Hp Inc 10-Q for FY2020 Q1

Hp Inc (HPQ)

10-Q 2020-03-05 For: 2020-01-31

Added on April 09, 2026

About this 10-Q

Hp Inc filed this 10-Q on March 5, 2020, covering the quarter ended January 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended January 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $14.62B; down 0.6% from $14.71B a year earlier
Net income: $678M; down 15.6% from net income of $803M a year earlier
Diluted EPS: $0.46; down 9.8% from $0.51 a year earlier

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(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
January 31, 2020
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



Delaware		94-1081436
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)
1501 Page Mill Road		94304
Palo Alto,	California	(Zip code)
(Address of principal executive offices)



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
Preferred Share Purchase Rights		New York Stock Exchange



		Page
Forward-Looking Statements		3
Part I. Financial Information
Item 1.	Financial Statements and Supplementary Data	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	53
Part II. Other Information
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56

Signature		57
Exhibit Index		58



	Page
Consolidated Condensed Statements of Earnings for the three months ended January 31, 2020 and 2019 (Unaudited)	5
Consolidated Condensed Statements of Comprehensive Income for the three months ended January 31, 2020 and 2019 (Unaudited)	6
Consolidated Condensed Balance Sheets as of January 31, 2020 and as of October 31, 2019 (Unaudited)	7
Consolidated Condensed Statements of Cash Flows for the three months ended January 31, 2020 and 2019 (Unaudited)	8
Consolidated Condensed Statements of Stockholders’ Deficit (Unaudited)	9
Notes to Consolidated Condensed Financial Statements (Unaudited)	10
Note 1: Basis of Presentation	10
Note 2: Segment Information	13
Note 3: Restructuring and Other Charges	16
Note 4: Retirement and Post-Retirement Benefit Plans	17
Note 5: Taxes on Earnings	18
Note 6: Supplementary Financial Information	19
Note 7: Fair Value	23
Note 8: Financial Instruments	26
Note 9: Borrowings	31
Note 10: Stockholders’ Deficit	32
Note 11: Net Earnings Per Share	35
Note 12: Litigation and Contingencies	35
Note 13: Guarantees, Indemnifications and Warranties	39
Note 14: Leases	41
Note 15: Subsequent Events	43



	Three months ended January 31
	2020			2019
	In millions, except per share amounts
Net revenue	$	14,618		$	14,710
Costs and expenses:
Cost of revenue	11,746			12,098
Research and development	400			344
Selling, general and administrative	1,290			1,248
Restructuring and other charges	291			55
Acquisition-related charges	—			10
Amortization of intangible assets	26			29
Total costs and expenses	13,753			13,784
Earnings from operations	865			926
Interest and other, net	13			(26		)
Earnings before taxes	878			900
Provision for taxes	(200		)	(97		)
Net earnings	$	678		$	803

Net earnings per share:
Basic	$	0.47		$	0.52
Diluted	$	0.46		$	0.51

Weighted-average shares used to compute net earnings per share:
Basic	1,454			1,556
Diluted	1,460			1,567



	As of
	January 31, 2020			October 31, 2019
	In millions, except par value
ASSETS
Current assets:
Cash and cash equivalents	$	4,205		$	4,537
Accounts receivable, net	4,857			6,031
Inventory	4,946			5,734
Other current assets	3,469			3,875
Total current assets	17,477			20,177
Property, plant and equipment, net	2,756			2,794
Goodwill	6,387			6,372
Other non-current assets	5,036			4,124
Total assets	$	31,656		$	33,467
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Notes payable and short-term borrowings	$	923		$	357
Accounts payable	12,808			14,793
Other current liabilities	10,136			10,143
Total current liabilities	23,867			25,293
Long-term debt	3,932			4,780
Other non-current liabilities	5,491			4,587
Stockholders’ deficit:
Preferred stock, $0.01 par value (300 shares authorized; none issued)	—			—
Common stock, $0.01 par value (9,600 shares authorized; 1,433 and 1,458 shares issued and outstanding at January 31, 2020 and October 31, 2019, respectively)	14			15
Additional paid-in capital	866			835
Accumulated deficit	(1,306		)	(818		)
Accumulated other comprehensive loss	(1,208		)	(1,225		)
Total stockholders’ deficit	(1,634		)	(1,193		)
Total liabilities and stockholders’ deficit	$	31,656		$	33,467



