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Item 7. Management’s Discussion and Analysis

2021-12-10 compared with 2020-12-10 · 473 added, 620 removed, 359 unchanged (75% of the section changed)

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

For purposes of the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section, we use the terms "Hewlett Packard Enterprise", "HPE", "the Company", "we", "us", and "our" to refer to Hewlett Packard Enterprise Company.

For purposes of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section, we use the terms "Hewlett Packard Enterprise", "HPE", "the Company", "we", "us", and "our" to refer to Hewlett Packard Enterprise Company.

References in the MD&A section to "former Parent" refer to HP Inc.

This section of this Form 10-K generally discusses fiscal 2021 and fiscal 2020 items and year-to-year comparisons between fiscal 2021 and fiscal 2020.

Discussions of fiscal 2019 items and year-to-year comparisons between fiscal 2020 and fiscal 2019 that are not included in this Form 10-K can be found in "Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2020, as filed with the SEC on December 10, 2020, which is available on the SEC's website at www.sec.gov.

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 Consolidated Financial Statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our Consolidated Financial Statements.

This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes that appear in Part II, Item 8 of this document.

This MD&A is organized as follows:

• Trends and Uncertainties 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, and other matters.

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 fiscal 2020 to fiscal 2019.

• Trends and Uncertainties.

A discussion of material events and uncertainties known to management such as COVID-19, our response to the challenges and trends, and our pivot to as-a-service strategy.

• Executive 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.

• Critical Accounting Policies and Estimates.

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• Results of Operations.

An analysis of our financial results comparing fiscal 2020 and fiscal 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.

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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, off-balance sheet arrangements, cross-indemnifications with HP Inc.

(formerly known as "Hewlett-Packard Company" and also referred to in this Annual Report as "former Parent"), and cross-indemnifications with DXC Technology Company ("DXC") and Micro Focus International plc ("Micro Focus").

This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes that appear elsewhere in this document.

Former Parent Separation Transaction

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 (collectively, the "Separation").

stockholder of record received one share of Hewlett Packard Enterprise common stock for each share of HP Inc.

common stock held on the record date.

Following the Separation, the Company became an independent publicly-traded company.

Discontinued Operations

On April 1, 2017, HPE completed the separation and merger of its Enterprise Services business with the DXC Technology Company ("DXC", "the Everett Transaction" or "Everett").

On September 1, 2017, HPE completed the separation and merger of its Software business segment with Micro Focus International plc ("Micro Focus", "the Seattle Transaction" or "Seattle").

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

• Contractual Cash and Other Obligations.

An overview of contractual obligations, retirement and post-retirement benefit plan funding, restructuring plans, uncertain tax positions and off-balance sheet arrangements.

• GAAP to Non-GAAP Reconciliation .

Each non-GAAP measure has been reconciled to the most directly comparable GAAP measure therein.

This section also includes a discussion on the usefulness of non-GAAP financial measures, and material limitations associated with the use of non-GAAP financial measures.

TRENDS AND UNCERTAINTIES

The outbreak of COVID-19 in 2020 resulted in a global slowdown of economic activity including worldwide travel restrictions, prohibitions of non-essential work activities, disruption and shutdown of businesses and greater uncertainty in global financial markets.

COVID-19 continues to have an impact on our financial performance and 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 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 I, 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.

While great progress has been made in the fight against COVID-19, it remains a global challenge and continues to have an impact on our operations.

For a further discussion of the pandemic and the risks, uncertainties and actions taken in response to it, see the discussion in the section titled "COVID-19 Pandemic Update", "Manufacturing and Materials" and "Backlog" in Part I, Item 1, and risks identified in the section entitled " Risk Factors" in Part I, Item 1A.

The Company also believes that the pandemic 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 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.

In October 2020, in certain countries, we introduced a new hybrid model of work to our workforce called Edge-to-Office.

Depending on role classification, work will now primarily be done at the edge (outside of the office), or at HPE sites.

HPE sites will be used for collaborations, social connections, and other work, as needed for all roles.

The implementation of Edge-to-Office will occur in a phased-approach across the Company and as local regulations allow.

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 continue to mitigate the impact on our business and operations to address the near-term uncertainty, in fiscal 2020 we took 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 March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted into law.

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 also enacted comparable legislation to address COVID-19 economic impacts.

Based on the relief provided by this legislation, in fiscal 2020 we deferred $92 million of payroll taxes which, the Company will pay, at least partially or in full, prior to the end of fiscal 2021.

• On April 6, 2020, we announced that we suspended purchases under our share repurchase program.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

• In April 2020, we issued $2.25 billion aggregate principal amount of unsecured Senior Notes to enhance our liquidity and strengthen our capital.

Additionally, in July 2020, we issued $1.75 billion in aggregate principal amount of unsecured Senior Notes.

The net proceeds from July offerings were used primarily for the redemption in August 2020 of the $3.0 billion outstanding principal amount of the 3.6% unsecured Senior Notes that were originally due in October 2020.

• On May 19, 2020, the Board of Directors of HPE (the "Board") approved a cost optimization and prioritization plan.

We expect that this plan will be implemented through fiscal 2023 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 2023, 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 $0.7 billion will relate to labor restructuring, $0.5 billion will relate to non-labor restructuring and $0.1 billion will relate to IT investments and design and execution charges.

For further details of the plan see the Other section of this discussion.

• On May 19, 2020, the Board approved cost containment measures including temporary base salary adjustments or unpaid leave for certain employees beginning July 1, 2020, along with restrictions on external hiring and salary increases.

