Item 1. Financial Statements

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Item 1. Financial Statements

Index

Page
Condensed Consolidated Statements of Earnings for the three months ended January 31, 2022 and 2021 (Unaudited)6
Condensed Consolidated Statements of Comprehensive Income for the three months ended January 31, 2022 and 2021 (Unaudited)7
Condensed Consolidated Balance Sheets as of January 31, 2022 (Unaudited) and October 31, 2021 (Audited)8
Condensed Consolidated Statements of Cash Flows for the three months ended January 31, 2022 and 2021 (Unaudited)9
Condensed Consolidated Statements of Stockholders' Equity for the three months ended January 31, 2022 and 2021 (Unaudited)10
Notes to Condensed Consolidated Financial Statements (Unaudited)11
Note 1: Overview and Summary of Significant Accounting Policies11
Note 2: Segment Information12
Note 3: Transformation Programs14
Note 4: Retirement Benefit Plans16
Note 5: Taxes on Earnings16
Note 6: Balance Sheet Details17
Note 7: Accounting for Leases as a Lessor19
Note 8: Goodwill23
Note 9: Fair Value24
Note 10: Financial Instruments25
Note 11: Borrowings29
Note 12: Stockholders' Equity30
Note 13: Net Earnings Per Share30
Note 14: Litigation and Contingencies31

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings

(Unaudited)

For the three months ended January 31,
20222021
In millions, except per share amounts
Net revenue:
Products$4,243$4,138
Services2,5962,573
Financing income122122
Total net revenue6,9616,833
Costs and expenses:
Cost of products3,0162,890
Cost of services1,5551,596
Financing interest4659
Research and development504468
Selling, general and administrative1,2011,159
Amortization of intangible assets73110
Transformation costs111311
Acquisition, disposition and other related charges718
Total costs and expenses6,5136,611
Earnings from operations448222
Interest and other, net(5)(44)
Tax indemnification and related adjustments(17)(16)
Non-service net periodic benefit credit3617
Earnings from equity interests3126
Earnings before benefit for taxes493205
Benefit for taxes2018
Net earnings$513$223
Net earnings per share:
Basic$0.39$0.17
Diluted$0.39$0.17
Weighted-average shares used to compute net earnings per share:
Basic1,3041,300
Diluted1,3251,315

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

For the three months ended January 31,
20222021
In millions
Net earnings$513$223
Other comprehensive income before taxes:
Change in net unrealized gains (losses) on available-for-sale securities:
Net unrealized gains (losses) arising during the period(1)3
(1)3
Change in net unrealized gains (losses) on cash flow hedges:
Net unrealized gains (losses) arising during the period215(329)
Net (gains) losses reclassified into earnings(201)278
14(51)
Change in unrealized components of defined benefit plans:
Net unrealized gains (losses) arising during the period6—
Amortization of net actuarial loss and prior service benefit4171
Curtailments, settlements and other11
4872
Change in cumulative translation adjustment(11)21
Other comprehensive income before taxes5045
(Provision) benefit for taxes(13)(2)
Other comprehensive income, net of taxes3743
Comprehensive income$550$266

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

As of
January 31, 2022October 31, 2021
(Unaudited)(Audited)
In millions, except par value
ASSETS
Current assets:
Cash and cash equivalents$3,861$3,996
Accounts receivable, net of allowances3,4323,979
Financing receivables, net of allowances3,8153,932
Inventory5,3214,511
Other current assets2,9132,460
Total current assets19,34218,878
Property, plant and equipment5,4985,613
Long-term financing receivables and other assets11,52811,670
Investments in equity interests2,2502,210
Goodwill18,30318,306
Intangible assets9521,022
Total assets$57,873$57,699
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings$3,795$3,552
Accounts payable6,5497,004
Employee compensation and benefits1,1601,778
Taxes on earnings166169
Deferred revenue3,4573,408
Accrued restructuring225290
Other accrued liabilities5,1214,486
Total current liabilities20,47320,687
Long-term debt10,2779,896
Other non-current liabilities6,7587,099
Commitments and contingencies
Stockholders' equity
HPE stockholders' equity:
Common stock, $0.01 par value (9,600 shares authorized; 1,300 and 1,295 shares issued and outstanding at January 31, 2022 and October 31, 2021, respectively)1313
Additional paid-in capital28,42228,470
Accumulated deficit(5,239)(5,597)
Accumulated other comprehensive loss(2,878)(2,915)
Total HPE stockholders' equity20,31819,971
Non-controlling interests4746
Total stockholders' equity20,36520,017
Total liabilities and stockholders' equity$57,873$57,699

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the three months ended January 31,
20222021
In millions
Cash flows from operating activities:
Net earnings$513$223
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization621674
Stock-based compensation expense128113
Provision for inventory and doubtful accounts4652
Restructuring charges37232
Deferred taxes on earnings37(71)
Earnings from equity interests(31)(26)
Other, net(27)65
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable543446
Financing receivables181(120)
Inventory(834)(148)
Accounts payable(438)(161)
Taxes on earnings(111)(34)
Restructuring(114)(220)
Other assets and liabilities(627)(62)
Net cash (used in) provided by operating activities(76)963
Cash flows from investing activities:
Investment in property, plant and equipment(624)(513)
Proceeds from sale of property, plant and equipment123113
Purchases of investments(21)(7)
Proceeds from maturities and sales of investments441
Financial collateral posted(10)(266)
Financial collateral received15320
Net cash used in investing activities(335)(652)
Cash flows from financing activities:
Short-term borrowings with original maturities less than 90 days, net5326
Proceeds from debt, net of issuance costs1,276323
Payment of debt(633)(611)
Payments related to stock-based award activities, net(57)(34)
Repurchase of common stock(129)—
Cash dividends paid to non-controlling interests—(8)
Cash dividends paid to shareholders(155)(155)
Net cash provided by (used in) financing activities355(459)
Decrease in cash, cash equivalents and restricted cash(56)(148)
Cash, cash equivalents and restricted cash at beginning of period4,3324,621
Cash, cash equivalents and restricted cash at end of period$4,276$4,473

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

Common Stock
For the three months ended January 31, 2022Number of SharesPar ValueAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossEquity Attributable to the CompanyNon- controlling InterestsTotal Equity
In millions, except number of shares in thousands
Balance at October 31, 20211,294,634$13$28,470$(5,597)$(2,915)$19,971$46$20,017
Net earnings5135131514
Other comprehensive income373737
Comprehensive income5501551
Stock-based compensation expense128128128
Tax withholding related to vesting of employee stock plans(82)(82)(82)
Issuance of common stock in connection with employee stock plans and other13,449262626
Repurchases of common stock(7,824)(120)(120)(120)
Cash dividends declared ($0.12 per share)(155)(155)(155)
Balance at January 31, 20221,300,259$13$28,422$(5,239)$(2,878)$20,318$47$20,365

) Represents the impact of the adoption of the accounting standard on the measurement of credit losses on financial instruments.

