filings.toolsItem 1. Financial Statements.
151K characters. Original on sec.gov · Markdown
Item 1. Financial Statements.
Index
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
| For the three months ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| In millions, except per share amounts | |||||||||||||||||||||||
| Net Revenue: | |||||||||||||||||||||||
| Products | $ | 4,970 | $ | 3,956 | |||||||||||||||||||
| Services | 2,698 | 2,643 | |||||||||||||||||||||
| Financing income | 186 | 156 | |||||||||||||||||||||
| Total net revenue | 7,854 | 6,755 | |||||||||||||||||||||
| Costs and Expenses: | |||||||||||||||||||||||
| Cost of products (exclusive of amortization shown separately below) | 3,762 | 2,543 | |||||||||||||||||||||
| Cost of services (exclusive of amortization shown separately below) | 1,669 | 1,636 | |||||||||||||||||||||
| Financing cost | 128 | 119 | |||||||||||||||||||||
| Research and development | 475 | 582 | |||||||||||||||||||||
| Selling, general and administrative | 1,268 | 1,216 | |||||||||||||||||||||
| Amortization of intangible assets | 38 | 71 | |||||||||||||||||||||
| Transformation costs | 15 | 20 | |||||||||||||||||||||
| Acquisition, disposition and other charges | 66 | 43 | |||||||||||||||||||||
| Total costs and expenses | 7,421 | 6,230 | |||||||||||||||||||||
| Earnings from operations | 433 | 525 | |||||||||||||||||||||
| Interest and other, net | 39 | (88) | |||||||||||||||||||||
| Gain on sale of a business | 244 | — | |||||||||||||||||||||
| Earnings from equity interests | 17 | 46 | |||||||||||||||||||||
| Earnings before provision for taxes | 733 | 483 | |||||||||||||||||||||
| Provision for taxes | (106) | (96) | |||||||||||||||||||||
| Net earnings attributable to HPE | 627 | 387 | |||||||||||||||||||||
| Preferred stock dividends | (29) | — | |||||||||||||||||||||
| Net earnings attributable to common stockholders | $ | 598 | $ | 387 | |||||||||||||||||||
| Net Earnings Per Share Attributable to Common Stockholders: | |||||||||||||||||||||||
| Basic | $ | 0.45 | $ | 0.30 | |||||||||||||||||||
| Diluted | $ | 0.44 | $ | 0.29 | |||||||||||||||||||
| Weighted-average Shares Used to Compute Net Earnings Per Share: | |||||||||||||||||||||||
| Basic | 1,316 | 1,301 | |||||||||||||||||||||
| Diluted | 1,409 | 1,316 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| For the three months ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Net earnings attributable to HPE | $ | 627 | $ | 387 | |||||||||||||||||||
| Other Comprehensive Income (Loss) Before Taxes | |||||||||||||||||||||||
| Change in Net Unrealized (Losses) Gains on Available-for-sale Securities: | |||||||||||||||||||||||
| Net unrealized (losses) gains arising during the period | (1) | 6 | |||||||||||||||||||||
| (1) | 6 | ||||||||||||||||||||||
| Change in Net Unrealized Gains (Losses) on Cash Flow Hedges: | |||||||||||||||||||||||
| Net unrealized gains (losses) arising during the period | 270 | (204) | |||||||||||||||||||||
| Net (gains) losses reclassified into earnings | (213) | 114 | |||||||||||||||||||||
| 57 | (90) | ||||||||||||||||||||||
| Change in Unrealized Components of Defined Benefit Plans: | |||||||||||||||||||||||
| Amortization of net actuarial loss and prior service benefit | 30 | 34 | |||||||||||||||||||||
| 30 | 34 | ||||||||||||||||||||||
| Change in Cumulative Translation Adjustment: | (22) | 13 | |||||||||||||||||||||
| Other Comprehensive Income (Loss) Before Taxes | 64 | (37) | |||||||||||||||||||||
| (Provision) Benefit for Taxes | (14) | 13 | |||||||||||||||||||||
| Other Comprehensive Income (Loss), Net of Taxes | 50 | (24) | |||||||||||||||||||||
| Comprehensive Income | $ | 677 | $ | 363 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| (Unaudited) | (Audited) | ||||||||||
| In millions, except par value and shares | |||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 13,431 | $ | 14,846 | |||||||
| Accounts receivable, net of allowances | 3,450 | 3,550 | |||||||||
| Financing receivables, net of allowances | 3,771 | 3,870 | |||||||||
| Inventory | 8,577 | 7,810 | |||||||||
| Assets held for sale | — | 1 | |||||||||
| Other current assets | 3,783 | 3,380 | |||||||||
| Total current assets | 33,012 | 33,457 | |||||||||
| Property, plant and equipment, net | 5,412 | 5,664 | |||||||||
| Long-term financing receivables and other assets | 12,369 | 12,616 | |||||||||
| Investments in equity interests | 940 | 929 | |||||||||
| Goodwill | 18,086 | 18,086 | |||||||||
| Intangible assets, net | 508 | 510 | |||||||||
| Total assets | $ | 70,327 | $ | 71,262 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Notes payable and short-term borrowings | $ | 4,605 | $ | 4,742 | |||||||
| Accounts payable | 10,747 | 11,064 | |||||||||
| Employee compensation and benefits | 898 | 1,356 | |||||||||
| Taxes on earnings | 314 | 284 | |||||||||
| Deferred revenue | 3,905 | 3,904 | |||||||||
| Accrued restructuring | 46 | 61 | |||||||||
| Liabilities held for sale | — | 32 | |||||||||
| Other accrued liabilities | 4,389 | 4,530 | |||||||||
| Total current liabilities | 24,904 | 25,973 | |||||||||
| Long-term debt | 13,272 | 13,504 | |||||||||
| Other non-current liabilities | 6,869 | 6,905 | |||||||||
| Commitments and Contingencies | |||||||||||
| HPE Stockholders' Equity: | |||||||||||
| 7.625% Series C mandatory convertible preferred stock, $0.01 par value (30,000,000 shares issued and outstanding as of January 31, 2025 and October 31, 2024, respectively) | — | — | |||||||||
| Common stock, $0.01 par value (9,600,000,000 shares authorized; 1,313,391,109 and 1,297,258,235 shares issued and outstanding as of January 31, 2025 and October 31, 2024, respectively) | 13 | 13 | |||||||||
| Additional paid-in capital | 29,780 | 29,848 | |||||||||
| Accumulated deficit | (1,642) | (2,068) | |||||||||
| Accumulated other comprehensive loss | (2,927) | (2,977) | |||||||||
| Total HPE stockholders' equity | 25,224 | 24,816 | |||||||||
| Non-controlling interests | 58 | 64 | |||||||||
| Total stockholders' equity | 25,282 | 24,880 | |||||||||
| Total liabilities and stockholders' equity | $ | 70,327 | $ | 71,262 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
| For the three months ended January 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| In millions | |||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net earnings attributable to HPE | $ | 627 | $ | 387 | |||||||
| Adjustments to Reconcile Net Earnings Attributable to HPE to Net Cash (Used in) Provided by Operating Activities: | |||||||||||
| Depreciation and amortization | 599 | 657 | |||||||||
| Stock-based compensation expense | 154 | 141 | |||||||||
| Provision for inventory and credit losses | 67 | 32 | |||||||||
| Restructuring charges | — | 7 | |||||||||
| Deferred taxes on earnings | (2) | (22) | |||||||||
| Earnings from equity interests | (17) | (46) | |||||||||
| Gain on sale of a business | (244) | — | |||||||||
| H3C divestiture related severance costs | 77 | — | |||||||||
| Other, net | 60 | 72 | |||||||||
| Changes in Operating Assets and Liabilities, Net of Acquisitions: | |||||||||||
| Accounts receivable | 91 | (310) | |||||||||
| Financing receivables | 317 | (190) | |||||||||
| Inventory | (811) | (1,461) | |||||||||
| Accounts payable | (264) | 1,041 | |||||||||
| Taxes on earnings | 49 | 67 | |||||||||
| Restructuring | (16) | (78) | |||||||||
| Other assets and liabilities | (1,077) | (233) | |||||||||
| Net cash (used in) provided by operating activities | (390) | 64 | |||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Investment in property, plant and equipment and software assets | (528) | (656) | |||||||||
| Proceeds from sale of property, plant and equipment | 84 | 96 | |||||||||
| Purchases of investments | — | (16) | |||||||||
| Proceeds from maturities and sales of investments | 1 | 4 | |||||||||
| Financial collateral posted | — | (439) | |||||||||
| Financial collateral received | 210 | 271 | |||||||||
| Proceeds from sale of a business | 210 | — | |||||||||
| Net cash used in investing activities | (23) | (740) | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Short-term borrowings with original maturities less than 90 days, net | 9 | (17) | |||||||||
| Proceeds from debt, net of issuance costs | 105 | 859 | |||||||||
| Payment of debt | (486) | (515) | |||||||||
| Net payments related to stock-based award activities | (169) | (94) | |||||||||
| Repurchases of common stock | (52) | (3) | |||||||||