Effective November 1, 2020, the aforementioned cost containment measures were returned to their original levels prior to the change.

• During fiscal 2020, we paid a quarterly dividend of $0.12 per share to our shareholders.

On December 1, 2020 we declared a quarterly dividend of $0.12 per share, payable on or about January 6, 2021, to stockholders of record as of the close of business on December 9, 2020.

Other Trends and Uncertainties

We are in the process of addressing many challenges facing our business.

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Another set of challenges relates to changes in the competitive landscape.

Our major competitors are expanding their product and service offerings with integrated products and solutions, our business-specific competitors are exerting increased competitive pressure in targeted areas and are entering new markets, our emerging competitors are introducing new technologies and business models, and our alliance partners in some businesses are increasingly becoming our competitors in others.

A third set of challenges relates to business model changes and our go-to-market execution.

We intend to provide our customers with a choice between traditional consumption models or subscription-based, pay-per-use and as-a-Service offerings across out entire portfolio of HPE products and services.

To be successful in overcoming these challenges, we must address business model shifts and optimize go-to-market execution by successfully transitioning to our as-a-Service model, further improving our cost structure, aligning sales coverage with our strategic goals, improving channel execution, and strengthening our capabilities in our areas of strategic focus, which includes accelerating growth in the Intelligent Edge and High Performance Compute businesses and delivering profitable growth across each of our business segments.

We need to continue to pursue new product innovation that builds on our existing capabilities in areas such as cloud and data center computing, software-defined networking, converged storage, high-performance compute, and wireless networking, which will keep us aligned with market demand, industry trends and the needs of our customers and partners.

In addition, we need to continue to improve our operations, with a particular focus on enhancing our end-to-end processes and efficiencies.

We intend to provide our customers with a choice between traditional consumption models or subscription-based, pay-per-use and as-a-service offerings across our entire portfolio of HPE products and services.

Additionally, the global pandemic has accelerated several trends relevant to the Company.

First, the exponential increase of data at the edge driven by the proliferation of devices.

Second is the need for a cloud experience everywhere to manage the growth of data at the edge.

Third, data growth is creating new opportunities with the need to quickly extract value from the captured data.

Enterprises have embraced multi-cloud strategies, as they recognize the need for different cloud environments for different types of data and workloads.

Increasingly, customers want to digitally transform, while preserving capital and eliminating operating expense, by paying only for the IT they use.

In response to the aforementioned challenges and trends, we are accelerating growth in our areas of strategic focus, which include the Intelligent Edge and High Performance Computing and Artificial Intelligence ("HPC & AI") businesses while at the same time, we are strengthening our core Compute and Storage businesses, doubling down in key areas of growth, and accelerating our as-a-service pivot to become the edge-to-cloud platform-as-a-service choice for our customers and partners .

At the same time our transformation programs have improved our cost structure, channel execution and alignment of our sales coverage with our strategic goals.

We continue to pursue new product innovations that build on our existing capabilities in areas such as cloud and data center computing, software-defined networking, converged storage, high-performance compute, and wireless networking, which will keep us aligned with market demand, industry trends and the needs of our customers and partners.

In addition, we continue to improve our operations, with a particular focus on enhancing our end-to-end processes and efficiencies.

Examples of accelerating and strengthening growth in our segments include the following:

• Intelligent Edge - we are seeing continued traction from our investment at the edge including rich software capabilities in security and edge services from HPE Aruba.

The Aruba Edge Services Platform ("ESP") with Aruba’s built-in identity-based network security is unique in the market and provides the ideal foundation for building a zero trust and secure access service edge.

Our comprehensive portfolio and Artificial Intelligence-powered cloud-driven platforms, such as Aruba ESP and Aruba Central, will continue to accelerate WAN and security deployments, advance cloud and IoT adoption and fast-track digital transformation.

We are on track to grow high-margin recurring revenue with technology that accelerates our ability to capture the high-growth WAN market opportunity.

Additionally, we introduced a new class of cloud-native and fully automated data center switching products specifically designed for edge cloud data centers which represents a significant market opportunity for HPE.

• HPC & AI - enterprises are running analytics on increasingly large data sets and are adopting new techniques, such as AI, deep learning, and machine learning.

They now will have access to HPC technologies, including exascale supercomputing systems, that were historically prohibitive due to their cost and complexity.

HPE GreenLake cloud services is a flexible as-a-service platform that customers can run on-premises or in a colocation facility.

• Compute - our strategy to grow profitability and pivot to more as-a-service solutions is paying off.

Compute includes three new HPE ProLiant Solutions targeting 5G deployments for telecommunication companies and virtual desktop infrastructure.

We launched our new HPE 5G Open radio access network ("RAN") solution stack for telecommunications companies to accelerate the commercial adoption of Open RAN in 5G network deployments.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

The following transformation programs were launched in response to the aforementioned challenges:

Cost Optimization and Prioritization Plan

During the third quarter of fiscal 2020, we launched a cost optimization and prioritization plan which focuses on realigning our workforce to areas of growth, including a new hybrid workforce model call Edge-to-Office, real estate strategies and simplifying and evolving our product portfolio strategy.

The implementation period for the cost optimization and prioritization plan is through fiscal 2023.

During this implementation period, we expect to incur transformation costs predominantly related to labor restructuring, non-labor restructuring, IT investments and design and execution charges.

During the third quarter of fiscal 2017, we launched an initiative called HPE Next to put in place a purpose-built company designed to compete and win in the markets where we participate.

Through this program, we are simplifying our operating model, streamlining our offerings, business processes and business systems to improve our execution.