Common Stock
Common Stock
For the three months ended January 31, 2021Number of SharesPar ValueAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossEquity Attributable to the CompanyNon- controlling InterestsTotal Equity
In millions, except number of shares in thousands
Balance at October 31, 20201,287,010$13$28,350$(8,375)$(3,939)$16,049$47$16,096
Net earnings223223223
Other comprehensive income434343
Comprehensive income266—266
Stock-based compensation expense113113113
Tax withholding related to vesting of employee stock plans(57)(57)(57)
Issuance of common stock in connection with employee stock plans and other13,486212121
Cash dividends declared ($0.12 per share)(155)(155)(155)
Effects of adoption of accounting standard updates (1)(25)(25)(25)
Balance at January 31, 20211,300,496$13$28,427$(8,332)$(3,896)$16,212$47$16,259
Common Stock

(1) Represents the impact of the adoption of the accounting standard on the measurement of credit losses on financial instruments.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 Consolidation

The Condensed Consolidated Financial Statements of the Company were prepared in accordance with United States ("U.S.") Generally Accepted Accounting Principles ("GAAP"). The Company’s unaudited Condensed Consolidated Financial Statements include the accounts of the Company and all 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. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements of Hewlett Packard Enterprise contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company's financial position as of January 31, 2022 and October 31, 2021, its results of operations for the three months ended January 31, 2022 and 2021, its cash flows for the three months ended January 31, 2022 and 2021, and its statements of stockholders' equity for the three months ended January 31, 2022 and 2021.

The results of operations for the three months ended January 31, 2022 and the cash flows for the three months ended January 31, 2022 are not necessarily indicative of the results to be expected for the full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2021, as filed with the U.S. Securities and Exchange Commission (“SEC”) on December 10, 2021.

Significant Accounting Policies

As of November 1, 2021, the Company increased its expected useful life of new servers and storage equipment assets from four years to five years. Concurrently, the Company completed an assessment of its existing server and storage equipment assets and extended the remaining useful lives of such assets by one year. The effects of this change in estimate reduced depreciation expense and increased net income and basic and diluted earnings per share by immaterial amounts for the three months ended January 31, 2022, and are expected to have an immaterial impact on net income and basic and diluted earnings per share for fiscal 2022.

There have been no other changes to the Company's significant accounting policies described in PART II, Item 8, Note 1, "Overview and Summary of Significant Accounting Policies", of the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

Recently Adopted Accounting Pronouncements

In July 2021, the Financial Accounting Standards Board ("FASB") issued guidance that requires lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease, if the lease would have been classified as a sales-type lease or a direct financing lease and the lessor would have otherwise recognized a day-one loss. The Company adopted the guidance in the first quarter of fiscal 2022 on a prospective basis, and there was no material impact on the Company’s Condensed Consolidated Financial Statements.

In January 2020, the FASB issued guidance to clarify certain interactions between the guidance to account for equity securities, the guidance to account for investments under the equity method of accounting, and the guidance to account for derivatives and hedging. The new guidance clarifies the application of measurement alternatives and the accounting for certain forward contracts and purchased options to acquire investments. The Company adopted the guidance in the first quarter of fiscal 2022, and there was no material impact on the Company's Condensed Consolidated Financial Statements.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 2: Segment Information

Hewlett Packard Enterprise's operations are organized into six reportable segments for financial reporting purposes: Compute, High Performance Computing & Artificial Intelligence ("HPC & AI"), Storage, 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 ("CEO"), 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 six segments are based on this organizational structure and information reviewed by Hewlett Packard Enterprise's management to evaluate segment results. A summary description of each segment follows.

Compute includes both general purpose servers for multi-workload computing and workload optimized servers to offer the best performance and value for demanding applications. This portfolio of products includes the HPE Proliant rack and tower servers, HPE Synergy, and HPE BladeSystems. Compute offerings also include operational and support services and HPE GreenLake for Compute as-a-service.

High Performance Computing & Artificial Intelligence offers standard and custom hardware and software solutions designed to address customer workloads to power innovation. The HPC hardware solutions are segmented into several categories: High Performance Computing (“HPC”), Data Solutions, and Edge Compute. The HPC portfolio of products includes the HPE Apollo and Cray products that are often sold as supercomputing systems, including exascale supercomputers. The Data Solutions portfolio (formerly named Mission Critical Solutions) includes the HPE Superdome Flex, HPE Nonstop, and HPE Integrity product lines. Edge Compute primarily offers HPE Edgeline products. HPC & AI offerings also include operational and support services and solutions delivered as-a-service through HPE GreenLake.

Storage provides workload optimized storage product and service offerings, which include an intelligent hyperconverged infrastructure ("HCI") with HPE Nimble Storage dHCI and HPE SimpliVity; primary storage with HPE Alletra, HPE Primera, HPE Nimble Storage, and HPE 3PAR Storage for mission-critical and general-purpose workloads; data protection services and software with HPE Backup and Recovery Service; and Zerto. The portfolio also includes HPE Recovery Manager Central, HPE StoreOnce, HPE Cloud Volumes Backup and Big Data solutions running on Apollo servers. Storage also provides solutions for secondary workloads and traditional tape, storage networking and disk products, such as HPE Modular Storage Arrays ("MSA") and HPE XP. Storage offerings also include operational and support services, software subscription services, and solutions delivered as-a-service through HPE GreenLake.

Intelligent Edge offers wired and wireless local area network ("LAN"), campus and data center switching, software-defined wide-area-network (from the Silver Peak acquisition), network security, and associated services to enable secure connectivity for businesses of any size. The HPE Aruba product portfolio includes products such as Wi-Fi access points, switches, routers, and sensors. The HPE Aruba software and services portfolio includes cloud-based management, network management, network access control, analytics and assurance, location services software, and professional and support services, as well as as-a-service and consumption models through HPE GreenLake for the Intelligent Edge portfolio of products. Intelligence Edge also offers an Edge Service Platform ("Aruba ESP") to help customers meet their connectivity, security, and financial requirements across campus, branch, data center, and remote worker environments, covering all aspects of wired, wireless LAN, and wide area networking.

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 HPE GreenLake.

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; the Communications and Media Solutions business ("CMS"), which primarily offers software and related services to the telecommunications industry; the HPE Software business which offers HPE Ezmeral Container Platform and HPE Ezmeral Data Fabric; and Hewlett Packard Labs which is responsible for research and development.

