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Table of Contents
Part I. Financial Information

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
FORM 10-Q
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
July 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
_________________________________________
HP INC.
(Exact name of registrant as specified in its charter)
Delaware94-1081436
(State or other jurisdiction of
incorporation or organization)
(I.R.S. employer
identification no.)
1501 Page Mill Road94304
Palo Alto,California(Zip code)
(Address of principal executive offices)
(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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareHPQNew York Stock Exchange
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 (the “Exchange Act”) 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 (§232.405 of this chapter) 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 Accelerated filer
Non-accelerated filer  Smaller reporting company
         Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
The number of shares of HP Inc. common stock outstanding as of July 31, 2020 was 1,373,496,735 shares.




HP INC. AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period ended July 31, 2020
Table of Contents
  Page
 
 
In this report on Form 10-Q, for all periods presented, “we”, “us”, “our”, “company”, the “Company”, “HP” and “HP Inc.” refer to HP Inc. (formerly Hewlett-Packard Company) and its consolidated subsidiaries.

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Forward-Looking Statements
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I, contains forward-looking statements based on current expectations and assumptions that involve risks and uncertainties. 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 statements regarding the potential impact of the COVID-19 pandemic and the actions by governments, businesses and individuals in response to the situation; 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, planned structural cost reductions and productivity initiatives; 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 or other financial impacts; 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. Forward-looking statements can also generally be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will,” “would,” “could,” “can,” “may,” and similar terms. Risks, uncertainties and assumptions include factors relating to the effects of the COVID-19 pandemic and the actions by governments, businesses and individuals in response to the situation, the effects of which may give rise to or amplify the risks associated with many of these factors listed here; HP’s ability to execute on its strategic plan, including the recently announced initiatives, business model changes and transformation; execution of planned structural cost reductions and productivity initiatives; HP’s ability to complete any contemplated share repurchases, other capital return programs or other strategic transactions; 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 and 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; disruptions in operations from system security risks, data protection breaches, cyberattacks, extreme weather conditions, medical epidemics or pandemics such as the COVID-19 pandemic, and other natural or manmade disasters or catastrophic events; the impact of changes in tax laws; potential liabilities and costs from pending or potential 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 II of this report as well as in Item 1A “Risk Factors” of Part I in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019 and that are otherwise described or updated from time to time in HP’s other filings with the Securities and Exchange Commission (the “SEC”). The forward-looking statements in this report are made as of the date of this filing and HP assumes no obligation and does not intend to update these forward-looking statements.
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Part I. Financial Information

ITEM 1. Financial Statements and Supplementary Data.
Index
 Page

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HP INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
 Three months ended July 31Nine months ended July 31
 2020 201920202019
 In millions, except per share amounts
Net revenue$14,294  $14,603 $41,381 $43,349 
Costs and expenses:  
Cost of revenue11,901  11,69833,62335,103 
Research and development359  413 1,097 1,110 
Selling, general and administrative1,156  1,3763,6623,963 
Restructuring and other charges59 17 431 141 
Acquisition-related charges (credits)11  (9)14 12 
Amortization of intangible assets29  29 84 87 
Total costs and expenses13,515  13,524 38,911 40,416 
Earnings from operations779  1,0792,470 2,933 
Interest and other, net(28)(831)(15)(902)
Earnings before taxes751  2482,455 2,031 
(Provision for) benefit from taxes(17)931 (279)733 
Net earnings$734  $1,179 $2,176 $2,764 
Net earnings per share:   
Basic$0.52  $0.79 $1.52 $1.81 
Diluted$0.52  $0.78 $1.51 $1.80 
Weighted-average shares used to compute net earnings per share:   
Basic1,417  1,499 1,435 1,528 
Diluted1,423  1,508 1,441 1,537 
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

