Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
10-Q


(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:July 31, 2020
For the quarterly period ended:Or
July 31, 2019
Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            

Commission file number001-37483
______________________________________________________________________________

HEWLETT PACKARD ENTERPRISE COMPANYCOMPANY
(Exact name of registrant as specified in its charter)

Delaware47-3298624
(State or other jurisdiction of
incorporation or organization)
(I.R.S. employer
identification no.)
6280 America Center Drive,DelawareSan Jose,California9500247-3298624
(AddressState or other jurisdiction of principal executive offices)
incorporation or organization)
(Zip code)
(650)687-5817
(Registrant's telephone number, including area code)I.R.S. employer
identification no.)
______________________________________________________________________________
6280 America Center Drive,San Jose,California95002
(Address of principal executive offices)(Zip code)
(650)687-5817
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareHPENYSENew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated filer
Non-accelerated filer
(Do not check if a smaller
reporting company)
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes  No 
The number of shares of Hewlett Packard Enterprise Company common stock outstanding as of August 20, 201931, 2020 was 1,305,601,2581,286,383,563 shares, par value $0.01.




HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period Ended July 31, 20192020

Table of Contents
Page


3


Forward-Looking Statements
This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of Part I, contains forward-looking statements thatwithin the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Hewlett Packard Enterprise Company and its consolidated subsidiaries ("Hewlett Packard Enterprise") may differ materially from those expressed or implied by such forward-looking statements and assumptions. The words "believe", "expect", "anticipate", "optimistic", "intend", "aim", "will", "should" and similar expressions are intended to identify such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to the scope and duration of the novel coronavirus pandemic (“COVID-19”) and its impact on our business, operations, liquidity and capital resources, employees, customers, partners, supply chain, financial results and the world economy; any projections of revenue, margins, expenses, effective tax rates, the impact of the U.S. Tax Cuts and Jobs Act of 2017, net earnings, net earnings per share, cash flows, order backlog, benefit plan funding, deferred tax assets, share repurchases, currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings, restructuring charges, or restructuring charges;other transformation actions; any statements of the plans, strategies and objectives of management for future operations, as well as the execution of corporate transactions or contemplated acquisitions, transformation and restructuring plans and any resulting cost savings, revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on Hewlett Packard Enterprise and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the need to address the many challenges facing Hewlett Packard Enterprise's businesses; the competitive pressures faced by Hewlett Packard Enterprise's businesses; risks associated with executing Hewlett Packard Enterprise's strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of Hewlett Packard Enterprise's products and the delivery of Hewlett Packard Enterprise's services effectively; the protection of Hewlett Packard Enterprise's intellectual property assets, including intellectual property licensed from third parties and intellectual property shared with its former Parent;parent; risks associated with Hewlett Packard Enterprise's international operations;operations (including pandemics and public health problems, such as the outbreak of COVID-19); the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by Hewlett Packard Enterprise and its suppliers, customers, clients and partners;partners, including any impact thereon resulting from events such as the COVID-19 pandemic; the hiring and retention of key employees; the execution, integration and other risks associated with business combination and investment transactions; the execution, timing and results of any transformation or restructuring plans, including estimates and assumptions related to the costs and anticipated benefits of implementing the transformation and restructuring plans; the effects of the U.S. Tax Cuts and Jobs Act and related guidance and regulations that may be implemented; the resolution of pending investigations, claims and disputes; and other risks that are described herein, including but not limited to the items discussed or referenced in "Risk Factors" in Item 1A of Part II of this Quarterly Report on Form 10-Q and that are otherwise described or updated from time to time in Hewlett Packard Enterprise's reports filed with the Securities and Exchange Commission. For a discussion of the risks, uncertainties and actions taken in response to COVID-19, see “We are unable to predict the extent to which the global COVID-19 pandemic may adversely impact our business operations, financial performance and results of operations.” in “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q. Hewlett Packard Enterprise assumes no obligation and does not intend to update these forward-looking statements.statements, except as required by applicable law.


4


Part I. Financial InformationFINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data.
Index
Page


5


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
 Three Months Ended July 31,Nine Months Ended July 31,
 2020201920202019
 In millions, except per share amounts
Net revenue:  
Products$4,193 $4,508 $11,760 $13,709 
Services2,508 2,595 7,671 7,869 
Financing income115 114 343 342 
Total net revenue6,816 7,217 19,774 21,920 
Costs and expenses:  
Cost of products3,088 3,069 8,376 9,496 
Cost of services1,596 1,625 4,926 5,102 
Financing interest65 74 209 222 
Research and development455 481 1,390 1,404 
Selling, general and administrative1,131 1,253 3,458 3,678 
Amortization of intangible assets95 58 299 199 
Impairment of goodwill0 0 865 0 
Transformation costs357 170 646 302 
Disaster charges (recovery)2 0 24 (7)
Acquisition, disposition and other related charges15 563 55 710 
Total costs and expenses6,804 7,293 20,248 21,106 
Earnings (loss) from operations12 (76)(474)814 
Interest and other, net(71)(70)(158)(139)
Tax indemnification adjustments(30)(134)(86)89 
Non-service net periodic benefit credit28 12 101 45 
Earnings from equity interests27 3 50 21 
(Loss) earnings before taxes(34)(265)(567)830 
Benefit (provision) for taxes43 238 88 (261)
Net earnings (loss)$9 $(27)$(479)$569 
Net earnings (loss) per share:  
Basic$0.01 $(0.02)$(0.37)$0.42 
Diluted$0.01 $(0.02)$(0.37)$0.41 
Weighted-average shares used to compute net earnings (loss) per share:  
Basic1,292 1,334 1,294 1,367 
Diluted1,300 1,334 1,294 1,380 
(Unaudited)
 Three Months Ended July 31, Nine Months Ended July 31,
 2019 2018 2019 2018
 In millions, except per share amounts
Net revenue: 
  
    
Products$4,508
 $4,944
 $13,709
 $14,414
Services2,595
 2,711
 7,869
 8,160
Financing income114
 109
 342
 332
Total net revenue7,217
 7,764
 21,920
 22,906
Costs and expenses: 
  
    
Cost of products3,069
 3,516
 9,496
 10,432
Cost of services1,625
 1,814
 5,102
 5,475
Financing interest74
 69
 222
 207
Research and development481
 435
 1,404
 1,227
Selling, general and administrative1,253
 1,221
 3,678
 3,684
Amortization of intangible assets58
 72
 199
 222
Restructuring charges
 (1) 
 14
Transformation costs170
 126
 302
 491
Disaster charges
 
 (7) 
Acquisition, disposition and other related charges563
 24
 710
 70
Separation costs
 (2) 
 
Total costs and expenses7,293
 7,274
 21,106
 21,822
(Loss) earnings from continuing operations(76) 490
 814
 1,084
Interest and other, net(70) (64) (139) (163)
Tax indemnification adjustments(134) 2
 89
 (1,342)
Non-service net periodic benefit credit12
 26
 45
 90
Earnings from equity interests3
 11
 21
 23
(Loss) earnings from continuing operations before taxes(265) 465
 830
 (308)
Benefit (provision) for taxes238
 (13) (261) 3,092
Net (loss) earnings from continuing operations(27) 452
 569
 2,784
Net loss from discontinued operations
 (1) 
 (119)
Net (loss) earnings$(27) $451
 $569
 $2,665
Net (loss) earnings per share: 
  
    
Basic       
Continuing operations$(0.02) $0.30
 $0.42
 $1.79
Discontinued operations
 
 
 (0.07)
Total basic net earnings per share$(0.02) $0.30
 $0.42
 $1.72
Diluted       
Continuing operations$(0.02) $0.29
 $0.41
 $1.76
Discontinued operations
 
 
 (0.07)
Total diluted net earnings per share$(0.02) $0.29
 $0.41
 $1.69
Cash dividends declared per share$0.1125
 $0.1125
 $0.3375
 $0.3750
Weighted-average shares used to compute net earnings per share: 
  
    
Basic1,334
 1,513
 1,367
 1,552
Diluted1,334
 1,531
 1,380
 1,578

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

6


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 Three Months Ended
July 31,
Nine Months Ended
July 31,
 2020201920202019
 In millions
Net earnings (loss)$9 $(27)$(479)$569 
Other comprehensive (loss) income before taxes:  
Change in net unrealized gains (losses) on available-for-sale securities:  
Net unrealized gains (losses) arising during the period6 3 0 8 
(Gains) losses reclassified into earnings(1)0 (8)(3)
5 3 (8)5 
Change in net unrealized (losses) gains on cash flow hedges:  
Net unrealized (losses) gains arising during the period(456)63 (85)225 
Net losses (gains) reclassified into earnings242 (58)(41)(259)
(214)5 (126)(34)
Change in unrealized components of defined benefit plans:  
Net unrealized (losses) gains arising during the period(19)(31)(10)(78)
Amortization of net actuarial loss and prior service benefit61 54 183 161 
Curtailments, settlements and other7 5 8 12 
49 28 181 95 
Change in cumulative translation adjustment1 (8)(46)(2)
Other comprehensive (loss) income before taxes(159)28 1 64 
Benefit (provision) for taxes28 2 13 4 
Other comprehensive (loss) income, net of taxes(131)30 14 68 
Comprehensive (loss) income$(122)$3 $(465)$637 
 Three Months Ended
July 31,
 Nine Months Ended
July 31,
 2019 2018 2019 2018
 In millions
Net (loss) earnings$(27) $451
 $569
 $2,665
Other comprehensive income before taxes: 
  
    
Change in net unrealized gains (losses) on available-for-sale securities: 
  
    
Net unrealized gains (losses) arising during the period3
 (2) 8
 (1)
Gains reclassified into earnings
 
 (3) (9)

3
 (2) 5
 (10)
Change in net unrealized gains (losses) on cash flow hedges: 
  
    
Net unrealized gains arising during the period63
 149
 225
 50
Net (gains) losses reclassified into earnings(58) (43) (259) 78

5
 106
 (34) 128
Change in unrealized components of defined benefit plans: 
  
    
Net unrealized losses arising during the period(31) (25) (78) (23)
Amortization of net actuarial loss and prior service benefit54
 47
 161
 143
Curtailments, settlements and other5
 9
 12
 11

28
 31
 95
 131
Change in cumulative translation adjustment(8) (40) (2) (40)
Other comprehensive income before taxes28
 95
 64
 209
Benefit (provision) for taxes2
 (19) 4
 (34)
Other comprehensive income, net of taxes30
 76
 68
 175
Comprehensive income$3
 $527
 $637
 $2,840


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

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
 As of
 July 31, 2019 October 31, 2018
 In millions, except par value
ASSETS 
  
Current assets: 
  
Cash and cash equivalents$3,693
 $4,880
Accounts receivable, net of allowance for doubtful accounts2,965
 3,263
Financing receivables3,567
 3,396
Inventory2,216
 2,447
Assets held for sale52
 6
Other current assets2,624
 3,280
Total current assets15,117
 17,272
Property, plant and equipment6,000
 6,138
Long-term financing receivables and other assets9,092
 11,359
Investments in equity interests2,346
 2,398
Goodwill17,587
 17,537
Intangible assets618
 789
Total assets$50,760
 $55,493
LIABILITIES AND STOCKHOLDERS' EQUITY 
  
Current liabilities: 
  
Notes payable and short-term borrowings$2,207
 $2,005
Accounts payable5,203
 6,092
Employee compensation and benefits1,454
 1,412
Taxes on earnings160
 378
Deferred revenue3,225
 3,177
Accrued restructuring223
 294
Other accrued liabilities4,686
 3,840
Total current liabilities17,158
 17,198
Long-term debt10,453
 10,136
Other non-current liabilities5,569
 6,885
Commitments and contingencies

 

Stockholders' equity 
  
HPE stockholders' equity: 
  
Preferred stock, $0.01 par value (300 shares authorized; none issued and outstanding at July 31, 2019)
 
Common stock, $0.01 par value (9,600 shares authorized; 1,310 and 1,423 shares issued and outstanding at July 31, 2019 and October 31, 2018, respectively)13
 14
Additional paid-in capital28,629
 30,342
Accumulated deficit(7,959) (5,899)
Accumulated other comprehensive loss(3,150) (3,218)
Total HPE stockholders' equity17,533
 21,239
Non-controlling interests47
 35
Total stockholders' equity17,580
 21,274
Total liabilities and stockholders' equity$50,760
 $55,493



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)
 Nine Months Ended July 31,
 2019 2018
 In millions
Cash flows from operating activities: 
  
Net earnings$569
 $2,665
Adjustments to reconcile net earnings to net cash provided by operating activities: 
  
Depreciation and amortization1,919
 1,931
Stock-based compensation expense207
 242
Provision for inventory and doubtful accounts181
 137
Restructuring charges146
 399
Deferred taxes on earnings885
 (1,215)
Earnings from equity interests(21) (23)
Dividends received from equity investees71
 47
Other, net134
 55
Changes in operating assets and liabilities, net of acquisitions: 
  
Accounts receivable315
 137
Financing receivables(325) (228)
Inventory66
 (545)
Accounts payable(826) 72
Taxes on earnings(1,121) (2,271)
Restructuring(261) (540)
Other assets and liabilities626
 775
Net cash provided by operating activities2,565
 1,638
Cash flows from investing activities: 
  
Investment in property, plant and equipment(2,153) (2,129)
Proceeds from sale of property, plant and equipment448
 561
Purchases of available-for-sale securities and other investments(33) (32)
Maturities and sales of available-for-sale securities and other investments12
 96
Financial collateral posted(332) (1,396)
Financial collateral returned740
 1,454
Payments made in connection with business acquisitions, net of cash acquired(81) (207)
Proceeds from business divestitures, net
 13
Net cash used in investing activities(1,399) (1,640)
Cash flows from financing activities: 
  
Short-term borrowings with original maturities less than 90 days, net25
 84
Proceeds from debt, net of issuance costs1,010
 894
Payment of debt(872) (2,538)
Net proceeds related to stock-based award activities24
 104
Repurchase of common stock(1,965) (2,585)
Net transfer of cash and cash equivalents to Everett
 (41)
Net transfer of cash and cash equivalents from Seattle
 156
Cash dividends paid to non-controlling interests
 (9)
Cash dividends paid(461) (406)
Net cash used in financing activities(2,239) (4,341)
Decrease in cash, cash equivalents and restricted cash(1,073) (4,343)
Cash, cash equivalents and restricted cash at beginning of period5,084
 9,592
Cash, cash equivalents and restricted cash at end of period$4,011
 $5,249

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

7


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
 As of
 July 31, 2020October 31, 2019
(Unaudited)(Audited)
 In millions, except par value
ASSETS  
Current assets:  
Cash and cash equivalents$8,465 $3,753 
Accounts receivable, net of allowance for doubtful accounts2,856 2,957 
Financing receivables, net of allowance for doubtful accounts3,797 3,572 
Inventory3,469 2,387 
Assets held for sale3 46 
Other current assets2,793 2,428 
Total current assets21,383 15,143 
Property, plant and equipment5,709 6,054 
Long-term financing receivables and other assets10,602 8,918 
Investments in equity interests2,269 2,254 
Goodwill17,442 18,306 
Intangible assets834 1,128 
Total assets$58,239 $51,803 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Notes payable and short-term borrowings$5,727 $4,425 
Accounts payable6,001 5,595 
Employee compensation and benefits1,181 1,522 
Taxes on earnings204 186 
Deferred revenue3,343 3,234 
Accrued restructuring386 195 
Other accrued liabilities4,768 4,002 
Total current liabilities21,610 19,159 
Long-term debt13,730 9,395 
Other non-current liabilities6,693 6,100 
Commitments and contingencies
Stockholders' equity  
HPE stockholders' equity:  
Preferred stock, $0.01 par value (300 shares authorized; NaN issued)0 0 
Common stock, $0.01 par value (9,600 shares authorized; 1,286 and 1,294 shares issued and outstanding at July 31, 2020 and October 31, 2019, respectively)13 13 
Additional paid-in capital28,275 28,444 
Accumulated deficit(8,377)(7,632)
Accumulated other comprehensive loss(3,756)(3,727)
Total HPE stockholders' equity16,155 17,098 
Non-controlling interests51 51 
Total stockholders' equity16,206 17,149 
Total liabilities and stockholders' equity$58,239 $51,803 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
8


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 Nine Months Ended July 31,
 20202019
 In millions
Cash flows from operating activities:  
Net (loss) earnings$(479)$569 
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:  
Depreciation and amortization1,973 1,919 
Impairment of goodwill865 0 
Stock-based compensation expense215 207 
Provision for inventory and doubtful accounts208 181 
Restructuring charges553 146 
Deferred taxes on (loss) earnings(214)885 
Earnings from equity interests(50)(21)
Dividends received from equity investees35 71 
Other, net115 134 
Changes in operating assets and liabilities, net of acquisitions:  
Accounts receivable69 315 
Financing receivables(411)(325)
Inventory(1,253)66 
Accounts payable431 (826)
Taxes on earnings(85)(1,121)
Restructuring(350)(261)
Other assets and liabilities(129)626 
Net cash provided by operating activities1,493 2,565 
Cash flows from investing activities:  
Investment in property, plant and equipment(1,779)(2,153)
Proceeds from sale of property, plant and equipment623 448 
Purchases of available-for-sale securities and other investments(78)(33)
Maturities and sales of available-for-sale securities and other investments29 12 
Financial collateral posted(573)(332)
Financial collateral received637 740 
Payments made in connection with business acquisitions, net of cash acquired(13)(81)
Net cash used in investing activities(1,154)(1,399)
Cash flows from financing activities:  
Short-term borrowings with original maturities less than 90 days, net36 25 
Proceeds from debt, net of issuance costs6,745 1,010 
Payment of debt(1,399)(872)
(Payments) proceeds related to stock-based award activities, net(34)24 
Repurchase of common stock(355)(1,965)
Cash dividends paid to non-controlling interests(8)0 
Contributions from non-controlling interests1 0 
Cash dividends paid(464)(461)
Net cash provided by (used in) financing activities4,522 (2,239)
Increase (decrease) in cash, cash equivalents and restricted cash4,861 (1,073)
Cash, cash equivalents and restricted cash at beginning of period4,076 5,084 
Cash, cash equivalents and restricted cash at end of period$8,937 $4,011 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
9


Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

Common Stock
Three Months Ended July 31, 2020Number of SharesPar ValueAdditional Paid-in CapitalAccumulated DeficitAccumulated
Other
Comprehensive
Loss
Equity
Attributable
to the
Company
Non-
controlling
Interests
Total
Equity
 In millions, except number of shares in thousands
Balance at April 30, 20201,282,253 $13 $28,207 $(8,385)$(3,625)$16,210 $48 $16,258 
Net earnings9 9 3 12 
Other comprehensive loss(131)(131)(131)
Comprehensive (loss) income(122)3 (119)
Stock-based compensation expense          55 55 55 
Tax withholding related to vesting of employee stock plans(7)(7)(7)
Issuance of common stock in connection with employee stock plans and other3,753 20 (1)19 19 
Balance at July 31, 20201,286,006 $13 $28,275 $(8,377)$(3,756)$16,155 $51 $16,206 
 Common Stock            
Three Months Ended July 31, 2019Number 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 at April 30, 20191,346,232
 $13
 $29,130
 $(7,765) $(3,180) $18,198
 $43
 $18,241
Net earnings      (27)   (27) 4
 (23)
Other comprehensive income        30
 30
 

 30
Comprehensive income          3
 4
 7
Issuance of common stock in connection with employee stock plans and other2,737
 

 16
     16
   16
Repurchases of common stock(39,084) 


 (575) 

   (575)   (575)
Cash dividends declared      (146)   (146)   (146)
Effects of adoption of accounting standard updates(1)
      (21)   (21)   (21)
Stock-based compensation expense              58
     58
   58
Balance at July 31, 20191,309,885
 $13
 $28,629
 $(7,959) $(3,150) $17,533
 $47
 $17,580

Common Stock
Nine Months Ended July 31, 2020Number of SharesPar ValueAdditional Paid-in Capital Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Equity
Attributable
to the
Company
Non-
controlling
Interests
Total
Equity
 In millions, except number of shares in thousands
Balance at October 31, 20191,294,369 $13 $28,444 $(7,632)$(3,727)$17,098 $51 $17,149 
Net loss(479)(479)7 (472)
Other comprehensive income14 14 14 
Comprehensive (loss) income(465)7 (458)
Stock-based compensation expense          216 216 216 
Tax withholding related to vesting of employee stock plans(85)(85)(85)
Issuance of common stock in connection with employee stock plans and other16,393 46 46 1 47 
Repurchases of common stock(24,756)(346)(346)(346)
Cash dividends declared ($0.24 per share)(309)(309)(8)(317)
Effects of adoption of accounting standard updates (1)
43 (43)  
Balance at July 31, 20201,286,006 $13 $28,275 $(8,377)$(3,756)$16,155 $51 $16,206 

(1) Represents the impact of the adoption of an accounting standard update that allows for the reclassification of stranded tax effects from accumulated other comprehensive loss to accumulated deficit.
10


Common Stock
Three Months Ended July 31, 2019Number of SharesPar ValueAdditional Paid-in Capital Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Equity
Attributable
to the
Company
Non-
controlling
Interests
Total
Equity
 In millions, except number of shares in thousands
Balance at April 30, 20191,346,232 $13 $29,130 $(7,765)$(3,180)$18,198 $43 $18,241 
Net loss(27)(27)4 (23)
Other comprehensive income30 30 30 
Comprehensive income3 4 7 
Stock-based compensation expense          58 58 58 
Tax withholding related to vesting of employee stock plans(7)(7)(7)
Issuance of common stock in connection with employee stock plans and other2,737 23 23 23 
Repurchases of common stock(39,084)(575)(575)(575)
Cash dividends declared ($0.1125 per share)(146)(146)(146)
Effects of adoption of accounting standard updates(1)
(21)(21)(21)
Balance at July 31, 20191,309,885 $13 $28,629 $(7,959)$(3,150)$17,533 $47 $17,580 

(1) For the three months ended July 31, 2019, includes an adjustment related to the adoption of the new revenue accounting standard, which the Company adopted in the first quarter of fiscal 2019.



Common Stock
Nine Months Ended July 31, 2019Number of SharesPar ValueAdditional Paid-in Capital Accumulated DeficitAccumulated
Other
Comprehensive
Loss
Equity
Attributable
to the
Company
Non-
controlling
Interests
Total
Equity
 In millions, except number of shares in thousands
Balance at October 31, 20181,423,303 $14 $30,342 $(5,899)$(3,218)$21,239 $35 $21,274 
Net earnings569 569 12 581 
Other comprehensive income68 68 68 
Comprehensive income637 12 649 
Stock-based compensation expense209 209 209 
Tax withholding related to vesting of employee stock plans(57)(57)(57)
Issuance of common stock in connection with employee stock plans and other15,404 80 80 80 
Repurchases of common stock(128,822)(1)(1,945)(1,946)(1,946)
Cash dividends declared ($0.3375 per share)(446)(446)(446)
Effects of adoption of accounting standard updates(1)
(2,183)(2,183)(2,183)
Balance at July 31, 20191,309,885 $13 $28,629 $(7,959)$(3,150)$17,533 $47 $17,580 
11


 Common Stock            
Nine Months Ended July 31, 2019Number 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 at October 31, 20181,423,303
 $14
 $30,342
 $(5,899) $(3,218) $21,239
 $35
 $21,274
Net earnings      569
   569
 12
 581
Other comprehensive income        68
 68
 

 68
Comprehensive income          637
 12
 649
Issuance of common stock in connection with employee stock plans and other15,404
 

 23
     23
 

 23
Repurchases of common stock(128,822) (1) (1,945) 

   (1,946)   (1,946)
Cash dividends declared      (446)   (446)   (446)
Effects of adoption of accounting standard updates (1)
      (2,183)   (2,183)   (2,183)
Stock-based compensation expense              209
     209
   209
Balance at July 31, 20191,309,885
 $13
 $28,629
 $(7,959) $(3,150) $17,533
 $47
 $17,580

(1) For the nine months ended July 31, 2019, includes $2.3 billion was related to an additiona reduction to accumulated deficitretained earnings as a result of the adoption of an accounting standard update for Income Taxes and $122 million was related to a reductionan addition to accumulated deficitretained earnings as a result of the adoption of the new revenue accounting standard.

 Common Stock            
Three Months Ended July 31, 2018Number 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 at April 30, 20181,527,381
 $15
 $32,205
 $(5,306) $(2,982) $23,932
 $34
 $23,966
Activity related to separation and merger transactions      (1) 


 (1)   (1)
Net earnings      451
   451
 2
 453
Other comprehensive income        76
 76
 

 76
Comprehensive income          527
 2
 529
Issuance of common stock in connection with employee stock plans and other13,711
 1
 10
     11
 

 11
Repurchases of common stock(58,655) (1) (934) 

   (935)   (935)
Cash dividends declared      (165)   (165)   (165)
Stock-based compensation expense              57
     57
   57
Balance at July 31, 20181,482,437
 $15
 $31,338
 $(5,021) $(2,906) $23,426
 $36
 $23,462


 Common Stock            
Nine Months Ended July 31, 2018Number 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 at October 31, 20171,595,161
 $16
 $33,583
 $(7,238) $(2,895) $23,466
 $39
 $23,505
Activity related to separation and merger transactions      125
 (186) (61)   (61)
Net earnings      2,665
   2,665
 (3) 2,662
Other comprehensive income        175
 175
 

 175
Comprehensive income          2,840
 (3) 2,837
Issuance of common stock in connection with employee stock plans and other47,491
 1
 73
     74
 

 74
Repurchases of common stock(160,215) (2) (2,583) 

   (2,585)   (2,585)
Cash dividends declared      (573)   (573)   (573)
Stock-based compensation expense              265
     265
   265
Balance at July 31, 20181,482,437
 $15
 $31,338
 $(5,021) $(2,906) $23,426
 $36
 $23,462
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

12


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 ("SMBs") to large global enterprises.enterprises and governmental entities.
On November 1, 2015, the Company became an independent publicly-traded company through a pro rata distribution by HP Inc. ("former Parent" or "HPI"), formerly known as Hewlett-Packard Company ("HP Co."), of 100% of the outstanding shares of Hewlett Packard Enterprise Company to HP Inc.'s stockholders (the "Separation").
Discontinued Operations
On April 1, 2017, HPE completed the separation and merger of its Enterprise Services business with Computer Sciences Corporation ("CSC") (collectively, the "Everett Transaction"). HPE transferred its Enterprise Services business to Everett SpinCo, Inc. (a wholly-owned subsidiary of HPE) ("Everett") and distributed all of the shares of Everett to HPE stockholders. Following the distribution, New Everett Merger Sub Inc., a wholly-owned subsidiary of Everett, merged with and into CSC and Everett changed its name to DXC Technology Company ("DXC").
On September 1, 2017, the Company completed the separation and merger of its Software business segment with Micro Focus International plc (“Micro Focus”) (collectively, the “Seattle Transaction”). HPE transferred its Software business segment to Seattle SpinCo, Inc. (a wholly-owned subsidiary of HPE) ("Seattle"), and distributed all of the shares of Seattle to HPE stockholders. Following the share distribution, Seattle MergerSub, Inc., an indirect, wholly-owned subsidiary of Micro Focus, merged with and into Seattle.
The historical financial results of Everett and Seattle are reported as Net loss from discontinued operations in the Condensed Consolidated Statements of Earnings. For the three and nine months ended July 31, 2018, this amount totaled $1 million and $119 million, respectively which primarily consisted of tax indemnification adjustments and separation costs.
Acquisition
On May 16, 2019,July 11, 2020, the Company entered into a definitive agreement to acquire CraySilver Peak Systems, Inc. ("Cray"Silver Peak"), a global supercomputeran SD-WAN (Software-Defined Wide Area Network) leader for $35 per shareapproximately $925 million in cash, in a transaction valued at approximately $1.3 billion, net of cash acquired.cash. The transaction is expected to close byduring the fourth quarter of HPE’s fiscal year 2019,2020, subject to regulatory approvals and other customary closing conditions. Cray'sSilver Peak's results of operations will be included within the Hybrid ITIntelligent Edge segment.
Arbitration Settlement
On August 15, 2019, an arbitration panel awarded DXC $666 million as well as post-award interest at 3% per annum compounding quarterly until payment. The panel award was made pursuant to a binding arbitration arising from a previously disclosed dispute under the separation and distribution agreement between DXC and HPE. As of July 31, 2019, the Company had recorded a charge representing the full award settlement in its condensed consolidated financial statements. For more information, see Note 15, "Litigation and Contingencies".
Basis of Presentation
TheseThe Condensed Consolidated Financial Statements of the Company were prepared in accordance with United States ("U.S.") Generally Accepted Accounting Principles ("GAAP"). 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 July 31, 20192020 and October 31, 2018,2019, its results of operations for the three and nine months ended July 31, 20192020 and 2018,2019, its cash flows for the nine months ended July 31, 20192020 and 2018,2019, and its statements of stockholdersstockholders' equity for the three and nine months ended July 31, 20192020 and 2018.2019.
The results of operations for the three and nine months ended July 31, 20192020 and itsthe cash flows for the nine months ended July 31, 20192020 are not necessarily indicative of the results to be expected for the full year. The information included in this Quarterly
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

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, 2018,2019, including "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Quantitative and Qualitative Disclosures About Market Risk" and the Consolidated Financial Statements and notes thereto included in Items 7, 7A and 8, respectively, included therein.respectively.
Principles of Consolidation
The accompanying 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.
The Company consolidates a Variable Interest Entity (“VIE”) where it has been determined that the Company is the primary beneficiary of the entity’s operation. The primary beneficiary is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. In evaluating whether the Company is the primary beneficiary, the Company evaluates its power to direct the most significant activities of the VIE by considering the purpose and design of the entity and the risks the entity was designed to create and pass through to its variable interest holders. The Company also evaluates its economic interests in the VIE.
The Company accounts for investments in companies over which it has the ability to exercise significant influence but does not hold a controlling interest under the equity method of accounting, and the Company records its proportionate share of income or losses in Earnings (loss) from equity interests in the Condensed Consolidated Statements of Earnings.
13

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Non-controlling interests are presented as a separate component within Total stockholders' equity in the Condensed Consolidated Balance Sheets. Net earnings attributable to non-controlling interests are recorded within Interest and other, net in the Condensed Consolidated Statements of Earnings and are not presented separately, as they were not material for any periodperiods presented.
Segment Realignment and Reclassifications
Effective at the beginning of the first quarter of fiscal 2020, HPE implemented certain organizational changes to align its segment financial reporting more closely with its current business structure. As a result of these organizational changes, HPE replaced the Hybrid IT reportable segment (and the Compute, Storage and HPE Pointnext business units within it) with 4 new financial reporting segments: Compute, High Performance Compute & Mission-Critical Systems ("HPC & MCS"), Storage, and Advisory and Professional Services ("A & PS").
The Compute segment combines the general purpose server and certain workload optimized server portfolios that were previously a part of the Hybrid IT-Compute business unit and the related operational services business that was previously a part of the Hybrid IT-HPE Pointnext business unit. The HPC & MCS segment consists of high performance compute, mission-critical systems, and edge compute offerings that were previously a part of the Hybrid IT-Compute business unit and the related operational services business that was previously a part of the Hybrid IT-HPE Pointnext business unit. The Storage segment combines the former Hybrid IT-Storage business unit, the related operational services business that was previously a part of the Hybrid IT-HPE Pointnext business unit and the hyperconverged infrastructure products that were previously a part of the Hybrid IT-Compute business unit. Finally, the A & PS segment consists of the consultative-led services that were previously a part of the Hybrid IT-HPE Pointnext business unit.
In addition, the Intelligent Edge segment now includes the Data Center Networking ("DC Networking") operational services business that was previously a part of the Hybrid IT-HPE Pointnext business unit. The DC Networking business, other than operational services, had been transferred to the Intelligent Edge segment in a prior realignment.
The Company reflected these changes to its segment information retrospectively to the earliest period presented, which primarily resulted in the realignment of net revenue, operating profit and total assets for each of the businesses as described above. These changes had no impact on Hewlett Packard Enterprise’s previously reported consolidated net revenue, net earnings, net earnings per share ("EPS") or total assets. See Note 2, "Segment Information", for a further discussion of the Company's segment realignment.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates, judgements and assumptions that affect the amounts reported in the Company's Condensed Consolidated Financial Statements and accompanying notes. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the novel coronavirus pandemic ("COVID-19") could have on our significant accounting estimates. Significant estimates that are based on a forecast include inventory reserves, provision for taxes, valuation allowance for deferred taxes, and impairment assessments of goodwill, intangible assets and other long lived assets. The Company believes that these estimates, judgements and assumptions are reasonable under the circumstances, and are subject to significant uncertainties, some of which are beyond the Company’s control. Should any of these estimates change, it could adversely affect the Company’s results of operations. Additionally, as the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates, judgements and assumptions may evolve as conditions change. Actual results could differ materially from those estimates.these estimates under different assumptions or conditions.
Revenue Recognition
General
As a result of adopting the new revenue recognition standard ("ASC 606"), the Company now accounts for a contract with a customer when both parties have provided written approval and are committed to perform, each party’s rights including payment terms are identified, the contract has commercial substance, and collection of consideration is probable.Foreign Currency Translation
The Company enterspredominately uses the U.S. dollar as its functional currency. Assets and liabilities denominated in non-U.S. currencies are remeasured into contracts with customers that may include combinationsU.S. dollars at current exchange rates for monetary assets and liabilities and at historical exchange rates for non-monetary assets and liabilities. Net revenue, costs and expenses denominated in non-U.S. currencies are recorded in U.S. dollars at the average rates of products and services, resulting in arrangements containing multiple performance obligations for hardware and software products and/or various services.exchange prevailing during the period. The Company determines whether each productincludes gains or service is distinctlosses from foreign currency remeasurement in order to identify the performance obligationsInterest and other, net in the contractCondensed Consolidated Statements of Earnings and allocategains and losses from cash flow hedges in Net revenue as the contract transaction price amonghedged revenue is recognized. Certain non-U.S. subsidiaries designate the distinct performance obligations. Arrangements are distinct based on whetherlocal currency as their functional currency, and the customer can benefit fromCompany records the product or service on its own or together withtranslation of their assets and liabilities into U.S. dollars at the balance sheet date as translation adjustments and includes them as a component of Accumulated other resources that are readily available and whether the commitment to transfer the product or service to the customer is separately identifiable from other obligationscomprehensive loss in the contract.Condensed Consolidated Balance Sheets. The Company classifies its hardware, perpetual software licenses,effect of foreign currency exchange rates on cash and software-as-a-service ("SaaS") as distinct performance obligations. Term software licenses represent multiple obligations, which include software licenses and software maintenance. In transactions wherecash equivalents was not material for any of the Company delivers hardware or software, it is typically the principal and records revenue and costs of goods sold on a gross basis.periods presented.
Revenue is recognized when, or as, control of promised products or services is transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those products or services. Variable consideration offered in contracts with customers, partners and distributors may include rebates, volume-based discounts, cooperative marketing, price protection, and other incentive programs. Variable consideration is estimated at contract inception and updated at the end of each reporting period as additional information becomes available and recognized only to the extent that it is probable that a significant reversal of any incremental revenue will not occur.
14
Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment or once delivery and risk of loss has transferred to the customer. Transfer of control can also occur over time for maintenance and services as the customer receives the benefit over the contract term. The Company's hardware and perpetual software licenses are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses include multiple performance obligations where the term licenses are recognized upfront upon transfer of control, with the associated software