| Cash dividends paid to non-controlling interests, net of contributions | (8) | (8) | |||||||||
| Cash dividends paid to preferred stockholders | (25) | — | |||||||||
| Cash dividends paid to common stockholders | (171) | (169) | |||||||||
| Net cash (used in) provided by financing activities | (797) | 53 | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (43) | 14 | |||||||||
| Change in cash, cash equivalents and restricted cash | (1,253) | (609) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 15,105 | 4,581 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 13,852 | $ | 3,972 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the three months ended January 31, 2025 | Number of Shares | Par Value | Number of 7.625% Series C Mandatory Convertible Shares | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Equity Attributable to the Company | Non- controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| In millions, except number of shares in thousands | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of October 31, 2024 | 1,297,258 | $ | 13 | 30,000 | $ | 29,848 | $ | (2,068) | $ | (2,977) | $ | 24,816 | $ | 64 | $ | 24,880 | ||||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to HPE | 627 | 627 | 2 | 629 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 50 | 50 | 50 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | 677 | 2 | 679 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 154 | 154 | 154 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholding related to vesting of employee stock plans | (192) | (192) | (192) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with employee stock plans and other | 18,428 | 18 | 1 | 19 | 19 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | (2,295) | (48) | (2) | (50) | (50) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividend on preferred stock accrued / declared ($0.95 per preferred share) | (29) | (29) | (29) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared ($0.13 per share) | (171) | (171) | (8) | (179) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of January 31, 2025 | 1,313,391 | $ | 13 | 30,000 | $ | 29,780 | $ | (1,642) | $ | (2,927) | $ | 25,224 | $ | 58 | $ | 25,282 | ||||||||||||||||||||||||||||||||||||||||
| 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 attributable to HPE | 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 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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, 2025 and October 31, 2024, its results of operations, cash flows, and statements of stockholders' equity for the three months ended January 31, 2025 and 2024.
The results of operations and the cash flows for the three months ended January 31, 2025 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, 2024, as filed with the U.S. Securities and Exchange Commission (“SEC”) on December 19, 2024.
Significant Accounting Policies
There have been no significant 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, 2024.
Recently Enacted Accounting Pronouncements
In November 2024, the FASB issued guidance to provide disaggregated expense disclosures in the Consolidated Financial Statements. The Company is required to adopt the guidance for its annual period ending October 31, 2028 and all interim periods thereafter, though early adoption is permitted. The Company is currently evaluating the impact of this amendment on its 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 will adopt this guidance for its annual period ending October 31, 2025 and all interim periods thereafter. The Company does not expect the adoption of this guidance to have a significant impact on its 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 and technology. The five segments are based on this organizational structure and information reviewed by Hewlett Packard Enterprise's management to evaluate segment results. A summary of the types of products and services within each segment is as follows:
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Server consists of general-purpose servers for multi-workload computing and workload-optimized servers to deliver the best performance and value for demanding applications, and integrated systems comprised of software and hardware designed to address High-Performance Computing and Supercomputing (including exascale applications), Artificial Intelligence (“AI”), Data Analytics, and Transaction Processing workloads for government and commercial customers globally. This portfolio of products includes the secure and versatile HPE ProLiant Rack and Tower servers; HPE Synergy, a composable infrastructure for traditional and cloud-native applications; HPE Scale Up Servers product lines for critical applications, including large enterprise software applications and data analytics platforms; HPE Edgeline servers; HPE Cray EX; HPE Cray XD (formerly known as HPE Apollo); and HPE NonStop. Server offerings also include operational and support services sold with systems and as standalone services.
Hybrid Cloud offers a wide variety of cloud-native and hybrid solutions across storage, private cloud and the infrastructure software-as-a-service (“SaaS”) space. Storage includes data storage and data management offerings with the HPE Alletra Storage portfolio; unstructured data solutions and analytics for AI; data protection and archiving; and storage networking. It also includes AIOps-driven intelligence with HPE InfoSight and HPE CloudPhysics. In private cloud, the HPE GreenLake offerings include new cloud-native offerings and capabilities for virtual machines, containers, and bare metal; a full suite of private cloud offerings that enable customers to self-manage or choose a fully managed experience; and a portfolio of world-class AI infrastructure delivered as-a-service (“aaS”). This segment also provides self-service private cloud on-demand with HPE GreenLake for Private Cloud Business Edition. Infrastructure software includes monitoring and observability for day two operations and beyond through the Company’s acquisition of OpsRamp and unified data access through HPE Ezmeral Data Fabric and analytics suite, which helps move and transform data for use in AI and other applications. Hybrid Cloud segment also includes data lifecycle management and protection through its suite of offerings, including Zerto Disaster Recovery.
Intelligent Edge offers wired and wireless local area networks, campus, branch, and data center switching, software-defined wide-area-networks, private and public cellular network software, network security, and associated services that enable secure connectivity for businesses of any size. The HPE Aruba Networking product portfolio includes hardware products such as Wi-Fi access points, switches, and gateways. The HPE Aruba Networking software and services portfolio includes cloud-based management, network management, network access control, software-defined wide-area networking, network security, analytics and assurance, location services software, private and public cellular core software, and professional and support services, as well as aaS and consumption models through the HPE GreenLake cloud for the Intelligent Edge portfolio of products. Intelligent Edge offerings are consolidated in the edge service platform, which takes a cloud-native approach that provides customers with a unified framework to meet their connectivity, security, and financial needs across campus, branch, data center, and remote worker environments.
Financial Services provides flexible investment solutions, such as leasing, financing, IT consumption, utility programs, and asset management services for customers that facilitate unique technology deployment models and the acquisition of complete IT solutions, including hardware, software, and services from Hewlett Packard Enterprise and others. FS also supports financial solutions for on-premise flexible consumption models, such as the HPE GreenLake cloud.
Corporate Investments and Other includes the Advisory and Professional Services (“A & PS”) business, which primarily offers consultative-led services, HPE and partner technology expertise and advice, implementation services as well as complex solution engagement capabilities; 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, and acquisition, disposition and other charges. Total assets by segment are not presented as that information is not used to allocate resources or assess performance at the segment level and is not reviewed by the CODM.