Segment Policy

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

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Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

expense, amortization of initial direct costs, amortization of intangible assets, transformation costs, acquisition, disposition and other related charges.

Segment Operating Results

Segment net revenue and operating results were as follows:

ComputeHPC & AIStorageIntelligent EdgeFinancial ServicesCorporate Investments and OtherTotal
In millions
Three months ended January 31, 2022
Net revenue$2,976$776$1,144$900$840$325$6,961
Intersegment net revenue40141212—69
Total segment net revenue$3,016$790$1,156$901$842$325$7,030
Segment earnings (loss) from operations$416$(7)$168$157$104$(11)$827
Three months ended January 31, 2021
Net revenue(1)$2,928$745$1,173$807$859$321$6,833
Intersegment net revenue56161931—95
Total segment net revenue$2,984$761$1,192$810$860$321$6,928
Segment earnings (loss) from operations(1)$341$43$234$154$84$(31)$825

(1) Effective at the beginning of the first quarter of fiscal 2022, the Company’s implemented minor organizational changes to align its segment financial reporting more closely with its current business structure resulting in immaterial changes to certain prior period segment revenue and segment earnings (loss) from operations amounts. These changes had no impact to the Company’s previously reported consolidated GAAP results.

The reconciliation of segment operating results to Condensed Consolidated Financial statements was as follows:

For the three months ended January 31,
20222021
In millions
Net Revenue:
Total segments$7,030$6,928
Eliminations of intersegment net revenue(69)(95)
Total consolidated net revenue$6,961$6,833
Earnings before taxes:
Total segment earnings from operations$827$825
Unallocated corporate costs and eliminations(59)(52)
Stock-based compensation expense(128)(110)
Amortization of initial direct costs(1)(2)
Amortization of intangible assets(73)(110)
Transformation costs(111)(311)
Acquisition, disposition and other related charges(7)(18)
Interest and other, net(5)(44)
Tax indemnification and related adjustments(17)(16)
Non-service net periodic benefit credit3617
Earnings from equity interests3126
Total earnings before benefit for taxes$493$205

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Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Segment Assets

Hewlett Packard Enterprise allocates assets to its business segments based on the segments primarily benefiting from the assets. Total assets by segment and the reconciliation of segment assets to total assets as per Consolidated Balance Sheets were as follows:

As of
January 31, 2022October 31, 2021
In millions
Compute$16,343$16,000
HPC & AI6,7646,667
Storage7,2117,325
Intelligent Edge4,3254,355
Financial Services14,71314,951
Corporate Investments and Other1,2821,210
Corporate and unallocated assets7,2357,191
Total assets$57,873$57,699

Geographic Information

Net revenue by geographic region was as follows:

For the three months ended January 31,
20222021
In millions
Americas:
United States$2,318$2,178
Americas excluding U.S.461435
Total Americas$2,779$2,613
Europe, Middle East and Africa2,5562,620
Asia Pacific and Japan1,6261,600
Total consolidated net revenue$6,961$6,833

Note 3: Transformation Programs

Transformation programs are comprised of the cost optimization and prioritization plan and the HPE Next initiative. 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 our product portfolio strategy. The implementation period of the cost optimization and prioritization plan is through fiscal 2023. During the remaining implementation period, the Company expects to incur transformation costs predominantly related to labor restructuring, non-labor restructuring, IT investments, design and execution charges and real estate initiatives.

During the third quarter of fiscal 2017, the Company launched an initiative called HPE Next 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 our offerings, business processes and business systems to improve our execution. The implementation period of the HPE Next initiative is through fiscal 2023. During the remaining implementation period, the Company expects to incur predominantly IT infrastructure costs for streamlining, upgrading, and simplifying back-end operations, and real estate initiatives. These costs are expected to be partially offset by gains from real estate sales.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Cost Optimization and Prioritization Plan

During the three months ended January 31, 2022 and 2021, the Company incurred $53 million and $252 million, respectively, of charges related to the cost optimization and prioritization plan, which was recorded within Transformation costs in the Condensed Consolidated Statements of Earnings, the components of which were as follows:

For the three months ended January 31,
20222021
In millions
Program management$8$37
IT Costs8—
Restructuring charges37215
Total$53$252

HPE Next

During the three months ended January 31, 2022 and 2021, the Company incurred $58 million and $59 million, respectively, in net charges associated with HPE Next, which were recorded within Transformation costs in the Condensed Consolidated Statements of Earnings. The components of Transformation costs relating to HPE Next were as follows:

For the three months ended January 31,
20222021
In millions
Program management$3$2
IT costs4726
Restructuring charges—17
Gain on real estate sales(8)(1)
Impairment of real estate assets11—
Other515
Total$58$59

Restructuring Plan

Restructuring activities related to the Company's employees and infrastructure under the cost optimization and prioritization plan and HPE Next plan were presented in the table below:

Cost Optimization and Prioritization PlanHPE Next Plan
Employee SeveranceInfrastructure and otherEmployee SeveranceInfrastructure and other
In millions
Liability as of October 31, 2021$228$189$44$33
Charges1621——
Cash payments(55)(37)(12)(7)
Non-cash items(6)(4)(2)—
Liability as of January 31, 2022$183$169$30$26
Total costs incurred to date, as of January 31, 2022$523$441$1,261$247
Total expected costs to be incurred as of January 31, 2022$700$600$1,261$255

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The current restructuring liability related to the transformation programs, reported in Condensed Consolidated Balance Sheets as of January 31, 2022 and October 31, 2021, was $223 million and $287 million, respectively, in accrued restructuring, and $30 million and $27 million, respectively, in Other accrued liabilities. The non-current restructuring liability related to the transformation programs, reported in Other non-current liabilities in the Condensed Consolidated Balance Sheets as of January 31, 2022 and October 31, 2021, was $155 million and $180 million, respectively.

Note 4: Retirement Benefit Plans

The Company's net pension benefit (credit) cost for defined benefit plans recognized in the Condensed Consolidated Statements of Earnings was as follows:

For the three months ended January 31,
20222021
In millions
Service cost$20$24
Interest cost(1)4029
Expected return on plan assets(1)(118)(119)
Amortization and deferrals(1):
Actuarial loss4474
Prior service benefit(3)(3)
Net periodic benefit (credit) cost(17)5
Settlement loss(1)11
Total net benefit (credit) cost$(16)$6

(1)These non-service components of net periodic benefit cost were included in Non-service net periodic benefit credit in the Condensed Consolidated Statements of Earnings.