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

maintenance revenue recognized ratably over the contract term as services and software updates are provided. SaaS arrangements have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term as the customer consumes the services. On its product sales, the Company records consideration from shipping and handling on a gross basis within net product sales. Revenue is recorded net of any associated sales taxes.
Significant Judgments
The Company allocates the transaction price for the contract among the performance obligations on a relative standalone selling price basis. The standalone selling price ("SSP") is the price at which an entity would sell a promised product or service separately to a customer. The Company establishes SSP for most of its products and services based on the observable price of the products or services when sold separately in similar circumstances to similar customers. When the SSP is not directly observable, the Company estimates SSP based on management judgment by considering available data such as internal margin objectives, pricing strategies, market/competitive conditions, historical profitability data, as well as other observable inputs. The Company establishes SSP ranges for its products and services and reassesses them periodically.
Judgment is applied in determining the transaction price as the Company may be required to estimate variable consideration when determining the amount of revenue to recognize. Variable consideration may include various rebates, volume-based discounts, cooperative marketing, price protection, and other incentive programs that are offered to customers, partners and distributors. When determining the amount of revenue to recognize, the Company estimates the expected usage of these programs, applying the expected value or most likely estimate and updates the estimate at each reporting period as actual utilization becomes available. The Company also considers the customers' right of return in determining the transaction price, where applicable.
Contract Balances
Accounts receivable and contract assets
A receivable is a right to consideration in exchange for products or services the Company has transferred to a customer that is unconditional. A contract asset is a right to consideration in exchange for products or services transferred to a customer that is conditional on something other than the passage of time. A receivable is recorded when the right to consideration becomes unconditional.
The Company’s contract assets include unbilled receivables which are recorded when the Company recognizes revenue in advance of billings. Unbilled receivables generally relate to services contracts where a service has been performed and control has transferred, but invoicing to the customer is subject to future milestone billings or other contractual payment schedules. The Company classifies unbilled receivables as Accounts receivable.
Contract liabilities
A contract liability is an obligation to transfer products or services to a customer for which the entity has received consideration, or the amount is due, from the customer. The Company’s contract liabilities primarily consist of deferred revenue. Deferred revenue is recorded when amounts invoiced to customers are in excess of revenue that can be recognized because performance obligations have not been satisfied and control of the promised products or services has not transferred to the customer. Deferred revenue largely represents amounts invoiced in advance for product (hardware/software) support contracts, consulting projects and product sales where revenue cannot be recognized yet.
Costs to obtain a contract with a customer
The Company capitalizes the incremental costs of obtaining a contract with a customer, primarily sales commissions, if the Company expects to recover those costs. The Company has elected, as a practical expedient, to expense the costs of obtaining a contract as incurred for contracts with terms of one year or less. The typical amortization periods used range from three to six years. The Company periodically reviews the capitalized sales commission costs for possible impairment losses. Capitalized sales commission costs are included in Other current assets and Long-term financing receivables and other assets, and the related amortization expense is included in Selling, general and administrative expense.
Recent Tax Legislation
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. The Tax Act included significant changes to the U.S. corporate income tax structure, including a federal corporate rate reduction from 35% to 21% effective January 1, 2018, limitations on the deductibility of interest expense and executive compensation, creation of new minimum taxes such as the Base Erosion Anti-abuse Tax (“BEAT”) and the Global Intangible Low Taxed Income (“GILTI”) tax and the transition of U.S.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

international taxation from a worldwide tax system to a modified territorial tax system, which resulted in a one-time U.S. tax liability on those earnings which had not previously been repatriated to the U.S. (the “Transition Tax”).
In December 2017, the U.S. Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118"), which allowed the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date, which for the Company ended in the first quarter of fiscal 2019. In accordance with SAB 118, the accounting for the tax effects of the Tax Act was completed based on currently available legislative updates relating to the Tax Act. The Company has elected to treat taxes due on future GILTI inclusions in U.S. taxable income as a current period expense when incurred. For further details, see Note 6, "Taxes on Earnings".
Recently Adopted Accounting Pronouncements
In March 2017,2020, the Financial Accounting Standards Board ("FASB") amendedFASB issued guidance to provide temporary optional expedients and exceptions through December 31, 2022 to the existingU.S. GAAP guidance on contract modifications and hedge accounting standards for retirement benefits. The amendments requireto ease the presentationfinancial reporting burdens of the service cost component of net periodic benefit cost in the same income statement line items as other employee compensation costs, unless eligible for capitalization. The other components of net periodic benefit costs will be presented separatelyexpected market transition from the service costLondon Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as non-operating costs. Effective at the beginning ofSecured Overnight Financing Rate (SOFR). This guidance was effective upon issuance, as a result the first quarter of fiscal 2019, in connection with the adoption of the accounting standards update for retirement benefits, the Company reflected these changes retrospectively by transferring its non-service net periodic benefit (credit) cost from operating expense to Other (income) and expense in its Condensed Consolidated Statements of Earnings. The net periodic benefit (credit) cost transferred to Other (income) and expense during the three and nine months ended July 31, 2018 were as follows. Refer to Note 5, “Retirement and Post-Retirement Benefit Plans” for additional information.
 Three Months Ended
July 31, 2018
 Nine Months Ended
July 31, 2018
 In millions
Cost of products and services$(14) $(42)
Research and development(1) (3)
Selling, general and administrative(19) (53)
Restructuring charges and transformation costs8
 8
 $(26) $(90)

In November 2016, the FASB amended the existing accounting standards for the classification and presentation of restricted cash in the statement of cash flows. The Company adopted the guidance in the firstsecond quarter of fiscal 2019, beginning November 1, 2018, using the retrospective method. As a result of adopting this accounting standards update, for the nine months ended July 31, 2018, the Company included $43 million of restricted cash movement during the period, which was previously reported within cash used in investing activities, and is now reported within Decrease in cash, cash equivalents and restricted cash in the Company's Condensed Consolidated Statement of Cash Flows.
In October 2016, the FASB amended the existing accounting standards for income taxes. The amendments require the recognition of the income tax consequences for intra-entity transfers of assets other than inventory when the transfer occurs. Prior to the amendments, current and deferred income taxes for intra-entity asset transfers were not recognized until the asset was sold to an outside party or amortized over time. The Company adopted the guidance in the first quarter of fiscal 2019, beginning November 1, 2018, using the modified retrospective method. The Company recognized $2.3 billion of income taxes as an adjustment to retained earnings in the first nine months of fiscal 2019, which was previously reported as prepaid income taxes and deferred tax assets within Corporate and unallocated assets in the Company's allocation of segment assets.
In August 2016, the FASB amended the existing accounting standards for the statement of cash flows. The amendments provide guidance on eight classification issues related to the statement of cash flows. The Company adopted the guidance in the first quarter of fiscal 2019, beginning November 1, 2018, using the retrospective method. For issues that are impracticable to apply retrospectively, the amendments may be applied prospectively as of the earliest date practicable. The application of this accounting standards update did not have an impact on the Condensed Consolidated Statements of Cash Flows.
In January 2016, the FASB issued guidance that requires equity investments with readily determinable fair values (other than those accounted for under the equity method or those that result in consolidation of the investee) to be measured at fair value and recognize any changes in fair value in net income. For equity investments without readily determinable fair values, the Company has elected to apply the measurement alternative, under which investments are measured at cost, less impairment, and adjusted
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

for qualifying observable price changes on a prospective basis. The Company adopted the guidance effective November 1, 2018,2020 and there was no financial impact on the Condensed Consolidated Financial Statements upon adoption.
In May 2014, the FASB amended the existing accounting standards for revenue recognition. The Company adopted the new revenue standard in the first quarter of fiscal 2019 using the modified retrospective method of transition applied to contracts that were not completed as of November 1, 2018. Results and related disclosures for the reporting periods beginning after November 1, 2018 are presented under the new revenue standard, while comparative prior period results and related disclosures are not adjusted and continue to be reported in accordance with the historic accounting standard. Refer to the Revenue Recognition section above for accounting policy updates upon the adoption of the new revenue standard, and Note 7, "Balance Sheet Details" for further discussion on the impact of adoption. For disaggregation of revenue, see Note 2, "Segment Information".
The following table summarizes the effects of adopting the new revenue standard at November 1, 2018 on the Condensed Consolidated Balance Sheets as an adjustment to the opening balance:
 Historical Accounting
Method
 Effect of Adoption As Adjusted
 In millions
Assets     
Accounts receivable$3,263
 $38
 $3,301
Inventory2,447
 (14)
 2,433
Other current assets3,280
 50
 3,330
Long-term financing receivables and other assets11,359
 44
 11,403
Subtotal assets$20,349
 $118
 $20,467
Liabilities     
Taxes on earnings$378
 $10
 $388
Deferred revenue3,177
 (36)
 3,141
Other accrued liabilities(1)
3,840
 52
 3,892
Other non-current liabilities6,885
 (30)
 6,855
Subtotal liabilities$14,280
 $(4) $14,276
Stockholders' equity     
Accumulated deficit(1)
$(5,899) $122
 $(5,777)
Subtotal stockholders' equity$(5,899) $122
 $(5,777)
   Subtotal liabilities and stockholders' equity$8,381
 $118
 $8,499


(1)Includes an adjustment related to the adoption of ASC 606 that was recorded during the third quarter of fiscal 2019.
The application of ASC 606 increased the Company's total net revenue by $23 million and $41 million for the three and nine months ended July 31, 2019, respectively, and did not have a material impact to the Company's cost of sales or operating expenses for the three or nine months ended July 31, 2019. As of July 31, 2019, the balance sheet changes attributable to the impact of ASC 606 were immaterial.
Recently Enacted Accounting Pronouncements
In August 2018, the FASB issued guidance on a customer's accounting for implementation costs incurred in cloud-computing arrangements that are hosted by a vendor. Certain types of implementation costs should be capitalized and amortized over the term of the hosting arrangement. The Company is required to adopt the guidance in the first quarter of fiscal 2021. Early adoption is permitted. The Company is currently evaluating the timing and the impact of these amendments on its Condensed Consolidated Financial Statements.
In August 2018, the FASB issued guidance which changes the disclosure requirements for fair value measurements and defined benefit plans. The Company is required to adopt the guidance in the first quarter of fiscal 2021. Early adoption is permitted. As the guidance represents a change to disclosure only, the Company does not expect the guidance to have a material impact on its Condensed Consolidated Financial Statements.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

In February 2018, the FASB issued guidance that allows companies to reclassify stranded tax effects resulting from the Tax Act,U.S. tax reform, from accumulated other comprehensive income (loss) to retained earnings. The guidance also requires certain new disclosures regardlessallows the reclassification of these stranded tax effects to be recorded upon adoption of the election.guidance rather than at the actual cessation date. The Company is required to adoptadopted the guidance in the first quarter of fiscal 2020. Early adoption is permitted. The Company is currently evaluating the timing2020 and the impactelected not to reclassify prior periods. As a result, $43 million of these amendmentstax benefit was reclassified from accumulated other comprehensive loss into accumulated deficit, primarily comprised of amounts related to currency translation adjustments and net unrealized gains (losses) on its Condensed Consolidated Financial Statements.cash flow hedges.
In August 2017, the FASB amended the existing accounting standards for hedge accounting. The amendments expand an entity’s ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness and requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also simplifies certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. In April 2019, the FASB issued certain clarifications to address partial term fair value hedges, fair value hedge basis adjustments and certain transition requirements. The Company adopted the guidance effective November 1, 2019 and there was no financial impact on the Condensed Consolidated Financial Statements upon adoption.
In February 2016, with amendments in 2018 and 2019, the FASB issued guidance which changes the accounting standards for leases. The Company adopted the guidance in the first quarter of fiscal 2020, beginning November 1, 2019, using the modified retrospective transition method whereby prior comparative periods will not be restated in the Consolidated Financial Statements. Accordingly, results and related disclosures for the reporting periods beginning after November 1, 2019 are presented under the new lease standard, while comparative prior period results and related disclosures are not adjusted and continue to be reported in accordance with the historic accounting standards. The primary objective of this update is to increase transparency and comparability among organizations by requiring lessees to recognize a lease liability and a right-of-use (“ROU”) asset for the lease term. The Company elected the package of practical expedients which did not require the reassessment of prior conclusions related to contracts containing leases, lease classification and initial direct costs ("IDC"). The adoption of the new lease standard on November 1, 2019 resulted in the recognition of $1.0 billion of right-of-use assets and $1.1 billion of lease liabilities on the Company’s Condensed Consolidated Balance Sheet. As a lessor, no transition adjustments were recorded from the adoption of ASC 842.
The adoption of the accounting standard for leases had no impact on the Company's Condensed Consolidated Statements of Earnings and Condensed Consolidated Statements of Cash Flows or debt-covenant compliance under its current agreements. Refer to Note 7 “Accounting for Leases as a Lessee” for accounting policy and additional information.
Recently Enacted Accounting Pronouncements
In March 2020, the FASB issued clarifications relating to its existing guidance on financial instruments. Some clarifications included in this amendment are effective upon issuance and these do not have an impact on HPE’s current accounting practices. For those clarifications which affect the guidance as it relates to the measurement of credit losses, the Company is required to adopt them in the first quarter of fiscal 2021. The Company is currently evaluating the impact of these amendments on its Consolidated Financial Statements.
In January 2020, the FASB issued guidance to clarify certain interactions between the guidance to account for equity securities, the guidance to account for investments under the equity method of accounting, and the guidance to account for derivatives and hedging. The new guidance clarifies the application of measurement alternatives and the accounting for certain forward contracts and purchased options to acquire investments. The Company is required to adopt the guidance in the first quarter of fiscal 2020. Early2022, though early adoption is permitted. The Company is currently evaluating the timing and the impact of these amendments on its Consolidated Financial Statements.
15

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
In December 2019, the FASB amended the existing accounting standards for income taxes. The amendments clarify and simplify the accounting for income taxes by eliminating certain exceptions to the general principles. The Company is required to adopt the guidance in the first quarter of fiscal 2022, though early adoption is permitted. The Company is currently evaluating the timing and the impact of these amendments on its Consolidated Financial Statements.
In August 2018, the FASB issued guidance on a customer's accounting for implementation costs incurred in cloud-computing arrangements that are hosted by a vendor. Certain types of implementation costs should be capitalized and amortized over the term of the hosting arrangement. The Company is required to adopt the guidance in the first quarter of fiscal 2021, though early adoption is permitted. The Company is currently evaluating the impact of these amendments on its Consolidated Financial Statements.
In August 2018, the FASB issued guidance which changes the disclosure requirements for fair value measurements and defined benefit pension plans. The Company is required to adopt the guidance in the first quarter of fiscal 2021, though early adoption is permitted. The Company is currently evaluating the impact of these amendments however, the Company does not expect the guidance to have an impact on its Consolidated Financial Statements.
In June 2016, the FASB amended the existing accounting standards for the measurement of credit losses. The amendments require an entity to estimate its lifetime expected credit loss for most financial instruments, including trade and leasefinancing receivables, and record an allowance for the portion of the amortized cost the entity does not expect to collect. The estimate of expected credit losses should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments. In April 2019, the FASB further clarified the scope of the credit losses standard and addressed issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayment. In May 2019, the FASB issued further guidance to provide entities with an option to irrevocably elect the fair value option applied on an instrument-by-instrument basis for eligible financial instruments. In November 2019, the FASB issued several amendments to the new credit losses standard, including an amendment requiring entities to include certain expected recoveries of the amortized cost basis in the allowance for credit losses for purchased credit deteriorated assets. The Company is required to adopt the guidance in the first quarter of fiscal 2021. Early adoption is permitted beginning in fiscal 2020. The Company is currently evaluating the timing and the impact of these amendments on its Condensed Consolidated Financial Statements.
The FASB issued guidance in February 2016, with amendments in 2018 and 2019, which changes the accounting standards for leases. The amendments require lessees to record, at lease inception, a lease liability for the obligation to make lease payments and a right-of-use ("ROU") asset for the right to use the underlying asset for the lease term on their balance sheets. Lessees may elect to not recognize lease liabilities and ROU assets for most leases with terms of 12 months or less. The lease liability is measured at the present value of the lease payments over the lease term. The ROU asset will be based on the liability, adjusted for lease prepayments, lease incentives received, and the lessee's initial direct costs. For finance leases, lease expense will be the sum of interest on the lease obligation and amortization of the ROU asset, resulting in a front-loaded expense pattern. For operating leases, lease expense will generally be recognized on a straight-line basis over the lease term. The amended lessor accounting model is similar to the current model, updated to align with certain changes to the lessee model and the new revenue standard. The current sale-leaseback guidance, including guidance applicable to real estate, is also replaced with a new model for both lessees and lessors. The Company plans to adopt the guidance in the first quarter of fiscal 2020, beginning November 1, 2019, using the transition method whereby prior comparative periods will not be retrospectively presented in the Consolidated Financial Statements. The Company is currently evaluating the impact of these amendments and other available practical expedients on its Condensed Consolidated Financial Statements.
In April 2019, the FASB amended its standards on recognizing and measuring financial instruments to address the scope of the guidance, the requirement for remeasurement when using the measurement alternative and certain disclosure requirements. The Company is required to adopt the guidance in the first quarter of fiscal 2021. Early adoption is permitted. The Company is currently evaluating the timing and the impact of these amendments and does not expect it to be material on its Condensed Consolidated Financial Statements.
There have been no other significant changes to the Company's accounting policies or recently adopted or enacted accounting pronouncements disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2018.2019.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Note 2: Segment Information
As described in Note 1, "Overview and Summary of Significant Accounting Policies", effective at the beginning of the first quarter of fiscal 2020, the Company implemented certain organizational changes to align its segment financial reporting more closely with its current business structure. Hewlett Packard Enterprise's operations are now organized into four7 segments for financial reporting purposes: Hybrid IT,Compute, HPC & MCS, Storage, A & PS, Intelligent Edge, Financial Services ("FS"), and Corporate Investments. Hewlett Packard Enterprise's organizational structure is based on a number of factors that the Chief Operating Decision Maker ("CODM"), who is the Chief Executive Officer ("CEO"), uses to evaluate, view and run itsthe Company's business operations, which include, but are not limited to, customer base and homogeneity of products and technology. The 7 segments are based on this organizational structure and information reviewed by Hewlett Packard Enterprise's management to evaluate segment results.
A summary description of each segment follows.
Hybrid ITCompute provides. HPE's compute portfolio offers both general purpose servers for multi-workload computing and workload optimized servers. HPE's general purpose servers include HPE ProLiant, secure and versatile rack and tower servers; HPE BladeSystem, a broad portfolio of services-led and software-enabledmodular infrastructure and solutions including secure, software-defined servers, andthat converges server, storage and networking; and HPE PointnextSynergy, a composable infrastructure for traditional and cloud-native applications. The Company's workload optimized server portfolio includes HPE Cloudline for cloud data centers. Compute offerings also include operational services, thereby combining HPE's hardware, software and services capabilities to make Hybrid IT simple for its customers. Described below are the business unit capabilities within Hybrid IT.
Hybrid IT Product includes Compute and Storage.

Compute. To address the full array of our customers' computing needs, HPE's compute portfolio offers both Industry Standard Servers ("ISS"), which are general purpose servers for multi-workload computing, as well as Mission-Critical Servers ("MCS"), which are servers optimized for particular workloads. HPE's general purpose servers include HPE ProLiant, secure and versatile rack and tower servers; HPE BladeSystem, a modular infrastructure that converges server, storage and networking; and HPE Synergy, a composable infrastructure for traditional and cloud-native applications. The Company's workload optimized server portfolio includes HPE Apollo for high performance computing and artificial intelligence, HPE Cloudline for cloud data centers, HPE Edgeline for computing at the network edge, HPE Integrity for mission-critical applications, and HPE SimpliVity, a hyperconverged infrastructure for virtualized workloads.
Storage. With storage offerings that are AI-driven and built for cloud environments, HPE provides the right workload optimized destinations for data. Powered by HPE InfoSight advanced analytics and machine learning and HPE Cloud Volumes data mobility, HPE delivers intelligent storage for hybrid cloud environments so that customers can unlock data's full potential and derive business insights. Key solutions include HPE 3PAR Storage and HPE Nimble Storage all-flash arrays for mission critical workloads and general purpose workloads, respectively, and big data solutions running on HPE Apollo Servers. Storage also provides comprehensive data protection with HPE StoreOnce and HPE Recovery Manager Central, solutions for secondary workloads and traditional tape, storage networking and disk products, such as HPE MSA and HPE XP.

HPE Pointnext creates preferred IT experiences that power the digital business. The HPE Pointnext team and the Company's extensive partner network provide value across the IT life cycle delivering advice, transformation projects, professional services and support services. The Compute support team is also a provider of on-premises flexible consumption models, such as HPE GreenLake.

16

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
High Performance Compute & Mission-Critical Systems. HPE's HPC & MCS portfolio offers workload-optimized servers designed to support specific use cases. The HPC portfolio includes the HPE Apollo and Cray products that are sold as supercomputing systems to support data-intensive workloads for high performance computing, data analytics and artificial intelligence applications. The MCS portfolio includes the HPE Superdome Flex, HPE Nonstop and HPE Integrity product lines for critical applications such as payments and transaction processing that require high availability, fault-tolerant computing infrastructure. The HPC & MCS segment also includes the Edge Compute business which consists of the HPE Moonshot and HPE Edgeline products for computing at the network edge. HPC & MCS offerings also include operational services, transformation projects, professional services and operationalsupport services. HPC & MCS products can also be purchased through on-premises flexible consumption models, such as HPE GreenLake.

Storage. HPE provides workload optimized storage product and service offerings that are AI-driven and built for cloud environments with GreenLake as-a-service consumption and flexible investment options. Powered by HPE InfoSight advanced analytics and machine learning and HPE Cloud Volumes data mobility, HPE delivers intelligent storage for hybrid cloud environments. Key solutions include an intelligent hyperconverged infrastructure (“HCI”) portfolio with HPE Nimble Storage dHCI, a disaggregated HCI solution for the enterprise data center and HPE SimpliVity, a hyperconverged platform for virtualization. The portfolio also includes HPE Primera, HPE Nimble Storage and HPE 3PAR Storage for mission-critical workloads and general purpose workloads, respectively, and big data solutions running on HPE Apollo Servers along with BlueData and MapR technology for expertise in artificial intelligence, machine learning and analytics data management. Storage also provides comprehensive data protection with HPE StoreOnce and HPE Recovery Manager Central, solutions for secondary workloads and traditional tape, storage networking and disk products, such as HPE Modular Storage Arrays ("MSA") and HPE XP.

Advisory and Professional Services provides consultative-led services, for Hybrid IT. HPE Pointnextexpertise and advice, implementation services as well as complex solution engagement capabilities. A & PS experts advise their customers through their digital transformation. A & PS is also a provider of on-premises flexible consumption models, such as HPE GreenLake, that enable IT agility, simplify operations, and align cost to business value. HPE Pointnext offerings include Operational Services, and Advisory and Professional Services.

The
Intelligent Edgebusiness is comprised of enterprise networkinga portfolio of secure edge-to-cloud solutions operating under the Aruba brand that includes wired and wireless local area network "(LAN"), campus and data center switching, software-defined wide-area-networking, security, solutionsand associated services to enable secure connectivity for businesses of any size, offering secure connectivity for campus and branch environments, operating under the Aruba brand.size. The primary business drivers for Intelligent Edge solutions are mobility and the Internet of Things ("IoT").

The HPE Aruba Productproduct portfolio includes wired and wireless local area networkLAN hardware products such as Wi-Fi access points, switches, routers, sensors,sensors. The HPE Aruba software and services portfolio includes software products that includefor cloud-based management, network management, network access control, analytics and assurance, and location services software.
HPE Aruba Services offerssoftware and professional and support services, as well as as-a Service ("aaS") and consumption models for the Intelligent Edge portfolio of products.
Financial Services provides flexible investment solutions, such as leasing, financing, IT consumption, and utility programs and asset management services, for customers that facilitate unique technology deployment models and the acquisition of complete IT solutions, including hardware, software and services from Hewlett Packard Enterprise and others. FS also supports financial solutions for on-premise flexible consumption models, such as HPE GreenLake. In order to provide flexible services and capabilities that support the entire IT life cycle, FS partners with customers globally to help build investment strategies that enhance their business agility and support their business transformation.strategies. FS offers a wide selection of investment solution capabilities for large enterprise customers and channel partners, along with an array of financial options to SMBs and educational and governmental entities.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Corporate Investments includes Hewlett Packard Labs which is responsible for research and development and also hosts certain business incubation projects, and the Communications and Media Solutions ("CMS"), and certain business incubation projects. business.
Segment Policy
There have been no significant changes to the Company's segment accounting policies disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2018,2019, except asfor the organizational changes described in the 'Segment Realignment' section below.Note 1, "Overview and Summary of Significant Accounting Policies".
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 related to corporate and certain global functions, acquisition, disposition and other related charges, transformation costs, amortization of intangible assets, restructuring charges, disaster charges and separation costs.
Segment Realignment
17
Effective at the beginning of the first quarter of fiscal 2019, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes primarily include: (i) the transfer of the data center networking ("DC Networking") business, which was previously reported within the Hybrid IT Product business unit in the Hybrid IT segment, to the HPE Aruba Product and HPE Aruba Services business units within the Intelligent Edge segment; (ii) the transfer of the edge compute business, which was previously reported within the HPE Aruba Product business unit in the Intelligent Edge segment, to the Hybrid IT Product business unit within the Hybrid IT segment; and (iii) the transfer of the CMS business, which was previously reported within the HPE Pointnext business unit in the Hybrid IT segment, to the Corporate Investments segment.
The Company reflected these changes to its segment information retrospectively to the earliest period presented, which primarily resulted in the transfer of net revenue and operating profit for each of the businesses as described above.

These changes had no impact on Hewlett Packard Enterprise's previously reported consolidated net revenue, earnings from operations, net earnings or net earnings per share ("EPS").


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

expense related to corporate and certain global functions, amortization of initial direct costs, amortization of intangible assets, impairment of goodwill, transformation costs, disaster charges (recovery), acquisition, disposition and other related charges.
Segment Operating Results
 Hybrid IT Intelligent Edge Financial
Services
 Corporate
Investments
 Total
 In millions
Three months ended July 31, 2019 
  
  
  
  
Net revenue$5,444
 $758
 $885
 $130
 $7,217
Intersegment net revenue and other105
 4
 3
 
 112
Total segment net revenue$5,549
 $762
 $888
 $130
 $7,329
Segment earnings (loss) from operations$704
 $37
 $77
 $(25) $793
Three months ended July 31, 2018 
  
  
  
  
Net revenue$5,925
 $783
 $922
 $134
 $7,764
Intersegment net revenue and other184
 2
 6
 
 192
Total segment net revenue$6,109
 $785
 $928
 $134
 $7,956
Segment earnings (loss) from operations$624
 $101
 $72
 $(25) $772
Nine months ended July 31, 2019         
Net revenue$16,745
 $2,107
 $2,695
 $373
 $21,920
Intersegment net revenue and other410
 7
 8
 
 425
Total segment net revenue$17,155
 $2,114
 $2,703
 $373
 $22,345
Segment earnings (loss) from operations$2,024
 $66
 $231
 $(82) $2,239
Nine months ended July 31, 2018         
Net revenue$17,649
 $2,132
 $2,721
 $404
 $22,906
Intersegment net revenue and other511
 15
 11
 
 537
Total segment net revenue$18,160
 $2,147
 $2,732
 $404
 $23,443
Segment earnings (loss) from operations$1,787
 $191
 $215
 $(79) $2,114
Segment net revenue and segment operating results were as follows:

 ComputeHPC & MCSStorageA & PSIntelligent EdgeFinancial
Services
Corporate
Investments
Total
 In millions
Three months ended July 31, 2020     
Net revenue$3,246 $632 $1,105 $225 $682 $807 $119 $6,816 
Intersegment net revenue143 17 23 1 2 4 0 190 
Total segment net revenue$3,389 $649 $1,128 $226 $684 $811 $119 $7,006 
Segment earnings (loss) from operations$288 $36 $145 $(4)$59 $65 $(27)$562 
Three months ended July 31, 2019     
Net revenue$3,332 $614 $1,238 $241 $777 $885 $130 $7,217 
Intersegment net revenue68 19 17 1 4 3 0 112 
Total segment net revenue$3,400 $633 $1,255 $242 $781 $888 $130 $7,329 
Segment earnings (loss) from operations$439 $51 $207 $(9)$53 $77 $(25)$793 
Nine months ended July 31, 2020
Net revenue$8,743 $2,012 $3,400 $703 $2,058 $2,494 $364 $19,774 
Intersegment net revenue297 49 64 3 11 9 0 433 
Total segment net revenue$9,040 $2,061 $3,464 $706 $2,069 $2,503 $364 $20,207 
Segment earnings (loss) from operations$699 $118 $516 $(4)$202 $213 $(82)$1,662 
Nine months ended July 31, 2019
Net revenue$10,034 $2,038 $3,878 $738 $2,164 $2,695 $373 $21,920 
Intersegment net revenue259 95 51 5 7 8 0 425 
Total segment net revenue$10,293 $2,133 $3,929 $743 $2,171 $2,703 $373 $22,345 
Segment earnings (loss) from operations$1,086 $241 $705 $(55)$113 $231 $(82)$2,239 
18

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

The reconciliation of segment operating results to Hewlett Packard Enterprise condensed consolidated resultsCondensed Consolidated Financial statements was as follows:
 Three Months Ended
July 31,
Nine Months Ended
July 31,
 2020201920202019
 In millions
Net Revenue:   
Total segments$7,006 $7,329 $20,207 $22,345 
Eliminations of intersegment net revenue(190)(112)(433)(425)
Total Hewlett Packard Enterprise consolidated net revenue$6,816 $7,217 $19,774 $21,920 
(Loss) earnings before taxes:    
Total segment earnings from operations$562 $793 $1,662 $2,239 
Unallocated corporate costs and eliminations(65)(65)(165)(179)
Unallocated stock-based compensation expense(13)(13)(46)(42)
Amortization of initial direct costs(3)0 (9)0 
Amortization of intangible assets(95)(58)(299)(199)
Impairment of goodwill0 0 (865)0 
Transformation costs(357)(170)(646)(302)
Disaster (charges) recovery(2)0 (24)7 
Acquisition, disposition and other related charges(15)(563)(82)(710)
Interest and other, net(71)(70)(158)(139)
Tax indemnification adjustments(30)(134)(86)89 
Non-service net periodic benefit credit28 12 101 45 
Earnings from equity interests27 3 50 21 
Total Hewlett Packard Enterprise consolidated (loss) earnings before taxes$(34)$(265)$(567)$830 
 Three Months Ended
July 31,
 Nine Months Ended
July 31,
 2019 2018 2019 2018
 In millions
Net Revenue:   
  
  
Total segments$7,329
 $7,956
 $22,345
 $23,443
Eliminations of intersegment net revenue and other(112) (192) (425) (537)
Total Hewlett Packard Enterprise condensed consolidated net revenue$7,217
 $7,764
 $21,920
 $22,906
Earnings before taxes: 
  
  
  
Total segment earnings from operations$793
 $772
 $2,239
 $2,114
Unallocated corporate costs and eliminations(65) (49) (179) (169)
Unallocated stock-based compensation expense(13) (14) (42) (64)
Amortization of intangible assets(58) (72) (199) (222)
Restructuring charges
 1
 
 (14)
Transformation costs(170) (126) (302) (491)
Disaster charges
 
 7
 
Acquisition, disposition and other related charges(563) (24) (710) (70)
Separation costs
 2
 
 
Interest and other, net(70) (64) (139) (163)
Tax indemnification adjustments(134) 2
 89
 (1,342)
Non-service net periodic benefit credit12
 26
 45
 90
Earnings from equity interests3
 11
 21
 23
Total Hewlett Packard Enterprise condensed consolidated (loss) earnings from continuing operations before taxes$(265) $465
 $830
 $(308)

Total assets by segment and the reconciliation of segment assets to Hewlett Packard Enterprise consolidated total assets were as follows:
As of
July 31, 2020October 31, 2019
In millions
Compute$17,742 $14,066 
HPC & MCS6,466 6,819 
Storage7,776 7,214 
A & PS625 440 
Intelligent Edge3,918 3,318 
Financial Services14,767 14,700 
Corporate Investments580 461 
Corporate and unallocated assets6,365 4,785 
Total Hewlett Packard Enterprise consolidated assets$58,239 $51,803 






19

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Net revenue by segment and business unit was as follows:
 Three Months Ended
July 31,
 Nine Months Ended
July 31,
 2019 2018 2019 2018
 In millions
Hybrid IT       
Hybrid IT Product       
Compute$3,151
 $3,569
 $9,646
 $10,350
Storage844
 887
 2,761
 2,747
Total Hybrid IT Product3,995
 4,456
 12,407
 13,097
HPE Pointnext1,554
 1,653
 4,748
 5,063
Total Hybrid IT5,549
 6,109
 17,155
 18,160
Intelligent Edge       
HPE Aruba Product668
 703
 1,842
 1,914
HPE Aruba Services94
 82
 272
 233
Total Intelligent Edge762
 785
 2,114
 2,147
Financial Services888
 928
 2,703
 2,732
Corporate Investments130
 134
 373
 404
Total segment net revenue7,329
 7,956
 22,345
 23,443
Eliminations of intersegment net revenue and other        (112) (192) (425) (537)
Total Hewlett Packard Enterprise condensed consolidated net revenue(1)
$7,217
 $7,764
 $21,920
 $22,906

(1)Revenue from leasing arrangements within Financial Services and Eliminations of intersegment net revenue and other are not subject to the new revenue standard.