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, 2025: | |||||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 4,271 | $ | 1,367 | $ | 1,147 | $ | 872 | $ | 197 | $ | 7,854 | |||||||||||||||||||||||||||||
| Intersegment net revenue | 19 | 38 | (1) | 1 | — | 57 | |||||||||||||||||||||||||||||||||||
| Total segment net revenue | $ | 4,290 | $ | 1,405 | $ | 1,146 | $ | 873 | $ | 197 | $ | 7,911 | |||||||||||||||||||||||||||||
| Segment earnings (loss) from operations | $ | 348 | $ | 99 | $ | 314 | $ | 82 | $ | (2) | $ | 841 | |||||||||||||||||||||||||||||
| Three months ended January 31, 2024: | |||||||||||||||||||||||||||||||||||||||||
| Net revenue(1) | $ | 3,221 | $ | 1,231 | $ | 1,193 | $ | 872 | $ | 238 | $ | 6,755 | |||||||||||||||||||||||||||||
| Intersegment net revenue | 106 | 42 | 8 | 1 | — | 157 | |||||||||||||||||||||||||||||||||||
| Total segment net revenue(1) | $ | 3,327 | $ | 1,273 | $ | 1,201 | $ | 873 | $ | 238 | $ | 6,912 | |||||||||||||||||||||||||||||
| Segment earnings (loss) from operations(1) | $ | 379 | $ | 51 | $ | 353 | $ | 74 | $ | (10) | $ | 847 | |||||||||||||||||||||||||||||
(1) Effective at the beginning of the first quarter of fiscal 2025, in order to align its segment financial reporting more closely with its current business structure, HPE implemented an organizational change with the transfer of certain managed services, previously reported within the Server reportable segment, to the Hybrid Cloud reportable segment.
The reconciliation of segment operating results to Condensed Consolidated Statements of Earnings was as follows:
| For the three months ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Net Revenue: | |||||||||||||||||||||||
| Total segments | $ | 7,911 | $ | 6,912 | |||||||||||||||||||
| Eliminations of intersegment net revenue | (57) | (157) | |||||||||||||||||||||
| Total consolidated net revenue | $ | 7,854 | $ | 6,755 | |||||||||||||||||||
| Earnings Before Taxes: | |||||||||||||||||||||||
| Total segment earnings from operations | $ | 841 | $ | 847 | |||||||||||||||||||
| Unallocated corporate costs and eliminations | (61) | (72) | |||||||||||||||||||||
| Stock-based compensation expense | (154) | (141) | |||||||||||||||||||||
| Amortization of intangible assets | (38) | (71) | |||||||||||||||||||||
| Transformation costs | (15) | (20) | |||||||||||||||||||||
| Gain on sale of a business | 244 | — | |||||||||||||||||||||
| H3C divestiture related severance costs | (77) | — | |||||||||||||||||||||
| Acquisition, disposition and other charges | (63) | (18) | |||||||||||||||||||||
| Interest and other, net | 39 | (88) | |||||||||||||||||||||
| Earnings from equity interests | 17 | 46 | |||||||||||||||||||||
| Total earnings before provision for taxes | $ | 733 | $ | 483 |
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, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Americas: | |||||||||||||||||||||||
| United States | $ | 2,518 | $ | 2,294 | |||||||||||||||||||
| Americas excluding United States | 874 | 507 | |||||||||||||||||||||
| Total Americas | 3,392 | 2,801 | |||||||||||||||||||||
| Europe, Middle East and Africa | 2,680 | 2,434 | |||||||||||||||||||||
| Asia Pacific and Japan | 1,782 | 1,520 | |||||||||||||||||||||
| Total consolidated net revenue | $ | 7,854 | $ | 6,755 |
Note 3: Transformation Programs
Transformation programs are comprised of the Cost Optimization and Prioritization Plan and the HPE Next Plan. The primary elements of both plans were completed by the end of fiscal 2024.
During the third quarter of fiscal 2020, the Company launched the Cost Optimization and Prioritization Plan, which focused on realigning the workforce to areas of growth, a new hybrid workforce model called Edge-to-Office, real estate strategies, and simplifying and evolving the Company’s product portfolio strategy. The transformation costs predominantly related to labor restructuring, non-labor restructuring, IT investments, design and execution charges and real estate initiatives.
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 simplified the operating model, and streamlined its offerings, business processes and business systems to improve its strategy execution.
The transformation charges relating to both plans were $15 million and $21 million for the three months ended January 31, 2025 and 2024, respectively.
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 | Infrastructure and other | |||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Liability as of October 31, 2024 | $ | 67 | $ | 94 | $ | 23 | |||||||||||||||||
| Cash payments | (9) | (5) | (2) | ||||||||||||||||||||
| Non-cash items | (3) | (1) | — | ||||||||||||||||||||
| Liability as of January 31, 2025 | $ | 55 | $ | 88 | $ | 21 | |||||||||||||||||
| Total costs incurred to date, as of January 31, 2025 | $ | 823 | $ | 563 | $ | 271 | |||||||||||||||||
| Total expected costs to be incurred as of January 31, 2025 | $ | 823 | $ | 563 | $ | 271 |
The current restructuring liability related to the transformation programs, reported in the Condensed Consolidated Balance Sheets as of January 31, 2025 and October 31, 2024, was $46 million and $61 million, respectively, in Accrued restructuring, and $15 million and $17 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, 2025 and October 31, 2024, was $103 million and $106 million, respectively.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Service cost | $ | 12 | $ | 12 | |||||||||||||||||||
| Interest cost(1) | 89 | 101 | |||||||||||||||||||||
| Expected return on plan assets(1) | (149) | (136) | |||||||||||||||||||||
| Amortization and Deferrals(1): | |||||||||||||||||||||||
| Actuarial loss | 31 | 37 | |||||||||||||||||||||
| Prior service benefit | (1) | (2) | |||||||||||||||||||||
| Net periodic benefit (credit) cost | (18) | 12 | |||||||||||||||||||||
| Settlement loss and special termination benefits(1) | — | 1 | |||||||||||||||||||||
| Total net benefit (credit) cost | $ | (18) | $ | 13 |
(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, 2025 and 2024, the Company recorded income tax expense of $106 million and $96 million, respectively, which reflects an effective tax rate of 14.5% and 19.9%, 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 is also impacted by discrete tax adjustments during each fiscal period.
For the three months ended January 31, 2025, the Company recorded $17 million of net income tax benefits related to various items discrete to the period. The amount primarily included $30 million of net excess tax benefits related to stock-based compensation and $10 million of net income tax benefits related to acquisition, disposition and other charges, partially offset by $22 million of net income tax charges resulting from the gain on the CTG divestiture.
For the three months ended January 31, 2024, the Company recorded immaterial net income tax charges related to various items discrete to the period.
Uncertain Tax Positions
As of January 31, 2025 and October 31, 2024, the amount of unrecognized tax benefits was $717 million and $724 million, respectively, of which up to $337 million and $344 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, 2025 and October 31, 2024, the Company had accrued $57 million and $58 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 Internal Revenue Service (“IRS”) is conducting audits of the Company's fiscal 2017 through 2022 U.S. federal income tax returns. Subsequent to the close of the first quarter of fiscal 2025, the IRS issued a Revenue Agent Report (“RAR”) with which the Company agreed. The final determination will not result in a material impact to the Company’s financial statements. The audit cycle for fiscal 2017 through 2019 will be considered effectively settled during the second quarter of fiscal 2025 resulting in a reduction of existing unrecognized tax benefits of approximately $358 million. A significant majority of these unrecognized tax benefits relates
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
either to adjustments to foreign tax credits that carry a full valuation allowance or to the timing of intercompany royalty revenue recognition, neither of which will affect the Company’s effective tax rate. The IRS audit for fiscal 2020 through 2022 remains open.