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HP INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Comprehensive Income
(Unaudited)
 Three months ended July 31Nine months ended July 31
 2020201920202019
 In millions
Net earnings$734 $1,179 $2,176 $2,764 
Other comprehensive (loss) income before taxes:    
Change in unrealized components of available-for-sale debt securities:    
Unrealized gains arising during the period2  1  
Losses reclassified into earnings   3 
2  1 3 
Change in unrealized components of cash flow hedges:    
Unrealized (losses) gains arising during the period(563)180 (272)271 
Gains reclassified into earnings(130)(86)(242)(259)
(693)94 (514)12 
Change in unrealized components of defined benefit plans:    
Losses arising during the period(5)(16)(6)(20)
Amortization of actuarial loss and prior service benefit20 11 61 34 
Curtailments, settlements and other2 41 3 40 
17 36 58 54 
Change in cumulative translation adjustment15 (30)4 (22)
Other comprehensive (loss) income before taxes(659)100 (451)47 
Benefit from (provision for) taxes104 (63)71 (65)
Other comprehensive (loss) income, net of taxes(555)37 (380)(18)
Comprehensive income$179 $1,216 $1,796 $2,746 
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
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HP INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited)
 As of
 July 31, 2020October 31, 2019
 
In millions, except par value
ASSETS  
Current assets:  
Cash and cash equivalents$4,679 $4,537 
Accounts receivable, net5,269 6,031 
Inventory5,896 5,734 
Other current assets4,425 3,875 
Total current assets20,269 20,177 
Property, plant and equipment, net2,658 2,794 
Goodwill6,386 6,372 
Other non-current assets4,931 4,124 
Total assets$34,244 $33,467 
LIABILITIES AND STOCKHOLDERS’ DEFICIT  
Current liabilities:  
Notes payable and short-term borrowings$276 $357 
Accounts payable14,276 14,793 
Other current liabilities10,474 10,143 
Total current liabilities25,026 25,293 
Long-term debt5,981 4,780 
Other non-current liabilities5,223 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; 1,373 and 1,458 shares issued and outstanding at July 31, 2020 and October 31, 2019, respectively)
14 15 
Additional paid-in capital958 835 
Accumulated deficit(1,353)(818)
Accumulated other comprehensive loss(1,605)(1,225)
Total stockholders’ deficit(1,986)(1,193)
Total liabilities and stockholders’ deficit$34,244 $33,467 
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
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HP INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
 Nine months ended July 31
 20202019
In millions
Cash flows from operating activities:  
Net earnings$2,176 $2,764 
Adjustments to reconcile net earnings to net cash provided by operating activities:  
Depreciation and amortization593 539 
Stock-based compensation expense221 233 
Restructuring and other charges431 141 
Deferred taxes on earnings146 325 
Other, net281 176 
Changes in operating assets and liabilities, net of acquisitions:  
Accounts receivable699 (22)
Inventory(247)(24)
Accounts payable(433)(138)
Net investment in leases(112) 
Taxes on earnings(238)(1,123)
Restructuring and other(412)(122)
Other assets and liabilities(663)1,317 
Net cash provided by operating activities2,442 4,066 
Cash flows from investing activities:  
Investment in property, plant and equipment(464)(475)
Proceeds from sale of property, plant and equipment3  
Purchases of available-for-sale securities and other investments(533)(80)
Maturities and sales of available-for-sale securities and other investments303 771 
Collateral posted for derivative instruments(240)(32)
