filings.toolsItem 8. Financial Statements and Supplementary Data.
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Item 8. Financial Statements and Supplementary Data.
Table of Contents
Unless otherwise stated or the context otherwise indicates, all references in this Annual Report on Form 10-K to “HPE,” or “the Company” mean Hewlett Packard Enterprise Company and its consolidated subsidiaries.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Hewlett Packard Enterprise Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Hewlett Packard Enterprise Company and subsidiaries (“the Company”) as of October 31, 2024 and 2023, the related consolidated statements of earnings, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended October 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of October 31, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated December 19, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Valuation of goodwill | ||||||||
| Description of the matter | At October 31, 2024, the Company’s goodwill was $18 billion, of which $4.8 billion related to the Hybrid Cloud reporting unit. As discussed in Note 11 to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level and more frequently when warranted based on indicators of impairment. Auditing management’s goodwill impairment test for the Hybrid Cloud reporting unit was complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting unit. In particular, the fair value estimates of the Hybrid Cloud reporting unit was sensitive to significant assumptions, such as the terminal revenue growth rate and operating margin, which are affected by expectations about future market or economic conditions. | |||||||
| How we addressed the matter in our audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over the significant assumptions described above. To test the estimated fair value of the Company’s Hybrid Cloud reporting unit, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to current industry and economic trends and evaluated whether changes to the Company’s business model, product mix and other factors would affect the significant assumptions. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. In addition, we tested management’s reconciliation of the fair value of all the reporting units to the market capitalization of the Company. We involved our valuation professionals to evaluate the application of valuation methodologies in the Company’s annual impairment test. | |||||||
| Estimation of variable consideration | ||||||||
| Description of the matter | As described in Note 1 to the consolidated financial statements, the Company recognizes revenue for sales to its customers after deducting management’s estimates of variable consideration which may include various rebates, volume-based discounts, price protection, and other incentive programs that are offered to customers, partners, and distributors. Estimated variable consideration is presented within other accrued liabilities on the consolidated balance sheet and totaled $1.0 billion at October 31, 2024. Auditing the estimates of variable consideration associated with rebates, specifically within the Intelligent Edge segment, was complex and judgmental due to the level of uncertainty involved in management’s estimate of expected usage of these programs. | |||||||
| How we addressed the matter in our audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for estimating rebates, including controls over the significant assumptions described above. To test the Company’s determination of variable consideration we performed audit procedures that included, among others, evaluating the methodologies, testing the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by the Company in its analyses. We compared the significant assumptions to historical experience of the Company to develop an expectation of the rebates associated with product remaining in the distribution channel at October 31, 2024, which we compared to management’s recorded amount. In addition, we inspected the underlying agreements and compared the incentive rates used in the Company’s analyses with contractual rates. We assessed the historical accuracy of management’s estimates by comparing previous estimates of rebate liabilities to the amount of actual payments in subsequent periods. | |||||||
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2014.
Houston, Texas
December 19, 2024
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Hewlett Packard Enterprise Company
Opinion on Internal Control Over Financial Reporting
We have audited Hewlett Packard Enterprise Company and subsidiaries’ internal control over financial reporting as of October 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Hewlett Packard Enterprise Company and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of October 31, 2024, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of October 31, 2024 and 2023, the related consolidated statements of earnings, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended October 31, 2024, and the related notes and our report dated December 19, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Houston, Texas
December 19, 2024
Management's Report on Internal Control Over Financial Reporting
Hewlett Packard Enterprise's management is responsible for establishing and maintaining adequate internal control over financial reporting for Hewlett Packard Enterprise. Hewlett Packard Enterprise's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Hewlett Packard Enterprise's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Hewlett Packard Enterprise; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Hewlett Packard Enterprise are being made only in accordance with authorizations of management and directors of Hewlett Packard Enterprise; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Hewlett Packard Enterprise's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Hewlett Packard Enterprise's management assessed the effectiveness of Hewlett Packard Enterprise's internal control over financial reporting as of October 31, 2024, utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on the assessment by Hewlett Packard Enterprise's management, we determined that Hewlett Packard Enterprise's internal control over financial reporting was effective as of October 31, 2024. The effectiveness of Hewlett Packard Enterprise's internal control over financial reporting as of October 31, 2024 has been audited by Ernst & Young LLP, Hewlett Packard Enterprise's independent registered public accounting firm, as stated in their report on the preceding pages.
| /s/ Antonio F. Neri | /s/ Marie Myers | |||||||
| Antonio F. Neri President and Chief Executive Officer (Principal Executive Officer) | Marie Myers Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |||||||
| December 19, 2024 | December 19, 2024 |
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions, except per share amounts | |||||||||||||||||
| Net Revenue: | |||||||||||||||||
| Products | $ | 18,587 | $ | 18,100 | $ | 17,794 | |||||||||||
| Services | 10,872 | 10,488 | 10,219 | ||||||||||||||
| Financing income | 668 | 547 | 483 | ||||||||||||||
| Total net revenue | 30,127 | 29,135 | 28,496 | ||||||||||||||
| Costs and Expenses: | |||||||||||||||||
| Cost of products (exclusive of amortization shown separately below) | 12,961 | 11,958 | 12,463 | ||||||||||||||
| Cost of services (exclusive of amortization shown separately below) | 6,793 | 6,555 | 6,217 | ||||||||||||||
| Financing cost | 495 | 383 | 310 | ||||||||||||||
| Research and development | 2,246 | 2,349 | 2,045 | ||||||||||||||
| Selling, general and administrative | 4,871 | 5,160 | 4,941 | ||||||||||||||
| Amortization of intangible assets | 267 | 288 | 293 | ||||||||||||||
| Impairment of goodwill | — | — | 905 | ||||||||||||||
| Transformation costs | 93 | 283 | 473 | ||||||||||||||
| Disaster charges | 7 | 1 | 48 | ||||||||||||||
| Acquisition, disposition and other related charges | 204 | 69 | 19 | ||||||||||||||
| Total costs and expenses | 27,937 | 27,046 | 27,714 | ||||||||||||||
| Earnings from operations | 2,190 | 2,089 | 782 | ||||||||||||||
| Interest and other, net | (117) | (104) | (121) | ||||||||||||||
| Gain on sale of equity interest | 733 | — | — | ||||||||||||||
| Earnings from equity interests | 147 | 245 | 215 | ||||||||||||||
| Earnings before provision for taxes | 2,953 | 2,230 | 876 | ||||||||||||||
| Provision for taxes | (374) | (205) | (8) | ||||||||||||||
| Net earnings attributable to HPE | 2,579 | 2,025 | 868 | ||||||||||||||
| Preferred stock dividends | (25) | — | — | ||||||||||||||
| Net earnings attributable to common stockholders | $ | 2,554 | $ | 2,025 | $ | 868 | |||||||||||
| Net Earnings Per Share Attributable to Common Stockholders: | |||||||||||||||||
| Basic | $ | 1.95 | $ | 1.56 | $ | 0.67 | |||||||||||
| Diluted | $ | 1.93 | $ | 1.54 | $ | 0.66 | |||||||||||
| Weighted-average Shares Used to Compute Net Earnings Per Share: | |||||||||||||||||
| Basic | 1,309 | 1,299 | 1,303 | ||||||||||||||
| Diluted | 1,337 | 1,316 | 1,322 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Net earnings attributable to HPE | $ | 2,579 | $ | 2,025 | $ | 868 | |||||||||||
| Other Comprehensive Income (Loss) Before Taxes | |||||||||||||||||
| Change in Net Unrealized Gains (Losses) on Available-for-sale Securities: | |||||||||||||||||
| Net unrealized gains (losses) arising during the period | 8 | 1 | (16) | ||||||||||||||
| 8 | 1 | (16) | |||||||||||||||
| Change in Net Unrealized (Losses) Gains on Cash Flow Hedges: | |||||||||||||||||
| Net unrealized (losses) gains arising during the period | (115) | (177) | 1,025 | ||||||||||||||
| Net losses (gains) reclassified into earnings | 16 | 116 | (978) | ||||||||||||||
| (99) | (61) | 47 | |||||||||||||||
| Change in Unrealized Components of Defined Benefit Plans: | |||||||||||||||||
| Net unrealized gains (losses) arising during the period | 34 | (99) | (315) | ||||||||||||||
| Amortization of net actuarial loss and prior service benefit | 136 | 144 | 155 | ||||||||||||||
| Curtailments, settlements and other | 2 | 3 | 5 | ||||||||||||||
| 172 | 48 | (155) | |||||||||||||||
| Change in Cumulative Translation Adjustment: | |||||||||||||||||
| Net losses arising during the period | (23) | (32) | (146) | ||||||||||||||
| Net loss reclassified into earnings | 32 | — | — | ||||||||||||||
| 9 | (32) | (146) | |||||||||||||||
| Other Comprehensive Income (Loss) Before Taxes | 90 | (44) | (270) | ||||||||||||||
| Benefit for Taxes | 17 | 58 | 87 | ||||||||||||||
| Other Comprehensive Income (Loss), Net of Taxes | 107 | 14 | (183) | ||||||||||||||
| Comprehensive Income | $ | 2,686 | $ | 2,039 | $ | 685 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
| As of October 31 | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions, except par value and shares | |||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 14,846 | $ | 4,270 | |||||||
| Accounts receivable, net of allowances | 3,550 | 3,481 | |||||||||
| Financing receivables, net of allowances | 3,870 | 3,543 | |||||||||
| Inventory | 7,810 | 4,607 | |||||||||
| Assets held for sale | 1 | — | |||||||||
| Other current assets | 3,380 | 3,047 | |||||||||
| Total current assets | 33,457 | 18,948 | |||||||||
| Property, plant and equipment, net | 5,664 | 5,989 | |||||||||
| Long-term financing receivables and other assets | 12,616 | 11,377 | |||||||||
| Investments in equity interests | 929 | 2,197 | |||||||||
| Goodwill | 18,086 | 17,988 | |||||||||
| Intangible assets, net | 510 | 654 | |||||||||
| Total assets | $ | 71,262 | $ | 57,153 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Notes payable and short-term borrowings | $ | 4,742 | $ | 4,868 | |||||||
| Accounts payable | 11,064 | 7,136 | |||||||||
| Employee compensation and benefits | 1,356 | 1,724 | |||||||||
| Taxes on earnings | 284 | 155 | |||||||||
| Deferred revenue | 3,904 | 3,658 | |||||||||
| Accrued restructuring | 61 | 180 | |||||||||
| Liabilities held for sale | 32 | — | |||||||||
| Other accrued liabilities | 4,530 | 4,161 | |||||||||
| Total current liabilities | 25,973 | 21,882 | |||||||||
| Long-term debt | 13,504 | 7,487 | |||||||||
| Other non-current liabilities | 6,905 | 6,546 | |||||||||
| Commitments and Contingencies | |||||||||||
| Stockholders' Equity | |||||||||||
| HPE stockholders' Equity: | |||||||||||
| 7.625% Series C mandatory convertible preferred stock, $0.01 par value (30,000,000 issued and outstanding at October 31, 2024) | — | — | |||||||||
| Common stock, $0.01 par value (9,600,000,000 shares authorized; 1,297,258,235 and 1,282,630,405 issued and outstanding at October 31, 2024 and October 31, 2023, respectively) | 13 | 13 | |||||||||
| Additional paid-in capital | 29,848 | 28,199 | |||||||||
| Accumulated deficit | (2,068) | (3,946) | |||||||||
| Accumulated other comprehensive loss | (2,977) | (3,084) | |||||||||
| Total HPE stockholders' equity | 24,816 | 21,182 | |||||||||
| Non-controlling interests | 64 | 56 | |||||||||
| Total stockholders' equity | 24,880 | 21,238 | |||||||||
| Total liabilities and stockholders' equity | $ | 71,262 | $ | 57,153 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Cash Flows from Operating Activities: | |||||||||||||||||
| Net earnings attributable to HPE | $ | 2,579 | $ | 2,025 | $ | 868 | |||||||||||
| Adjustments to Reconcile Net Earnings Attributable to HPE to Net Cash Provided by Operating Activities: | |||||||||||||||||
| Depreciation and amortization | 2,564 | 2,616 | 2,480 | ||||||||||||||
| Impairment of goodwill | — | — | 905 | ||||||||||||||
| Stock-based compensation expense | 430 | 428 | 391 | ||||||||||||||
| Provision for inventory and credit losses | 175 | 230 | 262 | ||||||||||||||
| Restructuring charges | 33 | 242 | 214 | ||||||||||||||
| Deferred taxes on earnings | (64) | (67) | (249) | ||||||||||||||
| Earnings from equity interests | (147) | (245) | (215) | ||||||||||||||
| Gain on sale of equity interest | (733) | — | — | ||||||||||||||
| Dividends received from equity investees | 43 | 200 | 197 | ||||||||||||||
| Other, net | 149 | 31 | 310 | ||||||||||||||
| Changes in Operating Assets and Liabilities, Net of Acquisitions: | |||||||||||||||||
| Accounts receivable | (83) | 577 | (186) | ||||||||||||||
| Financing receivables | (909) | (607) | 694 | ||||||||||||||
| Inventory | (3,358) | 400 | (713) | ||||||||||||||
| Accounts payable | 3,927 | (1,655) | 1,707 | ||||||||||||||
| Taxes on earnings | 190 | (34) | 150 | ||||||||||||||
| Restructuring | (164) | (275) | (334) | ||||||||||||||
| Other assets and liabilities | (291) | 562 | (1,888) | ||||||||||||||
| Net cash provided by operating activities | 4,341 | 4,428 | 4,593 | ||||||||||||||
| Cash Flows from Investing Activities: | |||||||||||||||||
| Investment in property, plant and equipment and software assets | (2,367) | (2,828) | (3,122) | ||||||||||||||
| Proceeds from sale of property, plant and equipment | 370 | 602 | 602 | ||||||||||||||
| Purchases of investments | (16) | (15) | (55) | ||||||||||||||
| Proceeds from maturities and sales of investments | 2,149 | 9 | 262 | ||||||||||||||
| Financial collateral posted | (1,020) | (1,443) | (148) | ||||||||||||||
| Financial collateral received | 978 | 1,152 | 374 | ||||||||||||||
| Payments made in connection with business acquisitions, net of cash acquired | (147) | (761) | — | ||||||||||||||
| Net cash used in investing activities | (53) | (3,284) | (2,087) | ||||||||||||||
| Cash Flows from Financing Activities: | |||||||||||||||||
| Short-term borrowings with original maturities less than 90 days, net | (31) | (47) | 100 | ||||||||||||||
| Proceeds from debt, net of issuance costs | 11,245 | 4,725 | 3,296 | ||||||||||||||
| Payment of debt | (5,475) | (4,887) | (3,992) | ||||||||||||||
| Cash settlement for derivative hedging debt | — | (7) | (8) | ||||||||||||||
| Net payments related to stock-based award activities | (84) | (106) | (53) | ||||||||||||||
| Proceeds from issuance of 7.625% Series C mandatory convertible preferred stock, net of issuance costs | 1,462 | — | — | ||||||||||||||
| Repurchase of common stock | (150) | (421) | (512) | ||||||||||||||
| Cash dividends paid to non-controlling interests, net of contributions | (8) | — | (6) | ||||||||||||||
| Cash dividends paid to shareholders | (676) | (619) | (621) | ||||||||||||||
| Net cash provided by (used in) financing activities | 6,283 | (1,362) | (1,796) | ||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (47) | 36 | (279) | ||||||||||||||
| Change in cash, cash equivalents and restricted cash | 10,524 | (182) | 431 | ||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 4,581 | 4,763 | 4,332 | ||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 15,105 | $ | 4,581 | $ | 4,763 | |||||||||||
| Supplemental Cash Flow Disclosures: | |||||||||||||||||
| Income taxes paid, net of refunds | $ | 248 | $ | 307 | $ | 107 | |||||||||||
| Interest expense paid | $ | 772 | $ | 677 | $ | 453 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In millions, except number of shares in thousands | Number of Shares | Par Value | Number of 7.625% Series C Mandatory Convertible Shares | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Equity Attributable to the Company | Non- controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 31, 2021 | 1,294,634 | $ | 13 | — | $ | 28,470 | $ | (5,597) | $ | (2,915) | $ | 19,971 | $ | 46 | $ | 20,017 | ||||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to HPE | 868 | 868 | 5 | 873 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (183) | (183) | — | (183) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | 685 | 5 | 690 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 391 | 391 | 391 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholding related to vesting of employee stock plans | (111) | (111) | (111) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with employee stock plans and other | 21,346 | 54 | 54 | 2 | 56 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (34,943) | (505) | (505) | (505) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared ($0.48 per common share) | (621) | (621) | (8) | (629) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 31, 2022 | 1,281,037 | $ | 13 | — | $ | 28,299 | $ | (5,350) | $ | (3,098) | $ | 19,864 | $ | 45 | $ | 19,909 | ||||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to HPE | 2,025 | 2,025 | 11 | 2,036 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 14 | 14 | — | 14 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | 2,039 | 11 | 2,050 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 428 | 428 | 428 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholding related to vesting of employee stock plans | (165) | (165) | (165) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with employee stock plans and other | 28,684 | 56 | (2) | 54 | 54 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (27,091) | (419) | (419) | (419) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared ($0.48 per common share) | (619) | (619) | (619) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 31, 2023 | 1,282,630 | $ | 13 | — | $ | 28,199 | $ | (3,946) | $ | (3,084) | $ | 21,182 | $ | 56 | $ | 21,238 | ||||||||||||||||||||||||||||||||||||||||
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In millions, except number of shares in thousands | Number of Shares | Par Value | Number of 7.625% Series C Mandatory Convertible Shares | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Equity Attributable to the Company | Non- controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 31, 2023 | 1,282,630 | $ | 13 | — | $ | 28,199 | $ | (3,946) | $ | (3,084) | $ | 21,182 | $ | 56 | $ | 21,238 | ||||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to HPE | 2,579 | 2,579 | 16 | 2,595 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 107 | 107 | — | 107 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | 2,686 | 16 | 2,702 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 430 | 430 | 430 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholding related to vesting of employee stock plans | (145) | (145) | (145) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity issued in connection with the 7.625% Series C mandatory convertible preferred stock | 30,000 | 1,462 | 1,462 | 1,462 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with employee stock plans and other | 22,385 | 52 | — | 52 | 52 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (7,757) | (150) | (150) | (150) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividend on preferred stock accrued / declared ($0.83 per preferred share) | (25) | (25) | (25) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared ($0.52 per common share) | (676) | (676) | (8) | (684) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 31, 2024 | 1,297,258 | $ | 13 | 30,000 | $ | 29,848 | $ | (2,068) | $ | (2,977) | $ | 24,816 | $ | 64 | $ | 24,880 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1: Overview and Summary of Significant Accounting Policies
Background
Hewlett Packard Enterprise Company (“Hewlett Packard Enterprise,” “HPE,” or the “Company”) is a global technology leader focused on developing intelligent solutions that allow customers to capture, analyze and act upon data seamlessly from edge to cloud. Hewlett Packard Enterprise enables customers to accelerate business outcomes by driving new business models, creating new customer and employee experiences, and increasing operational efficiency today and into the future. Hewlett Packard Enterprise's customers range from small- and medium-sized businesses to large global enterprises and governmental entities.
Basis of Presentation and Principles of Consolidation
The Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
The accompanying Consolidated Financial Statements include the accounts of the Company and its subsidiaries and affiliates in which the Company has a controlling financial interest or is the primary beneficiary. All intercompany transactions and accounts within the consolidated businesses of the Company have been eliminated.
The Company consolidates a Variable Interest Entity (“VIE”) where it has been determined that the Company is the primary beneficiary of the entity's operation. The primary beneficiary is the party that has both the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. In evaluating whether the Company is the primary beneficiary, the Company evaluates its power to direct the most significant activities of the VIE by considering the purpose and design of the entity and the risks the entity was designed to create and pass through to its variable interest holders. The Company also evaluates its economic interests in the VIE.
The Company accounts for investments in companies over which it has the ability to exercise significant influence but does not hold a controlling interest under the equity method of accounting, and the Company records its proportionate share of income or losses in Earnings from equity interests in the Consolidated Statements of Earnings.
Non-controlling interests are presented as a separate component within Total stockholders' equity in the Consolidated Balance Sheets. Net earnings attributable to non-controlling interests are recorded within Interest and other, net in the Consolidated Statements of Earnings and are not presented separately, as they were not material for any periods presented.
Segment Realignment
Effective as of the beginning of fiscal 2024, in order to align the segment financial reporting more closely with its business structure, the Company established two new reportable segments, Hybrid Cloud and Server. Hybrid Cloud includes the historical Storage segment, HPE GreenLake Flex Solutions (which provides flexible as-a-service (“aaS”) IT infrastructure through the HPE GreenLake cloud and was previously reported under the Compute and the High Performance Computing & Artificial Intelligence (“HPC & AI”) segments), Private Cloud, and Software (previously reported under the Corporate Investments and Other segment). The Server segment combines the previously separately reported Compute and HPC & AI segments, with adjustments for certain product lines that are now reported in Hybrid Cloud. Additionally, certain products and services previously reported in the financial results for the HPC & AI segment were moved to be reported in the Hybrid Cloud segment, and the Athonet business and certain components of the Communications and Media Solutions (“CMS”) business, both previously reported in the financial results for Corporate Investments and Other, moved to be reported in the Intelligent Edge segment.
As a result, the Company’s organizational structure for fiscal 2024 consisted of the following segments: (i) Server; (ii) Hybrid Cloud; (iii) Intelligent Edge; (iv) Financial Services; and (v) Corporate Investments and Other. The Company began reporting under this re-aligned segment structure beginning with the results of the first quarter of fiscal 2024 included in the Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2024. These changes had no impact on Hewlett Packard Enterprise’s previously reported consolidated net revenue, net earnings, net earnings per share (“EPS”) or total assets.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Russia/Ukraine Conflict
In response to the conflict between Russia and Ukraine and the related sanctions imposed by the U.S., European Union and other countries, the Company determined that it was no longer tenable to maintain its operations in Russia and Belarus and has been proceeding with an orderly, managed exit of its remaining business in these countries. During fiscal 2022, the Company recorded total pre-tax charges of $161 million primarily related to expected credit losses of financing and trade receivables, employee severance and abandoned assets, $99 million of which was included in Financing cost, $12 million in Cost of services and $50 million in Disaster charges in the Consolidated Statements of Earnings.
Use of Estimates
The preparation of financial statements requires management to make estimates, judgments and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Estimates are assessed each period and updated to reflect current information, including those related to revenue recognition, stock-based compensation, net periodic benefit costs, restructuring accruals, provision for taxes, valuation allowance for deferred taxes, provision for expected credit losses, inventory reserves, and impairment assessments of goodwill, intangible assets and other long-lived assets. The Company believes that these estimates, judgments and assumptions are reasonable under the circumstances, and are subject to significant uncertainties, some of which are beyond the Company's control. Should any of these estimates change, it could adversely affect the Company's results of operations. Actual results could differ materially from these estimates under different assumptions or conditions.
Foreign Currency Translation
The Company predominately uses the U.S. dollar as its functional currency. Assets and liabilities denominated in non-U.S. currencies are remeasured into U.S. dollars at current exchange rates for monetary assets and liabilities and at historical exchange rates for non-monetary assets and liabilities. Net revenue, costs and expenses denominated in non-U.S. currencies are recorded in U.S. dollars at the average rates of exchange prevailing during the period. The Company includes gains or losses from foreign currency remeasurement in Interest and other, net in the Consolidated Statements of Earnings and gains and losses from cash flow hedges in Net revenue as the hedged revenue is recognized. Certain non-U.S. subsidiaries designate the local currency as their functional currency, and the Company records the translation of their assets and liabilities into U.S. dollars at the balance sheet date as translation adjustments and includes them as a component of Accumulated other comprehensive loss in the Consolidated Balance Sheets.
Revenue Recognition
The Company accounts for a contract with a customer when both parties have provided written approval and are committed to perform, each party's rights including payment terms are identified, the contract has commercial substance, and collection of consideration is probable.
The Company enters into contracts with customers that typically include combinations of products and services, resulting in arrangements containing multiple performance obligations for hardware and software products and/or various services. The Company determines whether each product or service is distinct in order to identify the performance obligations in the contract and allocate the contract transaction price among the distinct performance obligations. Arrangements are distinct based on whether the customer can benefit from the product or service on its own or together with other resources that are readily available and whether the commitment to transfer the product or service to the customer is separately identifiable from other obligations in the contract. The Company classifies its hardware, perpetual software licenses, service arrangements and software-as-a-service (“SaaS”) as distinct performance obligations. Term software licenses represent multiple obligations, which include software licenses and software maintenance. In transactions where the Company delivers hardware or software, it is typically the principal and records revenue and costs of goods sold on a gross basis.
The majority of the Company's revenue is derived from sales of products and services and the associated support and maintenance, and such revenue is recognized when, or as, control of promised products or services is transferred to the customer, in an amount that reflects the consideration to which the Company expects to be entitled, in exchange for those products or services. Variable consideration offered in contracts with customers, partners and distributors may include rebates, volume-based discounts, price protection, and other incentive programs. Variable consideration is estimated at contract inception and updated at the end of each reporting period as additional information becomes available and recognized only to the extent that it is probable that a significant reversal of revenue will not occur.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Transfer of control occurs once the customer has the contractual right to use the product, generally upon delivery once title and risk of loss has transferred to the customer. Transfer of control can also occur over time for maintenance and services as the customer receives the benefit over the contract term. The Company's hardware and perpetual software licenses are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses include multiple performance obligations where the term licenses are recognized upfront upon transfer of control, with the associated software maintenance revenue recognized ratably over the contract term as services and software updates are provided. SaaS arrangements have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term as the customer consumes the services. On its product sales, the Company records consideration from shipping and handling on a gross basis within net product sales. Revenue is recorded net of any associated sales taxes.