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 $5 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, 2025 | October 31, 2024 | ||||||||||
| In millions | |||||||||||
| Deferred tax assets | $ | 2,379 | $ | 2,396 | |||||||
| Deferred tax liabilities | (391) | (373) | |||||||||
| Deferred tax assets net of deferred tax liabilities | $ | 1,988 | $ | 2,023 |
Note 6: Balance Sheet Details
Cash, Cash Equivalents and Restricted Cash
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| In millions | |||||||||||
| Cash and cash equivalents | $ | 13,431 | $ | 14,846 | |||||||
| Restricted cash(1) | 421 | 259 | |||||||||
| Total | $ | 13,852 | $ | 15,105 |
(1) The Company included restricted cash in Other current assets in the accompanying Condensed Consolidated Balance Sheets.
Inventory
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| In millions | |||||||||||
| Purchased parts and fabricated assemblies | $ | 6,191 | $ | 5,441 | |||||||
| Finished goods | 2,386 | 2,369 | |||||||||
| Total | $ | 8,577 | $ | 7,810 |
The Company values inventory at the lower of cost or net realizable value. Cost is computed using standard cost which approximates actual cost on a first-in, first-out basis. At each reporting period, the Company assesses the value of its inventory and writes down the cost of inventory to its net realizable value if required, for estimated excess or obsolescence. Factors influencing these adjustments include changes in future demand forecasts, market conditions, technological changes, product life-cycle and development plans, component cost trends, product pricing, physical deterioration, and quality issues. If in any period the Company anticipates a change in those factors to be less favorable than its previous estimates, additional inventory write-downs may be required and could materially impact gross margin. The write down for excess or obsolescence is charged to the provision of inventory, which is a component of Cost of Products and Cost of Services in the Condensed Consolidated Statements of Earnings. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Property, Plant and Equipment, net
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| In millions | |||||||||||
| Land | $ | 66 | $ | 66 | |||||||
| Buildings and leasehold improvements | 1,720 | 1,696 | |||||||||
| Machinery and equipment, including equipment held for lease | 10,250 | 10,392 | |||||||||
| Gross property, plant and equipment | 12,036 | 12,154 | |||||||||
| Accumulated depreciation | (6,624) | (6,490) | |||||||||
| Property, plant and equipment, net | $ | 5,412 | $ | 5,664 |
Supplier Financing Arrangements
The Company enters into supplier financing arrangements with external financial institutions. Under these arrangements, suppliers can choose to settle outstanding payment obligations at a discount. The Company holds no economic interest in suppliers' participation, nor does it provide guarantees or pledge assets under these arrangements. Invoices are settled with the financial institutions based on the original supplier payment terms. These arrangements do not alter the Company's rights and obligations towards suppliers, including scheduled payment terms. Liabilities associated with the funded participation in these arrangements, are presented within Accounts Payable on the Consolidated Balance Sheets, amounted to $475 million, and $466 million as of January 31, 2025 and October 31, 2024, respectively.
Warranties
The Company's aggregate product warranty liabilities and changes for the three months ended January 31, 2025, and the fiscal year ended October 31, 2024 were as follows:
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| In millions | |||||||||||
| Balance at beginning of period | $ | 301 | $ | 318 | |||||||
| Charges | 46 | 173 | |||||||||
| Adjustments related to pre-existing warranties | — | (5) | |||||||||
| Settlements made | (46) | (185) | |||||||||
| Balance at end of period(1) | $ | 301 | $ | 301 |
(1)The Company included the current portion in Other accrued liabilities, and amounts due after one year in Other non-current liabilities in the accompanying Consolidated Balance Sheets.
Contract Balances
The Company’s contract balances consist of contract assets, contract liabilities, and costs to obtain a contract with a customer.
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, 2025 | October 31, 2024 | ||||||||||
| In millions | |||||||||||
| Accounts receivable | $ | 3,154 | $ | 3,236 | |||||||
| Unbilled receivables | 305 | 324 | |||||||||
| Allowances | (9) | (10) | |||||||||
| Total | $ | 3,450 | $ | 3,550 |
The allowances for credit losses related to accounts receivable and changes for the three months ended January 31, 2025, and the fiscal year ended October 31, 2024 were as follows:
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| In millions | |||||||||||
| Balance at beginning of period | $ | 10 | $ | 37 | |||||||
| Provision for credit losses | 3 | 41 | |||||||||
| Adjustments to existing allowances, including write offs | (4) | (68) | |||||||||
| Balance at end of period | $ | 9 | $ | 10 |
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, 2025, the Company sold $0.9 billion and for the fiscal year ended October 31, 2024, the Company sold $3.1 billion of trade receivables. The Company recorded an obligation of $53 million and $62 million within Notes payable and short-term borrowings in its Condensed Consolidated Balance Sheets as of January 31, 2025 and October 31, 2024, 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
Contract liabilities consist of deferred revenue and customer deposits. A summary of contract liabilities were as follows:
| As of | ||||||||||||||
| January 31, 2025 | October 31, 2024 | |||||||||||||
| Location | In millions | |||||||||||||
| Customer deposits | Other accrued liabilities | $ | 351 | $ | 289 | |||||||||
| Customer deposits - non-current | Other non-current liabilities | 58 | 7 | |||||||||||
| Total customer deposits | $ | 409 | $ | 296 | ||||||||||
| Deferred revenue | Deferred revenue | $ | 3,905 | $ | 3,904 | |||||||||
| Deferred revenue - non-current | Other non-current liabilities | 3,589 | 3,578 | |||||||||||
| Total deferred revenue | $ | 7,494 | $ | 7,482 |
For the three months ended January 31, 2025, approximately $1.1 billion of revenue was recognized relating to contract liabilities recorded as of October 31, 2024.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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, 2025, the aggregate amount of deferred revenue, was $7.5 billion. The Company expects to recognize approximately 41% of this balance over fiscal 2025 with the remainder to be recognized thereafter. The Company receives payments in advance of completion of its contractual obligations, these payments are considered customer deposits. As customer acceptance milestones are met, the Company will recognize revenue and reduce the amount of contract liabilities. As of January 31, 2025, the aggregate amount of customer deposits was $409 million. The Company expects to recognize $351 million over the next twelve months and the remaining balance thereafter.
Costs to Obtain a Contract
As of January 31, 2025, the current and non-current portions of the capitalized costs to obtain a contract were $88 million and $136 million, respectively. As of October 31, 2024, the current and non-current portions of the capitalized costs to obtain a contract were $88 million and $136 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, 2025 and 2024, the Company amortized $27 million and $26 million, 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.
