalization and compliance services paid under HP’s tax assistance due to business travel in Korea. Due to the taxation impact on US taxpayers who travel
to Korea on business and the increase in Korea travel due to our acquisition of Samsung’s Print business, the HRC Committee approved a Tax Assistance
Program during its July 2017 meeting that covers our Section 16 officers. The program has the same characteristics as the existing tax equalization program
for all other employees. Both programs together ensure a tax neutral scenario for all HP employees who must comply with Korean tax requirements due to
business travel to Korea.
(4) Represents home security services provided to the NEOs and, consistent with SEC guidance, the expense is reported here as a perquisite since there is an
incidental personal benefit.
(5) Represents the value of personal usage of HP corporate aircraft. For purposes of reporting the value of such personal usage in this table, we use data
provided by an outside firm to calculate the hourly cost of operating each type of aircraft. These costs include the cost of fuel, maintenance, landing and
parking fees, crew, catering and supplies. For trips by NEOs that involve mixed personal and business usage, we include the incremental cost of such personal
usage (i.e., the excess of the cost of the actual trip over the cost of a hypothetical trip without the personal usage). For income tax purposes, the amounts
included in NEO income are calculated based on the standard industry fare level valuation method. No tax gross ups are provided for this imputed income.
(6) Represents tax gross up costs for Korean, California state and U.S. social taxes under HP’s Tax Assistance Program for Korea business travel.
(7)
Includes amounts paid either directly to the executives or on their behalf for financial counseling, tax preparation and estate planning services.
Grants of Plan-Based Awards in Fiscal 2019
The following table provides information on annual PfR incentive awards for fiscal 2019 and awards of RSUs and PARSUs granted during
fiscal 2019 as a part of our long-term incentive program:
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
(#)
29,000 2,900,000 5,800,000
NAME
Dion J. Weisler
PfR . . . . . . . . . . . . . . .
RSU . . . . . . . . . . . . . . . 12/7/2018
PARSU . . . . . . . . . . . . 12/7/2018
PARSU . . . . . . . . . . . . 12/7/2017
PARSU . . . . . . . . . . . . 12/7/2016
116,253
232,506
465,012
30,188
34,010
60,375
120,750
68,019
136,038
ALL OTHER
STOCK
AWARDS:
NUMBER
OF SHARES
OF STOCK
OR UNITS(3)
(#)
252,944
GRANT-DATE
FAIR VALUE
OF STOCK
AND OPTION
AWARDS(2)
($)
5,800,006
6,028,593
1,270,894
1,431,800
2019 Form 10-K
I 25
ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY
INCENTIVE PLAN AWARDS(1)
ESTIMATED FUTURE PAYOUTS
UNDER EQUITY
INCENTIVE PLAN AWARDS(2)
GRANT
DATE
THRESHOLD
($)
TARGET
($)
MAXIMUM
($)
THRESHOLD
(#)
TARGET
(#)
MAXIMUM
(#)
NAME
Steven J. Fieler
PfR . . . . . . . . . . . . . . .
RSU . . . . . . . . . . . . . . . 12/7/2018
PARSU . . . . . . . . . . . . 12/7/2018
PARSU . . . . . . . . . . . .
7/1/2018
Enrique J. Lores
PfR . . . . . . . . . . . . . . .
RSU . . . . . . . . . . . . . . . 12/7/2018
PARSU . . . . . . . . . . . . 12/7/2018
PARSU . . . . . . . . . . . . 12/7/2017
PARSU . . . . . . . . . . . . 12/7/2016
Kim M. Rivera
PfR . . . . . . . . . . . . . . .
RSU . . . . . . . . . . . . . . . 12/7/2018
PARSU . . . . . . . . . . . . 12/7/2018
PARSU . . . . . . . . . . . . 12/7/2017
PARSU . . . . . . . . . . . . 12/7/2016
Alex Cho
8,625
862,500 1,725,000
9,375
937,500 1,875,000
9,063
906,250 1,812,500
PfR . . . . . . . . . . . . . . .
8,438
843,750 1,687,500
RSU . . . . . . . . . . . . . . . 12/7/2018
PARSU . . . . . . . . . . . . 12/7/2018
PARSU . . . . . . . . . . . .
7/1/2018
32,070
64,140
128,280
3,913
7,826
15,652
45,299
11,181
10,628
90,597
181,194
22,361
21,256
44,722
42,512
40,087
80,174
160,348
7,379
7,794
14,758
15,588
29,516
31,176
32,070
64,140
128,280
3,913
7,826
15,652
ALL OTHER
STOCK
AWARDS:
NUMBER
OF SHARES
OF STOCK
OR UNITS(3)
(#)
GRANT-DATE
FAIR VALUE
OF STOCK
AND OPTION
AWARDS(2)
($)
69,778
98,561
87,222
69,778
1,600,010
1,663,071
164,737
2,260,004
2,349,069
470,699
447,439
2,000,000
2,078,815
310,656
328,127
1,600,010
1,663,071
164,737
(1) Amounts represent the range of possible cash payouts for fiscal 2019 PfR incentive awards, under the Stock Incentive Plan based upon annual salary.
(2) PARSU amounts represent the range of shares that may be released at the end of the two- and three-year vesting periods applicable to the PARSUs
assuming achievement of threshold, target, or maximum performance. 50% of the PARSUs are eligible for vesting based on EPS performance and 50% are
eligible for vesting based on relative TSR performance. PARSUs vest as follows: 16.6% of the units are eligible for vesting based on EPS performance of year
one with continued service over two years, 16.6% of the units are eligible for vesting based on EPS performance of year two with continued service over
three years, 16.6% of the units are eligible for vesting based on EPS performance of year three with continued service over three years, 25% of the units are
eligible for vesting based on TSR performance over two years with continued service over two years, 25% of the units are eligible for vesting based on relative
TSR performance over three years with continued service over three years. 2019 PARSU year 1 EPS units and all relative TSR units are reflected in this table.
Further, the 2018 PARSU – fiscal 2019 EPS units and the 2017 PARSU – fiscal 2019 EPS units are also included. If our EPS and relative TSR performance are
below threshold for the performance period, no shares will be released for the applicable segment. For additional details, see the discussion of PARSUs under
“Compensation Discussion and Analysis—Determination of Fiscal 2019 Executive Compensation—Long-Term Incentive Compensation—2019 PARSUs.”
(3) RSUs vest as to one-third of the units on each of the first three anniversaries of the grant date, subject to continued service.
26 I
2019 Form 10-K
Outstanding Equity Awards at 2019 Fiscal Year-End
The following table provides information on stock and option awards held by the NEOs as of October 31, 2019:
OPTION AWARDS
STOCK AWARDS
EQUITY
INCENTIVE
PLAN AWARDS:
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
UNEARNED
OPTIONS (#)
NUMBER
OF SHARES
OR UNITS
OF STOCK
THAT
HAVE NOT
VESTED(3)
(#)
MARKET
VALUE OF
SHARES OR
UNITS OF
STOCK THAT
HAVE NOT
VESTED(4)
($)
OPTION
EXERCISE
PRICE(1)
($)
OPTION
EXPIRATION
DATE(2)
EQUITY
INCENTIVE
PLAN AWARDS:
NUMBER OF
UNEARNED
SHARES, UNITS
OR OTHER
RIGHTS THAT
HAVE NOT
VESTED(5)
(#)
EQUITY
INCENTIVE
PLAN AWARDS:
MARKET OR
PAYOUT VALUE
OF UNEARNED
SHARES, UNITS
OR OTHER
RIGHTS THAT
HAVE NOT
VESTED(4)
($)
17.29
12/9/2022 701,986 12,193,497
137,827
2,394,055
13.83
11/1/2023
350,191 6,082,818
12.47 10/29/2023 260,215 4,519,935
203,543 3,535,542
17.29
12/9/2022 179,887 3,124,637
30,913
52,783
42,725
30,913
536,959
916,841
742,133
536,959
13.83
11/1/2023
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS (#)
EXERCISABLE
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS (#)
UNEXERCISABLE
369,020
525,719
NAME
Dion J. Weisler . . . .
