Next primarily in North America and Europe,

Next we discuss the counterpart risk of HPQ. The company’s
10K shows that instruments that potentially subject HPQ to significant
concentrations of credit risk consist principally of cash and cash equivalents,
investments, receivables from trade customers and contract manufacturers and
derivatives. HPQ maintains cash and cash equivalents, investments, derivatives
and certain other financial instruments with various financial institutions.
The company’s financial institutions are located in different geographic
regions, and HPQ’s policy is designed to limit exposure from any particular
institution. The company’s 10K shows that, due to technology, availability,
price, quality or other considerations HPQ obtains significant number of
components from single source suppliers. The factors that could adversely affect
HPQ’s net revenue and gross margins include: a) the loss of a single source
supplier, b) deterioration of the company’s relationship with a single source
supplier, or c) any unilateral modification to the contractual terms under
which HP is supplied components by a single source supplier. HPQ sells a
significant portion of its products through third-party distributors and
resellers and, as a result, the company maintains individually significant
receivable balances with these parties. Furthermore if the financial condition
or operations of any of HPQ’s distributors’ or resellers’ or single source
suppliers’ aggregated business deteriorates substantially, the company’s
operating results could be adversely affected.

Now we see the measures HPQ has in place to offset its
counterparty risks. The company’s 10K shows that HPQ performs periodic
evaluations of its credit standing with financial institutions. The company
also utilizes derivative contracts to protect against interest rate exposures.
HPQ’s ten largest distributor and reseller receivable balances, which were
concentrated primarily in North America and Europe, collectively represented
approximately 34% and 42% of gross accounts receivable as of October, 2016 and
2015, respectively. The 10K confirms that none of HPQ’s customer accounts
totals more than 10% of gross accounts receivable in the years 2016 or 2015.
The company performs ongoing credit evaluations of its financial condition of
its third-party distributors, resellers and other customers and in certain
circumstances, may also require collateral, such as letters of credit and bank
guarantees. The company’s credit risk associated with receivables is mitigated,
by the amount HPQ owes to its outsourced manufacturers, since the company has
the legal right to offset its payables to the outsourced manufacturers against
these receivables.

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