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, 2025 | October 31, 2024 | ||||||||||
| In millions | |||||||||||
| Minimum lease payments receivable | $ | 9,899 | $ | 10,266 | |||||||
| Unguaranteed residual value | 626 | 599 | |||||||||
| Unearned income | (1,210) | (1,218) | |||||||||
| Financing receivables, gross | 9,315 | 9,647 | |||||||||
| Allowance for credit losses | (202) | (194) | |||||||||
| Financing receivables, net | 9,113 | 9,453 | |||||||||
| Less: current portion | (3,771) | (3,870) | |||||||||
| Amounts due after one year, net | $ | 5,342 | $ | 5,583 |
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, 2025 and the fiscal year ended October 31, 2024, the Company sold $124 million and $93 million of financing receivables, respectively.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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, 2025, presented on amortized cost basis by year of origination was as follows:
| As of January 31, 2025 | |||||||||||||||||
| Risk Rating | |||||||||||||||||
| Low | Moderate | High | |||||||||||||||
| Fiscal Year | In millions | ||||||||||||||||
| 2025 | $ | 320 | $ | 180 | $ | 3 | |||||||||||
| 2024 | 2,621 | 1,116 | 26 | ||||||||||||||
| 2023 | 1,629 | 852 | 53 | ||||||||||||||
| 2022 | 980 | 548 | 44 | ||||||||||||||
| 2021 and prior | 445 | 385 | 113 | ||||||||||||||
| Total | $ | 5,995 | $ | 3,081 | $ | 239 |
The credit risk profile of gross financing receivables, based on internal risk ratings as of October 31, 2024, presented on amortized cost basis by year of origination was as follows:
| As of October 31, 2024 | |||||||||||||||||
| Risk Rating | |||||||||||||||||
| Low | Moderate | High | |||||||||||||||
| Fiscal Year | In millions | ||||||||||||||||
| 2024 | $ | 2,630 | $ | 1,120 | $ | 19 | |||||||||||
| 2023 | 1,804 | 948 | 54 | ||||||||||||||
| 2022 | 1,128 | 665 | 46 | ||||||||||||||
| 2021 | 440 | 317 | 52 | ||||||||||||||
| 2020 and prior | 158 | 193 | 73 | ||||||||||||||
| Total | $ | 6,160 | $ | 3,243 | $ | 244 |
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.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Allowance for Credit Losses
The allowance for credit losses for financing receivables as of January 31, 2025 and October 31, 2024 and the respective changes for the three and twelve months then ended were as follows:
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| In millions | |||||||||||
| Balance at beginning of period | $ | 194 | $ | 243 | |||||||
| Provision for credit losses | 21 | 50 | |||||||||
| Adjustment to the existing allowance | — | (4) | |||||||||
| Write-offs | (13) | (95) | |||||||||
| Balance at end of period | $ | 202 | $ | 194 |
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, 2025 | October 31, 2024 | ||||||||||
| In millions | |||||||||||
| Billed:(1) | |||||||||||
| Current 1-30 days | $ | 305 | $ | 334 | |||||||
| Past due 31-60 days | 33 | 29 | |||||||||
| Past due 61-90 days | 23 | 12 | |||||||||
| Past due > 90 days | 86 | 79 | |||||||||
| Unbilled sales-type and direct-financing lease receivables | 8,868 | 9,193 | |||||||||
| Total gross financing receivables | $ | 9,315 | $ | 9,647 | |||||||
| Gross financing receivables on non-accrual status(2) | $ | 225 | $ | 214 | |||||||
| Gross financing receivables 90 days past due and still accruing interest(2) | $ | 96 | $ | 82 |
(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.
The following table presents amounts included in the Condensed Consolidated Statements of Earnings related to lessor activity:
| For the three months ended January 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||
| Location | In millions | ||||||||||||||||||||||||||||
| Interest income from sales-type leases and direct financing leases | Financing Income | $ | 186 | $ | 156 | ||||||||||||||||||||||||
| Lease income from operating leases | Services | 547 | 599 | ||||||||||||||||||||||||||
| Total lease income | $ | 733 | $ | 755 |
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
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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, 2025 and October 31, 2024, 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, 2025 | October 31, 2024 | ||||||||||
| Assets held by VIE: | In millions | ||||||||||
| Other current assets | $ | 140 | $ | 189 | |||||||
| Financing receivables | |||||||||||
| Short-term | 795 | 872 | |||||||||
| Long-term | 913 | 1,079 | |||||||||
| Property, plant and equipment, net | 856 | 1,033 | |||||||||
| Liabilities held by VIE: | |||||||||||
| Notes payable and short-term borrowings, net of unamortized debt issuance costs | 1,242 | 1,433 | |||||||||
| Long-term debt, net of unamortized debt issuance costs | $ | 757 | $ | 965 |
For the three months ended January 31, 2025, the Company did not transfer any financing receivables and leased equipment via securitization through the SPE. For the fiscal year ended October 31, 2024, financing receivables and leased equipment transferred via securitization through the SPE were $1.2 billion and $0.6 billion, respectively.
Note 8: Acquisitions and Dispositions
Proposed Acquisition of Juniper Networks, Inc.
On January 9, 2024, the Company entered into a definitive Agreement and Plan of Merger (the “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 “Merger”). The transaction was unanimously approved by the boards of directors of both companies. On April 2, 2024, Juniper Networks stockholders approved the transaction. The closing of the transaction remains subject to receipt of regulatory approvals and satisfaction of other customary closing conditions. On January 30 2025, the Antitrust Division of the United States Department of Justice (the “DOJ”) filed a complaint in the United States District Court for the Northern District of California, seeking to enjoin the closing of the Merger, alleging that the Merger is likely to substantially lessen competition in violation of Section 7 of the Clayton Act. On February 10, 2025, HPE and Juniper Networks filed answers to the DOJ’s complaint, disputing these claims. Trial is scheduled to begin on July 9, 2025. We intend to vigorously defend the litigation. A $815 million termination fee will be payable by the Company to Juniper Networks if the transaction is terminated under certain circumstances, including due to the Company’s breach of the Merger Agreement or the failure to obtain certain regulatory approvals.
The transaction is expected to be funded based on senior unsecured delayed draw term loans from a syndicate of banks, the post-tax proceeds from the Company’s sale to Unisplendour International Technology Limited of 30% of the total issued share capital of H3C Technologies Co., Limited (“H3C”), the net proceeds (including after repayments of maturing debt) of its September 2024 issuances of senior unsecured notes and 7.625% Series C Mandatory Convertible Preferred Stock (“Preferred Stock”), and cash on the balance sheet. In September 2024, the Company issued $9.0 billion of senior unsecured notes and $1.5 billion of Preferred Stock, the net proceeds of which the Company intends to use to fund a portion of the consideration for the acquisition of Juniper Networks and for other general corporate purposes. If the proposed transaction is terminated, the senior unsecured notes and Preferred Stock will be treated as follows:
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
-
If (i) the proposed acquisition of Juniper Networks does not close on or before the later of (a) the date that is five business days after October 9, 2025 and (b) the date that is five business days after any later date to which Juniper Networks and HPE may agree to extend the “End Date” (as defined in the Merger Agreement) or (ii) HPE notifies the trustee of such notes that HPE will not pursue the consummation of the proposed acquisition of Juniper Networks, HPE shall be required to redeem $6.5 billion of these senior unsecured notes.
-
If (i) the proposed acquisition of Juniper Networks does not close on or before the later of (a) the date that is five business days after October 9, 2025 and (b) the date that is five business days after any later date to which Juniper Networks and HPE may agree to extend the “End Date” (as defined in the Merger Agreement) or (ii) HPE notifies the holders of the Preferred Stock in writing that HPE will not pursue the consummation of the proposed acquisition of Juniper Networks, HPE may, at its option, redeem the Preferred Stock, in whole but not in part.
Disposition of Communications Technology Group (“CTG”)
On May 23, 2024, HPE announced plans to divest the CTG business to HCL Tech. CTG was included in the Communications and Media Solutions business, which was reported in the Corporate Investments and Other segment. This divestiture includes the platform-based software solutions portions of the CTG portfolio, including systems integration, network applications, data intelligence, and the business support systems groups. On December 1, 2024, the Company completed the disposition of CTG. The Company received net proceeds of $210 million and recognized a gain of $244 million included in Gain on sale of a business in the Condensed Consolidated Statements of Earnings.