Steven J. Fieler . . .
Enrique J. Lores . . .
156,976
Kim M. Rivera . . . . .
Alex Cho . . . . . . . . . .
9,566
48,812
(1) Option exercise prices are the fair market value of our stock on the grant date. In connection with the separation of HPE and in accordance with the employee
matters agreement, HP made certain adjustments to the exercise price and number of stock-based compensation awards with the intention of preserving
the intrinsic value of the awards prior to the separation. Exercisable and non-exercisable stock options were converted to similar awards of the entity where
the employee was working post-separation. RSUs and performance-contingent awards were adjusted to provide holders with RSUs and performance-
contingent awards in the Company that employs such employee following the separation.
(2) All options have an eight-year term.
(3) The amounts in this column include shares underlying dividend equivalent units credited with respect to outstanding stock awards through October 31, 2019.
The amounts also include PARSUs granted in fiscal 2018 (Year 2 EPS units) and fiscal 2019 (Year 1 EPS units) plus accrued dividend equivalent shares. The
2018 PARSUs Year 2 EPS units and 2019 PARSUs Year 1 EPS units are reported based on actual performance since those results have been certified (fiscal
2019 EPS period). The release dates and release amounts for all unvested stock awards are as follows, assuming continued service and satisfaction of any
applicable financial performance conditions:
• Mr. Weisler: December 7, 2019 (269,223 shares plus accrued dividend equivalent shares); December 7, 2020 (170,152 shares plus accrued dividend
equivalent shares); December 7, 2021 (84,315 shares plus accrued dividend equivalent shares). The number of PARSUs and dividend equivalent shares,
as described above, that will be paid out at the end of the two- and three-year vesting periods is 151,874.
• Mr. Fieler: December 7, 2019 (35,181 shares plus accrued dividend equivalent shares); January 3, 2020 (168,351 shares plus accrued dividend equivalent
shares); January 11, 2020 (15,618 shares plus accrued dividend equivalent shares); July 1, 2020 (11,753 shares plus accrued dividend equivalent shares);
December 7, 2020 (35,181 shares plus accrued dividend equivalent shares); July 1, 2021 (11,753 shares plus accrued dividend equivalent shares);
December 7, 2021 (23,260 shares plus accrued dividend equivalent shares). The number of PARSUs and dividend equivalent shares, as described above,
that will be paid out at the end of the two- and three-year vesting periods is 30,267.
• Mr. Lores: December 7, 2019 (95,604 shares plus accrued dividend equivalent shares); December 7, 2020 (64,646 shares plus accrued dividend equivalent
shares); December 7, 2021 (32,854 shares plus accrued dividend equivalent shares). The number of PARSUs and dividend equivalent shares, as described
above, that will be paid out at the end of the two- and three-year vesting periods is 57,668.
• Ms. Rivera: December 7, 2019 (72,760 shares plus accrued dividend equivalent shares); December 7, 2020 (50,057 shares plus accrued dividend
equivalent shares); December 7, 2021 (29,074 shares plus accrued dividend equivalent shares). The number of PARSUs and dividend equivalent shares,
as described above, that will be paid out at the end of the two- and three-year vesting periods is 44,511.
• Mr. Cho: December 7, 2019 (57,968 shares plus accrued dividend equivalent shares); July 1, 2020 (11,753 shares plus accrued dividend equivalent
shares); December 7, 2020 (38,360 shares plus accrued dividend equivalent shares); July 1, 2021 (11,753 shares plus accrued dividend equivalent
shares); December 7, 2021 (23,260 shares plus accrued dividend equivalent shares). The number of PARSUs and dividend equivalent shares, as described
above, that will be paid out at the end of the two- and three-year vesting periods is 30,267.
2019 Form 10-K
I 27
(4) Value calculated based on the $17.37 closing price of our stock on October 31, 2019.
(5) The amounts in this column include the amounts of PARSUs granted in fiscal 2018 (50% of TSR units) and fiscal 2019 (all TSR units) plus accrued dividend
equivalent shares. The TSR units are reported based on threshold performance. Actual payout will be on achievement of performance goals at the end of the
two- and three-year vesting periods.
Option Exercises and Stock Vested in Fiscal 2019
The following table provides information about options exercised and stock awards vested for the NEOs during the fiscal year ended
October 31, 2019:
NAME
Dion J. Weisler . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steven J. Fieler . . . . . . . . . . . . . . . . . . . . . . . . . .
Enrique J. Lores . . . . . . . . . . . . . . . . . . . . . . . . . .
Kim M. Rivera . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alex Cho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OPTION AWARDS
STOCK AWARDS(1)
NUMBER OF SHARES
ACQUIRED ON EXERCISE
(#)
VALUE REALIZED ON
EXERCISE
($)
NUMBER OF SHARES
ACQUIRED ON VESTING
(#)
VALUE REALIZED ON
VESTING(2)
($)
—
—
—
—
—
—
—
—
—
—
942,712
233,744
250,258
264,931
83,297
19,492,224
4,688,198
4,943,981
5,690,415
1,809,716
(1)
Includes PARSUs, RSUs, and accrued dividend equivalent shares.
(2) Represents the amounts realized based on the fair market value of our stock on the performance period end date for PARSUs (October 31, 2019) and on
the vesting date for RSUs and accrued dividend equivalent shares. Fair market value is determined based on the closing price of our stock on the applicable
performance period end/vesting date.
Fiscal 2019 Pension Benefits Table
The following table provides information about the present value of accumulated pension benefits payable to each NEO:
NAME
PLAN NAME(1)
NUMBER OF YEARS
OF CREDITED
SERVICE
(#)
PRESENT VALUE
OF ACCUMULATED
BENEFIT(2)
($)
PAYMENTS DURING
LAST FISCAL YEAR
($)
Dion J. Weisler(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steven J. Fieler . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enrique J. Lores(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kim Rivera(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alex Cho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
CAPP
—
—
RP
EBP
IRG
—
1.3
—
—
7.6
7.6
24.3
—
$ 9,955
—
—
91,020
12
138,518
—
—
—
—
—
(1) The “RP” and the “EBP” are the qualified HP Retirement Plan and the non-qualified HP Excess Benefit Plan, respectively. “CAPP” is the qualified Cash Account
Pension Plan. All benefits are frozen under these plans. The RP and CAPP have been merged into the HP Inc. Pension Plan (formerly known as the Hewlett-
Packard Company Retirement Plan). The “IRG” is the International Retirement Guarantee which is a nonqualified plan covering certain highly compensated
international transfers.
(2) The present value of accumulated benefits is shown at the age 65 unreduced retirement age for the RP, the EBP and the IRG, and the immediate unreduced
benefit from the CAPP using the assumptions under Accounting Standards Codification (ASC) Topic 715-30 Defined Benefit Plans—Pension for the 2019
fiscal year-end measurement (as of October 31, 2019). The present value is based on a discount rate of 3.21% for the RP (this discount rate also applies
for CAPP but since the benefit is currently unreduced, there is no discounting applied), 2.39% for the EBP and 2.50% for the IRG, lump sum interest rates
of 2.13% for the first five years, 3.07% for the next 15 years and 3.65% thereafter, and applicable mortality for lump sums with the respective mortality
improvement scale applied for future years. As of October 31, 2018 (the prior measurement date), the ASC Topic 715-30 assumptions included a discount
rate of 4.54% for the RP, 4.02% for the EBP, and 4.07% for the IRG, lump sum interest rates of 3.21% for the first five years, 4.26% for the next 15 years and
4.55% thereafter, and applicable mortality for lump sums with the respective mortality improvement scale applied for future years.
(3) Mr. Weisler, Mr. Lores and Ms. Rivera are not eligible to receive benefits under any defined benefit pension plan because we ceased benefit accruals under all
of our U.S.-qualified defined benefit pension plans prior to the commencement of their employment with HP in the United States.