Note 5: Taxes on Earnings

Provision for Taxes

For the three months ended January 31, 2022 and 2021, the Company recorded income tax benefit of $20 million and $18 million, respectively, which reflects an effective tax rate of (4.1)% and (8.8)%, respectively. The effective tax rate generally differs from the U.S. federal statutory rate of 21% due to favorable tax rates associated with certain earnings from the Company’s operations in lower tax jurisdictions throughout the world but are also impacted by discrete tax adjustments during each fiscal period.

For the three months ended January 31, 2022, the Company recorded $83 million of net income tax benefits related to various items discrete to the period. The amount primarily included $43 million of net income benefits related to the settlement of U.S. tax audit matters, $24 million of income tax benefits related to transformation costs and acquisition, disposition and other related charges, and $16 million of net income tax benefits related to the settlement of foreign tax audit matters.

For the three months ended January 31, 2021, the Company recorded $90 million of net income tax benefits related to various items discrete to the period. The amount primarily included $66 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges, and $30 million of income tax benefits related to tax liabilities for which the Company shared joint and several liability with HP Inc. and for which the Company was indemnified by HP Inc.

Uncertain Tax Positions

As of January 31, 2022 and October 31, 2021, the amount of unrecognized tax benefits was $597 million and $2.1 billion, respectively, of which up to $331 million and $688 million, respectively, would affect the Company's effective tax rate if realized as of their respective periods. During the three months ended January 31, 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.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

For tax liabilities pertaining to unrecognized tax benefits, the Company recognizes interest income from favorable settlements and interest expense and penalties in (Provision) benefit for taxes in the Condensed Consolidated Statements of Earnings. The Company recognized interest income of $40 million and $8 million for the three months ended January 31, 2022 and 2021, respectively. The increase in interest income resulted from the release of reserves as a result of the effective settlement of the IRS audit for fiscal 2016. As of January 31, 2022 and October 31, 2021, the Company had accrued $96 million and $136 million, respectively, for interest and penalties in the Condensed Consolidated Balance Sheets.

The Company engages in continuous discussion and negotiation with tax authorities regarding tax matters in various jurisdictions. The Company does not expect complete resolution of any IRS audit cycle within the next 12 months. However, it is reasonably possible that certain federal, foreign, and state tax issues may be concluded in the next 12 months, including issues involving resolution of certain intercompany transactions, joint and several tax liabilities, and other matters. Accordingly, the Company believes it is reasonably possible that its existing unrecognized tax benefits may be reduced by an amount up to $47 million within the next 12 months.

Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities included in the Condensed Consolidated Balance Sheets were as follows:

As of
January 31, 2022October 31, 2021
In millions
Deferred tax assets$1,968$2,023
Deferred tax liabilities(498)(494)
Deferred tax assets net of deferred tax liabilities$1,470$1,529

Note 6: Balance Sheet Details

Balance sheet details were as follows:

Cash, cash equivalents and restricted cash

As of
January 31, 2022October 31, 2021
In millions
Cash and cash equivalents$3,861$3,996
Restricted cash(1)415336
Total$4,276$4,332

(1) The Company includes restricted cash in Other current assets in the accompanying Condensed Consolidated Balance Sheets.

Inventory

As of
January 31, 2022October 31, 2021
In millions
Finished goods$1,825$1,684
Purchased parts and fabricated assemblies3,4962,827
Total$5,321$4,511

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Property, Plant and Equipment

As of
January 31, 2022October 31, 2021
In millions
Land$75$76
Buildings and leasehold improvements1,7941,751
Machinery and equipment, including equipment held for lease9,4969,735
11,36511,562
Accumulated depreciation(5,867)(5,949)
Total$5,498$5,613

Warranties

The Company's aggregate product warranty liability and changes thereto were as follows:

For the three months ended January 31, 2022
In millions
Balance at beginning of period$327
Charges42
Adjustments related to pre-existing warranties(3)
Settlements made(51)
Balance at end of period$315

Contract balances

The Company’s contract balances consist of contract assets, contract liabilities, and costs to obtain a contract with a customer.

Contract Assets

A summary of accounts receivable, net, including unbilled receivables was as follows:

As of
January 31, 2022October 31, 2021
In millions
Accounts receivable$3,256$3,796
Unbilled receivables197206
Allowances(21)(23)
Total$3,432$3,979

The allowances for credit losses related to accounts receivable and changes therein were as follows:

As of
January 31, 2022October 31, 2021
In millions
Balance at beginning of period$23$46
Provision for credit losses311
Write off's, net of recoveries(5)(34)
Balance at end of period$21$23

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Sale of Trade Receivables

The Company has third-party revolving short-term financing arrangements intended to facilitate the working capital requirements of certain customers. During the three months ended January 31, 2022, the Company sold $1 billion of trade receivables. During the fiscal year ended October 31, 2021, the Company sold $4.2 billion of trade receivables. The Company recorded an obligation of $97 million and $65 million in Notes payable and short-term borrowings in its Condensed Consolidated Balance Sheets as of January 31, 2022 and October 31, 2021 respectively, related to the trade receivables sold and collected from the third-party for which the revenue recognition was deferred.

Contract Liabilities

Contract liabilities consist of deferred revenue. The aggregate balance of current and non-current deferred revenue was $6.4 billion as of January 31, 2022 and October 31, 2021. During the three months ended January 31, 2022, approximately $1.2 billion of the deferred revenue as of October 31, 2021 was recognized as revenue.

Remaining Performance Obligations

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.

Remaining performance obligations consist of deferred revenue. As of January 31, 2022, the aggregate amount of remaining performance obligations was $6.4 billion. The Company expects to recognize approximately 45% of this amount as revenue over the remainder of the fiscal year.

Costs to Obtain a Contract

As of January 31, 2022, the current and non-current portions of the capitalized costs to obtain a contract were $67 million and $102 million, respectively. As of October 31, 2021, the current and non-current portions of the capitalized costs to obtain a contract were $64 million and $95 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 Condensed Consolidated Balance Sheet. For the three months ended January 31, 2022, and 2021, the Company amortized $20 million and $15 million respectively, of capitalized costs to obtain a contract. The amortized capitalized costs to obtain a contract are included in Selling, general and administrative expense in the Condensed Consolidated Statement of Earnings.