Note 9: Goodwill
Goodwill is tested for impairment at the reporting unit level. As of November 1, 2024, the Company reassessed its reporting units and determined that the former Compute and High Performance Computing & Artificial Intelligence reporting units (within the Server segment) met the criteria to qualify as a single Server reporting unit. As of January 31, 2025, the Company's reporting units are consistent with the reportable segments identified in Note 2, “Segment Information”, with the exception of Corporate Investments and Other, which contains the A & PS reporting unit. The following table represents the carrying value of goodwill, by reportable segment as of January 31, 2025 and October 31, 2024.
| Server | Hybrid Cloud | Intelligent Edge | Financial Services | Corporate Investments and Other | Total | ||||||||||||||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of October 31, 2024 and January 31, 2025(1) | $ | 10,194 | $ | 4,839 | $ | 2,909 | $ | 144 | $ | — | $ | 18,086 |
(1) Goodwill is net of accumulated impairment losses of $1.8 billion, which decreased by $0.1 billion from October 31, 2024, due to the disposition of CTG (the Communications and Media Solutions reporting unit).
Goodwill is tested annually for impairment, as of the first day of the fourth quarter, at the reporting unit level. Additionally, an interim impairment test was performed as of November 1, 2024 based on organizational changes impacting the Hybrid Cloud and Server reporting units. The interim impairment test did not result in an impairment of goodwill. The excess of fair value over carrying amount for the Hybrid Cloud reporting unit was 6%. In order to evaluate the sensitivity of the estimated fair value of the 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, Hybrid Cloud did not have an excess of fair value over carrying value.
The Hybrid Cloud reporting unit has goodwill of $4.8 billion as of January 31, 2025. Although the Hybrid Cloud business is on a positive trajectory, the Company is managing both a sales model transition and product transition within this business. The Company’s product model transition is to a more cloud-native, software-defined platform with HPE Alletra. Translating this growth to revenue and operating income will take time because a greater mix of high margin business, such as ratable software and services, are deferred and recognized in future periods. 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 Hybrid Cloud reporting unit's ability to successfully address the current challenges may change, which could result in the carrying value of the Hybrid Cloud reporting unit exceeding its estimated fair value and potential impairment charges.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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.
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, 2025 | As of October 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | — | $ | 619 | $ | — | $ | 619 | $ | — | $ | 601 | $ | — | $ | 601 | |||||||||||||||||||||||||||||||
| Money market funds | 11,266 | — | — | 11,266 | 12,639 | — | — | 12,639 | |||||||||||||||||||||||||||||||||||||||
| Equity investments | — | — | 92 | 92 | — | — | 88 | 88 | |||||||||||||||||||||||||||||||||||||||
| Foreign bonds | — | 97 | 1 | 98 | — | 102 | 1 | 103 | |||||||||||||||||||||||||||||||||||||||
| Other debt securities (1) | — | — | 14 | 14 | — | — | 14 | 14 | |||||||||||||||||||||||||||||||||||||||
| Derivative Instruments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | — | 458 | — | 458 | — | 299 | — | 299 | |||||||||||||||||||||||||||||||||||||||
| Other derivatives | — | 2 | — | 2 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 11,266 | $ | 1,176 | $ | 107 | $ | 12,549 | $ | 12,639 | $ | 1,002 | $ | 103 | $ | 13,744 | |||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | — | $ | 43 | $ | — | $ | 43 | $ | — | $ | 58 | $ | — | $ | 58 | |||||||||||||||||||||||||||||||
| Foreign exchange contracts | — | 84 | — | 84 | — | 103 | — | 103 | |||||||||||||||||||||||||||||||||||||||
| Other derivatives | — | — | — | — | — | 2 | — | 2 | |||||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | — | $ | 127 | $ | — | $ | 127 | $ | — | $ | 163 | $ | — | $ | 163 |
(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, 2025, the estimated fair value of the Company's short-term and long-term debt approximated its carrying value of $17.9 billion. As of October 31, 2024, the estimated fair value and carrying value of the Company's short-term and long-term debt was $18.3 billion and $18.2 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-term 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.
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, 2025 and 2024, the Company recognized a realized net loss of $2 million resulting from an impairment and an unrealized net loss of $7 million, respectively, 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, 2025, the cumulative upward adjustments for observable price changes was $82 million and cumulative downward adjustments for observable price changes and impairments was $89 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, 2025 | As of October 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cost | Gross Unrealized Gains | Fair Value | Cost | Gross Unrealized Gains | Fair Value | ||||||||||||||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash Equivalents: | |||||||||||||||||||||||||||||||||||||||||||||||
| Time deposits | $ | 619 | $ | — | $ | 619 | $ | 601 | $ | — | $ | 601 | |||||||||||||||||||||||||||||||||||
| Money market funds | 11,266 | — | 11,266 | 12,639 | — | 12,639 | |||||||||||||||||||||||||||||||||||||||||
| Total cash equivalents | 11,885 | — | 11,885 | 13,240 | — | 13,240 | |||||||||||||||||||||||||||||||||||||||||
| Available-for-sale Debt Investments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign bonds | 97 | 1 | 98 | 101 | 2 | 103 | |||||||||||||||||||||||||||||||||||||||||
| Other debt securities | 8 | 6 | 14 | 8 | 6 | 14 | |||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale debt investments | 105 | 7 | 112 | 109 | 8 | 117 | |||||||||||||||||||||||||||||||||||||||||
| Total cash equivalents and available-for-sale debt investments | $ | 11,990 | $ | 7 | $ | 11,997 | $ | 13,349 | $ | 8 | $ | 13,357 |
As of January 31, 2025 and October 31, 2024, 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, 2025 and October 31, 2024. 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, 2025 | |||||||||||||||||||||||
| Amortized Cost | Fair Value | ||||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Due in more than five years | $ | 105 | $ | 112 | |||||||||||||||||||
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 value or under measurement alternative. Measurement alternative equity investments are recorded at cost and measured at fair value when they are deemed to be impaired or when there is an adjustment from observable price changes.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The carrying amount of those non-marketable equity investments accounted for under the fair value option was $92 million and $88 million as of January 31, 2025 and October 31, 2024, respectively. For the three months ended January 31, 2025 and 2024, the Company recognized an unrealized gain of $4 million and an unrealized loss of $54 million, respectively, on these investments. 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 $198 million and $200 million as of January 31, 2025 and October 31, 2024, respectively. For the three months ended January 31, 2025 and 2024, the Company recognized a realized net loss of $2 million resulting from an impairment and an unrealized net loss of $7 million, respectively, 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, 2025 | As of October 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | — | $ | — | $ | 43 | $ | — | $ | 2,500 | $ | — | $ | — | $ | 58 | $ | — | |||||||||||||||||||||||||||||||||||||||