The Company allocates the transaction price for the contract among the performance obligations on a relative standalone selling price basis (“SSP”). For products and services sold as a bundle, the SSP is generally not directly observable and requires the Company to estimate SSP based on management judgment by considering available data such as internal margin objectives, pricing strategies, market/competitive conditions, historical profitability data, as well as other observable inputs. For certain products and services, the Company establishes SSP based on the observable price when sold separately in similar circumstances to similar customers. The Company establishes SSP ranges for its products and services and reassesses them periodically.
Judgment is applied in determining the transaction price as the Company may be required to estimate variable consideration when determining the amount of revenue to recognize. Variable consideration may include various rebates, volume-based discounts, price protection, and other incentive programs that are offered to customers, partners and distributors. When determining the amount of revenue to recognize, the Company estimates the expected usage of these programs, applying the expected value or most likely estimate and updates the estimate at each reporting period as actual utilization becomes available. The Company also considers the customers' right of return in determining the transaction price, where applicable.
Contract Balances
Accounts receivable and contract assets
A receivable is a right to consideration in exchange for products or services the Company has transferred to a customer that is unconditional. A contract asset is a right to consideration in exchange for products or services transferred to a customer that is conditional on something other than the passage of time. A receivable is recorded when the right to consideration becomes unconditional.
The Company's contract assets include unbilled receivables which are recorded when the Company recognizes revenue in advance of billings. Unbilled receivables generally relate to services contracts where a service has been performed and control has transferred, but invoicing to the customer is subject to future milestone billings or other contractual payment schedules. The Company classifies unbilled receivables as Accounts receivable.
Contract liabilities
A contract liability is an obligation to transfer products or services to a customer for which the Company has received consideration, or the amount is due, from the customer. The Company's contract liabilities primarily consist of deferred revenue and customer deposits. Deferred revenue is recorded when amounts invoiced to customers are in excess of revenue that can be recognized because performance obligations have not been satisfied and control of the promised products or services has not transferred to the customer. Deferred revenue largely represents amounts invoiced in advance for product (hardware/software) support contracts, consulting projects and product sales where revenue cannot be recognized yet. Customer deposits largely represent payments received from customers in advance of the Company’s completion of its contractual obligations. As customer acceptance milestones are met, the Company will recognize revenue and reduce the amount of contract liabilities.
Costs to obtain a contract with a customer
The Company capitalizes the incremental costs of obtaining a contract with a customer, primarily sales commissions, if the Company expects to recover those costs. The Company has elected, as a practical expedient, to expense the costs of obtaining a contract as incurred for contracts with terms of one year or less. The typical amortization periods used range from two to five years. The Company periodically reviews the capitalized sales commission costs for possible impairment losses. The amortization of capitalized costs to obtain a contract are included in Selling, general and administrative expense. Refer to Note 7, “Balance Sheet Details” for additional information.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Shipping and Handling
The Company includes costs related to shipping and handling in Cost of products.
Stock-Based Compensation
Stock-based compensation expense is based on the measurement date fair value of the award and is recognized only for those awards expected to meet the service and performance vesting conditions. Stock-based compensation expense for stock options and restricted stock units with only a service condition is recognized on a straight-line basis over the requisite service period of the award. For stock options and restricted stock units with both a service condition and a performance or market condition, the expense is recognized on a graded vesting basis over the requisite service period of the award. Stock-based compensation expense is determined at the aggregate grant level for service-based awards and at the individual vesting tranche level for awards with performance and/or market conditions. The forfeiture rate is estimated based on historical experience.
Retirement and Post-Retirement Plans
The Company has various defined benefit, other contributory and noncontributory, retirement and post-retirement plans. The costs and obligations for these plans depend on various assumptions. Major assumptions relate primarily to discount rates, mortality rates, expected increases in compensation levels and the expected long-term return on plan assets. These assumptions vary by plan, and the weighted-average rates used are set forth in Note 4, “Retirement and Post-Retirement Benefit Plans.”
The discount rate assumption is based on current investment yields of high-quality fixed-income securities with maturities similar to the expected benefits payment period. Mortality rates help predict the expected life of plan participants and are based on a historical demographic study of the plan. The expected increase in the compensation levels assumption reflects long-term actual experience and future expectations. The expected long-term return on plan assets is determined based on asset allocations, historical portfolio results, historical asset correlations and management's expected returns for each asset class. In any fiscal year, significant differences may arise between the actual return and the expected long-term return on plan assets. Historically, differences between the actual return and expected long-term return on plan assets have resulted from changes in target or actual asset allocation, short-term performance relative to expected long-term performance, and to a lesser extent, differences between target and actual investment allocations, the timing of benefit payments compared to expectations, and the use of derivatives intended to effect asset allocation changes or hedge certain investment or liability exposures.
The following table provides the impact changes in the weighted-average assumptions of discount rates, the expected increase in compensation levels and the expected long-term return on plan assets would have had on the net periodic benefit cost for fiscal 2024:
| Change in basis points | Change in Net Periodic Benefit Cost | ||||||||||
| In millions | |||||||||||
| Assumptions: | |||||||||||
| Discount rate | (25) | $ | 17 | ||||||||
| Expected increase in compensation levels | 25 | 3 | |||||||||
| Expected long-term return on plan assets | (25) | $ | 25 |
The Company generally amortizes unrecognized actuarial gains and losses on a straight-line basis over the average remaining estimated service life or, in the case of closed plans, life expectancy of participants. In limited cases, actuarial gains and losses are amortized using the corridor approach.
Advertising
Costs to produce advertising are expensed as incurred during production. Costs to communicate advertising are expensed when the advertising is first run. Advertising expense totaled approximately $117 million, $173 million, and $179 million in fiscal 2024, 2023, and 2022, respectively.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Restructuring
The Company's transformation programs include charges to approved restructuring plans. Restructuring charges include severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate operations, and contract cancellation costs. These restructuring actions require management to estimate the timing and amount of severance and other employee separation costs for workforce reduction and enhanced early retirement programs, the fair value of assets made redundant or obsolete, and the value of lease and contract cancellation and other exit costs. The Company records restructuring charges based on estimated employee terminations and site closure and consolidation plans. The Company accrues for severance and other employee separation costs under these actions when it is probable that benefits will be paid and the amount is reasonably estimable. The rates used in determining severance accruals are based on existing plans, historical experiences and negotiated settlements. For a full description of the Company's restructuring actions, refer to the discussions in Note 3, “Transformation Programs.”
Taxes on Earnings
The Company recognizes deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse.
The Company records a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. In determining the need for a valuation allowance, the Company considers future market growth, forecasted earnings, future sources of taxable income, the mix of earnings in the jurisdictions in which the Company operates, and prudent and feasible tax planning strategies. In the event the Company were to determine that it is more likely than not that the Company will be unable to realize all or part of its deferred tax assets in the future, the Company would increase the valuation allowance and recognize a corresponding charge to earnings in the period in which such a determination was made. Likewise, if the Company later determines that the deferred tax assets are more likely than not to be realized, the Company would reverse the applicable portion of the previously recognized valuation allowance. In order for the Company to realize deferred tax assets, the Company must be able to generate sufficient taxable income, of the appropriate character, in the jurisdictions in which the deferred tax assets are located, prior to their expiration under applicable tax laws.
The Company records accruals for uncertain tax positions when the Company believes that it is not more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The provision for income taxes includes the effects of adjustments for uncertain tax positions as well as any related interest and penalties. The Company recognizes interest income from favorable settlements and interest expense and penalties accrued on unrecognized tax benefits in Provision for taxes in the Consolidated Statements of Earnings.
The Company is subject to the Global Intangible Low Taxed Income (“GILTI”) tax in the U.S. The Company elected to treat taxes on future GILTI inclusions in U.S. taxable income as a current period expense when incurred.
Allowance for Doubtful Accounts
Accounts Receivable
The allowance for expected credit losses related to accounts receivable is comprised of a general reserve and a specific reserve. The Company may record a specific reserve for individual accounts when the Company becomes aware of specific customer circumstances, such as in the case of a bankruptcy filing or deterioration in the customer's operating results or financial position. If there are additional changes in circumstances related to the specific customer, the Company further adjusts estimates of the recoverability of receivables. The Company maintains an allowance for credit losses for all other customers based on a variety of factors, including the financial condition of customers and the length of time receivables are past due. These qualitative factors are subjective and require a degree of management judgment. The past due or delinquency status of a receivable is based on the contractual payment terms of the receivable. The Company establishes an allowance for expected credit losses related to accounts receivable, including unbilled receivables.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Financing Receivable
The allowance for expected credit losses related to financing receivables is comprised of a general reserve and a specific reserve. The Company establishes a specific reserve for financing receivables with identified exposures, such as customer defaults, bankruptcy or other events, that make it unlikely the Company will recover its investment. For individually evaluated receivables, the Company determines the expected cash flow for the receivable, which includes consideration of estimated proceeds from disposition of the collateral and calculates an estimate of the potential loss and the probability of loss. For those accounts where a loss is considered probable, the Company records a specific reserve. The Company maintains a general reserve using a credit loss model on a regional basis and bases such percentages on several factors, including consideration of historical credit losses and portfolio delinquencies, trends in the overall weighted-average risk rating of the portfolio, current economic conditions, and forward-looking information, including reasonable and supportable forecasts. The Company excludes accounts evaluated as part of the specific reserve from the general reserve analysis. The Company generally writes off a receivable or records a specific reserve when a receivable becomes 180 days past due, or sooner if the Company determines that the receivable is not collectible.
Non-Accrual and Past-Due Financing Receivables
The Company considers a financing receivable to be past due when the minimum payment is not received by the contractually specified due date. The Company generally places financing receivables on non-accrual status, which is the suspension of interest accrual, and considers such receivables to be non-performing at the earlier of the time at which full payment of principal and interest becomes doubtful or the receivable becomes 90 days past due. Subsequently, the Company may recognize revenue on non-accrual financing receivables as payments are received, which is on a cash basis, if the Company deems the recorded financing receivable to be fully collectible; however, if there is doubt regarding the ultimate collectability of the recorded financing receivable, all cash receipts are applied to the carrying amount of the financing receivable, which is the cost recovery method. In certain circumstances, such as when the Company deems a delinquency to be of an administrative nature, financing receivables may accrue interest after becoming 90 days past due. The non-accrual status of a financing receivable may not impact a customer's risk rating. After all of a customer's delinquent principal and interest balances are settled, the Company may return the related financing receivable to accrual status.
Concentrations of Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents and restricted cash, investments, receivables from trade customers and contract manufacturers, financing receivables and derivatives.
The Company maintains cash, cash equivalents and restricted cash, investments, derivatives, and certain other financial instruments with various financial institutions. These financial institutions are located in many different geographic regions, and the Company's policy is designed to limit exposure from any particular institution. As part of its risk management processes, the Company performs periodic evaluations of the relative credit standing of these financial institutions. The Company has not sustained material credit losses from instruments held at these financial institutions. The Company utilizes derivative contracts to protect against the effects of foreign currency and interest rate exposures. Such contracts involve the risk of non-performance by the counterparty, which could result in a material loss. For more details on the collateral program, see Note 13, “Financial Instruments.”
Credit risk with respect to accounts receivable from trade customers and financing receivables is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across many different industries and geographic regions. The Company performs ongoing credit evaluations of the financial condition of its customers and may require collateral, such as letters of credit and bank guarantees, in certain circumstances. As of October 31, 2024 and 2023 no single customer accounted for more than 10% of the Company's receivable from trade customers and financing receivables.
Restricted Cash
Restricted cash is included within Other current assets in the accompanying Consolidated Balance Sheets and is primarily related to cash received under the Company's collateral securities agreements for its derivative instruments and cash restricted under the fixed-term securitization program for the issuance of asset-backed debt securities.
Inventory
The Company values inventory at the lower of cost or net realizable value. Cost is computed using standard cost which approximates actual cost on a first-in, first-out basis. At each reporting period, the Company assesses the value of its inventory
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
and writes down the cost of inventory to its net realizable value if required, for estimated excess or obsolescence. Factors influencing these adjustments include changes in future demand forecasts, market conditions, technological changes, product life-cycle and development plans, component cost trends, product pricing, physical deterioration, and quality issues. If in any period the Company anticipates a change in those factors to be less favorable than its previous estimates, additional inventory write-downs may be required and could materially impact gross margin. The write down for excess or obsolescence is charged to the provision of inventory, which is a component of Cost of Products and Cost of Services in the Consolidated Statements of Earnings. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Property, Plant and Equipment, net
The Company states property, plant and equipment at cost less accumulated depreciation. The Company capitalizes additions and improvements and expenses maintenance and repairs as incurred. Depreciation expense is recognized on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives are five to 40 years for buildings and improvements and three to 15 years for machinery and equipment. The Company depreciates leasehold improvements over the life of the lease or the asset, whichever is shorter. The Company depreciates equipment held for lease over the initial term of the lease to the equipment's estimated residual value. The estimated useful lives of assets used solely to support a customer services contract generally do not exceed the term of the customer contract. On retirement or disposition, the asset cost and related accumulated depreciation are removed from the Consolidated Balance Sheets with any gain or loss recognized in the Consolidated Statements of Earnings.
The Company capitalizes certain internal and external costs incurred to acquire or create internal use software, principally related to software coding, designing system interfaces and installation and testing of the software. The Company amortizes capitalized internal use software costs using the straight-line method over the estimated useful lives of the software, generally from three to five years.
Leases
Lessee Accounting
The Company enters into various leases as a lessee for assets including office buildings, data centers, vehicles, and aviation. The Company determines if an arrangement is a lease at inception. An arrangement contains a lease when the arrangement conveys the right to control the use of an identified asset over the lease term. Upon lease commencement, the Company records a lease liability for the obligation to make lease payments and right-of-use (“ROU”) asset for the right to use the underlying asset for the lease term in the Consolidated Balance Sheets. The lease liability is measured at commencement date based on the present value of lease payments not yet paid over the lease term and the Company's incremental borrowing rate. As most of the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate which approximates the rate at which the Company would borrow, on a secured basis, in the country where the lease was executed. The ROU asset is based on the lease liability, adjusted for lease prepayments, lease incentives received, and the lessee's initial direct costs. Fixed payments are included in the recognition of ROU assets and liabilities, while non-lease components, such as maintenance or utility charges are expensed as incurred. The Company has agreements with lease and non-lease components that are accounted for separately and not included in its leased assets and corresponding liabilities for the majority of the Company's lease agreements. The Company allocates consideration to the lease and non-lease components using their relative standalone values. The lease term may include options to extend or to terminate the lease that the Company is reasonably certain to exercise. The Company has elected not to record leases with an initial term of twelve months or less on the Consolidated Balance Sheets.
For finance leases, the ROU asset is amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term. Interest expense on the lease liability is recorded separately using the interest method. For operating leases, lease expense is generally recognized on a straight-line basis over the lease term.
Lessor Accounting
The Company's lease offerings are non-cancelable and the payment schedule primarily consists of fixed payments. Variable payments that are based on an index are included in lease receivables. The Company allocates consideration amongst lease components and non-lease components on a relative standalone selling price basis, when lease arrangements include multiple performance obligations. At the end of the lease term, the Company allows the client to either return the equipment, purchase the equipment or renew the lease based on mutually agreed upon terms.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The Company retains a residual position in equipment through lease and finance agreements which is equivalent to an estimated market value. The residual amount is established prior to lease inception, based upon estimated equipment values at end of lease using product road map trends, historical analysis, future projections and remarketing experience. The Company's residual amounts are evaluated at least annually to assess the appropriateness of the carrying values. Any anticipated declines in specific future residual values that are considered to be other-than-temporary would be recorded in current earnings. The Company is able to optimize the recovery of residual values by selling equipment in place, extending lease arrangements on a fixed term basis, entering into a monthly usage rental term beyond the initial lease term, and selling lease returned equipment in the secondary market. The contractual lease agreement also identifies return conditions that ensures the leased equipment will be in good operating condition upon return minus any normal wear and tear. During the residual review process, product changes, product updates, as well as market conditions are reviewed and adjustments if other than temporary are made to residual values in accordance with the impact of any such changes. The remarketing sales organization closely manages the sale of equipment lease returns to optimize the recovery of outstanding residual by product.
Business Combinations
The Company includes the results of operations of acquired businesses in the Company's consolidated results prospectively from the date of acquisition. The Company allocates the fair value of purchase consideration to the assets acquired including in-process research and development (“IPR&D”), liabilities assumed, and non-controlling interests in the acquired entity based on their fair values at the acquisition date. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. The excess of the fair value of purchase consideration over the fair value of the assets acquired, liabilities assumed and non-controlling interests in the acquired entity is recorded as goodwill. The primary items that generate goodwill include the value of the synergies between the acquired company and the Company and the value of the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. Acquisition-related expenses and post-acquisition restructuring costs are recognized separately from the business combination and are expensed as incurred.
Goodwill
The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. In evaluating goodwill for impairment, the Company has the option to first perform a qualitative test to determine whether further impairment testing is necessary or to perform a qualitative assessment by comparing the fair value of the reporting unit to its carrying amount. Under the qualitative assessment, the Company is not required to calculate the fair value of a reporting unit unless it determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Qualitative factors include, but are not limited to, the macroeconomic and industry environment as well as Company-specific factors. The Company elects to perform a quantitative test for all of its reporting units as part of its annual goodwill impairment assessment in the fourth quarter of each fiscal year.
In the quantitative assessment, the Company estimates the fair value of its reporting units using a weighting of fair values derived most significantly from the income approach, and to a lesser extent, the market approach. Under the income approach, the Company estimates the fair value of a reporting unit based on the present value of estimated future cash flows covering discrete forecast periods as well as terminal value determinations. The Company prepares cash flow projections based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The Company bases the discount rate on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market approach, the Company estimates fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit. The Company weights the fair value derived from the market approach commensurate with the level of comparability of these publicly traded companies to the reporting unit. When market comparables are not meaningful or not available, the Company estimates the fair value of a reporting unit using only the income approach.
If the fair value of a reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than its carrying amount, goodwill is impaired. The goodwill impairment loss is measured as the excess of the reporting unit's carrying value over its fair value (not to exceed the total goodwill allocated to that reporting unit).
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Intangible Assets and Long-Lived Assets
The Company reviews intangible assets with finite lives, long-lived assets and ROU assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. For lease assets such circumstances would include a decision to abandon the use of all or part of an asset, or subleases that do not fully recover the costs of the associated lease. The Company assesses the recoverability of assets based on the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If the undiscounted future cash flows are less than the carrying amount, the asset is impaired. The Company measures the amount of impairment loss, if any, as the difference between the carrying amount of the asset and its fair value using an income approach or, when available and appropriate, using a market approach. The Company amortizes intangible assets with finite lives using the straight-line method over the estimated economic lives of the assets, ranging from one to ten years. Intangible assets purchased as part of an acquisition are included in Intangible assets, net in the Consolidated Balance Sheets. All other separately purchased intangible assets are included in Long-term financing receivables and other assets in the Consolidated Balance Sheets.
Software development costs related to the development of new product offerings are capitalized subsequent to the establishment of technological feasibility, which is demonstrated by the completion of a detail program design or working model. Software development costs are included in Intangible assets, net in the Consolidated Balance Sheets. The Company amortizes capitalized costs on a straight-line basis over the estimated useful life of products, which is generally three years.
Equity Method Investments
Investments and ownership interests are accounted for under equity method accounting if the Company has the ability to exercise significant influence, but does not have a controlling financial interest. The Company records its interest in the net earnings of its equity method investees, along with adjustments for unrealized profits or losses on intra-entity transactions and amortization of basis differences, within Earnings from equity interests in the Consolidated Statements of Earnings. Profits or losses related to intra-entity sales with its equity method investees are eliminated until realized by the investor or investee. Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to them. Equity method goodwill is not amortized or tested for impairment; instead the equity method investment is tested for impairment. The Company records its interest in the net earnings of its equity method investments based on the most recently available financial statements of the investees.
The carrying amount of the investment in equity interests is adjusted to reflect the Company's interest in net earnings, dividends received and other-than-temporary impairments. The Company reviews for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable. In such a case, the decrease in value is recognized in the period the impairment occurs in the Consolidated Statements of Earnings.
Equity Securities Investments
Equity securities investments with readily determinable fair values (other than those accounted for under the equity method or those that result in consolidation of the investee) are measured at fair value and any changes in fair value are recognized in Interest and other, net in the Consolidated Statements of Earnings. For equity investments without readily determinable fair values, the Company may elect to apply the measurement alternative or the fair value option. Under the measurement alternative investments are measured at cost, less impairment, and adjusted for qualifying observable price changes on a prospective basis. The Company reviews for impairment at each reporting period, assessing factors such as deterioration of earnings, adverse change in market/industry conditions, the ability to operate as a going concern, and other factors which indicate that the carrying amount of the investment might not be recoverable. In such a case, the decrease in value is recognized in the period the impairment occurs in the Consolidated Statements of Earnings. The Company elects the fair value option when it believes that it best reflects the underlying economics of the investment. These investments may be valued using third-party pricing services at each reporting date with changes in fair value recorded as a component of Interest and other, net in the Consolidated Statements of Earnings.
Debt Securities Investments
Debt securities are generally considered available-for-sale and are reported at fair value with unrealized gains and losses, net of applicable taxes, recorded in Accumulated other comprehensive loss in the Consolidated Balance Sheets. Realized gains and losses for available-for-sale securities are calculated based on the specific identification method and included in Interest and other, net in the Consolidated Statements of Earnings. The Company monitors its investment portfolio for potential impairment on a quarterly basis. When the carrying amount of an investment in debt securities exceeds its fair value and the decline in value is determined to be due to credit-related factors, the Company recognizes the impairment using an allowance for credit loss in
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Interest and other, net, in the Consolidated Statements of Earnings, while the impairment that is not credit related is recorded in Accumulated other comprehensive loss in the Consolidated Balance Sheets.
Derivatives
The Company uses derivative financial instruments, primarily forwards, swaps, and, at times, options, to manage a variety of risks, including risks related to foreign currency and interest rate exposures. The Company does not use derivative financial instruments for speculative purposes.
The Company receives fair value to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. When prices in active markets are not available for an identical asset or liability, the Company generally uses industry standard valuation models to measure the fair value of derivative positions. Such measurements involve projecting future cash flows and discounting the future amounts to present value using market based observable inputs, including interest rate curves, Company and counterparty credit risk, foreign currency exchange rates, and forward and spot prices. In the absence of such data, the Company will use internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. The determination of fair value often involves significant judgments about assumptions such as determining an appropriate discount rate that factors in both risk and liquidity premiums, identifying the similarities and differences in market transactions, weighting those differences accordingly and then making the appropriate adjustments to those market transactions to reflect the risks specific to the asset or liability being valued.
For a further discussion of fair value measurements and derivative instruments, refer to Note 12, “Fair Value” and Note 13, “Financial Instruments,” respectively.
Contingencies
The Company is involved in various lawsuits, claims, investigations, and proceedings that arise in the ordinary course of business. The Company records a liability for contingencies when it believes it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company does not record gain contingencies until realized. See Note 17, “Litigation, Contingencies, and Commitments,” for a full description of the Company's contingencies.
Warranties
The Company accrues the estimated cost of product warranties at the time of recognizing revenue. The Company's standard product warranty terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period of time. The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers. The estimated warranty obligation is based on contractual warranty terms, repair costs, product call rates, average cost per call, current period product shipments and ongoing product failure rates, as well as specific product class failure outside of the Company's baseline experience. Warranty terms generally range from one to five years for parts and labor, depending upon the product. For certain networking products, the Company offers a lifetime warranty. Over the last three fiscal years, the annual warranty expense has averaged approximately 1.1% of annual net product revenue. Refer to Note 7, “Balance Sheet Details,” for additional information.
Recently Enacted Accounting Pronouncements
In November 2024, the FASB issued guidance to provide disaggregated expense disclosures in the Consolidated Financial Statements. The Company is required to adopt the guidance for its annual period ending October 31, 2028 and all interim periods thereafter, though early adoption is permitted. The Company is currently evaluating the impact of this amendment on its Consolidated Financial Statements.
In December 2023, the FASB issued guidance to provide disaggregated income tax disclosures on the rate reconciliation and income taxes paid. The Company is required to adopt the guidance in the first quarter of fiscal 2026, though early adoption is permitted. The Company is currently evaluating the impact of this amendment on its Consolidated Financial Statements.