	Common Stock					Additional Paid-in Capital						Accumulated Other Comprehensive Loss			Total Stockholders' Deficit
	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, 2018	1,560,270		$	16		$	663		$	(473	)	$	(845	)	$	(639	)
Net earnings									803						803
Other comprehensive loss, net of taxes												(242		)	(242		)
Comprehensive income															561
Issuance of common stock in connection with employee stock plans and other	11,379					(91		)							(91		)
Repurchases of common stock	(32,277	)	(1		)	(13		)	(702		)				(716		)
Cash dividends ($0.32 per common share)									(496		)				(496		)
Stock-based compensation expense						107									107
Adjustment for adoption of accounting standards									(563		)				(563		)
Balance January 31, 2019	1,539,372		$	15		$	666		$	(1,431	)	$	(1,087	)	$	(1,837	)

Balance October 31, 2019	1,457,719		$	15		$	835		$	(818	)	$	(1,225	)	$	(1,193	)
Net earnings									678						678
Other comprehensive income, net of taxes												17			17
Comprehensive income															695
Issuance of common stock in connection with employee stock plans and other	9,809					(58		)							(58		)
Repurchases of common stock	(34,182	)	(1		)	(20		)	(682		)				(703		)
Cash dividends ($0.35 per common share)									(511		)				(511		)
Stock-based compensation expense						109									109
Adjustment for adoption of accounting standards (Note 1)									27						27
Balance January 31, 2020	1,433,346		$	14		$	866		$	(1,306	)	$	(1,208	)	$	(1,634	)


•	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.


•	Notebooks consists of consumer notebooks, commercial notebooks, mobile workstations and commercial mobility devices;


•	Workstations consists of desktop workstations and accessories; and


•	Other consists of consumer and commercial services as well as other Personal Systems capabilities.


•	Office Printing Solutions delivers HP’s office printers, supplies, services and solutions to SMBs and large enterprises. It also includes OEM hardware and solutions, and some Samsung-branded supplies. 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. It also includes some Samsung-branded supplies.


•	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).



	Three months ended January 31
	2020			2019
	In millions
Net earnings	$	678		$	803
Other comprehensive income (loss) before taxes:
Change in unrealized components of available-for-sale debt securities:
Unrealized gain arising during the period	1			—
	1			—
Change in unrealized components of cash flow hedges:
Unrealized gains (losses) arising during the period	60			(107		)
(Gains) losses reclassified into earnings	(59		)	(179		)
	1			(286		)
Change in unrealized components of defined benefit plans:
Amortization of actuarial loss and prior service benefit	20			11
Curtailments, settlements and other	—			(2		)
	20			9
Change in cumulative translation adjustment	6			(5		)
Other comprehensive income (loss) before taxes	28			(282		)
(Provision for) benefit from taxes	(11		)	40
Other comprehensive income (loss), net of taxes	17			(242		)
Comprehensive income	$	695		$	561



	Three months ended January 31
	2020			2019
	In millions
Cash flows from operating activities:
Net earnings	$	678		$	803
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	198			168
Stock-based compensation expense	109			107
Restructuring and other charges	291			55
Deferred taxes on earnings	117			103
Other, net	54			(5		)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	1,167			211
Inventory	761			191
Accounts payable	(1,919		)	(184		)
Net investment in leases	(34		)	—
Taxes on earnings	(27		)	11
Restructuring and other	(109		)	(46		)
Other assets and liabilities	(1		)	(552		)
Net cash provided by operating activities	1,285			862
Cash flows from investing activities:
Investment in property, plant and equipment	(198		)	(189		)
Purchases of available-for-sale securities and other investments	(311		)	(69		)
Maturities and sales of available-for-sale securities and other investments	11			344
Collateral posted for derivative instruments	—			(30		)
Collateral returned for derivative instruments	—			30
Payment made in connection with business acquisitions, net of cash acquired	—			(404		)
Net cash used in investing activities	(498		)	(318		)
Cash flows from financing activities:
Payments of short-term borrowings with original maturities less than 90 days, net	—			(855		)
Proceeds from short-term borrowings with original maturities greater than 90 days	2			—
Proceeds from debt, net of issuance costs	9			40
Payment of debt	(67		)	(476		)
Stock-based award activities	(116		)	(83		)
Repurchase of common stock	(691		)	(720		)
Cash dividends paid	(256		)	(249		)
Net cash used in financing activities	(1,119		)	(2,343		)
Decrease in cash and cash equivalents	(332		)	(1,799		)