| Cash Flow Hedges: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency contracts | 7,788 | 221 | 108 | 15 | 11 | 7,809 | 107 | 59 | 31 | 25 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Investment Hedges: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency contracts | 1,941 | 52 | 49 | 7 | 6 | 1,986 | 38 | 44 | 12 | 13 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivatives designated as hedging instruments | 12,229 | 273 | 157 | 65 | 17 | 12,295 | 145 | 103 | 101 | 38 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency contracts | 7,661 | 22 | 6 | 42 | 3 | 5,528 | 46 | 5 | 18 | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other derivatives | 164 | 2 | — | — | — | 147 | — | — | 2 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivatives not designated as hedging instruments | 7,825 | 24 | 6 | 42 | 3 | 5,675 | 46 | 5 | 20 | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total derivatives | $ | 20,054 | $ | 297 | $ | 163 | $ | 107 | $ | 20 | $ | 17,970 | $ | 191 | $ | 108 | $ | 121 | $ | 42 |
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:
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
| As of January 31, 2025 | ||||||||||||||||||||||||||||||||||||||
| 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 | $ | 460 | $ | — | $ | 460 | $ | 116 | $ | 274 | (1) | $ | 70 | |||||||||||||||||||||||||
| Derivative liabilities | $ | 127 | $ | — | $ | 127 | $ | 116 | $ | 1 | (2) | $ | 10 |
| As of October 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 | $ | 299 | $ | — | $ | 299 | $ | 138 | $ | 90 | (1) | $ | 71 | |||||||||||||||||||||||||
| Derivative liabilities | $ | 163 | $ | — | $ | 163 | $ | 138 | $ | 27 | (2) | N/A |
(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, 2025, $1 million of collateral posted was entirely through the re-use of counterparty collateral. As of October 31, 2024, $27 million of collateral posted was entirely 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 | ||||||||||||||||||||||
| As of | As of | ||||||||||||||||||||||
| January 31, 2025 | October 31, 2024 | January 31, 2025 | October 31, 2024 | ||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Notes payable and short-term borrowings | $ | (2,456) | $ | (2,440) | $ | 43 | $ | 58 | |||||||||||||||
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The pre-tax effect of derivative instruments in cash flow and net investment hedging relationships recognized in Other Comprehensive Income (“OCI”) were as follows:
| Gains (Losses) Recognized in OCI on Derivatives | |||||||||||||||||||||||
| For the three months ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationship: | |||||||||||||||||||||||
| Foreign exchange contracts | $ | 270 | $ | (204) | |||||||||||||||||||
| Derivatives in Net Investment Hedging Relationship: | |||||||||||||||||||||||
| Foreign exchange contracts | 43 | (39) | |||||||||||||||||||||
| Total | $ | 313 | $ | (243) |
As of January 31, 2025, the Company expects to reclassify an estimated net accumulated other comprehensive gain of approximately $71 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, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net Revenue | Interest and Other, net | Net Revenue | Interest and Other, net | ||||||||||||||||||||||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||||||||||||||||||||
| Total net revenue and interest and other, net | $ | 7,854 | $ | 39 | $ | 6,755 | $ | (88) | |||||||||||||||||||||||||||||||||||||||
| Gains (Losses) on Derivatives in Fair Value Hedging Relationships: | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest Rate Contracts | |||||||||||||||||||||||||||||||||||||||||||||||
| Hedged items | $ | — | $ | (15) | $ | — | $ | (47) | |||||||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments | — | 15 | — | 47 | |||||||||||||||||||||||||||||||||||||||||||
| Gains (Losses) on Derivatives in Cash Flow Hedging Relationships: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign Exchange Contracts | |||||||||||||||||||||||||||||||||||||||||||||||
| Amount of gains (losses) reclassified from accumulated other comprehensive income into income | 44 | 170 | 24 | (138) | |||||||||||||||||||||||||||||||||||||||||||
| Interest Rate Locks | |||||||||||||||||||||||||||||||||||||||||||||||
| Amount of losses reclassified from accumulated other comprehensive income into income | — | (1) | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Gains (Losses) on Derivatives not Designated as Hedging Instruments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | — | 54 | — | (44) | |||||||||||||||||||||||||||||||||||||||||||
| Other derivatives | — | 4 | — | 4 | |||||||||||||||||||||||||||||||||||||||||||
| Total gains (losses) | $ | 44 | $ | 227 | $ | 24 | $ | (178) |
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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-term debt were as follows:
| As of | |||||||||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||||||||
| In millions | |||||||||||||||||
| Current portion of long-term debt(1) | $ | 3,810 | $ | 3,969 | |||||||||||||
| Commercial paper | 665 | 649 | |||||||||||||||
| Notes payable to banks, lines of credit and other | 130 | 124 | |||||||||||||||
| Total notes payable and short-term borrowings | 4,605 | 4,742 | |||||||||||||||
| Long-term debt | 13,272 | 13,504 | |||||||||||||||
| Total | $ | 17,877 | $ | 18,246 |
(1) As of January 31, 2025, the Current portion of long-term debt, net of discount and issuance costs, included $1.2 billion associated with the asset-backed debt securities issued by the Company.
Commercial Paper
Hewlett Packard Enterprise maintains two commercial paper programs, “the Parent Programs”, and a wholly-owned subsidiary maintains a third program. The Parent Program in the U.S. provides for the issuance of U.S. dollar-denominated commercial paper up to a maximum aggregate principal amount of $4.75 billion. The Parent Program outside the U.S. provides for the issuance of commercial paper denominated in U.S. dollars, euros or British pounds up to a maximum aggregate principal amount of $3.0 billion or the equivalent in those alternative currencies. The combined aggregate principal amount of commercial paper outstanding under those two programs at any one time cannot exceed the $4.75 billion as authorized by Hewlett Packard Enterprise's Board of Directors. In addition, the Hewlett Packard Enterprise subsidiary's euro Commercial Paper/Certificate of Deposit Program provides for the issuance of commercial paper in various currencies of up to a maximum aggregate principal amount of $1.0 billion. As of January 31, 2025 and October 31, 2024, no borrowings were outstanding under the Parent Programs. As of January 31, 2025 and October 31, 2024, $665 million and $649 million, respectively, were outstanding under the subsidiary’s program.
Revolving Credit Facility
In September 2024, the Company terminated its prior senior unsecured revolving credit facility that was entered into in December 2021, and entered into a new senior unsecured revolving credit facility with an aggregate lending commitment of $5.25 billion for a period of five years. The commitment comprised of (i) $4.75 billion of commitments available immediately and (ii) $500 million of commitments available from and subject to the closing of the proposed acquisition of Juniper Networks and refinancing of Juniper Networks’ credit agreement in connection with the closing of such proposed acquisition. As of January 31, 2025 and October 31, 2024, 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 5 years. As of January 31, 2025 and October 31, 2024, no borrowings were outstanding under this credit facility.
Juniper Acquisition Financing
In September 2024, the Company entered into term loan agreements with JPMorgan Chase Bank, N.A, Citibank, N.A., and Mizuho Bank, Ltd. for approximately $12.0 billion of senior unsecured delayed draw term loan facilities, comprised of an approximately $9.0 billion 364-day tranche and a $3.0 billion three-year tranche, subject to customary conditions. The Company has since further reduced the commitments under the 364-day term loan to $1.0 billion. Unless previously terminated, commitments under both the 364-day term loan and the three-year term loan will terminate upon the earliest of (i) five business
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
days after the Juniper Outside Date (as defined in such term loan agreements), (ii) the occurrence of the closing of the acquisition of Juniper Networks without the funding of any borrowings under either of the term loan agreements, and (iii) the termination of the Merger Agreement by HPE in writing in accordance with its terms. As of January 31, 2025, no borrowings were outstanding under these agreements.