28 I
2019 Form 10-K
Narrative to the Fiscal 2019 Pension Benefits Table
No NEO currently accrues a benefit under any qualified or non-
qualified defined benefit pension plan because we ceased benefit
accruals in all our U.S.-qualified defined benefit pension plans
(and their non-qualified plan counterparts) in prior years. In the
case of Mr. Cho, his IRG benefit is based on the US retirement
program and since the US pension plans are frozen there is no
accrual under that plan. Benefits previously accrued by Mr. Fieler
under CAPP and those accrued by Mr. Cho under the RP, EBP and
IRG are payable to them following termination of employment,
subject to the terms of the applicable plans.
Terms of the HP Retirement Plan (RP)
Mr. Cho earned benefits under the RP and the EBP based on
pay and service prior to 2006. The RP is a traditional defined
benefit plan that provided a benefit based on years of service
and the participant’s “highest average pay rate,” reduced by a
portion of Social Security earnings. “Highest average pay rate”
was determined based on the 20 consecutive fiscal quarters
when pay was the highest. Pay for this purpose included base
pay and bonus, subject to applicable IRS limits. Benefits under
the RP may be taken in one of several different annuity forms or
in an actuarially equivalent lump sum. Since Mr. Cho became a
participant in the RP after November 1, 1993, he has no Deferred
Profit Sharing Plan (DPSP) balance to be integrated with the RP.
Benefits not payable from the RP due to IRS limits are paid from the
EBP under which benefits are unfunded and unsecured. When an EBP
participant with relatively small benefits terminates they are paid
their EBP benefit in January of the year following their termination,
subject to any delay required by Section 409A of the Code.
Fiscal 2019 Non-Qualified Deferred Compensation Table
Terms of the Cash Account Pension Plan (CAPP)
Mr. Fieler earned benefits under the CAPP based on his
compensation beginning in September 2004 through the end
of 2005 when benefits were frozen. While interest continues to
accrue on the CAPP balance, no pay credits have been applied
since the end of 2005. CAPP provided for 4% of pay credits to a
cash balance account with interest credited at a 1-year Treasury
bill plus 1% interest rate. The CAPP balance can be paid as a lump
sum with the appropriate election and spousal consent if married
or can be converted to annuity forms of payment.
Terms of the International Retirement Guarantee (IRG)
Employees who transferred internationally at the Company’s
request prior to 2000 were put into an international umbrella
plan. This plan determines the country of guarantee which is
generally the country in which an employee has spent the longest
portion of his HP Inc. career. For Mr. Cho, the country of guarantee
is currently the U.S. The IRG determines the present value of a full
career benefit for Mr. Cho under the HP Inc. sponsored retirement
benefit plans that applied to employees working in the U.S., and
U.S. Social Security (since the U.S. is his country of guarantee)
then offsets the present value of the retirement benefits from
plans and social insurance systems in the countries in which he
earned retirement benefits (France and the US) for his total period
of HP Inc. employment. The net benefit value is payable as a
single lump sum amount as soon as practicable after termination
or retirement, subject to any delay required by Section 409A of
the Code. This is a nonqualified retirement plan.
The following table provides information about contributions, earnings, withdrawals, distributions, and balances under the EDCP:
NAME
Dion J. Weisler . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steven J. Fieler . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enrique J. Lores . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kim M. Rivera . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alex Cho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE
CONTRIBUTIONS
IN LAST FY(1)
($)
REGISTRANT
CONTRIBUTIONS
IN LAST FY(1)(2)
($)
AGGREGATE
EARNINGS
IN LAST FY
($)
AGGREGATE
WITHDRAWALS/
DISTRIBUTIONS(3)
($)
AGGREGATE
BALANCE
AT FYE(4)
($)
10,800
—
595,866
—
10,320
10,800
—
3,854
1,829
—
—
79,705
18,672
11,000
186,131
— 2,189,074
—
4,920
2,810
2,698
—
—
28,313
35,985
(1) The amounts reported here as “Executive Contributions” and “Registrant Contributions” are reported as compensation to such NEO in the “Salary” and “Non-
Equity Incentive Plan Compensation” columns in the “Summary Compensation Table” above.
(2) The contributions reported here as “Registrant Contributions” were made in fiscal 2019 with respect to calendar year 2018 participant base pay deferrals.
During fiscal 2019, the NEOs were eligible to receive a 4% matching contribution on base pay deferrals that exceeded the IRS limit that applies to the qualified
HP 401(k) Plan up to a maximum of two times that limit.
(3) The distributions reported here were made pursuant to participant elections made prior to the time that the amounts were deferred in accordance with
plan rules.
(4) Of these balances, the following amount was reported as compensation to such NEO in the Summary Compensation Table in prior proxy statements: Mr. Weisler
$52,258, Mr. Lores $644,811, Ms. Rivera $8,840, Mr. Fieler $9,932, and Mr. Cho $0. The information reported in this footnote is provided to clarify the extent to
which amounts payable as deferred compensation represent compensation reported in our prior proxy statements, rather than additional earned compensation.
2019 Form 10-K
I 29
Narrative to the Fiscal 2019 Non-qualified Deferred
Compensation Table
HP sponsors the EDCP, a non-qualified deferred compensation
plan that permits eligible U.S. employees to defer base pay in
excess of the amount taken into account under the qualified HP
401(k) Plan and bonus amounts of up to 95% of the annual PfR
incentive bonus payable under the annual PfR incentive plan. In
addition, a matching contribution is available under the plan to
eligible employees. The matching contribution applies to base
pay deferrals on compensation above the IRS limit that applies to
the qualified HP 401(k) Plan, up to a maximum of two times that
compensation limit (matching contributions made in fiscal year
2019 pertained to base pay from $275,000 to $550,000 during
calendar year 2018). During fiscal 2019, the NEOs were eligible
for a matching contribution of up to 4% on base pay contributions
in excess of the IRS limit, up to a maximum of two times that limit.
Upon becoming eligible for participation or during the annual
enrollment period, employees must specify the amount of base
pay and/or the percentage of bonus to be deferred, as well as the
time and form of payment. If termination of employment occurs
before retirement (defined as at least age 55 with 15 years of
continuous service), distribution is made in the form of a lump sum
in January of the year following the year of termination, subject to
any delay required under Section 409A of the Code. At retirement
(or earlier, if properly elected), benefits are paid according to the
distribution election made by the participant at the time of the
deferral election, subject to any delay required under Section
409A of the Code. In the event of death, the remaining vested
EDCP account balance will be paid to the designated beneficiary,
or otherwise in accordance with the EDCP provisions, in a single
lump-sum payment in the month following the month of death.
Amounts deferred or credited under the EDCP are credited with
hypothetical investment earnings based on participant investment
elections made from among the investment options available
under the HP 401(k) Plan. Accounts maintained for participants
under the EDCP are not held in trust, and all such accounts are
subject to the claims of general creditors of HP. No amounts are
credited with above-market earnings.
Potential Payments Upon Termination or Change in Control
The amounts in the following table estimate potential payments
due if a NEO had terminated employment with HP effective
October 31, 2019 under each of the circumstances specified
below. These amounts are in addition to benefits generally
available to U.S. employees upon termination of employment,
such as distributions from the retirement plans and the HP 401(k)
Plan and payment of accrued vacation where required.
LONG TERM INCENTIVE PROGRAMS(3)
NAME
TERMINATION
SCENARIO
TOTAL(1)
SEVERANCE(2)
STOCK
OPTIONS
RESTRICTED
STOCK
PARSU
Dion J. Weisler . . . . . . . . .
Voluntary/For Cause
$0
Disability
Retirement
Death
$20,173,559
$0
$20,173,559
$0
$0
$0
$0
Not for Cause
$20,357,645
$10,743,471
Change in Control
$30,917,030
$10,743,471
Steven J. Fieler . . . . . . . .
Voluntary/For Cause
$0
Disability
Retirement
Death
$7,872,629
$0
$7,872,629
$0
$0
$0
$0
Not for Cause
$6,944,192
$2,375,340
Change in Control
$10,247,969
$2,375,340
Enrique J. Lores . . . . . . . .
