Item 1. Financial Statements.

152K characters. Original on sec.gov · Markdown

Item 1. Financial Statements.

Index


			Page
Condensed Consolidated Statements of Earnings for the three months ended January 31, 202 4 and 202 3 (Unaudited)			6

Condensed Consolidated Statements of Comprehensive Income for the three months ended January 31, 202 4 and 202 3 (Unaudited)			7

Condensed Consolidated Balance Sheets as of January 31, 202 4 (Unaudited) and October 31, 202 3 (Audited)			8

Condensed Consolidated Statements of Cash Flows for the three months ended January 31, 202 4 and 202 3 (Unaudited)			9

Condensed Consolidated Statements of Stockholders' Equity for the three months ended January 31, 202 4 and 202 3 (Unaudited)			10

Notes to Condensed Consolidated Financial Statements (Unaudited)			11

Note 1: Overview and Summary of Significant Accounting Policies			11

Note 2: Segment Information			12

Note 3: Transformation Programs			15

Note 4: Retirement Benefit Plans			16

Note 5: Taxes on Earnings			16

Note 6: Balance Sheet Details			18

Note 7: Accounting for Leases as a Lessor			20

Note 8: Acquisitions			22

Note 9: Goodwill			23

Note 10: Fair Value			23

Note 11: Financial Instruments			25

Note 12: Borrowings			28

Note 13: Stockholders' Equity			29

Note 14: Net Earnings Per Share			30

Note 15: Litigation, Contingencies, and Commitments			30

Note 16: Equity Method Investments			34

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings

(Unaudited)


	For the three months ended January 31,
	2024		2023
	In millions, except per share amounts
Net Revenue:
Products	$	3,956	$	5,114
Services	2,643		2,572
Financing income	156		123
Total net revenue	6,755		7,809
Costs and Expenses:
Cost of products	2,543		3,460
Cost of services	1,636		1,613
Financing cost	119		78
Research and development	582		623
Selling, general and administrative	1,216		1,257
Amortization of intangible assets	71		73

Transformation costs	20		102
Disaster charges	—		1
Acquisition, disposition and other related charges	43		11

Total costs and expenses	6,230		7,218
Earnings from operations	525		591
Interest and other, net	(88)		(26)


Earnings from equity interests	46		58
Earnings before provision for taxes	483		623
Provision for taxes	(96)		(122)
Net earnings	$	387	$	501
Net Earnings Per Share:
Basic	$	0.30	$	0.39
Diluted	$	0.29	$	0.38

Weighted-average Shares Used to Compute Net Earnings Per Share:
Basic	1,301		1,298
Diluted	1,316		1,315

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

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	For the three months ended January 31,
	2024		2023
	In millions
Net earnings	$	387	$	501
Other Comprehensive Loss Before Taxes
Change in Net Unrealized Gains on Available-for-sale Securities:
Net unrealized gains arising during the period	6		5

	6		5
Change in Net Unrealized Losses on Cash Flow Hedges:
Net unrealized losses arising during the period	(204)		(518)
Net losses reclassified into earnings	114		247
	(90)		(271)
Change in Unrealized Components of Defined Benefit Plans:

Amortization of net actuarial loss and prior service benefit	34		35

	34		35
Change in Cumulative Translation Adjustment	13		20
Other Comprehensive Loss Before Taxes	(37)		(211)
Benefit for Taxes	13		53
Other Comprehensive Loss, Net of Taxes	(24)		(158)
Comprehensive Income	$	363	$	343

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

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


	As of
	January 31, 2024		October 31, 2023
	(Unaudited)		(Audited)
	In millions, except par value
ASSETS
Current Assets:
Cash and cash equivalents	$	3,758	$	4,270
Accounts receivable, net of allowances	3,781		3,481
Financing receivables, net of allowances	3,629		3,543
Inventory	6,049		4,607

Other current assets	3,027		3,047
Total current assets	20,244		18,948
Property, plant and equipment, net	5,997		5,989
Long-term financing receivables and other assets	11,542		11,377
Investments in equity interests	2,249		2,197
Goodwill	17,988		17,988
Intangible assets	582		654
Total assets	$	58,602	$	57,153
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and short-term borrowings	$	4,957	$	4,868
Accounts payable	8,125		7,136
Employee compensation and benefits	1,027		1,724
Taxes on earnings	182		155
Deferred revenue	3,718		3,658
Accrued restructuring	121		180
Other accrued liabilities	4,505		4,161
Total current liabilities	22,635		21,882
Long-term debt	7,840		7,487
Other non-current liabilities	6,659		6,546
Commitments and Contingencies
Stockholders' Equity
HPE Stockholders' Equity:

Common stock, $0.01 par value (9,600 shares authorized; 1,300 and 1,283 shares issued and outstanding as of January 31, 2024 and October 31, 2023, respectively)	13		13
Additional paid-in capital	28,239		28,199
Accumulated deficit	(3,728)		(3,946)
Accumulated other comprehensive loss	(3,108)		(3,084)
Total HPE stockholders' equity	21,416		21,182
Non-controlling interests	52		56
Total stockholders' equity	21,468		21,238
Total liabilities and stockholders' equity	$	58,602	$	57,153