Note 7: Accounting for Leases as a Lessor

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:

As of
January 31, 2022October 31, 2021
In millions
Minimum lease payments receivable$9,308$9,526
Unguaranteed residual value388390
Unearned income(715)(718)
Financing receivables, gross8,9819,198
Allowance for credit losses(227)(228)
Financing receivables, net8,7548,970
Less: current portion(3,815)(3,932)
Amounts due after one year, net$4,939$5,038

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

As of January 31, 2022 and October 31, 2021, scheduled maturities of the Company's minimum lease payments receivable were as follows:

As of
January 31, 2022October 31, 2021
Fiscal yearIn millions
Remainder of fiscal 2022$3,543$4,338
20232,7482,557
20241,7171,567
2025851747
2026328233
Thereafter12184
Total undiscounted cash flows$9,308$9,526
Present value of lease payments (recognized as finance receivables)$8,593$8,808
Unearned income$715$718

Sale of Financing Receivables

The Company enters into arrangements to transfer the contractual payments due under certain financing receivables to third party financial institutions. During the three months ended January 31, 2022, the Company did not sell any financing receivables. During the fiscal year ended October 31, 2021, the Company sold $142 million 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.

The credit risk profile of gross financing receivables, based on internal risk ratings as of January 31, 2022, presented on amortized cost basis by year of origination was as follows:

As of January 31, 2022
Risk Rating
LowModerateHigh
Fiscal YearIn millions
2022$339$261$2
20212,0201,57148
20201,27194375
201970465288
2018 and prior365487155
Total$4,699$3,914$368

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The credit risk profile of gross financing receivables, based on internal risk ratings as of October 31, 2021, presented on amortized cost basis by year of origination was as follows:

As of October 31, 2021
Risk Rating
LowModerateHigh
Fiscal YearIn millions
2021$1,978$1,542$49
20201,4411,06187
201982977185
201836440778
2017 and prior169234103
Total$4,781$4,015$402

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 January 31, 2022 and October 31, 2021 and the respective changes during the three and twelve months then ended were as follows:

As of
January 31, 2022October 31, 2021
In millions
Balance at beginning of period$228$154
Adjustment for adoption of the new credit loss standard—28
Provision for credit losses2561
Adjustment to the existing allowance—19
Write-offs(26)(34)
Balance at end of period$227$228

Non-Accrual and Past-Due Financing Receivables

The following table summarizes the aging and non-accrual status of gross financing receivables:

As of
January 31, 2022October 31, 2021
In millions
Billed:(1)
Current and past due 1-30 days$365$410
Past due 31-60 days3435
Past due 61-90 days3117
Past due > 90 days108111
Unbilled sales-type and direct-financing lease receivables8,4438,625
Total gross financing receivables$8,981$9,198
Gross financing receivables on non-accrual status(2)$252$257
Gross financing receivables 90 days past due and still accruing interest(2)$92$78

(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.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Operating Leases

Operating lease assets included in Property, plant and equipment in the Condensed Consolidated Balance Sheets were as follows:

As of
January 31, 2022October 31, 2021
In millions
Equipment leased to customers$6,807$7,039
Accumulated depreciation(2,894)(3,038)
Total$3,913$4,001

Minimum future rentals on non-cancelable operating leases related to leased equipment were as follows:

As of
January 31, 2022
Fiscal yearIn millions
Remainder of fiscal 2022$1,319
20231,214
2024571
2025118
202620
Thereafter1
Total$3,243

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.

The following table presents amounts included in the Condensed Consolidated Statement of Earnings related to lessor activity:

For the three months ended January 31,
20222021
In millions
Interest income from sales-type leases and direct financing leases$122$122
Lease income from operating leases572604
Total lease income$694$726

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 Condensed 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.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The following table presents the assets and liabilities held by the consolidated VIE as of January 31, 2022 and October 31, 2021, which are included in the Condensed 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
January 31, 2022October 31, 2021
Assets held by VIEIn millions
Other current assets$100$165
Financing receivables
Short-term$886$749
Long-term$994$707
Property, plant and equipment$1,144$854
Liabilities held by VIE
Notes payable and short-term borrowings, net of unamortized debt issuance costs$1,460$1,204
Long-term debt, net of unamortized debt issuance costs$1,349$950

Financing receivables transferred via securitization through the SPE were $664 million for the three months ended January 31, 2022 and $1.1 billion for the fiscal year ended October 31, 2021. Leased equipment transferred via securitization through the SPE was $445 million for the three months ended January 31, 2022 and $720 million for the fiscal year ended October 31, 2021.

Note 8: Goodwill

The following table represents the carrying value of goodwill, by reportable segment as of October 31, 2021 and January 31, 2022:

ComputeHPC & AIStorageIntelligent EdgeFinancial ServicesCorporate Investments and OtherTotal
In millions
Balance at October 31, 2021 (1)$7,532$3,702$4,160$2,555$144$213$18,306
Goodwill adjustments——(3)———(3)
Balance at January 31, 2022 (1)$7,532$3,702$4,157$2,555$144$213$18,303

(1)Goodwill is net of accumulated impairment losses of $953 million. Of this amount, $865 million related to the HPC & AI reporting unit was recorded during fiscal 2020 and $88 million related to the CMS reporting unit within Corporate Investments and Other was recorded during fiscal 2018. There is no goodwill remaining in the CMS reporting unit.

Goodwill is tested for impairment at the reporting unit level. As of January 31, 2022, the Company's reporting units are consistent with the reportable segments identified in Note 2, with the exception of Corporate Investments and Other, which contains three reporting units: Software, CMS, and A & PS. The Company will continue to evaluate the recoverability of goodwill on an annual basis as of the beginning of its fourth fiscal quarter and whenever events or changes in circumstances indicate there may be a potential impairment.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 9: 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.

The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis:

As of January 31, 2022As of October 31, 2021
Fair Value Measured UsingFair Value Measured Using
Quoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Remaining Inputs (Level 2)Significant Other Unobservable Remaining Inputs (Level 3)TotalQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Remaining Inputs (Level 2)Significant Other Unobservable Remaining Inputs (Level 3)Total
In millions
Assets
Cash Equivalents and Investments:
Time deposits$—$947$—$947$—$806$—$806
Money market funds1,165——1,1651,495——1,495
Equity securities42—26430657—129186
Foreign bonds—115—115—122—122
Other debt securities——3535——4242
Derivative Instruments:
Interest rate contracts—41—41—95—95
Foreign exchange contracts—399—399—308—308
Other derivatives—————4—4
Total assets$1,207$1,502$299$3,008$1,552$1,335$171$3,058
Liabilities
Derivative Instruments:
Foreign exchange contracts—113—113—127—127
Other derivatives—5—5————
Total liabilities$—$118$—$118$—$127$—$127

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.

Other Fair Value Disclosures

Short-Term and Long-Term Debt: As of January 31, 2022 and October 31, 2021, the estimated fair value of the Company's short-term and long-term debt was $14.9 billion and $14.6 billion, respectively. As of January 31, 2022 and October 31, 2021, the carrying value of the Company's short-term and long-term debt was $14.1 billion and $13.4 billion, respectively. If measured at fair value in the Condensed Consolidated Balance Sheets, short-term and long-term debt would be classified in Level 2 of the fair value hierarchy.