In November 2023, the FASB issued guidance to improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses. The Company will adopt this guidance for its annual period ending October 31, 2025 and all interim periods thereafter. The Company does not expect the adoption of this guidance to have a significant impact on its Consolidated Financial Statements.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 2: Segment Information
Hewlett Packard Enterprise's operations are organized into five segments for financial reporting purposes: Server, Hybrid Cloud, Intelligent Edge, Financial Services (“FS”), and Corporate Investments and Other. Hewlett Packard Enterprise's organizational structure is based on a number of factors that the Chief Operating Decision Maker (“CODM”), who is the Chief Executive Officer, uses to evaluate, view and run the Company's business operations, which include, but are not limited to, customer base and homogeneity of products and technology. The five segments are based on this organizational structure and information reviewed by Hewlett Packard Enterprise's management to evaluate segment results. A summary of the types of products and services within each segment is as follows:
Server consists of general-purpose servers for multi-workload computing and workload-optimized servers to deliver the best performance and value for demanding applications, and integrated systems comprised of software and hardware designed to address High-Performance Computing and Supercomputing (including exascale applications), Artificial Intelligence (“AI”), Data Analytics, and Transaction Processing workloads for government and commercial customers globally. This portfolio of products includes the secure and versatile HPE ProLiant Rack and Tower servers; HPE Synergy, a composable infrastructure for traditional and cloud-native applications; HPE Scale Up Servers product lines for critical applications, including large enterprise software applications and data analytics platforms; HPE Edgeline servers; HPE Cray EX; HPE Cray XD (formerly known as HPE Apollo); and HPE NonStop. Server offerings also include operational and support services sold with systems and as standalone services.
Hybrid Cloud offers a wide variety of cloud-native and hybrid solutions across storage, private cloud and the infrastructure SaaS space. Storage includes data storage and data management offerings with the HPE Alletra Storage portfolio; unstructured data solutions and analytics for AI; data protection and archiving; and storage networking. It also includes AIOps-driven intelligence with HPE InfoSight and HPE CloudPhysics. In private cloud, the HPE GreenLake offerings include new cloud-native offerings and capabilities for virtual machines, containers, and bare metal; a full suite of private cloud offerings that enable customers to self-manage or choose a fully managed experience; and a portfolio of world-class AI infrastructure delivered aaS. This segment also provides self-service private cloud on-demand with HPE GreenLake for Private Cloud Business Edition. Infrastructure software includes monitoring and observability for day two operations and beyond through the Company’s acquisition of OpsRamp and unified data access through HPE Ezmeral Data Fabric and analytics suite, which helps move and transform data for use in AI and other applications. Hybrid Cloud segment also includes data lifecycle management and protection through its suite of offerings, including Zerto Disaster Recovery.
Intelligent Edge offers wired and wireless local area networks, campus, branch, and data center switching, software-defined wide-area-networks, private and public cellular network software, network security, and associated services that enable secure connectivity for businesses of any size. The HPE Aruba Networking product portfolio includes hardware products such as Wi-Fi access points, switches, and gateways. The HPE Aruba Networking software and services portfolio includes cloud-based management, network management, network access control, software-defined wide-area networking, network security, analytics and assurance, location services software, private and public cellular core software, and professional and support services, as well as aaS and consumption models through the HPE GreenLake cloud for the Intelligent Edge portfolio of products. Intelligent Edge offerings are consolidated in the edge service platform, which takes a cloud-native approach that provides customers with a unified framework to meet their connectivity, security, and financial needs across campus, branch, data center, and remote worker environments.
Financial Services provides flexible investment solutions, such as leasing, financing, IT consumption, utility programs, and asset management services for customers that facilitate unique technology deployment models and the acquisition of complete IT solutions, including hardware, software, and services from Hewlett Packard Enterprise and others. FS also supports financial solutions for on-premise flexible consumption models, such as the HPE GreenLake cloud.
Corporate Investments and Other includes the Advisory and Professional Services (“A & PS”) business, which primarily offers consultative-led services, HPE and partner technology expertise and advice, implementation services as well as complex solution engagement capabilities; CMS, which primarily offers software and related services to the telecommunications industry; and Hewlett Packard Labs, which is responsible for research and development.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Segment Policy
Hewlett Packard Enterprise derives the results of its business segments directly from its internal management reporting system. The accounting policies that Hewlett Packard Enterprise uses to derive segment results are substantially the same as those the consolidated company uses. The CODM measures the performance of each segment based on several metrics, including earnings from operations. The CODM uses these results, in part, to evaluate the performance of, and to allocate resources to each of the segments.
Segment revenue includes revenues from sales to external customers and intersegment revenues that reflect transactions between the segments on an arm's-length basis. Intersegment revenues primarily consist of sales of hardware and software that are sourced internally and, in the majority of the cases, are financed as operating leases by FS to the Company's customers. Hewlett Packard Enterprise's consolidated net revenue is derived and reported after the elimination of intersegment revenues from such arrangements.
Financing cost in the Consolidated Statements of Earnings reflects interest expense on borrowing and funding-related activity associated with FS and its subsidiaries, and debt issued by Hewlett Packard Enterprise for which a portion of the proceeds benefited FS.
Hewlett Packard Enterprise does not allocate to its segments certain operating expenses, which it manages at the corporate level. These unallocated operating costs include certain corporate costs and eliminations, stock-based compensation expense, amortization of intangible assets, impairment of goodwill, transformation costs, disaster recovery/charges, divestiture related exit costs, and acquisition, disposition and other related charges. Total assets by segment are not presented as that information is not used to allocate resources or assess performance at the segment level and is not reviewed by the CODM.
Segment Operating Results
| Server | Hybrid Cloud | Intelligent Edge | Financial Services | Corporate Investments and Other | Total | ||||||||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||||||||
| Fiscal 2024 | |||||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 15,931 | $ | 5,172 | $ | 4,501 | $ | 3,509 | $ | 1,014 | $ | 30,127 | |||||||||||||||||||||||||||||
| Intersegment net revenue | 274 | 214 | 31 | 3 | — | 522 | |||||||||||||||||||||||||||||||||||
| Total segment net revenue | $ | 16,205 | $ | 5,386 | $ | 4,532 | $ | 3,512 | $ | 1,014 | $ | 30,649 | |||||||||||||||||||||||||||||
| Segment earnings (loss) from operations | $ | 1,818 | $ | 245 | $ | 1,115 | $ | 316 | $ | (25) | $ | 3,469 | |||||||||||||||||||||||||||||
| Fiscal 2023 | |||||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 13,926 | $ | 5,396 | $ | 5,362 | $ | 3,466 | $ | 985 | $ | 29,135 | |||||||||||||||||||||||||||||
| Intersegment net revenue | 435 | 97 | 17 | 14 | — | 563 | |||||||||||||||||||||||||||||||||||
| Total segment net revenue | $ | 14,361 | $ | 5,493 | $ | 5,379 | $ | 3,480 | $ | 985 | $ | 29,698 | |||||||||||||||||||||||||||||
| Segment earnings (loss) from operations | $ | 1,830 | $ | 232 | $ | 1,343 | $ | 281 | $ | (77) | $ | 3,609 | |||||||||||||||||||||||||||||
| Fiscal 2022 | |||||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 15,137 | $ | 5,173 | $ | 3,849 | $ | 3,326 | $ | 1,011 | $ | 28,496 | |||||||||||||||||||||||||||||
| Intersegment net revenue | 335 | 60 | 8 | 13 | 1 | 417 | |||||||||||||||||||||||||||||||||||
| Total segment net revenue | $ | 15,472 | $ | 5,233 | $ | 3,857 | $ | 3,339 | $ | 1,012 | $ | 28,913 | |||||||||||||||||||||||||||||
| Segment earnings (loss) from operations | $ | 1,958 | $ | 468 | $ | 542 | $ | 387 | $ | (26) | $ | 3,329 |
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The reconciliation of segment operating results to Consolidated Statement of Earnings results was as follows:
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Net Revenue: | |||||||||||||||||
| Total segments | $ | 30,649 | $ | 29,698 | $ | 28,913 | |||||||||||
| Elimination of intersegment net revenue | (522) | (563) | (417) | ||||||||||||||
| Total consolidated net revenue | $ | 30,127 | $ | 29,135 | $ | 28,496 | |||||||||||
| Earnings Before Taxes: | |||||||||||||||||
| Total segment earnings from operations | $ | 3,469 | $ | 3,609 | $ | 3,329 | |||||||||||
| Unallocated corporate costs and eliminations | (301) | (464) | (303) | ||||||||||||||
| Stock-based compensation expense | (430) | (428) | (391) | ||||||||||||||
| Amortization of initial direct costs | — | — | (4) | ||||||||||||||
| Amortization of intangible assets | (267) | (288) | (293) | ||||||||||||||
| Impairment of goodwill | — | — | (905) | ||||||||||||||
| Transformation costs | (93) | (283) | (473) | ||||||||||||||
| Disaster recovery (charges) | 51 | 12 | (159) | ||||||||||||||
| Divestiture related exit costs | (35) | — | — | ||||||||||||||
| Acquisition, disposition and other related charges | (204) | (69) | (19) | ||||||||||||||
| Interest and other, net | (117) | (104) | (121) | ||||||||||||||
| Gain on sale of equity interest | 733 | — | — | ||||||||||||||
| Earnings from equity interests | 147 | 245 | 215 | ||||||||||||||
| Total earnings before provision for taxes | $ | 2,953 | $ | 2,230 | $ | 876 |
Major Customers
The Company had two distributors which represented approximately 14% and 11% of the Company's total net revenue in fiscal 2024, primarily within the Intelligent Edge and Server segments. The Company had one customer, which is a distributor, that represented 11% of the Company's total net revenue in fiscal 2023, primarily within the Intelligent Edge and Server segments. No single customer represented 10% or more of the Company's total net revenue in fiscal year 2022.
Geographic Information
Net revenue by country is based upon the sales location that predominately represents the customer location. For each of the fiscal years of 2024, 2023 and 2022, other than the U.S., no country represented more than 10% of the Company's net revenue.
Net revenue by geographic region was as follows:
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Americas | |||||||||||||||||
| U.S. | $ | 10,890 | $ | 10,369 | $ | 9,425 | |||||||||||
| Americas excluding U.S. | 2,345 | 2,208 | 1,964 | ||||||||||||||
| Total Americas | 13,235 | 12,577 | 11,389 | ||||||||||||||
| Europe, Middle East and Africa | 10,189 | 10,151 | 10,292 | ||||||||||||||
| Asia Pacific and Japan | 6,703 | 6,407 | 6,815 | ||||||||||||||
| Total consolidated net revenue | $ | 30,127 | $ | 29,135 | $ | 28,496 |
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Property, plant and equipment, net by country in which the Company's operates was as follows:
| As of October 31 | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| U.S. | $ | 2,616 | $ | 2,803 | |||||||
| Other countries | 3,048 | 3,186 | |||||||||
| Total property, plant and equipment, net | $ | 5,664 | $ | 5,989 |
Note 3: Transformation Programs
Transformation programs are comprised of the Cost Optimization and Prioritization Plan and the HPE Next Plan. During the third quarter of fiscal 2020, the Company launched the Cost Optimization and Prioritization Plan which focuses on realigning the workforce to areas of growth, a new hybrid workforce model called Edge-to-Office, real estate strategies and simplifying and evolving the Company’s product portfolio strategy. The transformation costs predominantly related to labor restructuring, non-labor restructuring, IT investments, design and execution charges and real estate initiatives. The primary elements of the Cost Optimization and Prioritization Plan were completed by the end of fiscal 2024.
During the third quarter of fiscal 2017, the Company launched the HPE Next Plan to put in place a purpose-built company designed to compete and win in the markets where it participates. Through this program, the Company is simplifying the operating model, and streamlining its offerings, business processes and business systems to improve its strategy execution. The primary elements of the HPE Next Plan were completed by the end of fiscal 2024.
Cost Optimization and Prioritization Plan
The components of the transformation costs relating to the Cost Optimization and Prioritization Plan were as follows:
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Program management | $ | 2 | $ | 9 | $ | 27 | |||||||||||
| IT costs | 13 | 26 | 26 | ||||||||||||||
| Restructuring charges | 32 | 226 | 201 | ||||||||||||||
| Total | $ | 47 | $ | 261 | $ | 254 |
HPE Next Plan
The components of transformation costs relating to HPE Next Plan were as follows:
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Program management | $ | 1 | $ | — | $ | 7 | |||||||||||
| IT costs | 47 | 91 | 184 | ||||||||||||||
| Restructuring charges | 1 | 16 | 13 | ||||||||||||||
| Gains on real estate sales | — | (85) | (8) | ||||||||||||||
| Impairment on real estate assets | — | — | 11 | ||||||||||||||
| Other | — | 3 | 13 | ||||||||||||||
| Total | $ | 49 | $ | 25 | $ | 220 |
Restructuring Plans
On May 19, 2020, the Company's Board of Directors approved a restructuring plan in connection with the Cost Optimization and Prioritization Plan which primarily related to labor restructuring and real estate site exits under non-labor restructuring. The changes to the workforce varied by country, based on business needs, local legal requirements and consultations with employee works councils and other employee representatives, as appropriate.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
On October 16, 2017, the Company's Board of Directors approved a restructuring plan in connection with the HPE Next Plan, and on September 20, 2018, the Company's Board of Directors approved a revision to that restructuring plan. Headcount exits under the HPE Next Plan were substantially complete as of October 31, 2020. Other restructuring actions primarily related to infrastructure were substantially complete as of October 31, 2022.
Restructuring activities related to the Company's employees and infrastructure under the Cost Optimization and Prioritization Plan and HPE Next Plan are presented in the table below:
| Cost Optimization and Prioritization Plan | HPE Next Plan | ||||||||||||||||||||||
| Employee Severance | Infrastructure and other | Employee Severance | Infrastructure and other | ||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Liability as of October 31, 2023 | $ | 152 | $ | 127 | $ | 6 | $ | 27 | |||||||||||||||
| Charges | 30 | 2 | — | 1 | |||||||||||||||||||
| Cash payments | (113) | (38) | (5) | (7) | |||||||||||||||||||
| Non-cash items | (2) | 3 | (1) | 2 | |||||||||||||||||||
| Liability as of October 31, 2024 | $ | 67 | $ | 94 | $ | — | $ | 23 | |||||||||||||||
| Total costs incurred to date as of October 31, 2024 | $ | 823 | $ | 563 | $ | 1,267 | $ | 271 | |||||||||||||||
| Total expected costs to be incurred as of October 31, 2024 | $ | 823 | $ | 563 | $ | 1,267 | $ | 271 |
The current restructuring liability related to the transformation programs, reported in the Consolidated Balance Sheets as of October 31, 2024 and 2023, was $61 million and $180 million, respectively, in Accrued restructuring, and $17 million and $22 million, respectively, in Other accrued liabilities. The non-current restructuring liability related to the transformation programs, reported in Other non-current liabilities in the Consolidated Balance Sheets as of October 31, 2024 and 2023 was $106 million and $110 million, respectively.
Note 4: Retirement and Post-Retirement Benefit Plans
Defined Benefit Plans
The Company sponsors defined benefit pension plans worldwide, the most significant of which are the United Kingdom (“UK”) and Germany plans. The pension plan in the UK is closed to new entrants, and the plan was frozen October 31, 2024. This plan provides benefits based on final pay and years of service and generally requires contributions from members. The German pension program that is open to new hires consists of cash balance plans that provide employer credits as a percentage of pay, certain employee pay deferrals and employer matching contributions. There also are previously closed German pension programs that include cash balance and final average pay plans. These previously closed pension programs comprise the majority of the pension obligations in Germany.
Post-Retirement Benefit Plans
The Company sponsors retiree health and welfare benefit plans, the most significant of which is in the U.S. Generally, employees hired before August 2008 are eligible for employer credits under the Hewlett Packard Enterprise Retirement Medical Savings Account Plan (“RMSA”) upon attaining age 45. Employer credits to the RMSA available after September 2008 are provided in the form of matching credits on employee contributions made to a voluntary employee beneficiary association. Upon retirement, employees may use these employer credits for the reimbursement of certain eligible medical expenses.
Defined Contribution Plans
The Company offers various defined contribution plans for U.S. and non-U.S. employees. The Company’s defined contribution expense was approximately $206 million in fiscal 2024 and 2023, and $196 million in fiscal 2022. U.S. employees are automatically enrolled in the Hewlett Packard Enterprise Company 401(k) Plan (“HPE 401(k) Plan”), when they meet eligibility requirements, unless they decline participation. The HPE 401(k) Plan’s quarterly employer matching contributions are 100% of an employee’s contributions, up to a maximum of 4% of eligible compensation.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Pension Benefit Expense
The Company's net pension and post-retirement benefit costs that were directly attributable to the eligible employees, retirees and other former employees of Hewlett Packard Enterprise and recognized in the Consolidated Statements of Earnings for fiscal 2024, 2023 and 2022 are presented in the table below.
| For the fiscal years ended October 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||
| Defined Benefit Plans | Post-Retirement Benefit Plans | ||||||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||
| Service cost | $ | 49 | $ | 53 | $ | 78 | $ | 1 | $ | 1 | $ | 1 | |||||||||||||||||||||||
| Interest cost(1) | 408 | 386 | 154 | 9 | 8 | 4 | |||||||||||||||||||||||||||||
| Expected return on plan assets(1) | (550) | (539) | (450) | (4) | (2) | (2) | |||||||||||||||||||||||||||||
| Amortization and Deferrals(1): | |||||||||||||||||||||||||||||||||||
| Actuarial loss (gain) | 148 | 160 | 167 | (4) | (6) | (2) | |||||||||||||||||||||||||||||
| Prior service benefit | (8) | (10) | (10) | — | — | — | |||||||||||||||||||||||||||||
| Net periodic benefit cost (credit) | 47 | 50 | (61) | 2 | 1 | 1 | |||||||||||||||||||||||||||||
| Settlement loss and special termination benefits(1) | 4 | 6 | 5 | — | — | — | |||||||||||||||||||||||||||||
| Total net benefit cost (credit) | $ | 51 | $ | 56 | $ | (56) | $ | 2 | $ | 1 | $ | 1 | |||||||||||||||||||||||
(1)These non-service components were included in Interest and other, net in the Consolidated Statements of Earnings.
The weighted-average assumptions used to calculate the net benefit cost (credit) in the table above for fiscal 2024, 2023 and 2022 were as follows:
| For the fiscal years ended October 31, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||||
| Defined Benefit Plans | Post-Retirement Benefit Plans | ||||||||||||||||||||||||||||||||||
| Discount rate used to determine benefit obligation | 4.4 | % | 3.9 | % | 1.3 | % | 6.5 | % | 6.0 | % | 3.0 | % | |||||||||||||||||||||||
| Discount rate used to determine service cost | 4.7 | % | 4.2 | % | 1.7 | % | 6.1 | % | 5.7 | % | 2.7 | % | |||||||||||||||||||||||
| Discount rate used to determine interest cost | 4.4 | % | 3.9 | % | 1.1 | % | 6.4 | % | 5.9 | % | 2.6 | % | |||||||||||||||||||||||
| Expected increase in compensation levels | 2.9 | % | 3.0 | % | 2.6 | % | — | — | — | ||||||||||||||||||||||||||
| Expected long-term return on plan assets | 5.5 | % | 5.1 | % | 3.2 | % | 5.3 | % | 4.3 | % | 3.3 | % | |||||||||||||||||||||||
| Interest crediting rate(1) | 2.4 | % | 2.4 | % | 2.5 | % | 5.3 | % | 4.3 | % | 2.7 | % |
(1)The average assumed interest credited for HPE's cash balance plans and post-retirement plans, as applicable.
To estimate the service and interest cost components of net periodic benefit cost for defined benefit plans that use the yield curve approach, which represent substantially all of the Company's defined benefit plans, the Company has elected to use a full yield curve approach in the estimation of these components of benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Funded Status
The funded status of the plans was as follows:
| As of October 31, | |||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Defined Benefit Plans | Post-Retirement Benefit Plans | ||||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Change in fair value of plan assets: | |||||||||||||||||||||||
| Fair value—beginning of year | $ | 9,879 | $ | 9,915 | $ | 68 | $ | 60 | |||||||||||||||
| Reimbursement of benefit payments(1) | (90) | (82) | — | — | |||||||||||||||||||
| Actual return on plan assets | 1,207 | (315) | 5 | 4 | |||||||||||||||||||
| Employer contributions | 172 | 179 | 4 | 6 | |||||||||||||||||||
| Participant contributions | 26 | 24 | 6 | 7 | |||||||||||||||||||
| Benefits paid | (509) | (449) | (7) | (9) | |||||||||||||||||||
| Settlement | (18) | (29) | — | — | |||||||||||||||||||
| Currency impact | 340 | 636 | — | — | |||||||||||||||||||
| Fair value—end of year | $ | 11,007 | $ | 9,879 | $ | 76 | $ | 68 | |||||||||||||||
| Change in benefit obligation: | |||||||||||||||||||||||
| Projected benefit obligation—beginning of year | $ | 9,362 | $ | 9,517 | $ | 148 | $ | 138 | |||||||||||||||
| Addition/deletion of plans(2) | — | 1 | — | — | |||||||||||||||||||
| Service cost | 49 | 53 | 1 | 1 | |||||||||||||||||||
| Interest cost | 408 | 386 | 9 | 8 | |||||||||||||||||||
| Participant contributions | 26 | 24 | 6 | 7 | |||||||||||||||||||
| Actuarial loss (gain) | 613 | (756) | 7 | 3 | |||||||||||||||||||
| Benefits paid | (509) | (449) | (7) | (9) | |||||||||||||||||||
| Plan amendments | 4 | — | — | — | |||||||||||||||||||
| Settlement | (18) | (29) | — | — | |||||||||||||||||||
| Special termination benefits | 2 | 2 | — | — | |||||||||||||||||||
| Currency impact | 319 | 613 | (2) | — | |||||||||||||||||||
| Projected benefit obligation—end of year(3) | $ | 10,256 | $ | 9,362 | $ | 162 | $ | 148 | |||||||||||||||
| Funded status at end of year | $ | 751 | $ | 517 | $ | (86) | $ | (80) | |||||||||||||||
| Accumulated benefit obligation | $ | 10,130 | $ | 9,233 | $ | — | $ | — |
(1)For benefit payments reimbursed to HPE from the German Contractual Trust Arrangements.
(2)Includes the addition/deletion of plans resulting from acquisitions.
(3)HPE divested $13 million in projected benefit obligation and $7 million in assets due to the Communications Technology Group (“CTG”) divestiture that occurred on December 1, 2024.
For the year ended October 31, 2024, the benefit obligation increased from $9.4 billion to $10.3 billion primarily due to the effects of decreasing discount rates. The increase was partially offset by benefits paid which reduced benefit obligations. Pension assets increased from $9.9 billion to $11.0 billion as assets performed better than expected. The increase was partially offset by benefits paid from plan assets.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The weighted-average assumptions used to calculate the projected benefit obligations were as follows:
| As of October 31, | |||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Defined Benefit Plans | Post-Retirement Benefit Plans | ||||||||||||||||||||||
| Discount rate | 3.8 | % | 4.4 | % | 5.6 | % | 6.5 | % | |||||||||||||||
| Expected increase in compensation levels | 2.6 | % | 2.9 | % | — | — | |||||||||||||||||
| Interest crediting rate | 2.5 | % | 2.4 | % | 4.8 | % | 5.3 | % |
The net amounts recognized for defined benefit and post-retirement benefit plans in the Company's Consolidated Balance Sheets were as follows:
| As of October 31, | |||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Defined Benefit Plans | Post-Retirement Benefit Plans | ||||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Non-current assets | $ | 1,555 | $ | 1,313 | $ | — | $ | — | |||||||||||||||
| Current liabilities | (52) | (51) | (6) | (8) | |||||||||||||||||||
| Non-current liabilities | (752) | (745) | (80) | (72) | |||||||||||||||||||
| Funded status at end of year | $ | 751 | $ | 517 | $ | (86) | $ | (80) |
The following table summarizes the pre-tax net actuarial loss and prior service benefit recognized in accumulated other comprehensive loss for the defined benefit plans, activity for the post-retirement benefit plans were immaterial:
| As of October 31, 2024 | |||||||||||
| Defined Benefit Plans | |||||||||||
| In millions | |||||||||||
| Net actuarial loss | $ | 2,478 | |||||||||
| Prior service benefit | 14 | ||||||||||
| Total recognized in accumulated other comprehensive loss | $ | 2,492 |
Defined benefit plans with projected benefit obligations exceeding the fair value of plan assets were as follows:
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Aggregate fair value of plan assets | $ | 506 | $ | 1,969 | |||||||
| Aggregate projected benefit obligation | $ | 1,212 | $ | 2,765 |
Defined benefit plans with accumulated benefit obligations exceeding the fair value of plan assets were as follows:
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Aggregate fair value of plan assets | $ | 2,274 | $ | 1,969 | |||||||
| Aggregate accumulated benefit obligation | $ | 3,076 | $ | 2,675 |
Fair Value of Plan Assets
The Company pays the U.S. defined benefit plan obligations when they come due since these plans are unfunded. The table below sets forth the fair value of non-U.S. defined benefit plan assets by asset category within the fair value hierarchy as of October 31, 2024 and 2023.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
| As of October 31, 2024 | As of October 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||||||||||||||
| Asset Category: | |||||||||||||||||||||||||||||||||||||||||||||||
| Equity Securities | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. | $ | 654 | $ | 60 | $ | — | $ | 714 | $ | 543 | $ | 12 | $ | — | $ | 555 | |||||||||||||||||||||||||||||||
| Non-U.S. | 125 | 190 | — | 315 | 110 | 212 | — | 322 | |||||||||||||||||||||||||||||||||||||||
| Debt securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate | — | 1,526 | — | 1,526 | — | 1,277 | — | 1,277 | |||||||||||||||||||||||||||||||||||||||
| Government(1) | — | 4,768 | — | 4,768 | — | 3,883 | — | 3,883 | |||||||||||||||||||||||||||||||||||||||
| Other(2) | — | 465 | 745 | 1,210 | — | 661 | 799 | 1,460 | |||||||||||||||||||||||||||||||||||||||
| Alternative investments | |||||||||||||||||||||||||||||||||||||||||||||||
| Private Equity(3) | — | 6 | 276 | 282 | — | 5 | 41 | 46 | |||||||||||||||||||||||||||||||||||||||
| Hybrids(4) | — | 365 | 197 | 562 | — | 358 | 177 | 535 | |||||||||||||||||||||||||||||||||||||||
| Hybrids at NAV(5) | 307 | 358 | |||||||||||||||||||||||||||||||||||||||||||||
| Common Contractual Funds at NAV(6) | |||||||||||||||||||||||||||||||||||||||||||||||
| Equities at NAV | 1,053 | 988 | |||||||||||||||||||||||||||||||||||||||||||||
| Fixed Income at NAV | 508 | 471 | |||||||||||||||||||||||||||||||||||||||||||||
| Emerging Markets at NAV | 275 | 284 | |||||||||||||||||||||||||||||||||||||||||||||
| Alternative investments at NAV | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||||||
| Real Estate Funds(7) | 3 | 303 | 264 | 570 | 20 | 327 | 237 | 584 | |||||||||||||||||||||||||||||||||||||||
| Insurance Group Annuity Contracts | — | 93 | 21 | 114 | — | 88 | 20 | 108 | |||||||||||||||||||||||||||||||||||||||
| Cash and Cash Equivalents | 157 | 194 | — | 351 | 222 | 93 | — | 315 | |||||||||||||||||||||||||||||||||||||||
| Other(8) | 9 | 154 | — | 163 | 17 | 23 | — | 40 | |||||||||||||||||||||||||||||||||||||||
| Obligation to return cash received from repurchase agreements(1) | — | (1,712) | — | (1,712) | — | (1,348) | — | (1,348) | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 948 | $ | 6,412 | $ | 1,503 | $ | 11,007 | $ | 912 | $ | 5,591 | $ | 1,274 | $ | 9,879 |
(1)Repurchase agreements, primarily in the UK, represent the plans’ short-term borrowing to hedge against interest rate and inflation risks. Investments in approximately $2.0 billion and $2.3 billion of government bonds collateralize this short-term borrowing at October 31, 2024 and 2023, respectively. The plans have an obligation to return the cash after the term of the agreements. Due to the short-term nature of the agreements, the outstanding balance of the obligation approximates fair value.