The implementation period for HPE Next is now extended to fiscal 2023.

During the remaining implementation period we expect to incur transformation charges predominantly related to IT transformation costs for streamlining, upgrading and simplifying back-end operations, and real estate initiatives.

These costs will be partially offset by gains from real estate sales.

For additional details on these Transformation Programs, see Note 3, "Transformation Programs", to the Consolidated Financial Statements in Item 8 of Part II, whi ch is incorporated herein by reference.

For a further discussion of trends, uncertainties and other factors that could impact our operating results, and risks, uncertainties and actions taken in response to COVID-19, see the section entitled "Risk Factors" in Item 1A of Part 1, which is incorporated herein by reference.

The following Overview, Results of Operations and Liquidity discussions and analysis compare fiscal 2020 to fiscal 2019 and fiscal 2019 to fiscal 2018, unless otherwise noted.

The Capital Resources and Contractual and Other Obligations discussions present information as of October 31, 2020, unless otherwise noted.

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.

We organize our business 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.

The following provides an overview of our key financial metrics by segment for fiscal 2020, as compared to fiscal 2019:

is a transformative technology, featuring the industry’s first server-optimized for 5G Open RAN workloads with our HPE ProLiant Servers.

• Storage - we continue to see strength in key software defined solutions, which drive our ability to attach rich services and provide data insights with our portfolio offerings.

We introduced a new portfolio of cloud native data infrastructure called HPE Alletra which delivers workload optimized systems and provides customers with architectural flexibility to run any application without compromise, from edge-to-cloud with our operational experience.

These innovations are propelling our storage business into a cloud-native software-defined data services business through organic innovation and targeted acquisitions.

Annualized Revenue Run-rate ("ARR")

Our pivot to as-a-service continues its strong momentum with the addition of HPE GreenLake Cloud Services.

Our mix of ARR is becoming more software-rich as we build our GreenLake Cloud platform, which is improving our margin profile.

On the innovation front, we announced a transformative new data storage services platform that brings our cloud operations model to wherever data lives by unifying data operations.

The platform will be available through HPE GreenLake Central and include a new data services cloud console and a suite of software subscription services that simplifies and automates global infrastructure at scale.

We will continue to invest aggressively in HPE GreenLake Cloud Services to provide a true cloud experience and operating model, whether at the edge, on-premises or across multiple clouds.

ARR represents the annualized revenue of all net GreenLake services revenue, related financial services revenue (which includes rental income from operating leases and interest income from capital leases) and software-as-a-service, subscription, and other as-a-service offerings, recognized during a quarter and multiplied by four.

We use ARR as a performance metric.

ARR should be viewed independently of net revenue, and is not intended to be combined with it.

The following presents our ARR as of October 31, 2021 and 2020:

For the fiscal years ended October 31,

ARR $ 796 $ 585

year-over-year growth rate 36 % N/A

The 36% increase in ARR in fiscal 2021 as compared to the prior-year period was due to growth in HPE GreenLake services and related financial services due to an expanding customer installed base.

Additionally, ARR increased due to higher Intelligent Edge as-a-service activity, including Silver Peak, and growth in Storage as-a-service driven by Zerto, a recent acquisition.

The following Executive Overview, Results of Operations and Liquidity discussions and analysis compare fiscal 2021 to fiscal 2020, unless otherwise noted.

The Capital Resources and Contractual Cash and Other Obligations discussions present information as of October 31, 2021, unless otherwise noted.

EXECUTIVE OVERVIEW

Net revenue of $27.8 billion represented an increase of 3.0% (increased 1.0% on a constant currency basis) due to a variety of factors including improvements in the overall demand environment from the prior-year period resulting in revenue growth across most of our segments, a strong order backlog at the beginning of the period, incremental revenue from the Silver Peak acquisition and favorable currency fluctuations.

The revenue increase was moderated by a decrease in unit shipments due largely to industry-wide material constraints and a related challenging supply chain environment which resulted in significantly higher levels of order backlog across our hardware segments at the end of the current period.

The gross profit margin of 33.7% represented an increase of 2.3 percentage points due to a combination of factors led by strong pricing discipline, cost savings from our transformation programs and a continued mix shift toward higher-margin software-rich offerings.

The operating profit margin of 4.1% represented an increase of 5.3 percentage points due primarily to our strong operational execution in fiscal 2021 and the absence of a goodwill impairment charge which we recognized in fiscal 2020.

We generated $5.9 billion of cash flow from operations (including $2.2 billion of after-tax cash from Oracle Corporation's satisfaction of a judgment in the Itanium breach of contract litigation) due to higher net earnings and improved working capital management.

Free cash flow excluding the litigation judgment was $1.6 billion.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Consolidated Compute HPC & MCS Storage A & PS Intelligent Edge Financial Services Corporate

Dollars in millions, except for per share amounts

Financial Results

The following table summarizes our consolidated GAAP financial results:

For the fiscal years ended October 31,

2021 2020 Change

In millions, except per share amounts

Net revenue 27,784 26,982 3.0%

$ 26,982 $ 12,215 $ 3,036 $ 4,681 $ 951 $ 2,855 $ 3,352 $ 490

Year-over-year change % (7.4) % (10.5) % 4.3 % (9.7) % (6.0) % (2.0) % (6.4) % (3.4) %

Earnings (loss) from operations (2)

$ (329) $ 893 $ 237 $ 719 $ (5) $ 281 $ 278 $ (100)

Earnings (loss) from operations as a % of net revenue (1.2) % 7.3 % 7.8 % 15.4 % (0.5) % 9.8 % 8.3 % (20.4) %