The Company’s net revenue by geographic regionsregion was as follows:
Three Months Ended July 31,Nine Months Ended July 31,
2020201920202019
In millions
Americas:
United States$2,362 $2,435 $6,586 $7,120 
Americas excluding U.S.395 475 1,273 1,462 
Total Americas2,757 2,910 7,859 8,582 
Europe, Middle East and Africa2,448 2,614 7,206 8,251 
Asia Pacific and Japan1,611 1,693 4,709 5,087 
Total Hewlett Packard Enterprise consolidated net revenue$6,816 $7,217 $19,774 $21,920 
 Three Months Ended July 31, Nine Months Ended July 31,
 2019 2018 2019 2018
 In millions
Americas$2,910
 $3,153
 $8,582
 $9,053
Europe, Middle East and Africa2,614
 2,783
 8,251
 8,407
Asia Pacific and Japan1,693
 1,828
 5,087
 5,446
Total Hewlett Packard Enterprise condensed consolidated net revenue(1)
$7,217
 $7,764
 $21,920
 $22,906

Note 3: Transformation Programs
Transformation programs are comprised of the cost optimization and prioritization plan, and the HPE Next Initiative.
On May 19, 2020, the Board of Directors of HPE (the "Board") approved the cost optimization and prioritization plan which focuses on realigning the workforce to areas of growth while simplifying and evolving its product portfolio strategy, go-to-market configurations, supply chain structures, digital customer support model, marketing experiences, and real estate strategies. This plan is expected to be implemented through fiscal year 2022 during which time the Company expects to incur expenses as a result of changes to the Company’s workforce, business model and business process.
The HPE Next initiative is expected to be implemented through fiscal year 2021 during which time the Company expects to incur expenses predominantly related to streamlining, upgrading and simplifying back-end operations, IT infrastructure and real estate initiatives. These costs are expected to be partially offset by gains from real estate sales.
Transformation Costs
During the three and nine months ended July 31, 2020, the Company incurred $238 million of charges related to the cost optimization and prioritization planwhich is recorded within Transformation costs in the Condensed Consolidated Statements of Earnings, the components of which were as follows:
Three and nine months ended July 31,
2020
In millions
Program management(1)
$14
IT Costs4
Restructuring charges220
Total$238


(1)Revenue from leasing arrangements within Financial Services and Eliminations of intersegment net revenue and other are not subject to the new revenue standard.
(1)Primarily consists of consulting fees and other direct costs attributable to the design and implementation of the cost optimization and prioritization plan.
Note 3: Restructuring
20
Summary of Restructuring Plans
On September 14, 2015, former Parent's Board of Directors approved a restructuring plan (the "2015 Plan") in connection with the Separation. On May 23, 2012, former Parent adopted a multi-year restructuring plan (the "2012 Plan") designed to simplify business processes, accelerate innovation and deliver better results for customers, employees and stockholders. As of October 31, 2018, the 2015 and 2012 Plans were complete.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Restructuring Activity
In connection with the 2015 and 2012 Plans, a restructuring credit of $1 million and restructuring charges of $14 million were recorded by the Company forDuring the three and nine months ended July 31, 2018,2020, the Company incurred $119 million and $408 million respectively, based on restructuring activities impacting the Company's employees and infrastructure. For details on restructuringof net charges relatedrelating to HPE Next see Note 4, "HPE Next".
Restructuring activities related to the Company's employees and infrastructure for the 2015 and 2012 Plans are presented in the table below:
 2015 Plan 2012 Plan  
 
Employee
Severance
 
Infrastructure
and other
 
Employee
Severance
and EER
 
Infrastructure
and other
 Total
 In millions
Liability as of October 31, 2018$62
 $10
 $11
 $1
 $84
Cash payments(25) (2) (5) 
 (32)
Liability as of July 31, 2019$37
 $8
 $6
 $1
 $52
Total costs incurred to date, as of July 31, 2019$751
 $78
 $1,268
 $145
 $2,242
Total costs expected to be incurred, as of July 31, 2019$751
 $78
 $1,268
 $145
 $2,242

The current restructuring liabilities related to the plans in the table above, reported in Accrued restructuringwhich were recorded within Transformation costs in the Condensed Consolidated Balance Sheets at July 31, 2019 and October 31, 2018, were $33 million and $53 million, respectively. The non-current restructuring liabilities related to the plans in the table above, reported in Other non-current liabilities in the Condensed Consolidated Balance Sheets at July 31, 2019 and October 31, 2018, were $19 million and $31 million, respectively.
Note 4: HPE Next
Transformation Costs
The HPE Next initiative is expected to be implemented through fiscal 2020, during which time the Company expects to incur expenses for workforce reductions, to upgrade and simplify its IT infrastructure, and for other non-labor actions. These costs will be partially offset by proceeds received from real estate sales.
In association with the HPE Next initiative, duringStatements of Earnings. During the three and nine months ended July 31, 2019, the Company incurred $172 million and $310 million of net charges, of which $170 million and $302 million were recorded within Transformation costs, and $2 million and $8 million were recorded within Non-service net periodic benefit credit, in the Condensed Consolidated Statements of Earnings, respectively. During the three and nine months ended July 31, 2018, the Company incurred $131 million and $499 million of net charges, of which $126 million and $491 million were recorded within Transformation costs, and $5 million and $8 million were recorded within Non-service net periodic benefit credit, in the Condensed Consolidated Statements of Earnings, respectively.
 Three months ended July 31,Nine months ended July 31,
2020201920202019
 In millions
Program management(1)
$10 $3 $28 $23 
IT costs25 41 71 94 
Restructuring charges84 92 332 143 
(Gain) loss on real estate sales(7)8 (44)1 
Impairment on real estate assets0 19  19 
Other7 9 21 30 
Total$119 $172 $408 $310 
 Three months ended July 31, Nine months ended July 31,
 2019 2018 2019 2018
 In millions
Program management(1)
$3
 $28
 $23
 $82
IT costs41
 38
 94
 107
Restructuring charges(2)
92
 129
 143
 385
Loss (gain) on real estate sales8
 (77) 1
 (114)
Impairment on real estate assets19
 
 19
 
Other(3)
9
 13
 30
 39
Total$172
 $131
 $310
 $499
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(1)Primarily consists of consulting fees and other direct costs attributable to the design and implementation of the HPE Next initiative.
(2)For the three and nine months ended July 31, 2019 and 2018, a portion of these costs were recorded in Non-service net periodic benefit credit in the Condensed Consolidated Statements of Earnings as described above.
(3)Primarily consists of site relocation costs in connection with the HPE Next initiative.
(1)Primarily consists of consulting fees and other direct costs attributable to the design and implementation of the HPE Next initiative.
Restructuring Plan
On May 19, 2020, the Company's Board of Directors approved a restructuring plan in connection with the cost optimization and prioritization plan. The changes to the workforce will vary by country, based on business needs, local legal requirements and consultations with employee works councils and other employee representatives, as appropriate.

On October 16, 2017, the Company's Board of Directors approved a restructuring plan in connection with the HPE Next initiative (the "HPE("the HPE Next Plan") and on September 20, 2018, the Company's Board of Directors approved a revision to that restructuring plan. As a result of the revision to the plan, cost amounts and total headcount exits were revised and the completion of the workforce reductions was extended to fiscal year 2020. The changes to the workforce will vary by country, based on business needs, local legal requirements and consultations with employee work councils and other employee representatives, as appropriate.
 Employee
Severance
 Infrastructure
and other
 In millions
Liability as of October 31, 2018$291
 $33
Charges115
 28
Cash payments(209) (20)
Non-cash items(9) (9)
Liability as of July 31, 2019$188
 $32
Total costs incurred to date, as of July 31, 2019$881
 $89
Total costs expected to be incurred, as of July 31, 2019$1,200
 $180

Cost Optimization and Prioritization PlanHPE Next Plan
 Employee
Severance
Infrastructure
and other
Employee
Severance
Infrastructure
and other
In millionsIn millions
Liability as of October 31, 2019$0 $0 $178 $42 
Charges220 0 266 66 
Cash payments0 0 (297)(35)
Non-cash items0 0 5 (24)
Liability as of July 31, 2020$220 $0 $152 $49 
Total costs incurred to date, as of July 31, 2020$220 $0 $1,186 $192 
Total costs expected to be incurred, as of July 31, 2020$800 $180 $1,200 $200 
As of July 31, 20192020 and October 31, 2018,2019, the current restructuring liability related to the HPE Next Plan,transformation programs, reported in Accrued restructuring in the Condensed Consolidated Balance Sheets, was $190$366 million and $241$164 million, respectively. The non-current restructuring liability related to the HPE Next Plan,transformation programs, reported in Other non-current liabilities in the Condensed Consolidated Balance Sheets as of July 31, 20192020 and October 31, 20182019 was $30$55 million and $83$56 million, respectively.
21

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Note 5:4: Retirement and Post-Retirement Benefit Plans
The Company's net pension benefit cost for defined benefit plans recognized in the Condensed Consolidated Statements of Earnings for the three and nine months ended July 31, 2019 and 2018, was as follows:
 Three months ended July 31,Nine months ended July 31,
 2020201920202019
 In millions
Service cost$23 $21 $69 $63 
Interest cost(1)
35 54 106 165 
Expected return on plan assets(1)
(133)(126)(402)(386)
Amortization and deferrals(1):
   
Actuarial loss65 59 194 176 
Prior service benefit(3)(4)(10)(12)
Net periodic benefit (credit) cost(13)4 (43)6 
Settlement loss(1)
7 4 8 10 
Special termination benefits(1)
0 1 1 2 
Net benefit (credit) cost$(6)$9 $(34)$18 
 Three months ended July 31, Nine months ended July 31,
 2019 2018 2019 2018
 In millions
Service cost$21
 $26
 $63
 $79
Interest cost(1)
54
 55
 165
 168
Expected return on plan assets(1)
(126) (139) (386) (423)
Amortization and deferrals(1):
 
  
    
Actuarial loss59
 52
 176
 158
Prior service benefit(4) (4) (12) (12)
Net periodic benefit cost (credit)4
 (10) 6
 (30)
Settlement loss(1)
4
 9
 10
 11
Special termination benefits(1)
1
 1
 2
 5
Net benefit cost (credit)$9
 $
 $18
 $(14)

(1)
(1)These non-service components of net periodic benefit cost were included in Non-service net periodic benefit credit in the Condensed Consolidated Statements of Earnings.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)of Earnings.
(Unaudited)

Net benefit cost for the Company's post-retirement benefit plans was not material for the three and nine months ended July 31, 2019 and 2018.
Note 6:5: Taxes on Earnings
Provision for Taxes
The Company's effective tax rate was 89.8%126.5% and 2.8%89.8% for the three months ended July 31, 20192020 and 2018,2019, respectively, and 31.4%15.5% and 1,003.9%31.4% for the nine months ended July 31, 20192020 and 2018,2019, respectively. The effective tax rates for the three and nine months ended July 31, 20192020 were impacted by income tax benefits resulting from tax rate changes and 2018differed from the statutory tax rate due to favorable tax rates associated with certain earnings from the Company’s operations in lower tax jurisdictions throughout the world. The effective tax rate for the nine months ended July 31, 2020 also included the effects of the non-deductible goodwill impairment. The effective tax rates for the three and nine months ended July 31, 2019 were significantly impacted by the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) and the settlement of certain pre-Separation tax liabilities of HP Inc. The Company's effective tax rate is based on forecasted annual results which may fluctuate significantly through the remainder of fiscal 2020 due to the uncertain economic impact of COVID-19 on the Company's operating results.
For the three and nine months ended July 31, 2020, the Company recorded $86 million and $253 million of net income tax benefits, respectively, related to various items discrete to the period. For the three months ended July 31, 2020, the amount primarily included $72 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges and $30 million of income tax benefits related to tax rate changes on deferred taxes. For the nine months ended July 31, 2020, the amount primarily included $120 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges, $57 million of income tax benefits related to Indian distribution tax rate changes, $56 million of income tax benefits related to the change in pre-Separation tax liabilities for which the Company shares joint and several liability with HP Inc. and for which the Company is indemnified by HP Inc., and $30 million of income tax benefits related to tax rate changes on deferred taxes.
For the three and nine months ended July 31, 2019, the Company recorded $303 million of net income tax benefits and $80 million of net income tax charges, respectively, related to various items discrete to the period. For the three months ended July 31, 2019, this amount primarily included $308 million of income tax benefits predominantly related to the change in pre-Separation tax liabilities as a result of the effective settlement of the U.S. federal income tax audit of fiscal years 2013 through 2015 for HP Inc. for which the Company sharesshared joint and several liability and for which the Company is partially indemnified by HP Inc. under the Tax Matters Agreement and $18 million of net income tax benefits on transformation costs, and acquisition, disposition and other related charges, partially offset by $19 million of income tax charges related to uncertain tax reserves pertaining to separation activities and $14 million of income tax charges related to
22

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
changes in U.S. state valuation allowances as a result of impacts of the Tax Act. For the nine months ended July 31, 2019, the amount primarily included $365 million of income tax charges related to changes in U.S. federal and state valuation allowances as a result of impacts of the Tax Act, $40 million of income tax charges related to future withholding tax costs on distributions of earnings, and $19 million of income tax charges related to uncertain tax reserves pertaining to separation activities, partially offset by $264 million of income tax benefits related to the change in pre-Separation tax liabilities for which the Company sharesshared joint and several liability with HP Inc. and for which the Company is partially indemnified by HP Inc. under the Tax Matters Agreement,, and $75 million of income tax benefits on transformation costs, and acquisition, disposition and other related charges.
ForOn March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted into law in response to COVID-19. The CARES Act, among other things, provides tax relief to businesses, including the deferral of certain payroll taxes, relief for retaining employees, and other income tax provisions. In addition to the CARES Act, governments around the world are also enacting comparable legislation to address COVID-19 economic impacts. The effects of these legislative changes were not material to the Condensed Consolidated Financial Statements for the three and nine months ended July 31, 2018, the Company recorded $68 million and $3.3 billion of net income tax benefits, respectively, related to various items discrete to the period. For the three months ended July 31, 2018, this amount primarily included $38 million of income tax benefits from the release of non-U.S. valuation allowances on deferred tax assets following changes in foreign tax laws, $33 million of net income tax benefits for impacts related to U.S. tax reform and $26 million of net excess tax benefits related to stock-based compensation, partially offset by $7 million of income tax charges related to tax indemnification with HP Inc. For the nine months ended July 31, 2018, this amount primarily included $2.0 billion of income tax benefits for the effects of the settlement of certain pre-Separation Hewlett-Packard Company income tax liabilities, $713 million of net income tax benefits for impacts related to U.S. tax reform, $228 million of income tax benefits from foreign tax credits and from the release of non-U.S. valuation allowances on deferred tax assets and liabilities established in connection with the Everett Transaction following changes in foreign tax laws, $203 million of income tax benefits related to the liquidation of an insolvent non-U.S. subsidiary, $74 million of net income tax benefits on restructuring charges, separation costs and acquisition, disposition, and other related charges, $68 million of net excess tax benefits related to stock-based compensation, and $38 million of income tax benefits from the release of non-U.S. valuation allowances on deferred tax assets following changes in foreign tax laws.
Recent Tax Legislation
The Tax Act required the Company to incur a one-time Transition Tax on deferred foreign income not previously subject to U.S. income tax at a rate of 15.5% for foreign cash and certain other net current assets and 8% on the remaining income. The GILTI and BEAT provisions of the Tax Act became effective for the Company beginning November 1, 2018.
The Company has an October 31 fiscal year end; therefore, the lower corporate tax rate enacted by the Tax Act was phased in, resulting in a U.S. statutory federal rate of 23.3% for the fiscal year ending October 31, 2018 and 21% for the current and subsequent fiscal years.
The Company completed its accounting for the tax effects of the Tax Act based on currently available legislative and regulatory updates in the first quarter of fiscal 2019, resulting in an additional tax charge of $426 million. This amount includes $438 million of income tax charges relating to additional valuation allowances against certain U.S. federal deferred tax assets, $56 million of income tax benefits resulting from the release of valuation allowances against certain U.S. state deferred tax assets, an additional $7 million of Transition Tax and $37 million of income tax charges related to future withholding tax costs on distributions of
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

earnings. No cash payment is anticipated due to the availability of sufficient tax credits to offset the Transition Tax. The Company has elected to treat taxes due on future GILTI inclusions in U.S. taxable income as a current period expense when incurred.2020.
Uncertain Tax Positions
As of July 31, 20192020 and October 31, 2018,2019, the amount of unrecognized tax benefits was $2.6$2.2 billion and $8.8$2.3 billion, respectively, of which up to $0.8 billion$711 million and $1.1 billion,$772 million, respectively, would affect the Company's effective tax rate if realized as of their respective periods. The Company is joint and severally liable for certain pre-Separation tax liabilities of HP Inc. HP Inc. is subject to numerous ongoing audits by state and foreign tax authorities. During the nine months ended July 31, 2019, HP Inc. effectively settled with the IRS on pre-Separation Hewlett-Packard Company audits for fiscal years 2013 through 2015, for which the Company had been joint and severally liable, primarily contributing to the reduction in the Company's unrecognized tax benefits of $6.2 billion.
The Company recognizes interest income from favorable settlements and interest expense and penalties accrued on unrecognized tax benefits in (Benefit) provisionBenefit (provision) for taxes in the Condensed Consolidated Statements of Earnings. The Company recognized $13 million of interest expense and $43 million of interest income for the three months ended July 31, 2020 and 2019, respectively, and $12 million of interest income for each of the nine months ended July 31, 2020 and 2019. As of July 31, 20192020 and October 31, 2018,2019, the Company has recorded $130had $117 million and $142$129 million, respectively, recorded for interest and penalties in the Condensed Consolidated Balance Sheets.
The Company engages in continuous discussions and negotiations with taxingtax authorities regarding tax matters in various jurisdictions. The Company does not expect complete resolution of any audit cycle within the next 12 months. However, it is reasonably possible that certain federal, foreign and state tax issues may be concluded in the next 12 months, including issues involving transfer pricing,intercompany transactions, joint and several tax liabilities and other matters. Accordingly, the Company believes it is reasonably possible that its existing unrecognized tax benefits may be reduced by an amount up to $40$105 million within the next 12 months, of which $7 million would affect the Company’s effective tax rate if realized.months.
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities included in the Condensed Consolidated Balance Sheets were as follows:
 As of
 July 31, 2019 October 31, 2018
 In millions
Deferred tax assets$1,657
 $2,403
Deferred tax liabilities(278) (228)
Deferred tax assets net of deferred tax liabilities$1,379
 $2,175

 As of
 July 31, 2020October 31, 2019
 In millions
Deferred tax assets$1,705 $1,515 
Deferred tax liabilities(282)(311)
Deferred tax assets net of deferred tax liabilities$1,423 $1,204 
Tax Matters Agreement with HP Inc., and Other Income Tax Matters
In connection withOn October 30, 2019, the Separation, the Company and HP Inc. entered into a Termination and Mutual Release Agreement and terminated the Tax Matters Agreement. Under the Termination and Mutual Release Agreement, with HP Inc. In connection withagreed to pay $300 million of which $200 million was paid in fiscal 2019 and $50 million was paid in the Everett and Seattle Transactions,third quarter of fiscal 2020. The Company expects to receive the Company entered into a DXC Tax Matters Agreement with DXC and a Micro Focus Tax Matters Agreement with Micro Focus, respectively. For more details, see the Company's Annual Report on Form 10-K for theremaining $50 million in fiscal year ended October 31, 2018.2021.
23

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Note 7:6: Balance Sheet Details
Balance sheet details were as follows:
Cash, and cash equivalents and restricted cash
As of
July 31, 2020October 31, 2019
In millions
Cash and cash equivalents$8,465 $3,753 
Restricted cash(1)
472 323 
Total$8,937 $4,076 
 As of
 July 31, 2019 October 31, 2018
 In millions
Cash and cash equivalents$3,693
 $4,880
Restricted cash318
 204
Cash, cash equivalents and restricted cash$4,011
 $5,084

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Inventory
 As of
 July 31, 2019 October 31, 2018
 In millions
Finished goods$1,225
 $1,274
Purchased parts and fabricated assemblies991
 1,173
Total$2,216
 $2,447

For the nine months ended July 31, 2019, the decrease in inventory was due primarily to lower commodity costs and slower inventory replenishment as a result of improved market supply availability for key commodities.
Other Current Assets
 As of
 July 31, 2019 October 31, 2018
 In millions
Value-added tax receivables$630
 $811
Short-term tax receivables and prepaid taxes225
 535
Manufacturer and other receivables619
 937
Prepaid and other current assets832
 793
Restricted cash318
 204
Total$2,624
 $3,280

For the nine months ended July 31, 2019, the decrease(1) The Company includes restricted cash in Other current assets was due primarily to a decrease in short-term tax receivables and prepaid taxes following the adoption of the new accounting standard related to income taxes in the first quarter of fiscal 2019, a decrease in manufacturer and other receivables as a result of lower collateral receivables and lower receivables from contract manufacturers, and a decrease in value-added tax receivables.accompanying Condensed Consolidated Balance Sheets.
Inventory
 As of
 July 31, 2020October 31, 2019
 In millions
Finished goods$1,463 $1,198 
Purchased parts and fabricated assemblies2,006 1,189 
Total$3,469 $2,387 
Property, Plant and Equipment
As of As of
July 31, 2019 October 31, 2018 July 31, 2020October 31, 2019
In millions In millions
Land$293
 $294
Land$94 $241 
Buildings and leasehold improvements2,157
 2,103
Buildings and leasehold improvements1,948 2,196 
Machinery and equipment, including equipment held for lease9,460
 9,419
Machinery and equipment, including equipment held for lease9,719 9,464 
11,910
 11,816
11,761 11,901 
Accumulated depreciation(5,910) (5,678)Accumulated depreciation(6,052)(5,847)
Total$6,000
 $6,138
Total$5,709 $6,054 

Notes Payable and Short-Term Borrowings
 As of
 July 31, 2019 October 31, 2018
 In millions
Current portion of long-term debt$1,180
 $1,196
FS commercial paper671
 392
Notes payable to banks, lines of credit and other(1)
356
 417
Total$2,207
 $2,005

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(1)As of July 31, 2019 and October 31, 2018, notes payable to banks, lines of credit and other includes $228 million and $361 million, respectively, of borrowing associated with FS and its subsidiaries.
Warranties
The Company's aggregate product warranty liability as of July 31, 2019,2020, and changes during the nine months then ended were as follows:
 Nine Months Ended
July 31, 2019
 In millions
Balance at beginning of period$430
Accruals for warranties issued178
Adjustments related to pre-existing warranties6
Settlements made(212)
Balance at end of period$402

Nine Months Ended
July 31, 2020
In millions
Balance at beginning of period$400
Charges180
Adjustments related to pre-existing warranties1
Settlements made(188)
Balance at end of period$393
Contract balances
The Company’s contract balances consist of contract assets, contract liabilities, and costs to obtain a contract with a customer.
24

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
July 31, 2020October 31, 2019
In millions
Accounts receivable, net
Accounts receivable$2,700 $2,782 
Unbilled receivables198 206 
Allowance for doubtful accounts(42)(31)
Total$2,856 $2,957 
 As of
 July 31, 2019 October 31, 2018
 In millions
Accounts receivable, net   
Accounts receivable$2,786
 $3,117
Unbilled receivables210
 185
Allowance for doubtful accounts(31) (39)
Total$2,965
 $3,263


The Company has third-party revolving short-term financing arrangements intended to facilitate the working capital requirements of certain customers. During the three and nine months ended July 31, 2020, the Company sold $1.0 billion and $2.8 billion of trade receivables, respectively. During the twelve months ended October 31, 2019, the Company sold $4.5 billion of trade receivables. The Company recorded an obligation of $154 million and $80 million in Notes payable and short-term borrowings in its Condensed Consolidated Balance Sheets as of July 31, 2020 and October 31, 2019 respectively, related to the trade receivables sold and collected from the third-party for which the revenue recognition was deferred.
Contract Liabilities
Contract liabilities consist of deferred revenue. The aggregate balancesbalance of current and non-current deferred revenue were $5.9was $6.1 billion and $5.8$6.0 billion as of July 31, 20192020 and October 31, 2018, respectively, which included $96 million and $82 million of deferred revenue related to FS,2019, respectively. During the nine months ended July 31, 2019,2020, approximately $5.1$2.7 billion of the deferred revenue as of October 31, 2019 was recognized as revenue.
Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents contract work that has not yet been performed and does not include contracts where the customer is not committed. Remaining performance obligations estimates are subject to change and are affected by several factors, including contract terminations, changes in the scope of contracts, adjustments for revenue that has not materialized and adjustments for currency.
Remaining performance obligations consist of deferred revenue. As of July 31, 2019,2020, the aggregate amount of remaining performance obligations was $5.9$6.1 billion. The Company expects to recognize approximately 22%21% of this amount as revenue over the remaining fiscal year.
Costs to Obtain a Contract
As of July 31, 2020, the current and non-current portions of the capitalized costs to obtain a contract were $52 million and $74 million, respectively. As of October 31, 2019, the current and non-current portions of the capitalized costs to obtain a contract were $46$49 million and $69$74 million, whichrespectively. The current and non-current portions of the capitalized costs to obtain a contract were included in Other current assets and Long-term financing receivables and other assets, respectively, in the Condensed Consolidated Balance Sheet. DuringFor the three and nine months ended July 31, 2020, the Company amortized $15 million and $43 million, respectively, of capitalized costs to obtain a contract. For the three and nine months ended July 31, 2019, the Company amortized $12 million and $34 million, respectively, of thecapitalized costs to obtain a contract. The amortized capitalized costs to obtain a contract respectively.are included in Selling, general and administrative expense in the Condensed Consolidated Statement of Earnings.
Note 7: Accounting for Leases as a Lessee
The Company enters into various leases as a lessee for assets including office buildings, vehicles, aviation and equipment. The Company determines if an arrangement is a lease at inception. An arrangement contains a lease when the arrangement conveys the right to control the use of an identified asset over the lease term. Upon lease commencement, the Company records a lease liability for the obligation to make lease payments and a ROU asset for the right to use the underlying asset for the lease term in the Condensed Consolidated Balance Sheet. The lease liability is measured at commencement date based on the present value of the minimum lease payments not yet paid over the lease term and the Company’s incremental borrowing rate. As most of the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing
25

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
rate which approximates the rate at which the Company would borrow, on a secured basis, in the country where the lease was executed. The ROU asset is based on the lease liability, adjusted for lease prepayments, lease incentives received, and the lessee's initial direct costs. Fixed payments are included in the recognition of ROU assets and liabilities, while variable lease payments, such as maintenance or utility charges are expensed as incurred. The Company has agreements with lease and non-lease components that are accounted for separately and not included in its leased assets and corresponding liabilities for the majority of the Company’s lease agreements. The Company allocates consideration to the lease and non-lease components using their relative standalone values.
For finance leases, the ROU asset is amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term. Interest expense on the lease liability is recorded separately using the interest method. For operating leases, lease expense is generally recognized on a straight-line basis over the lease term.
Components of lease cost included in the Condensed Consolidated Statement of Earnings were as follows:
Three Months Ended July 31, 2020Nine Months Ended July 31, 2020
In millions
Operating lease cost$61 $180 
Finance lease cost2 6 
Sublease rental income(14)(46)
Total lease cost$49 $140 
During the nine months ended July 31, 2020, the Company recorded $41 million of net gain from a sale and leaseback transaction. During the three months ended July 31, 2020, the Company recorded $1 million gain from a sale and leaseback transaction.
26

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The ROU assets and lease liabilities for operating and finance leases included on the Hewlett Packard Enterprise Condensed Consolidated Balance Sheet were as follows:
Balance Sheet ClassificationAs of
July 31, 2020
In millions
Operating Leases
ROU AssetsLong-term financing receivables and other assets$977
Lease Liabilities:
Operating lease liabilities – currentOther accrued liabilities$187
Operating lease liabilities – non-currentOther non-current liabilities902
Total operating lease liabilities$1,089
Finance Leases
Finance lease ROU Assets:Property, plant and equipment
Gross finance lease ROU assets$52
Less: Accumulated depreciation(3)
Net finance lease ROU assets$49
Lease Liabilities:
Finance lease liabilities – currentNotes payable and short-term borrowings$4
Finance lease liabilities – non-currentLong-term debt54
Total finance lease liabilities$58
Total ROU assets$1,026
Total lease liabilities$1,147
The weighted-average remaining lease term and the weighted-average discount rate for the operating and finance leases were as follows:
As of July 31, 2020
Operating LeasesFinance Leases
Weighted-average remaining lease term (in years)7.19.8
Weighted-average discount rate2.7 %3.5 %
Supplemental cash flow information related to leases was as follows:
Cash Flow Statement ActivityNine Months Ended
July 31, 2020
In millions
Cash outflows from operating leasesNet cash used in operating activities$178
ROU assets obtained in exchange for new operating lease liabilitiesNon-cash activities$214
27

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The following tables shows the future payments on the Company's operating and finance leases:
As of
July 31, 2020
Operating LeasesFinance Leases
Fiscal yearIn millions
Remainder of fiscal 2020$57 $2 
2021199 6 
2022179 6 
2023161 7 
2024138 7 
Thereafter447 41 
Total future lease payments$1,181 $69 
Less: imputed interest(92)(11)
Total lease liabilities$1,089 $58 

As of July 31, 2020, the Company entered into $212 million of operating leases that have not yet commenced and are not yet recorded on the Condensed Consolidated Balance Sheet. These operating leases are scheduled to commence between remainder of Fiscal 2020 and 2022 and contain lease terms of 5 to 15 years.
Prior to the adoption of the new lease standard, the future minimum lease commitments on the Company's operating and finance leases were:
As of October 31, 2019
Operating LeasesFinance Leases
In millions
Fiscal year
2020$233 $6 
2021187 6 
2022164 7 
2023149 6 
2024127 7 
Thereafter541 41 
Total$1,401 $73 

Note 8: Accounting for Leases as a Lessor
The Company’s lease offerings are non-cancelable and the payment schedule primarily consists of fixed payments. Variable payments that are based on an index are included in lease receivables. The Company allocates consideration amongst lease components and non-lease components on a relative standalone selling price basis, when lease arrangements include multiple performance obligations. At the end of the lease term, the Company allows the client to either return the equipment, purchase the equipment or renew the lease based on mutually agreed upon terms.
The Company retains a residual position in equipment through lease and finance agreements which is equivalent to an estimated market value. The residual amount is established prior to lease inception, based upon estimated equipment values at end of lease using product road map trends, historical analysis, future projections and remarketing experience. The Company’s residual amounts are evaluated at least annually to assess the appropriateness of our carrying values. Any anticipated declines in specific future residual values that are considered to be other-than-temporary would be recorded in current earnings. The Company is able to optimize the recovery of residual values by selling equipment in place, extending lease arrangements on a fixed term basis, entering into a monthly usage rental term beyond the initial lease term, and selling lease returned equipment in the secondary market. The contractual lease agreement also identifies return conditions that ensures the leased equipment will
28

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
be in good operating condition upon return minus any normal wear and tear. During the residual review process, product changes, product updates, as well as market conditions are reviewed and adjustments if other than temporary are made to residual values in accordance with the impact of any such changes. The remarketing sales organization closely manages the sale of equipment lease returns to optimize the recovery of outstanding residual by product.
Financing Receivables and Operating Leases
Financing receivables represent sales-type and direct-financing leases of the Company and third-party products. The net investment in the lease is measured as the sum of the present value of lease receivable, the estimated unguaranteed residual value of the equipment less unearned income and allowance for credit losses. 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 components of financing receivables were as follows:
 As of
 July 31, 2020October 31, 2019
 In millions
Minimum lease payments receivable$9,435 $9,070 
Unguaranteed residual value368 336 
Unearned income(760)(754)
Financing receivables, gross9,043 8,652 
Allowance for doubtful accounts(142)(131)
Financing receivables, net8,901 8,521 
Less: current portion(1)
(3,797)(3,572)
Amounts due after one year, net(1)
$5,104 $4,949 
 As of
 July 31, 2019 October 31, 2018
 In millions
Minimum lease payments receivable$9,009
 $8,691
Unguaranteed residual value322
 297
Unearned income(765) (732)
Financing receivables, gross8,566
 8,256
Allowance for doubtful accounts(133) (120)
Financing receivables, net8,433
 8,136
Less: current portion(1)
(3,567) (3,396)
Amounts due after one year, net(1)
$4,866
 $4,740

(1)The Company includes the current portion in Financing receivables, and amounts due after one year, net in Long-term financing receivables and other assets, in the accompanying Condensed Consolidated Balance Sheets.
(1)The Company includes the current portion in Financing receivables, net of allowance for doubtful accounts, and amounts due after one year, net in Long-term financing receivables and other assets, in the accompanying Condensed Consolidated Balance Sheets.
Scheduled maturities of the Company's minimum lease payments receivable were as follows:
As of
July 31, 2020
Fiscal yearIn millions
Remainder of fiscal 2020$1,547 
20213,284 
20222,373 
20231,376 
2024639 
Thereafter216 
Total undiscounted cash flows$9,435 
   Present value of lease payments (recognized as finance receivables)$8,623 
   Difference between undiscounted cash flows and discounted cash flows$812 
29

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Prior to the adoption of the new lease standard, scheduled maturities of the Company's minimum lease payments receivable were as follows:
As of
October 31, 2019
Fiscal yearIn millions
2020$3,939 
20212,449 
20221,555 
2023752 
2024306 
Thereafter69 
Total$9,070 
Sale of Financing Receivables
During the nine months ended July 31, 20192020 and 2018,2019, the Company entered into arrangements to transfer the contractual payments due under certain financing receivables to third party financial institutions. During the nine months ended July 31, 20192020 and 2018,2019, the Company sold $153$60 million and $127$153 million, respectively, of financing receivables. The gains recognized on the sales of financing receivables were not material for both periods.
Credit Quality Indicators
The credit risk profile of gross financing receivables, based uponon internal risk ratings, was as follows:
 As of
 July 31, 2019 October 31, 2018
 In millions
Risk Rating: 
  
Low$4,377
 $4,238
Moderate3,913
 3,805
High276
 213
Total$8,566
 $8,256

 As of
 July 31, 2020October 31, 2019
 In millions
Risk Rating:  
Low$4,579 $4,432 
Moderate4,115 3,933 
High349 287 
Total$9,043 $8,652 
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.
Allowance for Doubtful Accounts
The allowance for doubtful accounts for financing receivables as of July 31, 2020 and October 31, 2019 and the respective changes during the nine and twelve months then ended were as follows:
 As of
 July 31, 2020October 31, 2019
 In millions
Balance at beginning of period$131 $120 
Provision for doubtful accounts28 33 
Write-offs(17)(22)
Balance at end of period$142 $131 
30

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Allowance for Doubtful Accounts
The allowance for doubtful accounts for financing receivables as of July 31, 2019 and October 31, 2018 and the respective changes during the nine and twelve months then ended were as follows:
 As of
 July 31, 2019 October 31, 2018
 In millions
Balance at beginning of period$120
 $86
Provision for doubtful accounts25
 49
Write-offs(12) (15)
Balance at end of period$133
 $120

The gross financing receivables and related allowance evaluated for loss were as follows:
 As of
 July 31, 2020October 31, 2019
 In millions
Gross financing receivables collectively evaluated for loss$8,174 $8,255 
Gross financing receivables individually evaluated for loss(1)
869 397 
Total$9,043 $8,652 
Allowance for financing receivables collectively evaluated for loss$89 $84 
Allowance for financing receivables individually evaluated for loss53 47 
Total$142 $131 
 As of
 July 31, 2019 October 31, 2018
 In millions
Gross financing receivables collectively evaluated for loss$8,120
 $7,917
Gross financing receivables individually evaluated for loss(1)
446
 339
Total$8,566
 $8,256
Allowance for financing receivables collectively evaluated for loss$84
 $78
Allowance for financing receivables individually evaluated for loss49
 42
Total$133
 $120

(1)Includes billed operating lease receivables and billed and unbilled sales-type and direct-financing lease receivables.
(1)Includes billed operating lease receivables and billed and unbilled sales-type and direct-financing lease receivables.
Non-Accrual and Past-Due Financing Receivables
The following table summarizes the aging and non-accrual status of gross financing receivables:
 As of
 July 31, 2020October 31, 2019
 In millions
Billed:(1)
  
Current 1-30 days$339 $301 
Past due 31-60 days71 62 
Past due 61-90 days35 15 
Past due > 90 days162 88 
Unbilled sales-type and direct-financing lease receivables8,436 8,186 
Total gross financing receivables$9,043 $8,652 
Gross financing receivables on non-accrual status(2)
$569 $276 
Gross financing receivables 90 days past due and still accruing interest(2)
$300 $121 
 As of
 July 31, 2019 October 31, 2018
 In millions
Billed:(1)
 
  
Current 1-30 days$319
 $275
Past due 31-60 days62
 42
Past due 61-90 days15
 13
Past due > 90 days86
 74
Unbilled sales-type and direct-financing lease receivables8,084
 7,852
Total gross financing receivables$8,566
 $8,256
Gross financing receivables on non-accrual status(2)
$297
 $226
Gross financing receivables 90 days past due and still accruing interest(2)
$149
 $113

(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.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES(1)Includes billed operating lease receivables and billed sales-type and direct-financing lease receivables.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

(2)Includes billed operating lease receivables and billed and unbilled sales-type and direct-financing lease receivables.
Operating Leases
Operating lease assets included in Property, plant and equipment in the Condensed Consolidated Balance Sheets were as follows:
 As of
 July 31, 2020October 31, 2019
 In millions
Equipment leased to customers$7,210 $7,185 
Accumulated depreciation(3,184)(3,101)
Total$4,026 $4,084 
 As of
 July 31, 2019 October 31, 2018
 In millions
Equipment leased to customers$7,275
 $7,290
Accumulated depreciation(3,225) (3,078)
Total$4,050
 $4,212

31

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Minimum future rentals on non-cancelable operating leases related to leased equipment were as follows:
As of
July 31, 2020
Fiscal yearIn millions
Remainder of fiscal 2020$521 
20211,641 
2022894 
2023308 
202454 
Thereafter3 
Total$3,421 
If a lease is classified as an operating lease, the Company records lease revenue on a straight line basis over the lease term. At commencement of an operating lease, initial direct costs are deferred and are expensed over the lease term on the same basis as the lease revenue is recorded.
The following table presents amounts included in the Condensed Consolidated Statement of Earnings related to lessor activity:
Three Months Ended July 31, 2020Nine Months Ended July 31, 2020
In millions
Sales-type leases and direct financing leases:
Interest income$115 $343 
Lease income - operating leases588 1,821 
Total lease income$703 $2,164 
Variable Interest Entities
In June 2020, February 2020 and September 2019, the Company 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 VIE and is consolidated, along with the associated debt, into the Condensed Consolidated Financial Statements as the Company is the primary beneficiary of the VIE. The SPE is a bankruptcy-remote legal entity with separate assets and liabilities. The purpose of the SPE is to facilitate the funding of customer receivables and leased equipment in the capital markets.
The Company’s risk of loss related to securitized receivables and leased equipment is limited to the amount by which the Company’s right to receive collections for assets securitized exceeds the amount required to pay interest, principal, and fees and expenses related to the asset-backed securities.
32