Collateral returned for derivative instruments  32 
Payment made in connection with business acquisitions, net of cash acquired (427)
Net cash used in investing activities(931)(211)
Cash flows from financing activities:  
Payments of short-term borrowings with original maturities less than 90 days, net (856)
Proceeds from short-term borrowings with original maturities greater than 90 days19  
Proceeds from debt, net of issuance costs3,051 94 
Payment of debt(1,788)(604)
Stock-based award activities and others(125)(58)
Repurchase of common stock(1,767)(1,944)
Cash dividends paid(759)(734)
Net cash used in financing activities(1,369)(4,102)
Increase (decrease) in cash and cash equivalents142 (247)
Cash and cash equivalents at beginning of period4,537 5,166 
Cash and cash equivalents at end of period$4,679 $4,919 
Supplemental schedule of non-cash activities:  
Purchase of assets under finance leases$19 $253 
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
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HP INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Stockholders’ Deficit
(Unaudited)
 Common StockAdditional
Paid-in Capital
 Accumulated
Other
Comprehensive Loss
 Total Stockholders’ Deficit
Number of SharesPar ValueAccumulated Deficit
 In millions, except number of shares in thousands
Balance April 30, 20191,506,292 $15 $723 $(1,325)$(900)$(1,487)
Net earnings1,179 1,179 
Other comprehensive loss, net of taxes37 37 
Comprehensive income1,216 
Issuance of common stock in connection with employee stock plans and other1,683 17 17 
Repurchases of common stock(26,061)(14)(513)(527)
Cash dividends ($0.32 per common share)
(478)(478)
Stock-based compensation expense59 59 
Adjustment for adoption of accounting standards69 69 
Balance July 31, 20191,481,914 $15 $785 $(1,068)$(863)$(1,131)
Balance April 30, 20201,429,957 $14 $926 $(633)$(1,050)$(743)
Net earnings734 734 
Other comprehensive loss, net of taxes(555)(555)
Comprehensive income179 
Issuance of common stock in connection with employee stock plans and other2,379 23 23 
Repurchases of common stock(58,839)(40)(961)(1,001)
Cash dividends ($0.35 per common share)
(493)(493)
Stock-based compensation expense49 49 
Balance July 31, 20201,373,497 $14 $958 $(1,353)$(1,605)$(1,986)
Common StockAdditional
Paid-in Capital
 Accumulated
Other
Comprehensive Loss
 Total Stockholders’ Deficit
Number of SharesPar ValueAccumulated Deficit
In millions, except number of shares in thousands
Balance October 31, 20181,560,270 $16 $663 $(473)$(845)$(639)
Net earnings2,764 2,764 
Other comprehensive income, net of taxes(18)(18)
Comprehensive income2,746 
Issuance of common stock in connection with employee stock plans and other13,827 (69)(69)
Repurchases of common stock(92,183)(1)(41)(1,894)(1,936)
Cash dividends ($0.64 per common share)
(971)(971)
Stock-based compensation expense232 232 
Adjustment for adoption of accounting standards(494)(494)
Balance July 31, 20191,481,914 $15 $785 $(1,068)$(863)$(1,131)
Balance October 31, 20191,457,719 $15 $835 $(818)$(1,225)$(1,193)
Net earnings2,176 2,176 
Other comprehensive income, net of taxes(380)(380)
Comprehensive income1,796 
Issuance of common stock in connection with employee stock plans and other13,143 (35)(35)
Repurchases of common stock(97,365)(1)(63)(1,737)(1,801)
Cash dividends ($0.70 per common share)
(1,001)(1,001)
Stock-based compensation expense221 221 
Adjustment for adoption of accounting standards (Note 1)
27 27 
Balance July 31, 20201,373,497 $14 $958 $(1,353)$(1,605)$(1,986)
The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.
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HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)