Year-over-year change percentage points (5.6) pts (4.1) pts (3.2) pts (2.4) pts 4.8 pts 4.3 pts (0.2) pts 0.9 pts

Net loss $ (322)

Diluted net loss per share $ (0.25)

Supplemental Non-GAAP information:

Gross profit $ 9,376 $ 8,469 10.7%

Gross profit margin 33.7 % 31.4 % 2.3pts

Earnings (loss) from operations $ 1,132 $ (329) NM

Operating profit margin 4.1 % (1.2) % 5.3pts

Net earnings (loss) $ 3,427 $ (322) NM

Diluted net earnings (loss) per share $ 2.58 $ (0.25) $ 2.83

Cash flow from operations $ 5,871 $ 2,240 162.1 %

NM - Not meaningful

The following table summarizes our consolidated non-GAAP financial results:

For the fiscal years ended October 31,

2021 2020 Change

In millions, except per share amounts

Net revenue adjusted for currency $ 27,247 $ 26,982 1.0%

Non-GAAP gross profit $ 9,424 $ 8,543 10.3%

Non-GAAP gross profit margin 33.9 % 31.7 % 2.2pts

Non-GAAP earnings from operations $ 2,848 $ 2,282 24.8%

Non-GAAP earnings from operations as a % of net revenue 7.4 %

Non-GAAP operating profit margin 10.3 % 8.5 % 1.8pts

Non-GAAP net earnings $ 2,602 $ 2,005 29.8%

Non-GAAP diluted net earnings per share $ 1.96 $ 1.54 $0.42

(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 capitalized initial direct costs, transformation costs, amortization of intangible assets, acquisition, dispositions and other related charges, impairment of goodwill and disaster (recovery) charges.

Net revenue decreased by $2.2 billion, or 7.4% (decreased 6.4% on a constant currency basis), in fiscal 2020 as compared to fiscal 2019.

During fiscal 2020, we experienced a net revenue decline due to the impact of the COVID-19 pandemic on our business operations and the worldwide demand environment.

The impact of COVID-19 and resulting lockdown restrictions was felt across each of our business segments and included challenges such as disruptions to our supply chain process with processing order fulfillment, due in part to related commodity constraints, delays with meeting customer acceptance milestones and our ability to perform and complete on-site installations.

The pandemic and related restrictions also contributed to manufacturing capacity constraints during the first half of fiscal 2020, which along with the consolidation of certain locations in North America, increased order backlog.

Although we significantly improved our operational and supply chain execution in the second half of fiscal 2020, our financial results continued to be impacted by the weak worldwide demand environment resulting from the pandemic related restrictions.

Given the comprehensive impact of the pandemic and to avoid repetition, the following discussion of the financial performance of each segment in fiscal 2020 as compared to fiscal 2019 will focus on the other leading factors contributing to their performance.

From a segment perspective, the net revenue decrease in fiscal 2020, as compared to fiscal 2019, was primarily led by declines in Compute, Storage, and Financial Services, partially offset by a net revenue increase in HPC & MCS.

The net revenue decline in Compute was due to competitive pricing pressures and manufacturing capacity constraints in North America.

Storage net revenue was impacted by 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

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

lower average operating lease assets, lower lease equipment buyout revenue and unfavorable foreign currency fluctuations.

HPC & MCS experienced a net revenue increase due to the addition of revenue from the acquisition of Cray Inc.

Our gross profit margin was 31.4% ($8.5 billion) and 32.6% ($9.5 billion) for fiscal 2020 and 2019, respectively.

The 1.2 percentage point decrease to the gross profit margin was primarily driven by the combination of competitive pricing pressures, higher supply chain costs resulting from the impact of COVID-19, unfavorable currency fluctuations and the scale of the net revenue decline, partially offset by our overall shift to higher-margin products and services along with lower variable compensation expense.

Our operating profit margin was (1.2)% and 4.4% for fiscal 2020 and 2019, respectively, representing a decrease of 5.6 percentage points.

The decrease was due to an increase in operating expenses as a percentage of net revenue coupled with a decrease in the gross profit margin.

The increase in operating expenses was due primarily to the goodwill impairment charge impacting our HPC & MCS segment in the second quarter of fiscal 2020, and higher transformation costs partially offset by the prior-year period containing higher acquisition, disposition and other related charges resulting from an arbitration settlement and cost containment measures.

As of October 31, 2020, cash, cash equivalents and restricted cash were $4.6 billion, representing an increase of approximately $0.5 billion from the October 31, 2019 balance of $4.1 billion.

The increase was due primarily to the following:

cash provided by operating activities of $2.2 billion, net proceeds from debt issuance net of repayments of $1.9 billion, partially offset by investments in property, plant and equipment, net of sales proceeds of $1.7 billion, cash payments related to dividends and share repurchases of $1.0 billion and business acquisition activity of $0.9 billion.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

The following table provides reconciliation of GAAP to non-GAAP measures for fiscal 2020:

Fiscal year ended October 31, 2020 Diluted net earnings per share

GAAP net earnings (loss) $ (322) $ (0.25)

Non-GAAP adjustments:

Amortization of initial direct costs 10 0.01

Amortization of intangible assets 379 0.29

Impairment of goodwill 865 0.67

Transformation costs 950 0.74

Disaster charges 26 0.02

Acquisition, disposition and other related charges 107 0.08

Tax indemnification adjustments 101 0.08

Non-service net periodic benefit credit (136) (0.11)

Earnings from equity interests (1)

Adjustments for taxes (360) (0.29)

