Next principally of cash and cash equivalents,

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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