(2)Includes funds that invest primarily in asset-backed securities, mortgage-backed securities, collateralized loan obligations, and/or private debt investments. Primary valuation techniques for level 3 investments include discounted cash flows and broker quotes and/or third-party pricing services. Significant unobservable inputs include yields which are determined by considering the market yield of comparable public debt instruments adjusted for estimated losses to reflect where the expected recovery rate would be less than 100%, discount rates, and internal rate of return (IRR). The yields ranged from 6% to 21%, with the weighted average around 10%. In the prior year, the yields ranged from 6% to 22%, with the weighted average around 10%. The discount rates ranged from 3% to 5%, with the weighted average around 4%. In the prior year, the discount rates ranged from 4% to 5%, with the weighted average around 4%. The IRR ranged from 1% to 38%, with the main weighted average around 9%. In the prior year, the IRR ranged from 5% to 21%, with the main weighted average around 10%. Generally, an increase in yield and discounted rates may result in a decrease in the fair value of certain investments.
(3)Includes funds, primarily in the UK, held in non-marketable, limited partnership interests which invest in a broad range of infrastructure and infrastructure-related assets. Primary valuation techniques for level 3 investments include the market, income or cost approach. Significant unobservable inputs include discount rate and EV/EBITDA multiples. Discount rates ranged from 8% to 13%, with the weighted average around 10%. The EV/EBITDA multiples ranged from 6.5x to 37.9x, with the weighted average ranging from 9.2x to 36.3x. Generally, an increase in discount rates may result in a decrease in the fair value of certain investments. The EV/EBITDA ratio generally indicates the number of times investors are willing to pay for a company's EBITDA valuation.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(4)Includes funds, primarily in the UK, that invest in both private and public equities, as well as emerging markets across all sectors. The funds also hold fixed income and derivative instruments to hedge interest rate and inflation risk. In addition, the funds include units in transferable securities, collective investment schemes, money market funds, asset-backed income, cash, and deposits. Primary valuation techniques for level 3 investments include discounted cash flows and book value or net asset value. Significant unobservable inputs include discount rates. The discount rates ranged from 3% to 38%, with the weighted average around 17%. In the prior year, the discount rates ranged from 3% to 28%, with the weighted average around 14%. Generally, an increase in discount rates may result in a decrease in the fair value of certain investments.
(5)Includes a pooled fund in the UK, that seeks a rate of return with direct or indirect linkage to UK inflation by investing in vehicles including bonds, long lease property, income strips, asset-backed securities, and index linked assets. Units are available for subscription on the first business day of each calendar month at net asset value. There are no redemption restrictions or future commitments on these investments.
(6)Common Contractual Funds are investment arrangements in which institutional investors pool their assets. Units may be acquired in four different sub-funds focused on equities, fixed income, alternative investments, and emerging markets. Each sub-fund is invested in accordance with the fund's investment objective and units are issued in relation to each sub-fund. While the sub-funds are not publicly traded, the custodian strikes a net asset value either once or twice a month, depending on the sub-fund. There are no redemption restrictions or future commitments on these investments.
(7)Includes funds, primarily in Germany, that invest in a diversified portfolio of European real estate assets exposed to logistics real estate properties, food retailing properties, residential and commercial properties, and properties under development. Primary valuation techniques for level 3 investments include the income capitalization approach and cost approach. Significant unobservable inputs include rental yield and IRR. The rental yield rates ranged from 4% to 7%, with the weighted average around 5%. In the prior year, the rental yield rates ranged from 4% to 6%, with the weighted average around 4%. The IRR ranged from 0% to 4%, with the main weighted average around 1%. In the prior year, the IRR ranged from 5% to 8%, with the main weighted average around 7%. Generally, an increase in rental yield rates may result in a decrease in the fair value of certain investments. A higher IRR generally signifies a greater fair value as it implies a greater potential rate of return over the life of an investment.
(8)Includes life insurance investment policies, unsettled transactions, and derivative instruments. As of October 31, 2024, the derivative instruments include synthetic equity swaps held by the UK plans with equity exposure of $396 million.
As of October 31, 2024 post-retirement benefit plan assets of $76 million were invested in publicly traded registered investment entities of which $61 million are classified within Level 1 and $15 million within Level 2 of the fair value hierarchy. As of October 31, 2023 post-retirement benefit plan assets of $68 million were invested in publicly traded registered investment entities of which $55 million are classified within Level 1 and $13 million within Level 2 of the fair value hierarchy.
Changes in fair value measurements of Level 3 investments for the non-U.S. defined benefit plans were as follows:
| For the fiscal year ended October 31, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Alternative Investments | |||||||||||||||||||||||||||||||||||||||||
| Debt-Other | Private Equity | Hybrids | Real Estate Funds | Insurance Group Annuities | Total | ||||||||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of year | $ | 799 | $ | 41 | $ | 177 | $ | 237 | $ | 20 | $ | 1,274 | |||||||||||||||||||||||||||||
| Actual return on plan assets: | |||||||||||||||||||||||||||||||||||||||||
| Relating to assets held at the reporting date | 27 | (3) | 6 | (14) | 1 | 17 | |||||||||||||||||||||||||||||||||||
| Relating to assets sold during the period | — | 4 | — | (1) | — | 3 | |||||||||||||||||||||||||||||||||||
| Purchases, sales, and settlements | (81) | 234 | 14 | 42 | — | 209 | |||||||||||||||||||||||||||||||||||
| Balance at end of year | $ | 745 | $ | 276 | $ | 197 | $ | 264 | $ | 21 | $ | 1,503 |
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
| For the fiscal year ended October 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Alternative Investments | |||||||||||||||||||||||||||||||||||||||||
| Debt-Other | Private Equity | Hybrids | Real Estate Funds | Insurance Group Annuities | Other | Total | |||||||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of year | $ | 932 | $ | 46 | $ | 182 | $ | 164 | $ | 21 | $ | 1 | $ | 1,346 | |||||||||||||||||||||||||||
| Actual return on plan assets: | |||||||||||||||||||||||||||||||||||||||||
| Relating to assets held at the reporting date | 72 | (8) | 2 | (6) | (1) | — | 59 | ||||||||||||||||||||||||||||||||||
| Relating to assets sold during the period | — | 3 | — | — | — | — | 3 | ||||||||||||||||||||||||||||||||||
| Purchases, sales, and settlements | (205) | — | (7) | 79 | — | (1) | (134) | ||||||||||||||||||||||||||||||||||
| Balance at end of year | $ | 799 | $ | 41 | $ | 177 | $ | 237 | $ | 20 | $ | — | $ | 1,274 |
The following is a description of the valuation methodologies used to measure plan assets at fair value.
Investments in publicly traded equity securities are valued using the closing price on the measurement date as reported on the stock exchange on which the individual securities are traded. For corporate, government backed debt securities, and some other investments, fair value is based on observable inputs of comparable market transactions. The valuation of certain real estate funds, insurance group annuity contracts and alternative investments, such as limited partnerships and joint ventures, may require significant management judgment and involves a level of uncertainty. The valuation is generally based on fair value as reported by the asset manager and adjusted for cash flows, if necessary. In making such an assessment, a variety of factors are reviewed by management, including, but are not limited to, the timeliness of fair value as reported by the asset manager and changes in general economic and market conditions subsequent to the last fair value reported by the asset manager. The use of different techniques or assumptions to estimate fair value could result in a different fair value measurement at the reporting date. Cash and cash equivalents includes money market funds, which are valued based on cost, which approximates fair value. Other than those assets that have quoted prices from an active market, investments are generally classified in Level 2 or Level 3 of the fair value hierarchy based on the lowest level input that is significant to the fair value measure in its entirety. Investments measured using net asset value as a practical expedient are not categorized within the fair value hierarchy.
Plan Asset Allocations
The weighted-average target and actual asset allocations across the benefit plans at the respective measurement dates for the non-U.S. defined benefit plans were as follows:
| Defined Benefit Plans | |||||||||||||||||
| Plan Assets | |||||||||||||||||
| 2024 Target Allocation | 2024 | 2023 | |||||||||||||||
| Public equity securities | 21.4 | % | 21.8 | % | |||||||||||||
| Private/hybrid equity securities | 10.5 | % | 9.5 | % | |||||||||||||
| Real estate and other(1) | 6.7 | % | 6.3 | % | |||||||||||||
| Equity-related investments(1) | 41.7 | % | 38.6 | % | 37.6 | % | |||||||||||
| Debt securities | 57.3 | % | 58.2 | % | 59.2 | % | |||||||||||
| Cash and cash equivalents | 1.0 | % | 3.2 | % | 3.2 | % | |||||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % |
(1) Included in Real estate and other investments are synthetic equity swaps with equity exposure of $396 million, which is held in the UK plans as of October 31, 2024.
For the Company's post-retirement benefit plans, approximately 80% of the plan assets are invested in cash and cash equivalents and approximately 20% in multi-asset credit investments which consists primarily of investment grade credit, emerging market debt and high yield bonds.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Investment Policy
The Company's investment strategy is to seek a competitive rate of return relative to an appropriate level of risk depending on the funded status of each plan and the timing of expected benefit payments. The majority of the plans’ investment managers employ active investment management strategies with the goal of outperforming the broad markets in which they invest. Risk management practices include diversification across asset classes and investment styles and periodic rebalancing toward asset allocation targets. A number of the plans’ investment managers are authorized to utilize derivatives for investment or liability exposures, and the Company may utilize derivatives to effect asset allocation changes or to hedge certain investment or liability exposures.
Asset allocation decisions are typically made by an independent board of trustees for the specific plan. Investment objectives are designed to generate returns that will enable the plan to meet its future obligations. In some countries, local regulations may restrict asset allocations, typically leading to a higher percentage of investment in fixed income securities than would otherwise be deployed. The Company reviews the investment strategy and provides a recommended list of investment managers for each country plan, with final decisions on asset allocation and investment managers made by the board of trustees or investment committees for the specific plan.
Basis for Expected Long-Term Rate of Return on Plan Assets
The expected long-term rate of return on plan assets reflects the expected returns for each major asset class in which the plan invests and the weight of each asset class in the target mix. Expected asset returns reflect the current yield on government bonds, risk premiums for each asset class and expected real returns, which considers each country’s specific inflation outlook. Because the Company’s investment policy is to employ primarily active investment managers who seek to outperform the broader market, the expected returns are adjusted to reflect the expected additional returns, net of fees.
Employer Contributions and Funding Policy
During fiscal 2024, the Company contributed approximately $172 million to its non-U.S. pension plans and paid $4 million to cover benefit claims under the Company’s post-retirement benefit plans.
During fiscal 2025, the Company expects to contribute approximately $189 million to its non-U.S. pension plans and an additional $1 million to cover benefit payments to U.S. non-qualified plan participants. In addition, the Company expects to pay approximately $6 million to cover benefit claims for its post-retirement benefit plans. The Company's policy is to fund its pension plans so that it makes at least the minimum contribution required by various authorities including local government and taxing authorities.
Estimated Future Benefits Payments
As of October 31, 2024, estimated future benefits payments for the Company's retirement plans were as follows:
| Fiscal year | Defined Benefit Plans | Post-Retirement Benefit Plans | |||||||||
| In millions | |||||||||||
| 2025 | $ | 609 | $ | 10 | |||||||
| 2026 | 554 | 11 | |||||||||
| 2027 | 568 | 11 | |||||||||
| 2028 | 592 | 12 | |||||||||
| 2029 | 609 | 13 | |||||||||
| Next five fiscal years to October 31, 2034 | $ | 3,114 | $ | 72 |
Note 5: Stock-Based Compensation
On April 14, 2021 (the “Approval Date”), shareholders of the Company approved the Hewlett Packard Enterprise Company 2021 Stock Incentive Plan (the “2021 Plan”) that replaced the Company’s 2015 Stock Incentive Plan (the “2015 Plan”). The 2021 Plan provides for the grant of various types of awards including restricted stock awards, stock options and performance-based awards. These awards generally vest over 3 years from the grant date. The maximum number of shares as of the Approval Date that may be delivered to the participants under the 2021 Plan shall not exceed 7 million shares, plus 35.8 million shares that were available for grant under the 2015 Plan and any awards granted under the 2015 Plan prior to the
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Approval Date that were cash-settled, forfeited, terminated, or lapsed after the Approval Date. On April 5, 2022, April 5, 2023 and April 10, 2024, shareholders of the Company approved amendments to the 2021 Plan thereby increasing the overall number of shares available for issuance by 15 million shares, 18 million shares, and 22 million shares, respectively. As of October 31, 2024, the Company had remaining authorization of 38.5 million shares under the 2021 Plan.
Stock-Based Compensation Expense
Stock-based compensation expense and the resulting tax benefits were as follows:
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Stock-based compensation expense | $ | 430 | $ | 428 | $ | 391 | |||||||||||
| Income tax benefit | (96) | (92) | (75) | ||||||||||||||
| Stock-based compensation expense, net of tax | $ | 334 | $ | 336 | $ | 316 |
Stock-based compensation expense as presented in the table above is recorded within the following cost and expense lines in the Consolidated Statements of Earnings.
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Cost of sales | $ | 49 | $ | 47 | $ | 46 | |||||||||||
| Research and development | 158 | 161 | 143 | ||||||||||||||
| Selling, general and administrative | 223 | 220 | 202 | ||||||||||||||
| Stock-based compensation expense | $ | 430 | $ | 428 | $ | 391 |
Employee Stock Purchase Plan
Effective November 1, 2015, the Company adopted the Hewlett Packard Enterprise Company 2015 Employee Stock Purchase Plan (“ESPP”). The total number of shares of Company's common stock authorized under the ESPP was 80 million. The ESPP allows eligible employees to contribute up to 10% of their eligible compensation to purchase Hewlett Packard Enterprise's common stock. The ESPP provides for a discount not to exceed 15% and an offering period up to 24 months. The Company currently offers 6-month offering periods during which employees have the ability to purchase shares at 95% of the closing market price on the purchase date. No stock-based compensation expense was recorded in connection with those purchases, as the criteria of a non-compensatory plan were met.
Restricted Stock Units
Restricted stock units have forfeitable dividend equivalent rights equal to the dividend paid on common stock. Restricted stock units do not have the voting rights of common stock, and the shares underlying restricted stock units are not considered issued and outstanding upon grant. The fair value of the restricted stock units is the closing price of the Company's common stock on the grant date of the award. The Company expenses the fair value of restricted stock units ratably over the period during which the restrictions lapse.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The following table summarizes restricted stock unit activity for the year ended October 31, 2024:
| Shares | Weighted-Average Grant Date Fair Value Per Share | ||||||||||
| In thousands | |||||||||||
| Outstanding at beginning of year | 54,389 | $ | 15 | ||||||||
| Granted and replacement awards for acquisitions | 29,930 | 16 | |||||||||
| Vested | (25,245) | 15 | |||||||||
| Forfeited/canceled | (3,461) | 16 | |||||||||
| Outstanding at end of year | 55,613 | $ | 16 |
The total grant date fair value of restricted stock awards vested for Company employees in fiscal 2024, 2023, and 2022 was $348 million, $319 million and $262 million, respectively. As of October 31, 2024, there was $342 million of unrecognized pre-tax stock-based compensation expense related to unvested restricted stock units, which the Company expects to recognize over the remaining weighted-average vesting period of 1.3 years.
Performance Restricted Units
The Company issues performance stock units (“PSU”) that vest on the satisfaction of service and performance conditions. The fair value of the PSUs is the closing price of the Company's common stock on the grant date of the award. The Company also issues performance-adjusted restricted stock units (“PARSU”) that vest only on the satisfaction of service, performance and market conditions. The Company estimates the fair value of PARSUs subject to performance-contingent vesting conditions using the Monte Carlo simulation model. The expenses associated with these performance restricted units were not material for any of the periods presented.
Stock Options
Stock options granted under the Plan are generally non-qualified stock options, but the Plan permits some options granted to qualify as incentive stock options under the U.S. Internal Revenue Code. The exercise price of a stock option is equal to the closing price of the Company's common stock on the option grant date. The majority of the stock options issued by the Company contain only service vesting conditions. The Company has also issued performance-contingent stock options that vest only on the satisfaction of both service and market conditions. The Company did not issue stock options in fiscal 2024, 2023, and 2022. The expenses associated with stock options were not material for any of the periods presented.
The Company utilizes the Black-Scholes-Merton option pricing formula to estimate the fair value of stock options subject to service-based vesting conditions. The Company estimates the fair value of stock options subject to performance-contingent vesting conditions using a combination of a Monte Carlo simulation model and a lattice model, as these awards contain market conditions.
Note 6: Taxes on Earnings
Provision for Taxes
The domestic and foreign components of Net earnings (loss) from operations before taxes were as follows:
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| U.S. | $ | 765 | $ | (1,105) | $ | (1,138) | |||||||||||
| Non-U.S. | 2,188 | 3,335 | 2,014 | ||||||||||||||
| $ | 2,953 | $ | 2,230 | $ | 876 |
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The Provision for taxes on Net earnings from operations were as follows:
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| U.S. federal taxes: | |||||||||||||||||
| Current | $ | 8 | $ | — | $ | 12 | |||||||||||
| Deferred | (120) | (88) | (98) | ||||||||||||||
| Non-U.S. taxes: | |||||||||||||||||
| Current | 415 | 256 | 288 | ||||||||||||||
| Deferred | 44 | 23 | (143) | ||||||||||||||
| State taxes: | |||||||||||||||||
| Current | 15 | 16 | (43) | ||||||||||||||
| Deferred | 12 | (2) | (8) | ||||||||||||||
| $ | 374 | $ | 205 | $ | 8 |
The differences between the U.S. federal statutory income tax rate and the Company's effective tax rate were as follows:
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| U.S. federal statutory income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State income taxes, net of federal tax benefit | 0.4 | % | 0.9 | % | 2.8 | % | |||||||||||
| Lower rates in other jurisdictions, net | (1.3) | % | (4.4) | % | (0.9) | % | |||||||||||
| Valuation allowance | (1.3) | % | (2.8) | % | (31.5) | % | |||||||||||
| U.S. permanent differences | (4.0) | % | (1.5) | % | 6.0 | % | |||||||||||
| U.S. R&D credit | (1.8) | % | (2.1) | % | (5.1) | % | |||||||||||
| Uncertain tax positions | (0.3) | % | (2.0) | % | (15.6) | % | |||||||||||
| Goodwill impairment | — | % | — | % | 21.5 | % | |||||||||||
| Other, net | — | % | 0.1 | % | 2.7 | % | |||||||||||
| 12.7 | % | 9.2 | % | 0.9 | % |
The jurisdictions with favorable tax rates that had the most significant impact on the Company's effective tax rate in the periods presented include Puerto Rico and Singapore.
In fiscal 2024, the Company recorded $43 million of net income tax charges related to various items discrete to the year. These amounts primarily included $104 million of income tax charges resulting from the gain on the partial disposition of H3C Technologies Co., Limited (“H3C”), which included $215 million of U.S. and foreign income tax charges offset by $111 million of income tax benefit for the release of an uncertain tax benefit related to the prior divestiture, partially offset by $54 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges and $11 million of net excess tax benefits related to stock-based compensation.
In fiscal 2023, the Company recorded $131 million of net income tax benefits related to various items discrete to the year. These amounts primarily included $104 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges and $19 million of net excess tax benefits related to stock-based compensation.
In fiscal 2022, the Company recorded $454 million of net income tax benefits related to various items discrete to the year. These amounts primarily included $150 million of income tax benefits related to releases of foreign valuation allowances, $99 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges, $43 million of income tax benefits related to the settlement of U.S. tax audit matters, $42 million of income tax benefits related to the release of U.S. passive foreign tax credit valuation allowances, $30 million of income tax benefits related to the change in pre-separation tax liabilities, primarily those for which the Company shared joint and several liability with HP Inc. and for which the Company was indemnified by HP Inc., $27 million of income tax benefits related to the utilization of capital losses which had a full valuation allowance, $12 million of income tax benefits as a result of the fiscal 2021 U.S. tax return filing primarily
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
from the decrease in GILTI, and $11 million of net income tax benefits related to settlements and ongoing discussions in foreign tax audit matters.
As a result of certain employment actions and capital investments the Company has undertaken, income from manufacturing and services in certain countries is subject to reduced tax rates through 2039. The gross foreign income tax benefits attributable to these actions and investments were $356 million ($0.27 diluted net EPS) in fiscal 2024, $857 million ($0.65 diluted net EPS) in fiscal 2023, and $832 million ($0.63 diluted net EPS) in fiscal 2022. Refer to Note 16, “Net Earnings Per Share” for details on shares used to compute diluted net EPS.
Uncertain Tax Positions
A reconciliation of unrecognized tax benefits is as follows:
| As of October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Balance at beginning of year | $ | 672 | $ | 674 | $ | 2,131 | |||||||||||
| Increases: | |||||||||||||||||
| For current year's tax positions | 60 | 67 | 81 | ||||||||||||||
| For prior years' tax positions | 116 | 20 | 41 | ||||||||||||||
| Decreases: | |||||||||||||||||
| For prior years' tax positions | (113) | (2) | (48) | ||||||||||||||
| Statute of limitations expiration | (4) | (4) | (12) | ||||||||||||||
| Settlements with taxing authorities | (7) | (83) | (1,491) | ||||||||||||||
| Settlements related to joint and several positions indemnified by HP Inc. | — | — | (28) | ||||||||||||||
| Balance at end of year | $ | 724 | $ | 672 | $ | 674 |
Up to $344 million, $354 million and $386 million of the Company's unrecognized tax benefits at October 31, 2024, 2023 and 2022, respectively, would affect its effective tax rate if realized in their respective periods. During the first quarter of fiscal 2022, the Company effectively settled with the U.S. Internal Revenue Service (“IRS”) for fiscal 2016, primarily contributing to the reduction in the Company's unrecognized tax benefits of $1.5 billion, which was predominantly related to the timing of intercompany royalty revenue recognition which does not affect the Company’s effective tax rate.
The Company recognizes interest income from favorable settlements and interest expense and penalties accrued on unrecognized tax benefits in Provision for taxes in the Consolidated Statements of Earnings. The Company recognized $2 million of interest expense and $25 million and $55 million of interest income in fiscal 2024, 2023, and 2022, respectively. As of October 31, 2024 and 2023, the Company had accrued $58 million and $56 million, respectively, for interest and penalties in the Consolidated Balance Sheets.
The Company is subject to income tax in the U.S. and approximately 80 other countries and is subject to routine corporate income tax audits in many of these jurisdictions.
The Company engages in continuous discussion and negotiation with taxing authorities regarding tax matters in various jurisdictions. The Company is no longer subject to U.S. federal tax audits for years prior to 2017. The IRS is conducting audits of the Company's fiscal 2017 through 2022 U.S. federal income tax returns. During fiscal 2023, the IRS issued notices of proposed adjustments (“NOPAs”) for fiscal 2017, 2018, and 2019 relating to HPE’s intercompany transfer pricing. During the first quarter of fiscal 2024, the IRS issued a Revenue Agent Report (“RAR”) finalizing their position on the NOPAs for the same issues and same fiscal years. However, HPE disagreed with the IRS’ adjustments and believes the positions taken on its tax returns are more likely than not to prevail on technical merits, and has continued with settlement discussions with the IRS. During the third quarter of fiscal 2024, the Company submitted a formal settlement offer to the IRS to facilitate the closing of the audit and recorded increased reserves for unrecognized tax benefits of $122 million. The impact of the increase in reserves is almost entirely offset with a valuation allowance release, and the net impact to income tax expense for fiscal 2024 was not material. It is reasonably possible that the IRS audit for fiscal 2017 through 2019 may be concluded in the next 12 months, and it is reasonably possible that existing unrecognized tax benefits related to these years may be reduced by an amount up to $358 million within the next 12 months, the majority of which relates to adjustments to foreign tax credits that carry a full valuation
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
allowance or to the timing of intercompany royalty revenue recognition, neither of which affects the Company’s effective tax rate.