Non-GAAP net earnings $ 1,765 $ 1.35

GAAP earnings (loss) from operations $ (329)

Non-GAAP adjustments:

Amortization of initial direct costs 10

Amortization of intangible assets 379

Impairment of goodwill 865

Transformation costs 950

Disaster charges 26

Acquisition, disposition and other related charges 107

Non-GAAP earnings from operations $ 2,008

GAAP operating profit margin (1.2) %

Non-GAAP adjustments 8.6 %

Non-GAAP operating profit margin 7.4 %

GAAP Net revenue $ 26,982

GAAP Cost of sales 18,513

GAAP gross profit $ 8,469

Non-GAAP adjustments

Amortization of initial direct costs $ 10

Acquisition, disposition and other related charges (2)

Non-GAAP gross profit $ 8,506

GAAP gross profit margin 31.4 %

Non-GAAP adjustments 0.1 %

Non-GAAP gross profit margin 31.5 %

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

(2) Represent charges related to a non-cash inventory fair value adjustment in connection with the acquisition of Cray, which was included in Cost of Sales.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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 earnings from operations, 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, 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, earnings from equity interests, certain income tax valuation allowances and separation taxes, the impact of U.S.

tax reform, structural tax rate 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 Consolidated Financial Statements to see our financial results "through the eyes" of management.

Free cash flow $ 1,551 $ 560 $991

Each non-GAAP measure has been reconciled to the most directly comparable GAAP measure herein.

Please refer to the section "GAAP to Non-GAAP Reconciliations" included in this MD&A for these reconciliations, usefulness of non-GAAP financial measures, and material limitations associated with the use of non-GAAP financial measures.

Returning capital to our shareholders remains an important part of our capital allocation framework which consists of capital returns to shareholders and strategic investments.

We believe our existing balance of cash, cash equivalents and marketable securities, along with commercial paper and other short-term liquidity arrangements, are sufficient to satisfy our working capital needs, capital asset purchases, dividends, debt repayments and other liquidity requirements associated with our existing operations.

As of O ctober 31, 2021, our cash, cash equivalents and restricted cash were $4.3 billion, compared to the October 31, 2020 balance of $4.6 billion , representing a decrease of $0.3 billion.

We maintain a $4.75 billion five year senior unsecured committed credit facility that was entered into in August 2019.

As of October 31, 2021 no borrowings were outstanding under this credit facility.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Our Consolidated Financial Statements are prepared in accordance with U.S.

Generally Accepted Accounting Principles ("GAAP"), which requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent liabilities.

Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources, including the economic considerations related to the impact that the novel coronavirus pandemic ("COVID-19") could have on our significant accounting estimates.

Management has discussed the development, selection and disclosure of these estimates with the Audit Committee of HPE's Board of Directors.

Management believes that the accounting estimates employed and the resulting amounts are reasonable;

however, actual results may differ from these estimates.

Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control.

Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows.

A summary of significant accounting policies is included in Note 1, "Overview and Summary of Significant Accounting Policies", to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements.

Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.

Generally Accepted Accounting Principles ("GAAP"), which requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent liabilities.

A summary of significant accounting policies and a summary of recent accounting pronouncements applicable to our Consolidated Financial Statements are included in Note 1, "Overview and Summary of Significant Accounting Policies", to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.

An accounting policy is deemed to be critical if the nature of the estimate or assumption it incorporates is subject to material level of judgment related to matters that are highly uncertain and changes in those estimates and assumptions are reasonably likely to materially impact our Consolidated Financial Statements.

Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances.

Estimates and judgments may vary under different assumptions or conditions.

We evaluate our estimates and judgments on an ongoing basis.

We believe the accounting policies below are critical in the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, or complex judgments.

Revenue Recognition

We account 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.

We enter into contracts with customers that may include combinations of products and services, resulting in arrangements containing multiple performance obligations for hardware and software products and/or various services.

We determine whether each product or service is distinct in order to identify the performance obligations in the contract and allocate the contract transaction price among the distinct performance obligations.

Arrangements are distinct based on whether the customer can benefit from the product or service on its own or together with other resources that are readily available and whether the commitment to transfer the product or service to the customer is separately identifiable from other obligations in the contract.

We classify our hardware, perpetual software licenses, and software-as-a-service ("SaaS") as distinct performance obligations.

Term software licenses represent multiple obligations, which include software licenses and software maintenance.

In transactions where we deliver hardware or software, we are typically the principal and record revenue and costs of goods sold on a gross basis.

The majority of our revenue is derived from sales of product and the associated support and maintenance which 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 we expect 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 revenue will not occur.

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.

Our hardware and perpetual software licenses are distinct performance obligations where revenue is recognized upfront upon transfer of control.

Term software licenses include multiple performance obligations where the term licenses are recognized upfront upon transfer of control, with the associated software maintenance revenue recognized ratably over the contract term as services and software updates are provided.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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 our product sales, we record consideration from shipping and handling on a gross basis within net product sales.

Revenue is recorded net of any associated sales taxes.

Significant Judgments

We allocate 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.

Transaction price is adjusted for variable consideration which may be offered in contracts with customers, partners and distributors and may include rebates, volume-based discounts, cooperative marketing, price protection, and other incentive programs.

Significant judgment is applied in determining the transaction price as we may be required to estimate variable consideration at the time of revenue recognition.

When determining the amount of revenue to recognize, we estimate the expected usage of these programs, applying the expected value or most likely estimate and update the estimate at each reporting period as actual utilization becomes available.