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. The Company did not recognize any impairments on these equity investments during the three months ended January 31, 2022 and 2021. If measured at fair value in the Condensed Consolidated Balance Sheets, these would generally be classified in Level 3 of the fair value hierarchy.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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 right-of-use ("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.

During the three months ended January 31, 2022 and 2021, the Company recorded a ROU asset impairment charge of $6 million and $49 million, respectively, in Transformation costs in the Condensed Consolidated Statements of Earnings as the carrying value of certain ROU assets exceeded its fair value. If measured at fair value in the Condensed Consolidated Balance Sheets, these would generally be classified in Level 3 of the fair value hierarchy.

Note 10: Financial Instruments

Cash Equivalents and Available-for-Sale Debt Investments

Cash equivalents and available-for-sale debt investments were as follows:

As of January 31, 2022As of October 31, 2021
CostGross Unrealized GainFair ValueCostGross Unrealized GainFair Value
In millions
Cash Equivalents:
Time deposits$947$—$947$806$—$806
Money market funds1,165—1,1651,495—1,495
Total cash equivalents2,112—2,1122,301—2,301
Available-for-Sale Debt Investments:
Foreign bonds1031211510814122
Other debt securities3323541142
Total available-for-sale debt investments1361415014915164
Total cash equivalents and available-for-sale debt investments$2,248$14$2,262$2,450$15$2,465

As of January 31, 2022 and October 31, 2021, the carrying amount of cash equivalents approximated fair value due to the short period of time to maturity. Time deposits were primarily issued by institutions outside of the U.S. as of January 31, 2022 and October 31, 2021. 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 available-for-sale debt investments were as follows:

As of January 31, 2022
Amortized CostFair Value
In millions
Due in one to five years$18$18
Due in more than five years118132
$136$150

Non-marketable equity investments in privately held companies are included in Long-term financing receivables and other assets in the Condensed Consolidated Balance Sheets. These non-marketable equity investments are carried either at fair value or under the measurement alternative.

The carrying amount of those non-marketable equity investments accounted for under the measurement alternative was $166 million and $253 million as of January 31, 2022 and October 31, 2021, respectively.

The carrying amount of those non-marketable equity investments accounted for under the fair value option was $264 million and $129 million as of January 31, 2022 and October 31, 2021, respectively. During the three months ended January 31, 2022, the Company recorded an unrealized gain of $59 million on these investments.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Equity investments with readily determinable fair values are included in Long-term financing receivables and other assets in the Condensed Consolidated Balance Sheets. The carrying amount of these investments was $42 million as of January 31, 2022 and $57 million as of October 31, 2021, respectively. During the three months ended January 31, 2022, the Company recorded an unrealized loss of $14 million on these investments.

Investments in equity securities that are accounted for using the equity method are included in Investments in equity interests in the Condensed Consolidated Balance Sheets. The carrying amount of these investments was $2.3 billion and $2.2 billion as of January 31, 2022 and October 31, 2021, respectively. For the three months ended January 31, 2022 and 2021, the Company recorded earnings from equity interests of $31 million and $26 million on these investments, respectively.

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets

The gross notional and fair value of derivative instruments in the Condensed Consolidated Balance Sheets were as follows:

As of January 31, 2022As of October 31, 2021
Fair ValueFair Value
Outstanding Gross NotionalOther Current AssetsLong-Term Financing Receivables and Other AssetsOther Accrued LiabilitiesLong-Term Other LiabilitiesOutstanding Gross NotionalOther Current AssetsLong-Term Financing Receivables and Other AssetsOther Accrued LiabilitiesLong-Term Other Liabilities
In millions
Derivatives designated as hedging instruments
Fair value hedges:
Interest rate contracts$3,850$9$32$—$—$3,850$15$80$—$—
Cash flow hedges:
Foreign currency contracts7,8711908632167,664125684932
Net investment hedges:
Foreign currency contracts1,836333612161,86033401218
Total derivatives designated as hedging instruments13,557232154443213,3741731886150
Derivatives not designated as hedging instruments
Foreign currency contracts5,9494863616,994251716—
Other derivatives126——5—1134———
Total derivatives not designated as hedging instruments6,0754864117,107291716—
Total derivatives$19,632$280$160$85$33$20,481$202$205$77$50

Offsetting of Derivative Instruments

The Company recognizes all derivative instruments on a gross basis in the Condensed 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:

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

As of January 31, 2022
In the Condensed Consolidated Balance Sheets
(i)(ii)(iii) = (i)–(ii)(iv)(v)(vi) = (iii)–(iv)–(v)
Gross Amounts Not Offset
Gross Amount RecognizedGross Amount OffsetNet Amount PresentedDerivativesFinancial CollateralNet Amount
In millions
Derivative assets$440$—$440$112$317(1)$11
Derivative liabilities$118$—$118$112$5(2)$1
As of October 31, 2021
In the Condensed Consolidated Balance Sheets
(i)(ii)(iii) = (i)–(ii)(iv)(v)(vi) = (iii)–(iv)–(v)
Gross Amounts Not Offset
Gross Amount RecognizedGross Amount OffsetNet Amount PresentedDerivativesFinancial CollateralNet Amount
In millions
Derivative assets$407$—$407$123$173(1)$111
Derivative liabilities$127$—$127$123$5(2)$(1)

(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 January 31, 2022 and October 31, 2021, the entire amount of the collateral posted of $5 million was through the re-use of counterparty collateral.

The amounts recorded on the Condensed 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 ofAs of
January 31, 2022October 31, 2021January 31, 2022October 31, 2021
In millionsIn millions
Notes payable and short-term borrowings$(1,358)$(1,365)$(9)$(15)
Long-term debt$(2,525)$(2,573)$(32)$(80)

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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 three months ended January 31,
20222021
In millions
Derivatives in Cash Flow Hedging relationship
Foreign exchange contracts$215$(329)
Derivatives in Net Investment Hedging relationship
Foreign exchange contracts11(74)
Total$226$(403)

As of January 31, 2022, the Company expects to reclassify an estimated net accumulated other comprehensive gain of approximately $88 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.