With respect to major state and foreign tax jurisdictions, the Company is no longer subject to tax authority examinations for years prior to 2005. However, it is reasonably possible that certain foreign tax issues may be concluded in the next 12 months, including issues involving resolution of certain intercompany transactions and other matters. The Company believes it is reasonably possible that its existing unrecognized tax benefits may be reduced by an amount up to $6 million within the next 12 months.
The Company believes it has provided adequate reserves for all tax deficiencies or reductions in tax benefits that could result from federal, state and foreign tax audits. The Company regularly assesses the likely outcomes of these audits in order to determine the appropriateness of the Company's tax provision. The Company adjusts its uncertain tax positions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular audit. However, income tax audits are inherently unpredictable and there can be no assurance that the Company will accurately predict the outcome of these audits. The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in the Provision for taxes and therefore the resolution of one or more of these uncertainties in any particular period could have a material impact on net earnings or cash flows.
The Company has not provided for U.S. federal and state income and foreign withholding taxes on $9.3 billion of undistributed earnings and basis differences from non-U.S. operations as of October 31, 2024 because the Company intends to reinvest such earnings indefinitely outside of the U.S. Determination of the amount of unrecognized deferred tax liability related to these earnings and basis differences is not practicable. The Company will remit non-indefinitely reinvested earnings of its non-U.S. subsidiaries for which deferred U.S. state income and foreign withholding taxes have been provided where excess cash has accumulated and the Company determines that it is advantageous for business operations, tax or cash management reasons.
Deferred Income Taxes
Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The significant components of deferred tax assets and deferred tax liabilities were as follows:
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Deferred tax assets: | |||||||||||
| Loss and credit carryforwards(1) | $ | 5,692 | $ | 5,936 | |||||||
| Inventory valuation | 78 | 90 | |||||||||
| Intercompany prepayments | 192 | 325 | |||||||||
| Warranty | 45 | 49 | |||||||||
| Employee and retiree benefits | 162 | 184 | |||||||||
| Restructuring | 27 | 52 | |||||||||
| Deferred revenue | 799 | 658 | |||||||||
| Intangible assets | 251 | 107 | |||||||||
| Capitalized R&D | 81 | 44 | |||||||||
| Lease liabilities | 253 | 209 | |||||||||
| Other | 262 | 196 | |||||||||
| Total deferred tax assets | 7,842 | 7,850 | |||||||||
| Valuation allowance(1) | (5,204) | (5,428) | |||||||||
| Total deferred tax assets net of valuation allowance | 2,638 | 2,422 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Unremitted earnings of foreign subsidiaries | (229) | (190) | |||||||||
| ROU assets | (236) | (192) | |||||||||
| Fixed assets | (150) | (102) | |||||||||
| Total deferred tax liabilities | (615) | (484) | |||||||||
| Net deferred tax assets and liabilities | $ | 2,023 | $ | 1,938 |
(1)Fiscal 2023 amounts have been reclassified to conform to the current period presentation.
Deferred tax assets and liabilities included in the Consolidated Balance Sheets are as follows:
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Deferred tax assets | $ | 2,396 | $ | 2,264 | |||||||
| Deferred tax liabilities | (373) | (326) | |||||||||
| Deferred tax assets net of deferred tax liabilities | $ | 2,023 | $ | 1,938 |
As of October 31, 2024, the Company had $269 million, $2.9 billion and $20.1 billion of federal, state and foreign net operating loss carryforwards, respectively. Amounts included in state and foreign net operating loss carryforwards will begin to expire in 2025; federal net operating losses can carry forward indefinitely. The Company has provided a valuation allowance of $145 million and $3.8 billion for deferred tax assets related to state and foreign net operating losses carryforwards, respectively. As of October 31, 2024, the Company also had $20 million, $81 million, and $91 million of federal, state, and foreign capital loss carryforwards, respectively. Amounts included in federal and state capital loss carryforwards will begin to expire in 2028; foreign capital losses can carry forward indefinitely. The Company has provided a valuation allowance of $5 million and $27 million for deferred tax assets related to state and foreign capital loss carryforwards, respectively.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
As of October 31, 2024, the Company had recorded deferred tax assets for various tax credit carryforwards as follows:
| Carryforward | Valuation Allowance | Initial Year of Expiration | |||||||||||||||
| In millions | |||||||||||||||||
| U.S. foreign tax credits | $ | 648 | $ | (648) | 2027 | ||||||||||||
| U.S. research and development and other credits | 230 | — | 2029 | ||||||||||||||
| Tax credits in state and foreign jurisdictions | 197 | (177) | 2028 | ||||||||||||||
| Balance at end of year | $ | 1,075 | $ | (825) |
Total valuation allowances decreased by $224 million in fiscal 2024, primarily as a result of the utilization of certain non-U.S. loss carryforwards which had full valuation allowances, the impact on fully valued U.S. foreign tax credits as a result of the change in uncertain tax benefits, the recording of valuation allowances on certain non-U.S. tax credits, and the release of certain foreign valuation allowances.
Tax Matters Agreement and Other Income Tax Matters
In connection with the completed separations and mergers of the former Enterprise Services business with DXC Technology Company (“DXC”) (the “Everett Transaction” or “Everett”) and the Software Segment with Micro Focus International plc (“Micro Focus”) (the “Seattle Transaction” or “Seattle”), the Company entered into a DXC Tax Matters Agreement with DXC and a Micro Focus Tax Matters Agreement with Micro Focus, respectively. See Note 18, “Guarantees and Indemnifications,” for a description of the DXC Tax Matters Agreement and Micro Focus Tax Matters Agreement.
Note 7: Balance Sheet Details
Cash, Cash Equivalents and Restricted Cash
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Cash and cash equivalents | $ | 14,846 | $ | 4,270 | |||||||
| Restricted cash | 259 | 311 | |||||||||
| Total | $ | 15,105 | $ | 4,581 |
Accounts Receivable, Net
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Accounts receivable | $ | 3,236 | $ | 3,254 | |||||||
| Unbilled receivable | 324 | 264 | |||||||||
| Allowances | (10) | (37) | |||||||||
| Total | $ | 3,550 | $ | 3,481 |
The allowance for doubtful accounts related to accounts receivable and changes therein were as follows:
| As of October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Balance at beginning of year | $ | 37 | $ | 25 | $ | 23 | |||||||||||
| Provision for credit losses | 41 | 29 | 25 | ||||||||||||||
| Adjustments to existing allowances, including write offs | (68) | (17) | (23) | ||||||||||||||
| Balance at end of year | $ | 10 | $ | 37 | $ | 25 |
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The Company has third-party revolving short-term financing arrangements intended to facilitate the working capital requirements of certain customers. The Company recorded an obligation of $62 million, $80 million and $88 million in Notes payable and short-term borrowings in its Consolidated Balance Sheets as of October 31, 2024, 2023 and 2022, respectively, related to the trade receivables sold and collected from the third-party for which the revenue recognition was deferred. For arrangements involving an element of recourse, the fair value of the recourse obligation is measured using market data from similar transactions and reported as a current liability in Other accrued liabilities in the Consolidated Balance Sheets.
The activity related to Hewlett Packard Enterprise's revolving short-term financing arrangements was as follows:
| As of October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Balance at beginning of period(1) | $ | 83 | $ | 163 | $ | 336 | |||||||||||
| Trade receivables sold | 3,098 | 4,097 | 4,130 | ||||||||||||||
| Cash receipts | (3,190) | (4,185) | (4,292) | ||||||||||||||
| Foreign currency and other | 9 | 8 | (11) | ||||||||||||||
| Balance at end of period(1) | $ | — | $ | 83 | $ | 163 |
(1)Beginning and ending balances represent amounts for trade receivables sold but not yet collected.
Inventory
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Purchased parts and fabricated assemblies | $ | 5,441 | $ | 2,940 | |||||||
| Finished goods | 2,369 | 1,667 | |||||||||
| Total | $ | 7,810 | $ | 4,607 |
Property, Plant and Equipment, net
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Land | $ | 66 | $ | 66 | |||||||
| Buildings and leasehold improvements | 1,696 | 1,521 | |||||||||
| Machinery and equipment, including equipment held for lease | 10,392 | 10,382 | |||||||||
| Gross property, plant and equipment | 12,154 | 11,969 | |||||||||
| Accumulated depreciation | (6,490) | (5,980) | |||||||||
| Property, plant and equipment, net(1) | $ | 5,664 | $ | 5,989 |
(1)This balance includes $593 million and $606 million of internal use software, net as of October 31, 2024 and 2023, respectively.
Depreciation expense was $2.3 billion in fiscal 2024 and 2023, respectively, and $2.2 billion in 2022.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Long-Term Financing Receivables and Other Assets
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Financing receivables, net | $ | 5,583 | $ | 5,028 | |||||||
| Deferred tax assets | 2,396 | 2,264 | |||||||||
| Prepaid pension | 1,555 | 1,313 | |||||||||
| ROU assets | 1,408 | 980 | |||||||||
| Other | 1,674 | 1,792 | |||||||||
| Total | $ | 12,616 | $ | 11,377 |
Supplier Financing Arrangements
The Company enters into supplier financing arrangements with external financial institutions. Under these arrangements, suppliers can choose to settle outstanding payment obligations at a discount. The Company holds no economic interest in suppliers' participation, nor does it provide guarantees or pledge assets under these arrangements. Invoices are settled with the financial institutions based on the original supplier payment terms. These arrangements do not alter the Company's rights and obligations towards suppliers, including scheduled payment terms. Liabilities associated with the funded participation in these arrangements, are presented within Accounts Payable on the Consolidated Balance Sheets, amounted to $466 million, and $295 million as of October 31, 2024 and October 31, 2023, respectively.
Other Accrued Liabilities
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Sales and marketing programs | $ | 1,032 | $ | 1,070 | |||||||
| Value-added and property taxes | 922 | 786 | |||||||||
| Contract manufacturer liabilities | 505 | 71 | |||||||||
| Customer deposits | 289 | 392 | |||||||||
| Operating lease liabilities | 261 | 194 | |||||||||
| Warranty | 150 | 167 | |||||||||
| Collateral payable | 90 | 207 | |||||||||
| Other | 1,281 | 1,274 | |||||||||
| Total | $ | 4,530 | $ | 4,161 |
Other Non-Current Liabilities
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Deferred revenue | $ | 3,578 | $ | 3,281 | |||||||
| Operating lease liabilities | 1,309 | 966 | |||||||||
| Pension, post-retirement, and post-employment | 859 | 841 | |||||||||
| Deferred tax liabilities | 373 | 326 | |||||||||
| Taxes on earnings | 163 | 233 | |||||||||
| Other | 623 | 899 | |||||||||
| Total | $ | 6,905 | $ | 6,546 |
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Warranties
The Company's aggregate product warranty liabilities and changes therein were as follows:
| As of October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Balance at beginning of year | $ | 318 | $ | 360 | $ | 327 | |||||||||||
| Charges | 173 | 184 | 238 | ||||||||||||||
| Adjustments related to pre-existing warranties | (5) | (18) | (2) | ||||||||||||||
| Settlements made | (185) | (208) | (203) | ||||||||||||||
| Balance at end of year(1) | $ | 301 | $ | 318 | $ | 360 |
(1)The Company included the current portion in Other accrued liabilities, and amounts due after one year in Other non-current liabilities in the accompanying Consolidated Balance Sheets.
Contract Liabilities and Remaining Performance Obligations
Contract liabilities consist of deferred revenue and customer deposits. A summary of contract liabilities were as follows:
| As of October 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Location | In millions | |||||||||||||
| Customer deposits | Other accrued liabilities | $ | 289 | $ | 392 | |||||||||
| Customer deposits - non-current | Other non-current liabilities | 7 | 144 | |||||||||||
| Total customer deposits | $ | 296 | $ | 536 | ||||||||||
| Deferred revenue | Deferred revenue | $ | 3,904 | $ | 3,658 | |||||||||
| Deferred revenue - non-current | Other non-current liabilities | 3,578 | 3,281 | |||||||||||
| Total deferred revenue | $ | 7,482 | $ | 6,939 |
In fiscal 2024, approximately $3.5 billion of revenue was recognized relating to contract liabilities recorded as of October 31, 2023.
Revenue allocated to remaining performance obligations represents contract work that has not yet been performed and does not include contracts where the customer is not committed. Remaining performance obligations estimates are subject to change and are affected by several factors, including contract terminations, changes in the scope of contracts, adjustments for revenue that has not materialized and adjustments for currency. As of October 31, 2024, the aggregate amount of deferred revenue, was $7.5 billion. The Company expects to recognize approximately 50% of this balance over fiscal 2025 with the remainder to be recognized thereafter. The Company receives payments in advance of completion of its contractual obligations, these payments are considered customer deposits. As customer acceptance milestones are met, the Company will recognize revenue and reduce the amount of contract liabilities. As of October 31, 2024, the aggregate amount of customer deposits was $296 million. The Company expects to recognize $289 million over fiscal 2025 and the remaining balance thereafter.
Costs to obtain a Contract
As of October 31, 2024, the current and non-current portions of the capitalized costs to obtain a contract were $88 million and $136 million, respectively. As of October 31, 2023, the current and non-current portions of the capitalized costs to obtain a contract were $86 million and $138 million, respectively. The current and non-current portions of the capitalized costs to obtain a contract were included in Other current assets, and Long-term financing receivables and other assets, respectively, in the Consolidated Balance Sheets. In fiscal 2024, 2023, and 2022 the Company amortized $106 million, $94 million, and $83 million, respectively, of the capitalized costs to obtain a contract which are included in Selling, general and administrative expense in the Consolidated Statements of Earnings.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 8: Accounting for Leases as a Lessee
Components of lease cost included in the Consolidated Statement of Earnings were as follows:
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Operating lease cost | $ | 259 | $ | 200 | $ | 197 | |||||||||||
| Finance lease cost | 3 | 4 | 5 | ||||||||||||||
| Sublease rental income | (26) | (23) | (27) | ||||||||||||||
| Total lease cost | $ | 236 | $ | 181 | $ | 175 |
The ROU assets and lease liabilities for operating and finance leases included in the Consolidated Balance Sheets were as follows:
| As of October 31, | |||||||||||||||||
| Balance Sheet Classification | 2024 | 2023 | |||||||||||||||
| In millions | |||||||||||||||||
| Operating Leases | |||||||||||||||||
| ROU Assets | Long-term financing receivables and other assets | $ | 1,408 | $ | 980 | ||||||||||||
| Lease Liabilities: | |||||||||||||||||
| Operating lease liabilities – current | Other accrued liabilities | 261 | 194 | ||||||||||||||
| Operating lease liabilities – non-current | Other non-current liabilities | 1,309 | 966 | ||||||||||||||
| Total operating lease liabilities | $ | 1,570 | $ | 1,160 | |||||||||||||
| Finance Leases | |||||||||||||||||
| Finance lease ROU Assets: | Property, plant and equipment, net | ||||||||||||||||
| Gross finance lease ROU assets | $ | 26 | $ | 26 | |||||||||||||
| Less: Accumulated depreciation | (16) | (14) | |||||||||||||||
| Net finance lease ROU assets | $ | 10 | $ | 12 | |||||||||||||
| Lease Liabilities: | |||||||||||||||||
| Finance lease liabilities – current | Notes payable and short-term borrowings | $ | 6 | $ | 5 | ||||||||||||
| Finance lease liabilities – non-current | Long-term debt | 32 | 38 | ||||||||||||||
| Total finance lease liabilities | $ | 38 | $ | 43 | |||||||||||||
| Total ROU assets | $ | 1,418 | $ | 992 | |||||||||||||
| Total lease liabilities | $ | 1,608 | $ | 1,203 | |||||||||||||
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The weighted-average remaining lease term and the weighted-average discount rate for the operating and finance leases were as follows:
| As of October 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Operating Leases | Finance Leases | Operating Leases | Finance Leases | ||||||||||||||||||||
| Weighted-average remaining lease term (in years) | 6.7 | 5.5 | 7.2 | 6.5 | |||||||||||||||||||
| Weighted-average discount rate | 4.4 | % | 3.5 | % | 3.8 | % | 3.5 | % |
Supplemental cash flow information related to leases was as follows:
| For the fiscal years ended October 31, | |||||||||||||||||||||||
| Cash Flow Statement Activity | 2024 | 2023 | 2022 | ||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Cash outflows from operating leases | Net cash used in operating activities | $ | 274 | $ | 219 | $ | 214 | ||||||||||||||||
| ROU assets obtained in exchange for new operating lease liabilities | Non-cash activities | $ | 627 | $ | 251 | $ | 195 |
The following tables shows the future payments on the Company's operating and finance leases:
| As of October 31, 2024 | |||||||||||
| Operating Leases | Finance Leases | ||||||||||
| Fiscal year | In millions | ||||||||||
| 2025 | $ | 321 | $ | 7 | |||||||
| 2026 | 296 | 7 | |||||||||
| 2027 | 281 | 7 | |||||||||
| 2028 | 249 | 8 | |||||||||
| 2029 | 201 | 8 | |||||||||
| Thereafter | 468 | 4 | |||||||||
| Total future lease payments | $ | 1,816 | $ | 41 | |||||||
| Less: imputed interest | (246) | (3) | |||||||||
| Total lease liabilities | $ | 1,570 | $ | 38 |
Note 9: Accounting for Leases as a Lessor
Financing Receivables
Financing receivables represent sales-type and direct-financing leases of the Company and third-party products. These receivables typically have terms ranging from two to five years and are usually collateralized by a security interest in the underlying assets. Financing receivables also include billed receivables from operating leases. The allowance for credit losses represents future expected credit losses over the life of the receivables based on past experience, current information and forward-looking economic considerations. The components of financing receivables were as follows:
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Minimum lease payments receivable | $ | 10,266 | $ | 9,363 | |||||||
| Unguaranteed residual value | 599 | 438 | |||||||||
| Unearned income | (1,218) | (987) | |||||||||
| Financing receivables, gross | 9,647 | 8,814 | |||||||||
| Allowance for credit losses | (194) | (243) | |||||||||
| Financing receivables, net | 9,453 | 8,571 | |||||||||
| Less: current portion | (3,870) | (3,543) | |||||||||
| Amounts due after one year, net | $ | 5,583 | $ | 5,028 |
As of October 31, 2024, scheduled maturities of the Company's minimum lease payments receivable were as follows:
| As of October 31, 2024 | |||||
| Fiscal year | In millions | ||||
| 2025 | $ | 4,282 | |||
| 2026 | 2,977 | ||||
| 2027 | 1,747 | ||||
| 2028 | 892 | ||||
| 2029 | 277 | ||||
| Thereafter | 91 | ||||
| Total undiscounted cash flows | $ | 10,266 | |||
| Present value of lease payments (recognized as finance receivables) | $ | 9,048 | |||
| Difference between undiscounted cash flows and discounted cash flows | $ | 1,218 |
Sale of Financing Receivables
The Company enters into arrangements to transfer the contractual payments due under certain financing receivables to third-party financial institutions. For the fiscal years ended October 31, 2024 and 2023, the Company sold $93 million and $237 million, respectively, of financing receivables.
Credit Quality Indicators
Due to the homogeneous nature of its leasing transactions, the Company manages its financing receivables on an aggregate basis when assessing and monitoring credit risk. Credit risk is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across many different industries and geographic regions. The Company evaluates the credit quality of an obligor at lease inception and monitors that credit quality over the term of a transaction. The Company assigns risk ratings to each lease based on the creditworthiness of the obligor and other variables that augment or mitigate the inherent credit risk of a particular transaction and periodically updates the risk ratings when there is a change in the underlying credit quality. Such variables include the underlying value and liquidity of the collateral, the essential use of the equipment, the term of the lease, and the inclusion of credit enhancements, such as guarantees, letters of credit or security deposits.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The credit risk profile of gross financing receivables, based on internal risk ratings as of October 31, 2024, presented on amortized cost basis by year of origination was as follows:
| As of October 31, 2024 | |||||||||||||||||
| Risk Rating | |||||||||||||||||
| Low | Moderate | High | |||||||||||||||
| Fiscal Year | In millions | ||||||||||||||||
| 2024 | $ | 2,630 | $ | 1,120 | $ | 19 | |||||||||||
| 2023 | 1,804 | 948 | 54 | ||||||||||||||
| 2022 | 1,128 | 665 | 46 | ||||||||||||||
| 2021 | 440 | 317 | 52 | ||||||||||||||
| 2020 and prior | 158 | 193 | 73 | ||||||||||||||
| Total | $ | 6,160 | $ | 3,243 | $ | 244 |
The credit risk profile of gross financing receivables, based on internal risk ratings as of October 31, 2023, presented on amortized cost basis by year of origination was as follows:
| As of October 31, 2023 | |||||||||||||||||
| Risk Rating | |||||||||||||||||
| Low | Moderate | High | |||||||||||||||
| Fiscal Year | In millions | ||||||||||||||||
| 2023 | $ | 2,100 | $ | 1,196 | $ | 31 | |||||||||||
| 2022 | 1,681 | 1,052 | 51 | ||||||||||||||
| 2021 | 868 | 645 | 57 | ||||||||||||||
| 2020 | 336 | 285 | 35 | ||||||||||||||
| 2019 and prior | 155 | 223 | 99 | ||||||||||||||
| Total | $ | 5,140 | $ | 3,401 | $ | 273 |
Accounts rated low risk typically have the equivalent of a Standard & Poor's rating of BBB– or higher, while accounts rated moderate risk generally have the equivalent of BB+ or lower. The Company classifies accounts as high risk when it considers the financing receivable to be impaired or when management believes there is a significant near-term risk of impairment. The credit quality indicators do not reflect any mitigation actions taken to transfer credit risk to third parties.
Allowance for Credit Losses
The allowance for credit losses for financing receivables as of October 31, 2024, 2023, and 2022, and the respective changes for the twelve months then ended were as follows:
| As of October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Balance at beginning of period | $ | 243 | $ | 325 | $ | 228 | |||||||||||
| Provision for credit losses(1) | 50 | 58 | 177 | ||||||||||||||
| Adjustment to the existing allowance | (4) | — | (10) | ||||||||||||||
| Write-offs | (95) | (140) | (70) | ||||||||||||||
| Balance at end of period | $ | 194 | $ | 243 | $ | 325 |
(1) Fiscal 2022 included a provision of $99 million related to expected credit losses due to the Company's exit from its Russia and Belarus businesses.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Non-Accrual and Past-Due Financing Receivables
The following table summarizes the aging and non-accrual status of gross financing receivables:
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Billed:(1) | |||||||||||
| Current 1-30 days | $ | 334 | $ | 320 | |||||||
| Past due 31-60 days | 29 | 30 | |||||||||
| Past due 61-90 days | 12 | 13 | |||||||||
| Past due > 90 days | 79 | 100 | |||||||||
| Unbilled sales-type and direct-financing lease receivables | 9,193 | 8,351 | |||||||||
| Total gross financing receivables | $ | 9,647 | $ | 8,814 | |||||||
| Gross financing receivables on non-accrual status(2) | $ | 214 | $ | 227 | |||||||
| Gross financing receivables 90 days past due and still accruing interest(2) | $ | 82 | $ | 81 |
(1)Includes billed operating lease receivables and billed sales-type and direct-financing lease receivables.
(2)Includes billed operating lease receivables and billed and unbilled sales-type and direct-financing lease receivables.
Operating Leases
Operating lease assets included in Property, plant and equipment, net in the Consolidated Balance Sheets were as follows:
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Equipment leased to customers | $ | 6,669 | $ | 7,019 | |||||||
| Accumulated depreciation | (3,037) | (2,919) | |||||||||
| Total | $ | 3,632 | $ | 4,100 |
As of October 31, 2024, minimum future rentals on non-cancelable operating leases related to leased equipment were as follows:
| As of October 31, 2024 | |||||
| Fiscal year | In millions | ||||
| 2025 | $ | 1,696 | |||
| 2026 | 962 | ||||
| 2027 | 339 | ||||
| 2028 | 36 | ||||
| 2029 | 3 | ||||
| Thereafter | 1 | ||||
| Total | $ | 3,037 |
If a lease is classified as an operating lease, the Company records lease revenue on a straight-line basis over the lease term. At commencement of an operating lease, initial direct costs are deferred and are expensed over the lease term on the same basis as the lease revenue is recorded.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The following table presents amounts included in the Consolidated Statements of Earnings related to lessor activity:
| For the fiscal years ended October 31, | |||||||||||||||||||||||
| Location | 2024 | 2023 | 2022 | ||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Interest income from sales-type leases and direct financing leases | Financing income | $ | 668 | $ | 547 | $ | 483 | ||||||||||||||||
| Lease income from operating leases | Services | 2,344 | 2,407 | 2,296 | |||||||||||||||||||
| Total lease income | $ | 3,012 | $ | 2,954 | $ | 2,779 |
Variable Interest Entities
The Company has issued asset-backed debt securities under a fixed-term securitization program to private investors. The asset-backed debt securities are collateralized by the U.S. fixed-term financing receivables and leased equipment in the offering, which is held by a Special Purpose Entity (“SPE”). The SPE meets the definition of a Variable Interest Entity (“VIE”) and is consolidated, along with the associated debt, into the Consolidated Financial Statements as the Company is the primary beneficiary of the VIE. The SPE is a bankruptcy-remote legal entity with separate assets and liabilities. The purpose of the SPE is to facilitate the funding of customer receivables and leased equipment in the capital markets.
