Next we discuss counterpart risk facing HPQ. The company’s 10K indicated, instruments that make HPQ vulnerable to credit risk are cash, investments, receivables from trade customers and contract manufacturers and derivatives which HPQ maintains 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 thirty-four percent and forty-two percent of gross accounts receivable as of October, 2016 and 2015, respectively. The 10K confirms that none of HPQ’s customer accounts totals more than ten percent 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 organization has the legal right to offset its payables to the outsourced manufacturers against these receivables.


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