Effect of Derivative Instruments on the Condensed Consolidated Statements of Earnings

The pre-tax effect of derivative instruments on the Condensed Consolidated Statements of Earnings were as follows:

Gains (Losses) Recognized in Income
For the three months ended January 31,
20222021
Net revenueInterest and other, netNet revenueInterest and other, net
In millions
Total amounts of income and expense line items presented in the Condensed Consolidated Statements of Earnings in which the effects of fair value hedges, cash flow hedges and derivatives not designated as hedging instruments are recorded$6,961$(5)$6,833$(44)
Gains (losses) on derivatives in fair value hedging relationships
Interest rate contracts
Hedged items—54—18
Derivatives designated as hedging instruments—(54)—(18)
Gains (losses) on derivatives in cash flow hedging relationships
Foreign exchange contracts
Amount of gains (losses) reclassified from accumulated other comprehensive income into income65136(64)(213)
Interest rate contracts
Amount of gains (losses) reclassified from accumulated other comprehensive income into income———(1)
Gains (losses) on derivatives not designated as hedging instruments
Foreign exchange contracts—(40)—(41)
Other derivatives—(9)—1
Total gains (losses)$65$87$(64)$(254)

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 11: Borrowings

Notes Payable, Short-Term Borrowings and Long-Term Debt

Notes payable, short-term borrowings, including the current portion of long-term debt, and long-terms debt were as follows:

As of
January 31, 2022October 31, 2021
In millions
Current portion of long-term debt(1)$2,868$2,613
Commercial paper693705
Notes payable to banks, lines of credit and other234234
Total notes payable and short-term borrowings$3,795$3,552
Long-term debt10,2779,896
Total Debt$14,072$13,448

(1) As of January 31, 2022, the Current portion of long-term debt, net of discount and issuance costs, includes $1.5 billion associated with the asset-backed debt securities issued by the Company.

Asset-backed Debt Securities

In January 2022, the Company issued $1.0 billion of asset-backed debt securities 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.

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 January 31, 2022 and October 31, 2021, no borrowings were outstanding under the Parent Programs, and $693 million and $705 million, respectively, were outstanding under the subsidiary’s program.

Revolving Credit Facility

In December 2021, the Company terminated its prior senior unsecured revolving credit facility and entered into a new senior unsecured revolving credit facility with an aggregate lending commitment of $4.75 billion for a period of five years. As of January 31, 2022 and October 31, 2021, no borrowings were outstanding under this credit facility.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 12: Stockholders' Equity

The components of Accumulated other comprehensive loss, net of taxes as of January 31, 2022, and changes during the three months ended January 31, 2022 were as follows:

Net unrealized gains (losses) on available-for-sale securitiesNet unrealized gains (losses) on cash flow hedgesUnrealized components of defined benefit plansCumulative translation adjustmentAccumulated other comprehensive loss
In millions
Balance at beginning of period$15$81$(2,545)$(466)$(2,915)
Other comprehensive income (loss) before reclassifications(1)2156(11)209
Reclassifications of (gains) losses into earnings—(201)42—(159)
Tax (provision) benefit—(2)(11)—(13)
Balance at end of period$14$93$(2,508)$(477)$(2,878)

The components of Accumulated other comprehensive loss, net of taxes as of January 31, 2021, and changes during the three months ended January 31, 2021 were as follows:

Net unrealized gains (losses) on available-for-sale securitiesNet unrealized gains (losses) on cash flow hedgesUnrealized components of defined benefit plansCumulative translation adjustmentAccumulated other comprehensive loss
In millions
Balance at beginning of period$18$(7)$(3,473)$(477)$(3,939)
Other comprehensive income (loss) before reclassifications3(329)—21(305)
Reclassifications of (gains) losses into earnings—27872—350
Tax (provision) benefit—5(5)(2)(2)
Balance at end of period$21$(53)$(3,406)$(458)$(3,896)

Share Repurchase Program

For the three months ended January 31, 2022, the Company repurchased and settled a total of 8.5 million shares under its share repurchase program through open market repurchases, which included 0.8 million shares that were unsettled open market repurchases as of October 31, 2021. Additionally, as of January 31, 2022, the Company had unsettled open market repurchases of 0.1 million shares. Shares repurchased during the three months ended January 31, 2022 were recorded as a $120 million reduction to stockholders' equity. As of January 31, 2022, the Company had a remaining authorization of $1.8 billion for future share repurchases.

Note 13: Net Earnings Per Share

The Company calculates basic net earnings per share ("EPS") using net earnings and the weighted-average number of shares outstanding during the reporting period. Diluted net EPS includes the weighted-average dilutive effect of outstanding restricted stock units, stock options, and performance-based awards.

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The reconciliations of the numerators and denominators of each of the basic and diluted net EPS calculations were as follows:

For the three months ended January 31,
20222021
In millions, except per share amounts
Numerator:
Net earnings$513$223
Denominator:
Weighted-average shares used to compute basic net EPS1,3041,300
Dilutive effect of employee stock plans2115
Weighted-average shares used to compute diluted net EPS1,3251,315
Net earnings per share:
Basic$0.39$0.17
Diluted$0.39$0.17
Anti-dilutive weighted-average stock awards(1)122

(1)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.

Note 14: Litigation and Contingencies

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 January 31, 2022, 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 complaint seeks damages, statutory and civil penalties, attorneys’ fees and costs. On April 2, 2019, HPE filed a demurrer to all causes of action and an alternative motion to strike portions of the complaint. On July 2, 2019, the court denied HPE’s demurrer as to the claims of the putative class and granted HPE’s demurrer as to the claims of the individual plaintiffs.

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India Directorate of Revenue Intelligence Proceedings*.* On April 30 and May 10, 2010, the India Directorate of Revenue Intelligence (the "DRI") issued show cause 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. Prior to the issuance of the show cause notices, HP India deposited approximately $16 million with the DRI and agreed to post a provisional bond in exchange for the DRI's agreement to not seize HP India products and spare parts and to not interrupt the transaction of business by HP India.

On April 11, 2012, the Bangalore Commissioner of Customs issued an order on the products-related show cause notice affirming certain duties and penalties against HP India and the named individuals of approximately $386 million, of which HP India had already deposited $9 million. On December 11, 2012, HP India voluntarily deposited an additional $10 million in connection with the products-related show cause notice. On April 20, 2012, the Commissioner issued an order on the parts-related show cause notice affirming certain duties and penalties against HP India and certain of the named individuals of approximately $17 million, of which HP India had already deposited $7 million. After the order, HP India deposited an additional $3 million in connection with the parts-related show cause notice to avoid certain penalties.