The Company's risk of loss related to securitized receivables and leased equipment is limited to the amount by which the Company's right to receive collections for assets securitized exceeds the amount required to pay interest, principal, and fees and expenses related to the asset-backed securities.
The following table presents the assets and liabilities held by the consolidated VIE as of October 31, 2024 and 2023, which are included in the Consolidated Balance Sheets. The assets in the table below include those that can be used to settle the obligations of the VIE. Additionally, general creditors do not have recourse to the assets of the VIE.
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Assets held by VIE: | In millions | ||||||||||
| Other current assets | $ | 189 | $ | 145 | |||||||
| Financing receivables | |||||||||||
| Short-term | $ | 872 | $ | 764 | |||||||
| Long-term | $ | 1,079 | $ | 983 | |||||||
| Property, plant and equipment, net | $ | 1,033 | $ | 1,214 | |||||||
| Liabilities held by VIE: | |||||||||||
| Notes payable and short-term borrowings, net of unamortized debt issuance costs | $ | 1,433 | $ | 1,392 | |||||||
| Long-term debt, net of unamortized debt issuance costs | $ | 965 | $ | 1,082 |
For the year ended October 31, 2024, financing receivables and leased equipment transferred via securitization through the SPE were $1.2 billion and $0.6 billion, respectively. For the fiscal year ended October 31, 2023, financing receivables and leased equipment transferred via securitization through the SPE were $0.8 billion and $0.7 billion, respectively.
Note 10: Acquisitions and Dispositions
Acquisitions and Disposition in fiscal 2024
On August 30, 2024, the Company completed the acquisition of Morpheus Data, a pioneer in software for hybrid cloud management and platform operations. Morpheus Data’s results of operations were included within the Hybrid Cloud segment. The acquisition date fair value consideration of $147 million primarily consisted of cash paid for outstanding common stock. The Company is amortizing the intangible assets on a straight-line basis over an estimated weighted-average useful life of 4 years. The purchase price allocations for the Morpheus Data acquisition, described below, reflect various preliminary fair value estimates and analysis, including preliminary work performed by third-party valuation specialists, of certain tangible assets and
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
liabilities acquired, the valuation of intangible assets acquired, certain legal matters, income and non-income based taxes, and residual goodwill, which are subject to change within the measurement period.
The following table presents the aggregate estimated fair value of the assets acquired and liabilities assumed, including those items that are still pending allocations, for the acquisition completed during fiscal 2024:
| In millions | |||||
| Goodwill | $ | 98 | |||
| Amortizable intangible assets | 68 | ||||
| Net liabilities assumed | (19) | ||||
| Total fair value consideration | $ | 147 |
Pending Merger with Juniper Networks, Inc.
On January 9, 2024, the Company entered into a definitive merger agreement under which HPE will acquire Juniper Networks, Inc. (“Juniper Networks”) in an all-cash transaction for $40.00 per share, representing an equity value of approximately $14 billion. The transaction was unanimously approved by the boards of directors of both companies. On April 2, 2024, Juniper Networks shareholders approved the transaction. The transaction is expected to be funded based on senior unsecured delayed draw term loans from a syndicate of banks, the post-tax proceeds from the Company’s sale to UNIS of 30% of the total issued share capital of H3C, the net proceeds (including after repayments of maturing debt) of its September 2024 issuances of senior unsecured notes and 7.625% Series C Mandatory Convertible Preferred Stock (the “Preferred Stock”), and cash on the balance sheet. Refer to Note 14, “Borrowings,” and Note 15, “Stockholders' Equity,” for additional information. The closing of the transaction remains subject to receipt of regulatory approvals and satisfaction of other customary closing conditions.
Disposition of CTG
On May 23, 2024, HPE announced plans to divest the CTG business to HCLTech. CTG is included in the Communications and Media Solutions business, which is reported in the Corporate Investments and Other segment. This divestiture includes the platform-based software solutions portions of the CTG portfolio, including systems integration, network applications, data intelligence, and the business support systems groups. As of October 31, 2024, assets and liabilities to be sold have been presented in the Consolidated Balance Sheets as assets and liabilities held for sale. On December 1, 2024, the Company completed the disposition of CTG. The Company received net proceeds of $210 million and expect to recognize a gain of approximately $230 million.
Acquisitions in fiscal 2023
During fiscal 2023, the Company completed five acquisitions. The purchase price allocations for the acquisitions described below reflect various fair value estimates and analysis, including work performed by third-party valuation specialists, of certain tangible assets and liabilities acquired, the valuation of intangible assets acquired, certain legal matters, income and non-income based taxes, and residual goodwill, which were subject to change within the measurement period. Measurement period adjustments were recorded in the reporting period in which the estimates were finalized and adjustment amounts were determined.
The pro forma results of operations, revenue and net income subsequent to the acquisition dates have not been presented as they were not material to the Company's consolidated results of operations, either individually or in the aggregate. Goodwill, which represents the excess of the purchase price over the net tangible and intangible assets acquired, was not deductible for tax purposes.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The following table presents the aggregate estimated fair value of the assets acquired and liabilities assumed, including those items that are still pending allocations, for the acquisitions completed during fiscal 2023:
| In millions | |||||
| Goodwill | $ | 585 | |||
| Amortizable intangible assets | 209 | ||||
| Net tangible assets assumed | 46 | ||||
| Total fair value consideration | $ | 840 |
On May 2, 2023, the Company completed the acquisition of OpsRamp, an IT operations management company that monitors, observes, automates, and manages IT infrastructure, cloud resources, workloads, and applications for hybrid and multi-cloud environments, including the leading hyperscalers. OpsRamp’s results of operations were included within the Corporate Investments and Other segment. The acquisition date fair value consideration of $307 million primarily consisted of cash paid for outstanding common stock. In connection with this acquisition, the Company recorded approximately $217 million of goodwill, and $84 million of intangible assets. The Company is amortizing the intangible assets on a straight-line basis over an estimated weighted-average useful life of 5 years.
On March 15, 2023, the Company completed the acquisition of Axis Security, a cloud security provider, enabling the Company to expand its edge-to-cloud security capabilities by offering a unified Secure Access Services Edge solution to meet the increasing demand for integrated networking and security solutions delivered aaS. Axis Security's results of operations were included within the Intelligent Edge segment. The acquisition date fair value consideration of $412 million primarily consisted of cash paid for outstanding common stock. In connection with this acquisition, the Company recorded approximately $311 million of goodwill, and $71 million of intangible assets. The Company is amortizing the intangible assets on a straight-line basis over an estimated weighted-average useful life of 5 years.
Acquisitions in fiscal 2022
The Company did not have any acquisitions during fiscal 2022.
Note 11: Goodwill and Intangible Assets
Goodwill
Goodwill and related changes in the carrying amount by reportable segment were as follows:
| Server | Hybrid Cloud | Intelligent Edge | Financial Services | Corporate Investments & Other | Total | |||||||||||||||||||||||||||||||||||||||
| Balance at October 31, 2023(1) | $ | 10,220 | $ | 4,716 | $ | 2,908 | $ | 144 | $ | — | $ | 17,988 | ||||||||||||||||||||||||||||||||
| Goodwill from acquisitions | — | 98 | — | — | — | 98 | ||||||||||||||||||||||||||||||||||||||
| Goodwill adjustments | — | (1) | 1 | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Balance at October 31, 2024(1) | $ | 10,220 | $ | 4,813 | $ | 2,909 | $ | 144 | $ | — | $ | 18,086 | ||||||||||||||||||||||||||||||||
(1)Goodwill is net of accumulated impairment losses of $1.9 billion. Of this amount, $1.7 billion relates to the HPC & AI reporting unit of which $815 million was recorded during the fourth quarter of fiscal 2022. The Hybrid Cloud reporting unit has an accumulated impairment loss of $90 million related to the former Software reporting unit which was also recorded during the fourth quarter of fiscal 2022.
2024 Interim and Annual Goodwill Impairment Reviews
As of October 31, 2024, the Company’s reporting units with goodwill are consistent with the reportable segments identified in Note 2, “Segment Information” to the Consolidated Financial Statements in Item 8 of Part II, with the exception of Server, which contains two reporting units: Compute and HPC & AI, and Corporate Investments and Other which contains two reporting units: Advisory and Professional Services, and legacy Communications and Media Solutions.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
During fiscal 2024, the Company performed the following goodwill impairment tests, none of which resulted in goodwill impairment:
-
Impairment test performed as of November 1, 2023 based on organizational changes impacting the composition of reporting units as of that date;
-
Annual goodwill impairment test, which was performed as of the first day of the fourth quarter of fiscal 2024. The excess of fair value over carrying amount for the reporting units ranged from approximately 8% to 198% of the respective carrying amounts and;
-
Interim goodwill impairment test as of September 30, 2024 for Compute and Hybrid Cloud reporting units.
In September 2024, HPE sold 30% of the total issued share capital of H3C. The equity investment in H3C primarily benefits the Compute and Hybrid Cloud reporting units. Subsequent to the sale, on September 30, 2024, the Company performed an interim impairment analysis for Compute and Hybrid Cloud reporting units. The excess of fair value over carrying amount for these reporting units was 6% for Compute and 5% for Hybrid Cloud.
The Compute reporting unit has goodwill of $8.2 billion as of October 31, 2024, and excess of fair value over carrying value of 6% as of the September 30, 2024 interim test date. The Compute business is cyclical in nature. Over the last several years, digital transformation drove increased investment to modernize infrastructure. However, in the current macroeconomic and inflationary environment, customers have invested selectively resulting in moderate unit growth and competitive pricing. The Compute business continues to focus on capturing market share while maintaining operating margin, leveraging its strong portfolio of ProLiant Gen11 products.
The Hybrid Cloud reporting unit has goodwill of $4.8 billion as of October 31, 2024, and excess of fair value of 5% as of the September 30, 2024 interim test date. Although the Hybrid Cloud business is on a positive trajectory, the Company is managing both a sales model transition and product transition within this business. The Company’s product model transition is to a more cloud-native, software-defined platform with HPE Alletra. Translating this growth to revenue and operating income will take time because a greater mix of high margin business such as ratable software and services, are deferred and recognized in future periods.
2023 and 2022 Annual Goodwill Impairment Reviews
The Company’s fiscal 2023 annual impairment test did not result in any impairment charges.
The Company’s fiscal 2022 annual goodwill impairment analysis resulted in impairment charges for goodwill related to the HPC & AI reporting unit and former Software reporting unit (which is now part of the Hybrid Cloud reporting unit). There was no impairment of goodwill for other reporting units.
The decline in the fair value of the HPC & AI reporting unit below its carrying value resulted from changes in expected future cash flows due to the continuation of supply chain constraints, and other operational challenges as well as an increase in cost of capital. As a result, a goodwill impairment charge of $815 million was recorded in the fourth quarter of fiscal 2022. The decline in the fair value of the former Software reporting unit resulted primarily from a decline in market multiples. As a result, a goodwill impairment charge of $90 million was recorded in the fourth quarter of fiscal 2022.
Intangible Assets
| As of October 31, 2024 | As of October 31, 2023 | ||||||||||||||||||||||||||||||||||
| Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||
| Customer contracts, customer lists and distribution agreements | $ | 219 | $ | (70) | $ | 149 | $ | 357 | $ | (177) | $ | 180 | |||||||||||||||||||||||
| Developed and core technology and patents | 747 | (443) | 304 | 1,162 | (711) | 451 | |||||||||||||||||||||||||||||
| Trade name and trademarks | 6 | (5) | 1 | 146 | (123) | 23 | |||||||||||||||||||||||||||||
| Capitalized software development costs | 56 | — | 56 | — | — | — | |||||||||||||||||||||||||||||
| Total intangible assets | $ | 1,028 | $ | (518) | $ | 510 | $ | 1,665 | $ | (1,011) | $ | 654 |
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For fiscal 2024, the decrease in gross intangible assets was primarily due to $761 million of intangible assets which became fully amortized and were eliminated from gross intangible assets and accumulated amortization, partially offset by $68 million of intangible assets related to acquisitions and $56 million related to capitalized software development costs.
As of October 31, 2024, the weighted-average remaining useful lives of the Company's finite-lived intangible assets were as follows:
| Weighted-Average Remaining Useful Lives | |||||
| In years | |||||
| Customer contracts, customer lists and distribution agreements | 5 | ||||
| Developed and core technology and patents | 3 | ||||
| Trade name and trademarks | 1 | ||||
| Capitalized software development costs | 3 |
As of October 31, 2024, estimated future amortization expense related to finite-lived intangible assets was as follows:
| Fiscal year | In millions | ||||
| 2025 | $ | 152 | |||
| 2026 | 128 | ||||
| 2027 | 95 | ||||
| 2028 | 50 | ||||
| 2029 | 30 | ||||
| Thereafter | 5 | ||||
| Total(1) | $ | 460 |
(1)This table does not include $50 million of software development costs that are in-progress and not amortizable.
Note 12: Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.
Fair Value Hierarchy
The Company uses valuation techniques that are based upon observable and unobservable inputs. Observable inputs are developed using market data such as publicly available information and reflect the assumptions market participants would use, while unobservable inputs are developed using the best information available about the assumptions market participants would use. Assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement:
Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2—Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.
Level 3—Unobservable inputs for assets or liabilities.
The fair value hierarchy gives the highest priority to observable inputs and lowest priority to unobservable inputs. For the fiscal years ended October 31, 2024 and 2023, there were no transfers between levels within the fair value hierarchy.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis:
| As of October 31, 2024 | As of October 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 and Investments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Time deposits | $ | — | $ | 601 | $ | — | $ | 601 | $ | — | $ | 905 | $ | — | $ | 905 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Money market funds | 12,639 | — | — | 12,639 | 1,672 | — | — | 1,672 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity investments | — | — | 88 | 88 | — | — | 135 | 135 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign bonds | — | 102 | 1 | 103 | 1 | 95 | 1 | 97 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities(1) | — | — | 14 | 14 | — | — | 22 | 22 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative instruments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | — | 299 | — | 299 | — | 464 | — | 464 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 12,639 | $ | 1,002 | $ | 103 | $ | 13,744 | $ | 1,673 | $ | 1,464 | $ | 158 | $ | 3,295 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative instruments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | — | $ | 58 | $ | — | $ | 58 | $ | — | $ | 151 | $ | — | $ | 151 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | — | 103 | — | 103 | — | 152 | — | 152 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other derivatives | — | 2 | — | 2 | — | 2 | — | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | — | $ | 163 | $ | — | $ | 163 | $ | — | $ | 305 | $ | — | $ | 305 |
(1)Available-for-sale debt securities with carrying values that approximate fair value.
Valuation Techniques
Cash Equivalents and Investments: The Company holds time deposits, money market funds, debt securities primarily consisting of corporate and foreign government notes and bonds. The Company values cash equivalents using quoted market prices, alternative pricing sources, including net asset value, or models utilizing market observable inputs. The fair value of debt and equity investments was based on quoted market prices or model-driven valuations using inputs primarily derived from or corroborated by observable market data, and, in certain instances, valuation models that utilize assumptions which cannot be corroborated with observable market data. Equity and other securities include investments in marketable and non-marketable securities. In evaluating non-marketable securities for impairment or observable price changes, the Company uses valuation techniques using the best information available, and may include quoted market prices, market comparables and discounted cash flow projections.
Derivative Instruments: The Company uses forward contracts, interest rate and total return swaps to hedge certain foreign currency and interest rate exposures. The Company uses industry standard valuation models to measure fair value. Where applicable, these models project future cash flows and discount the future amounts to present value using market-based observable inputs, including interest rate curves, the Company and counterparties' credit risk, foreign currency exchange rates, and forward and spot prices for currencies and interest rates. See Note 13, “Financial Instruments,” for a further discussion of the Company's use of derivative instruments.
Other Fair Value Disclosures
Short-Term and Long-Term Debt: The Company estimates the fair value of its debt primarily using an expected present value technique, which is based on observable market inputs using interest rates currently available to companies of similar credit standing for similar terms and remaining maturities, and considering its own credit risk. The portion of the Company's debt that is hedged is reflected in the Consolidated Balance Sheets as an amount equal to the debt's carrying amount and a fair value adjustment representing changes in the fair value of the hedged debt obligations arising from movements in benchmark interest rates. As of October 31, 2024, the estimated fair value of the Company's short-term and long-term debt was $18.3 billion and the carrying value was $18.2 billion. As of October 31, 2023, the estimated fair value of the Company's short-term
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
and long-term debt was $12.2 billion and the carrying value was $12.4 billion. If measured at fair value in the Consolidated Balance Sheets, short-term and long-term debt would be classified in Level 2 of the fair value hierarchy.
Other Financial Instruments: For the balance of the Company's financial instruments, primarily accounts receivable, accounts payable and financial liabilities included in other accrued liabilities, the carrying amounts approximate fair value due to their short-term nature. If measured at fair value in the Consolidated Balance Sheets, these other financial instruments would be classified in Level 2 or Level 3 of the fair value hierarchy.
Non-Recurring Fair Value Measurements
Equity Investments without Readily Determinable Fair Value: Equity investments are recorded at cost and measured at fair value, when they are deemed to be impaired or when there is an adjustment from observable price changes. For fiscal 2024, the Company recorded a net unrealized gain of $34 million. For fiscal 2023 and 2022, the Company recorded net unrealized losses of $45 million and $17 million, respectively, which included impairments of $50 million and $24 million for the same respective periods. These amounts are reflected in Interest and other, net in the Consolidated Statements of Earnings. If measured at fair value in the Consolidated Balance Sheets, these would generally be classified in Level 3 of the fair value hierarchy. These adjustments are based on observable price changes for certain equity investments without readily determinable fair value. For investments still held as of October 31, 2024, the cumulative upward adjustments for observable price changes was $82 million and cumulative downward adjustments for observable price changes and impairments was $88 million. Refer to Note 13 “Financial Instruments,” for further information about equity investments.
Non-Financial Assets: The Company's non-financial assets, such as intangible assets, goodwill and property, plant and equipment, are recorded at cost. The Company records ROU assets based on the lease liability, adjusted for lease prepayments, lease incentives received and the lessee's initial direct costs. Fair value adjustments are made to these non-financial assets in the period an impairment charge is recognized.
In fiscal 2023 and 2022, the Company recorded a net ROU asset impairment charge of $18 million and $5 million, respectively, in Transformation costs in the Consolidated Statements of Earnings as the carrying value of certain ROU assets exceeded its fair value. If measured at fair value in the Consolidated Balance Sheets, these would generally be classified in Level 3 of the fair value hierarchy.
In the fourth quarter of fiscal 2022, the Company recorded a goodwill impairment charge of $905 million associated with the HPC & AI reporting unit and the Software reporting unit within the Corporate Investments and Other segment. The fair value of the Company's reporting units was classified in Level 3 of the fair value hierarchy due to the significance of unobservable inputs developed using company-specific information. For more information on the goodwill impairment, see Note 11, “Goodwill and Intangible Assets.”
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 13: Financial Instruments
Cash Equivalents and Available-for-Sale Debt Investments
Cash equivalents and available-for-sale debt investments were as follows:
| As of October 31, 2024 | As of October 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost | Gross Unrealized Gains/(Losses) | Fair Value | Cost | Gross Unrealized Gains/(Losses) | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Equivalents: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Time deposits | $ | 601 | $ | — | $ | 601 | $ | 905 | $ | — | $ | 905 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Money market funds | 12,639 | — | 12,639 | 1,672 | — | 1,672 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total cash equivalents | 13,240 | — | 13,240 | 2,577 | — | 2,577 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale Debt Investments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign bonds | 101 | 2 | 103 | 100 | (3) | 97 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | 8 | 6 | 14 | 19 | 3 | 22 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale debt investments | 109 | 8 | 117 | 119 | — | 119 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total cash equivalents and available-for-sale debt investments | $ | 13,349 | $ | 8 | $ | 13,357 | $ | 2,696 | $ | — | $ | 2,696 |
All highly liquid investments with original maturities of three months or less at the date of acquisition are considered cash equivalents. As of October 31, 2024 and 2023, the carrying amount of cash equivalents approximated fair value due to the short period of time to maturity. Interest income related to cash, cash equivalents and debt securities was approximately $197 million, $127 million and $39 million in fiscal 2024, 2023 and 2022, respectively. Time deposits were primarily issued by institutions outside the U.S. as of October 31, 2024 and 2023. The estimated fair value of the available-for-sale debt investments may not be representative of values that will be realized in the future.
Contractual maturities of investments in available-for-sale debt securities were as follows:
| As of October 31, 2024 | |||||||||||
| Amortized Cost | Fair Value | ||||||||||
| In millions | |||||||||||
| Due in more than five years | 109 | 117 | |||||||||
| $ | 109 | $ | 117 |
Equity Investments
Non-marketable equity investments in privately held companies are included in Long-term financing receivables and other assets in the Consolidated Balance Sheets. These non-marketable equity investments are carried either at fair value or under measurement alternative. Measurement alternative equity investments are recorded at cost and measured at fair value when they are deemed to be impaired or when there is an adjustment from observable price changes.
The carrying amount of those non-marketable equity investments accounted for under the fair value option was $88 million and $135 million as of October 31, 2024 and 2023, respectively. For fiscal 2024, he Company recorded a net unrealized loss of $47 million on these investments. For fiscal 2023 and 2022, the Company recorded net unrealized gains of $9 million and $86 million, respectively on these investments. These amounts are reflected in Interest and other, net in the Consolidated Statements of Earnings. In fiscal 2022, the Company sold $165 million of these investments.
The carrying amount of those non-marketable equity investments accounted for under the measurement alternative was $200 million and $145 million as of October 31, 2024 and 2023, respectively. For fiscal 2024, the Company recorded a net unrealized gain of $34 million. For fiscal 2023 and 2022, the Company recorded net unrealized losses of $45 million and $17 million, respectively, which included impairments of $50 million and $24 million for the same respective periods. These amounts are reflected in Interest and other, net in the Consolidated Statements of Earnings.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Derivative Instruments
The Company is a global company exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of its business. As part of its risk management strategy, the Company uses derivative instruments, primarily forward contracts, interest rate swaps and total return swaps to hedge certain foreign currency, interest rate and, to a lesser extent, equity exposures. The Company's objective is to offset gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them, thereby reducing volatility of earnings or protecting the fair value of assets and liabilities. The Company does not have any leveraged derivatives and does not use derivative contracts for speculative purposes. The Company may designate its derivative contracts as fair value hedges, cash flow hedges or hedges of the foreign currency exposure of a net investment in a foreign operation (“net investment hedges”). Additionally, for derivatives not designated as hedging instruments, the Company categorizes those economic hedges as other derivatives. Derivative instruments are recognized at fair value in the Consolidated Balance Sheets. The change in fair value of the derivative instruments is recognized in the Consolidated Statements of Earnings or Consolidated Statements of Comprehensive Income depending upon the type of hedge as further discussed below. The Company classifies cash flows from its derivative programs with the activities that correspond to the underlying hedged items in the Consolidated Statements of Cash Flows.
As a result of its use of derivative instruments, the Company is exposed to the risk that its counterparties will fail to meet their contractual obligations. To mitigate counterparty credit risk, the Company has a policy of only entering into derivative contracts with carefully selected major financial institutions based on their credit ratings and other factors, and the Company maintains dollar risk limits that correspond to each financial institution's credit rating and other factors. The Company's established policies and procedures for mitigating credit risk include reviewing and establishing limits for credit exposure and periodically reassessing the creditworthiness of its counterparties. Master netting agreements also mitigate credit exposure to counterparties by permitting the Company to net amounts due from the Company to a counterparty against amounts due to the Company from the same counterparty under certain conditions.
To further mitigate credit exposure to counterparties, the Company has collateral security agreements, which allows the Company to hold collateral from, or require the Company to post collateral to counterparties when aggregate derivative fair values exceed contractually established thresholds which are generally based on the credit ratings of the Company and its counterparties. If the Company's credit rating falls below a specified credit rating, the counterparty has the right to request full collateralization of the derivatives' net liability position. Conversely, if the counterparty's credit rating falls below a specified credit rating, the Company has the right to request full collateralization of the derivatives' net liability position. Collateral is generally posted within two business days. The fair value of the Company's derivatives with credit contingent features in a net liability position was $23 million and $108 million at October 31, 2024 and 2023, respectively, most of which were fully collateralized within two business days.
Under the Company's derivative contracts, the counterparty can terminate all outstanding trades following a covered change of control event affecting the Company that results in the surviving entity being rated below a specified credit rating. This credit contingent provision did not affect the Company's financial position or cash flows as of October 31, 2024 and 2023.
Fair Value Hedges
The Company issues long-term debt in U.S. dollars based on market conditions at the time of financing. The Company may enter into fair value hedges, such as interest rate swaps, to reduce the exposure of its debt portfolio to changes in fair value resulting from changes in interest rates by achieving a primarily U.S. dollar LIBOR-based floating interest rate which was replaced with SOFR starting in July of fiscal 2023. The swap transactions generally involve principal and interest obligations for U.S. dollar-denominated amounts. Alternatively, the Company may choose not to swap fixed for floating interest payments or may terminate a previously executed swap if it believes a larger proportion of fixed-rate debt would be beneficial. When investing in fixed-rate instruments, the Company may enter into interest rate swaps that convert the fixed interest payments into variable interest payments and may designate these swaps as fair value hedges.