Voluntary/For Cause
$0
Disability
Retirement
Death
$7,575,972
$0
$7,575,972
$0
$0
$0
$0
Not for Cause
$6,522,615
$2,984,787
Change in Control
$10,560,759
$2,984,787
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$9,555,432
$10,618,127
$0
$0
$9,555,432
$10,618,127
$4,565,618
$5,048,556
$9,555,432
$10,618,127
$0
$0
$5,557,079
$2,315,550
$0
$0
$5,557,079
$2,315,550
$3,542,785
$1,026,067
$5,557,079
$2,315,550
$0
$0
$3,518,240
$4,057,732
$0
$0
$3,518,240
$4,057,732
$1,618,241
$1,919,587
$3,518,240
$4,057,732
30 I
2019 Form 10-K
NAME
TERMINATION
SCENARIO
TOTAL(1)
SEVERANCE(2)
STOCK
OPTIONS
RESTRICTED
STOCK
PARSU
LONG TERM INCENTIVE PROGRAMS(3)
Kim M. Rivera . . . . . . . . . .
Voluntary/For Cause
$0
Disability
Retirement
Death
$6,009,261
$0
$6,009,261
$0
$0
$0
$0
Not for Cause
$5,620,679
$2,898,601
Change in Control
$8,907,862
$2,898,601
Alex Cho . . . . . . . . . . . . . . .
Voluntary/For Cause
$0
Disability
Retirement
Death
$4,914,434
$0
$4,914,434
$0
$0
$0
$0
Not for Cause
$4,413,889
$2,335,895
Change in Control
$7,250,329
$2,335,895
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$2,762,376
$3,246,885
$0
$0
$2,762,376
$3,246,885
$1,228,911
$1,493,167
$2,762,376
$3,246,885
$0
$0
$2,598,884
$2,315,550
$0
$0
$2,598,884
$2,315,550
$1,051,927
$1,026,067
$2,598,884
$2,315,550
(1) Total does not include amounts earned or benefits accumulated due to continued service by the NEO through October 31, 2019, including vested stock
options, PCSOs, RSUs, PARSUs, accrued retirement benefits, and vested balances in the EDCP, as those amounts are detailed in the preceding tables. Total
also does not include amounts the NEO was eligible to receive under the annual PfR incentive with respect to fiscal 2019 performance.
(2) The amounts reported are the cash benefits payable in the event of a qualifying termination under the SPEO: for CEO, 2x multiple of base pay plus the average
of the actual annual incentives paid for the preceding three years; for other NEOs, 1.5x multiple of base pay plus the average of the actual annual incentives paid
for the preceding three years, and includes 18 months’ COBRA premiums for continued group medical coverage for the NEOs and their eligible dependents.
(3) Upon an involuntary termination not for cause, covered executives receive pro-rata vesting on unvested equity awards as discussed under “Compensation
Discussion and Analysis—Severance and Long-term Incentive Change in Control Plan for Executive Officers.” Full vesting of PARSUs based on performance
at target levels (to the extent that the actual performance period has not been completed) applies in the event of a termination due to death or disability for
all grant recipients. Pro-rata vesting of PARSUs based on actual performance applies in the event of a termination due to retirement for all grant recipients.
To calculate the value of unvested PARSUs for purposes of this table, target performance is used unless the performance period has been completed and
the results have been certified. Full vesting of unvested PCSOs applies in the event of a termination due to death or disability for all grant recipients. PCSOs
vest pro-rata in the event of a termination due to retirement. With respect to the treatment of equity in the event of a change in control of HP, the information
reported reflects the SPEO approved change in control terms.
Narrative to the Potential Payments Upon Termination or
Change in Control Table
HP Severance Plan for Executive Officers
An executive will be deemed to have incurred a qualifying
termination for purposes of the SPEO if he or she is involuntarily
terminated without cause and executes a full release of claims
in a form satisfactory to HP promptly following termination. For
purposes of the SPEO, “cause” means an executive’s material
neglect (other than as a result of illness or disability) of his or
her duties or responsibilities to HP or conduct (including action
or failure to act) that is not in the best interest of, or is injurious
to, HP. The material terms of the SPEO are described under
“Compensation Discussion and Analysis—Severance and Long-
term Incentive Change in Control Plan for Executive Officers.”
Voluntary or “For Cause” Termination
In general, an NEO who remained employed through October 31,
2019 (the last day of the fiscal year) but voluntarily terminated
terminated
employment
thereafter, or was
immediately
immediately thereafter in a “for cause” termination, would be
eligible (1) to receive his or her annual incentive amount earned
for fiscal 2019 under the annual PfR incentive (subject to any
discretionary downward adjustment or elimination by the HRC
Committee prior to actual payment, and to any applicable
clawback policy), (2) to exercise his or her vested stock options
up to three months following a voluntary termination, and up to
the date of termination in the case of termination “for cause,”
(3) to receive a distribution of vested amounts deferred or
credited under the EDCP, and (4) to receive a distribution of his
or her vested benefits, if any, under the HP 401(k) and pension
plans. An NEO who terminated employment before October 31,
2019, either voluntarily or in a “for cause” termination, would
generally not have been eligible to receive any amount under
the annual PfR incentive with respect to the fiscal year in which
the termination occurred, except that the HRC Committee has
the discretion to make payment of prorated bonus amounts to
individuals on leave of absence or in non-pay status, as well as in
connection with certain voluntary severance incentives, workforce
reductions, and similar programs.
2019 Form 10-K
I 31
“Not for Cause” Termination
A “not for cause” termination of an NEO who remained employed
through October 31, 2019 and was terminated immediately
thereafter would qualify the NEO for the amounts described above
under a “voluntary” termination in addition to benefits under the
SPEO if the NEO signs the required release of claims in favor of HP.
In addition to the cash severance benefits and pro-rata equity
awards payable under the SPEO, the NEO would be eligible to
exercise vested stock options up to one year after termination
and receive distributions of vested, accrued benefits from HP
deferred compensation and pension plans.
Termination Following a Change in Control
In the event of a change in control of HP, RSUs, stock options,
and PCSOs will vest in full if the successor does not assume
such awards or if an individual is terminated without Cause or
terminates with Good Reason within 24 months of a change in
control. Outstanding PARSUs will vest in full upon a termination in
connection with or following a change in control, assuming target
performance level. Upon failure of the successor to assume
outstanding PARSUs in connection with a change in control,
the PARSUs will vest in full based on the better of (i) pro-rata
vesting at target, and (ii) 100% of units vesting based on actual
performance as determined by the Committee within 30 days of
change in control.
Death or Disability Terminations
An NEO who continued in employment through October 31, 2019
whose employment is terminated immediately thereafter due to
death or disability would be eligible (1) to receive his or her full
annual incentive amount earned for fiscal 2019 under the annual
PfR incentive determined by HP in its sole discretion, (2) to receive
a distribution of vested amounts deferred or credited under the
EDCP, and (3) to receive a distribution of his or her vested benefits
under the HP 401(k) and pension plans.
Upon termination due to death or disability, equity awards held
by the NEO may vest in full. If termination is due to disability,
RSUs, stock options, and PCSOs will vest in full, subject to
satisfaction of applicable performance conditions, and, in the
case of stock options and PCSOs, must be exercised within
three years of termination or by the original expiration date,
if earlier; all unvested portions of the PARSUs, including any
amounts for dividend equivalent payments, shall vest based on
performance at target levels. If termination is due to the NEO’s
death, RSUs, stock options, and PCSOs will vest in full and, in the
case of stock options and PCSOs, must be exercised within one
year of termination or by the original expiration date, if earlier;
all unvested portions of the PARSUs, including any amounts for
dividend equivalent payments, shall vest based on performance
at target levels.