HP India filed appeals of the Commissioner's orders before the Customs Tribunal along with applications for waiver of the pre-deposit of remaining demand amounts as a condition for hearing the appeals. The Customs Department has also filed cross-appeals before the Customs Tribunal. On January 24, 2013, the Customs Tribunal ordered HP India to deposit an additional $24 million against the products order, which HP India deposited in March 2013. The Customs Tribunal did not order any additional deposit to be made under the parts order. In December 2013, HP India filed applications before the Customs Tribunal seeking early hearing of the appeals as well as an extension of the stay of deposit as to HP India and the individuals already granted until final disposition of the appeals. On February 7, 2014, the application for extension of the stay of deposit was granted by the Customs Tribunal until disposal of the appeals. 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 remand the matter to the Commissioner on procedural grounds. The hearings were scheduled to reconvene on April 6, 2015, and again on November 3, 2015, April 11, 2016, and January 15, 2019, but were canceled at the request of the Customs Tribunal. The hearing was again rescheduled for January 20, 2021 but was postponed and has 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 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. The court of first instance has not issued a decision on the merits of the case, but it has denied HP Brazil's request for injunctive relief. 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 any appeal of the decision on the merits to last several years.

Forsyth, et al. vs. HP Inc. and Hewlett Packard Enterprise. This purported class and collective action was filed on August 18, 2016 and an amended complaint was filed on December 19, 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 all individuals age 40 years and older who had their employment terminated by an HP entity pursuant to a work force reduction ("WFR") plan on or after December 9, 2014 for individuals terminated in deferral states and on or after April 8, 2015 in non-deferral states. Plaintiffs also seek to certify a Rule 23 class under California law comprised 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. Following the filing of Plaintiffs' Fourth Amended Complaint, Plaintiffs filed a Motion for Preliminary Class Certification on

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December 30, 2020. 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 Court-approved notice has been issued to potential class members.

Hewlett-Packard Company v. Oracle (Itanium). On June 15, 2011, HP Inc. filed suit against Oracle in the Superior Court of California, County of Santa Clara in connection with Oracle's March 2011 announcement that it was discontinuing software support for HP Inc.’s Itanium-based line of mission critical servers. HP Inc. asserted, among other things, that Oracle’s actions breached the contract that was signed by the parties as part of the settlement of the litigation relating to Oracle’s hiring of Mark Hurd. Trial was bifurcated into two phases. HP Inc. prevailed in the first phase of the trial, in which the court ruled that the contract at issue required Oracle to continue to offer its software products on HP Inc.'s Itanium-based servers for as long as HP Inc. decided to sell such servers. Phase 2 of the trial was then postponed by Oracle’s appeal of the trial court’s denial of Oracle’s “anti-SLAPP” motion, in which Oracle argued that HP Inc.’s damages claim infringed on Oracle’s First Amendment rights. On August 27, 2015, the California Court of Appeal rejected Oracle’s appeal. The matter was remanded to the trial court for Phase 2 of the trial, which began on May 23, 2016, and was submitted to the jury on June 29, 2016. On June 30, 2016, the jury returned a verdict in favor of HP Inc., awarding HP Inc. approximately $3 billion in damages: $1.7 billion for past lost profits and $1.3 billion for future lost profits. On October 20, 2016, the court entered judgment for this amount with interest accruing until the judgment is paid. Oracle’s motion for a new trial was denied on December 19, 2016, and Oracle filed its notice of appeal from the trial court’s judgment on January 17, 2017. On February 2, 2017, HP Inc. filed a notice of cross-appeal challenging the trial court’s denial of prejudgment interest. On May 16, 2019, HP Inc. filed its application to renew the judgment. As of May 16, 2019, the renewed judgment is approximately $3.8 billion. Daily interest on the renewed judgment is now accruing at $1 million and will be recorded upon receipt. On June 14, 2021, the California Court of Appeal affirmed the judgment of the trial court. Oracle filed a Petition for Rehearing with the California Court of Appeal, which was denied on July 8, 2021. On July 26, 2021, Oracle filed a Petition for Review with the California Supreme Court. The California Supreme Court denied the petition on September 29, 2021, and the California Court of Appeal issued the remittitur on September 30, 2021. On October 12, 2021, Oracle paid $4.66 billion, reflecting all amounts owed on the judgment plus accrued interest. Pursuant to the terms of the Separation and Distribution Agreement between HP Inc. and HPE, this amount was split evenly between the parties following the reimbursement of approximately $48 million in pre-separation legal costs incurred by HPE in prosecution of the litigation. In total, HPE has received payment of approximately $2.35 billion, which was recognized as a gain from litigation judgment during the year ended October 31, 2021. On October 27, 2021, HP Inc. filed an acknowledgement of full satisfaction of judgment. On January 27, 2022, Oracle filed a petition for writ of certiorari asking the United States Supreme Court to grant review. HPE's response to the petition is due April 1, 2022. Review by the United States Supreme Court is discretionary, and we believe the likelihood the award of damages will be reduced or reversed is remote.

Oracle America, Inc., et al. v. Hewlett Packard Enterprise Company (Terix copyright matter). On March 22, 2016, Oracle filed a complaint against HPE in the United States District Court for the Northern District of California, alleging copyright infringement, interference with contract, intentional interference with prospective economic relations, and unfair competition. Oracle’s claims arise out of HPE’s prior use of a third-party maintenance provider named Terix Computer Company, Inc. (“Terix”). Oracle contends that in connection with HPE’s use of Terix as a subcontractor for certain customers of HPE’s multivendor support business, Oracle’s copyrights were infringed, and HPE is liable for vicarious and contributory infringement and related claims. The lawsuit against HPE follows a prior lawsuit brought by Oracle against Terix in 2013 relating to Terix’s alleged unauthorized provision of Solaris patches to customers on Oracle hardware. On January 29, 2019, the court granted HPE’s Motion for Summary Judgment as to all of Oracle’s claims. On February 20, 2019, the court entered judgment in favor of HPE, dismissing Oracle’s claims in their entirety. Oracle appealed the trial court’s ruling to the United States Court of Appeals for the Ninth Circuit. On August 20, 2020, the United States Court of Appeals for the Ninth Circuit issued its ruling, affirming in part and reversing in part the trial court’s decision granting summary judgment in favor of HPE. On October 6, 2020, the matter was remanded to the United States District Court for the Northern District of California. On June 4, 2021, the Court issued an order denying HPE’s motion for summary judgment and granting-in-part Oracle’s motion for partial summary judgment as to a certain of HPE’s defenses. The Court has rescheduled the start of trial to May 23, 2022.

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,

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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. The evidentiary hearing before the ITC has been completed. On December 7, 2021, the Administrative Law Judge issued his initial determination finding no violation of section 337 of the Tariff Act. The ITC must decide whether to adopt the Administrative Law Judge’s findings or grant review of the initial determination no later than March 15, 2022.

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 environmental protection, including laws addressing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the clean-up of contaminated sites, the substances and materials used in the Company's products, 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, 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, social, and governance-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.

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