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The following table presents the assets and liabilities held by the consolidated VIE as of July 31, 2020, 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
 July 31, 2020October 31, 2019
Assets held by VIEIn millions
Other current assets$163 $76 
Financing receivables
Short-term$586 $194 
Long-term$711 $229 
Property, plant and equipment$764 $303 
Liabilities held by VIE
Notes payable and short-term borrowings, net of unamortized debt issuance costs$1,018 $385 
Long-term debt, net of unamortized debt issuance costs$1,057 $370 

Note 9: Goodwill
Goodwill allocated to the Company's reportable segments as of July 31, 2019 andThe following table represents the change in the respective carrying amounts during thevalue of goodwill, by reportable segment, for nine months then ended were as follows:July 31, 2020:
 Hybrid IT Intelligent Edge Financial Services Total
 In millions
Balance at October 31, 2018(1) (2)
$15,479
 $1,914
 $144
 $17,537
Goodwill acquired during the period(3)
48
 
 
 48
Goodwill adjustments2
 
 
 2
Balance at July 31, 2019(2)
$15,529
 $1,914
 $144
 $17,587

 ComputeHPC & MCSStorageIntelligent EdgeFinancial ServicesTotal
 In millions
Balance at October 31, 2019$7,532 $4,478 $4,158 $1,994 $144 $18,306 
Goodwill impairment0 (865)0 0 0 (865)
Goodwill adjustments0 0 1 0 0 1 
Balance at July 31, 2020$7,532 $3,613 $4,159 $1,994 $144 $17,442 
(1)As a result of the organizational realignments effective during the first quarter of fiscal 2019, which are described in detail in Note 2, "Segment Information", goodwill was reclassified to the respective segments as of the beginning of the period using a relative fair value approach.
(2)Goodwill is net of an accumulated impairment loss of $88 million related to the Corporate Investments segment which was recorded during the fourth quarter of fiscal 2018. There is no remaining goodwill in the Corporate Investments segment.
(3)Goodwill acquired in connection with the acquisition of BlueData.
Goodwill is tested for impairmentEffective at the beginning of the first quarter of fiscal 2020, the Company's operations were realigned into 7 segments for financial reporting unit level. As of July 31, 2019, thepurposes. The Company's reporting units containing goodwill are consistent with the reportable segments identified in Note 2, "Segment Information". As a result of this realignment, the Company performed an interim quantitative goodwill impairment test for the new segments as of November 1, 2019, which did not result in any goodwill impairment charges.
On March 31, 2020, due to the macroeconomic impacts of COVID-19 on the Company's current and projected future results of operations, the Company determined that an indicator of potential impairment existed to require an interim quantitative goodwill impairment test for its reporting units.
Based on the results of this interim quantitative impairment test, the fair value of the HPC & MCS reporting unit was below the carrying value of net assets assigned to HPC & MCS. The decline in the fair value of the HPC & MCS reporting unit resulted from macroeconomic impacts of COVID-19 which lowered the projected revenue growth rates and profitability levels of the reporting unit. The fair value of the HPC & MCS reporting unit was based on a weighting of fair values derived most significantly from the income approach, and to a lesser extent, the market approach. Under the income approach, the Company estimates the fair value of a reporting unit based on the present value of estimated future cash flows which we consider to be a level 3 unobservable input in the fair value hierarchy. The Company prepares cash flow projections based on management's estimates of revenue growth rates and operating margins, taking into consideration our historical performance and the current macroeconomic industry and market conditions. The Company bases the discount rate on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market approach, the Company estimates fair value based on market multiple earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit. The Company weights the fair value derived from the market approach depending on the level of comparability of these publicly traded companies to the reporting unit.
33

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Prior to the quantitative goodwill impairment test, the Company tested the recoverability of long-lived assets and other assets of the HPC & MCS reporting unit and concluded that such assets were not impaired. The quantitative goodwill impairment test indicated that the carrying value of the HPC & MCS reporting unit exceeds its fair value by $865 million. As a result, the Company recorded a partial goodwill impairment charge of $865 million in the second quarter of fiscal 2020.
While the other reporting units were negatively impacted by COVID-19, their fair values continued to exceed the carrying value of their net assets and did not result in impairment. In order to evaluate the sensitivity of the estimated fair value of other reporting units for the quantitative goodwill impairment test, the Company applied a hypothetical 10% reduction to the estimated fair value of each of these other reporting units. Based on the results of this hypothetical 10% reduction to the estimated fair value, each of these other reporting units had an excess of fair value over carrying value of their net assets. However, should economic conditions deteriorate further or remain depressed for a prolonged period of time, estimates of future cash flows for each of our reporting units may be insufficient to support the carrying value and the goodwill assigned to them, requiring impairment charges, including additional impairment charges for the HPC & MCS reporting unit. Further impairment charges, if any, may be material to our results of operations and financial position. See Part II, Item 1A, Risk Factors for a discussion of the potential impacts of COVID-19 on the fair value of our assets.
The Company will continue to evaluate the recoverability of goodwill at the reporting unit level on an annual basis as of the beginning of its fourth fiscal quarter and whenever events or changes in circumstances indicate there may be a potential impairment.
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.
Fair Value Hierarchy
The Company uses valuation techniques that are based upon observable and unobservable inputs. Observable inputs are developed using market data such as publicly available information and reflect the assumptions market participants would use, while unobservable inputs are developed using the best information available about the assumptions market participants would use.
Assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement:
Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2—Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Level 3—Unobservable inputs for the asset or liability.
The fair value hierarchy gives the highest priority to observable inputs and lowest priority to unobservable inputs.
34

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis:
 As of July 31, 2019 As of October 31, 2018
 
Fair Value
Measured Using
   
Fair Value
Measured Using
  
 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
 In millions
Assets 
  
  
  
  
  
  
  
Cash Equivalents and Investments: 
  
  
  
  
  
  
  
Time deposits$
 $908
 $
 $908
 $
 $781
 $
 $781
Money market funds609
 
 
 609
 2,340
 
 
 2,340
Foreign bonds7
 125
 
 132
 7
 124
 
 131
Other debt securities
 1
 32
 33
 
 
 25
 25
Derivative Instruments: 
  
  
  
  
  
  
  
Interest rate contracts
 20
 
 20
 
 
 
 
Foreign exchange contracts
 467
 
 467
 
 496
 
 496
Total assets$616
 $1,521
 $32
 $2,169
 $2,347
 $1,401
 $25
 $3,773
Liabilities 
  
  
  
  
  
  
  
Derivative Instruments: 
  
  
  
  
  
  
  
Interest rate contracts$
 $32
 $
 $32
 $
 $353
 $
 $353
Foreign exchange contracts
 116
 
 116
 
 117
 
 117
Other derivatives
 1
 
 1
 
 6
 
 6
Total liabilities$
 $149
 $
 $149
 $
 $476
 $
 $476

 As of July 31, 2020As of October 31, 2019
 Fair Value
Measured Using
Fair Value
Measured Using
 Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
 In millions
Assets        
Cash Equivalents and Investments:        
Time deposits$0 $4,778 $0 $4,778 $0 $803 $0 $803 
Money market funds1,668 0 0 1,668 859 0 0 859 
Foreign bonds0 97 0 97 7 126 0 133 
Other debt securities0 0 21 21 0 0 32 32 
Derivative Instruments:        
Interest rate contracts0 259 0 259 0 73 0 73 
Foreign exchange contracts0 305 0 305 0 392 0 392 
Other derivatives0 2 0 2 0 3 0 3 
Total assets$1,668 $5,441 $21 $7,130 $866 $1,397 $32 $2,295 
Liabilities        
Derivative Instruments:        
Interest rate contracts$0 $4 $0 $4 $0 $11 $0 $11 
Foreign exchange contracts0 308 0 308 0 136 0 136 
Total liabilities$0 $312 $0 $312 $0 $147 $0 $147 
During the nine months ended July 31, 2019,2020, there were no transfers between levels within the fair value hierarchy.
Other Fair Value Disclosures
Short-Short-Term and Long-Term Debt: At July 31, 20192020 and October 31, 2018,2019, the estimated fair value of the Company's short-term and long-term debt was $13.5$20.6 billion and $12.2$14.6 billion, respectively. At July 31, 2020 and October 31, 2019, the carrying value of the Company's short-term and long-term debt was $19.5 billion and $13.8 billion, respectively.
In the second quarter of fiscal 2020, the Company recorded a goodwill impairment charge of $865 million associated with the HPC & MCS reporting unit. The fair value of the Company's reporting units was classified in Level 3 of the fair value hierarchy due to the significance of unobservable inputs developed using company-specific information. For more information on the goodwill impairment, see Note 9 "Goodwill".
35

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

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 July 31, 2019 As of October 31, 2018
 Cost 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 Cost 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 In millions
Cash Equivalents: 
  
  
  
  
  
  
  
Time deposits$908
 $
 $
 $908
 $781
 $
 $
 $781
Money market funds609
 
 
 609
 2,340
 
 
 2,340
Total cash equivalents1,517
 
 
 1,517
 3,121
 
 
 3,121
Available-for-Sale Investments: 
  
  
  
  
  
  
  
Foreign bonds110
 22
 
 132
 113
 18
 
 131
Other debt securities33
 
 
 33
 26
 
 (1) 25
Total available-for-sale investments143
 22
 
 165
 139
 18
 (1) 156
Total cash equivalents and available-for-sale debt investments$1,660
 $22
 $
 $1,682
 $3,260
 $18
 $(1) $3,277

 As of July 31, 2020As of October 31, 2019
 CostGross Unrealized GainFair
Value
CostGross Unrealized GainFair
Value
 In millions
Cash Equivalents:      
Time deposits$4,778 $ $4,778 $803 $ $803 
Money market funds1,668  1,668 859  859 
Total cash equivalents6,446  6,446 1,662  1,662 
Available-for-Sale Debt Investments:      
Foreign bonds83 14 97 110 23 133 
Other debt securities20 1 21 32 0 32 
Total available-for-sale debt investments103 15 118 142 23 165 
Total cash equivalents and available-for-sale debt investments$6,549 $15 $6,564 $1,804 $23 $1,827 
As of July 31, 20192020 and October 31, 2018,2019, 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 outsidein the U.S. as of July 31, 20192020 and outside the U.S. as of October 31, 2018.2019. The estimated fair value of the available-for-sale debt investments may not be representative of values that will be realized in the future.
Contractual maturities of available-for-sale debt investments were as follows:
 July 31, 2019
 Amortized Cost Fair Value
 In millions
Due in one to five years$10
 $10
Due in more than five years133
 155
 $143
 $165

Equity Investments
 July 31, 2020
 Amortized CostFair Value
 In millions
Due in more than five years$103 $118 
$103 $118 
Equity securities investments in privately held companies are included in Long-term financing receivables and other assets in the Condensed Consolidated Balance Sheets. The carrying amount of these investmentsthose without readily determinable fair values amounted to $184$283 million and $162$190 million at July 31, 20192020 and October 31, 2018,2019, respectively. The carrying amount of those marketable equity securities with readily determinable fair value amounted to $29 million as of July 31, 2020. The Company did 0t have any marketable equity securities with readily determinable fair value as of October 31, 2019.
Investments in equity securities that are accounted for using the equity method are included in Investments in equity interests in the Condensed Consolidated Balance Sheets. These investments amounted to $2.3 billion and $2.4 billion at July 31, 20192020 and October 31, 2018, respectively.2019.
The Company did not recognize any impairments on these equity investments during the nine months ended July 31, 2020.
36

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

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 July 31, 2019 As of October 31, 2018
   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$6,850
 $
 $20
 $
 $32
 $6,850
 $
 $
 $
 $353
Cash flow hedges: 
  
  
  
  
  
  
  
  
  
Foreign currency contracts8,539
 218
 157
 24
 23
 8,423
 270
 107
 11
 15
Net investment hedges: 
  
  
  
  
  
  
  
  
  
Foreign currency contracts1,745
 25
 30
 18
 18
 1,737
 32
 41
 13
 11
Total derivatives designated as hedging instruments17,134
 243
 207
 42
 73
 17,010
 302
 148
 24
 379
Derivatives not designated as hedging instruments 
  
  
  
  
  
  
  
  
  
Foreign currency contracts5,206
 36
 1
 26
 7
 6,780
 41
 5
 55
 12
Other derivatives103
 
 
 1
 
 104
 
 
 6
 
Total derivatives not designated as hedging instruments5,309
 36
 1
 27
 7
 6,884
 41
 5
 61
 12
Total derivatives$22,443
 $279
 $208
 $69
 $80
 $23,894
 $343
 $153
 $85
 $391

 As of July 31, 2020As of October 31, 2019
  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$6,850 $4 $255 $0 $0 $6,850 $0 $72 $11 $0 
Cash flow hedges:          
Foreign currency contracts7,929 61 85 176 47 8,578 164 141 45 27 
Interest rate contracts500 0 0 4 0 500 0 1 0 0 
Net investment hedges:
Foreign currency contracts1,778 29 37 13 6 1,766 31 36 18 10 
Total derivatives designated as hedging instruments17,057 94 377 193 53 17,694 195 250 74 37 
Derivatives not designated as hedging instruments          
Foreign currency contracts6,013 86 7 65 1 6,398 17 3 33 3 
Other derivatives101 2 0 0 0 97 3 0 0 0 
Total derivatives not designated as hedging instruments6,114 88 7 65 1 6,495 20 3 33 3 
Total derivatives$23,171 $182 $384 $258 $54 $24,189 $215 $253 $107 $40 
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. As of July 31, 2019 and October 31, 2018,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 July 31, 2020
 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
DerivativesFinancial
Collateral
Net Amount
 In millions
Derivative assets$566 $0 $566 $202 $391 
(1)
$(27)
Derivative liabilities$312 $0 $312 $202 $83 
(2)
$27 
37
 As of July 31, 2019
 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$487
 $
 $487
 $125
 $316
 
(1) 
 $46
Derivative liabilities$149
 $
 $149
 $125
 $5
 
(2) 
 $19
 As of October 31, 2018
 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$496
 $
 $496
 $179
 $205
 
(1) 
 $112
Derivative liabilities$476
 $
 $476
 $179
 $302
 
(2) 
 $(5)
(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 July 31, 2019, of the $5 million of collateral posted, $4 million was in cash and $1 million was through re-use of counterparty collateral. As of October 31, 2018, $302 million of collateral posted was entirely in cash.
Effect of Derivative Instruments on the Condensed Consolidated Statements of Earnings
The pre-tax effect of derivative instruments and related hedged items in a fair value hedging relationship for the three and nine months ended July 31, 2019 and 2018 were as follows:
  Gains (Losses) Recognized in Earnings on Derivative and Related Hedged Item  
Derivative Instrument Location Three months ended July 31, 2019 Nine months ended July 31, 2019 Hedged Item Location Three months ended July 31, 2019 Nine months ended July 31, 2019
    In millions     In millions
Interest rate contracts Interest and other, net $123
 $341
 Fixed-rate debt Interest and other, net $(123) $(341)
  Gains (Losses) Recognized in Earnings on Derivative and Related Hedged Item  
Derivative Instrument Location Three months ended July 31, 2018 Nine months ended July 31, 2018 Hedged Item Location Three months ended July 31, 2018 Nine months ended July 31, 2018
    In millions     In millions
Interest rate contracts Interest and other, net $16
 $(194) Fixed-rate debt Interest and other, net $(16) $194


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

 As of October 31, 2019
 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
DerivativesFinancial
Collateral
Net Amount
 In millions
Derivative assets$468 $0 $468 $123 $263 
(1)
$82 
Derivative liabilities$147 $0 $147 $123 $19 
(2)
$5 

(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, 2 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, 2 business days prior to the respective reporting date. As of July 31, 2020, $83 million of collateral posted was entirely through re-use of counterparty collateral. As of October 31, 2019, $19 million of collateral posted was entirely by way of re-use of counterparty collateral.
The amounts recorded on the Condensed Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges were as follows:
Carrying amount of the hedged assets/ (liabilities)Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets/ (liabilities)
As ofAs of
July 31, 2020October 31, 2019July 31, 2020October 31, 2019
In millionsIn millions
Notes payable and short-term borrowings$(3,004)$(2,987)$(4)$11 
Long-term debt$(4,093)$(3,908)$(255)$(72)
The pre-tax effect of derivative instruments in cash flow and net investment hedging relationships for the three and nine months ended July 31, 2019recognized in Other Comprehensive Income ("OCI") were as follows:
 Gains (Losses) Recognized in Other Comprehensive Income ("OCI") on Derivatives (Effective Portion) 
Gains (Losses) Reclassified from Accumulated
OCI Into Earnings (Effective Portion)
 Three months ended July 31, 2019 Nine months ended July 31, 2019 Location Three months ended July 31, 2019 Nine months ended July 31, 2019
 In millions   In millions
Cash flow hedges: 
      
  
Foreign currency contracts$43
 $102
 Net revenue $42
 $168
Foreign currency contracts20
 123
 Interest and other, net 16
 91
Total cash flow hedges$63
 $225
 Net earnings from continuing operations $58
 $259
Net investment hedges: 
      
  
Foreign currency contracts$(18) $(23) Interest and other, net $
 $
Gains (Losses) Recognized in OCI on Derivatives
Three months ended July 31, 2020Three months ended July 31, 2019Nine months ended July 31, 2020Nine months ended July 31, 2019
In millions
Derivatives in Cash Flow Hedging relationship
Foreign exchange contracts$(456)$63 $(79)$225 
Interest rate contracts0 0 (6)0 
Derivatives in Net Investment Hedging relationship
Foreign exchange contracts(83)(18)50(23)
Total$(539)$45 $(35)$202 
The pre-tax effect of derivative instruments in cash flow and net investment hedging relationships for the three and nine months ended July 31, 2018 was as follows:
 Gains (Losses) Recognized in Other Comprehensive Income ("OCI") on Derivatives (Effective Portion) 
Gains (Losses) Reclassified from Accumulated
OCI Into Earnings (Effective Portion)
 Three months ended July 31, 2018 Nine months ended July 31, 2018 Location Three months ended July 31, 2018 Nine months ended July 31, 2018
 In millions   In millions
Cash flow hedges: 
      
  
Foreign currency contracts$121
 $59
 Net revenue $29
 $(82)
Foreign currency contracts28
 (9) Interest and other, net 14
 4
Total cash flow hedges$149
 $50
 Net earnings from continuing operations $43
 $(78)
Net investment hedges: 
      
  
Foreign currency contracts$57
 $31
 Interest and other, net $
 $

As of July 31, 2019 and 2018, no portion of the hedging instruments' gain or loss was excluded from the assessment of effectiveness for fair value, cash flow or net investment hedges. Hedge ineffectiveness for fair value, cash flow, and net investment hedges was not material for the three and nine months ended July 31, 2019 and 2018.
As of July 31, 2019,2020, the Company expects to reclassify an estimated net Accumulatedaccumulated other comprehensive gainloss of
approximately $80$99 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.
38

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Effect of Derivative Instruments on the Condensed Consolidated Statements of Earnings
The pre-tax effect of derivative instruments not designated as hedging instruments on the Condensed Consolidated Statements of Earnings for the three and nine months ended July 31, 2019 and 2018 waswere as follows:
   Gains (Losses) Recognized in Earnings on Derivatives
 Location Three months ended July 31, 2019 Three months ended July 31, 2018 Nine months ended July 31, 2019 Nine months ended July 31, 2018
   In millions
Foreign currency contractsInterest and other, net $55
 $233
 $(68) $104
Other derivativesInterest and other, net (2) 
 5
 
Total  $53
 $233
 $(63) $104

Gains (Losses) Recognized in Income
Three months ended July 31, 2020Three months ended July 31, 2019Nine months ended July 31, 2020Nine months ended July 31, 2019
Net revenueInterest and other, netNet revenueInterest and other, netNet revenueInterest and other, netNet revenueInterest and other, net
In millions
Total amounts of income and expense line items presented in the Condensed Consolidated Statements of Earnings in which the effects of fair value hedges, cash flow hedges and derivatives not designated as hedging instruments are recorded$6,816 $(71)$7,217 $(70)$19,774 $(158)$21,920 $(139)
Gains (losses) on derivatives in fair value hedging relationships
Interest rate contracts
Hedged items$0 $(13)$0 $(123)$0 $(198)$0 $(341)
Derivatives designated as hedging instruments0 13 0 123 0 198 0 341 
Gains (losses) on derivatives in cash flow hedging relationships
Foreign exchange contracts
Amount of gains (losses) reclassified from accumulated other comprehensive income into income23 (264)42 16 97 (55)168 91 
Interest rate contracts
Amount of gains (losses) reclassified from accumulated other comprehensive income into income0 (1)0 0 0 (1)0 0 
Gains (losses) on derivatives not designated as hedging instruments
Foreign exchange contracts0 8 0 55 0 53 0 (68)
Other derivatives0 (6)0 (2)0 (1)0 5 
Total gains (losses)$23 $(263)$42 $69 $97 $(4)$168 $28 

Note 12: Borrowings
Commercial PaperNotes Payable and Short-Term Borrowings
Notes payable and short-term borrowings, including the current portion of long-term debt, were as follows:
As of
July 31, 2020October 31, 2019
In millions
Current portion of long-term debt$4,594 $3,441 
FS commercial paper737 698 
Notes payable to banks, lines of credit and other396 286 
Total$5,727 $4,425 
39

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Asset-backed Debt Securities
In June 2020, the Company issued $1.0 billion of asset-backed debt securities in 6 tranches at a weighted average price of 99.99% and a weighted average interest rate of 1.19%, payable monthly from August 2020 with a stated final maturity date of July 2030. As of July 31, 2020, the outstanding balance of the asset-backed debt securities was $1.0 billion.
In February 2020, the Company issued $755 million of asset-backed debt securities in 6 tranches at a weighted average price of 99.99% and a weighted average interest rate of 1.87%, payable monthly from April 2020 with a stated final maturity date of February 2030. As of July 31, 2020, the outstanding balance of the asset-backed debt securities was $622 million.
In September 2019, the Company issued $763 million of asset-backed debt securities in 6 tranches at a weighted average price of 99.99% and a weighted average interest rate of 2.31%, payable monthly from November 2019 with a stated final maturity date of September 2029. As of July 31, 2020, the outstanding balance of the asset-backed debt securities was $462 million.
The future principal payments on these asset-backed debt securities will be based on the underlying loan and lease payment streams. For more information on the asset-backed debt securities, see Note 8 “Accounting for Leases as a Lessor - Variable Interest Entities”.
Hewlett Packard Enterprise's BoardEnterprise Senior Notes
In fiscal 2020, the Company completed its offering of Directors has authorized the issuancefollowing Senior Notes
$1.0 billion issued at discount to par at a price of up99.883% in July 2020 at an interest rate of 1.45% due April 1, 2024, interest payable semi-annually on April 1 and October 1 of each year beginning on April 1, 2021.
$750 million issued at discount to $4.0par at a price of 99.820% in July 2020 at an interest rate of 1.75% due April 1, 2026 interest payable semi-annually on April 1 and October 1 of each year beginning on April 1, 2021.
$1.25 billion issued at discount to par at a price of 99.956% in aggregateApril 2020 at an interest rate of 4.45% due October 2, 2023 interest payable semi-annually on April 2 and October 2 of each year beginning on October 2, 2020.
$1.0 billion issued at discount to par at a price of 99.817% in April 2020 at an interest rate of 4.65% due October 1, 2024 interest payable semi-annually on April 1 and October 1 of each year beginning on October 1, 2020.
The net proceeds from the above Senior Notes were used for the redemption in August 2020 of the $3.0 billion outstanding principal amount of commercial paper by Hewlett Packard Enterprise. Hewlett Packard Enterprise's subsidiaries are authorized to issue up to an additional $1.0 billionthe 3.6% registered Senior Notes that were originally due in aggregate principal amount of commercial paper. October 2020.

Commercial Paper

Hewlett Packard Enterprise maintains two2 commercial paper programs, "the Parent Programs", and a wholly-owned subsidiary maintains a third program. Hewlett Packard Enterprise's U.S. program provides for the issuance of U.S. dollar-denominated commercial paper up to a maximum aggregate principal amount of $4.75 billion which was increased from $4.0 billion.billion in March 2020. Hewlett Packard Enterprise's euro commercial paper program provides for the issuance of commercial paper outside of the U.S. 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 2 programs at any one time cannot exceed the $4.0$4.75 billion as authorized by Hewlett Packard Enterprise's Board of Directors. TheIn 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, which was increased from $500 million, by way of an amendment in April 2019.billion. As of July 31, 20192020 and October 31, 2018, no2019, 0 borrowings were outstanding under Hewlett Packard Enterprise’s two commercial paper programs,the Parent Programs, and $671$737 million and $392$698 million, respectively, were outstanding under the subsidiary’s program.
Revolving Credit Facility
On August 16, 2019, the Company entered into a revolving credit facility (the "Credit Agreement"), together with the lenders named therein, JPMorgan Chase Bank, N.A. ("JPMorgan"), as co-administrative agent and administrative processing agent, and Citibank, N.A., as co-administrative agent, providing for a senior, unsecured revolving credit facility withFuture Maturities of Long-term Debt
As of July 31, 2020, aggregate lending commitmentsfuture maturities of $4.75 billion. Loans under the revolving credit facility may be used for general corporate purposes. Commitments under the Credit Agreement are available for a period of five years, which period may be extended, subject to satisfaction of certain conditions, by up to two one-year periods. Commitment fees, interest rates and other terms of borrowing under the credit facility vary based on Hewlett Packard Enterprise's external credit rating. This credit facility replaces the Company's prior credit facility that was entered intolong-term debt at face value (excluding a fair value adjustment related to hedged debt of $259 million and a net discount on November 1, 2015, which was terminated in connection with its entering into the new credit facility.debt issuance of $10 million), including capital lease obligations were as follows:


40

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Fiscal yearIn millions
Remainder of fiscal 20203,349 
20212,780 
20221,967 
20232,483 
20242,018 
Thereafter5,537 
  Total$18,134 

Note 13: Stockholders' Equity
Taxes related to Other Comprehensive (Loss) Income
 Three months ended July 31, Nine months ended July 31,
 2019 2018 2019 2018
 In millions
Taxes on change in net unrealized gains (losses) on cash flow hedges: 
  
    
Tax (provision) on net unrealized gains arising during the period$(6) $(20) $(24) $(6)
Tax provision (benefit) on net (gains) losses reclassified into earnings7
 5
 31
 (11)
 1
 (15) 7
 (17)
Taxes on change in unrealized components of defined benefit plans: 
  
    
Tax benefit on net unrealized losses arising during the period5
 3
 13
 2
Tax provision on amortization of net actuarial loss and prior service benefit(3) (4) (9) (10)
Tax provision on curtailments, settlements and other
 (5) (7) (12)
 2
 (6) (3) (20)
Tax (provision) benefit on change in cumulative translation adjustment(1) 2
 
 3
Tax benefit (provision) on other comprehensive income$2
 $(19) $4
 $(34)

Changes and reclassifications related to Other Comprehensive Income, net of taxes
 Three months ended July 31,Nine months ended July 31,
 2020201920202019
 In millions
Taxes on change in net unrealized (losses) gains on cash flow hedges:  
Tax benefit (provision) on net unrealized (losses) gains arising during the period$26 $(6)$(6)$(24)
Tax provision (benefit) on net losses (gains) reclassified into earnings5 7 26 31 
31 1 20 7 
Taxes on change in unrealized components of defined benefit plans:  
Tax benefit (provision) on net unrealized (losses) gains arising during the period1 5 1 13 
Tax (provision) benefit on amortization of net actuarial loss and prior service benefit(4)(3)(12)(9)
Tax (provision) benefit on curtailments, settlements and other0 0 0 (7)
(3)2 (11)(3)
Tax (provision) benefit on change in cumulative translation adjustment0 (1)4 0 
Tax benefit (provision) on other comprehensive (loss) income$28 $2 $13 $4 
41
 Three months ended July 31, Nine months ended July 31,
 2019 2018 2019 2018
 In millions
Other comprehensive income, net of taxes: 
  
    
Change in net unrealized gains (losses) on available-for-sale securities: 
  
    
Net unrealized gains (losses) arising during the period$3
 $(2) $8
 $(1)
Gains reclassified into earnings
 
 (3) (9)
 3
 (2) 5
 (10)
Change in net unrealized gains (losses) on cash flow hedges: 
  
    
Net unrealized gains arising during the period57
 129
 201
 44
Net (gains) losses reclassified into earnings(1)
(51) (38) (228) 67
 6
 91
 (27) 111
Change in unrealized components of defined benefit plans: 
  
    
Net unrealized losses arising during the period(26) (22) (65) (21)
Amortization of net actuarial loss and prior service benefit(2)
51
 43
 152
 133
Curtailments, settlements and other5
 4
 5
 (1)
 30
 25
 92
 111
Change in cumulative translation adjustment(9) (38) (2) (37)
Other comprehensive income, net of taxes$30
 $76
 $68
 $175

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Changes and reclassifications related to Other Comprehensive (Loss) Income, net of taxes
 Three months ended July 31,Nine months ended July 31,
 2020201920202019
 In millions
Other comprehensive (loss) income, net of taxes:  
Change in net unrealized gains (losses) on available-for-sale securities:  
Net unrealized gains (losses) arising during the period$6 $3 $0 $8 
(Gains) losses reclassified into earnings(1)0 (8)(3)
5 3 (8)5 
Change in net unrealized (losses) gains on cash flow hedges:  
Net unrealized (losses) gains arising during the period(430)57 (91)201 
Net losses (gains) reclassified into earnings247 (51)(15)(228)
(183)6 (106)(27)
Change in unrealized components of defined benefit plans:  
Net unrealized (losses) gains arising during the period(18)(26)(9)(65)
Amortization of net actuarial loss and prior service benefit57 51 171 152 
Curtailments, settlements and other7 5 8 5 
46 30 170 92 
Change in cumulative translation adjustment1 (9)(42)(2)
Other comprehensive (loss) income, net of taxes$(131)$30 $14 $68 
(1)For more details on the reclassification of pre-tax net (gains) losses on cash flow hedges into the Condensed Consolidated Statements of Earnings, see Note 11, "Financial Instruments".
(2)These components are included in the computation of net pension and post-retirement benefit cost in Note 5, "Retirement and Post-Retirement Benefit Plans".
The components of Accumulated other comprehensive loss, net of taxes as of July 31, 2019,2020, and changes during the nine months ended July 31, 20192020 were as follows:
 Net unrealized
gains (losses) on
available-for-sale
securities
Net unrealized
gains (losses)
on cash
flow hedges
Unrealized
components
of defined
benefit plans
Cumulative
translation
adjustment
Accumulated
other
comprehensive
loss
 In millions
Balance at beginning of period$23 $53 $(3,366)$(437)$(3,727)
Effect of change in accounting principle (1)
0 (10)0 (33)(43)
Other comprehensive (loss) income before reclassifications0 (91)(9)(42)(142)
Reclassifications of (gains) losses into earnings(8)(15)179 0 156 
Balance at end of period$15 $(63)$(3,196)$(512)$(3,756)
 
Net unrealized
gains (losses) on
available-for-sale
securities
 
Net unrealized
gains (losses)
on cash
flow hedges
 
Unrealized
components
of defined
benefit plans
 
Cumulative
translation
adjustment
 
Accumulated
other
comprehensive
loss
 In millions
Balance at beginning of period$17
 $106
 $(2,922) $(419) $(3,218)
Other comprehensive income (loss) before reclassifications8
 201
 (65) (2) 142
Reclassifications of (gains) losses into earnings(3) (228) 157
 
 (74)
Balance at end of period$22
 $79
 $(2,830) $(421) $(3,150)

(1)Reflects the adoption of the FASB guidance on stranded tax effects. For more information, see Note 1 "Overview and Summary of Significant Accounting Policies".
Share Repurchase Program
For the nine months ended July 31, 2019,2020, the Company repurchased and settled a total of 13025.3 million shares under its share repurchase program through open market repurchases, which included 2.40.5 million shares that were unsettled open market repurchases as of October 31, 2018. Additionally, as2019. As of July 31, 2019,2020, the Company had no unsettled open market repurchases of 1.2 million shares. Shares repurchased during the nine months ended July 31, 20192020 were recorded as a $1.9 billion$346 million reduction to stockholders' equity. As of July 31, 2019,2020, the Company had a remaining authorization of $2.7$2.1 billion for future share repurchases.