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

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


	For the three months ended January 31,
	2024		2023
	In millions
Cash Flows from Operating Activities:
Net earnings	$	387	$	501
Adjustments to Reconcile Net Earnings to Net Cash Provided by (Used in) Operating Activities:
Depreciation and amortization	657		656

Stock-based compensation expense	141		140
Provision for inventory and credit losses	32		45
Restructuring charges	7		72
Deferred taxes on earnings	(22)		20
Earnings from equity interests	(46)		(58)

Other, net	72		(60)
Changes in Operating Assets and Liabilities, Net of Acquisitions:
Accounts receivable	(310)		(112)
Financing receivables	(190)		(523)
Inventory	(1,461)		495
Accounts payable	1,041		(2,195)
Taxes on earnings	67		46
Restructuring	(78)		(96)
Other assets and liabilities	(233)		240
Net cash provided by (used in) operating activities	64		(829)
Cash Flows from Investing Activities:
Investment in property, plant and equipment	(656)		(794)
Proceeds from sale of property, plant and equipment	96		159
Purchases of investments	(16)		—
Proceeds from maturities and sales of investments	4		4
Financial collateral posted	(439)		(682)
Financial collateral received	271		108
Payments made in connection with business acquisitions, net of cash acquired	—		(32)
Net cash used in investing activities	(740)		(1,237)
Cash Flows from Financing Activities:
Short-term borrowings with original maturities less than 90 days, net	(17)		745
Proceeds from debt, net of issuance costs	859		261
Payment of debt	(515)		(661)

Net payments related to stock-based award activities	(94)		(107)
Repurchase of common stock	(3)		(73)
Cash dividends paid to non-controlling interests, net of contributions	(8)		—
Cash dividends paid to shareholders	(169)		(156)
Net cash provided by financing activities	53		9
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	14		138
Decrease in cash, cash equivalents and restricted cash	(609)		(1,919)
Cash, cash equivalents and restricted cash at beginning of period	4,581		4,763
Cash, cash equivalents and restricted cash at end of period	$	3,972	$	2,844

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

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)


	Common Stock
For the three months ended January 31, 2024	Number of Shares	Par Value		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Equity Attributable to the Company		Non- controlling Interests		Total Equity
	In millions, except number of shares in thousands
Balance as of October 31, 2023	1,282,630	$	13	$	28,199	$	(3,946)	$	(3,084)	$	21,182	$	56	$	21,238
Net earnings						387				387		4		391
Other comprehensive loss								(24)		(24)				(24)
Comprehensive income										363		4		367
Stock-based compensation expense				141						141				141
Tax withholding related to vesting of employee stock plans				(122)						(122)				(122)
Issuance of common stock in connection with employee stock plans and other	17,138			21						21				21
Repurchases of common stock										—				—
Cash dividends declared ($0.13 per share)						(169)				(169)		(8)		(177)

Balance as of January 31, 2024	1,299,768	$	13	$	28,239	$	(3,728)	$	(3,108)	$	21,416	$	52	$	21,468

) Represents the impact of the adoption of the accounting standard on the s on financial instruments.


	Common Stock
For the three months ended January 31, 2023	Number of Shares	Par Value		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Equity Attributable to the Company		Non- controlling Interests		Total Equity
	In millions, except number of shares in thousands
Balance as of October 31, 2022	1,281,037	$	13	$	28,299	$	(5,350)	$	(3,098)	$	19,864	$	45	$	19,909
Net earnings						501				501		7		508
Other comprehensive loss								(158)		(158)				(158)
Comprehensive income										343		7		350
Stock-based compensation expense				140						140				140
Tax withholding related to vesting of employee stock plans				(134)						(134)				(134)
Issuance of common stock in connection with employee stock plans and other	20,352			24		—				24				24
Repurchases of common stock	(4,505)			(70)						(70)				(70)
Cash dividends declared ($0.12 per share)						(156)				(156)				(156)

Balance as of January 31, 2023	1,296,884	$	13	$	28,259	$	(5,005)	$	(3,256)	$	20,011	$	52	$	20,063

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

Table of Content

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, 2024 and October 31, 2023, its results of operations for the three months ended January 31, 2024 and 2023, its cash flows for the three months ended January 31, 2024 and 2023, and its statements of stockholders' equity for the three months ended January 31, 2024 and 2023.

The results of operations and the cash flows for the three months ended January 31, 2024 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, 2023, as filed with the U.S. Securities and Exchange Commission ("SEC") on December 22, 2023.

Segment Realignment

As previously disclosed, effective as of the beginning of the first quarter 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 IT infrastructure through the HPE GreenLake edge-to-cloud platform 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 new organizational structure consists of the following segments: (i) Server; (ii) Hybrid Cloud; (iii) Intelligent Edge; (iv) Financial Services; and (v) Corporate Investments and Other. The Company is reporting under this re-aligned segment structure beginning with the results of the first quarter of fiscal 2024 included in this Quarterly Report.

The Company has reflected these changes to its segment information retrospectively to the earliest period presented, which primarily resulted in the realignment of net revenue and operating profit for each of the segments as described above. 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.

Significant Accounting Policies

There have been no 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, 2023.