Variable consideration is recognized only to the extent that it is probable that a significant reversal of revenue will not occur.

We also consider the customers' right of return in determining the transaction price, where applicable.

To recognize revenue for the products and services for which control has been transferred, we allocate the transaction price for the contract among the performance obligations on a relative standalone selling price ("SSP") basis.

We establish SSP for most of our products and services based on the observable price of the products or services when sold separately in similar circumstances to similar customers.

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We establish SSP ranges for our products and services and reassesses them periodically.

Judgment is applied in determining the transaction price as we 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.

We also consider the customers' right of return in determining the transaction price, where applicable.

Restructuring

We have engaged in restructuring actions which require management to estimate the timing and amount of severance and other employee separation costs for workforce reduction and enhanced early retirement programs, the fair value of assets made redundant or obsolete, and the value of lease and contract cancellation and other exit costs.

We accrue for severance and other employee separation costs under these actions when it is probable that benefits will be paid and the amount is reasonably estimable.

The rates used in determining severance accruals are based on existing plans, historical experiences and negotiated settlements.

For a full description of our restructuring actions, refer to our discussions of restructuring in "Results of Operations" below and in Note 3, "Transformation Programs", to the Consolidated Financial Statements.

Retirement and Post-Retirement Benefits

Our pension and other post-retirement benefit costs and obligations depend on various assumptions.

Our major assumptions relate primarily to discount rates, mortality rates, expected increases in compensation levels and the expected long-term return on plan assets.

The discount rate assumption is based on current investment yields of high-quality fixed-income securities with maturities similar to the expected benefits payment period.

Mortality rates help predict the expected life of plan participants and are based on a historical demographic study of the plan.

The expected increase in the compensation levels assumption reflects our long-term actual experience and future expectations.

The expected long-term return on plan assets is determined based on asset allocations, historical portfolio results, historical asset correlations and management's expected returns for each asset class.

In any fiscal year, significant differences may arise between the actual return and the expected long-term return on plan assets.

Historically, differences between the actual return and expected long-term return on plan assets have resulted from changes in target or actual asset allocation, short-term performance relative to expected long-term performance, and to a lesser extent, differences between target and actual investment allocations, the timing of benefit payments compared to expectations, and the use of derivatives intended to effect asset allocation changes or hedge certain investment or liability exposures.

Our major assumptions vary by plan, and the weighted-average rates used are set forth in Note 4, "Retirement and Post-Retirement Benefit Plans", to the Consolidated Financial Statements, which is incorporated herein by reference.

The following table provides the impact changes in the weighted-average assumptions of discount rates, the expected increase in compensation levels and the expected long-term return on plan assets would have had on our net periodic benefit cost for fiscal 2020:

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Change in basis

points Change in Net Periodic Benefit Cost

Discount rate (25) $ 21

Expected increase in compensation levels 25 $ 4

Expected long-term return on plan assets (25) $ 34

Taxes on Earnings

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In determining the need for a valuation allowance, we consider future market growth, forecasted earnings, future sources of taxable income, the mix of earnings in the jurisdictions in which we operate, and prudent and feasible tax planning strategies.

In the event we were to determine that it is more likely than not that we will be unable to realize all or part of our deferred tax assets in the future, we would increase the valuation allowance and recognize a corresponding charge to earnings in the period in which we make such a determination.

Likewise, if we later determine that we are more likely than not to realize the deferred tax assets, we would reverse the applicable portion of the previously recognized valuation allowance.

In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in the jurisdictions in which the deferred tax assets are located.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Our effective tax rate includes the impact of certain undistributed foreign earnings and basis differences for which we have not provided for U.S.

federal taxes because we plan to reinvest such earnings and basis differences indefinitely outside the U.S.

In addition, future earnings from non-U.S.

operations will largely be subject to U.S.

Therefore, the indefinitely reinvested undistributed foreign earnings and basis differences represent amounts that are not expected to be subject to U.S.

tax in the foreseeable future.

We will remit non-indefinitely reinvested earnings of our non-U.S.

subsidiaries for which deferred U.S.

state income and foreign withholding taxes have been provided where excess cash has accumulated and when we determine that it is advantageous for business operations, tax or cash management reasons.

We are subject to income taxes in the U.S.

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The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in our income tax provision and, therefore, could have a material impact on our (Provision) benefit for taxes, Net earnings (loss) and cash flows.

Our accrual for uncertain tax positions is attributable primarily to uncertainties concerning the tax treatment of our international operations, including the allocation of income among different jurisdictions, intercompany transactions and related interest, uncertain tax positions from acquired companies, as well as pre-Separation state income tax liabilities of HP Inc.

for which the Company is jointly and severally liable.

For a further discussion on taxes on earnings, refer to Note 6, "Taxes on Earnings", to the Consolidated Financial Statements.

We state our inventory at the lower of cost or net realizable value.

Cost is computed using standard cost which approximates actual cost on a first-in, first-out basis.

We make adjustments at each reporting period to reduce the cost of inventory to its net realizable value at the product group level for estimated excess or obsolescence.

Factors influencing these adjustments include changes in future demand forecasts, market conditions, technological changes, product life-cycle and development plans, component cost trends, product pricing, physical deterioration, and quality issues.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Our accrual for uncertain tax positions is attributable primarily to uncertainties concerning the tax treatment of our international operations, including the allocation of income among different jurisdictions, intercompany transactions and related interest, and uncertain tax positions from acquired companies.

For further discussion on taxes on earnings, refer to Note 6, "Taxes on Earnings", to the Consolidated Financial Statements.