On April 6, 2020, the Company announced that it suspended purchases under its share repurchase program in response to the global economic uncertainty that resulted from the worldwide spread of COVID-19.
42

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Note 14: Net Earnings Per Share
The Company calculates basic net EPS using net earnings and the weighted-average number of shares outstanding during the reporting period. Diluted net EPS includes the weighted-average dilutive effect of restricted stock units, stock options, and performance-based awards.
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:
 Three Months Ended July 31,Nine Months Ended July 31,
 2020201920202019
 In millions, except per share amounts
Numerator:  
Net earnings (loss)$9 $(27)$(479)$569 
Denominator:  
Weighted-average shares used to compute basic net EPS1,292 1,334 1,294 1,367 
Dilutive effect of employee stock plans8 0 0 13 
Weighted-average shares used to compute diluted net EPS1,300 1,334 1,294 1,380 
Net earnings (loss) per share:  
Basic$0.01 $(0.02)$(0.37)$0.42 
Diluted$0.01 $(0.02)$(0.37)$0.41 
Anti-dilutive weighted-average stock awards(1)
21 44 48 4 
 Three months ended July 31, Nine months ended July 31,
 2019 2018 2019 2018
 In millions, except per share amounts
Numerator: 
  
    
Net (loss) earnings from continuing operations$(27) $452
 $569
 $2,784
Net loss from discontinued operations
 (1) 
 (119)
Net (loss) earnings$(27) $451
 $569
 $2,665
Denominator: 
  
    
Weighted-average shares used to compute basic net EPS1,334
 1,513
 1,367
 1,552
Dilutive effect of employee stock plans
 18
 13
 26
Weighted-average shares used to compute diluted net EPS1,334
 1,531
 1,380
 1,578
Basic net (loss) earnings per share: 
  
    
Continuing operations$(0.02) $0.30
 $0.42
 $1.79
Discontinued operations(1)

 
 
 (0.07)
Basic net (loss) earnings per share$(0.02) $0.30
 $0.42
 $1.72
Diluted net (loss) earnings per share:       
Continuing operations$(0.02) $0.29
 $0.41
 $1.76
Discontinued operations(1)(2)

 
 
 (0.07)
Diluted net (loss) earnings per share$(0.02) $0.29
 $0.41
 $1.69
Anti-dilutive weighted-average stock awards(3)
44
 2
 4
 3

(1)The Company excludes shares potentially issuable under employee stock plans that could dilute basic net EPS in the future from the calculation of diluted net earnings per share, as their effect, if included, would have been anti-dilutive for the periods presented.
(1)EPS for discontinued operations was calculated by deducting the EPS from continuing operations from the total EPS.
(2)U.S. GAAP requires the denominator used in the diluted net EPS calculation for discontinued operations to be the same as that of continuing operations, regardless of net earnings (loss) from continuing operations.
(3)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 (loss) per share, as their effect, if included, would have been anti-dilutive for the periods presented.
Note 15: Litigation and Contingencies
Hewlett Packard Enterprise is involved in various lawsuits, claims, investigations and proceedings including those consisting of Intellectual Property ("IP"), 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, Hewlett Packard Enterprise and HP Inc. (formerly known as "Hewlett-Packard Company") agreed to cooperate with each other in managing certain existing litigation related to both parties' businesses. The Separation and Distribution Agreement included provisions that allocate liability and financial responsibility for pending litigation involving the parties, as well as provide for cross-indemnification of the parties against liabilities to one party arising out of liabilities allocated to the other party. The Separation and Distribution Agreement also included provisions that assign to the parties responsibility for managing pending and future litigation related to the general corporate matters of HP Inc. arising prior to the Separation. Hewlett Packard Enterprise records a liability when it believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment is required to determine both the probability of having incurred a liability and the estimated amount of the liability. Hewlett Packard Enterprise reviews these matters at least quarterly and adjusts these liabilities to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other updated information and events pertaining to a particular matter. Litigation is inherently unpredictable. However, Hewlett Packard Enterprise believes it has valid defenses with respect to legal matters pending against us. Nevertheless, cash flows or results of operations could be materially affected in any particular period by the resolution of one or more of these contingencies. Hewlett Packard Enterprise believes it has recorded adequate provisions for any such matters and, as of July 31, 2019,2020, 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
DXC Technology Indemnification Demand.On March 27, 2018, DXC Technology (“DXC”) served an arbitration demand on HPE under the Separation and Distribution Agreement by and between HPE and DXC (f/k/a Everett SpinCo, Inc.) dated May 24, 2016, relating to the separation of HPE’s Enterprise Services business (the “ES Business”). The arbitration demand asserts that HPE is required to indemnify DXC for any transferred long-term capitalized lease obligations of the ES Business that exceed the threshold amount of $250 million. DXC contends that this $250 million threshold was exceeded by approximately $1.0 billion because the valuation of the assets underlying certain leases did not justify their classification as operating leases based on the terms of such leases, thereby rendering them long-term capitalized lease obligations. The arbitration demand follows DXC's November 8, 2017 request for indemnification on this same issue. On August 15, 2019, the arbitration panel ruled in DXC’s favor, issuing DXC an award in the amount of $632 million. The arbitration panel also awarded pre-judgment interest of $34 million.
Ross and Rogus v. Hewlett Packard Enterprise Company. On November 8, 2018, a putative class action complaint was filed in the Superior Court of California, County of Santa Clara alleging that HPE pays its California-based female employees “systemically lower compensation” than HPE pays male employees performing substantially similar work. The complaint alleges various California state law claims, including California’s Equal Pay Act, Fair Employment and Housing Act, and Unfair Competition Law, and seeks certification of a California-only class of female employees employed in certain “Covered Positions.” The complaint seeks damages, statutory and civil penalties, attorneys’ fees and costs. On April 2, 2019, HPE filed a
43

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
demurrer to all causes of action and an alternative motion to strike portions of the complaint. On July 2, 2019, the court denied HPE’s demurrer as to the claims of the putative class and granted HPE’s demurrer as to the claims of the individual plaintiffs.
India Directorate of Revenue Intelligence Proceedings. On April 30 and May 10, 2010, the India Directorate of Revenue Intelligence (the "DRI") issued show cause notices to Hewlett-Packard India Sales Private Ltd ("HP India"), a subsidiary of HP Inc., seven7 HP India employees and one1 former HP India employee alleging that HP India underpaid customs duties while importing products and spare parts into India and seeking to recover an aggregate of approximately $370 million, plus penalties. Prior to the issuance of the show cause notices, HP India deposited approximately $16 million with the DRI and agreed to post a provisional bond in exchange for the DRI's agreement to not seize HP India products and spare parts and to not interrupt the transaction of business by HP India.
On April 11, 2012, the Bangalore Commissioner of Customs issued an order on the products-related show cause notice affirming certain duties and penalties against HP India and the named individuals of approximately $386 million, of which HP India had already deposited $9 million. On December 11, 2012, HP India voluntarily deposited an additional $10 million in connection with the products-related show cause notice. On April 20, 2012, the Commissioner issued an order on the parts-related show cause notice affirming certain duties and penalties against HP India and certain of the named individuals of approximately $17 million, of which HP India had already deposited $7 million. After the order, HP India deposited an additional $3 million in connection with the parts-related show cause notice so as to avoid certain penalties.
HP India filed appeals of the Commissioner's orders before the Customs Tribunal along with applications for waiver of the pre-deposit of remaining demand amounts as a condition for hearing the appeals. The Customs Department has also filed cross-appeals before the Customs Tribunal. On January 24, 2013, the Customs Tribunal ordered HP India to deposit an additional $24 million against the products order, which HP India deposited in March 2013. The Customs Tribunal did not order any additional deposit to be made under the parts order. In December 2013, HP India filed applications before the Customs Tribunal seeking early hearing of the appeals as well as an extension of the stay of deposit as to HP India and the individuals already granted until final disposition of the appeals. On February 7, 2014, the application for extension of the stay of deposit was granted by the Customs Tribunal until disposal of the appeals. On October 27, 2014, the Customs Tribunal commenced hearings on the cross-appeals of the Commissioner's orders. The Customs Tribunal rejected HP India's request to remand the matter to the Commissioner on procedural grounds. The hearings were scheduled to reconvene on April 6, 2015, and again on November 3, 2015 and April 11, 2016, but were canceled at the request of the Customs Tribunal. The hearing was rescheduled for January 15, 2019 but was postponed and has not yet been rescheduled.
ECT Proceedings. In January 2011, the postal service of Brazil, Empresa Brasileira de Correios e Telégrafos ("ECT"), notified a former subsidiary of HP Inc. in Brazil ("HP Brazil") that it had initiated administrative proceedings to consider whether to suspend HP Brazil's right to bid and contract with ECT related to alleged improprieties in the bidding and contracting processes whereby employees of HP Brazil and employees of several other companies allegedly coordinated their bids and fixed results for three3 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
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

seeking to have ECT's decision revoked. HP Brazil also requested an injunction suspending the application of the penalties until a final ruling on the merits of the case. The court of first instance has not issued a decision on the merits of the case, but it has denied HP Brazil's request for injunctive relief. HP Brazil appealed the denial of its request for injunctive relief to the intermediate appellate court, which issued a preliminary ruling denying the request for injunctive relief but reducing the length of the sanctions from five to two years. HP Brazil appealed that decision and, in December 2011, obtained a ruling staying enforcement of ECT's sanctions until a final ruling on the merits of the case. HP Brazil expects the decision to be issued in 20192020 and any subsequent appeal on the merits to last several years.
Forsyth, et al. vs. HP Inc. and Hewlett Packard Enterprise. This purported class and collective action was filed on August 18, 2016 and an amended complaint was filed on December 19, 2016 in the United States District Court for the Northern District of California, against HP Inc. and Hewlett Packard Enterprise alleging defendants violated the Federal Age Discrimination in Employment Act ("ADEA"), the California Fair Employment and Housing Act, California public policy and the California Business and Professions Code by terminating older workers and replacing them with younger workers. Plaintiffs seek to certify a nationwide collective action under the ADEA comprised of all individuals aged 40 and older who had their employment terminated by an HP entity pursuant to a work force reduction ("WFR") plan on or after December 9, 2014 for individuals terminated in deferral states and on or after April 8, 2015 in non-deferral states. Plaintiffs also seek to certify a Rule 23 class under California law comprised of all persons 40 years or older employed by defendants in the state of California and terminated pursuant to a WFR plan on or after August 18, 2012. On September 20, 2017, the court granted the defendants'
44

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
motion to compel arbitration and administratively closed the case pending resolution of the arbitration proceedings. On November 30, 2017, three3 named plaintiffs filed a single arbitration demand. ThirteenNaN additional plaintiffs later joined the arbitration. On December 22, 2017, defendants filed a motion to (1) stay the case pending arbitrations and (2) enjoin the demanded arbitration and require each plaintiff to file a separate arbitration demand. On February 6, 2018, the court granted the motion to stay and denied the motion to enjoin. The claims of these sixteen16 arbitration named plaintiffs have been resolved. Additional opt-in plaintiffs have since beenwere added to the litigation and the parties are engaged inthese claims also were resolved as part of the arbitration process for those claims.process. The stay of the Forsyth class action remains stayed.has been lifted and a Third Amended Complaint was filed on January 7, 2020. Defendants filed a motion to dismiss the Third Amended Complaint on February 6, 2020. On May 18, 2020, the court issued an order granting in part and denying in part Defendants’ motion to dismiss. The court granted Plaintiffs leave to amend their complaint. On July 9, 2020, Plaintiffs filed a Fourth Amended Complaint.
Wall v. Hewlett Packard Enterprise Company and HP Inc. This certified California class action and Private Attorney General Act action was filed against Hewlett-Packard Company on January 17, 2012 and the fifth amended (and operative) complaint was filed against HP Inc. and Hewlett Packard Enterprise on June 28, 2016 in the Superior Court of California, County of Orange. The complaint alleges that the defendants paid earned incentive compensation late and failed to timely pay final wages in violation of the California Labor Code. On August 9, 2016, the court ordered the class certified without prejudice to a future motion to amend or modify the class certification order or to decertify. The scheduled January 22, 2018 trial date was vacated following the parties’ notification to the court that they had reached a preliminary agreement to resolve the dispute. The parties subsequently finalized and executed a settlement agreement and, on May 9, 2018, plaintiff filed a motion seeking preliminary approval of the settlement. On July 2, 2018, the court issued an order granting preliminary approval of the settlement. On December 21, 2018, the court issued an order granting final approval of the settlement and setting a hearing for September 27, 2019 to confirm that the settlement distributions have been made.approval. A Qualified Settlement Fund has been fully funded.funded and distributed to class members. On March 5, 2020, the Court signed an Amendment to Final Approval Order and Judgment, directing that the matter be closed.
Jackson, et al. v. HP Inc. and Hewlett Packard Enterprise. This putative nationwide class action was filed on July 24, 2017 in the United States District Court for the Northern District of California, San Jose Division. Plaintiffs purport to bring the lawsuit on behalf of themselves and other similarly situated African-Americans and individuals over the age of forty.forty. Plaintiffs allege that defendants engaged in a pattern and practice of racial and age discrimination in lay-offs and promotions. Plaintiffs filed an amended complaint on September 29, 2017. Plaintiffs seek damages, attorneys’ fees and costs, and declaratory and injunctive relief. On January 12, 2018, defendants moved to transfer the matter to the federal district court in the Northern District of Georgia. Defendants also moved to dismiss the claims on various grounds and to strike certain aspects of the proposed class definition. On July 11, 2018, the court granted defendants' motion to dismiss this action for improper venue, and also partially dismissed and struck certain claims without prejudice to re-filing in the appropriate venue. On July 23, 2018, plaintiffs re-filed their lawsuit in the United States District Court for the Northern District of Georgia. On August 9, 2018, Plaintiffs filed a notice of appeal of the dismissal of the Northern District of California action with the Ninth Circuit Court of Appeals. On August 15, 2018, Plaintiffs filed a motion to stay their lawsuit in the Northern District of Georgia, which was granted by the court. On February 7, 2020, Defendants resolved the claims of the individual plaintiffs and the matters were dismissed.
Hewlett-Packard Company v. Oracle (Itanium). On June 15, 2011, HP Inc. filed suit against Oracle in the Superior Court of California, County of Santa Clara in connection with Oracle's March 2011 announcement that it was discontinuing software support for HP Inc.’s Itanium-based line of mission critical servers. HP Inc. asserted, among other things, that Oracle’s actions breached the contract that was signed by the parties as part of the settlement of the litigation relating to Oracle’s hiring of Mark Hurd. The matter eventually progressed to trial, whichTrial was bifurcated into two2 phases. HP Inc. prevailed in the first phase of the trial, in which the court ruled that the contract at issue required Oracle to continue to offer its software products on HP Inc.'s Itanium-based servers for as long as HP Inc. decided to sell such servers. Phase 2 of the trial was then postponed by Oracle’s appeal of the
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

trial court’s denial of Oracle’s “anti-SLAPP” motion, in which Oracle argued that HP Inc.’s damages claim infringed on Oracle’s First Amendment rights. On August 27, 2015, the California Court of Appeal rejected Oracle’s appeal. The matter was remanded to the trial court for Phase 2 of the trial, which began on May 23, 2016, and was submitted to the jury on June 29, 2016. On June 30, 2016, the jury returned a verdict in favor of HP Inc., awarding HP Inc. approximately $3 billion in damages: $1.7 billion for past lost profits and $1.3 billion for future lost profits. On October 20, 2016, the court entered judgment for this amount with interest accruing until the judgment is paid. Oracle’s motion for a new trial was denied on December 19, 2016, and Oracle filed its notice of appeal from the trial court’s judgment on January 17, 2017. On February 2, 2017, HP Inc. filed a notice of cross-appeal challenging the trial court’s denial of prejudgment interest. Oracle filed its opening brief in the California Court of Appeal on March 7, 2019. HP Inc.’s answering/cross-opening brief was filed on June 12, 2019. On May 16, 2019, HP Inc. filed its application to renew the judgment. As of May 16, 2019, the renewed judgment is approximately $3.8 billion. Daily interest on the renewed judgment is now accruing at $1.037 million.$1 million and will be recorded upon receipt. The parties have completed appellate briefing in the California Court of Appeal and are awaiting the scheduling of oral argument. Pursuant to the terms of the Separation and Distribution
45

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Agreement, HP Inc. and Hewlett Packard Enterprise will share equally in any recovery from Oracle once Hewlett Packard Enterprise has been reimbursed for all costs incurred in the prosecution of the action prior to the HP Inc. /Hewlett Packard Enterprise separation on November 1, 2015.
Oracle America, Inc., et al. v. Hewlett Packard Enterprise Company (Terix copyright matter). On March 22, 2016, Oracle filed a complaint against HPE in the United States District Court for the Northern District of California, alleging copyright infringement, interference with contract, intentional interference with prospective economic relations, and unfair competition. Oracle’s claims arise out of HPE’s prior use of a third-party maintenance provider named Terix Computer Company, Inc. (“Terix”). Oracle contends that in connection with HPE’s use of Terix as a subcontractor for certain customers of HPE’s multivendor support business, Oracle’s copyrights were infringed, and HPE is liable for vicarious and contributory infringement and related claims. The lawsuit against HPE follows a prior lawsuit brought by Oracle against Terix in 2013 relating to Terix’s alleged unauthorized provision of Solaris patches to customers on Oracle hardware. On June 14, 2018, the court heard oral argument on HPE's and Oracle's cross-motions for summary judgment. The court has not yet ruled on the parties' motions. On January 29, 2019, the court granted HPE’s Motion for Summary Judgment as to all of Oracle’s claims and vacated the trial date. On February 20, 2019, the court entered judgment in favor of HPE, dismissing Oracle’s claims in their entirety. Oracle has appealed the trial court’s ruling to the United States Court of Appeals for the Ninth Circuit. Oracle’s opening brief was filed on July 29, 2019. HPE’s responsive brief currently is due September 27, 2019.On August 20, 2020, the United States Court of Appeals for the Ninth Circuit issued its ruling, affirming in part and reversing in part the trial court’s decision granting summary judgment in favor of HPE. The matter will be remanded back to the United States District Court for the Northern District of California for further proceedings consistent with the ruling from the United States Court of Appeals for the Ninth Circuit.
Network-1 Technologies, Inc. v. Alcatel-Lucent USA Inc., et al. This patent infringement action was filed on September 15, 2011 in the United States District Court for the Eastern District of Texas, alleging that various Hewlett Packard Enterprise switches and access points infringe Network-1’s patent relating to the 802.3af and 802.3at “Power over Ethernet” standards. Network-1 seeks damages, attorneys’ fees and costs, and declaratory and injunctive relief. The Network-1 patent at issue expires in 2020. A jury trial was conducted beginning on November 6, 2017. On November 13, 2017, the jury returned a verdict in favor of HPE, finding that HPE did not infringe Network-1’s patent and that the patent was invalid. On August 29 2018, the court denied Network-1's motion for a new trial on infringement and entered the jury's verdict finding that HPE does not infringe the relevant Network-1 patent. The court also granted Network-1's motion for Judgment as a Matter of Law on validity. Network-1 has appealed the jury verdict of non-infringement to the United States Court of Appeals for the Federal Circuit. HPE has cross-appealed the court’s decision to grant Network-1's motion for Judgment as a Matter of Law on validity. Appellate briefing has been completed. The Federal Circuit Court of Appeal held oral argument on November 4, 2019.
Shared Litigation with HP Inc., DXC and Micro Focus
As part of the Separation and Distribution Agreements between Hewlett Packard Enterprise and HP Inc., Hewlett Packard Enterprise and DXC, and Hewlett Packard Enterprise and Seattle SpinCo, the parties to each agreement agreed to cooperate with each other in managing certain existing litigation related to both parties' businesses. The Separation and Distribution Agreements also included provisions that assign to the parties responsibility for managing pending and future litigation related to the general corporate matters of HP Inc. (in the case of the separation of Hewlett Packard Enterprise from HP Inc.) or of Hewlett Packard Enterprise (in the case of the separation of DXC from Hewlett Packard Enterprise and the separation of Seattle SpinCo from Hewlett Packard Enterprise), in each case arising prior to the applicable separation.
Environmental
Note 16: Indemnifications
General Cross-indemnificationThe Company's operations and Tax Matters Agreements with HP Inc., DXCproducts are or may in the future become subject to various federal, state, local and Micro Focus
In connection withforeign laws and regulations concerning environmental protection, including laws addressing the Separationdischarge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the clean-up of contaminated sites, the substances and materials used in the Company's products, the energy consumption of products, services and operations and the Everettoperational or financial responsibility for recycling, treatment and Seattle Transactions, thedisposal of those products. This includes legislation that makes producers of electrical goods, including servers and networking equipment, financially responsible for specified collection, recycling, treatment and disposal of past and future covered products (sometimes referred to as "product take-back legislation"). The Company entered into a Separationcould incur substantial costs, its products could be restricted from entering certain jurisdictions, and Distribution Agreementit could face other sanctions, if it were to violate or become liable under environmental laws or if its products become non-compliant with environmental laws. The Company's potential exposure includes impacts on revenue, fines and Tax Matters Agreementcivil or criminal sanctions, third-party property damage or personal injury claims and clean-up costs. The amount and timing of costs to comply with HP Inc., DXC and affiliates, and Micro Focus and affiliates, effective November 1, 2015, March 31, 2017 and September 1, 2017, respectively. For further details on these agreements, see the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2018.environmental laws are difficult to predict.
46

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

AsIn 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 July 31, 2019contaminated sites, and October 31, 2018, the Company’s receivable and payable balancesmay 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 indemnified litigation matterscertain environmental liabilities, both ongoing and other contingencies,arising in the future, pursuant to its Separation and income tax-related indemnification covered by these agreements were as follows:Distribution Agreement with HP Inc.
47
 As of
 July 31, 2019 October 31, 2018
 In millions
Litigation matters and other contingencies   
Receivable$88
 $104
Payable$57
 $83
    
Income tax-related indemnification(1)
   
Net indemnification receivable - long-term(2)
$266
 $16
Net indemnification receivable - short-term
$13
 $17
Net indemnification payable - long-term
$9
 $9
Net indemnification payable - short-term(3)
$102
 $26


(1)The actual amount that the Company may receive or pay could vary depending upon the outcome of certain unresolved tax matters, which may not be resolved for several years.
(2)For the nine months ended July 31, 2019, the increase in Net indemnification receivable - long-term was due primarily to the effects of U.S. tax reform on tax attributes related to fiscal periods prior to the Separation.
(3)For the nine months ended July 31, 2019, the increase in Net indemnification payable - short-term was due primarily to the effective settlement of the U.S. federal income tax audit of fiscal years 2013 through 2015 for HP Inc. for which the Company was joint and severally liable and for which the Company was partially indemnified by HP Inc. under the Tax Matters Agreement.




Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.



HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is organized as follows:
COVID-19 Update. A discussion of our response to the novel coronavirus pandemic (“COVID-19”), including our efforts to protect the health and well-being of our workforce, community and customers.
Overview.  A discussion of our business and summary analysis of financial and other highlights, including non-GAAP financial measures, affecting the Company in order to provide context to the remainder of the MD&A, financial statements and footnotes. The Overview analysis compares the three and nine months ended July 31, 2020 to the prior-year periods.
Critical Accounting Policies and Estimates.  A discussion of accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.
Results of Operations.  An analysis of our financial results comparing the three and nine months ended July 31, 2020 to the prior-year periods. A discussion of the results of operations at the consolidated level is followed by a discussion of the results of operations at the segment level.
Liquidity and Capital Resources.  An analysis of changes in our cash flows and a discussion of our financial condition and liquidity.
  A discussion of our business and overall analysis of financial and other highlights affecting the Company to provide context for the remainder of MD&A. The overview analysis compares the three and nine months ended July 31, 2019 to the prior-year periods.
Critical Accounting Policies and Estimates.  A discussion of accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.
Results of Operations.  An analysis of our financial results comparing the three and nine months ended July 31, 2019 to the prior-year periods. A discussion of the results of operations at the consolidated level is followed by a discussion of the results of operations at the segment level.
Liquidity and Capital Resources.  An analysis of changes in our cash flows and a discussion of our financial condition and liquidity.
Contractual and Other Obligations.  An overview of contractual obligations, retirement and post-retirement benefit plan funding, restructuring plans, uncertain tax positions, cross-indemnifications with HP Inc. (formerly known as "Hewlett-Packard Company"), DXC Technology Company ("DXC"), and Micro Focus International plc ("Micro Focus") and off-balance sheet arrangements.
We intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our Condensed Consolidated Financial Statements, the changes in certain key items in those financial statements from year to year,year-to-year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our Condensed Consolidated Financial Statements. This discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this document.
On November 1, 2015, we became an independent publicly-traded company through a pro rata distribution by HP Inc. ("former Parent" or "HPI"), formerly known as Hewlett-Packard Company, of 100% of our outstanding shares to HP Inc.'s stockholders (the "Separation").
On April 1, 2017 and September 1, 2017, we completed the separation and merger of our Enterprise Services business with Computer Sciences Corporation ("CSC") (collectively, the "Everett Transaction") and the separation and merger of our Software business segment with Micro Focus (collectively, the “Seattle Transaction”), respectively. The historical financial results of Everett and Seattle are reported as Net loss from discontinued operations in the Condensed Consolidated Statements of Earnings.
The following Overview, Results of Operations and Liquidity discussions and analysis compare the three and nine months ended July 31, 20192020 to the prior-year periods, unless otherwise noted. The Capital Resources and Contractual and Other Obligations discussions present information as of July 31, 2019,2020, unless otherwise noted.
        For purposes of this MD&A section, we use the terms "Hewlett Packard Enterprise", "HPE", the "Company", "we", "us" and "our" to refer to Hewlett Packard Enterprise Company.
COVID-19 UPDATE
COVID-19 continues to have an impact on our financial performance as the pandemic endures and affects global economic activity including ongoing worldwide travel restrictions, prohibitions of non-essential work activities in some markets, disruption and shutdown of businesses in some markets and greater uncertainty in global financial markets. We are currently unable to predict the extent to which COVID-19 may adversely impact our future business operations, financial performance and results of operations. The full extent of the impact of COVID-19 on the Company’s operational and financial performance is currently uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development and availability of effective treatments and vaccines, the imposition of protective public safety measures, and the impact of the pandemic on the global economy and
48

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


demand for our enterprise technology solutions. For a further discussion of the risks, uncertainties and actions taken in response to COVID-19, see risks identified in the section entitled “ Risk Factors” in Part II, Item 1A.
The Company believes its existing balances of cash, cash equivalents and marketable securities, along with commercial paper and other short-term liquidity arrangements, will be sufficient to satisfy its working capital needs, capital asset purchases, dividends, debt repayments and other liquidity requirements associated with its existing operations.
The Company also believes that COVID-19 has forced fundamental changes in businesses and communities that are aligned with the Company's edge-to-cloud platform delivered as-a-service strategy. Navigating through the pandemic and planning for a post-COVID world have increased customers' needs for as-a-service offerings, secure connectivity, remote work capabilities and analytics to unlock insights from data. Our solutions are aligned to these needs, and we see opportunity to help our customers drive digital transformations as they continue to adapt to operate in a new world.
We have prioritized protecting the health and safety of our team members, supporting the global communities in which we live and work and supporting our customers and partners to help them adjust to new and emerging needs.
In response to the COVID-19 pandemic and to ensure the safety of our employees, we have implemented a global work-from-home policy until further notice that applies to a significant majority of our employees, with the exception of those performing essential activities. Our employees may elect to return to the office in jurisdictions where both local requirements and our own health and safety standards have been met. If such instances occur, employees would return to the office in a phased process. We have also made additional education and support resources and personal protective supplies available to team members. In the event of a confirmed or probable case of COVID-19 among our team members and contractors, we have implemented a confidential reporting process to trace and notify close contacts—including third parties—that maintains the anonymity of all involved.
In the third quarter of fiscal 2020 we announced new return-to-work solutions to help customers accelerate business recovery and reopening plans. The solutions combine expertise from HPE operational services for a fast, seamless transition, with HPE servers for the edge, Aruba AI-powered network infrastructure, and technologies from HPE’s rich ecosystem of partners. Customers that have implemented these solutions include large international airports, global food processing and packaging plants, retail stores, and corporate offices.
While we are actively working to mitigate the impact on our business and operations to address the near-term uncertainty, we have taken and are taking a number of actions to ensure HPE is well positioned to emerge stronger, more agile and digitally enabled for a post-COVID-19 world.
On May 19, 2020, the Board of Directors of HPE (the "Board") approved a cost optimization and prioritization plan in order to focus our investments, realign our workforce to areas of growth and simplify and evolve our product portfolio strategy, go-to-market configurations, supply chain structures, digital customer support model, marketing experiences, and real estate strategies. We expect that this plan will be implemented through fiscal 2022 and estimate that it will include gross savings of at least $1.0 billion as a result of changes to our workforce, business model and business process, with this plan being expected to deliver annualized net run-rate savings of at least $800 million by the end of fiscal 2022, in both cases relative to our fiscal 2019 exit. In order to achieve this level of cost savings, we estimate related cash funding payments of $1.3 billion over the next three years of which approximately $0.8 billion will relate to labor restructuring, $0.2 billion will relate to non-labor restructuring and $0.3 billion will relate to IT investments and design and execution charges.
On July 14, 2020, we issued $1.75 billion and on April 9, 2020, we issued $2.25 billion of aggregate principal amount of unsecured Senior Notes. The net proceeds from these offerings were used primarily for the redemption in August 2020 of the $3.0 billion outstanding principal amount of the 3.6% registered Senior Notes that were originally due in October 2020.
On May 19, 2020, the Board approved temporary base salary adjustments or unpaid leave for certain employees beginning July 1, 2020 through the remainder of fiscal 2020. In addition, we implemented cost containment measures across the Company, including restrictions on external hiring and salary increases through the end of our fiscal year.
On April 6, 2020, we announced that we suspended purchases under our share repurchase program in response to the global economic uncertainty that resulted from the worldwide spread of COVID-19.
49

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


During the first three quarters of fiscal 2020, we paid a quarterly dividend of $0.12 per share to our shareholders. On August 25, 2020 we declared a quarterly dividend of $0.12 per share, payable on or about October 7, 2020, to stockholders of record as of the close of business on September 9, 2020.
OVERVIEW
We are a global technology leader focused on developing intelligent solutions that allow customers to capture, analyze and act upon data seamlessly from edge to cloud. We enable 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. Our legacy dates back to a partnership founded in 1939 by William R. Hewlett and David Packard, and we strive every day to uphold and enhance that legacy through our dedication to providing innovative technological solutions to our customers.
As described in Item 1, Note 1, "Overview and Summary of Significant Accounting Policies", effective at the beginning of the first quarter of fiscal 2020, we implemented certain organizational changes to align our segment financial reporting more closely with our current business structure. As a result, Hewlett Packard Enterprise's operations are now organized into seven segments for financial reporting purposes: Compute, High Performance Compute & Mission-Critical Systems ("HPC & MCS"), Storage, Advisory and Professional Services ("A & PS"), Intelligent Edge, Financial Services ("FS"), and Corporate Investments. Hewlett Packard Enterprise's organizational structure is based on a number of factors that the Chief Operating Decision Maker ("CODM"), who is the Chief Executive Officer ("CEO"), uses to evaluate, view and run our business operations, which include, but are not limited to, customer base and homogeneity of products and technology. The segments are based on this organizational structure and information reviewed by Hewlett Packard Enterprise's management to evaluate segment results.
The following provides an overview of our key financial metrics by segment for the three months ended July 31, 2020, as compared to the prior-year period:
HPE ConsolidatedComputeHPC & MCSStorageA & PSIntelligent EdgeFinancial ServicesCorporate Investments
Dollars in millions, except for per share amounts
Net revenue(1)
$6,816 $3,389 $649 $1,128 $226 $684 $811 $119 
Year-over-year change %(5.6)%(0.3)%2.5 %(10.1)%(6.6)%(12.4)%(8.7)%(8.5)%
Earnings (loss) from operations(2)
$12 $288 $36 $145 $(4)$59 $65 $(27)
Earnings (loss) from operations as a % of net revenue0.2 %8.5 %5.5 %12.9 %(1.8)%8.6 %8.0 %(22.7)%
Year-over-year change percentage points1.3 pts(4.4) pts(2.6) pts(3.6) pts1.9 pts1.8 pts(0.7) pts(3.5) pts
Net earnings$9 
Diluted net earnings per share$0.01 
Supplemental Non-GAAP information:
Non-GAAP earnings from operations$484 
Non-GAAP earnings from operations as a % of net revenue7.1 %
Non-GAAP net earnings$419 
Non-GAAP diluted net earnings per share$0.32 

(1)HPE consolidated net revenue excludes intersegment net revenue.
(2)Segment earnings from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense related to corporate and certain global functions, amortization of initial direct costs, amortization of intangible assets, transformation costs, disaster charges and acquisition, disposition and other related charges.


50

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



We organize our business into four segments for financial reporting purposes: Hybrid IT, Intelligent Edge, Financial Services ("FS") and Corporate Investments.
The following provides an overview of our key financial metrics by segment for the threenine months ended July 31, 2019,2020, as compared to the prior-year period:
HPE ConsolidatedComputeHPC & MCSStorageA & PSIntelligent EdgeFinancial ServicesCorporate Investments
Dollars in millions, except for per share amounts
Net revenue(1)
$19,774 $9,040 $2,061 $3,464 $706 $2,069 $2,503 $364 
Year-over-year change %(9.8)%(12.2)%(3.4)%(11.8)%(5.0)%(4.7)%(7.4)%(2.4)%
(Loss) earnings from operations(2)
$(474)$699 $118 $516 $(4)$202 $213 $(82)
(Loss) earnings from operations as a % of net revenue(2.4)%7.7 %5.7 %14.9 %(0.6)%9.8 %8.5 %(22.5)%
Year-over-year change percentage points(6.1) pts(2.9) pts(5.6) pts(3.0) pts6.8 pts4.6 pts— pts(0.5) pts
Net loss$(479)
Diluted net loss per share$(0.37)
Supplemental Non-GAAP information:
Non-GAAP earnings from operations$1,451 
Non-GAAP earnings from operations as a % of net revenue7.3 %
Non-GAAP net earnings$1,279 
Non-GAAP diluted net earnings per share$0.98 
 
HPE
Consolidated
 Hybrid IT Intelligent Edge Financial Services 
Corporate
Investments
 Dollars in millions, except for per share amounts
Net revenue(1)
$7,217
 $5,549
 $762
 $888
 $130
Year-over-year change % (7.0)%  (9.2)%  (2.9)%  (4.3)%  (3.0)%
(Loss) earnings from continuing operations(2)
$(76) $704
 $37
 $77
 $(25)
(Loss) earnings from continuing operations as a % of net revenue (1.1)%  12.7 %  4.9 %  8.7 %  (19.2)%
Year-over-year change percentage points (7.4)pts  2.5pts  (8.0)pts  0.9pts  (0.5)pts
Net loss from continuing operations$(27)   
   
   
   
Net (loss) earnings per share     
   
   
   
Basic net EPS from continuing operations$(0.02)   
   
   
   
Diluted net EPS from continuing operations$(0.02)            

(1)HPE consolidated net revenue excludes intersegment net revenue and other.
(2)Segment earnings from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense related to corporate and certain global functions, acquisition, disposition and other related charges, transformation costs, amortization of intangible assets, restructuring
(1)HPE consolidated net revenue excludes intersegment net revenue.
(2)Segment earnings from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense related to corporate and certain global functions, amortization of initial direct costs, amortization of intangible assets, impairment of goodwill, transformation costs, disaster (recovery) charges and separation costs.
Three months ended July 31, 2019 compared with three months ended July 31, 2018
Net revenue decreased by $547 million, or 7.0% (decreased 5.4% on a constant currency basis), for the three months ended July 31, 2019, as compared to the prior-year period in part due to deliberate actions we are taking to minimize revenue from less profitable product categories and certain markets, from challenges related to market weakness and go-to-market execution issues. The leading contributor to the net revenue decrease was lower revenue of $560 million in Hybrid IT due primarily to a combination of factors which include: a decline in Tier-1 server sales and lower revenue from China, both of which was primarily experienced within Compute; demand weakness resulting in lower revenue from Industry Standard Server ("ISS") core products within Compute and lower HPE Pointnext services revenue; a decline in revenue from Storage products resulting from market weakness; and unfavorable currency fluctuations. Additionally, we experienced a revenue decline in Intelligent Edge due to lower sales of campus switching products within HPE Aruba Products and a revenue decline in Financial Services due to lower rental revenue and unfavorable currency fluctuations. The overall net revenue decline was partially offset by revenue growth in HPE Aruba Services within Intelligent Edge and in HPE Nimble Storage within Hybrid IT.
We continue to execute on our HPE Next initiative, which includes streamlining our offerings and business processes, and shifting investments in innovation towards high growth and higher margin solutions and services, which provided a favorable impact to the performance of certain business units in the current period. Gross margin was 33.9% ($2.4 billion) and 30.5% ($2.4 billion) for the three months ended July 31, 2019 and 2018, respectively. The 3.4 percentage point increase in gross margin was due primarily to Hybrid IT as a result of the year-over-year decrease in commodity costs, cost management initiatives and a lower mix of revenue from Tier-1 server sales along with a higher mix of revenue from higher-margin products. Operating margin decreased 7.4 percentage points in the three months ended July 31, 2019, as compared to the prior-year period, due primarily to higher acquisition, disposition and other related charges as a result of a one-time charge associated with an arbitration settlement, higher transformation costs related to the HPE Next initiative and higher research and development expense and selling, general and administrative expense as a percentage of net revenue, partially offset by the gross margin increase.charges.












51

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



The following table provides an overviewreconciliation of our key financial metrics by segmentGAAP to non-GAAP measures for the three and nine months ended July 31, 2020.
Three Months Ended July 31, 2020Diluted net earnings per shareNine Months Ended July 31, 2020Diluted net earnings per share
In millionsIn millions
GAAP net earnings (loss)$9 $0.01 $(479)$(0.37)
Non-GAAP adjustments:
Amortization of initial direct costs3  9 0.01 
Amortization of intangible assets95 0.07 299 0.23 
Impairment of goodwill  865 0.67 
Transformation costs357 0.27 646 0.49 
Disaster charges2  24 0.02 
Acquisition, disposition and other related charges15 0.01 82 0.06 
Tax indemnification adjustments30 0.03 86 0.07 
Non-service net periodic benefit credit(28)(0.02)(101)(0.08)
Loss from equity interests(1)
36 0.03 110 0.09 
Adjustments for taxes(100)(0.08)(262)(0.21)
Non-GAAP net earnings$419 $0.32 $1,279 $0.98 
GAAP earnings (loss) from operations$12 $(474)
Non-GAAP adjustments:
Amortization of initial direct costs3 9 
Amortization of intangible assets95 299 
Impairment of goodwill 865 
Transformation costs357 646 
Disaster charges2 24 
Acquisition, disposition and other related charges15 82 
Non-GAAP earnings from operations$484 $1,451 
GAAP operating profit margin0.2 %(2.4)%
Non-GAAP adjustments6.9 %9.7 %
Non-GAAP operating profit margin7.1 %7.3 %
GAAP Net revenue$6,816 $19,774 
GAAP Cost of Sales4,749 13,511 
GAAP Gross profit$2,067 $6,263 
Non-GAAP adjustments
Amortization of initial direct costs$3 $9 
Acquisition, disposition and other related charges(2)
$ $27 
Non-GAAP Gross Profit$2,070 $6,299 
GAAP gross profit margin30.3 %31.7 %
Non-GAAP adjustments0.1 %0.2 %
Non-GAAP gross profit margin30.4 %31.9 %

(1) Represents the amortization of basis difference adjustments related to the H3C divestiture.
52

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


(2) For the nine months ended July 31, 2020, amounts represent Acquisition, disposition and other related charges related to a non-cash inventory fair value adjustment in connection with the acquisition of Cray, Inc., which was included in Cost of Sales.