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Recently Adopted Accounting Pronouncements

In September 2022, FASB issued guidance to enhance the transparency of supplier finance programs. The amendments require the disclosure of sufficient information about the program to allow a user of the financial statements to understand the program’s nature, activity during the period, changes from period to period and potential magnitude. The Company adopted this guidance in the first quarter of fiscal 2024 except for the disclosure on the roll forward information, which is effective for fiscal 2025. 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, as presented within Accounts Payable on the Condensed Consolidated Balance Sheets, amounted to $387 million, and $295 million as of January 31, 2024 and October 31, 2023, respectively.

Recently Enacted Accounting Pronouncements

Although there are new accounting pronouncements issued by the Financial Accounting Standards Board ("FASB") that the Company will adopt, as applicable, the Company does not believe any of these accounting pronouncements will have a material impact on its Condensed 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 Condensed 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 is required to adopt the guidance in the first quarter of fiscal 2025, though early adoption is permitted. The Company is currently evaluating the impact of this amendment on its Condensed Consolidated Financial Statements.

In March 2023, the FASB issued a guidance which amends certain provisions of ASC 842 that apply to arrangements between related parties under common control. It requires that leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group as long as the lessee controls the use of the underlying asset through a lease. In addition, leasehold improvements associated with common control leases should be accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. The Company is required to adopt the guidance in the first quarter of fiscal 2025, though early adoption is permitted. The Company is currently evaluating the impact of this amendment on its Condensed Consolidated Financial Statements.

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, services and technology. The five segments are based on this organizational structure and information reviewed by Hewlett Packard Enterprise's management to evaluate segment results. Effective as of the beginning of the first quarter of fiscal 2024, in order to align the Company’s segment financial reporting more closely with its current business structure, the Company realigned its’ reportable segments, see Note 1, "Overview and Summary of Significant Accounting Policies" to the Condensed Consolidated Financial Statements for additional information. A summary description of each segment 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 our 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

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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 software-as-a-service 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, our 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 as-a-service. 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 our acquisition of OpsRamp and unified data access through our 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 our 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 as-a-service and consumption models through the HPE GreenLake edge-to-cloud platform 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 edge-to-cloud platform.

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.

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 expense, amortization of intangible assets, transformation costs, disaster recovery/charges, 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 our CODM.

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Segment Operating Results

Segment net revenue and operating results were as follows:


	Server		Hybrid Cloud		Intelligent Edge		Financial Services		Corporate Investments and Other		Total
	In millions
Three months ended January 31, 2024:
Net revenue	$	3,246	$	1,206	$	1,193	$	872	$	238	$	6,755
Intersegment net revenue	106		42		8		1		—		157
Total segment net revenue	$	3,352	$	1,248	$	1,201	$	873	$	238	$	6,912
Segment earnings (loss) from operations	$	383	$	47	$	353	$	74	$	(10)	$	847
Three months ended January 31, 2023:
Net revenue	$	4,184	$	1,361	$	1,163	$	867	$	234	$	7,809
Intersegment net revenue	148		23		6		6		—		183
Total segment net revenue	$	4,332	$	1,384	$	1,169	$	873	$	234	$	7,992
Segment earnings (loss) from operations	$	678	$	80	$	227	$	63	$	(22)	$	1,026

The reconciliation of segment operating results to Condensed Consolidated Statements of Earnings was as follows:


	For the three months ended January 31,
	2024		2023
	In millions
Net Revenue:
Total segments	$	6,912	$	7,992
Eliminations of intersegment net revenue	(157)		(183)
Total consolidated net revenue	$	6,755	$	7,809
Earnings Before Taxes:
Total segment earnings from operations	$	847	$	1,026
Unallocated corporate costs and eliminations	(72)		(108)
Stock-based compensation expense	(141)		(140)

Amortization of intangible assets	(71)		(73)
Transformation costs	(20)		(102)
Disaster recovery (charges)	25		(1)
Acquisition, disposition and other related charges	(43)		(11)


Interest and other, net	(88)		(26)


Earnings from equity interests	46		58
Total earnings before provision for taxes	$	483	$	623

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Geographic Information

Net revenue by geographic region was as follows:


	For the three months ended January 31,
	2024		2023
	In millions
Americas:
United States	$	2,294	$	2,885
Americas excluding U.S.	507		569
Total Americas	2,801		3,454
Europe, Middle East and Africa	2,434		2,680
Asia Pacific and Japan	1,520		1,675
Total consolidated net revenue	$	6,755	$	7,809

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, real estate strategies, and simplifying and evolving our 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 have been substantially completed by the end of fiscal 2023.

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 has been 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 have been substantially completed by the end of fiscal 2023.