32 I
2019 Form 10-K
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, deferred compensation plans, early
retirement plans, workforce restructuring plans, retention plans
in connection with extraordinary transactions, or similar plans or
agreements entered into in connection with any of the foregoing,
provided that such plans or agreements are applicable to one or
more groups of employees in addition to the Section 16 officers.
HP Retirement Arrangements
Upon retirement immediately after October 31, 2019 with a
minimum age of 55 and years of combined age and service equal
to or greater than 70, HP employees in the United States receive
full vesting of time-based options granted under our stock plans
with a post-termination exercise period of up to three years or
the original expiration date, whichever comes first, as well as
full vesting of RSUs (other than RSUs granted under a retention
agreement on or after June 25, 2019). PCSOs will receive prorated
vesting if the stock price appreciation conditions are met and
may vest on a prorated basis post-termination to the end of the
performance period, subject to stock price appreciation conditions
and certain post-employment restrictions. Awards under the
PARSU program, if any, are paid on a prorated basis to participants
at the end of the performance period based on actual results,
and bonuses, if any, under the annual PfR incentive plan may be
paid in prorated amounts at the discretion of management based
on actual results. In accordance with Section 409A of the Code,
certain amounts payable upon retirement (or other termination)
of the NEOs and other key employees will not be paid out for at
least six months following termination of employment.
in the United
We sponsor two retiree medical programs
States, one of which provides subsidized coverage for eligible
participants based on years of service. Eligibility for this program
requires that participants have been continuously employed by
HP since January 1, 2003 and have met other age and service
requirements. None of the NEOs are eligible for this program.
The other U.S. retiree medical program we sponsor provides
eligible retirees with access to coverage at group rates only, with no
direct subsidy provided by HP. All the NEOs could be eligible for this
program if they retire from HP on or after age 55 with at least ten
years of qualifying service or if they retire at any age with combined
age plus service equal to 80 or more years. In addition, beginning at
age 45, eligible U.S. employees may participate in the HP Retirement
Medical Savings Account Plan (the “RMSA”), under which certain
participants are eligible to receive HP matching credits of up to
$1,200 per year, up to a lifetime maximum of $12,000, which can
be used to cover the cost of such retiree medical coverage (or other
qualifying medical expenses) if the employee meets the eligibility
requirements for HP retiree medical benefits. None of the NEOs are
eligible for the HP matching credits under the RMSA.
CEO Pay Ratio Disclosure
In accordance with SEC rules we are reporting our CEO pay ratio. As
set forth in the Summary Compensation Table, our CEO’s annual
total compensation for fiscal 2019 was $19,317,972. Our median
employee’s annual total compensation was $75,013, resulting in
a CEO pay ratio of 258:1.
In calculating the CEO pay ratio, the SEC rules allow companies
to adopt a variety of methodologies, apply certain exclusions,
and make reasonable estimates and assumptions reflecting their
unique employee populations. Therefore, our reported CEO pay
ratio may not be comparable to CEO pay ratios reported by other
companies due to differences in industries and geographical
dispersion, as well as the different estimates, assumptions, and
methodologies applied by other companies in calculating their
CEO pay ratios.
Our CEO pay ratio is based on the following methodology:
• We are using the same median employee for our fiscal
2019 pay ratio calculation as we used in fiscal 2018, as
there have been no changes in employee population
or compensation arrangements, such as any mergers,
spinoffs, or mass layoffs, that would result in a significant
change to our pay ratio disclosure.
• We
calculated
the median employee’s annual
total compensation for fiscal 2019 using the same
methodology that was used for our named executive
officers, as set forth in the Summary Compensation Table.
Director Compensation and Stock Ownership Guidelines
Non-employee Director compensation is determined annually
by the independent members of the Board acting on the
recommendation of the HRC Committee. In formulating its
recommendation, the HRC Committee considers market data for
our peer group and input from the independent compensation
consultant retained by the HRC Committee. Mr. Weisler and
Mr. Lores, as employees of the Company, do not receive any
separate compensation for their HP Board service.
For the 2019 Board year, which began March 1, 2019 (and
therefore approximates the period between annual stockholder
meetings when non-employee Directors are regularly elected),
each non-employee Director was entitled to receive an annual cash
Board retainer of $105,000. Non-employee Directors may elect to
defer up to 50% of their annual cash retainer. Additionally, in lieu
of the annual cash retainer, non-employee Directors may elect to
receive an equivalent value of equity either entirely in fully vested
shares or in equal values of shares and stock options. For fiscal
2019, two non-employee Directors elected to receive an equivalent
value of equity in shares and stock options, and two non-employee
Directors elected to defer their annual cash retainer.
Each non-employee Director also received an annual equity
Board retainer of $215,000 for service during the 2019 Board
year, with regular grants on the date of the annual stockholder
2019 Form 10-K
I 33
meeting. Under special circumstances, the annual equity retainer
may be paid in cash. No annual equity retainer was paid in cash
during fiscal 2019. Typically, the annual equity retainer is paid at
the election of the Director either entirely in fully vested shares
or in equal values of shares and stock options. The number of
shares subject to the equity awards is determined based on the
fair market value of our stock on the grant date, and the number
of shares subject to stock option awards is determined as of
the grant date based on a Black-Scholes-Merton option pricing
formula. Equity grants to non-employee Directors are primarily
intended to strengthen alignment with stockholder interests
and to reinforce a long-term ownership view of the Company
and its value. Retention is not the focus of equity grants for
non-employee Directors and could cause entrenchment, which
is why service-related vesting on equity awards was eliminated
in July 2017. Non-employee Directors may elect to defer the
settlement of shares received as part of the program until either
(a) the first to occur of the Director’s death, disability (as defined in
Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”)) or when the non-employee Director no longer serves
as a member of the HP Board (a “Separation From Service” as
defined in Section 409A of the Code) or (b) April 1 of a given year;
however, non-employee Directors may not defer the issuance of
shares received upon the exercise of their stock options.
Fiscal 2019 Director Compensation
The Chairman of the Board receives an additional $200,000
annual cash retainer in recognition of the greater duties that the
position requires. In addition to the regular annual cash and equity
retainers, and the Chairman retainer described above, the non-
employee Directors who served as chairs of standing committees
during fiscal 2019 received cash retainers for such service. The
Board approved annual cash retainers for committee chairs as
follows for chair service during fiscal 2019:
• $35,000 for the Audit Committee Chair;
• $25,000 for the HRC Committee Chair;
• $20,000 for the Nominating, Governance and Social
Responsibility Committee Chair; and
• $20,000 for Chairs of other Board standing committees.
Each non-employee Director also receives $2,000 for Board
meetings attended in excess of ten meetings per Board year
(which begins in March and ends the following February), and
$2,000 for each committee meeting attended in excess of a total
of ten meetings of each committee per Board year.
Non-employee Directors are reimbursed for their expenses in
connection with attending Board meetings including expenses
related to spouses when spouses are invited to attend Board
events, and they may use the Company aircraft for travel to and
from Board meetings and other Company events.
NAME(1)
FEES EARNED
OR PAID IN
CASH(2)
($)
STOCK
AWARDS(3)
($)
OPTION
AWARDS(3)
($)
ALL OTHER
COMPENSATION
($)
TOTAL
($)
Aida Alvarez . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,928 $ 215,003
Shumeet Banerji . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$123,253
$215,003
Robert R. Bennett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$125,253
$215,003
$—
$—
$—
Charles “Chip” V. Bergh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$199,863
$160,017
$160,002
Stacy Brown-Philpot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$106,928
$215,003
Stephanie A. Burns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$128,250
$215,003
$—
$—
Mary Anne Citrino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$142,243
$107,502
$107,501
Yoky Matsuoka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$82,418
$344,182
Stacey Mobley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,928
$215,003
Subra Suresh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dion J. Weisler(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$106,928
$215,003
$—
$—
$—
$—
$—
$—
$— $319,931
$— $338,256
$— $340,256
$— $519,882
$— $321,931
$— $343,253
$— $357,246
$— $426,600
$— $319,931
$— $321,931
$—
$—
(1) Mr. Clemmer was appointed to our Board during our Fiscal 2020 year. Accordingly, he did not receive any compensation during Fiscal 2019.