Non-GAAP financial measures
The non-GAAP financial measures presented are net revenue on a constant currency basis, non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP operating profit margin (non-GAAP earnings from operations as a percentage of net revenue), non-GAAP net earnings and non-GAAP diluted net earnings per share. These non-GAAP financial measures are used by management for purposes of evaluating our historical and prospective financial performance, as well as evaluating our performance relative to our competitors. These non-GAAP financial measures are not computed in accordance with, or as an alternative to, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to net revenue on a constant currency basis is net revenue. The GAAP measure most directly comparable to non-GAAP gross profit is gross profit. The GAAP measure most directly comparable to non-GAAP gross profit margin is gross profit margin. The GAAP measure most directly comparable to non-GAAP earnings from operations is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating profit margin (non-GAAP earnings from operations as a percentage of net revenue) is operating profit margin (Earnings from operations as a percentage of net revenue). The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted net earnings per share is diluted net earnings per share.
Net revenue on a constant currency basis assumes no change in the foreign exchange rate from the prior-year period. Non-GAAP gross profit and non-GAAP gross profit margin is defined to exclude charges related to the amortization of initial direct costs and certain acquisition, disposition and other related charges. Non-GAAP earnings from operations and non-GAAP operating profit margin (non-GAAP earnings from operations as a percentage of net revenue) consist of earnings from operations excluding any charges related to the amortization of initial direct costs, amortization of intangible assets, impairment of goodwill, transformation costs, disaster charges (recovery) and acquisition, disposition and other related charges. Non-GAAP net earnings and Non-GAAP diluted net earnings per share consist of net earnings or diluted net earnings per share excluding those same charges, as well as an adjustment to tax indemnification adjustments, non-service net periodic benefit credit, loss from equity interests, certain income tax valuation allowances and separation taxes, the impact of U.S. tax reform, structural rate adjustment and excess tax benefit from stock-based compensation. In addition, non-GAAP net earnings and non-GAAP diluted net earnings per share are adjusted by the amount of additional taxes or tax benefits associated with each non-GAAP item. We believe that excluding the items mentioned above from these non-GAAP financial measures allows management to better understand our consolidated financial performance in relation to the operating results of our segments. Management does not believe that the excluded items are reflective of ongoing operating results, and excluding them facilitates a more meaningful evaluation of our current operating performance in comparison to our peers. The excluded items can be inconsistent in amount and frequency and/or not reflective of the operational performance of the business.
These non-GAAP financial measures have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are that they can have a material impact on the equivalent GAAP earnings measures, they may be calculated differently by other companies and may not reflect the full economic effect of the loss in value of certain assets.
We compensate for these limitations on the use of non-GAAP financial measures by relying primarily on our GAAP results and using non-GAAP financial measures only as a supplement. We also provide a reconciliation of each non-GAAP financial measure to its most directly comparable GAAP measure. We believe that providing net revenue on a constant currency basis, non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP earnings from operations, non-GAAP operating profit margin, non-GAAP net earnings and non-GAAP diluted net earnings per share in addition to the related GAAP measures provides greater transparency to the information used in our financial and operational decision making and allows the reader of our Condensed Consolidated Financial Statements to see our financial results “through the eyes” of management.

Three months ended July 31, 2020 compared with three months ended July 31, 2019

53

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


The three months ended July 31, 2020 represented our second full quarter of operating under COVID-19. Although we significantly improved our operational and supply chain execution in the third quarter of fiscal 2020, our financial results continued to be impacted by the global pandemic on the demand side of our business operations. Manufacturing partners throughout the supply chain are operating at nominal levels of capacity and resource. To mitigate the risk caused by the pandemic to our manufacturing operations, we worked with our suppliers and manufacturing partners to maintain the assurance of supply and to fulfill orders. As a result, backlog challenges caused by both material shortages and the COVID-19 pandemic continue to show improvement with significant reduction in backlog now being sustained due to our focus on order routing, capacity, resource, and inventory management measures put in place and monitored on a continual basis. The extent to which COVID-19 related events continue to affect our operational performance will depend primarily on the duration of lockdown actions taking place across the globe and access restrictions at customer sites, along with the time it takes for the demand environment to rebound.

Net revenue decreased by $0.4 billion, or 5.6% (decreased 4.1% on a constant currency basis), for the three months ended July 31, 2020, as compared to the prior-year period:period, as many of our segments experienced a net revenue decline. The net revenue decline was primarily driven by decreases in Storage, Intelligent Edge and Financial Services partially offset by a net revenue increase in HPC & MCS. The net revenue decline in Storage was due to COVID-19 related events including a weak and uncertain global demand environment and lower revenue from the expiration of a one-time legacy contract. Net revenue declined in Intelligent Edge due to declines in switching and WLAN products due to the weak and uncertain global demand environment resulting from COVID-19 and competitive pricing pressures. Net revenue declined in Financial Services due primarily to a decrease in rental revenue due to lower average operating lease assets and a decline in end-of-lease buyout activity. COVID-19 related constraints, including weak demand resulted in lower net revenue in A & PS.

 HPE Consolidated Hybrid IT Intelligent Edge Financial Services Corporate
Investments
  Dollars in millions, except for per share amounts
Net revenue(1)
$21,920
 $17,155
 $2,114
 $2,703
 $373
Year-over-year change % (4.3)%  (5.5)%  (1.5)%  (1.1)%  (7.7)%
Earnings (loss) from operations(2)
$814
 $2,024
 $66
 $231
 $(82)
Earnings (loss) from operations as a % of net revenue 3.7 %  11.8 %  3.1 %  8.5 %  (22.0)%
Year-over-year change percentage points (1.0)pts  2.0pts
  (5.8)pts
  0.6pts
  (2.4)pts
Net earnings from continuing operations$569
  

  

  

  

Net earnings per share              
Basic EPS from continuing operations$0.42
  

  

  

  

Diluted EPS from continuing operations$0.41
  

  

  

  

In the first half of fiscal 2020, the Compute and HPC & MCS segments experienced a variety of challenges resulting from COVID-19 related lockdown restrictions including supply chain constraints, delays meeting customer acceptance milestones, performing on-site installations and processing order fulfillment. These challenges continued but moderated to some extent in the third quarter of fiscal 2020 given the mitigation actions mentioned previously and as lockdown actions eased somewhat in select global regions. As such, net revenue in Compute was largely unchanged from the prior-year period as the impact of unfavorable currency fluctuations and competitive pricing pressures were mostly offset by improved supply chain execution and net revenue increased in HPC & MCS due to incremental revenue from the Cray acquisition and the events highlighted previously.

Our gross profit margin was 30.3% ($2.1 billion) and 33.9% ($2.4 billion) for the three months ended July 31, 2020 and 2019, respectively, representing a decline of 3.6 percentage points. The decline in the gross profit margin was due to multiple factors led by higher commodity costs, competitive pricing pressures, higher supply chain costs as a result of COVID-19, and the net revenue decline which resulted in higher fixed overhead costs as a percentage of net revenue, partially offset by our continued shift to higher-margin products and services. Our operating profit margin was 0.2% and (1.1)% for the three months ended July 31, 2020 and 2019, respectively, representing an increase of 1.3 percentage points. The increase in our operating profit margin was due to a decrease in operating expenses as a percentage of net revenue partially offset by a decrease in gross profit margin. The decrease in operating expenses was due to the prior-year period containing higher acquisition, disposition and other related charges resulting from an arbitration settlement, along with a current year period decline in travel expenses due to cost containment measures we put in place in response to COVID-19, lower variable compensation expense and lower spend on outsourced services. These decreases were partially offset by increased costs due to our expansion of the transformation programs.
(1)HPE consolidated net revenue excludes intersegment net revenue and other.
(2)Segment earnings from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense related to corporate and certain global functions, acquisition, disposition and other related charges, transformation costs, amortization of intangible assets, restructuring charges and disaster charges.
Nine months ended July 31, 20192020 compared with nine months ended July 31, 20182019
Net revenue decreased by $986 million,$2.1 billion, or 4.3%9.8% (decreased 3.0%8.5% on a constant currency basis), for the nine months ended July 31, 2019,2020, as compared to the prior-year period.

During the first nine months of fiscal 2020, we experienced a net revenue decline due to the impact of COVID-19 on our business operations and the global demand environment along with commodity and manufacturing capacity constraints in North America. The leading contributorimpact of COVID-19 and resulting lockdown restrictions introduced across the globe created challenges to our supply chain process with processing order fulfillment, brought delays with meeting customer acceptance milestones and limited our ability to perform and complete on-site installations. Manufacturing capacity constraints were in part due to the consolidation of certain locations in North America and also in part due to COVID-19 restrictions, both of which resulted in increased order backlog particularly during the first six months of fiscal 2020. Although we significantly improved operational and supply chain execution in the third quarter of fiscal 2020, our financial results continued to be impacted by a weak and uncertain global demand environment resulting from COVID-19 related restrictions.
54

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


From a segment perspective, the net revenue decrease for the first nine months ended July 31, 2020, as compared to the prior year period was primarily driven by declines in Compute, Storage, Financial Services and Intelligent Edge. The net revenue decline in Compute was pronounced as we experienced a combination of factors including the impact of COVID-19 and the resulting weak and uncertain global demand environment, competitive pricing pressures and commodity and manufacturing capacity constraints in North America. Storage net revenue was also impacted by COVID-19 and the resulting weak and uncertain global demand environment, commodity and manufacturing capacity constraints in North America and lower revenue from the expiration of a one-time legacy contract. Financial Services net revenue was impacted due to a decrease in rental revenue due to lower average operating lease assets and unfavorable foreign currency fluctuations. The decline in Intelligent Edge net revenue was primarily due to declines in switching and WLAN products due to the weak and uncertain global demand environment resulting from COVID-19. HPC & MCS experienced a net revenue decline as a result of COVID-19 related challenges, particularly with performing on-site installations and meeting customer acceptance milestones given lockdown constraints taking place across the globe, partially offset by the addition of revenue from the acquisition of Cray Inc. (“Cray”). COVID-19 related constraints also contributed to the net revenue decrease was lower revenue of $1.0 billion in Hybrid IT due to a decline in Tier-1 server sales and decreased revenue from China which was primarily experienced within Compute, lower HPE Pointnext services revenue due to demand weakness and unfavorable currency fluctuations. Additionally, we experienced revenue declines in Intelligent Edge due to lower sales of switching products within HPE Aruba Products and in Financial Services due to unfavorable currency fluctuations and lower rental revenue. The overall net revenue decline was partially offset by growth in HPE Aruba Services within Intelligent Edge and growth in Storage within Hybrid IT driven by HPE Nimble Storage.the A & PS segment.
Gross profit margin was 31.7% ($6.3 billion) and 32.4% ($7.1 billion) and 29.7% ($6.8 billion) for the nine months ended July 31, 20192020 and 2018,2019, respectively. The 2.70.7 percentage point increase indecrease to the gross profit margin was due primarily driven by higher supply chain costs resulting from the impact of COVID-19, competitive pricing pressures, and the scale of net revenue decline, partially offset by our overall shift to Hybrid IT as a result of the year-over-year decrease in commodity costs, cost management initiatives,higher-margin products and a lower mix of revenue from Tier-1 server salesservices along with a higher mix of revenue from higher-margin products. Operatinglower variable compensation expense. Our operating profit margin decreased 1.0 percentage points inwas (2.4)% and 3.7% for the nine months ended July 31, 2020 and 2019, respectively, representing a decrease of 6.1 percentage points. The decrease was due to an increase in operating expenses as compareda percentage of net revenue coupled with a decrease in gross profit margin. The increase in operating expenses was due to the goodwill impairment charge impacting our HPC & MCS segment in the second quarter of fiscal 2020, in part due to market conditions and business trends caused by the impact of COVID-19 and higher transformation costs partially offset by the prior-year period due primarily tocontaining higher acquisition, disposition and other related charges as a result of a one-time charge associated withresulting from an arbitration settlement and higher research and development expense as a percentage of net revenue, partially offset by the gross margin increase and lower transformation costs.settlement.
As of July 31, 2019,2020, cash, cash equivalents and restricted cash and long-term investments were $4.1$8.9 billion, representing a decreasean increase of approximately $1.0$4.8 billion from the October 31, 20182019 balance of $5.1$4.1 billion. The decreaseincrease was due primarily to the following: share repurchasesproceeds from debt, net of repayments and cash dividend paymentsissuance costs of $2.4$5.4 billion and net cash provided by operating activities of $1.5 billion partially offset by investments in property, plant and equipment, net of sales proceeds, of $1.7 billion, partially offset by cash provided by operating activities of $2.6$1.2 billion, and net financial collateral receivedcash dividend payments and share repurchases of $0.4$0.8 billion.
In August 2020, we redeemed $3.0 billion of outstanding principal amount of the 3.6% registered Notes that were originally due in October 2020.
Trends and Uncertainties
We are in the process of addressing many challenges facing our business, a discussion of which is available in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018.2019.
For a further discussion of trends, uncertainties and other factors that could impact our operating results, see the section entitled "Risk Factors" in Item 1A.1A of Part II.

55

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with United States ("U.S.") Generally Accepted Accounting Principles ("GAAP"). The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses, and disclosure of contingent liabilities. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that COVID-19 could have on our significant accounting estimates. Significant estimates that are based on a forecast include inventory reserves, provision for taxes, valuation allowance for deferred taxes, and impairment assessment of goodwill, intangible assets and other long lived assets. The Company believes that these estimates, judgements and assumptions are reasonable under the circumstances, and are subject to significant uncertainties, some of which are beyond the Company’s control. Should any of these estimates change, it could adversely affect Company’s results of operations. Additionally, as the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates, judgements and assumptions may evolve as conditions change. Management believes that there have been no significant changes during the nine months ended July 31, 2019,2020, with the exception of certain accounting policies that were updated resulting from our adoption of the new revenue recognitionleasing standard (See Note 1 in Item 1, "Overview and Summary of Significant Accounting Policies"), to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018.2019.

ACCOUNTING PRONOUNCEMENTS
For a summary of recent accounting pronouncements applicable to our Condensed Consolidated Financial Statements, see Note 1 in Item 1, "Overview and Summary of Significant Accounting Policies".
RESULTS OF OPERATIONS
Revenue from our international operations has historically represented, and we expect will continue to represent, a majority of our overall net revenue. As a result, our revenue growth has been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates. In order to provide a framework for assessing performance excluding the impact of foreign currency fluctuations, we present the year-over-year percentage change in revenue on a constant currency basis, which assumes no change in foreign currency exchange rates from the prior-year period and doesn't adjust for any repricing or demand impacts from changes in foreign currency exchange rates. This change in revenue on a constant currency basis is calculated as the quotient of (a) current year revenue converted to U.S. dollars using the prior-year period's foreign currency exchange rates divided by (b) the prior-year period revenue. This information is provided so that revenue can be viewed without the effect of fluctuations in foreign currency exchange rates, which is consistent with how management evaluates our revenue results and trends. This constant currency disclosure is provided in addition to, and not as a substitute for, the year-over-year percentage change in revenue on a GAAP basis. Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


56

Results of operations in dollars and as a percentage of net revenue were as follows:
 Three months ended July 31, Nine months ended July 31,
 2019 2018 2019 2018
 Dollars % of
Revenue
 Dollars % of
Revenue
 Dollars % of
Revenue
 Dollars % of
Revenue
 Dollars in millions
Net revenue$7,217
 100.0 % $7,764
 100.0 % $21,920
 100.0 % $22,906
 100.0 %
Cost of sales4,768
 66.1
 5,399
 69.5
 14,820
 67.6
 16,114
 70.3
Gross profit2,449
 33.9
 2,365
 30.5
 7,100
 32.4
 6,792
 29.7
Research and development481
 6.7
 435
 5.6
 1,404
 6.4
 1,227
 5.4
Selling, general and administrative1,253
 17.3
 1,221
 15.8
 3,678
 16.8
 3,684
 16.1
Amortization of intangible assets58
 0.9
 72
 0.9
 199
 0.9
 222
 1.0
Restructuring charges
 
 (1) 
 
 
 14
 0.1
Transformation costs170
 2.4
 126
 1.6
 302
 1.4
 491
 2.1
Disaster charges
 
 
 
 (7) 
 
 
Acquisition, disposition and other related charges563
 7.7
 24
 0.3
 710
 3.2
 70
 0.3
Separation costs
 
 (2) 
 
 
 
 
(Loss) earnings from continuing operations(76) (1.1) 490
 6.3
 814
 3.7
 1,084
 4.7
Interest and other, net(70) (1.0) (64) (0.7) (139) (0.6) (163) (0.6)
Tax indemnification adjustments(134) (1.8) 2
 
 89
 0.4
 (1,342) (5.9)
Non-service net periodic benefit credit12
 0.2
 26
 0.3
 45
 0.2
 90
 0.4
Earnings from equity interests3
 
 11
 0.1
 21
 0.1
 23
 0.1
(Loss) earnings from continuing operations before taxes(265) (3.7) 465
 6.0
 830
 3.8
 (308) (1.3)
Benefit (provision) for taxes238
 3.3
 (13) (0.2) (261) (1.2) 3,092
 13.5
Net (loss) earnings from continuing operations(27) (0.4) 452
 5.8
 569
 2.6
 2,784
 12.2
Net loss from discontinued operations
 
 (1) 
 
 
 (119) (0.6)
Net (loss) earnings$(27) (0.4)% $451
 5.8 % $569
 2.6 % $2,665
 11.6 %
Stock-based compensation expense is included within costs and expenses presented in the table above as follows:
 Three months ended July 31, Nine months ended July 31,
 2019 2018 2019 2018
 In millions
Cost of sales$7
 $7
 $30
 $34
Research and development15
 14
 55
 60
Selling, general and administrative36
 35
 122
 148
Transformation costs
 
 2
 3
Acquisition, disposition and other related charges
 1
 
 10
Separation costs
 
 
 10
Stock-based compensation expense from continuing operations$58
 $57
 $209
 $265
Net Revenue
For the three months ended July 31, 2019, as compared to the prior-year period, total net revenue decreased by $547 million, or 7.0% (decreased 5.4% on a constant currency basis). U.S. net revenue decreased by $201 million, or 7.6%, to $2.4 billion, and

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Results of operations in dollars and as a percentage of net revenue from outside ofwere as follows:
 Three Months Ended July 31,Nine Months Ended July 31,
 2020201920202019
 Dollars% of
Revenue
Dollars% of
Revenue
Dollars% of
Revenue
Dollars% of
Revenue
 Dollars in millions
Net revenue$6,816 100.0 %$7,217 100.0 %$19,774 100.0 %$21,920 100.0 %
Cost of sales4,749 69.7 4,768 66.1 %13,511 68.3 %14,820 67.6 %
Gross profit2,067 30.3 2,449 33.9 %6,263 31.7 %7,100 32.4 %
Research and development455 6.7 481 6.7 %1,390 7.0 %1,404 6.4 %
Selling, general and administrative1,131 16.6 1,253 17.3 %3,458 17.6 %3,678 16.8 %
Amortization of intangible assets95 1.4 58 0.9 %299 1.4 %199 0.9 %
Impairment of goodwill    %865 4.4 %  %
Transformation costs357 5.2 170 2.4 %646 3.3 %302 1.4 %
Disaster charges (recovery)2    %24 0.1 %(7) %
Acquisition, disposition and other related charges15 0.2 563 7.7 %55 0.3 %710 3.2 %
Earnings (loss) from operations12 0.2 (76)(1.1)%(474)(2.4)%814 3.7 
Interest and other, net(71)(1.0)(70)(1.0)%(158)(0.8)%(139)(0.6)
Tax indemnification adjustments(30)(0.5)(134)(1.8)%(86)(0.5)%89 0.4 
Non-service net periodic benefit credit28 0.4 12 0.2 %101 0.5 %45 0.2 
Earnings from equity interests27 0.4 3  %50 0.3 %21 0.1 
(Loss) earnings before taxes(34)(0.5)(265)(3.7)%(567)(2.9)%830 3.8 
Benefit (provision) for taxes43 0.6 238 3.3 %88 0.5 %(261)(1.2)
Net earnings (loss)$9 0.1 %$(27)(0.4)%$(479)(2.4)%$569 2.6 

Stock-based compensation expense is included within costs and expenses presented in the U.S. decreased by $346 million, or 6.7%, to $4.8 billion. table above as follows:
Three Months Ended July 31,Nine Months Ended July 31,
2020201920202019
In millions
Cost of sales$8 $7 $30 $30 
Research and development16 15 62 55 
Selling, general and administrative31 36 123 122 
Transformation costs   2 
Acquisition, disposition and other related charges  1  
Total$55 $58 $216 $209 
Net Revenue
For the ninethree months ended July 31, 2019,2020, as compared to the prior-year period, total net revenue decreaseddecreased by $986$401 million, or 4.3%5.6% (decreased 3.0% on4.1% on a constant currency basis). U.S. net revenue decreased by $329$73 million, or 4.4%3.0%, to $2.4 billion, and net revenue from outside of the U.S. decreased by $328 million, or 6.9%, to $7.1$4.4 billion. For the nine months ended July 31, 2020, as compared to the prior-year period, total net revenue decreased by $2.1 billion, or 9.8% (decreased 8.5% on a constant currency basis). U.S. net revenue decreased by $534 million, or 7.5%, to $6.6 billion, and net revenue from outside of the U.S. decreased by $657 million,$1.6 billion, or 4.3%10.9%, to $14.8 billion.$13.2 billion.
57

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


The components of the weighted net revenue change by segment were as follows:
Three Months Ended July 31, 2020Nine Months Ended July 31, 2020
Percentage points
Compute(0.2)(5.7)
HPC & MCS0.2 (0.3)
Storage(1.8)(2.1)
A & PS(0.2)(0.2)
Intelligent Edge(1.3)(0.5)
Financial Services(1.1)(0.9)
Corporate Investments(0.1)(0.1)
Total Segment(4.5)(9.8)
Elimination of Intersegment net revenue(1.1) 
  Total HPE(5.6)(9.8)
 Three months ended July 31, 2019 Nine months ended July 31, 2019
 Percentage points
Hybrid IT(7.2) (4.4)
Intelligent Edge(0.3) (0.1)
Financial Services(0.5) (0.1)
Corporate Investments/Other (1)
1.0
 0.3
  Total HPE(7.0) (4.3)
(1) Other primarily relates to the elimination of intersegment net revenue.
Three Months Ended July 31, 2020 compared with three months ended July 31, 2019 compared with the three months ended July 31, 2018
From a segment perspective, the primary factors contributing to the change in total net revenue are summarized as follows:
Hybrid ITCompute net revenue declined due primarily to unfavorable foreign currency fluctuations and competitive pricing pressures;
HPC & MCS net revenue increased due primarily to the addition of revenue resulting from the acquisition of Cray;
Storage net revenue decreased due primarily to a combination of factors including: lower Tier-1 server salesthe weak and uncertain global demand environment resulting from COVID-19 related lockdown restrictions which include supply chain constraints, competitive pricing pressures, lower revenue from China as we continue to exit less profitable product categories and certain markets, which was primarily experienced within Compute, demand weakness resulting in lower revenue from ISS core products within Compute and lower HPE Pointnext services revenue,the expiration of a decline in revenue from Storage products resulting from market weakness,one-time legacy contract and unfavorable currency fluctuations;
A & PS net revenue decreased due primarily to the weak and uncertain global demand environment resulting from COVID-19 related lockdown restrictions, including continued service delivery delays along with unfavorable foreign currency fluctuations;
Intelligent Edge net revenue decreased due primarily to unfavorable currency fluctuationsthe weak and uncertain global demand environment resulting from COVID-19 related lockdown restrictions, lower sales of campusrevenue from WLAN and switching products, within HPE Aruba Products driven by sales execution issues;competitive pricing pressures, lower software net revenue and unfavorable foreign currency fluctuations; and
FSFinancial Services net revenue decreased due primarily to lowera decrease in rental revenue fromdue to lower average operating leases andlease assets, unfavorable currency fluctuations.fluctuations, along with lower asset management revenue from lease buyouts and lease extensions.
Nine Months Ended July 31, 2020 compared with nine months ended July 31, 2019 compared with the nine months ended July 31, 2018
From a segment perspective, the primary factors contributing to the change in total net revenue are summarized as follows:
Hybrid ITCompute net revenue declined due to multiple factors including the weak and uncertain global demand environment resulting from COVID-19 related lock down restrictions, competitive pricing pressures, unfavorable foreign currency fluctuations, commodity and manufacturing capacity constraints in North America;
HPC & MCS net revenue decreased due to a decline in Tier-1 server saleschallenges resulting from COVID-19 related lockdown restrictions including performing on-site product installations, meeting customer acceptance milestones, and lower revenue from China which was primarily experienced within Compute, lower HPE Pointnext services revenue due tothe weak and uncertain global demand weakness and unfavorable currency fluctuations;environment;
Intelligent Edge net revenue decreased due primarily to lower sales of our switching products within HPE Aruba Products driven by sales execution issues; and
58
FS net revenue decreased due primarily to unfavorable currency fluctuations and lower rental revenue from lower average operating leases.
A more detailed discussion of segment revenue is included under "Segment Information" below.
Gross Margin
For the three and nine months ended July 31, 2019, as compared to the prior-year periods, total gross margin increased 3.4 and 2.7 percentage points, respectively. From a segment perspective, the primary factors impacting gross margin performance are summarized as follows:
Hybrid IT gross margin increased for the three and nine months ended July 31, 2019, as compared to the prior-year periods, due primarily to a combination of factors including the year-over-year decrease in commodity costs, cost management

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



initiatives, and a lower mix ofStorage net revenue from Tier-1 server sales coupled with a higher mix of revenue from higher-margin products;
Intelligent Edge gross margin decreased for the three months ended July 31, 2019, as compared to the prior-year period, due primarily to unfavorable ratesthe weak and uncertain global demand environment predominantly resulting from competitive pressures on products. Intelligent Edge gross margin increased forCOVID-19 related lockdown restrictions, commodity and North American manufacturing capacity constraints, and lower revenue from the nine months ended July 31, 2019, as compared to the prior-year period,expiration of a one-time legacy contract;
A & PS net revenue decreased due primarily to favorablethe weak and uncertain global demand environment resulting from COVID-19 related lockdown restrictions, including service delivery delays along with unfavorable foreign currency fluctuations, a higher mix offluctuations;
Intelligent Edge net revenue from higher-margin WLAN products and HPE Aruba Services, and cost management activities; and
FS gross margin increased for the three and nine months ended July 31, 2019, as compared to the prior-year periodsdecreased due primarily to higher marginslower revenue from switching and WLAN products predominantly driven by the weak and uncertain global demand environment resulting from COVID-19 related lockdown restrictions, lower software net revenue, and unfavorable foreign currency fluctuations; and
Financial Services net revenue decreased due primarily to a decrease in rental revenue due to lower average operating lease extensionsassets, unfavorable currency fluctuation, and lower lease buyouts. Additionally, the nine month period had lower bad debt expense compared to the prior-year period.equipment buyout revenue.
A more detailed discussion of segment gross margins and operating marginsrevenue is included under "Segment Information" below.
Operating ExpensesGross Profit
For the three months ended July 31, 2020, as compared to the prior-year period, total gross profit margin decreased 3.6 percentage points. The decline in gross profit margin was due to multiple factors led by higher commodity costs, competitive pricing pressures, increased supply chain costs resulting from COVID-19, and the net revenue decline which resulted in higher fixed overhead costs as a percentage of net revenue, partially offset by our continued shift to higher margin products and services.
For the nine months ended July 31, 2020, as compared to the prior-year period, total gross margin decreased 0.7 percentage points. The gross margin decrease was primarily due to increased supply chain costs resulting from the impact of COVID-19, competitive pricing pressures, and the scale of net revenue decline, partially offset by our overall shift to higher-margin products and services along with lower variable compensation expense.
Research and Development
Research and development ("R&D") expense increaseddecreased by $26 million, or 5%, and by $46$14 million, or 11% and by $177 million or 14%1%, for the three and nine months ended July 31, 2019,2020, respectively, as compared to the prior-year periods, due primarily to increased investment in new product development in the Hybrid IT and Intelligent Edge segments, higherlower variable compensation expenses,expense and higher costs associated with recent business acquisitions,the impact of cost containment measures we put in place in response to COVID-19, partially offset by favorable currency fluctuations.on-going expenses from business acquisitions.
Selling, General and Administrative
Selling, general and administrative expense increased by $32 million or 3% for the three months ended July 31, 2019, as compared to the prior-year period due primarily to higher field selling costs and higher variable compensation expenses, partially offset by favorable currency fluctuations.
For the nine months ended July 31, 2019, as compared to the prior-year period, selling, general and administrative expense decreased by $6 million, due primarily to favorable currency fluctuations and lower marketing and administrative expenses as a result of the HPE Next initiative, partially offset by higher field selling costs, variable compensation expenses and higher costs associated with recent business acquisitions.
Amortization of Intangible Assets
Amortization expense decreased by $14$122 million, or 19%10%, and by $23$220 million, or 10%6%, for the three and nine months ended July 31, 2019,2020, respectively, as compared to the prior-year periods, due primarily to lower variable compensation expense and the impact of cost containmentmeasures we put in place in response to COVID-19, favorable currency fluctuations, partially offset by on-going expenses from business acquisitions.
Amortization of Intangible Assets
Amortization of intangible assets increased by $37 million, or 64%, and by $100 million, or 50%, for the three and nine months ended July 31, 2020, respectively, as compared to the prior-year periods, due to an increase in the amortization of intangible assets from recent acquisitions and the write-off of certain intangible assets, partially offset by certain intangible assets associated with prior acquisitions reaching the end of their amortization periods, partially offset by the additionperiod.
Impairment of intangible assets from recent acquisitions.Goodwill
Transformation Costs
For the three months ended July 31, 2019, HPE Next transformation costs increased by $44 million or 35%, as compared to the prior-year period, due primarily to the benefit from gains on real estate sales in the prior-year period, impairment charges on real estate assets in the current period and higher IT costs, partially offset by lower restructuring charges and program management costs.
For the nine months ended July 31, 2019, HPE Next transformation costs decreased by $189 million or 38%, compared to the prior-year period, due primarily to lower restructuring charges, program management costs and IT costs, partially offset by the benefit from gains on real estate sales in the prior-year period and impairment charges on real estate assets in the current period.
Disaster Charges
Disaster chargesImpairment of goodwill for the nine months ended July 31, 2019, represent2020, represents a partial goodwill impairment charge of $865 million recorded in the second quarter of fiscal 2020, as it was determined that the fair value of the HPC & MCS reporting unit was below the carrying value of its net gain from settlements related to the damage sustained at our facilities in Houston, Texas, as a result of Hurricane Harvey.assets.
59

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



While the other reporting units were negatively impacted by COVID-19, their fair values continued to exceed the carrying value of their net assets and did not result in impairment. In order to evaluate the sensitivity of the estimated fair value of other reporting units for the quantitative goodwill impairment test, the Company applied a hypothetical 10% reduction to the estimated fair value of each of these other reporting units. Based on the results of this hypothetical 10% reduction to the estimated fair value, each of these other reporting units had an excess of fair value over carrying value of their net assets. However, should economic conditions deteriorate further or remain depressed for a prolonged period of time, estimates of future cash flows for each of our reporting units may be insufficient to support the carrying value and the goodwill assigned to them, requiring impairment charges, including additional impairment charges for the HPC & MCS reporting unit. Further impairment charges, if any, may be material to our results of operations and financial position. See Part II, Item 1A, Risk Factors for a discussion of the potential impacts of COVID-19 on the fair value of our assets.
We will continue to evaluate the recoverability of goodwill at the reporting unit level on an annual basis as of the beginning of its fourth fiscal quarter and whenever events or changes in circumstances indicate there may be a potential impairment.
Transformation Costs
Transformation programs are comprised of the cost optimization and prioritization plan we introduced in May 2020, and the HPE Next Initiative.
Transformation costs increased by $187 million, or 110%, for the three months ended July 31, 2020, as compared to the prior-year period, due primarily to the restructuring costs recorded in the third quarter of fiscal 2020 in connection with our cost optimization and prioritization plan.
Transformation costs increased by $344 million, or 114%, for the nine months ended July 31, 2020, as compared to the prior-year period, due primarily to the restructuring charges recorded in the third quarter of fiscal 2020 in connection with our cost optimization and prioritization plan and higher restructuring charges from our HPE Next Initiative, partially offset by higher gains from the sale of real estate.
See Note 3, "Transformation Programs", for discussion of the Transformation Costs.
Disaster charges (recovery)
Disaster charges for the three and nine months ended July 31, 2020, represent direct costs resulting from COVID-19 and are primarily related to HPE hosted, co-hosted, or sponsored events which had to be converted to a virtual format or in some cases cancelled.
For the nine months ended July 31, 2019, disaster recovery amounts represent insurance recoveries in relation to damage to our facilities in Houston, Texas due to Hurricane Harvey in fiscal 2017.
Acquisition, Disposition and Other Related Charges
Acquisition, disposition and other related charges increaseddecreased by $539$548 million, or 97%, and $640by $655 million, or 92%, for the three and nine months ended July 31, 2019,2020, respectively, as compared towith the prior-year periods, due primarily to a charge related to a one-time arbitration settlement in the prior-year period, partially offset by reducedrecent business acquisition costs for acquisition related to retention bonuses and integration activities.
Interest and Other, Net
Interest and other, net expense increased by $6$1 million for the three months ended July 31, 2019,2020, as compared with the prior-year period, due primarily to higher net interest expense, partially offset by favorable currency fluctuations. Interest and other, net expense increased by $19 million for the nine months ended July 31, 2020, as compared with the prior-year period, due primarily to higher net interest expense and unfavorable currency fluctuations, partially offset by a net gain on the sale of certain assets in the prior-year period, partially offset by lower net interest expense in the current period.year.
Interest
60

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and other, net expense decreased by $24 million for the nine months ended July 31, 2019, as compared to the prior-year period, due primarily to a net gain from the saleAnalysis of investments in the current period
Financial Condition and a net loss from the saleResults of investments in the prior-year period.Operations (Continued)
Non-service net periodic benefit credit
Non-service net periodic benefit credit for the three and nine months ended July 31, 2019, represent adjustments to the net periodic pension benefit cost resulting from the remeasurement of certain Hewlett Packard Enterprise defined benefit pension and post-retirement benefit plans due to factors such as interest cost, expected return on plan assets, amortization of prior plan amendments, amortized actuarial gains or losses and the impact of any plan settlements or curtailments.