Cost Optimization and Prioritization Plan

The components of transformation costs relating to the Cost Optimization and Prioritization Plan were as follows:


	For the three months ended January 31,
	2024		2023
	In millions
Program management	$	1	$	1
IT costs	4		8
Restructuring charges	8		71

Total	$	13	$	80

HPE Next Plan

The components of transformation costs relating to HPE Next Plan were as follows:


	For the three months ended January 31,
	2024		2023
	In millions

IT costs	9		21
Restructuring (credits) charges	(1)		1



Total	$	8	$	22

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Restructuring Plan

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 (credits)	10		(2)		—		(1)
Cash payments	(64)		(12)		(1)		(1)
Non-cash items	1		1		1		(1)
Liability as of January 31, 2024	$	99	$	114	$	6	$	24
Total costs incurred to date, as of January 31, 2024	$	803	$	559	$	1,267	$	270
Total expected costs to be incurred as of January 31, 2024	$	820	$	560	$	1,267	$	270

The current restructuring liability related to the transformation programs, reported in the Condensed Consolidated Balance Sheets as of January 31, 2024 and October 31, 2023, was $121 million and $180 million, respectively, in accrued restructuring, and $20 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 Condensed Consolidated Balance Sheets as of January 31, 2024 and October 31, 2023, was $102 million and $110 million, respectively.

Note 4: Retirement Benefit Plans

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


	For the three months ended January 31,
	2024		2023
	In millions
Service cost	$	12	$	13
Interest cost(1)	101		93
Expected return on plan assets(1)	(136)		(130)
Amortization and Deferrals(1):
Actuarial loss	37		39
Prior service benefit	(2)		(3)
Net periodic benefit cost	12		12
Settlement loss and special termination benefits(1)	1		—
Total net benefit cost	$	13	$	12

(1)These non-service components were included in Interest and other, net in the Condensed Consolidated Statements of Earnings.

Note 5: Taxes on Earnings

Provision for Taxes

For the three months ended January 31, 2024 and 2023, the Company recorded income tax expense of $96 million and $122 million, respectively, which reflects an effective tax rate of 19.9% and 19.6%, 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.

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

For the three months ended January 31, 2024, the Company recorded immaterial net income tax charges related to various items discrete to the period.

For the three months ended January 31, 2023, the Company recorded $11 million of net income tax benefits related to various items discrete to the period. The amount primarily included $22 million of net income tax benefits related to transformation costs, and acquisition, disposition and other related charges and $13 million of net excess tax benefits related to stock-based compensation, partially offset by $23 million of net income tax charges related to tax audit settlements and changes in uncertain tax positions.

Uncertain Tax Positions

As of January 31, 2024 and October 31, 2023, the amount of unrecognized tax benefits was $674 million and $672 million, respectively, of which up to $372 million and $354 million, respectively, would affect the Company's effective tax rate if realized as of their respective periods.

For tax liabilities pertaining to unrecognized tax benefits, the Company recognizes interest income from favorable settlements and interest expense and penalties in Provision for taxes in the Condensed Consolidated Statements of Earnings. As of January 31, 2024 and October 31, 2023, the Company had accrued $57 million and $56 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 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 the fourth quarter of fiscal 2023, the IRS issued notices of proposed adjustments (“NOPAs”) for 2017, 2018, and 2019 relating to HPE’s intercompany transfer pricing. During the fiscal quarter, the IRS issued a Revenue Agent Report (“RAR”) finalizing their position on the NOPAs for the same issues and same fiscal years. The IRS is seeking to increase taxable income across the three fiscal years by $904 million. As of the balance sheet date, HPE has sufficient tax credit carryforwards to offset any incremental tax liability from the adjustments in the RAR. However, HPE disagrees with the IRS’ adjustments and believes the positions taken on its tax returns are more likely than not to prevail on technical merits, and the Company will defend these positions through the IRS administrative processes, as necessary. Accordingly, no changes have been made to the Company’s reserves for uncertain tax positions as of January 31, 2024 relating to the IRS’ adjustments. With respect to major state and foreign tax jurisdictions, the Company is no longer subject to tax authority examinations for years prior to 2005. Additionally, it is reasonably possible that certain foreign and state tax issues may be concluded in the next 12 months, including issues involving resolution of certain intercompany transactions and other matters; accordingly, the Company believes it is reasonably possible that its existing unrecognized tax benefits for these matters may be reduced by an amount up to $8 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, 2024		October 31, 2023
	In millions
Deferred tax assets	$	2,328	$	2,264
Deferred tax liabilities	(331)		(326)
Deferred tax assets net of deferred tax liabilities	$	1,997	$	1,938

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 6: Balance Sheet Details

Cash, Cash Equivalents and Restricted Cash


	As of
	January 31, 2024		October 31, 2023
	In millions
Cash and cash equivalents	$	3,758	$	4,270
Restricted cash(1)	214		311
Total	$	3,972	$	4,581

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

Inventory


	As of
	January 31, 2024		October 31, 2023
	In millions
Purchased parts and fabricated assemblies	$	4,733	$	2,940
Finished goods	1,316		1,667
Total	$	6,049	$	4,607

Property, Plant and Equipment, net


	As of
	January 31, 2024		October 31, 2023
	In millions
Land	$	66	$	66
Buildings and leasehold improvements	1,547		1,521
Machinery and equipment, including equipment held for lease	10,564		10,382

Gross property, plant and equipment	12,177		11,969
Accumulated depreciation	(6,180)		(5,980)
Property, plant and equipment, net	$	5,997	$	5,989

Warranties

The Company's aggregate product warranty liabilities and changes for the three months ended January 31, 2024, and the fiscal year ended October 31, 2023 were as follows:


	As of
	January 31, 2024		October 31, 2023
	In millions
Balance at beginning of period	$	318	$	360
Charges	38		184
Adjustments related to pre-existing warranties	2		(18)
Settlements made	(46)		(208)
Balance at end of period	$	312	$	318

Contract Balances

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

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Contract Assets

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


	As of
	January 31, 2024		October 31, 2023
	In millions
Accounts receivable	$	3,540	$	3,254
Unbilled receivables	277		264
Allowances	(36)		(37)
Total	$	3,781	$	3,481

The allowances for credit losses related to accounts receivable and changes for the three months ended January 31, 2024, and the fiscal year ended October 31, 2023 were as follows:


	As of
	January 31, 2024		October 31, 2023
	In millions
Balance at beginning of period	$	37	$	25
Provision for credit losses	17		29
Adjustments to existing allowances, including write offs	(18)		(17)
Balance at end of period	$	36	$	37

Sale of Trade Receivables

The Company has third-party revolving short-term financing arrangements intended to facilitate the working capital requirements of certain customers. For the three months ended January 31, 2024, the Company sold $0.8 billion and for the fiscal year ended October 31, 2023, the Company sold $4.1 billion of trade receivables. The Company recorded an obligation of $50 million and $80 million within Notes payable and short-term borrowings in its Condensed Consolidated Balance Sheets as of January 31, 2024 and October 31, 2023, respectively, related to the trade receivables sold and collected from the third-party for which the revenue recognition was deferred.

Contract Liabilities and Remaining Performance Obligations

As of January 31, 2024 and October 31, 2023, current deferred revenue of $3.7 billion and $3.6 billion, respectively, were recorded in Deferred revenue, and non-current deferred revenue of $3.4 billion and $3.3 billion, respectively, were recorded in Other non-current liabilities in the Condensed Consolidated Balance Sheets. For the three months ended January 31, 2024, approximately $1.3 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 January 31, 2024, the aggregate amount of remaining performance obligations, or deferred revenue, was $7.1 billion. The Company expects to recognize approximately 45% of this balance over fiscal 2024 with the remainder to be recognized thereafter.

Costs to Obtain a Contract

As of January 31, 2024, the current and non-current portions of the capitalized costs to obtain a contract were $87 million and $138 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 Condensed Consolidated Balance Sheets. For the three months ended January 31, 2024 and 2023, the Company amortized $26 million and $22 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 Statements of Earnings.

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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, 2024		October 31, 2023
	In millions
Minimum lease payments receivable	$	9,535	$	9,363
Unguaranteed residual value	463		438
Unearned income	(1,037)		(987)
Financing receivables, gross	8,961		8,814
Allowance for credit losses	(226)		(243)
Financing receivables, net	8,735		8,571
Less: current portion	(3,629)		(3,543)
Amounts due after one year, net	$	5,106	$	5,028

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 three months ended January 31, 2024 and the fiscal year ended October 31, 2023, the Company sold $23 million and $237 million of financing receivables, respectively.

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, 2024, presented on amortized cost basis by year of origination was as follows:


	As of January 31, 2024
	Risk Rating
	Low		Moderate		High
Fiscal Year	In millions
2024	$	396	$	194	$	4
2023	2,200		1,241		44
2022	1,572		969		52
2021	771		564		63
2020 and prior	366		410		115
Total	$	5,305	$	3,378	$	278

Table of Content

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, 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 January 31, 2024 and October 31, 2023 and the respective changes for the three and twelve months then ended were as follows:


	As of
	January 31, 2024		October 31, 2023
	In millions
Balance at beginning of period	$	243	$	325

Provision for credit losses	11		58

Write-offs	(28)		(140)
Balance at end of period	$	226	$	243

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, 2024		October 31, 2023
	In millions
Billed:(1)
Current 1-30 days	$	374	$	320
Past due 31-60 days	38		30
Past due 61-90 days	25		13
Past due > 90 days	89		100
Unbilled sales-type and direct-financing lease receivables	8,435		8,351
Total gross financing receivables	$	8,961	$	8,814
Gross financing receivables on non-accrual status(2)	$	224	$	227
Gross financing receivables 90 days past due and still accruing interest(2)	$	83	$	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.

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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


		For the three months ended January 31,
	Location	2024		2023
		In millions

Interest income from sales-type leases and direct financing leases	Financing Income	$	156	$	123
Lease income from operating leases	Services	599		589
Total lease income		$	755	$	712

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.

The following table presents the assets and liabilities held by the consolidated VIE as of January 31, 2024 and October 31, 2023, 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, 2024		October 31, 2023
Assets held by VIE:	In millions
Other current assets	$	162	$	145
Financing receivables
Short-term	888		764
Long-term	1,219		983
Property, plant and equipment, net	1,355		1,214
Liabilities held by VIE:
Notes payable and short-term borrowings, net of unamortized debt issuance costs	1,528		1,392
Long-term debt, net of unamortized debt issuance costs	$	1,369	$	1,082

For the three months ended January 31, 2024, financing receivables and leased equipment transferred via securitization through the SPE were $0.6 billion and $0.3 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 8: Acquisitions

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. The transaction is expected to be funded based on financing commitments for $14 billion in term loans. Such financing will ultimately be replaced, in part, with a combination of new debt, mandatory convertible preferred securities, and cash on the

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

balance sheet. The closing of the transaction remains subject to receipt of regulatory approvals, approval of the transaction by Juniper Networks shareholders, and satisfaction of other customary closing conditions.