Business Combinations

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We are permitted to conduct a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test.

We perform a quantitative test for each of our reporting units as part of our annual goodwill impairment test in the fourth quarter of each fiscal year.

Goodwill is tested for impairment at the reporting unit level.

As of October 31, 2020, our reporting units with goodwill are consistent with the reportable segments identified in Note 2, "Segment Information", to the Consolidated Financial Statements.

In the goodwill impairment test, we compare the fair value of each reporting unit to its carrying amount.

We estimate the fair value of our reporting units using a weighting of fair values derived most significantly from the income approach and, to a lesser extent, the market approach.

Estimating the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions.

We estimate the fair value of our reporting units using a weighting of fair values derived most significantly from the income approach and, to a lesser extent, the market approach, with the exception of the Software reporting unit which uses a weighting derived most significantly from the market approach.

Under the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows.

Cash flow projections are based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions.

The discount rate used is based 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.

Cash flow projections are based on discrete forecast periods as well as terminal value determinations, including revenue growth rates and operating margins used to calculate projected future cash flows.

These cash flow projections are discounted to arrive at the fair value of each reporting unit.

The discount rate used is based on the weighted-average cost of capital of comparable public companies 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, we estimate the fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with operating and investment characteristics similar to the reporting unit.

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A significant and sustained decline in our stock price could provide evidence of a need to record a goodwill impairment charge.

Estimating the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions.

These estimates and assumptions, covering discrete forecast periods as well as terminal value determinations, include revenue growth rates and operating margins used to calculate projected future cash flows, risk adjusted discount rates, future economic and market conditions, and the determination of appropriate comparable publicly traded companies.

In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine the carrying amount of each reporting unit.

If the fair value of a reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not impaired.

If the fair value of the reporting unit is less than its carrying amount, goodwill is impaired.

The goodwill impairment loss is measured as the excess of the reporting unit's carrying value over its fair value (not to exceed the total goodwill allocated to that reporting unit).

On March 31, 2020, due to the macroeconomic impacts of COVID-19 on our current and projected future results of operations, we 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

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

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, we estimated the fair value of HPC & MCS based on the present value of estimated future cash flows which we considered to be a level 3 unobservable input in the fair value hierarchy.

We prepared cash flow projections based on management's estimates of revenue growth rates and operating margins, that considered our historical performance and the current macroeconomic industry and market conditions.

We based 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 HPC & MCS's ability to execute on the projected cash flows.

Under the market approach, we estimated fair value based on market multiple earnings derived from comparable publicly traded companies with similar operating and investment characteristics as HPC & MCS.

We weighted the fair value derived from the market approach commensurate with the level of comparability of these publicly traded companies to HPC & MCS.

Prior to the quantitative goodwill impairment test, we 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 exceeded its fair value by $865 million.

In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine the carrying amount of each reporting unit.

On March 31, 2020, due to the macroeconomic impacts of the pandemic on our projected future results of operations, we determined that an indicator of potential impairment existed to require an interim quantitative goodwill impairment test for its reporting units.

The quantitative goodwill impairment test indicated that the carrying value of the HPC & AI reporting unit exceeded its fair value by $865 million.

As a result, we recorded a partial goodwill impairment charge of $865 million in the second quarter of fiscal 2020.

During the annual impairment test in fiscal 2020, we determined that no additional impairment of goodwill existed.

Our annual goodwill impairment analysis, which we performed as of the first day of the fourth quarter of fiscal 2021, did not result in any additional impairment charges.

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In order to evaluate the sensitivity of the estimated fair value of our reporting units in the goodwill impairment test, we applied a hypothetical 10% decrease to the fair value of each reporting unit.

Based on the results of this hypothetical 10% decrease all of the reporting units had an excess of fair value over carrying amount, with the exception of HPC & MCS reporting unit.

As of the annual test date, subsequent to the impairment recognized in March, the HPC & MCS reporting unit has a goodwill of $3.6 billion and an excess of fair value over carrying value of net assets of 7%.

The fair value of the HPC & MCS reporting unit was based on the same methodology used for the interim test, which was a weighting of fair values derived most significantly from the income approach, and to a lesser extent, the market approach.

Our HPC & MCS business is facing challenges as a result of the macroeconomic impacts of COVID-19 on our current and projected future results.

If we are not successful in addressing these challenges, our projected revenue growth rates or operating margins could decline resulting in a decrease in the fair value of the HPC & MCS reporting unit.

The fair value of the HPC & MCS reporting unit could also be negatively impacted by changes in its weighted average cost of capital, changes in management's business strategy or significant and sustained declines in our stock price, which could result in an indicator of impairment.

In addition, each of our reporting units has experienced a reduction of the excess of fair value over carrying value for the reporting unit, primarily as a result of COVID-19 impacts on our current and projected future results.

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.

Based on the results of this hypothetical 10% decrease all of the reporting units had an excess of fair value over carrying amount, with the exception of HPC & AI reporting unit.

As of the annual test date, the HPC & AI reporting unit had a goodwill of $3.7 billion and an excess of fair value over carrying value of net assets of 8%.

The HPC & AI business is facing challenges on the current and projected future results as the revenue growth is dependent on timing of delivery and related achievement of customer acceptance milestones.

If we are not successful in addressing these challenges, the projected revenue growth rates or operating margins could decline resulting in a decrease in the fair value of the HPC & AI reporting unit.

The fair value of the HPC & AI reporting unit could also be negatively impacted by changes in its weighted average cost of capital, changes in management's business strategy or significant and sustained declines in the stock price, which could result in an indicator of impairment.