•	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.


•	Supplies comprises a set of highly innovative consumable products, ranging from ink and laser cartridges to media, graphics supplies and 3D printing & digital manufacturing supplies, for recurring use in consumer and commercial hardware.


•	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



	Fiscal 2020 Plan
	Severance and EER					Non-labor			Other prior-year Plans ⁽¹⁾			Total
	In millions
Accrued balance as of October 31, 2019	$	76				$	—		$	66		$	142
Charges	256					1			—			257
Cash payments	(82		)			(1		)	(25		)	(108		)
Non-cash and other adjustments	(48		)	⁽²	⁾	—			(1		)	(49		)
Accrued balance as of January 31, 2020	$	202				$	—		$	40		$	242
Total costs incurred to date as of January 31, 2020	$	338				$	1		$	1,816		$	2,155

Reflected in Consolidated Condensed Balance Sheets
Other current liabilities	$	202				$	—		$	39		$	241
Other non-current liabilities	$	—				$	—		$	1		$	1

Accrued balance as of October 31, 2018	$	—				$	—		$	59		$	59
Charges	—					—			53			53
Cash payments	—					—			(44		)	(44		)
Non-cash and other adjustments	—					—			(3		)	(3		)
Accrued balance as of January 31, 2019	$	—				$	—		$	65		$	65


⁽¹⁾	Primarily includes the fiscal 2017 plan along with other legacy plans, all of which are substantially complete. HP does not expect any further material activity associated with these plans.


⁽²⁾	Includes reclassification of liability related to the Enhanced Early Retirement (“EER”) plan of $44 million for certain healthcare and medical savings account benefits to pension and post-retirement plans. See Note 4 “Retirement and Post -Retirement Benefit Plans” for further information.



	Three months ended January 31
	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						Post-Retirement Benefit Plans
	2020			2019			2020			2019			2020			2019
	In millions
Service cost	$	—		$	—		$	16		$	14		$	—		$	—
Interest cost	103			123			5			6			3			4
Expected return on plan assets	(175		)	(145		)	(11		)	(10		)	(6		)	(5		)
Amortization and deferrals:
Actuarial loss (gain)	16			15			10			8			(2		)	(8		)
Prior service benefit	—			—			(1		)	(1		)	(3		)	(3		)
Net periodic (credit) benefit cost	(56		)	(7		)	19			17			(8		)	(12		)
Special termination benefit cost	—			—			—			—			44			—
Total periodic (credit) benefit cost	$	(56	)	$	(7	)	$	19		$	17		$	36		$	(12	)



	Three months ended January 31, 2020
	In millions
Balance at beginning of period	$	111
Provision for doubtful accounts	(2		)
Deductions, net of recoveries	(11		)
Balance at end of period	$	98


⁽¹⁾	Amounts outstanding from third parties reported in Accounts Receivable in the Consolidated Condensed Balance Sheets.


⁽¹⁾	See Note 8, “Financial Instruments” for detailed information.


⁽¹⁾	See Note 1, “Basis of Presentation” and Note 14, “Leases” for detailed information.


⁽²⁾	Includes marketable equity securities and mutual funds classified as available-for-sale investments of $60 million and $56 million as of January 31, 2020 and October 31, 2019, respectively. See Note 8, “Financial Instruments” for detailed information.