Note 9: Goodwill

Goodwill is tested for impairment at the reporting unit level. As of January 31, 2024, the Company's reporting units are consistent with the reportable segments identified in Note 2, “Segment Information”, with the exception of Server and Corporate Investments and Other. The Server segment contains two reporting units, Compute and HPC & AI. The Corporate Investments and Other segment contains two reporting units, A & PS and CMS. The following table represents the carrying value of goodwill, by reportable segment as of January 31, 2024 and October 31, 2023.


	Server		Hybrid Cloud		Intelligent Edge		Financial Services		Corporate Investments and Other		Total
	In millions





Balance as of October 31, 2023 and January 31, 2024	$	10,220	$	4,716	$	2,908	$	144	$	—	$	17,988

Goodwill is tested annually for impairment, as of the first day of the fourth quarter, at the reporting unit level. As a result of the realignment, the Company performed an interim quantitative goodwill impairment test for all of its reporting units as of November 1, 2023, which did not result in any goodwill impairment charges. There has been no change to the accumulated impairment loss from the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2023. The fair value of all reporting units continued to exceed the carrying amount of their net assets. The excess of fair value over carrying amount for our reporting units ranged from approximately 4% to 184% of the respective carrying amounts. In order to evaluate the sensitivity of the estimated fair value of our reporting units in the goodwill impairment test, the Company applied a 10% decrease to the fair value of each reporting unit. Based on the results of this hypothetical 10% decrease, all of the reporting units had an excess of fair value over carrying value with the exception of the Compute and HPC & AI reporting units.

The Compute reporting unit has goodwill of $8.2 billion as of January 31, 2024, and excess of fair value over carrying value of 4% as of the 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 slowed their investments resulting in lower server demand and competitive pricing. These dynamics are further compounded by higher supply chain costs. During this cycle, the Compute business continues to focus on capturing market share while maintaining operating margin. If the global macroeconomic or geopolitical conditions worsen, projected revenue growth rates or operating margins decline, weighted average cost of capital increases, or if the Company has significant or sustained decline in its stock price, it is possible its estimates about the Compute reporting unit's ability to successfully address the current challenges may change, which could result in the carrying value of the Compute reporting unit exceeding its estimated fair value and potential impairment charges.

The HPC & AI reporting unit has goodwill of $2.0 billion as of January 31, 2024, and excess of fair value over carrying value of 4% as of the interim test date. The HPC & AI business continues to face challenges related to supply chain constraints of key components and other operational challenges impacting our ability to achieve certain customer acceptance milestones required for revenue recognition and resulting cost increases associated with fulfilling contracts over longer than originally anticipated timelines. We currently believe these challenges will be successfully addressed as the supply chain constraints continue to improve. If the global macroeconomic or geopolitical conditions worsen, projected revenue growth rates or operating margins decline, weighted average cost of capital increases, or if the Company has significant or sustained decline in its stock price, it is possible its estimates about the HPC & AI reporting unit's ability to successfully address the current challenges may change, which could result in the carrying value of the HPC & AI reporting unit exceeding its estimated fair value and potential impairment charges.

Note 10: 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.

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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.

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


	As of January 31, 2024								As of October 31, 2023
	Fair Value Measured Using								Fair 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)		Total		Quoted 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	$	—	$	985	$	—	$	985	$	—	$	905	$	—	$	905
Money market funds	1,681		—		—		1,681		1,672		—		—		1,672
Equity investments	—		—		81		81		—		—		135		135
Foreign bonds	1		102		1		104		1		95		1		97
Other debt securities (1)	—		—		19		19		—		—		22		22
Derivative Instruments:

Foreign exchange contracts	—		242		—		242		—		464		—		464
Other derivatives	—		3		—		3		—		—		—		—
Total assets	$	1,682	$	1,332	$	101	$	3,115	$	1,673	$	1,464	$	158	$	3,295
Liabilities
Derivative Instruments:
Interest rate contracts	$	—	$	104	$	—	$	104	$	—	$	151	$	—	$	151
Foreign exchange contracts	—		229		—		229		—		152		—		152
Other derivatives	—		—		—		—		—		2		—		2
Total liabilities	$	—	$	333	$	—	$	333	$	—	$	305	$	—	$	305

(1) Available-for-sale debt securities with carrying values that approximate fair value.

Other Fair Value Disclosures

Short-Term and Long-Term Debt: As of January 31, 2024 and October 31, 2023, the estimated fair value of the Company's short-term and long-term debt was $13.0 billion and $12.2 billion, respectively. As of January 31, 2024 and October 31, 2023, the carrying value of the Company's short-term and long-term debt was $12.8 billion and $12.4 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.

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 nature. If measured at fair value in the Condensed Consolidated Balance Sheets, these other financial instruments would be classified in Level 2 or Level 3 of the fair value hierarchy.