For derivative instruments that are designated and qualify as fair value hedges, the Company recognizes the change in fair value of the derivative instrument, as well as the offsetting change in the fair value of the hedged item, in Interest and other, net in the Consolidated Statements of Earnings in the period of change.
Cash Flow Hedges
The Company uses forward contracts designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in its forecasted net revenue and, to a lesser extent, cost of sales, operating expenses, and intercompany loans denominated in currencies other than the U.S. dollar. The Company's foreign currency cash flow hedges mature generally
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
within twelve months; however, forward contracts associated with sales-type and direct-financing leases and intercompany loans extend for the duration of the lease or loan term, which can extend up to five years.
For derivative instruments that are designated and qualify as cash flow hedges, and as long as they remain highly effective, the Company records the changes in fair value of the derivative instrument in Accumulated other comprehensive loss as a separate component of equity in the Consolidated Balance Sheets and subsequently reclassifies these amounts into earnings in the same financial statement line item when the hedged transaction is recognized.
In connection with the Company’s pending acquisition of Juniper Networks and related debt issuances, the Company entered into interest rate locks for an aggregate notional amount of $2.6 billion. These contracts were settled in fiscal 2024, the Company recognized a loss of $42 million in accumulated other comprehensive income.
Net Investment Hedges
The Company uses forward contracts designated as net investment hedges to hedge net investments in certain foreign subsidiaries whose functional currency is the local currency. The Company records the changes in the fair value of the hedged items in cumulative translation adjustment as a separate component of equity in the Consolidated Balance Sheets.
Other Derivatives
Other derivatives not designated as hedging instruments consist primarily of forward contracts used to hedge foreign currency-denominated balance sheet exposures. The Company also uses total return swaps, based on equity or fixed income indices, to hedge its executive deferred compensation plan liability.
For derivative instruments not designated as hedging instruments, the Company recognizes changes in fair value of the derivative instrument, as well as the offsetting change in the fair value of the hedged item, in Interest and other, net in the Consolidated Statements of Earnings in the period of change.
Hedge Effectiveness
For interest rate swaps designated as fair value hedges, the Company measures hedge effectiveness by offsetting the change in fair value of the hedged items with the change in fair value of the derivative. For forward contracts designated as cash flow or net investment hedges, the Company measures hedge effectiveness by comparing the cumulative change in fair value of the hedge contract with the cumulative change in fair value of the hedged item, both of which are based on forward rates.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Fair Value of Derivative Instruments in the Consolidated Balance Sheets
The gross notional and fair value of derivative instruments in the Consolidated Balance Sheets were as follows:
| As of October 31, 2024 | As of October 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Outstanding Gross Notional | Other Current Assets | Long-Term Financing Receivables and Other Assets | Other Accrued Liabilities | Long-Term Other Liabilities | Outstanding Gross Notional | Other Current Assets | Long-Term Financing Receivables and Other Assets | Other Accrued Liabilities | Long-Term Other Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Hedges: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | 2,500 | $ | — | $ | — | $ | 58 | $ | — | $ | 2,500 | $ | — | $ | — | $ | — | $ | 151 | |||||||||||||||||||||||||||||||||||||||
| Cash Flow Hedges: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency contracts | 7,809 | 107 | 59 | 31 | 25 | 8,247 | 252 | 104 | 33 | 23 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Investment Hedges: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency contracts | 1,986 | 38 | 44 | 12 | 13 | 1,972 | 39 | 46 | 34 | 23 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivatives designated as hedging instruments | 12,295 | 145 | 103 | 101 | 38 | 12,719 | 291 | 150 | 67 | 197 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency contracts | 5,528 | 46 | 5 | 18 | 4 | 6,786 | 20 | 3 | 23 | 16 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other derivatives | 147 | — | — | 2 | — | 100 | — | — | 2 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivatives not designated as hedging instruments | 5,675 | 46 | 5 | 20 | 4 | 6,886 | 20 | 3 | 25 | 16 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivatives | $ | 17,970 | $ | 191 | $ | 108 | $ | 121 | $ | 42 | $ | 19,605 | $ | 311 | $ | 153 | $ | 92 | $ | 213 |
Offsetting of Derivative Instruments
The Company recognizes all derivative instruments on a gross basis in the Consolidated Balance Sheets. The Company's derivative instruments are subject to master netting arrangements and collateral security arrangements. The Company does not offset the fair value of its derivative instruments against the fair value of cash collateral posted under collateral security agreements. The information related to the potential effect of the Company's use of the master netting agreements and collateral security agreements were as follows:
| As of October 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| In the Consolidated Balance Sheets | ||||||||||||||||||||||||||||||||||||||
| (i) | (ii) | (iii) = (i)–(ii) | (iv) | (v) | (vi) = (iii)–(iv)–(v) | |||||||||||||||||||||||||||||||||
| Gross Amounts Not Offset | ||||||||||||||||||||||||||||||||||||||
| Gross Amount Recognized | Gross Amount Offset | Net Amount Presented | Derivatives | Financial Collateral | Net Amount | |||||||||||||||||||||||||||||||||
| In millions | ||||||||||||||||||||||||||||||||||||||
| Derivative assets | $ | 299 | $ | — | $ | 299 | $ | 138 | $ | 90 | (1) | $ | 71 | |||||||||||||||||||||||||
| Derivative liabilities | $ | 163 | $ | — | $ | 163 | $ | 138 | $ | 27 | (2) | N/A |
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
| As of October 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| In the Consolidated Balance Sheets | |||||||||||||||||||||||||||||||||||||||||
| (i) | (ii) | (iii) = (i)–(ii) | (iv) | (v) | (vi) = (iii)–(iv)–(v) | ||||||||||||||||||||||||||||||||||||
| Gross Amounts Not Offset | |||||||||||||||||||||||||||||||||||||||||
| Gross Amount Recognized | Gross Amount Offset | Net Amount Presented | Derivatives | Financial Collateral | Net Amount | ||||||||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||||||||
| Derivative assets | $ | 464 | $ | — | $ | 464 | $ | 196 | $ | 207 | (1) | $ | 61 | ||||||||||||||||||||||||||||
| Derivative liabilities | $ | 305 | $ | — | $ | 305 | $ | 196 | $ | 103 | (2) | $ | 6 |
(1)Represents the cash collateral posted by counterparties as of the respective reporting date for the Company's asset position, net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date.
(2)Represents the collateral posted by the Company in cash or through the re-use of counterparty cash collateral as of the respective reporting date for the Company's liability position, net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date. As of October 31, 2024, $27 million of collateral posted was entirely through the re-use of counterparty collateral. As of October 31, 2023, of the $103 million of collateral posted, $56 million was in cash and $47 million was through the re-use of counterparty collateral.
The amounts recorded in the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges were as follows:
| Carrying Amount of the Hedged Assets/ (Liabilities) | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/ (Liabilities) | ||||||||||||||||||||||
| As of October 31, | As of October 31, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| In millions | In millions | ||||||||||||||||||||||
| Notes payable and short-term borrowings | $ | (2,440) | $ | — | $ | 58 | $ | — | |||||||||||||||
| Long-term debt | $ | — | $ | (2,345) | $ | — | $ | 151 |
The pre-tax effect of derivative instruments in cash flow and net investment hedging relationships recognized in Other Comprehensive Income (“OCI”) were as follows:
| Gains (Losses) Recognized in OCI on Derivatives | |||||||||||||||||
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Derivatives in Cash Flow Hedging Relationship | |||||||||||||||||
| Foreign exchange contracts | $ | (73) | $ | (177) | $ | 1,025 | |||||||||||
| Interest rate locks | (42) | — | — | ||||||||||||||
| Derivatives in Net Investment Hedging Relationship | |||||||||||||||||
| Foreign exchange contracts | 25 | (76) | 99 | ||||||||||||||
| Total | $ | (90) | $ | (253) | $ | 1,124 |
As of October 31, 2024, the Company expects to reclassify an estimated net accumulated other comprehensive gain of approximately $20 million, net of taxes, to earnings in the next twelve months along with the earnings effects of the related forecasted transactions associated with cash flow hedges.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Effect of Derivative Instruments on the Consolidated Statements of Earnings
The following table represents the pre-tax effect of derivative instruments on total amounts of income and expense line items presented in the Consolidated Statements of Earnings in which the effects of fair value hedges, cash flow hedges and derivatives not designated as hedging instruments are recorded:
| Gains (Losses) Recognized in Income | |||||||||||||||||||||||||||||||||||||||||||||||
| For the fiscal years ended October 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||
| Net Revenue | Interest and Other, net | Net Revenue | Interest and Other, net | Net Revenue | Interest and Other, net | ||||||||||||||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||||||||||||||
| Total net revenue and interest and other, net | $ | 30,127 | $ | (117) | $ | 29,135 | $ | (104) | $ | 28,496 | $ | (121) | |||||||||||||||||||||||||||||||||||
| Gains (Losses) on Derivatives in Fair Value Hedging Relationships: | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest Rate Contracts | |||||||||||||||||||||||||||||||||||||||||||||||
| Hedged items | — | (93) | — | (27) | — | 273 | |||||||||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments | — | 93 | — | 27 | — | (273) | |||||||||||||||||||||||||||||||||||||||||
| Gains (Losses) on Derivatives in Cash Flow Hedging Relationships: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign Exchange Contracts | |||||||||||||||||||||||||||||||||||||||||||||||
| Amount of gains (losses) reclassified from accumulated other comprehensive income into income | 59 | (75) | 28 | (144) | 388 | 590 | |||||||||||||||||||||||||||||||||||||||||
| Gains (Losses) on Derivatives not Designated as Hedging Instruments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | — | 38 | — | (97) | — | 287 | |||||||||||||||||||||||||||||||||||||||||
| Other derivatives | — | — | — | (8) | — | (3) | |||||||||||||||||||||||||||||||||||||||||
| Total gains (losses) | $ | 59 | $ | (37) | $ | 28 | $ | (249) | $ | 388 | $ | 874 |
Note 14: Borrowings
Notes Payable and Short-Term Borrowings
Notes payable and short-term borrowings, including the current portion of long-term debt, were as follows:
| As of October 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Amount Outstanding | Weighted-Average Interest Rate | Amount Outstanding | Weighted-Average Interest Rate | ||||||||||||||||||||
| Dollars in millions | |||||||||||||||||||||||
| Current portion of long-term debt(1) | $ | 3,969 | 7.6 | % | $ | 4,022 | 4.8 | % | |||||||||||||||
| Commercial paper | 649 | 3.7 | % | 679 | 4.1 | % | |||||||||||||||||
| Notes payable to banks, lines of credit and other | 124 | 5.0 | % | 167 | 4.6 | % | |||||||||||||||||
| Total notes payable and short-term borrowings | $ | 4,742 | $ | 4,868 |
(1)As of October 31, 2024, the Current portion of long-term debt, net of discount and issuance costs, included $1.4 billion associated with the current portion of the Company issued asset-backed debt securities.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Long-Term Debt
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Hewlett Packard Enterprise Unsecured Senior Notes | |||||||||||
| $1,250 issued at discount to par at a price of 99.996% in September 2024 at 4.45%, due September 25, 2026, interest payable semi-annually on March 25 and September 25 of each year | $ | 1,250 | $ | — | |||||||
| $1,250 issued at discount to par at a price of 99.953% in September 2024 at 4.40%, due September 25, 2027, interest payable semi-annually on March 25 and September 25 of each year | 1,249 | — | |||||||||
| $1,750 issued at discount to par at a price of 99.894% in September 2024 at 4.55%, due October 15, 2029, interest payable semi-annually on April 15 and October 15 of each year | 1,748 | — | |||||||||
| $1,250 issued at discount to par at a price of 99.908% in September 2024 at 4.85%, due October 15, 2031, interest payable semi-annually on April 15 and October 15 of each year | 1,249 | — | |||||||||
| $2,000 issued at discount to par at a price of 99.078% in September 2024 at 5.00%, due October 15, 2034, interest payable semi-annually on April 15 and October 15 of each year | 1,982 | — | |||||||||
| $1,500 issued at discount to par at a price of 98.086% in September 2024 at 5.60%, due October 15, 2054, interest payable semi-annually on April 15 and October 15 of each year | 1,471 | — | |||||||||
| $250 issued at premium to par at a price of 100.452% in June 2023 at 5.90%, due October 1, 2024, interest payable semi-annually on April 1 and October 1 of each year | — | 251 | |||||||||
| $550 issued at discount to par at a price of 99.887% in June 2023 at 5.25%, due July 1, 2028, interest payable semi-annually on January 1 and July 1 of each year | 550 | 549 | |||||||||
| $400 issued at discount to par at a price of 99.997% in March 2023 at 6.102%, due April 1, 2026, interest payable semi-annually on April 1 and October 1 of each year | — | 400 | |||||||||
| $1,300 issued at discount to par at a price of 99.934% in March 2023 at 5.90%, due October 1, 2024, interest payable semi-annually on April 1 and October 1 of each year | — | 1,299 | |||||||||
| $1,000 issued at discount to par at a price of 99.883% in July 2020 at 1.45%, due April 1, 2024, interest payable semi-annually on April 1 and October 1 of each year | — | 1,000 | |||||||||
| $750 issued at discount to par at a price of 99.820% in July 2020 at 1.75%, due April 1, 2026, interest payable semi-annually on April 1 and October 1 of each year | 750 | 749 | |||||||||
| $2,500 issued at discount to par at a price of 99.725% in October 2015 at 4.90%, due October 15, 2025, interest payable semi-annually on April 15 and October 15 of each year | 2,499 | 2,499 | |||||||||
| $750 issued at discount to par at a price of 99.942% in October 2015 at 6.20%, due October 15, 2035, interest payable semi-annually on April 15 and October 15 of each year | 750 | 750 | |||||||||
| $1,500 issued at discount to par at a price of 99.932% in October 2015 at 6.35%, due October 15, 2045, interest payable semi-annually on April 15 and October 15 of each year | 1,499 | 1,499 | |||||||||
| Hewlett Packard Enterprise Asset-Backed Debt Securities | |||||||||||
| $818 issued in June 2024, in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 5.59%, payable monthly from July 2024 | 700 | — | |||||||||
| $796 issued in January 2024, in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 5.48%, payable monthly from February 2024 | 583 | — | |||||||||
| $612 issued in September 2023, in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 6.40%, payable monthly from October 2023 with a stated final maturity of July 2031 | 373 | 596 | |||||||||
| $643 issued in March 2023 and April 2023, in five tranches at a weighted average price of 99.99% and a weighted average interest rate of 5.59%, payable monthly from April 2023 with a stated final maturity of April 2028 | 257 | 483 | |||||||||
| $651 issued in October 2022, in five tranches at a weighted average price of 99.99% and a weighted average interest rate of 5.55%, payable monthly from November 2022 with a stated final maturity date of August 2029 | 191 | 393 | |||||||||
| $747 issued in May 2022, in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 3.68%, payable monthly from July 2022 with a stated final maturity date of March 2030 | 148 | 367 | |||||||||
| $1,000 issued in January 2022, in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 1.51%, payable monthly from March 2022 with a stated final maturity date of November 2029 | 124 | 391 | |||||||||
| $753 issued in June 2021, in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 0.58%, payable monthly from August 2021 with a stated final maturity date of March 2029 | 26 | 147 | |||||||||
| $1,000 issued in March 2021, in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 0.49%, payable monthly from April 2021 with a stated final maturity date of March 2031 | — | 102 | |||||||||
| Other, including finance lease obligations, at 1.6%-6.3%, due in calendar years 2024-2030(1) | 208 | 215 | |||||||||
| Fair value adjustment related to hedged debt | (58) | (151) | |||||||||
| Unamortized debt issuance costs | (76) | (30) | |||||||||
| Less: current portion | (3,969) | (4,022) | |||||||||
| Total long-term debt | $ | 13,504 | $ | 7,487 |
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(1)Other, including finance lease obligations included $14 million and $36 million as of October 31, 2024 and 2023, respectively, of borrowing- and funding-related activity associated with FS and its subsidiaries that are collateralized by receivables and underlying assets associated with the related finance and operating leases. For both the periods presented, the carrying amount of the assets approximated the carrying amount of the borrowings.
Interest expense on borrowings recognized in the Consolidated Statements of Earnings was as follows:
| For the fiscal years ended October 31, | |||||||||||||||||||||||
| Location | 2024 | 2023 | 2022 | ||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Financing interest | Financing cost | $ | 495 | $ | 383 | $ | 211 | ||||||||||||||||
| Interest expense | Interest and other, net | 282 | 326 | 260 | |||||||||||||||||||
| Total interest expense | $ | 777 | $ | 709 | $ | 471 |
As disclosed in Note 13, “Financial Instruments,” the Company used interest rate swaps to mitigate the exposure of its fixed rate debt to changes in fair value resulting from changes in interest rates, or hedge the variability of cash flows in the interest payments associated with its variable-rate debt. Interest rates on long-term debt in the table above have not been adjusted to reflect the impact of any interest rate swaps.
Commercial Paper
Hewlett Packard Enterprise maintains two commercial paper programs, “the Parent Programs,” and a wholly-owned subsidiary maintains a third program. The Parent Program in the U.S. provides for the issuance of U.S. dollar-denominated commercial paper up to a maximum aggregate principal amount of $4.75 billion. The Parent Program outside the U.S. provides for the issuance of commercial paper denominated in U.S. dollars, euros or British pounds up to a maximum aggregate principal amount of $3.0 billion or the equivalent in those alternative currencies. The combined aggregate principal amount of commercial paper outstanding under those two programs at any one time cannot exceed the $4.75 billion as authorized by Hewlett Packard Enterprise's Board of Directors. In addition, the Hewlett Packard Enterprise subsidiary's euro Commercial Paper/Certificate of Deposit Program provides for the issuance of commercial paper in various currencies of up to a maximum aggregate principal amount of $1.0 billion. As of October 31, 2024 and 2023, no borrowings were outstanding under the Parent Programs. As of October 31, 2024 and 2023, $649 million and $679 million, respectively, were outstanding under the subsidiary’s program.
Revolving Credit Facility
In September 2024, the Company terminated its prior senior unsecured revolving credit facility that was entered into in December 2021, and entered into a new senior unsecured revolving credit facility with an aggregate lending commitment of $5.25 billion for a period of five years. The commitment comprised of (i) $4.75 billion of commitments available immediately and (ii) $500 million of commitments available from and subject to the closing of the Juniper Networks acquisition and refinancing of Juniper Networks’ credit agreement in connection with the closing of the Juniper Networks acquisition. As of October 31, 2024 and 2023, no borrowings were outstanding under either credit facilities.
Uncommitted Credit facility
On September 21, 2023, the Company entered into a five-year agreement with Societe Generale for an uncommitted short-term cash advance facility in the principal amount of up to $500 million. As of October 31, 2024, no borrowings were outstanding under this credit facility.
Juniper Networks Acquisition Committed Financing
In connection with HPE’s signing a definitive agreement to acquire Juniper Networks in January 2024 (the “Merger Agreement”), HPE entered into a commitment letter whereby HPE obtained a commitment from Citigroup Global Markets Inc., JPMorgan Chase Bank, N.A. and Mizuho Bank, Ltd. for a $14.0 billion senior unsecured delayed draw term loan facility, comprised of an $11.0 billion 364-day tranche and a $3.0 billion three-year tranche, subject to customary conditions (the “Term Loan Commitment Letter”).
In September 2024, HPE issued $9.0 billion of senior unsecured notes. In addition, in furtherance of the Term Loan Commitment Letter, the Company entered into term loan agreements with JPMorgan Chase Bank, N.A, Citibank, N.A., and
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Mizuho Bank, Ltd. for approximately $12.0 billion of senior unsecured delayed draw term loan facilities, comprised of an approximately $9.0 billion 364-day tranche and a $3.0 billion three-year tranche, subject to customary conditions. The Company has since further reduced the commitments under the 364-day term loan to $1.0 billion. Unless previously terminated, commitments under both the 364-day term loan and the three-year term loan will terminate upon the earliest of (i) five business days after the Juniper Outside Date (as defined in such term loan agreements), (ii) the occurrence of the closing of the acquisition of Juniper Networks without the funding of any borrowings under either of the term loan agreements, and (iii) the termination of the Merger Agreement by HPE in writing in accordance with its terms. As of October 31, 2024, no borrowings were outstanding and HPE paid $42 million of financing fees.
In connection with the entry into the aforementioned 364-day term loan and the three-year term loan, on September 12, 2024, HPE terminated the Term Loan Commitment Letter.
Future Maturities of Borrowings
As of October 31, 2024, aggregate future maturities of the Company's borrowings at face value (excluding a fair value adjustment related to hedged debt of $58 million, a net discount of $53 million and unamortized debt issuance costs of $76 million), including finance lease obligations were as follows:
| Fiscal year | In millions | ||||
| 2025 | $ | 4,032 | |||
| 2026 | 2,710 | ||||
| 2027 | 1,545 | ||||
| 2028 | 612 | ||||
| 2029 | 1,758 | ||||
| Thereafter | 7,003 | ||||
| Total | $ | 17,660 |
Note 15: Stockholders' Equity
The components of accumulated other comprehensive loss, net of taxes as of October 31, 2024 and changes during fiscal 2024 were as follows:
| Net unrealized gains on available-for-sale securities | Net unrealized gains (losses) on cash flow hedges | Unrealized components of defined benefit plans | Cumulative translation adjustment | Accumulated other comprehensive loss | |||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||
| Balance at beginning of period | $ | — | $ | 61 | $ | (2,507) | $ | (638) | $ | (3,084) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 8 | (115) | 34 | (23) | (96) | ||||||||||||||||||||||||
| Reclassifications of losses into earnings | — | 16 | 138 | 32 | 186 | ||||||||||||||||||||||||
| Tax benefit (provision) | — | 22 | (7) | 2 | 17 | ||||||||||||||||||||||||
| Balance at end of period | $ | 8 | $ | (16) | $ | (2,342) | $ | (627) | $ | (2,977) |
The components of accumulated other comprehensive loss, net of taxes as of October 31, 2023 and changes during fiscal 2023 were as follows:
| Net unrealized (losses) gains on available-for-sale securities | Net unrealized gains (losses) on cash flow hedges | Unrealized components of defined benefit plans | Cumulative translation adjustment | Accumulated other comprehensive loss | |||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||
| Balance at beginning of period | $ | (1) | $ | 109 | $ | (2,596) | $ | (610) | $ | (3,098) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 1 | (177) | (99) | (32) | (307) | ||||||||||||||||||||||||
| Reclassifications of losses into earnings | — | 116 | 147 | — | 263 | ||||||||||||||||||||||||
| Tax benefit | — | 13 | 41 | 4 | 58 | ||||||||||||||||||||||||
| Balance at end of period | $ | — | $ | 61 | $ | (2,507) | $ | (638) | $ | (3,084) |
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The components of accumulated other comprehensive loss, net of taxes as of October 31, 2022 and changes during fiscal 2022 were as follows:
| Net unrealized gains (losses) on available-for-sale securities | Net unrealized gains (losses) on cash flow hedges | Unrealized components of defined benefit plans | Cumulative translation adjustment | Accumulated other comprehensive loss | |||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||
| Balance at beginning of period | $ | 15 | $ | 81 | $ | (2,545) | $ | (466) | $ | (2,915) | |||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | (16) | 1,025 | (315) | (146) | 548 | ||||||||||||||||||||||||
| Reclassifications of (gains) losses into earnings | — | (978) | 160 | — | (818) | ||||||||||||||||||||||||
| Tax (provision) benefit | — | (19) | 104 | 2 | 87 | ||||||||||||||||||||||||
| Balance at end of period | $ | (1) | $ | 109 | $ | (2,596) | $ | (610) | $ | (3,098) |
7.625% Series C Mandatory Convertible Preferred Stock
In September 2024, the Company issued 30 million shares of 7.625% Series C Mandatory Convertible Preferred Stock, par value $0.01 per share (the “Preferred Stock”), for an aggregate purchase price of $1.5 billion, less issuance costs of $38 million. As of October 31, 2024, 30 million shares of the Preferred Stock were outstanding.
Unless converted earlier in accordance with its terms, each share of Preferred Stock will automatically convert on the mandatory conversion date, which is expected to be September 1, 2027, into between 2.5352 shares and 3.1056 shares of common stock, in each case, subject to customary anti-dilution adjustments described in the certificate of designations related to the Preferred Stock (the “Certificate of Designations”). The number of shares of common stock issuable upon conversion will be determined based on the average volume weighted average price per share of common stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately prior to September 1, 2027.
Holders of shares of Preferred Stock have the option to convert all or any portion of their shares of Preferred Stock at any time. The conversion rate applicable to any early conversion may, in certain circumstances, be increased to compensate holders of the Preferred Stock for unpaid accumulated dividends as described in the Certificate of Designations.
If a Fundamental Change, as defined in the Certificate of Designations, occurs on or prior to September 1, 2027, then holders of the Preferred Stock will be entitled to convert all or any portion of their Preferred Stock at the Fundamental Change Conversion Rate, into between 1.9200 shares and 3.1056 shares of common stock, in all cases, subject to customary anti-dilution adjustments described in the Certificate of Designations, for a specified period of time and to also receive an amount to compensate them for unpaid accumulated dividends and any remaining future scheduled dividend payments. The Preferred Stock is not subject to redemption at the Company’s option.