Note 13: Stockholders' Equity
The components of accumulated other comprehensive loss, net of taxes as of January 31, 2025, and changes for the three months ended January 31, 2025 were as follows:
| Net unrealized gains (losses) on available-for-sale securities | Net unrealized (losses) gains on cash flow hedges | Unrealized components of defined benefit plans | Cumulative translation adjustment | Accumulated other comprehensive loss | |||||||||||||||||||||||||
| In millions | |||||||||||||||||||||||||||||
| Balance at beginning of period | $ | 8 | $ | (16) | $ | (2,342) | $ | (627) | $ | (2,977) | |||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | (1) | 270 | — | (22) | 247 | ||||||||||||||||||||||||
| Reclassifications of (gains) losses into earnings | — | (213) | 30 | — | (183) | ||||||||||||||||||||||||
| Tax (provision) benefit | — | (10) | (5) | 1 | (14) | ||||||||||||||||||||||||
| Balance at end of period | $ | 7 | $ | 31 | $ | (2,317) | $ | (648) | $ | (2,927) |
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) |
Share Repurchase Program
For the three months ended January 31, 2025, the Company repurchased and settled 2.4 million shares under its share repurchase program through open market repurchases, which included 0.1 million shares that were unsettled open market repurchases as of October 31, 2024. As of January 31, 2025, the Company did not have any unsettled open market repurchases. Shares repurchased for the three months ended January 31, 2025 were recorded as a $50 million reduction to stockholders' equity. As of January 31, 2025, the Company had a remaining authorization of approximately $0.8 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.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
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, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| In millions, except per share amounts | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net earnings attributable to common stockholders - Basic | $ | 598 | $ | 387 | |||||||||||||||||||
| Plus: 7.625% Series C mandatory convertible preferred stock dividends | 29 | — | |||||||||||||||||||||
| Net earnings - Diluted | $ | 627 | $ | 387 | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares used to compute basic net EPS | 1,316 | 1,301 | |||||||||||||||||||||
| Dilutive effect of employee stock plans(1) | 17 | 15 | |||||||||||||||||||||
| Dilutive effect of 7.625% Series C mandatory convertible preferred stock(1) | 76 | — | |||||||||||||||||||||
| Weighted-average shares used to compute diluted net EPS | 1,409 | 1,316 | |||||||||||||||||||||
| Net Earnings per Share: | |||||||||||||||||||||||
| Basic | $ | 0.45 | $ | 0.30 | |||||||||||||||||||
| Diluted | $ | 0.44 | $ | 0.29 | |||||||||||||||||||
| Anti-dilutive weighted-average stock awards(2) | 6 | 1 |
(1)The impact of dilutive effect of employee stock plans is calculated under the treasury stock method, and the impact of dilutive effect of the Preferred Stock is calculated under the if-converted method.
(2)The Company excludes shares potentially issuable under employee stock plans that could dilute basic net EPS in the future from the calculation of diluted net earnings per share, as their effect, if included, would have been anti-dilutive for the periods presented.
Note 15: Litigation, Contingencies, and Commitments
Litigation
The Company and certain of its subsidiaries are involved in various lawsuits, claims, investigations and proceedings including those consisting of intellectual property, commercial, securities, employment, employee benefits, and environmental matters, which arise in the ordinary course of business. In addition, as part of the Separation and Distribution Agreement (the “Separation and Distribution Agreement”) entered into in connection with HPE's spin-off from HP Inc. (formerly known as “Hewlett-Packard Company”) (the “Separation”), HPE 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. HPE 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. HPE 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, HPE 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. HPE believes it has recorded adequate provisions for any such matters and, as of January 31, 2025, 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.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Litigation, Proceedings, and Investigations
Department of Justice Action on the Proposed Acquisition of Juniper Networks. As previously disclosed, on January 9, 2024, HPE entered into the Merger Agreement with Juniper Networks and Jasmine Acquisition Sub, Inc., providing for the acquisition of Juniper by HPE. Completion of the Merger is subject to the satisfaction or waiver of certain closing conditions, including the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Act and certain other approvals, clearances or expirations of waiting periods under other antitrust laws and foreign investment laws and the absence of any order, injunction, or other order or law prohibiting the Merger or making the closing of the Merger illegal. On January 30, 2025, the Antitrust Division of the United States Department of Justice (the “DOJ”) filed a complaint in the United States District Court for the Northern District of California, seeking to enjoin the closing of the Merger, alleging that the Merger is likely to substantially lessen competition in violation of Section 7 of the Clayton Act. On February 10, 2025, HPE and Juniper Networks filed answers to the DOJ’s complaint, disputing these claims. Trial is scheduled to begin on July 9, 2025. The consummation of the Merger has been delayed by the DOJ action, and could ultimately be prevented if HPE and Juniper Networks are unsuccessful in defending against or settling the DOJ 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 (plus interests). 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. After multiple delays and postponements over the last decade, the Customs Tribunal has scheduled the cross-appeals for final hearing on April 21-25, 2025. The Company expects a ruling from the Customs Tribunal in fiscal 2025. Either party may appeal the ruling to the India Supreme Court.
ECT Proceedings*.* In January 2011, the postal service of Brazil, Empresa Brasileira de Correios e Telégrafos (“ECT”), notified a former subsidiary of HP Inc. in Brazil (“HP Brazil”) that it had initiated administrative proceedings to consider whether to suspend HP Brazil's right to bid and contract with ECT related to alleged improprieties in the bidding and contracting processes whereby employees of HP Brazil and employees of several other companies allegedly coordinated their bids and fixed results for three ECT contracts in 2007 and 2008. In late July 2011, ECT notified HP Brazil it had decided to apply the penalties against HP Brazil and suspend HP Brazil's right to bid and contract with ECT for five years, based upon the evidence before it. In August 2011, HP Brazil appealed ECT's decision. In April 2013, ECT rejected HP Brazil's appeal, and the administrative proceedings were closed with the penalties against HP Brazil remaining in place. In parallel, in September 2011, HP Brazil filed a civil action against ECT seeking to have ECT's decision revoked. HP Brazil also requested an injunction suspending the application of the penalties until a final ruling on the merits of the case, 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.
Shared Litigation with HP Inc., DXC Technology Company and Micro Focus International plc
As part of the Separation and Distribution Agreements between HPE and HP Inc., HPE and DXC Technology Company (“DXC”), and HPE and Seattle SpinCo (“Micro Focus”), the parties to each agreement agreed to cooperate with each other in managing certain existing litigation related to both parties' businesses. The Separation and Distribution Agreements also included provisions that assign to the parties responsibility for managing pending and future litigation related to the general corporate matters of HP Inc. (in the case of the separation of HPE from HP Inc.) or of HPE (in the case of the separation of DXC from HPE and the separation of Micro Focus from HPE), 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
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
water; supply chain due diligence; sustainability, environment, and emissions-related reporting; 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, responsible for repairability requirements or financially responsible for specified collection, recycling, treatment, and disposal of past and future covered products (sometimes referred to as “product take-back legislation”). The Company could incur substantial costs, its products could be restricted from entering certain jurisdictions, and it could face other sanctions, if it were to violate or become liable under environmental laws, including those related to addressing climate change and other environmental related issues, or if its products become non-compliant with such environmental laws. The Company's potential exposure includes impacts on revenue, fines and civil or criminal sanctions, third-party property damage or personal injury claims and clean-up costs. The amount and timing of costs to comply with environmental laws are difficult to predict.
In particular, the Company may become a party to, or otherwise involved in, proceedings brought by U.S. or state environmental agencies under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), known as “Superfund,” or other federal, state or foreign laws and regulations addressing the clean-up of contaminated sites, and may become a party to, or otherwise involved in, proceedings brought by private parties for contribution towards clean-up costs. The Company is also contractually obligated to make financial contributions to address actions related to certain environmental liabilities, both ongoing and arising in the future, pursuant to its Separation and Distribution Agreement with HP Inc.
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.
The maximum potential future payments under performance guarantees and financing arrangements was $279 million as of January 31, 2025.
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.
Note 16: Subsequent Events
On March 6, 2025, the Board of Directors approved a cost reduction program (the "Program") intended to reduce structural operating costs and continue advancing the Company's ongoing commitment to profitable growth. The Program is expected to be implemented through fiscal year 2026 and deliver gross savings of approximately $350 million by fiscal year 2027 through reductions in the Company's workforce.
In order to achieve this level of cost savings, HPE estimates cash charges of approximately $350 million over the next two years in connection with the Program, with approximately $250 million to be incurred in fiscal year 2025, and the remaining $100 million to be incurred in the fiscal year 2026.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The estimates of the duration of the Program, the charges and expenditures that HPE expects to incur in connection therewith, and the timing thereof are subject to a number of assumptions, including local law requirements in various jurisdictions, and actual amounts may differ materially from estimates. In addition, the Company may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of the Program.
Previous: Cover and table of contents · Next: Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.