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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 the three months ended January 31, 2024 the Company recognized a $7 million unrealized net loss on these investments. For the three months ended January 31, 2023, the Company recognized an impairment of $10 million on these investments. If measured at fair value in the Condensed Consolidated Balance Sheets, these would generally be classified in Level 3 of the fair value hierarchy. For investments still held as of January 31, 2024, the cumulative upward adjustments for observable price changes was $39 million and cumulative downward adjustments for observable price changes and impairments was $84 million. Refer to Note 11 “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 right-of-use 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.

Note 11: 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, 2024				As of October 31, 2023
	Cost		Gross Unrealized Gains		Fair Value		Cost		Gross Unrealized Gains (Losses)		Fair Value
	In millions
Cash Equivalents:
Time deposits	$	985	$	—	$	985	$	905	$	—	$	905
Money market funds	1,681		—		1,681		1,672		—		1,672
Total cash equivalents	2,666		—		2,666		2,577		—		2,577
Available-for-sale Debt Investments:

Foreign bonds	102		2		104		100		(3)		97
Other debt securities	15		4		19		19		3		22
Total available-for-sale debt investments	117		6		123		119		—		119
Total cash equivalents and available-for-sale debt investments	$	2,783	$	6	$	2,789	$	2,696	$	—	$	2,696

As of January 31, 2024 and October 31, 2023, 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, 2024 and October 31, 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 January 31, 2024
	Amortized Cost		Fair Value
	In millions

Due in one to five years	5		5
Due in more than five years	112		118
Total	$	117	$	123

Equity Investments

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

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

value or under the 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 $81 million and $135 million as of January 31, 2024 and October 31, 2023, respectively. For the three months ended January 31, 2024, the Company recorded an unrealized loss of $54 million on these investments. The Company did not recognize any unrealized gains or losses on these equity investments during the three months ended January 31, 2023. This amount is reflected in Interest and other, net in the Condensed Consolidated Statements of Earnings.

The carrying amount of those non-marketable equity investments accounted for under the measurement alternative was $154 million and $145 million as of January 31, 2024 and October 31, 2023, respectively. For the three months ended January 31, 2024 the Company recognized a $7 million unrealized net loss on these investments. For the three months ended January 31, 2023, the Company recognized an impairment of $10 million on these investments. These amounts are reflected in Interest and other, net in the Condensed Consolidated Statements of Earnings.

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, 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	$	—	$	—	$	—	$	104	$	2,500	$	—	$	—	$	—	$	151
Cash Flow Hedges:
Foreign currency contracts	8,305		106		59		80		48		8,247		252		104		33		23

Net Investment Hedges:
Foreign currency contracts	1,904		23		28		25		30		1,972		39		46		34		23
Total derivatives designated as hedging instruments	12,709		129		87		105		182		12,719		291		150		67		197
Derivatives Not Designated as Hedging Instruments
Foreign currency contracts	4,447		23		3		27		19		6,786		20		3		23		16
Other derivatives	141		3		—		—		—		100		—		—		2		—
Total derivatives not designated as hedging instruments	4,588		26		3		27		19		6,886		20		3		25		16
Total derivatives	$	17,297	$	155	$	90	$	132	$	201	$	19,605	$	311	$	153	$	92	$	213

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:

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)


	As of January 31, 2024
	In the Condensed 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	$	245	$	—	$	245	$	170	$	55	(1)	$	20
Derivative liabilities	$	333	$	—	$	333	$	170	$	118	(2)	$	45


	As of October 31, 2023
	In the Condensed 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 January 31, 2024, of the $118 million of collateral posted, $108 million was in cash and $10 million was 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 on the Condensed Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges were as follows:


	Carrying Amount of the Hedged Liabilities				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/ (Liabilities)
	As of				As of
	January 31, 2024		October 31, 2023		January 31, 2024		October 31, 2023
	In millions

Long-term debt	$	(2,393)	$	(2,345)	$	104	$	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 three months ended January 31,
	2024		2023
	In millions
Derivatives in Cash Flow Hedging Relationship:
Foreign exchange contracts	$	(204)	$	(518)

Derivatives in Net Investment Hedging Relationship:
Foreign exchange contracts	(39)		(107)
Total	$	(243)	$	(625)

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

As of January 31, 2024, the Company expects to reclassify an estimated net accumulated other comprehensive loss of approximately $8 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 following table represents the pre-tax effect of derivative instruments on total amounts of income and expense line items presented in the Condensed Consolidated Statements of Earnings in which the effects of fair value hedges and derivatives not designated as hedging instruments are recorded:


	Gains (Losses) Recognized in Income
	For the three months ended January 31,
	2024				2023
	Net Revenue		Interest and Other, net		Net Revenue		Interest and Other, net
	In millions

Total net revenue and interest and other, net	$	6,755	$	(88)	$	7,809	$	(26)
Gains (Losses) on Derivatives in Fair Value Hedging Relationships:
Interest Rate Contracts
Hedged items	$	—	$	(47)	$	—	$	(41)
Derivatives designated as hedging instruments	—		47		—		41
Gains (Losses) on Derivatives in Cash Flow Hedging Relationships:
Foreign Exchange Contracts
Amount of gains (losses) reclassified from accumulated other comprehensive income into income	24		(138)		50		(297)


Gains (Losses) on Derivatives not Designated as Hedging Instruments:
Foreign exchange contracts	—		(44)		—		(194)
Other derivatives	—		4		—		—
Total gains (losses)	$	24	$	(178)	$	50	$	(491)

Note 12: 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, 2024		October 31, 2023
	In millions
Current portion of long-term debt(1)	$	4,131	$	4,022
Commercial paper	674		679
Notes payable to banks, lines of credit and other	152		167
Total notes payable and short-term borrowings	4,957		4,868
Long-term debt	7,840		7,487
Total	$	12,797	$	12,355

(1) As of January 31, 2024, the Current portion of long-term debt, net of discount and issuance costs, included $1.5 billion associated with the asset-backed debt securities issued by the Company.