(2) For purposes of determining Director compensation, the Board year begins in March and ends the following February, which does not coincide with our
November through October fiscal year. Cash amounts included in the table above represent the portion of the annual retainers and committee chair fees
earned with respect to service during fiscal 2019, as well as any additional meeting fees paid during fiscal 2019. See “Additional Information about Fees
Earned or Paid in Cash in Fiscal 2019” below.
34 I
2019 Form 10-K
(3) Represents the grant date fair value of stock awards and option awards granted in fiscal 2019 calculated in accordance with applicable accounting standards
relating to share-based payment awards. For awards of shares, that amount is calculated by multiplying the closing price of HP’s stock on the date of grant
by the number of shares awarded. For elective options, that amount is calculated by multiplying the Black-Scholes-Merton value determined as of the date
of grant by the number of options awarded. For information on the assumptions used to calculate the value of the stock awards, refer to Note 5 to our
Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019, as filed with the SEC on December 12,
2019. See “Additional Information about Non-Employee Director Equity Awards” below.
(4) Mr. Weisler served as President and CEO of HP until November 1, 2019, the first day of our 2020 fiscal year. Accordingly, he did not receive compensation for
his Board service during Fiscal 2019.
Additional Information about Fees Earned or Paid in Cash in Fiscal 2019
NAME
COMMITTEE
CHAIR AND
CHAIRMAN
FEES(b)
($)
ADDITIONAL
MEETING
FEES(c)
($)
ANNUAL
RETAINERS(a)
($)
TOTAL
($)
Aida Alvarez . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,928
$0
Shumeet Banerji . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,928
$18,325
$0 $104,928
$0 $123,253
Robert R. Bennett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,928
$18,325
$2,000 $125,253
Charles “Chip” V. Bergh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0
$199,863
$0 $199,863
Stacy Brown-Philpot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,928
$0
$2,000 $106,928
Stephanie A. Burns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,928
$23,322
$0 $128,250
Mary Anne Citrino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,928
$33,315
$4,000 $142,243
Yoky Matsuoka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$82,418
Stacey Mobley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,928
Subra Suresh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,928
$0
$0
$0
$0
$82,418
$0 $104,928
$2,000 $106,928
(a) The Board year begins in March and ends the following February, which does not coincide with HP’s November through October fiscal year. The dollar
amounts shown include cash annual retainers earned for service during the last four months of the March 2018 through February 2019 Board year and cash
annual retainers earned for service during the first eight months of the March 2019 through February 2020 Board year. This also includes cash earned in
the period described that was deferred by Director election into the 2005 Executive Deferred Compensation Plan, which provides that Directors may elect
when to receive their deferred cash annual retainer. Directors may not receive their deferred cash annual retainer earlier than January 2022. In the case of
a termination of service, Directors can elect to receive the deferred money in the January following the termination of service if the date occurs prior to the
specified distribution year elected.
(b) Committee chair fees are calculated based on service during each Board term. The dollar amounts shown include such fees earned for service during the
last four months of the March 2018 through February 2019 Board term and fees earned for service during the first eight months of the March 2019 through
February 2020 Board term.
(c) Additional meeting fees are calculated based on the number of designated Board meetings and the number of committee meetings attended during each
Board term. The dollar amounts shown include any additional meeting fees paid during fiscal 2019 for service in the 2018 Board term ending February 2019.
Additional meeting fees for the 2019 Board term, if any, will be paid during fiscal 2020.
2019 Form 10-K
I 35
Additional Information about Non-Employee Director Equity Awards
The following table provides additional information about non-employee Director equity awards, including the stock awards and elective
options made to non-employee Directors during fiscal 2019, the grant date fair value of each of those awards and the number of stock
awards and option awards outstanding as of the end of fiscal 2019:
STOCK AWARDS
GRANTED DURING
FISCAL 2019
(#)
OPTION AWARDS
GRANTED
DURING FISCAL
2019
(#)
GRANT DATE FAIR
VALUE OF STOCK AND
OPTION AWARDS
GRANTED DURING
FISCAL 2019(a)
($)
STOCK AWARDS
OUTSTANDING
AT FISCAL YEAR
END(b)
(#)
OPTION AWARDS
OUTSTANDING AT
FISCAL YEAR END
(#)
10,702
10,702
10,702
7,965
10,702
10,702
5,351
17,138
10,702
10,702
0
0
0
38,930
0
0
26,156
0
0
0
$215,003
$215,003
$215,003
$320,019
$215,003
$215,003
$215,003
$344,182
$215,003
$215,003
11,402
0
10,875
31,073
51,663
20,966
33,506
0
51,663
19,295
0
0
0
146,148
0
0
159,671
0
0
0
NAME
Aida 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. . . . . . . . . . . . . . . . . . . . . . .
(a) Represents the grant date fair value of stock awards and elective options granted in fiscal 2019 calculated in accordance with applicable accounting
standards. For stock awards, that number is calculated by multiplying the closing price of HP’s stock on the date of grant by the number of shares awarded.
For elective options, that amount is calculated by multiplying the Black-Scholes-Merton value determined as of the date of grant by the number of options
awarded. For information on the assumptions used to calculate the value of the stock awards, refer to Note 5 to our Consolidated Financial Statements in
our Annual Report on Form 10-K for the fiscal year ended October 31, 2019, as filed with the SEC on December 12, 2019.
(b)
Includes dividend equivalent units accrued with respect to share awards granted in fiscal 2019 and RSUs granted in previous years that have been deferred
at the election of the Director.
Non-Employee Director Stock Ownership Guidelines
Under our stock ownership guidelines, non-employee Directors are required to accumulate, within five years of election to the Board,
shares of HP’s stock equal in value to at least five times the amount of the annual cash Board retainer. Shares counted toward these
guidelines include any shares held by the Director directly or indirectly, including deferred vested awards.
All non-employee Directors with more than five years of service have met our stock ownership guidelines and all non-employee Directors
with less than five years of service have either met or are on track to meet our stock ownership guidelines within the required time based
on current trading prices of HP’s stock. See “Common Stock Ownership of Certain Beneficial Owners and Management” on page 37 of
this Form 10-K/A.
36 I
2019 Form 10-K
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Equity Compensation Plan Information
The following table summarizes our equity compensation plan information as of October 31, 2019.
PLAN CATEGORY
Equity compensation plans approved
by HP stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved
by HP stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMMON SHARES TO BE
ISSUED UPON EXERCISE
OF OUTSTANDING
OPTIONS, WARRANTS
AND RIGHTS(1)
(A)
WEIGHTED-AVERAGE
EXERCISE PRICE
OF OUTSTANDING
OPTIONS, WARRANTS
AND RIGHTS(2)
(B)
COMMON SHARES
AVAILABLE FOR FUTURE
ISSUANCE UNDER EQUITY
COMPENSATION PLANS
(EXCLUDING SECURITIES
REFLECTED IN COLUMN (A))
(C)
36,472,053 (3)
$15.4187
265,135,483 (4)
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,472,053
$15.4187
265,135,483
(1) This column does not reflect awards of options and RSUs assumed in acquisitions where the plans governing the awards were not available for future awards
as of October 31, 2019. As of October 31, 2019, there were no individual awards of options or RSUs outstanding pursuant to awards assumed in connection
with acquisitions and granted under such plans.
(2) This column does not reflect the exercise price of shares underlying the assumed options referred to in footnote (1) to this table or the purchase price of
shares to be purchased pursuant to the HP Inc. 2011 Employee Stock Purchase Plan (the “2011 ESPP”) or the legacy HP Employee Stock Purchase Plan (the
“Legacy ESPP”). In addition, the weighted-average exercise price does not take into account the shares issuable upon vesting of outstanding awards of RSUs
and PARSUs, which have no exercise price.