Dividends
The stockholders of HPE common stock are entitled to receive dividends when and as declared by the Board of Directors. The Company’s ability to pay dividends will depend on many factors, such as its financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in its debt, industry practice, legal requirements, regulatory constraints, and other factors that the Board of Directors deems relevant. Furthermore, so long as any share of its Preferred Stock remains outstanding, no dividend on shares of common stock (or any other class of stock junior to the Preferred Stock) shall be declared or paid unless all accumulated and unpaid dividends for all preceding dividend periods for the Preferred Stock have been declared and paid in full in cash, shares of the Company’s common stock or a combination thereof, or a sufficient sum of cash or number of shares of its common stock has been set apart for the payment of such dividends, on all outstanding shares of the Preferred Stock. Dividends declared were $0.52 and $0.48 per common share in fiscal 2024 and 2023, respectively.
On December 05, 2024, the Company declared a regular cash dividend of $0.13 per share on the Company's common stock, payable on January 16, 2025, to the stockholders of record as of the close of business on December 20, 2024.
Dividends on the Preferred Stock will be payable on a cumulative basis when, as and if declared by the Board of Directors, or an authorized committee thereof, at an annual rate of 7.625% on the liquidation of preference of $50.00 per share. The Company may pay declared dividends in cash or, subject to certain limitations, in shares of its common stock or in any combination of cash and shares of its common stock on March 1, June 1, September 1 and December 1 of each year,
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
commencing on December 1, 2024, and ending on, and including, September 1, 2027. The Company has declared a cash dividend of $0.82604167 per share of its 7.625% Series C Mandatory Convertible Preferred Stock, which was paid on December 1, 2024, to holders of record as of the close of business on November 15, 2024.
Share Repurchase Program
On October 13, 2015, the Board of Directors approved a share repurchase program with a $3.0 billion authorization, which was refreshed with additional share repurchase authorizations of $3.0 billion, $5.0 billion and $2.5 billion on May 24, 2016, October 16, 2017 and February 21, 2018, respectively. This program, which does not have a specific expiration date, authorizes repurchases in the open market or in private transactions.
In fiscal 2024, the Company repurchased and settled a total of 7.8 million shares under its share repurchase program through open market repurchases, which included 0.2 million shares that were unsettled open market repurchases as of October 31, 2023. Additionally, the Company had unsettled open market repurchases of 0.1 million shares as of October 31, 2024. Shares repurchased during the fiscal 2024 were recorded as a $150 million reduction to stockholders' equity. As of October 31, 2024, the Company had a remaining authorization of approximately $0.8 billion for future share repurchases.
In fiscal 2023, the Company repurchased and settled a total of 27.2 million shares under its share repurchase program through open market repurchases, which included 0.3 million shares that were unsettled open market repurchases as of October 31, 2022. Additionally, the Company had unsettled open market repurchases of 0.2 million shares as of October 31, 2023. Shares repurchased during the fiscal 2023 were recorded as a $0.4 billion reduction to stockholders' equity.
Note 16: Net Earnings Per Share
The Company calculates basic net EPS using net earnings and the weighted-average number of shares outstanding during the reporting period.
The reconciliations of the numerators and denominators of each of the basic and diluted net EPS calculations were as follows:
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions, except per share amounts | |||||||||||||||||
| Numerator: | |||||||||||||||||
| Net earnings attributable to common stockholders - Basic | $ | 2,554 | $ | 2,025 | $ | 868 | |||||||||||
| Plus: 7.625% Series C mandatory convertible preferred stock dividends | 25 | — | — | ||||||||||||||
| Net earnings - Diluted | $ | 2,579 | $ | 2,025 | $ | 868 | |||||||||||
| Denominator: | |||||||||||||||||
| Weighted-average shares used to compute basic net EPS | 1,309 | 1,299 | 1,303 | ||||||||||||||
| Dilutive effect of employee stock plans(1) | 18 | 17 | 19 | ||||||||||||||
| Dilutive effect of 7.625% Series C mandatory convertible preferred stock(1) | 10 | — | — | ||||||||||||||
| Weighted-average shares used to compute diluted net EPS | 1,337 | 1,316 | 1,322 | ||||||||||||||
| Net earnings per share attributable to common stockholders: | |||||||||||||||||
| Basic | $ | 1.95 | $ | 1.56 | $ | 0.67 | |||||||||||
| Diluted | $ | 1.93 | $ | 1.54 | $ | 0.66 | |||||||||||
| Anti-dilutive weighted-average stock awards(2) | — | — | 2 |
(1)The impact of dilutive effect of employee stock plans is calculated under the treasury stock method, and the impact of dilutive effect of the 7.625% Series C Mandatory Convertible Preferred Stock is calculated under the if-converted method.
(2)The Company excludes shares potentially issuable under employee stock plans that could dilute basic net EPS in the future from the calculation of diluted net earnings per share, as their effect, if included, would have been anti-dilutive for the periods presented.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 17: Litigation, Contingencies, and Commitments
Hewlett Packard Enterprise is involved in various lawsuits, claims, investigations and proceedings including those consisting of intellectual property, commercial, securities, employment, employee benefits, and environmental matters, which arise in the ordinary course of business. In addition, as part of the Separation and Distribution Agreement (the “Separation and Distribution Agreement”) entered into in connection with Hewlett Packard Enterprise’s spin-off from HP Inc. (formerly known as “Hewlett-Packard Company”) (the “Separation”), Hewlett Packard Enterprise and HP Inc. agreed to cooperate with each other in managing certain existing litigation related to both parties' businesses. The Separation and Distribution Agreement included provisions that allocate liability and financial responsibility for pending litigation involving the parties, as well as provide for cross-indemnification of the parties against liabilities to one party arising out of liabilities allocated to the other party. The Separation and Distribution Agreement also included provisions that assign to the parties responsibility for managing pending and future litigation related to the general corporate matters of HP Inc. arising prior to the Separation. Hewlett Packard Enterprise records a liability when it believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment is required to determine both the probability of having incurred a liability and the estimated amount of the liability. Hewlett Packard Enterprise reviews these matters at least quarterly and adjusts these liabilities to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other updated information and events pertaining to a particular matter. Litigation is inherently unpredictable. However, Hewlett Packard Enterprise believes it has valid defenses with respect to legal matters pending against us. Nevertheless, cash flows or results of operations could be materially affected in any particular period by the resolution of one or more of these contingencies. Hewlett Packard Enterprise believes it has recorded adequate provisions for any such matters and, as of October 31, 2024, it was not reasonably possible that a material loss had been incurred in connection with such matters in excess of the amounts recognized in its financial statements.
Litigation, Proceedings and Investigations
Ross and Rogus v. Hewlett Packard Enterprise Company. On November 8, 2018, a putative class action complaint was filed in the Superior Court of California, County of Santa Clara alleging that HPE pays its California-based female employees “systemically lower compensation” than HPE pays male employees performing substantially similar work. The complaint alleges various California state law claims, including California’s Equal Pay Act, Fair Employment and Housing Act, and Unfair Competition Law, and seeks certification of a California-only class of female employees employed in certain “Covered Positions.” The parties subsequently reached an agreement to resolve this class action. The terms of the settlement are reflected in Plaintiff’s Motion for Preliminary Approval of Class Action Settlement and Certification of Settlement Class, which was filed with the Court on September 26, 2022. On November 3, 2022, the Court granted Plaintiff’s motion and preliminarily approved the terms of the class settlement, which defines the settlement class as all “[w]omen actively employed in California by Defendant at any point from November 1, 2015, through the date of Preliminary Approval” who were employed in a covered job code. The settlement class excludes certain individuals, including those who previously executed an arbitration agreement with HPE or an agreement that resulted in a release or waiver of claims. On April 28, 2023, the Court granted Plaintiffs’ Motion for Final Approval of the Class Action Settlement and Certification of the Settlement Class. On February 6, 2024, the Court entered final judgment, approving the settlement and dismissing the action.
India Directorate of Revenue Intelligence Proceedings*.* On April 30 and May 10, 2010, the India Directorate of Revenue Intelligence (the “DRI”) issued notices to Hewlett-Packard India Sales Private Ltd (“HP India”), a subsidiary of HP Inc., seven HP India employees and one former HP India employee alleging that HP India underpaid customs duties while importing products and spare parts into India and seeking to recover an aggregate of approximately $370 million, plus penalties. On April 11, 2012, the Bangalore Commissioner of Customs issued an order on the products-related notices affirming duties and penalties against HP India and the named individuals for approximately $386 million. On April 20, 2012, the Commissioner issued an order on the spare parts-related notice affirming duties and penalties against HP India and certain of the named individuals for approximately $17 million. HP India filed appeals of the Commissioner’s orders before the Customs Tribunal. The Customs Department filed cross-appeals before the Customs Tribunal. On October 27, 2014, the Customs Tribunal commenced hearings on the cross-appeals of the Commissioner's orders. The Customs Tribunal rejected HP India's request to return the matter to the Commissioner on procedural grounds. The hearings before the Customs Tribunal were subsequently delayed, have been postponed on several occasions since 2014, and have not yet been rescheduled.
ECT Proceedings*.* In January 2011, the postal service of Brazil, Empresa Brasileira de Correios e Telégrafos (“ECT”), notified a former subsidiary of HP Inc. in Brazil (“HP Brazil”) that it had initiated administrative proceedings to consider whether to suspend HP Brazil's right to bid and contract with ECT related to alleged improprieties in the bidding and contracting processes whereby employees of HP Brazil and employees of several other companies allegedly coordinated their bids and fixed results for three ECT contracts in 2007 and 2008. In late July 2011, ECT notified HP Brazil it had decided to
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
apply the penalties against HP Brazil and suspend HP Brazil's right to bid and contract with ECT for five years, based upon the evidence before it. In August 2011, HP Brazil appealed ECT's decision. In April 2013, ECT rejected HP Brazil's appeal, and the administrative proceedings were closed with the penalties against HP Brazil remaining in place. In parallel, in September 2011, HP Brazil filed a civil action against ECT seeking to have ECT’s decision revoked. HP Brazil also requested an injunction suspending the application of the penalties until a final ruling on the merits of the case, which was denied. HP Brazil appealed the denial of its request for injunctive relief to the intermediate appellate court, which issued a preliminary ruling denying the request for injunctive relief but reducing the length of the sanctions from five to two years. HP Brazil appealed that decision and, in December 2011, obtained a ruling staying enforcement of ECT's sanctions until a final ruling on the merits of the case. HP Brazil expects a resolution of the decision on the merits to take several years.
Forsyth, et al. vs. HP Inc. and Hewlett Packard Enterprise. This purported class and collective action was filed on August 18, 2016 in the United States District Court for the Northern District of California, against HP Inc. and Hewlett Packard Enterprise (collectively, “Defendants”) alleging Defendants violated the Federal Age Discrimination in Employment Act (“ADEA”), the California Fair Employment and Housing Act, California public policy and the California Business and Professions Code by terminating older workers and replacing them with younger workers. Plaintiffs seek to certify a nationwide collective action under the ADEA comprised of individuals aged 40 years and older who had their employment terminated by an HP entity pursuant to a work force reduction (“WFR”) plan. Plaintiffs also seek to certify a class under California law consisting of all persons 40 years or older employed by Defendants in the state of California and terminated pursuant to a WFR plan on or after August 18, 2012. On April 14, 2021, Plaintiffs’ Motion for Conditional Class Certification was granted. The conditionally certified collective action consists of all individuals who had their employment terminated by Defendants pursuant to a WFR Plan on or after November 1, 2015, and who were 40 years or older at the time of such termination. The collective action excludes all individuals who signed a Waiver and General Release Agreement or an Agreement to Arbitrate Claims. The parties have reached an agreement to resolve this matter. Plaintiffs filed a Motion for Preliminary Approval of the Class Action and Collective Action Settlement on September 21, 2023. On November 3, 2023, the Court issued an order granting preliminary approval to the Class Action and Collective Action Settlement. On March 29, 2024, the Court granted Final Approval to the settlement following a Fairness Hearing on the parties’ Motion for Final Approval. Judgment has been entered by the Court and the matter is now closed.
Q3 Networking Litigation. On September 21 and September 22, 2020, Q3 Networking LLC filed complaints against HPE, Aruba Networks, Commscope and Netgear in the United States District Court for the District of Delaware and the United States International Trade Commission (“ITC”). Both complaints allege infringement of four patents, and the ITC complaint defines the “accused products” as “routers, access points, controllers, network management servers, other networking products, and hardware and software components thereof.” The ITC action was instituted on October 23, 2020. The District of Delaware action has been stayed pending resolution of the ITC action. On December 7, 2021, the Administrative Law Judge issued his initial determination finding no violation of section 337 of the Tariff Act. On May 3, 2022, the ITC issued its Notice of Final Determination, affirming the initial determination and terminating the investigation. On June 18, 2022, Q3 Networking filed a petition for review of the ITC ruling with the United States Court of Appeals for the Federal Circuit. On May 10, 2024, the United States Court of Appeals for the Federal Circuit affirmed the ITC’s ruling in favor of HPE and Aruba Networks. Q3 Networking has not sought further review of the Federal Circuit’s ruling and HPE considers the matter closed.
R2 Semiconductor Patent Litigation. In November 2022, R2 Semiconductor, Inc. (“R2”) filed a lawsuit in the Dusseldorf Regional Court in Germany against Intel Deutschland GmbH, Hewlett-Packard GmbH, and other Intel customers. R2 asserts that one European patent is infringed by certain Intel processors and the HPE products that contain those Intel processors. On February 7, 2024, the Dusseldorf Regional Court ruled in R2’s favor, issuing an injunction that, if enforced by R2, would prevent the sale in Germany of any products with infringing Intel processors, and require HPE to correspond with its direct customers in Germany requesting return of the products with infringing Intel processors. The injunction would remain in place unless the ruling is overturned on appeal, the patent is invalidated by the German Federal Patent Court, or the matter is resolved by the parties. On February 8, 2024, HPE, Intel, HP Inc., and Dell filed an appeal and request for a stay of the judgment pending appeal. On April 9, 2024 the request for a stay pending appeal was denied. On April 3, 2024, R2 filed a lawsuit in France in the first instance court in Paris (Tribunal judiciare de Paris) against Intel Corporation, Intel Corporation SAS, Intel Deutschland GmbH, HP France SAS and certain other Intel customers. In May 2024, R2 filed suit in Milan against Intel Corporation Italia S.P.A., Hewlett-Packard Italiana S.r.l., and certain other Intel customers. R2 asserts the same European patent is infringed in both the French and Italian actions. On August 30, 2024, Intel and R2 publicly announced an agreement to dismiss all litigation between the two companies that would include dismissal of all litigation against all subsidiaries of HPE in the foregoing actions. Pursuant to that agreement, the Italian lawsuit was dismissed on September 2, 2024, the German lawsuit was dismissed on September 4, 2024, and the French Lawsuit was dismissed on September 6, 2024. These matters are now
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
closed.
Shared Litigation with HP Inc., DXC and Micro Focus
As part of the Separation and Distribution Agreements between Hewlett Packard Enterprise and HP Inc., Hewlett Packard Enterprise and DXC, and Hewlett Packard Enterprise and Seattle SpinCo, the parties to each agreement agreed to cooperate with each other in managing certain existing litigation related to both parties' businesses. The Separation and Distribution Agreements also included provisions that assign to the parties responsibility for managing pending and future litigation related to the general corporate matters of HP Inc. (in the case of the separation of Hewlett Packard Enterprise from HP Inc.) or of Hewlett Packard Enterprise (in the case of the separation of DXC from Hewlett Packard Enterprise and the separation of Seattle SpinCo from Hewlett Packard Enterprise), in each case arising prior to the applicable separation.
Environmental
The Company's operations and products are or may in the future become subject to various federal, state, local and foreign laws and regulations concerning the environment, including laws addressing the discharge of pollutants into the air and water; supply chain due diligence, and sustainability, environment, and emissions-related reporting; the management, movement, and disposal of hazardous substances and wastes; the clean-up of contaminated sites; product compliance and safety; the energy consumption of products, services, and operations; and the operational or financial responsibility for recycling, treatment, and disposal of those products. This includes legislation that makes producers of electrical goods, including servers and networking equipment, subject to certain repairability requirements or financially responsible for specified collection, recycling, treatment, and disposal of past and future covered products (sometimes referred to as “product take-back legislation”). The Company could incur substantial costs, its products could be restricted from entering certain jurisdictions, and it could face other sanctions, if it were to violate or become liable under environmental laws, including those related to addressing climate change and other environmental related issues, or if its products become non-compliant with such environmental laws. The Company's potential exposure includes impacts on revenue, fines and civil or criminal sanctions, third-party property damage or personal injury claims and clean-up costs. The amount and timing of costs to comply with environmental laws are difficult to predict.
In particular, the Company may become a party to, or otherwise involved in, proceedings brought by U.S. or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), known as “Superfund,” or other federal, state or foreign laws and regulations addressing the clean-up of contaminated sites, and may become a party to, or otherwise involved in, proceedings brought by private parties for contribution towards clean-up costs. The Company is also contractually obligated to make financial contributions to address actions related to certain environmental liabilities, both ongoing and arising in the future, pursuant to its Separation and Distribution Agreement with HP Inc.
Unconditional Purchase Obligations
As of October 31, 2024, the Company had unconditional purchase obligations of approximately $1.3 billion. These unconditional purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on the Company and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction, as well as settlements that the Company has reached with third parties, requiring it to pay determined amounts over a specified period of time. These unconditional purchase obligations are related principally to inventory purchases, software maintenance and support services and other items. Unconditional purchase obligations exclude agreements that are cancellable without penalty. The Company expects the commitments to total $556 million, $368 million, $278 million, $68 million, and $13 million, for fiscal years 2025, 2026, 2027, 2028, and 2029, respectively. There are no unconditional purchase obligations subsequent to fiscal year 2029.
Note 18: Guarantees and Indemnifications
Guarantees
In the ordinary course of business, the Company may issue performance guarantees to certain of its clients, customers and other parties pursuant to which the Company has guaranteed the performance obligations of third parties. Some of those guarantees may be backed by standby letters of credit or surety bonds. In general, the Company would be obligated to perform over the term of the guarantee in the event a specified triggering event occurs as defined by the guarantee. The Company believes the likelihood of having to perform under a material guarantee is remote.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
The Company has entered into service contracts with certain of its clients that are supported by financing arrangements. If a service contract is terminated as a result of the Company's non-performance under the contract or failure to comply with the terms of the financing arrangement, the Company could, under certain circumstances, be required to acquire certain assets related to the service contract. The Company believes the likelihood of having to acquire a material amount of assets under these arrangements is remote.
The maximum potential future payments under performance guarantees and financing arrangements was $298 million as of October 31, 2024.
Indemnifications
In the ordinary course of business, the Company enters into contractual arrangements under which the Company may agree to indemnify a third party to such arrangement from any losses incurred relating to the services they perform on behalf of the Company or for losses arising from certain events as defined within the particular contract, which may include, for example, litigation or claims relating to past performance. The Company also provides indemnifications to certain vendors and customers against claims of intellectual property infringement made by third parties arising from the use by such vendors and customers of the Company's software products and support services and certain other matters. Some indemnifications may not be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been immaterial.
General Cross-indemnifications
In connection with the Separation, Everett and Seattle Transactions, the Company entered into a Separation and Distribution Agreement with HP Inc., DXC and Micro Focus respectively, whereby the Company agreed to indemnify HP Inc., DXC and Micro Focus, each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to the Company as part of the Separation, Everett and Seattle Transactions. Similarly, HP Inc., DXC and Micro Focus agreed to indemnify the Company, each of its subsidiaries and each of their respective directors, officers and employees from and against all claims and liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to HP Inc., DXC and Micro Focus as part of the Separation, Everett and Seattle Transactions.
Tax Matters Agreement with DXC/Micro Focus and Other Income Tax Matters
In connection with the Everett Transaction and the Seattle Transaction, the Company entered into a Tax Matters Agreement with DXC and Micro Focus respectively (the “DXC Tax Matters Agreement” and the “Micro Focus Tax Matters Agreement”). The DXC Tax Matters Agreement and the Micro Focus Tax Matters Agreement govern the rights and obligations of the Company and DXC/Micro Focus for certain pre-divestiture tax liabilities and tax receivables. The DXC Tax Matters Agreement and the Micro Focus Tax Matters Agreement generally provide that the Company will be responsible for pre-divestiture tax liabilities and will be entitled to pre-divestiture tax receivables that arise from adjustments made by tax authorities to the Company's and DXC's, or Micro Focus', as applicable, U.S. and certain non-U.S. tax returns. In certain jurisdictions, the Company and DXC/Micro Focus have joint and several liability for past tax liabilities and accordingly, the Company could be legally liable under applicable tax law for such liabilities and required to make additional tax payments.
In addition, if the distribution of Everett's or Seattle's common shares to Hewlett Packard Enterprise's stockholders is determined to be taxable, the Company would generally bear the tax liability, unless the taxability of the distribution is the direct result of actions taken by DXC/Micro Focus, in which case DXC/Micro Focus would be responsible for any taxes imposed on the distribution.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
As of October 31, 2024 and 2023, the Company's receivable and payable balances related to indemnified litigation matters and other contingencies, and income tax-related indemnification covered by these agreements were as follows:
| As of October 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| In millions | |||||||||||
| Litigation Matters and Other Contingencies | |||||||||||
| Receivable | $ | 37 | $ | 42 | |||||||
| Payable | 47 | 48 | |||||||||
| Income Tax-Related Indemnification(1) | |||||||||||
| Net indemnification receivable - long-term | 35 | 31 | |||||||||
| Net indemnification receivable - short-term | $ | — | $ | 11 | |||||||
(1)The actual amount that the Company may receive or pay could vary depending upon the outcome of certain unresolved tax matters, which may not be resolved for several years.
Note 19: Equity Interests
The Company includes investments which are accounted for using the equity method, under Investments in equity interests on the Company's Consolidated Balance Sheets.
Pursuant to the Shareholders' Agreement among the Company’s relevant subsidiaries, Unisplendour International Technology Limited (“UNIS”), and H3C dated as of May 1, 2016, as amended from time to time, and most recently on October 28, 2022, the Company delivered a notice to UNIS on December 30, 2022, to exercise its right to put to UNIS, for cash consideration, all of the H3C shares held by the Company, which represent 49% of the total issued share capital of H3C. On May 26, 2023, the Company’s relevant subsidiaries entered into a Put Share Purchase Agreement with UNIS, whereby UNIS has agreed to purchase all of the H3C shares held by the Company, through its subsidiaries. On May 24, 2024, the Company’s relevant subsidiaries entered into (i) an Amended and Restated Put Share Purchase Agreement with UNIS, whereby its relevant subsidiaries shall sell to UNIS 30% of the total issued share capital of H3C for pre-tax cash consideration of approximately $2.1 billion by August 31, 2024 (the “Sale Transaction”), and (ii) an Agreement on Subsequent Arrangements with UNIS, whereby upon closing of the Sale Transaction, the Company’s relevant subsidiary shall have a put option to sell to UNIS and UNIS shall have a call option to purchase from the Company’s relevant subsidiary 19% of the total issued share capital of H3C for pre-tax cash consideration of approximately $1.4 billion between the 16th month and until the 36th month after the Sale Transaction. The transactions referenced in clauses (i) and (ii) above, taken together, revise the arrangements governing the aforementioned sale of all of the H3C shares held by the Company, through its subsidiaries and are subject to certain grace periods and regulatory approvals. On September 4, 2024, pursuant to the Amended and Restated Put Share Purchase Agreement with UNIS (as described above), the Company received $2.1 billion of pre-tax consideration ($2.0 billion post-tax), in connection with the sale to UNIS of 30% of the total issued share capital of H3C resulting in a gain of $733 million. As of October 31, 2024, the Company's Investments in equity interests was $929 million and primarily related to a 19% equity interest in H3C. As of October 31, 2023, the Company's Investments in equity interests was $2.2 billion and primarily related to a 49% equity interest in H3C.
As of October 31, 2024, the difference between the cost of the investment and the underlying equity in the net assets of the investment is $649 million. As of October 31, 2024 and 2023, the Company determined that no impairment of its equity method investments existed.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Earnings from equity interests
The Company recorded earnings from equity interests of $147 million, $245 million and $215 million in fiscal 2024, 2023 and 2022, respectively, in the Consolidated Statements of Earnings, the components of which are as follows:
| For the fiscal years ended October 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| In millions | |||||||||||||||||
| Earnings from equity interests, net of taxes | $ | 154 | $ | 242 | $ | 270 | |||||||||||
| Basis difference amortization | (3) | (9) | (45) | ||||||||||||||
| Adjustment of profit on intra-entity sales | (4) | 12 | (10) | ||||||||||||||
| Earnings from equity interests | $ | 147 | $ | 245 | $ | 215 |
For fiscal 2024 and 2023, the Company received a cash dividend of $43 million and $200 million, respectively, from H3C. These amounts were accounted for as a return on investment and reflected as a reduction in the carrying balance of the Company's Investments in equity interests in its Consolidated Balance Sheets.
The Company also has commercial arrangements with H3C to buy and sell HPE branded servers, storage and networking products and services. For fiscal 2024, 2023 and 2022, HPE recorded approximately $256 million, $383 million and $848 million of sales to H3C and $72 million, $125 million and $148 million of purchases from H3C, respectively. Payables due to H3C as of October 31, 2024 and 2023 were approximately $7 million and $10 million, respectively. Receivables due from H3C as of October 31, 2024 and 2023 were approximately $7 million and $12 million, respectively.
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