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Asset-backed Debt Securities

In January 2024, the Company issued $796 million of asset-backed debt securities in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 5.476%, payable monthly from February 2024 with a stated final maturity date of November 2031.

Commercial Paper

Hewlett Packard Enterprise maintains two commercial paper programs, collectively "the Parent Programs", and a wholly-owned subsidiary maintains a third program. The commercial paper 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 commercial paper 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, 2024 and October 31, 2023, no borrowings were outstanding under the Parent Programs. As of January 31, 2024 and October 31, 2023, $674 million and $679 million, respectively, were outstanding under the subsidiary’s program.

Revolving Credit Facility

The Company maintains a senior unsecured revolving credit facility that was entered into in December 2021 with an aggregate lending commitment of $4.75 billion for a period of five years. As of January 31, 2024 and October 31, 2023, no borrowings were outstanding under this credit facility.

Uncommitted Credit Facility

The Company maintains an uncommitted short-term advance facility with Societe Generale that was entered into in September 2023 with a principal amount of up to $500 million for a period of five years. As of January 31, 2024 and October 31, 2023, no borrowings were outstanding under this credit facility.

Juniper Acquisition Committed Financing

In connection with HPE’s signing a definitive agreement to acquire Juniper Networks in January 2024, HPE obtained a commitment from Citigroup Global Markets Inc., JPMorgan Chase Bank, N.A. and Mizuho Bank, Ltd. for a $14 billion senior unsecured delayed draw term loan facility, comprised of an $11 billion 364-day tranche and a $3 billion three-year tranche, subject to customary conditions. As of January 31, 2024, no borrowings were outstanding and HPE paid $42 million of financing fees.

Note 13: Stockholders' Equity

The components of accumulated other comprehensive loss, net of taxes as of January 31, 2024, and changes for the three months ended January 31, 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	6		(204)		—		13		(185)
Reclassifications of losses into earnings	—		114		34		—		148
Tax benefit (provision)	—		18		(4)		(1)		13
Balance at end of period	$	6	$	(11)	$	(2,477)	$	(626)	$	(3,108)

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The components of accumulated other comprehensive loss, net of taxes as of January 31, 2023, and changes for the three months ended January 31, 2023 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	$	(1)	$	109	$	(2,596)	$	(610)	$	(3,098)

Other comprehensive income (loss) before reclassifications	5		(518)		—		20		(493)
Reclassifications of losses into earnings	—		247		35		—		282
Tax benefit (provision)	—		55		(3)		1		53
Balance at end of period	$	4	$	(107)	$	(2,564)	$	(589)	$	(3,256)

Share Repurchase Program

For the three months ended January 31, 2024, the Company settled 0.2 million shares that were unsettled open market repurchases under its share repurchase program as of October 31, 2023. The Company did not repurchase or settle any additional shares during the three months ended January 31, 2024. As of January 31, 2024, the Company had a remaining authorization of approximately $1.0 billion for future share repurchases.

Note 14: 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.

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,
	2024		2023
	In millions, except per share amounts
Numerator:
Net earnings	$	387	$	501
Denominator:
Weighted-average shares used to compute basic net EPS	1,301		1,298
Dilutive effect of employee stock plans	15		17
Weighted-average shares used to compute diluted net EPS	1,316		1,315
Net Earnings per Share:
Basic	$	0.30	$	0.39
Diluted	$	0.29	$	0.38
Anti-dilutive weighted-average stock awards(1)	1		9

(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 15: Litigation, Contingencies, and Commitments

Litigation

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

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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, 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

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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, 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. The Court has scheduled a Fairness Hearing to address the parties’ Motion for Final Approval for March 28, 2024.

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.

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 filed an appeal and request for a stay of the judgement pending appeal.

Intel is indemnifying HPE pursuant to the terms of the parties’ agreement regarding patent indemnification. Given the procedural posture and nature of the case, HPE is currently unable to make a reasonable estimate of the potential loss or range of losses, if any, that may arise from this lawsuit and that would not be indemnifiable by Intel.

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

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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; the management, movement, and disposal of hazardous substances and wastes; the clean-up of contaminated sites; product safety and compliance; 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 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.

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.

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.

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 IP 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.

Table of Content

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Note 16: Equity Method Investments

Pursuant to the Shareholders' Agreement among the Company’s relevant subsidiaries, Unisplendour International Technology Limited ("UNIS"), and H3C Technologies Co., Limited ("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, for total pre-tax cash consideration of $3.5 billion. The disposition remains subject to obtaining required regulatory approvals and completion of certain conditions necessary for closing.

Table of Contents

Previous: Cover and table of contents · Next: Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.