Tax Indemnification Adjustments
We recorded tax indemnification expense of $134$30 million and tax indemnification income of $2$134 million for the three months ended July 31, 2020 and 2019, respectively, and 2018, respectively,tax indemnification expense of $86 million and tax indemnification income of $89 million and tax indemnification expense of $1.3 billion for the nine months ended July 31, 2020 and 2019, respectively. For the three and 2018, respectively.nine months ended July 31, 2020, the amount included tax audit activity at HP Inc. and DXC. The activity for the nine months ended July 31, 2020 also included changes in certain pre-Separation tax liabilities for which we share joint and several liability with HP Inc. and for which we are indemnified by HP Inc. For the three and nine months ended July 31, 2019, the amount was due primarily to the impacts of the effective settlement of the U.S. federal income tax audit of fiscal years 2013 through 2015 for HP Inc. The activity for the nine months ended July 31, 2019 also included the effects of U.S. tax reform on tax attributes related to fiscal periods prior to the Separation. For
Non-service net periodic benefit
Non-service net periodic benefit credit increased by $16 million and $56 million for the three and nine months ended July 31, 2018,2020, respectively, as compared with the amounts resulted from changes in certain pre-Separation tax liabilities for which we share joint and several liability with HP Inc. and for which we are partially indemnified by HP Inc. under the Tax Matters Agreement.prior-year periods, due primarily to lower interest rates.
Earnings from Equity Interests
Earnings from equity interests primarily represents our 49% interest in H3C Technologies' ("H3C") earnings and the amortization of our interest in a basis difference. For the three and nine months ended July 31, 2019,2020, earnings from equity interests decreasedincreased by $24 million and $29 million, respectively, as compared to the prior-year periods, as a result of lowerdue to higher net income earned by H3C.
Provision for Taxes
Our effective tax rate was 89.8%126.5% and 2.8%89.8% for the three months ended July 31, 20192020 and 2018,2019, respectively, and 31.4%15.5% and 1,003.9%31.4% for the nine months ended July 31, 2020, and 2019, respectively. The effective tax rates for the three and 2018, respectively. Ournine months ended July 31, 2020 were impacted by income tax benefits resulting from tax rate changes and differed from the statutory tax rate due to favorable tax rates associated with certain earnings from our operations in lower tax jurisdictions throughout the world. The effective tax rate for the nine months ended July 31, 2020 also included the effects of the non-deductible goodwill impairment. The effective tax rates for the three and nine months ended July 31, 2019 and 2018 were significantly impacted by the Tax Cuts and Jobs Act (the “Tax Act”) and the settlement of certain pre-Separation tax liabilities of HP Inc.
On December 22, 2017, the Tax Act was enacted into law, which significantly changed existing U.S. tax law and included numerous provisions that affect our business, such as imposing a one-time Transition Tax on deemed repatriation of deferred foreign income, reducing the U.S. federal statutory Our effective tax rate and adopting a modified territorial tax system. See Note 6, "Taxesis based on Earnings", for a full descriptionforecasted annual results which may fluctuate significantly through the remainder of fiscal 2020 due to the uncertain economic impact of the Tax Act toCOVID-19 on our operations.operating results.
Segment Information
Effective at the beginning ofin the first quarter of fiscal 2019, the Company2020, we implemented certain organizational changes to align itsour segment financial reporting more closely with itsour current business structure. We replaced the Hybrid IT segment with four new financial reporting segments, Compute, High Performance Compute & Mission-Critical Systems, Storage and Advisory and Professional Services as follows:
we created the Compute segment consisting of the general purpose server and workload optimized server portfolios that were previously a part of the Hybrid IT-Compute business unit and the related operational services business that was previously a part of the Hybrid IT-HPE Pointnext business unit;
we created the HPC & MCS segment consisting of the high performance compute, mission-critical systems and edge compute offerings that were previously a part of the Hybrid IT-Compute business unit and the related operational services business that was previously a part of the Hybrid IT-HPE Pointnext business unit;
we created the Storage segment consisting of the former Hybrid IT-Storage business unit and the related operational services business that was previously a part of the Hybrid IT-HPE Pointnext business unit and the hyperconverged infrastructure products that were previously a part of the Hybrid IT-Compute business unit;
we created the A & PS segment consisting of the consultative-led services that were previously a part of the Hybrid IT-HPE Pointnext business unit; and
we transferred the DC Networking operational services business that was previously a part of the Hybrid IT-HPE Pointnext business unit to the Intelligent Edge segment.
61

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


As a result of these realignments, our operations are now organized into seven segments for financial reporting purposes: Compute, HPC & MCS, Storage, A & PS, Intelligent Edge, FS, and Corporate Investments.
For additional information related to these realignments and for a description of the products and services for each segment, see Note 2, "Segment Information".
Compute
 Three months ended July 31,
 20202019% Change
 Dollars in millions 
Net revenue$3,389 $3,400 (0.3)%
Earnings from operations$288 $439 (34.4)%
Earnings from operations as a % of net revenue8.5 %12.9 % 

 Nine months ended July 31,
 20202019% Change
 Dollars in millions 
Net revenue$9,040 $10,293 (12.2)%
Earnings from operations$699 $1,086 (35.6)%
Earnings from operations as a % of net revenue7.7 %10.6 %

Three months ended July 31, 2020 compared with three months ended July 31, 2019
Compute net revenue decreased by $11 million, or 0.3% (increased 1.1% on a constant currency basis), for the three months ended July 31, 2020 as compared to the prior-year period.
Net revenue in Compute decreased due primarily to unfavorable currency fluctuations and competitive pricing pressures, the effects of which were partially offset by improved supply chain performance. While Compute experienced an increase in unit shipments driven by improved supply chain execution, average unit selling prices declined due to competitive pricing pressures. Compute continues to be impacted by the weak and uncertain global demand environment resulting from COVID-19 related lockdown restrictions.
Compute earnings from operations as a percentage of net revenue decreased 4.4 percentage points for the three months ended July 31, 2020, as compared to the prior-year period, due to an increase in cost of products as a percentage of net revenue partially offset by a decrease in operating expenses as a percentage of net revenue. The increase in cost of products as a percentage of net revenue was due primarily to higher commodity costs, competitive pricing pressures, increased supply chain logistics costs resulting from COVID-19 and unfavorable currency fluctuations. The decrease in operating expense as a percentage of net revenue was due primarily to lower variable compensation expense and lower spending due to cost containment measures put in place in response to COVID-19. These declines were partially offset by higher field selling costs.

Nine months ended July 31, 2020 compared with nine months ended July 31, 2019
Compute net revenue decreased by $1.3 billion, or 12.2% (decreased 10.9% on a constant currency basis), for the nine months ended July 31, 2020, as compared to the prior-year period.
Net revenue in Compute was impacted by multiple factors including the weak and uncertain global demand environment resulting from COVID-19 related lock down restrictions, competitive pricing pressures, unfavorable currency fluctuations and commodity and manufacturing capacity constraints in North America. As a result, for the first nine months of fiscal 2020, as compared to the prior-year period, Compute experienced a decline in unit shipments and average unit selling prices.

62

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Hybrid IT
 Three months ended July 31,
 2019 2018 % Change
 Dollars in millions  
Net revenue$5,549
 $6,109
 (9.2)%
Earnings from operations$704
 $624
 12.8 %
Earnings from operations as a % of net revenue12.7% 10.2%  
 Nine months ended July 31,
 2019 2018 % Change
 Dollars in millions  
Net revenue$17,155
 $18,160
 (5.5)%
Earnings from operations$2,024
 $1,787
 13.3 %
Earnings from operations as a % of net revenue11.8% 9.8%  
The components of the weighted net revenue change by business unit were as follows:
 Three months ended July 31,
 Net Revenue Weighted
Net Revenue
Change
Percentage
Points
 2019 2018 2019
 Dollars in millions  
Compute$3,151
 $3,569
 (6.9)
Storage844
 887
 (0.7)
Hybrid IT Product3,995
 4,456
 (7.6)
HPE Pointnext1,554
 1,653
 (1.6)
Total Hybrid IT$5,549
 $6,109
 (9.2)
 Nine months ended July 31,
 Net Revenue Weighted
Net Revenue
Change
Percentage
Points
 2019 2018 2019
 Dollars in millions 
Compute$9,646
 $10,350
 (3.9)
Storage2,761
 2,747
 0.1
Hybrid IT Product12,407
 13,097
 (3.8)
HPE Pointnext4,748
 5,063
 (1.7)
Total Hybrid IT$17,155
 $18,160
 (5.5)



HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Three months ended July 31, 2019 compared with three months ended July 31, 2018
Hybrid IT net revenue decreased by $560 million, or 9.2% (decreased 7.7% on a constant currency basis), for the three months ended July 31, 2019, as we continue to execute on our HPE Next initiative, which includes streamlining our offerings and business processes, and shifting investments in innovation towards high growth and higher margin solutions and services. The decrease in Hybrid IT net revenue was due primarily to a decline in Tier-1 server sales and lower revenue from China as we continue to exit less profitable product categories and certain markets, which was primarily experienced within Compute. The net revenue decline was also due to lower revenue from Compute as a result of a decline in ISS core products due to demand weakness resulting in longer sales cycles, a decline in HPE Pointnext revenue due in part to demand weakness and unfavorable currency fluctuations, and a decline in Storage revenue due to market weakness. Partially offsetting this decrease was revenue growth from HPE Nimble Storage.
Hybrid IT Product net revenue decreased by $461 million, or 10%, with a decline of 12% in Compute and a decline of 5% in Storage.
The net revenue decrease in Compute was due primarily to a combination of factors, including a decline in Tier-1 server sales and revenue decline from China. The net revenue decrease in Compute was also due to the decrease in ISS core products, which was driven by a decrease in unit shipments as a result of demand weakness, while Average Unit Prices ("AUPs") remained flat. The decline in unit shipments was experienced primarily in the blade category. Mission-critical servers ("MCS") experienced a net revenue decrease led by a revenue decline in Itanium and NonStop products.
The net revenue decrease in Storage was due primarily to a decline across product categories primarily 3PAR, Big Data, and traditional storage products driven by market weakness, partially offset by revenue growth in HPE Nimble Storage.
HPE Pointnext net revenue decreased by $99 million, or 6%, due primarily to revenue declines in Operational Services from lower demand in prior periods and the impact of unfavorable currency fluctuations.
Hybrid IT earnings from operations as a percentage of net revenue increased 2.5decreased 2.9 percentage points for the threenine months ended July 31, 2019,2020, as compared to the prior-year period due primarily to an increase in gross margin which was partially offset bycosts of products as a percentage of net revenue and an increase in operating expenses as a percentage of net revenue. The increase in gross margin was due primarily to a combinationcost of factors including the year-over-year decrease in commodity costs, lower costs of services and products due to our cost management initiatives and a lower mix of revenue from Tier-1 server sales coupled with a higher mix of revenue from higher-margin products. The increase in gross margin was partially offset by unfavorable currency fluctuations. The increase in operating expenses as a percentage of net revenue was due primarily to the net revenue decline and an increase in operating expenses driven by higher field sellingcompetitive pricing pressures, increased supply chain logistics costs and R&D costs, compared to the prior-year period.
Nine months ended July 31, 2019 compared with nine months ended July 31, 2018
Hybrid IT net revenue decreased by $1.0 billion, or 5.5% (decreased 4.4% on a constant currency basis), for the nine months ended July 31, 2019. The decrease in Hybrid IT net revenue was due primarily to a decline in Tier-1 server sales and a decline in revenue from China, both of which was primarily experienced within Compute, and a decline in HPE Pointnext revenue due to demand weakness and unfavorable currency fluctuations. Partially offsetting this decrease was higher revenue from HPE Nimble Storage.
Hybrid IT Product net revenue decreased by $690 million, or 5%, with a decline of 7% in Compute and growth of 1% in Storage.
The net revenue decrease in Compute was due primarily to a decline in Tier-1 server sales and a decline in revenue from China. Revenue from ISS core remained flat due to a decline in unit shipments, primarily in the blade, tower and rack categories, offset by higher AUPs across core products. MCS experienced a net revenue decrease led by a revenue decline in Itanium and NonStop products.
The net revenue increase in Storage was due primarily to revenue growth from HPE Nimble Storage and traditional storage products,fluctuations which were partially offset by a decline in revenue from 3PAR and Big Data products.
HPE Pointnext net revenue decreased by $315 million, or 6%, due primarily to revenue declines in Operational Services and Advisory and Professional Services resulting in part from demand weakness. Additionally, Advisory and Professional Services experienced lower revenue as a result of our initiative to streamline our go-to-market approach in certain countries. The impact of unfavorable currency fluctuations contributed to the overall revenue decline in HPE Pointnext.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Hybrid IT earnings from operations as a percentage of net revenue increased 2.0 percentage points for the nine months ended July 31, 2019, as compared to the prior-year period, due to an increase in gross margin which was partially offset by an increase in operating expenses as a percentage of net revenue. The increase in gross margin was due primarily to a combination of factors including the year-over-year decrease in commodity costs, lower costs of services and products due to our cost management initiatives and a lower mix of revenue from Tier-1 server sales coupled with a higher mix of revenue from higher-margin products. The increase to gross margin was partially offset by unfavorable currency fluctuations and higher variable compensation expense. The increase in operating expensesexpense as a percentage of net revenue was due primarily to the scale of the net revenue decline while total operating expenses declined year-over-year due primarily to lower variable compensation expense and lower spending due to cost containment measures put in place in response to COVID-19. These declines were partially offset by higher R&Dfield selling costs.
Intelligent Edge
63
 Three months ended July 31,
 2019 2018 % Change
 Dollars in millions  
Net revenue$762
 $785
 (2.9)%
Earnings from operations$37
 $101
 (63.4)%
Earnings from operations as a % of net revenue4.9% 12.9%  


 Nine months ended July 31,
 2019 2018 % Change
 Dollars in millions  
Net revenue$2,114
 $2,147
 (1.5)%
Earnings from operations$66
 $191
 (65.4)%
Earnings from operations as a % of net revenue3.1% 8.9%  
HPC & MCS
The components of the weighted net revenue change by business unit were as follows:
 Three Months Ended July 31,
 20202019% Change
 Dollars in millions 
Net revenue$649 $633 2.5 %
Earnings from operations$36 $51 (29.4)%
Earnings from operations as a % of net revenue5.5 %8.1 %
 Three months ended July 31,
 Net Revenue Weighted
Net Revenue Change Percentage Points
 2019 2018 2019
 Dollars in millions  
HPE Aruba Product$668
 $703
 (4.6)
HPE Aruba Services94
 82
 1.7
Total Intelligent Edge$762
 $785
 (2.9)

Nine Months Ended July 31,
20202019% Change
Dollars in millions
Net revenue$2,061 $2,133 (3.4)%
Earnings from operations$118 $241 (51.0)%
Earnings from operations as a % of net revenue5.7 %11.3 %
 Nine months ended July 31,
 Net Revenue Weighted
Net Revenue
Change
Percentage
Points
 2019 2018 2019
 Dollars in millions  
HPE Aruba Product$1,842
 $1,914
 (3.3)
HPE Aruba Services272
 233
 1.8
Total Intelligent Edge$2,114
 $2,147
 (1.5)
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Three months ended July 31, 20192020 compared with three months ended July 31, 20182019
Intelligent EdgeHPC & MCS net revenue decreasedincreased by $23$16 million, or 2.9% (decreased 1.5%2.5% (increased 3.3% on a constant currency basis), for the three months ended July 31, 2019,2020, as compared to the prior-year period.
The decrease in Intelligent Edge net revenue was due to a net decrease in HPE Aruba Product revenue of $35 million, or 5%, partially offset by an increase in HPE Aruba Services revenue of $12 million, or 15%. The decrease in HPE Aruba ProductHPC & MCS net revenue was due primarily to the addition of revenue resulting from the acquisition of Cray. This increase was partially offset by unfavorable foreign currency fluctuations and challenges resulting from COVID-19 related lockdown restrictions including performing on-site product installations, meeting customer acceptance milestones and a revenue decline in campus switching products driven by sales execution issues, particularly in the North America regionweak and weakeruncertain global demand while revenue growth from WLAN products was flat. The increase in HPE Aruba Services revenue was due primarily to services attach on a growing product installed base and an increase in renewal rates.environment.
Intelligent EdgeHPC & MCS earnings from operations as a percentage of net revenue decreased by 8.02.6 percentage points for the three months ended July 31, 2019, as compared to the prior-year period, due to an increase in operating expenses as a percentage of net revenue as well as a decrease in gross margin. The increase in operating expenses as a percentage of net revenue was due primarily to increased R&D expenses and field selling costs. The gross margin decrease was due primarily to unfavorable rates resulting from competitive pressures on products, partially offset by a higher mix of revenue from higher-margin HPE Aruba Services and WLAN products and cost management activities.
Nine months ended July 31, 2019 compared with nine months ended July 31, 2018
Intelligent Edge net revenue decreased by $33 million, or 1.5% (decreased 0.8% on a constant currency basis), for the nine months ended July 31, 2019, as compared to the prior-year period. The decrease in Intelligent Edge net revenue was due to a net decrease in HPE Aruba Product revenue of $72 million, or 4%, partially offset by an increase in HPE Aruba Services revenue of $39 million, or 17%. The decrease in HPE Aruba Product revenue was due primarily to a revenue decline in our switching products, driven by sales execution issues, particularly in the North America region and weaker demand, partially offset by a slight revenue increase in WLAN products. The increase in HPE Aruba Services revenue was due primarily to services attach on a growing product installed base and an increase in renewal rates.
Intelligent Edge earnings from operations as a percentage of net revenue decreased by 5.8 percentage points for the nine months ended July 31, 2019,2020, as compared to the prior-year period, due to an increase in operating expenses as a percentage of net revenue, partially offset by an increaselower cost of products and services as a percentage of net revenue. The decrease in gross margin.cost of products and services as a percentage of net revenue was due primarily to improved mix of products and services from the acquisition of Cray along with the prior-year period containing higher excess and obsolescence charges. The increase in operating expenses as a percentage of net revenue was due primarily to increased R&Dthe addition of operating expenses from the acquisition of Cray.
Nine months ended July 31, 2020 compared with nine months ended July 31, 2019
HPC & MCS net revenue decreased by $72 million, or 3.4% (decreased 2.8% on a constant currency basis), for the nine months ended July 31, 2020, as compared to the prior-year period.
Net revenue in HPC & MCS decreased due to challenges resulting from COVID-19 related lockdown restrictions including performing on-site product installations, meeting customer acceptance milestones and field selling costs.a weak and uncertain global demand environment, partially offset by the addition of revenue resulting from Cray.
HPC & MCS earnings from operations as a percentage of net revenue decreased 5.6 percentage points for the nine months ended July 31, 2020, as compared to the prior-year period, due to an increase in operating expenses as a percentage of net revenue partially offset by lower cost of products and services as a percentage of net revenue. The gross margin increasedecrease in cost of products and services as a percentage of net revenue was due primarily to favorable currency fluctuations,an improved product mix from the acquisition of Cray and lower variable compensation expense. The increase in operating expenses as a higher mixpercentage of net revenue was due to the addition of operating expenses resulting from higher-margin WLAN products and HPE Aruba Services, and cost management activities,the acquisition of Cray partially offset by lower margins from unfavorable rates resulting from competitive pressures on products.
Financial Servicesvariable compensation expense.
 Three months ended July 31,
 2019 2018 % Change
 Dollars in millions  
Net revenue$888
 $928
 (4.3)%
Earnings from operations$77
 $72
 6.9 %
Earnings from operations as a % of net revenue8.7% 7.8% 

64
 Nine months ended July 31,
 2019 2018 % Change
 Dollars in millions  
Net revenue$2,703
 $2,732
 (1.1)%
Earnings from operations$231
 $215
 7.4 %
Earnings from operations as a % of net revenue8.5% 7.9%  

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Storage
 Three Months Ended July 31,
 20202019% Change
 Dollars in millions 
Net revenue$1,128 $1,255 (10.1)%
Earnings from operations$145 $207 (30.0)%
Earnings from operations as a % of net revenue12.9 %16.5 %

Nine Months Ended July 31,
20202019% Change
Dollars in millions
Net revenue$3,464 $3,929 (11.8)%
Earnings from operations$516 $705 (26.8)%
Earnings from operations as a % of net revenue14.9 %17.9 %

Three months ended July 31, 20192020 compared with three months ended July 31, 20182019
FSStorage net revenue decreased by $40$127 million or 4.3%10.1% (decreased 2.0%8.8% on a constant currency basis), for the three months ended July 31, 2019. 2020 as compared to the prior-year period.
Net revenue in Storage was impacted by the weak and uncertain global demand environment resulting from COVID-19 related lockdown restrictions which include supply chain constraints, competitive pricing pressures, lower revenue from the expiration of a one-time legacy contract and unfavorable currency fluctuations. Partially offsetting the net revenue decline was higher revenue from Big Data.
Storage earnings from operations as a percentage of net revenue decreased 3.6 percentage points for the three months ended July 31, 2020, as compared to the prior-year period, due to an increase in cost of products as a percentage of net revenue and an increase in operating expenses as a percentage of net revenue. The increase in cost of product as a percentage of net revenue was due primarily to competitive pricing pressures, unfavorable currency fluctuations, and the scale of the net revenue decline which resulted in higher fixed overhead costs as a percentage of net revenue, the effects of which were partially offset by lower cost of services. The increase in operating expenses as a percentage of net revenue was due primarily to the scale of the net revenue decline and increased investments in R&D, while total operating expenses declined during the period due to lower field selling costs as a result of lower spending due to cost containment measures put in place in response to COVID-19 and lower variable compensation expense.
Nine months ended July 31, 2020 compared with nine months ended July 31, 2019
Storage net revenue decreased by $465 million or 11.8% (decreased 10.6% on a constant currency basis), for the nine months ended July 31, 2020, as compared to the prior-year period.
Net revenue in Storage was impacted by the weak and uncertain global demand environment predominantly resulting from COVID-19 related lockdown restrictions, commodity and North American manufacturing capacity constraints in the first quarter of fiscal 2020, and lower revenue from the expiration of a one-time legacy contract. Partially offsetting the net revenue decrease was revenue growth from Big Data and Storage services.
Storage earnings from operations as a percentage of net revenue decreased 3.0 percentage points for the nine months ended July 31, 2020, as compared to the prior-year period, due to an increase in cost of product and services as a percentage of net revenue and an increase in operating expenses as a percentage of net revenue. The increase in the cost of product and services as a percentage of net revenue was due primarily to unfavorable currency fluctuations and higher fixed overhead costs as a percentage of net revenue, the effects of which were partially offset by lower variable compensation expense and lower cost of services. The increase in operating expenses as a percentage of net revenue was due primarily to higher investments in R&D and to the scale of the net revenue decline, while total operating expenses declined during the period due to lower variable compensation expense and lower spending due to cost containment measures put in place in response to COVID-19.

65

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


A & PS
 Three Months Ended July 31,
 20202019% Change
 Dollars in millions 
Net revenue$226 $242 (6.6)%
Loss from operations$(4)$(9)55.6 %
Loss from operations as a % of net revenue(1.8)%(3.7)%

Nine Months Ended July 31,
20202019% Change
Dollars in millions
Net revenue$706 $743 (5.0)%
Loss from operations$(4)$(55)92.7 %
Loss from operations as a % of net revenue(0.6)%(7.4)%

Three months ended July 31, 2020 compared with three months ended July 31, 2019
A & PS net revenue decreased by $16 million, or 6.6% (decreased 5.4% on a constant currency basis), for the three months ended July 31, 2020 as compared to the prior-year period.
The decrease in A & PS net revenue was primarily due to the weak and uncertain global demand environment resulting from COVID-19 related lockdown restrictions including continued service delivery delays along with unfavorable foreign currency fluctuations partially offset by strength in the Asia Pacific and Japan region.

A & PS earnings from operations as a percentage of net revenue improved 1.9 percentage points for the three months ended July 31, 2020, as compared to the prior-year period, due to lower operating expenses as a percentage of net revenue partially offset by an increase in cost of services as a percentage of net revenue. The increase in cost of services as a percentage of net revenue was primarily due to the impact of fixed compensation expense partially offset by a decrease in variable compensation expense. The lower operating expenses as a percentage of net revenue was primarily due to a reduction in field selling costs due to cost containment measures put in place in response to COVID-19.
Nine months ended July 31, 2020 compared with nine months ended July 31, 2019
A & PS net revenue decreased by $37 million, or 5.0% (decreased 4.3% on a constant currency basis), for the nine months ended July 31, 2020 as compared to the prior-year period.
The decrease in A & PS net revenue was primarily due to the weak and uncertain global demand environment during the second and third quarters, resulting from COVID-19 related lockdown restrictions including service delivery delays along with unfavorable foreign currency fluctuations partially offset by strength in the Asia Pacific and Japan
A & PS earnings from operations as a percentage of net revenue improved 6.8 percentage points for the nine months ended July 31, 2020, as compared to the prior-year period, due to lower cost of services as a percentage of net revenue coupled with a decrease in operating expenses as a percentage of net revenue. The decrease in cost of services as a percentage of net revenue was primarily due to service delivery and overhead efficiencies along with lower variable compensation expense. The decrease to operating expenses as a percentage of net revenue was primarily due to lower spending due to cost containment measures put in place in response to COVID-19.
66

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


Intelligent Edge
 Three Months Ended July 31,
 20202019% Change
 Dollars in millions 
Net revenue$684 $781 (12.4)%
Earnings from operations$59 $53 11.3 %
Earnings from operations as a % of net revenue8.6 %6.8 % 

Nine Months Ended July 31,
20202019% Change
Dollars in millions
Net revenue$2,069 $2,171 (4.7)%
Earnings from operations$202 $113 78.8 %
Earnings from operations as a % of net revenue9.8 %5.2 %

Three months ended July 31, 2020 compared with three months ended July 31, 2019
Intelligent Edge net revenue decreased by $97 million, or 12.4% (decreased 11.4% on a constant currency basis), for the three months ended July 31, 2020, as compared to the prior-year period.
Net revenue declined in the Intelligent Edge due to the weak and uncertain global demand environment resulting from COVID-19 related lockdown restrictions. As a result, we experienced lower revenue from WLAN and switching products, with competitive pricing pressures also adding to the decline in WLAN net revenue. Lower software net revenue and unfavorable foreign currency fluctuations also added to the net revenue decline, partially offset by an increase in net revenue from service renewals.
Intelligent Edge earnings from operations as a percentage of net revenue increased 1.8 percentage points for the three months ended July 31, 2020 as compared to the prior year period due primarily to a decrease in operating expenses as a percentage of net revenue partially offset by an increase in cost of products and services as a percentage of net revenue. The increase in cost of product and services as a percentage of net revenue was due primarily to higher supply chain costs resulting from COVID-19 related lockdown restrictions partially offset by a higher mix of services. The decrease in operating expenses as a percentage of net revenue was due primarily lower spending due to cost containment measures put in place in response to COVID-19 and lower variable compensation expense.
Nine months ended July 31, 2020 compared with Nine months ended July 31, 2019
Intelligent Edge net revenue decreased by $102 million, or 4.7% (decreased 3.5% on a constant currency basis), for the nine months ended July 31, 2020, as compared to the prior-year period.
The decrease in Intelligent Edge net revenue was due primarily to lower revenue from switching and WLAN products predominantly driven by the weak and uncertain global demand environment resulting from COVID-19 related lockdown restrictions along with lower software net revenue and unfavorable foreign currency fluctuations, partially offset by higher revenue from service renewals.
Intelligent Edge earnings from operations as a percentage of net revenue increased 4.6 percentage points for the nine months ended July 31, 2020 as compared to the prior year period due primarily to lower operating expenses as a percentage of net revenue and lower cost of products and services as a percentage of net revenue. The decrease in cost of product and services as a percentage of net revenue was due primarily to a higher mix of services and lower mix of high-cost switching products. The decrease in operating expense as a percentage of net revenue was due primarily to lower field selling costs as a result of lower spending due to cost containment measures we put in place in response to COVID-19 and lower variable compensation expense.  
67

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


Financial Services
 Three Months Ended July 31,
 20202019% Change
 Dollars in millions
Net revenue$811 $888 (8.7)%
Earnings from operations$65 $77 (15.6)%
Earnings from operations as a % of net revenue8.0 %8.7 %

 Nine Months Ended July 31,
 20202019% Change
 Dollars in millions 
Net revenue$2,503 $2,703 (7.4)%
Earnings from operations$213 $231 (7.8)%
Earnings from operations as a % of net revenue8.5 %8.5 % 

Three months ended July 31, 2020 compared with three months ended July 31, 2019
FS net revenue decreased by $77 million, or 8.7% (decreased 6.3% on a constant currency basis), for the three months ended July 31, 2020, as compared to the prior-year period.
The decrease in net revenue was due primarily to a decrease in rental revenue due to lower average operating leases andlease assets, unfavorable currency fluctuations, partially offset by higheralong with lower asset management revenue from lease extensionsbuyouts and end-of-lease monthly rentals.lease extensions.
FS earnings from operations as a percentage of net revenue increased 0.9decreased 0.7 percentage points for the three months ended July 31, 20192020, as compared to the prior-year period, due primarily to lower cost of services as a percentage of net revenue, partially offset by an increase in gross margin and a decrease into operating expenses as a percentage of net revenue. The increase in gross margin was due primarilydecrease to higher marginscost of services as a percentage of net revenue resulted from lease extensionslower borrowing costs and lease buyouts,depreciation expense, partially offset by lower portfolio margins from increased borrowing costs. Operatinghigher bad debt expense. The increase to operating expenses as a percentage of net revenue decreasedwas due primarily to lower capitalized initial direct costs as a result of lower variable compensation expense and lower field selling costs.adopting the new lease accounting standard, along with the overall decrease in net revenue.
Nine months ended July 31, 20192020 compared with nine months ended July 31, 20182019
FS net revenue decreased by $29$200 million, or 1.1% (increased 1.9%7.4% (decreased 5.6% on a constant currency basis), for the nine months ended July 31, 2019. 2020, as compared to the prior-year period.
The decrease in net revenue was due primarily to unfavorable currency fluctuations and a decrease in rental revenue due to lower average operating leases,lease assets, unfavorable currency fluctuations, along with lower lease equipment buyout revenue, partially offset by higher asset management revenue from end-of-lease monthly rentals, lease extensions and lease buyouts.extensions.
FS earnings from operations as a percentage of net revenue increased 0.6 percentage pointswas flat for the nine months ended July 31, 20192020, as compared to the prior-year period, due primarily to lower cost of services as a percentage of net revenue, offset by an increase in gross margin and a decrease into operating expenses as a percentage of net revenue. The increase in gross margin was due primarilydecrease to higher marginscost of services as a percentage of net revenue resulted from lease extensionslower depreciation expense and lease buyouts, and lower bad debt expense,borrowing costs, partially offset by lower portfolio margins from increased borrowing costs. Operatinghigher bad debt expense. The increase to operating expenses as a percentage of net revenue decreasedwas due primarily to lower capitalized initial direct costs as a result of lower field selling costs.adopting the new lease accounting standard.
Financing Volume
 Three Months Ended July 31,Nine Months Ended July 31,
 2020201920202019
 In millions
Financing volume$1,491 $1,696 $4,392 $4,480 
 Three months ended July 31, Nine months ended July 31,
 2019 2018 2019 2018
 In millions
Total financing volume$1,696
 $1,658
 $4,480
 $4,636
New financingFinancing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, increaseddecreased by 2.3%12.1% and 2.0% for the three months ended July 31, 2019 as compared to the prior-year period. The increase was primarily driven by higher financing associated with HPE product sales and related service offerings, partially offset by unfavorable currency fluctuations. New financing volume decreased 3.4% for the nine months ended July 31, 2019, as compared to the prior-year period, due primarily to unfavorable currency fluctuations.2020
68

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



as compared to the prior-year periods. For the three months ended July 31, 2020, the decrease was primarily driven by lower financing associated with third-party and HPE product sales and related service offerings, along with unfavorable currency fluctuations. For the nine months ended July 31, 2020, the decrease was primarily driven by unfavorable currency fluctuations.
Portfolio Assets and Ratios
The portfolio assets and ratios derived from the segment balance sheets for FS were as follows:
 As of
 July 31, 2020October 31, 2019
 Dollars in millions
Financing receivables, gross$9,043 $8,652 
Net equipment under operating leases4,026 4,084 
Capitalized profit on intercompany equipment transactions(1)
322 382 
Intercompany leases(1)
93 100 
Gross portfolio assets13,484 13,218 
Allowance for doubtful accounts(2)
142 131 
Operating lease equipment reserve60 60 
Total reserves202 191 
Net portfolio assets$13,282 $13,027 
Reserve coverage1.5 %1.4 %
Debt-to-equity ratio(3)
7.0x7.0x
 As of
 July 31, 2019 October 31, 2018
 Dollars in millions
Financing receivables, gross$8,566
 $8,256
Net equipment under operating leases4,050
 4,212
Capitalized profit on intercompany equipment transactions(1)
400
 502
Intercompany leases(1)
103
 125
Gross portfolio assets13,119
 13,095
Allowance for doubtful accounts(2)
133
 120
Operating lease equipment reserve62
 63
Total reserves195
 183
Net portfolio assets$12,924
 $12,912
Reserve coverage1.5% 1.4%
Debt-to-equity ratio(3)
7.0x
 7.0x

(1)Intercompany activity is eliminated in consolidation.
(1)Intercompany activity is eliminated in consolidation.
(2)Allowance for doubtful accounts for financing receivables includes both the short- and long-term portions.
(3)Debt benefiting FS consists of intercompany equity that is treated as debt for segment reporting purposes, intercompany debt, and borrowing- and funding-related activity associated with FS and its subsidiaries. Debt benefiting FS totaled $11.5 billion and $11.4 billion at July 31, 2019 and October 31, 2018, respectively, and was determined by applying an assumed debt-to-equity ratio, which management believes to be comparable to that of other similar financing companies. FS equity at both July 31, 2019 and October 31, 2018 was $1.6 billion.
(2)Allowance for doubtful accounts for financing receivables includes both the short- and long-term portions.
(3)Debt benefiting FS consists of intercompany equity that is treated as debt for segment reporting purposes, intercompany debt, and borrowing- and funding-related activity associated with FS and its subsidiaries. Debt benefiting FS totaled $11.8 billion and $11.4 billion at July 31, 2020 and October 31, 2019, respectively, and was determined by applying an assumed debt-to-equity ratio, which management believes to be comparable to that of other similar financing companies. FS equity at July 31, 2020 and October 31, 2019 was $1.7 billion and $1.6 billion, respectively.
As of July 31, 20192020 and October 31, 2018,2019, FS net cash and cash equivalents balances were approximately $574$677 million and $735$711 million, respectively.
Net portfolio assets as of July 31, 20192020 increased 0.1%2.0% from October 31, 2018.2019. The increase generally resulted from new financing volume exceeding portfolio runoff during the period.period, along with favorable currency fluctuations.
FS bad debt expense includes charges to general reserves, and specific reserves and write-offs for sales-type, direct-financing and operating leases. For the three and nine months ended July 31, 2020, FS recorded net bad debt expense of $25 million and $58 million, respectively. For the three and nine months ended July 31, 2019, FS recorded net bad debt expense of $19 million and $51 million, respectively. For the three and nine months ended
As of July 31, 2018,2020, FS recorded net bad debt expenseexperienced an increase in billed finance receivables compared to October 31, 2019, which included some impact to collections from customers as a result of $22 million and $56 million, respectively.COVID-19. We are currently unable to fully predict the extent to which COVID-19 may adversely impact future collections of our receivables.
69

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Corporate Investments
 Three months ended July 31,
 2019 2018 % Change
 Dollars in millions  
Net revenue$130
 $134
 (3.0)%
Loss from operations$(25) $(25)  %
Loss from operations as a % of net revenue(19.2)% (18.7)%  
Nine months ended July 31, Three Months Ended July 31,
2019 2018 % Change 20202019% Change
Dollars in millions   Dollars in millions
Net revenue$373
 $404
 (7.7)%Net revenue$119 $130 (8.5)%
Loss from operations$(82) $(79) (3.8)%Loss from operations$(27)$(25)(8.0)%
Loss from operations as a % of net revenue(22.0)% (19.6)%  Loss from operations as a % of net revenue(22.7)%(19.2)%

 Nine Months Ended July 31,
 20202019% Change
 Dollars in millions
Net revenue$364 $373 (2.4)%
Loss from operations$(82)$(82) %
Loss from operations as a % of net revenue(22.5)%(22.0)%

Three and nine months ended July 31, 20192020 compared with three and nine months ended July 31, 20182019
Corporate Investments net revenue decreased by $4$11 million, or 3.0%8.5% (decreased 0.5%6.2% on a constant currency basis), for the three months ended July 31, 2019, and decreased by $31 million, or 7.7% (decreased 5.1% on a constant currency basis), for the nine months ended July 31, 2019,2020 as compared to the prior-year periods, respectively.period. The decrease in Corporate Investments net revenue during both periods was due primarily to lower services revenue from the Communications and Media Solutions ("CMS") business.business due to the weak and uncertain global demand environment resulting from COVID-19 related lockdown restrictions.
Corporate Investments loss from operations as a percentage of net revenue increased 3.5 percentage points for the three months ended July 31, 2020, as compared to the prior-year period. The increase was due primarily to a higher legal expense, partially offset by lower cost of services.
Nine Months Ended July 31, 2020 compared with nine months ended July 31, 2019
Corporate Investments net revenue decreased by $9 million, or 2.4% (decreased 1.1% on a constant currency basis), for the nine months ended July 31, 2020 as compared to the prior-year period. The decrease in Corporate Investments net revenue was due primarily to lower services revenue from the CMS business due to the weak and uncertain global demand environment resulting from COVID-19 related lockdown restrictions.
Corporate Investments loss from operations as a percentage of net revenue increased 0.5 percentage points for the three months ended July 31, 2019, and increased 2.4 percentage points for the nine months ended July 31, 2019,2020, as compared to the prior-year periods, respectively. For both periods, theperiod. The increase was due primarily to a higher spending in Hewlett Packard Labs,legal expense, partially offset by margin improvements in the CMS business.lower cost of services.
LIQUIDITY AND CAPITAL RESOURCES
We use cash generated by operations as our primary source of liquidity. We believe that internally generated cash flows will be generally sufficient to support our operating businesses, capital expenditures, product development initiatives, acquisitions and disposal activities including legal settlements, restructuring activities, transformation costs, indemnifications, maturing debt, interest payments, and income tax payments, in addition to any future investments, and any future share repurchases and future stockholder dividend payments. We expect to supplement this short-term liquidity, if necessary, by accessing the capital markets, issuing commercial paper, and borrowing under credit facilities made available by various domestic and foreign financial institutions. However, our access to capital markets may be constrained and our cost of borrowing may increase under certain business, market and economic conditions. Our liquidity is subject to various risks including the risks identified in the section entitled "Risk Factors" in Item 1A of Part II and market risks identified in the section entitled "Quantitative and Qualitative Disclosures about Market Risk" in Item 3 of Part I.
COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in the capital markets, which can increase the cost of capital and adversely impact access to capital. In addition, our businesses has been and may continue to be adversely affected, which may have a material adverse impact on our profitability and cash flows, and the timing and collectability of payments may be adversely affected as a result of the impact of COVID-19 on our customers.