(3)
(4)
Includes awards of options and RSUs outstanding under the 2004 Plan and 2011 ESPP. Also includes awards of PARSUs representing 4,465,608 shares
that may be issued under the 2004 Plan. Each PARSU award reflects a target number of shares that may be issued to the award recipient. HP determines
the actual number of shares the recipient receives at the end of a three-year performance period based on results achieved compared with Company
performance goals and stockholder return relative to the market. The actual number of shares that a grant recipient receives at the end of the period may
range from 0% to 200% of the target number of shares.
Includes (i) 184,508,645 shares available for future issuance under the 2004 Plan; (ii) 76,534,847 shares available for future issuance under the 2011 ESPP;
(iii) 2,725,611 shares available for future issuances under the Legacy ESPP, a plan under which employee stock purchases are no longer made; and (iv) 1,366,380
shares are reserved for issuance under our Service Anniversary Stock Plan, a plan under which awards are no longer granted. Taking into account the enumerated
unavailable shares from the Legacy ESPP and the Service Anniversary Stock Plan, a total of 265,135,483 shares were available for future grants as of October 31, 2019.
Common Stock Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of December 31, 2019 (or as of the date otherwise indicated below) concerning beneficial
ownership by:
• holders of more than 5% of HP’s outstanding shares of common stock;
• our Directors and nominees;
• each of the named executive officers listed in the Summary Compensation Table on page 23; and
• all of our Directors and executive officers as a group.
The information provided in the table is based on our records, information filed with the SEC and information provided to HP, except
where otherwise noted.
The number of shares beneficially owned by each entity or individual is determined under SEC rules, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the entity
or individual has sole or shared voting or investment power and also any shares that the entity or individual has the right to acquire as
of March 1, 2020 (60 days after December 31, 2019) through the exercise of any stock options, through the vesting/settlement of RSUs
payable in shares, or upon the exercise of other rights. Beneficial ownership excludes options or other rights vesting after March 1, 2020
2019 Form 10-K
I 37
and any RSUs vesting/settling, as applicable, on or before March 1, 2020 that may be payable in cash or shares at HP’s 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BlackRock, 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard L. Clemmer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yoky Matsuoka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stacey Mobley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subra Suresh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dion J. Weisler(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alex Cho(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Steven J. Fieler(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enrique J. Lores(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kim M. Rivera . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All current Executive Officers and Directors as a Group (20 persons)(10) . . . . . . . . . . . .
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
PERCENT OF COMMON
STOCK OUTSTANDING
146,883,601
99,903,361
129,732,144
50,698
31,311
71,091
150,382
51,663
63,233
197,682
4,000
17,138
51,663
36,924
1,767,869
88,582
341,859
540,626
203,223
4,555,175
10.1%
6.9%
8.9%
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Represents holdings of less than 1% based on shares of our common stock outstanding as of December 31, 2019.
(1) Based on the most recently available Schedule 13G/A filed with the SEC on February 10, 2020 by Dodge & Cox. According to its Schedule 13G/A, Dodge &
Cox reported having sole voting power over 140,708,785 shares, shared voting power over no shares, sole dispositive power over 146,883,601 shares and
shared dispositive power over no shares. The securities reported on the Schedule 13G/A are beneficially owned by clients of Dodge & Cox, which clients
may include investment companies registered under the Investment Company Act of 1940 and other managed accounts, and which clients have the right to
receive or the power to direct the receipt of dividends from, and the proceeds from the sale of, HP’s stock. Dodge & Cox Stock Fund, an investment company
registered under the Investment Company Act of 1940, has an interest of 91,145,478 shares. The Schedule 13G/A contained information as of January 31,
2020 and may not reflect current holdings of HP’s stock. The address of Dodge & Cox is 555 California Street, 40th Floor, San Francisco, CA 94104.
(2) Based on the most recently available Schedule 13G/A filed with the SEC on February 5, 2020 by BlackRock, Inc. According to its Schedule 13G/A, BlackRock,
Inc. reported having sole voting power over 83,693,896 shares, shared voting power over no shares, sole dispositive power over 99,903,361 shares and
shared dispositive power over no shares. The Schedule 13G/A contained information as of December 31, 2019 and may not reflect current holdings of HP’s
stock. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
(3) Based on the most recently available Schedule 13G/A filed by the Vanguard Group on February 12, 2020. According to its Schedule 13G/A, the Vanguard
Group reported having sole voting power over 2,199,101 shares, shared voting power over 460,709 shares, sole dispositive power over 127,188,851 shares,
and shared dispositive power over 2,543,293 shares. The Schedule 13G/A contained information as of December 31, 2019 and may not reflect current
holdings of HP’s stock. The address for the Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355.
(4)
Includes 146,148 shares that Mr. Bergh has the right to acquire by exercise of stock options.
(5)
Includes 159,671 shares that Ms. Citrino has the right to acquire by exercise of stock options.
(6)
Includes 894,739 shares that Mr. Weisler has the right to acquire by exercise of stock options.
(7)
Includes 58,378 shares that Mr. Cho has the right to acquire by exercise of stock options.
(8)
Includes 198,332 shares that Mr. Fieler has the right to acquire by settlement of Restricted Stock Units.
(9)
Includes 156,976 shares that Mr. Lores has the right to acquire by exercise of stock options.
(10) Includes 1,790,132 shares that current executive officers and Directors have the right to acquire by exercise of stock options and 198,332 shares that current
executive officers and Directors have the right to acquire by settlement of Restricted Stock Units.
38 I
2019 Form 10-K
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Director Independence
Our Corporate Governance Guidelines, which are available on
our website at https://investor.hp.com/governance/governance
-documents/default.aspx, provide that a substantial majority of
the Board will consist of independent Directors and that the Board
can include no more than three Directors who are not independent
Directors. The 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 NYSE director independence standards. In addition,
each member of the Audit Committee meets the heightened
independence standards required for audit committee members
under the applicable listing and SEC standards and each member
of the HRC Committee meets the heightened independence
standards required for compensation committee members under
the applicable listing standards and SEC standards.
Under our Corporate Governance Guidelines, a Director will not be
considered independent in the 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, stepparents, children, step-children,
siblings, mother and father-in-law, sons and daughters-in-law,
brothers and sisters-in-law, and anyone (other than domestic
employees) who shares the Director’s home.
In determining independence, the Board reviews whether Directors
have any material relationship with HP. An independent Director
must not have any material relationship with HP, either directly
or as a partner, stockholder or officer of an organization that has
a relationship with HP, nor any relationship that would interfere
with the exercise of independent judgment in carrying out the
responsibilities of a Director. In assessing the materiality of a
Director’s relationship to HP, the Board considers all relevant facts
and circumstances, including consideration of the issues from the
Director’s standpoint and from the perspective of the persons
or organizations with which the Director has an affiliation, and is
guided by the standards set forth above.
In making its independence determinations, the Board considered
transactions occurring since the beginning of fiscal 2017 between
HP and entities associated with the independent Directors or
their immediate family members. In addition to the transactions
described below under “Fiscal 2019 Related-Person Transactions,”
if any, the Board’s
included
consideration of the following transactions:
independence determinations
Current Directors:
• Mr. Bergh has served as President and Chief Executive Officer
and a Director of Levi Strauss & Co. since September 2011.
HP has entered into transactions for the purchase and sale
of goods and services in the ordinary course of its business
during the past three fiscal years with Levi Strauss & Co. The
amount that HP paid in each of the last three fiscal years to
Levi Strauss & Co., and the amount received in each fiscal
year by HP from Levi Strauss & Co., did not, in any of the
previous three fiscal years, exceed the greater of $1 million
or 2% of either company’s consolidated gross revenues.
2019 Form 10-K
I 39
• Mr. Clemmer has served as Chief Executive Officer and
Executive Director of NXP Semiconductors N.V. since
January 2009. HP has entered into transactions for the
purchase and sale of goods and services in the ordinary
course of its business during the past three fiscal years with
NXP Semiconductors N.V. The amount that HP paid in each
of the last three fiscal years to NXP Semiconductors N.V.,
and the amount received in each fiscal year by HP from NXP
Semiconductors N.V., did not, in any of the previous three
fiscal years, exceed the greater of $1 million or 2% of either
company’s consolidated gross revenues.