•	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.



	As of January 31, 2020								As of October 31, 2019
	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	$	—	$	1,001	$	—	$	1,001	$	—	$	1,283	$	—	$	1,283
Government debt⁽¹⁾	2,050		112		—		2,162		2,422		—		—		2,422
Available-for-Sale Investments:
Corporate debt	—		242		—		242		—		—		—		—
Financial institution instruments	—		31		—		31		—		—		—		—
Government debt⁽¹⁾	—		15		—		15		—		—		—		—
Marketable equity securities and Mutual funds	10		50		—		60		6		50		—		56
Derivative Instruments:
Interest rate contracts	—		4		—		4		—		4		—		4
Foreign currency contracts	—		374		—		374		—		381		—		381
Other derivatives	—		13		—		13		—		7		—		7
Total Assets	$	2,060	$	1,842	$	—	$	3,902	$	2,428	$	1,725	$	—	$	4,153
Liabilities:
Derivative Instruments:
Foreign currency contracts	—		149		—		149		—		165		—		165
Other derivatives	—		2		—		2		—		1		—		1
Total Liabilities	$	—	$	151	$	—	$	151	$	—	$	166	$	—	$	166



	As of January 31, 2020								As of October 31, 2019
	Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value		Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	In millions
Cash Equivalents:
Corporate debt	$	1,001	$	—	$	—	$	1,001	$	1,283	$	—	$	—	$	1,283
Government debt	2,162		—		—		2,162		2,422		—		—		2,422
Total cash equivalents	3,163		—		—		3,163		3,705		—		—		3,705
Available-for-Sale Investments:
Corporate debt ⁽¹⁾	242		—		—		242		—		—		—		—
Financial institution instruments ⁽¹⁾	31		—		—		31		—		—		—		—
Government debt ⁽¹⁾	15		—		—		15		—		—		—		—
Marketable equity securities and Mutual funds	40		20		—		60		40		16		—		56
Total available-for-sale investments	328		20		—		348		40		16		—		56
Total cash equivalents and available-for-sale investments	$	3,491	$	20	$	—	$	3,511	$	3,745	$	16	$	—	$	3,761


⁽¹⁾	HP classifies its marketable debt securities as available-for-sale investments within Other current assets on the Consolidated Condensed Balance Sheets, including those with maturity dates beyond one year, based on their highly liquid nature and availability for use in current operations.



	As of January 31, 2020
	Amortized Cost		Fair Value
	In millions
Due in one year or less	$	288	$	288



	As of January 31, 2020										As of October 31, 2019
	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	$	—	$	—	$	750	$	—	$	4	$	—	$	—

Cash flow hedges:
Foreign currency contracts	15,980		258		99		104		26		15,639		260		111		123		28
Total derivatives designated as hedging instruments	16,730		258		103		104		26		16,389		260		115		123		28
Derivatives not designated as hedging instruments
Foreign currency contracts	5,406		17		—		19		—		7,146		10		—		14		—
Other derivatives	151		13		—		2		—		134		7		—		1		—
Total derivatives not designated as hedging instruments	5,557		30		—		21		—		7,280		17		—		15		—
Total derivatives	$	22,287	$	288	$	103	$	125	$	26	$	23,669	$	277	$	115	$	138	$	28



	In the Consolidated Condensed Balance Sheets
							Gross Amounts Not Offset
	Gross Amount Recognized (i)		Gross Amount Offset (ii)		Net Amount Presented (iii) = (i)–(ii)		Derivatives (iv)		Financial Collateral (v)			Net Amount (vi) = (iii)–(iv)–(v)
	In millions
As of January 31, 2020
Derivative assets	$	391	$	—	$	391	$	104	$	247	⁽¹⁾	$	40
Derivative liabilities	$	151	$	—	$	151	$	104	$	42	⁽²⁾	$	5
As of October 31, 2019
Derivative assets	$	392	$	—	$	392	$	113	$	259	⁽¹⁾	$	20
Derivative liabilities	$	166	$	—	$	166	$	113	$	43	⁽²⁾	$	10