Note 1: Basis of Presentation
Basis of Presentation
The accompanying Consolidated Condensed Financial Statements of HP and its wholly-owned subsidiaries are prepared in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”). The interim financial information is unaudited but reflects all normal adjustments that are necessary to provide a fair statement of results for the interim periods presented. This interim information should be read in conjunction with the Consolidated Financial Statements for the fiscal year ended October 31, 2019 in the Annual Report on Form 10-K, filed on December 12, 2019. The Consolidated Condensed Balance Sheet for October 31, 2019 was derived from audited financial statements.
Principles of Consolidation
The Consolidated Condensed 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.
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 Condensed Financial Statements and accompanying notes. Actual results may differ materially from those estimates. As of July 31, 2020, the extent to which the COVID-19 pandemic will impact our business going forward depends on numerous dynamic factors which we cannot reliably predict. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As the events continue to evolve with respect to the pandemic, our estimates may materially change in future periods.
Separation Transaction
On November 1, 2015, Hewlett-Packard Company completed the separation of Hewlett Packard Enterprise Company (“Hewlett Packard Enterprise”), Hewlett-Packard Company’s former enterprise technology infrastructure, software, services and financing businesses (the “Separation”). In connection with the Separation, HP and Hewlett Packard Enterprise entered into a separation and distribution agreement, an employee matters agreement and various other agreements which remain enforceable and provide a framework for the continuing relationships between the parties. For more information on the impacts of these agreements, see Note 6, “Supplementary Financial Information”, Note 12, “Litigation and Contingencies” and Note 13, “Guarantees, Indemnifications and Warranties”.
Recently Adopted Accounting Pronouncements
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 adopted this guidance in the first quarter of fiscal year 2020. The implementation of this guidance did not have a material impact on its Consolidated Condensed Financial Statements.
In February 2016, the FASB issued amended guidance on the accounting for leasing transactions. The primary objective of this update is to increase transparency and comparability among organizations by requiring lessees to recognize a lease liability for the obligation to make lease payments and a right-of-use (“ROU”) asset for the right to use the underlying asset over the lease term. The guidance also results in some changes to lessor accounting and requires additional disclosures about all leasing arrangements.
HP adopted the standard (the “new lease standard”) as of November 1, 2019 using a modified retrospective approach, with the cumulative effect adjustment to the opening balance of accumulated deficit as of the adoption date. HP elected to apply the practical expedient using the transition option whereby prior comparative periods were not retrospectively adjusted in the Consolidated Condensed Financial Statements. HP also elected the package of practical expedients, which does not require reassessment of initial direct costs, classification of a lease, and definition of a lease. The Company has elected not to record leases with an initial term of 12 months or less on the Consolidated Condensed Balance Sheets. Lease expense on such leases is recognized on a straight-line basis over the lease term. HP has also elected the lessee practical expedient to combine lease and non-lease components for certain asset classes.
The adoption of the new lease standard resulted in the recognition of $1.2 billion in operating lease liabilities and $1.2 billion of related ROU assets on the Consolidated Condensed Balance Sheets. The net impact of adoption to accumulated deficit as on November 1, 2019 is not material. As of November 1, 2019, there were no material finance leases for which HP was a lessee.
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HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 1: Basis of Presentation (Continued)
The new lease standard also made some changes to lessor accounting, including alignment with the new revenue recognition standard. HP now records revenue upfront on certain aspects of its as-a-service offerings and reflects financing of these offerings as cash flows from financing activities on the Consolidated Condensed Statements of Cash Flows. These changes did not have a material impact on the Consolidated Condensed Financial Statements.
Refer to Note 14, “Leases”, for additional disclosures related to leases.
Recently Issued Accounting Pronouncements Not Yet Adopted
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 will adopt the guidance in the first quarter of fiscal year 2021 using a modified retrospective approach. HP has established a cross-functional implementation team to evaluate the impact of the new standard on the Consolidated Condensed Financial Statements.
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. 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.
2. 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 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 the most likely amount method.
HP reduces 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. 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 Standalone Selling Price (“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 satisfied - Revenue is recognized when, or as, a
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.
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HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 1: Basis of Presentation (Continued)
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. HP records revenue from the sale of equipment under sales-type leases as revenue at the commencement of the lease.
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 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 6, “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.
Leases
At the inception of a contract, HP assesses whether the contract is, or contains, a lease. The assessment is based on (1) whether the contract involves the use of a distinct identified asset, (2) whether HP obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether HP has the right to direct the use of the asset.
All significant lease arrangements are recognized at lease commencement. Leases with a lease term of 12 months or less at inception are not recorded on the Consolidated Condensed Balance Sheets and are expensed on a straight-line basis over the lease term in the Consolidated Condensed Statement of Earnings. HP determines the lease term by assuming the exercise of renewal options that are reasonably certain. As most of the leases do not provide an implicit interest rate, HP uses the unsecured borrowing rate and risk-adjusts that rate to approximate a collateralized rate at the commencement date to determine the present value of future payments that are reasonably certain.


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HP INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)

Note 2. Segment Information
HP is a leading global provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions and services. HP sells to individual consumers, small- and medium-sized businesses (“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 personal computers (“PCs”), workstations, thin clients, commercial mobility devices, retail point-of-sale (“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. 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, distance learning, 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 notebooks, mobile workstations and commercial mobility devices;
Desktops includes consumer desktops, commercial desktops, thin clients, and retail POS systems;
•