70

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


As a result of the continued uncertainty generated by COVID-19, in April 2020, we issued $2.25 billion and in July 2020, we issued $1.75 billion in aggregate principal amount of unsecured Senior Notes. The net proceeds from these offerings were used primarily for the redemption in August 2020 of the $3.0 billion outstanding principal amount of the 3.6% registered Senior Notes that were originally due in October 2020. The pricing on our undrawn $4.75 billion revolving credit facility, maturing in August 2024, remains unchanged. We continue to monitor the severity and duration of the pandemic and its impact on the U.S. and other global economies, consumer behavior, our businesses, results of operations, financial condition and cash flows.
In July 2020, we entered into a definitive agreement to acquire Silver Peak Systems, Inc. ("Silver Peak"), an SD-WAN (Software-Defined Wide Area Network) leader for approximately $925 million in cash. The transaction is expected to close during our fourth quarter of fiscal 2020, subject to regulatory approvals and other customary closing conditions.
In May 2020, our Board of Directors approved a cost optimization and prioritization plan in order to focus our investments and realign the workforce to areas of growth and measures to simplify and evolve our product portfolio strategy, go-to-market configurations, supply chain structures, digital customer support model, marketing experiences, and real estate strategies. We expect that the plan will be implemented through fiscal 2022 and we estimate related cash funding payments of $1.3 billion over the next three years of which approximately $0.8 billion will relate to labor restructuring, $0.2 billion will relate to non-labor restructuring and $0.3 billion will relate to IT investments and design and execution charges.
Our cash and cash equivalent balances are held in numerous locations throughout the world, with a substantialmajority of the amount held outside ofin the U.S. We utilize a variety of planning and financing strategies in an effort to ensure that our worldwide cash is available when and where it is needed. Our cash position is strong and we expect that our cash and cash equivalent balances, anticipated cash flow generated from operations and access to capital markets will be sufficient to cover our expected near-term cash outlays.
Amounts held outside of the U.S. are generally utilized to support non-U.S. liquidity needs, although a portionneeds. Repatriations of those amounts may, from time to time, be subject to short-term intercompany loans intoheld outside the U.S. Due to the enactment of the Tax Act, all of our cash, cash equivalents and investments held by foreign subsidiaries were subject to U.S. taxation under the one-time Transition Tax as further discussed in Note 6, "Taxes on Earnings". Subsequent repatriations generally will not be taxable from a U.S. federal tax perspective, but may be subject to state income or foreign withholding tax. Where local restrictions prevent an efficient intercompany transfer of funds, our intent is to keep cash balances outside of the U.S. and to meet liquidity needs through ongoing cash flows, external borrowings, or both. We do not expect restrictions or potential taxes incurred on repatriation of amounts held outside of the U.S. to have a material effect on our overall liquidity, financial condition or results of operations.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



In connection with the share repurchase program previously authorized by our Board of Directors, during the first nine months of fiscal 2019,2020, we repurchased 25.3 million shares for an aggregate amount of $2.0 billion.$355 million. As of July 31, 2019,2020, we had a remaining authorization of $2.7$2.1 billion for future share repurchases. As a result of increased uncertainty due to COVID-19, purchases under our share repurchase program were suspended and as such, no purchases were made during the three months ended July 31, 2020.
For more information on our share repurchase program, refer to Item 2. Unregisteredthe section entitled "Unregistered Sales of Equity Securities and Use of Proceeds" in Item 2 of Part II. Other Information.
Liquidity
Our key cash flow metrics were as follows:
 Nine months ended July 31, 2019
 2019 2018
 In millions
Net cash provided by operating activities$2,565
 $1,638
Net cash used in investing activities(1,399) (1,640)
Net cash used in financing activities(2,239) (4,341)
Net decrease in cash, cash equivalents and restricted cash$(1,073) $(4,343)
Following the adoption of the accounting standards update for the classification and presentation of restricted cash in the statements of cash flows, for the nine months ended July 31, 2018, we included $43 million of restricted cash movement during the period, which was previously reported within net cash used in investing activities, and is now reported within Decrease in cash, cash equivalents and restricted cash in our Condensed Consolidated Statement of Cash Flows.
 Nine months ended July 31,
 20202019
 In millions
Net cash provided by operating activities$1,493 $2,565 
Net cash used in investing activities(1,154)(1,399)
Net cash provided by (used in) financing activities4,522 (2,239)
Net increase (decrease) in cash, cash equivalents and restricted cash$4,861 $(1,073)
Operating Activities
For the nine months ended July 31, 2019,2020, net cash provided byfrom operating activities increaseddecreased by $927 million,$1.1 billion, as compared to the prior-year period. The increasedecrease was due primarily to lower earnings and higher pre-tax earnings,usage of cash for working capital management, as compared to the prior-year period, partially offset by unfavorable net working capital management.period.
71

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


Working capital metrics for the three months ended July 31, 20192020 compared with the three months ended July 31, 20182019
 Three months ended July 31,
 2019 2018 Change
Days of sales outstanding in accounts receivable ("DSO")37
 34
 3
Days of supply in inventory ("DOS")42
 46
 (4)
Days of purchases outstanding in accounts payable ("DPO")(98) (103) 5
Cash conversion cycle(19) (23) 4
DSO measures the average number of days our receivables are outstanding. DSO is calculated by dividing ending accounts receivable, net of allowance for doubtful accounts, by a 90-day average of net revenue. Compared to the corresponding period in fiscal 2018, DSO increased due primarily to lower reserve balances, an increase in billings with extended payment terms, higher aged receivables and the impact from currency fluctuations, partially offset by higher early payments from customers.
DOS measures the average number of days from procurement to sale of our product. DOS is calculated by dividing ending inventory by a 90-day average of cost of goods sold. Compared to the corresponding period in fiscal 2018, DOS decreased due primarily to a reduction in inventory balances following a reduction in buffer levels as a result of improved market supply availability for key commodities and a decrease in commodity costs.
DPO measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing ending accounts payable by a 90-day average of cost of goods sold. Compared to the corresponding period in fiscal 2018, the decrease in DPO was due primarily to a reduction in lease payables due to higher payments earlier in the quarter as compared to the prior-year period.
 Three months ended July 31,
 20202019Change
Days of sales outstanding in accounts receivable ("DSO")38 37 1 
Days of supply in inventory ("DOS")66 42 24 
Days of purchases outstanding in accounts payable ("DPO")(114)(98)(16)
Cash conversion cycle(10)(19)9 
The cash conversion cycle is the sum of DSO and DOS less DPO. Items which may cause the cash conversion cycle in a particular period to differ include, but are not limited to, changes in business mix, changes in payment terms (including extended
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



payment terms from suppliers), the extent of receivables factoring, seasonal trends, the timing of the revenue recognition and inventory purchases within the period, acquisition activity and the impact of commodity costs.costs and acquisition activity.
DSO measures the average number of days our receivables are outstanding. DSO is calculated by dividing ending accounts receivable, net of allowance for doubtful accounts, by a 90-day average of net revenue. Compared to the corresponding three month period in fiscal 2019, DSO increased due primarily to extended payment terms partially offset by favorable billing linearity.
DOS measures the average number of days from procurement to sale of our products. DOS is calculated by dividing ending inventory by a 90-day average of cost of goods sold. Compared to the corresponding three month period in fiscal 2019, DOS increased due primarily to higher purchases of inventory as we position inventory to fulfill planned future shipments and longer inventory cycles in the Cray business.
DPO measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing ending accounts payable by a 90-day average of cost of goods sold. Compared to the corresponding three month period in fiscal 2019, DPO increased due primarily to extended payment terms with our design manufacturing partners and higher inventory purchases in order to fulfill planned future shipments.
Investing Activities
For the nine months ended July 31, 2019,2020, net cash used in investing activities decreased by $241 million,$0.2 billion, as compared to the corresponding period in fiscal 2018.2019. The decrease was due primarily to an increaselower investment in net financial collateral received and lower use of cash for business acquisitions, partially offset by a higher investment insales proceeds from property, plant and equipment partially offset by lower cash generated from net of sales proceeds.financial collateral activities as compared to the prior-year period.
Financing Activities
For the nine months ended July 31, 2019,2020, net cash used inprovided by financing activities decreasedincreased by $2.1$6.8 billion, as compared to the corresponding period in fiscal 2018.2019. The decreaseincrease was due primarily to ahigher net cash generated from the issuance of debt, net of repayment and lower utilization of cash usage for debt repayments and share repurchases as compared to the prior-year period. The prior-year period also included a net transfer of cash from Seattle and to Everett.
Capital Resources
Debt Levels
We maintain debt levels that we establish through consideration of a number of factors, including cash flow expectations, cash requirements for operations, investment plans (including acquisitions), share repurchase activities, and our cost of capital and targeted capital structure.
DuringSenior Notes
In fiscal 2020, we completed the first nine monthsoffering of fiscal 2019,the following Senior Notes:
In July we issued $743$1.0 billion at discount to par at a price of 99.883% at an interest rate of 1.45% due April 1, 2024, interest payable semi-annually on April 1 and October 1 of each year beginning on April 1, 2021.
In July we issued $750 million at discount to par at a price of 99.820% at an interest rate of 1.75% due April 1, 2026, interest payable semi-annually on April 1 and repaid $451October 1 of each year beginning on April 1, 2021.
In April we issued $1.25 billion at discount to par at a price of 99.956% at an interest rate of 4.45% due October 2, 2023, interest payable semi-annually on April 2 and October 2 of each year beginning on October 2, 2020.
72

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)


In April we issued $1.0 billion at discount to par at a price of 99.817% at an interest rate of 4.65% due October 1, 2024, interest payable semi-annually on April 1 and October 1 of each year beginning on October 1, 2020.
The net proceeds from the above Senior Notes were used for the redemption in August 2020 of the $3.0 billion outstanding principal amount of the 3.6% registered Senior Notes that were originally due in October 2020. The remaining proceeds from the above Senior Notes will be used for general corporate purposes.
Asset-Backed Debt Securities
In June 2020, we issued $1.0 billion of asset-backed debt securities in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 1.19%, payable monthly from August 2020 with a stated final maturity date of July 2030. As of July 31, 2020, the outstanding balance of the asset-backed debt securities was $1.0 billion.
In February 2020, we issued $755 million of commercial paper.
Our weighted-averageasset-backed debt securities in 6 tranches at a weighted average price of 99.99% and a weighted average interest rate reflectsof 1.87%, payable monthly from April 2020 with a stated final maturity date of February 2030. As of July 31, 2020, the average effective rate on our borrowings prevailing duringoutstanding balance of the period and reflects the impact of interest rate swaps. For more information on our interest rate swaps, see Note 11, "Financial Instruments".asset-backed debt securities was $622 million.
In December 2017, we filed a shelf registration statement with the Securities and Exchange Commission that allows us to sell, at any time and from time to time, in one or more offerings, debt securities, preferred stock, common stock, warrants, depositarydepository shares, purchase contracts, guarantees or units.units consisting of any of these securities.
Revolving Credit FacilityCommercial Paper
On August 16, 2019, we entered into a five-year revolving credit facility providing for a senior, unsecured revolving credit facility with aggregate lending commitments of $4.8 billion. Loans under the revolving credit facility may be used for general corporate purposes. Commitment fees, interest rates and other terms of borrowing under the credit facility vary based on Hewlett Packard Enterprise's external credit rating. This credit facility replaces our prior credit facility that was entered into on November 1, 2015, which was terminated in connection with us entering into the new credit facility.
Available Borrowing Resources
Hewlett Packard Enterprise's Board of Directors has authorized the issuance of up to $4.0 billion in aggregate principal amount of commercial paper by Hewlett Packard Enterprise. Hewlett Packard Enterprise's subsidiaries are authorized to issue up to an additional $1.0 billion in aggregate principal amount of commercial paper. Hewlett Packard Enterprise maintainsWe maintain two commercial paper programs, "the Parent Programs", and a wholly-owned subsidiary maintains a third program. Hewlett Packard Enterprise'sOur U.S. program provides for the issuance of U.S. dollar-denominated commercial paper up to a maximum aggregate principal amount of $4.75 billion which was increased from $4.0 billion. Hewlett Packard Enterprise'sbillion in March 2020. Our euro commercial paper program provides for the issuance of commercial paper outside of the U.S. 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 programs at any one time cannot exceed the $4.0 billion authorized by Hewlett Packard Enterprise's Board of Directors. The Hewlett Packard Enterprise$4.75 billion. In addition, our 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, which was increased from $500 million by way of an amendment in April 2019.billion. As of July 31, 20192020 and October 31, 2018,2019, no borrowings were outstanding under Hewlett Packard Enterprise’s two commercial paper programs,the Parent Programs, and $671$737 million and $392$698 million, respectively, were outstanding under theour subsidiary’s program.
During the first nine months of fiscal 2020, we issued $701 million and repaid $703 million of commercial paper.
Revolving Credit Facility
We maintain a $4.75 billion five year senior unsecured committed credit facility that was entered into in August 2019. Loans under the revolving credit facility may be used for general corporate purposes, including support of the commercial paper program. Commitments under the Credit Agreement are available for a period of five years, which period may be extended, subject to the satisfaction of certain conditions, by up to two, one-year periods. Commitment fees, interest rates and other terms of borrowing under the credit facility vary based on Hewlett Packard Enterprise's external credit rating. As of July 31, 2020 and October 31, 2019, weno borrowings were outstanding under the Credit Agreement.
Available Borrowing Resources
We had the following additional liquidity resources available if needed:
As of
July 31, 2020
In millions
Commercial paper programs$5,013
Uncommitted lines of credit$1,279

73

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



 As of
July 31, 2019
 In millions
Commercial paper programs$4,329
Uncommitted lines of credit$1,350
CONTRACTUAL AND OTHER OBLIGATIONS
Contractual Obligations
In July 2020, we entered into a definitive agreement to acquire Silver Peak Systems, Inc. ("Silver Peak"), an SD-WAN (Software-Defined Wide Area Network) leader for approximately $925 million in cash. The transaction is expected to close by the fourth quarter of our fiscal 2020, subject to regulatory approvals and other customary closing conditions.
In fiscal 2020, we completed the offering of the following Senior Notes:
In July we issued $1.0 billion at discount to par at a price of 99.883% at an interest rate of 1.45% due April 1, 2024, interest payable semi-annually on April 1 and October 1 of each year beginning on April 1, 2021.
In July we issued $750 million at discount to par at a price of 99.820% at an interest rate of 1.75% due April 1, 2026, interest payable semi-annually on April 1 and October 1 of each year beginning on April 1, 2021.
In April we issued $1.25 billion at discount to par at a price of 99.956% at an interest rate of 4.45% due October 2, 2023, interest payable semi-annually on April 2 and October 2 of each year beginning on October 2, 2020.
In April we issued $1.0 billion at discount to par at a price of 99.817% at an interest rate of 4.65% due October 1, 2024, interest payable semi-annually on April 1 and October 1 of each year beginning on October 1, 2020.
The net proceeds from the above Senior Notes were used for the August 2020 redemption of the $3.0 billion outstanding principal amount of the 3.6% registered Senior Notes that was originally due in October 2020. The remaining proceeds from the above Senior Notes will be used for general corporate purposes.
In June 2020, we issued $1.0 billion of asset-backed debt securities in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 1.19%, payable monthly from August 2020 with a stated final maturity date of July 2030. As of July 31, 2020, the outstanding balance of the asset-backed debt securities was $1.0 billion.
In February 2020, we issued $755 million of asset-backed debt securities in 6 tranches at a weighted average price of 99.99% and a weighted average interest rate of 1.87%, payable monthly from April 2020 with a stated final maturity date of February 2030. As of July 31, 2020, the outstanding balance of the asset-backed debt securities was $622 million.
Our other contractual obligations have not changed materially since October 31, 2018.2019. For further information see "Contractual and Other Obligations" in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended October 31, 2018.2019.
Retirement and Post-Retirement Benefit Plan Funding
For the remainder of fiscal 2019,2020, we anticipate making contributions of approximately $42$43 million to our non-U.S. pension plans. Our policy is to fund our pension plans so that we meet at least the minimum contribution requirements, as established by local government, funding and taxingtax authorities. For more information on our retirement and post-retirement benefit plans, see Note 5, "Retirement and Post-Retirement Benefit Plans".
Restructuring Plans
As of July 31, 2019,2020, we expect to make future cash payments of approximately $682 million$1.2 billion in connection with our approved restructuring plans, which includes $110 million$0.1 billion expected to be paid through the remainder of fiscal 20192020 and $572 million$1.1 billion expected to substantially be paid through fiscal 2022. Of the expected future payments of $1.2 billion, $980 million will relate to the cost optimization and prioritization plan, $223 million will relate to the HPE Next Plan, and $26 million will relate to other restructuring plans. For more information on our restructuring activities, see Note 3, "Restructuring", and Note 4, "HPE Next""Transformation Programs".

Uncertain Tax Positions
As of July 31, 2019,2020, we had approximately $535$499 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions. These liabilities and related interest and penalties include $21$32 million expected to be paid within one year. For the remaining amounts,amount, we are unable to make a reasonable estimate as to when cash settlement with the tax authorities might occur due to the uncertainties related to these tax matters. Payments of these obligations would result from settlements with taxingtax authorities. For more information on our uncertain tax positions, see Note 6,5, "Taxes on Earnings".
Cross-indemnification with HP Inc., DXC
74

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Micro FocusAnalysis of
AsFinancial Condition and Results of July 31, 2019, we had approximately $143 million of recorded net receivables pertaining to income tax indemnifications with HP Inc. These amounts include $130 million expected to be paid and $123 million expected to be received within one year. For the remaining amounts, we are unable to make a reasonable estimate as to when cash settlement with HP Inc. might occur due to the uncertainties related to the underlying tax matters. Payments of and receipts from these obligations would result from settlements under the Tax Matters Agreement with HP Inc. For further details related to our tax indemnification balances, see Note 16, "Indemnifications". For details on the Separation and Distribution Agreements and Tax Matters Agreements with HP Inc., DXC and Micro Focus, see our Annual Report on Form 10-K for the fiscal year ended October 31, 2018.Operations (Continued)


Off-Balance Sheet Arrangements
As part of our ongoing business, we have not participated in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
We have third-party revolving short-term financing arrangements intended to facilitate the working capital requirements of certain customers. For more information on our third-party revolving short-term financing arrangements, see Note 6, "Balance Sheet Details", to the Consolidated Financial Statements in Item 1 of Part I, which is incorporated herein by reference.
75

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.
For quantitative and qualitative disclosures about market risk affecting HPE, see "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended October 31, 2018. Our exposure to2019. There have been no material changes in our market risk has not changed materiallyexposures since October 31, 2018.2019.

Item 4.    Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report (the "Evaluation Date"). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relatingrelated to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company's management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting during the first nine months of fiscal 2019quarter ended July 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting even though our global workforce continues to primarily work-from-home due to COVID-19. We are continually monitoring and assessing the COVID-19 situation and its impact on our internal controls.



76

PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Information with respect to this item may be found in Note 15, "Litigation and Contingencies".
Item 1A. Risk Factors.
Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal period ended October 31, 2018, and in Part II, Item 1A, "Risk Factors" in our Quarterly Reports on Form 10-Q for the fiscal quarter ended January 31, 2019 and April 30, 2019, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock.stock, including certain risks, which have been modified as follows:

We are unable to predict the extent to which the global COVID-19 pandemic may adversely impact our business operations, financial performance and results of operations.

The COVID-19 pandemic and efforts to control its spread have significantly curtailed the movement of people, goods and services worldwide, including in most or all of the regions in which we sell our products and services and conduct our business operations. The pandemic has resulted in a global slowdown of economic activity, including travel restrictions, prohibitions of non-essential activities in some cases, disruption and shutdown of businesses and greater uncertainty in global financial markets. Our operations have been affected by a range of external factors related to the COVID-19 pandemic that are not within our control, including the various restrictions imposed by cities, counties, states and countries on our employees, customers, partners and suppliers designed to limit the spread of COVID-19. The magnitude and duration of the disruption and resulting decline in business activity is highly uncertain and cannot currently be predicted.

In response to the COVID-19 pandemic and to ensure the safety of our employees, we have implemented a global work-from-home policy until further notice that applies to a significant majority of our employees, with the exception of those performing essential activities. Our employees may elect to return to the office in jurisdictions where both local requirements and our own health and safety standards have been met. If such instances occur, employees would return to the office in a phased process. Moreover, certain industry and customer events that we sponsor or at which we present have been canceled, postponed or moved to virtual-only experiences and we may deem it advisable to similarly alter, postpone or cancel entirely additional events in the future. However, work-from-home and other modified business practices introduce additional operational risks, including cybersecurity risks, which may result in inefficiencies or delays, and have affected the way we conduct our product development, sales, customer support and other activities. Unanticipated disruptions in services provided through our localized physical infrastructure caused by the COVID-19 pandemic can curtail the functioning of critical components of our IT systems, and adversely affect our ability to fulfill orders, provide services, respond to customer requests and maintain our worldwide business operations.

The pandemic has adversely affected, and could continue to adversely affect, our business, by negatively impacting the demand for our products and services; restricting our operations and sales, marketing and distribution efforts; disrupting the supply chains of hardware products; and disrupting our research and development capabilities, engineering, design and manufacturing processes and other important business activities. For example, we expect the conditions caused by the COVID-19 pandemic could affect the rate of IT spending, impact our customers’ ability or willingness to purchase our products and services, delay prospective customers’ purchasing decisions, delay the provisioning of our products and services, lengthen payment terms, reduce the value or duration of subscription contracts or affect attrition rates, all of which could adversely affect our sales, operating results and financial performance. There have been, and likely will continue to be, delays of components shipments from our vendors in China and other jurisdictions in which normal business operations are disrupted.

We expect the COVID-19 pandemic could continue to have a negative impact on our sales and our results of operations, the size and duration of which we are currently unable to predict. While such changes were factored into the forecast used to assess assets for reserves and impairment, including goodwill, and to calculate the annualized effective tax rate as of July 31, 2020, any further changes to the profitability for the remainder of the fiscal year could impact the realizability of assets and the annualized effective tax rate applied to earnings. Additionally, concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price, our ability to access capital markets and our ability to fund liquidity needs. In response, we announced our long-term cost optimization and prioritization plan to focus our investments and realign our workforce to areas of growth combined with short-term cost saving measures, including temporary base salary adjustments or unpaid leave for certain employees and hiring and salary freezes. Execution of the plan may not achieve the results and savings we anticipate and our temporary cost saving measures may negatively affect employee morale and our future recruiting efforts.

77

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section and those incorporated by reference herein, such as those related to our products and services, demand and distribution, financial performance, credit rating and debt obligations. Given that developments concerning the COVID-19 pandemic have been constantly evolving, additional impacts and risks may arise that we are not aware of or able to appropriately respond to at this time.
78

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
There were no unregistered sales of equity securities during the period covered by this report.
Issuer Purchases
On April 6, 2020, the Company announced that it suspended purchases under its share repurchase program in response to the global economic uncertainty that resulted from the worldwide spread of Equity Securities
Period
Total Number
of Shares
Purchased
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
 
Approximate Dollar Value of
Shares that May Yet Be
Purchased under the Plans
or Programs
 In thousands, except per share amounts
Month 1 (May 2019)13,596
 $15.00
 13,596
 $3,121,327
Month 2 (June 2019)12,744
 $14.36
 12,744
 $2,938,371
Month 3 (July 2019)12,752
 $14.87
 12,752
 $2,748,772
Total39,092
 $14.75
 39,092
  
the novel coronavirus. As of July 31, 2020, the Company had no unsettled open market repurchases. During the threenine months ended July 31, 2019,2020, the Company repurchased and settled 3925.3 million shares of the Company's common stock, which included 1.2 million shares that were unsettled open market purchases as of April 30, 2019. Additionally, as of July 31, 2019, the Company had unsettled open market repurchases of 1.2 million shares. Shares repurchased during the quarter were recorded as a $575 million reduction to stockholders' equity. During the nine months ended July 31, 2019, the Company repurchased and settled 130 million shares of the Company's common stock, which included 2.40.5 million shares that were unsettled open market purchases as of October 31, 2018.2019. Shares repurchased during the nine months ended July 31, 20192020 were recorded as a $1.9 billion$346 million reduction to stockholders'stockholder's equity. As of July 31, 2019,2020, the Company had a remaining authorization of $2.7$2.1 billion for future share repurchases.
Item 5. Other Information.
None.
Item 6. Exhibits.
The Exhibit Index beginning on page 6880 of this report sets forth a list of exhibits.

79

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
 Incorporated by Reference
Exhibit
Number
Exhibit DescriptionFormFile No.Exhibit(s)Filing Date
2.18-K001-374832.1November 5, 2015
2.28-K001-374832.2November 5, 2015
2.38-K001-374832.4November 5, 2015
2.48-K001-374832.5November 5, 2015
2.58-K001-374832.6November 5, 2015
2.68-K001-374832.7November 5, 2015
2.78-K001-374832.1May 26, 2016
2.88-K001-374832.2May 26, 2016
2.98-K001-374832.1September 7, 2016
2.108-K001-374832.2September 7, 2016
2.118-K001-374832.3September 7, 2016
2.128-K001-374832.1November 2, 2016
2.138-K001-374832.2November 2, 2016
2.148-K001-3748399.1March 7, 2017
2.158-K001-3748399.2March 7, 2017
80

    Incorporated by Reference
Exhibit
Number
 Exhibit Description Form File No. Exhibit(s) Filing Date
2.1  8-K 001-37483 2.1 November 5, 2015
2.2  8-K 001-37483 2.2 November 5, 2015
2.3  8-K 001-37483 2.3 November 5, 2015
2.4  8-K 001-37483 2.4 November 5, 2015
2.5  8-K 001-37483 2.5 November 5, 2015
2.6  8-K 001-37483 2.6 November 5, 2015
2.7  8-K 001-37483 2.7 November 5, 2015
2.8  8-K 001-37483 2.1 May 26, 2016
2.9  8-K 001-37483 2.2 May 26, 2016
2.10  8-K 001-37483 2.1 September 7, 2016
2.11  8-K 001-37483 2.2 September 7, 2016
2.12  8-K 001-37483 2.3 September 7, 2016
2.13  8-K 001-37483 2.1 November 2, 2016
2.14  8-K 001-37483 2.2 November 2, 2016
2.15  8-K 001-37483 99.1 March 7, 2017

2.168-K001-380332.1April 6, 2017
2.178-K001-380332.2April 6, 2017
2.188-K001-380332.3April 6, 2017
2.198-K001-380332.4April 6, 2017
2.208-K001-380332.5April 6, 2017
2.218-K001-380332.6April 6, 2017
2.228-K001-37483
2.1September 1, 2017
2.238-K001-37483
2.2September 1, 2017
2.248-K001-37483
2.3September 1, 2017
2.258-K001-37483
2.4September 1, 2017
2.268-K001-37483
2.1May 17, 2019
2.278-K001-374832.1July 13, 2020
3.18-K001-374833.1November 5, 2015
3.28-K001-374833.2November 5, 2015
3.38-K001-374833.1March 20, 2017
3.4

8-K001-374833.2March 20, 2017
4.18-K001-374834.1October 13, 2015
81

2.16  8-K 001-37483 99.2 March 7, 2017
2.17  8-K 001-38033 2.1 April 6, 2017
2.18  8-K 001-38033 2.2 April 6, 2017
2.19  8-K 001-38033 2.3 April 6, 2017
2.20  8-K 001-38033 2.4 April 6, 2017
2.21  8-K 001-38033 2.5 April 6, 2017
2.22  8-K 001-38033 2.6 April 6, 2017
2.23  8-K 
001-37483

 2.1 September 1, 2017
2.24  8-K 
001-37483

 2.2 September 1, 2017
2.25  8-K 
001-37483

 2.3 September 1, 2017
2.26  8-K 
001-37483

 2.4 September 1, 2017
2.27  8-K 001-37483
 2.1 May 17, 2019
3.1  8-K 001-37483 3.1 November 5, 2015
3.2  8-K 001-37483 3.2 November 5, 2015
3.3  8-K 001-37483 3.1 March 20, 2017
3.4 

 8-K 001-37483 3.2 March 20, 2017
4.1  8-K 001-37483 4.1 October 13, 2015

4.28-K001-374834.4October 13, 2015
4.38-K001-374834.5October 13, 2015
4.48-K001-374834.6October 13, 2015
4.58-K001-374834.7October 13, 2015
4.68-K001-374834.8October 13, 2015
4.78-K001-374834.2September 19, 2018
4.88-K001-374834.3September 19, 2018
4.98-K001-374834.2September 13, 2019
4.108-K001-374834.3September 13, 2019
4.118-K001-374834.2April 9, 2020
4.128-K001-374834.3April 9, 2020
82

4.2  8-K 001-37483 4.2 October 13, 2015
4.3  8-K 001-37483 4.3 October 13, 2015
4.4  8-K 001-37483 4.4 October 13, 2015
4.5  8-K 001-37483 4.5 October 13, 2015
4.6  8-K 001-37483 4.6 October 13, 2015
4.7  8-K 001-37483 4.7 October 13, 2015
4.8  8-K 001-37483 4.8 October 13, 2015
4.9  8-K 001-37483 4.9 October 13, 2015
4.10  8-K 001-37483 4.10 October 13, 2015
4.11  8-K 001-37483 4.11 October 13, 2015
4.12  8-K 001-37483 4.12 October 13, 2015
4.13  10-K 001-04423 4.13 December 17, 2015

4.138-K001-374834.2July 17, 2020
4.148-K001-374834.3July 17, 2020
4.158-K001-374834.12October 13, 2015
4.16S-3ASR333-2221024.5December 15, 2017
10.18-K001-3748310.1January 30, 2017
10.210001-3748310.4September 28, 2015
10.3S-8333-2076794.3October 30, 2015
10.4S-8333-2076794.4October 30, 2015
10.58-K001-3748310.4November 5, 2015
10.68-K001-3748310.7November 5, 2015
10.78-K001-3748310.8November 5, 2015
10.88-K001-3748310.9November 5, 2015
10.98-K001-3748310.10November 5, 2015
10.1010-Q001-3748310.14March 10, 2016
10.1110-Q001-3748310.15March 10, 2016
10.128-K001-3748310.1May 26, 2016
10.13S-8333-2076794.3March 6, 2017
10.14S-8333-2173494.3April 18, 2017
10.15S-8333-2173494.4April 18, 2017
10.16S-8333-2174384.3April 24, 2017
10.1710-Q000-5133310.1January 29, 2016
10.1810-K000-5133310.48February 28, 2007
10.1910-K000-5133310.3September 10, 2012
10.20S-1000-5133310.10February 4, 2005
10.21S-8333-2212544.3November 1, 2017
83

4.14  8-K 
001-37483

 10.1 
December 22, 2016

4.15  8-K 
001-37483

 4.1 September 20, 2017
4.16  S-3ASR 333-222102 4.5 December 15, 2017
4.17  8-K 001-37483 4.2 September 19, 2018
4.18  8-K 001-37483 4.3 September 19, 2018
10.1  8-K 001-37483 10.1 January 30, 2017
10.2  10 001-37483 10.4 September 28, 2015
10.3  S-8 333-207679 4.3 October 30, 2015
10.4  S-8 333-207679 4.4 October 30, 2015
10.5  8-K 001-37483 10.4 November 5, 2015
10.6  8-K 001-37483 10.7 November 5, 2015
10.7  8-K 001-37483 10.8 November 5, 2015
10.8  8-K 001-37483 10.9 November 5, 2015
10.9  8-K 001-37483 10.10 November 5, 2015
10.10  8-K 001-37483 10.1 November 5, 2015
10.11  10-Q 001-37483 10.14 March 10, 2016
10.12  10-Q 001-37483 10.15 March 10, 2016
10.13  8-K 001-37483 10.1 May 26, 2016
10.14  S-8 333-207679 4.3 March 6, 2017
10.15  S-8 001-37483 4.3 April 18, 2017
10.16  S-8 001-37483 4.4 April 18, 2017
10.17  S-8 001-37483 4.3 April 24, 2017
10.22S-8333-2212544.4November 1, 2017
10.23S-8333-2261814.3July 16, 2018
10.2410-Q001-3748310.29September, 4, 2018
10.2510-Q001-3748310.30September, 4, 2018
10.2610-Q001-3748310.27December 12, 2018
10.2710-Q001-3748310.29December 12, 2018
10.28S-8333-2294494.3January 31, 2019
10.298-K001-3748310.1August 20, 2019
10.30S-8333-234033
4.3October 1, 2019
10.3110-K001-3748310.31December 13, 2019
10.3210-Q001-3748310.32March 9, 2020
31.1
31.2
32
101.INSXBRL Instance Document‡
101.SCHXBRL Taxonomy Extension Schema Document‡
101.CALXBRL Taxonomy Extension Calculation Linkbase Document‡
101.DEFXBRL Taxonomy Extension Definition Linkbase Document‡
101.LABXBRL Taxonomy Extension Label Linkbase Document‡
101.PREXBRL Taxonomy Extension Presentation Linkbase Document‡

* Indicates management contract or compensation plan, contract or arrangement
‡ Filed herewith
10.18  10-Q 000-51333 10.1 January 29, 2016
10.19  10-K 000-51333 10.48 February 28, 2007
10.20  10-K 000-51333 10.3 September 10, 2012
10.21  S-1 000-51333 10.10 February 4, 2005
10.22  S-8 333-221254 4.3 October 31, 2017
10.23  S-8 333-221254 4.4 October 31, 2017
10.24  S-8 333-226181 4.3 July 16, 2018
10.25  10-Q 001-37483 10.29 September, 4, 2018
10.26  10-Q 001-37483 10.30 September, 4, 2018
10.27  10-Q 001-37483 10.27 December 12, 2018
10.28  10-Q 001-37483 10.28 December 12, 2018
10.29  10-Q 001-37483 10.29 December 12, 2018
10.30  S-8 333-229449 4.3 January 31, 2019
10.31  8-K 001-37483 10.1 August 20, 2019
31.1         
31.2         
32         
101.INS XBRL Instance Document‡        
101.SCH XBRL Taxonomy Extension Schema Document‡        
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document‡        
101.DEF XBRL Taxonomy Extension Definition Linkbase Document‡        
101.LAB XBRL Taxonomy Extension Label Linkbase Document‡        
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document‡        
† Furnished herewith
*Indicates management contract or compensation plan, contract or arrangement
Filed herewith
Furnished herewith
The registrant agrees to furnish to the Commission supplementally upon request a copy of (1) any instrument with respect to long-term debt not filed herewith as to which the total amount of securities authorized thereunder does not exceed

10% of the total assets of the registrant and its subsidiaries on a consolidated basis and (ii) schedules or exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K of any material plan of acquisition, disposition or reorganization set forth above.

84

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HEWLETT PACKARD ENTERPRISE COMPANY
/s/ TAREK A. ROBBIATI
Tarek A. Robbiati
 Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Authorized
Signatory)
Date: August 30, 2019

September 3, 2020
72
85