• Mr. Suresh has served as President of Nanyang Technological
University since January 2018. HP has entered
into
transactions for the purchase and sale of goods and services
in the ordinary course of its business during the past three
fiscal years with Nanyang Technological University. The
amount that HP paid in each of the last three fiscal years to
Nanyang Technological University, and the amount received
in each fiscal year by HP from Nanyang Technological
University, did not, in any of the previous three fiscal years,
exceed the greater of $1 million or 2% of either entity’s
consolidated gross revenues.
• Ms. Matsuoka served as Vice President, Healthcare at Google,
a subsidiary of Alphabet, from 2018 to October 2019. HP has
entered into transactions for the purchase and sale of goods
and services in the ordinary course of its business during
the past three fiscal years with Google and Alphabet. The
amount that HP paid in each of the last three fiscal years to
Google and Alphabet, and the amount received in each fiscal
year by HP from Google and Alphabet, did not, in any of the
previous three fiscal years, exceed the greater of $1 million
or 2% of either company’s consolidated gross revenues.
• Ms. Matsuoka has served as Division CEO at Panasonic
since October 2019. HP has entered into transactions for
the purchase and sale of goods and services in the ordinary
course of its business during the past three fiscal years
with Panasonic. The amount that HP paid in each of the last
three fiscal years to Panasonic, and the amount received in
each fiscal year by HP from Panasonic, did not, in any of the
previous three fiscal years, exceed the greater of $1 million
or 2% of either company’s consolidated gross revenues.
• Each of Mr. Banerji, Mr. Bennett, Ms. Brown-Philpot,
Dr. Burns, Ms. Citrino, Ms. Matsuoka, and Mr. Mobley, or one
of their immediate family members, is a non-employee
director, trustee or advisory board member of another
company that did business with HP at some time during the
past three fiscal years. These business relationships were as
a supplier or purchaser of goods or services in the ordinary
course of business.
As a result of this review, the Board has determined the
transactions described above and below under “Fiscal 2019
Related-Person Transactions,” if any, would not interfere with
the Director’s exercise of independent judgment in carrying out
the responsibilities of a Director. The Board has also determined
that, with the exception of Messrs. Lores and Weisler, (i) each
of HP’s remaining Directors, including Ms. Alvarez, Mr. Banerji,
Mr. Bennett, Mr. Bergh, Ms. Brown-Philpot, Dr. Burns, Ms. Citrino,
Mr. Clemmer, Ms. Matsuoka, Mr. Mobley and Mr. Suresh, and (ii)
each of the members of the Audit Committee, the HRC Committee
and the NGSR Committee, has (or had) no material relationship
with HP (either directly or as a partner, stockholder or officer of
an organization that has a relationship with HP) and is (or was)
independent within the meaning of the NYSE and our Director
independence standards. The Board has determined that Mr. Lores
is not independent because of his status as our current President
and CEO, and Mr. Weisler is not independent due to his prior
service as our President and CEO until November 1, 2019 and his
subsequent role as Senior Executive Advisor to the Company.
Related Person Transactions Policies and Procedures
Related Person Transactions Policy
• the extent of the related-person’s interest in the transaction;
We have adopted a written policy for approval of transactions
between us and our non-employee Directors, Director nominees,
executive officers, beneficial owners of more than 5% of HP’s
stock, and their respective immediate family members where
the amount involved in the transaction exceeds or is expected to
exceed $100,000 in a single calendar year.
The policy provides that the NGSR Committee reviews certain
transactions subject to the policy and decides whether to approve
or ratify those transactions. In doing so, the NGSR Committee
determines whether the transaction is in the best interests of HP.
In making that determination, the NGSR Committee considers,
among other factors it deems appropriate:
• whether the transaction is on terms generally available to an
unaffiliated third party under the same or similar circumstances;
• the benefits to HP;
• the impact or potential impact on a Director’s independence
in the event the related person is a Director, an immediate
family member of a Director or an entity in which a Director
is a partner, 10% stockholder or executive officer;
• the availability of other sources for comparable products or
services; and
• the terms of the transaction.
40 I
2019 Form 10-K
The NGSR Committee has delegated authority to the Chair of the
NGSR Committee to pre-approve or ratify transactions where the
aggregate amount involved is expected to be less than $1 million.
A summary of any new transactions pre-approved by the Chair is
provided to the full NGSR Committee for its review at each of the
NGSR Committee’s regularly scheduled meetings.
• contributions to a charity in an amount that does not exceed
the greater of $1 million or 2% of the charity’s annual receipts,
where the related person has an interest only as an employee
(other than executive officer) or non-employee Director; and
• transactions
where
all
stockholders
receive
proportional benefits.
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;
• non-employee Director compensation;
• transactions with another company with a value that does
not exceed the greater of $1 million or 2% of the other
company’s annual revenues, where the related-person
has an interest only as an employee (other than executive
officer), Director or beneficial holder of less than 10% of the
other company’s shares;
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.
Fiscal 2019 Related-Person Transactions
We enter into commercial transactions with many entities for which
our executive officers or non-employee Directors serve as non-
employee Directors and/or employees in the ordinary course of our
business. All 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.
Item 14. Principal Accounting Fees and Services.
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 2019 and
2018. All fees paid to Ernst & Young LLP were pre-approved in accordance with the pre-approval policy, as discussed below.
Audit Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
2018
IN MILLIONS
$15.9
$15.9
$2.4
$2.9
$ —
$3.3
$4
$0.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21.2
$23.4
(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 2019 consisted primarily of accounting consultations, employee benefit plan audits and other attestation services. Audit-related
fees for fiscal 2018 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 $650,000 and $1.6 million for fiscal 2019 and fiscal 2018, respectively. For fiscal 2019
and fiscal 2018, tax fees also included tax compliance fees of $2.2 million and $2.3 million, respectively.
(4) For fiscal 2018, 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.
2019 Form 10-K
I 41
Part IV
Item 15. Exhibits.
The following documents are included as exhibits to this Form 10-K/A. Those exhibits incorporated by reference are indicated as such in
the parenthetical following the description. All other exhibits are included herewith.
(31.1)#
(31.2)#
(104)#
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
The cover page from this Amendment No. 1 on Form 10-K/A, formatted in Inline XBRL.
#
Filed herewith.
42 I
2019 Form 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 27, 2020
HP INC.
By:
/s/ STEVE FIELER
Steve Fieler
Chief Financial Officer
2019 Form 10-K
I 43
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Enrique Lores, certify that:
1.
I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K of HP Inc. (this “Report”); and
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this Report.
Date: February 27, 2020
/s/ Enrique Lores
Enrique Lores
President and Chief Executive Officer
(Principal Executive Officer)
44 I
2019 Form 10-K
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Steve Fieler, certify that:
1.
I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K of HP Inc. (this “Report”); and
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this Report.
Date: February 27, 2020
/s/ Steve Fieler
Steve Fieler
Chief Financial Officer
(Principal Financial Officer)
2019 Form 10-K
I 45
This page intentionally left blank.
NOTES
NOTES
NOTES
NOTES
NOTES
USE OF NON-GAAP FINANCIAL INFORMATION
HP has included non-GAAP financial measures in this document to supplement
for the limitations on our use of these non-GAAP financial measures by relying
HP’s consolidated financial statements presented on a generally accepted
primarily on our GAAP financial statements and using non-GAAP financial
accounting principles (“GAAP”) basis. Definitions of these non-GAAP financial
measures only supplementally. We also provide reconciliations of non-GAAP
measures and reconciliations of these non-GAAP financial measures to the
financial measure to the most directly comparable GAAP measure, and we
most directly comparable GAAP financial measures are included in the press
encourage investors to review those reconciliations carefully.
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
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.
Instagram
www.instagram.com/hp
Twitter
@HP
Facebook
www.facebook.com/HP
YouTube
www.youtube.com/user/HPComputers