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.

See Part I, Item 1A, "Risk Factors" for a discussion of the potential impacts of the pandemic on the fair value of our assets.

Intangible Assets

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We estimate the fair value of finite-lived intangible assets by using an income approach or, when available and appropriate, using a market approach.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Fair Value of Derivative Instruments

We use derivative instruments to manage a variety of risks, including risks related to foreign currency exchange rates and interest rates.

We use forwards, swaps and, at times, options to hedge certain foreign currency and interest rate exposures.

We do not use derivative financial instruments for speculative purposes.

At October 31, 2020, the gross notional amount of our derivative portfolio was $20.1 billion.

Assets and liabilities related to derivative instruments are measured at fair value, and were $510 million and $194 million, respectively, as of October 31, 2020.

Fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date.

In the absence of active markets for identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.

The determination of fair value often involves significant judgments about assumptions such as determining an appropriate discount rate that factors in both risk and liquidity premiums, identifying the similarities and differences in market transactions, weighting those differences accordingly and then making the appropriate adjustments to those market transactions to reflect the risks specific to the asset or liability being valued.

We generally use industry standard valuation models to measure the fair value of our derivative positions.

When prices in active markets are not available for an identical asset or liability, we use industry standard valuation models to measure fair value.

Where applicable, these models project future cash flows and discount the future amounts to present value using market based observable inputs, including interest rate curves, Company and counterparty credit risk, foreign currency exchange rates, and forward and spot prices.

For a further discussion of fair value measurements and derivative instruments, refer to Note 12, "Fair Value" and Note 13, "Financial Instruments", respectively, to the Consolidated Financial Statements.

Loss Contingencies

We are involved in various lawsuits, claims, investigations and proceedings including those consisting of IP, commercial, securities, employment, employee benefits, and environmental matters, which arise in the ordinary course of business.

We record a liability when we believe 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.

In March 2020, prior to the quantitative goodwill impairment test, we tested the recoverability of long-lived assets and other assets of the HPC & AI reporting unit and concluded that such assets were not impaired.

Contingencies

We are subject to the possibility of losses from various contingencies.

Significant judgment is necessary to estimate the probability and amount of a loss, if any, from such contingencies.

An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated.

We review these matters at least quarterly and adjust these liabilities to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other updated information and events, pertaining to a particular case.

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We believe we have recorded adequate provisions for any such matters and, as of October 31, 2021, it was not reasonably possible that a material loss had been incurred in connection with such matters in excess of the amounts recognized in our financial statements.

ACCOUNTING PRONOUNCEMENTS

For a summary of recent accounting pronouncements applicable to our Consolidated Financial Statements, see Note 1, "Overview and Summary of Significant Accounting Policies", to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Impairment of goodwill — — % 865 3.2 % — — %

Restructuring charges — — % — — % 19 0.1 %

Transformation costs 930 3.3 % 950 3.5 % 453 1.6 %

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Acquisition, disposition and other related charges 36 0.1 % 80 0.3 % 757 2.6 %

Separation costs — — % — — % 9 — %

Earnings (loss) from continuing operations (329) (1.2) % 1,274 4.4 % 1,737 5.6 %

Earnings (loss) from operations 1,132 4.1 % (329) (1.2) % 1,274 4.4 %

Interest and other, net (211) (0.8) % (215) (0.8) % (177) (0.6) %

Tax indemnification adjustments (101) (0.4) % 377 1.3 % (1,354) (4.3) %

Tax indemnification and related adjustments 65 0.2 % (101) (0.4) % 377 1.3 %

Non-service net periodic benefit credit 70 0.3 % 136 0.5 % 59 0.2 %

Litigation judgment 2,351 8.5 % — — % — — %

Earnings from equity interests 180 0.6 % 67 0.3 % 20 — %

Earnings (loss) from continuing operations before taxes (442) (1.6) % 1,553 5.3 % 268 0.9 %

Earnings (loss) before taxes 3,587 12.9 % (442) (1.6) % 1,553 5.3 %

(Provision) benefit for taxes (160) (0.6) % 120 0.4 % (504) (1.7) %

Net earnings (loss) from continuing operations (322) (1.2) % 1,049 3.6 % 2,012 6.5 %

Net loss from discontinued operations — — % — — % (104) (0.3) %

Net earnings (loss) $ 3,427 12.3 % $ (322) (1.2) % $ 1,049 3.6 %

Fiscal 2021 compared with fiscal 2020

In fiscal 2021, total net revenue of $27.8 billion, increased by $0.8 billion, or 3.0% (increased 1.0% on a constant currency basis).

net revenue decreased by $0.3 billion or 3.4% to $8.9 billion, while net revenue from outside of the U.S.

increased by $1.1 billion or 6.3% to $18.9 billion.

From a segment perspective, net revenue increased across most of our segments due to the improved demand environment led by revenue growth of 15% in Intelligent Edge and 5%, 3%, 2% and 2% in Corporate Investments and Other,

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

HPC & AI, Storage, and Financial Service, respectively.

Compute net revenue was largely unchanged from the prior-year period.

The components of the weighted net revenue change by segment were as follows:

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Compute — (5.0)

HPC & MCS 0.4 (0.2)

HPC & AI 0.3 0.4

Storage 0.3 (2.0)

A & PS (0.2) (0.4)

Intelligent Edge 1.6 (0.2)

Financial Services 0.2 (0.8)

Corporate Investments (0.1) (0.1)

Corporate Investments and Other 0.2 0.1

Total segment 2.6 (7.5)

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Total HPE 3.0 (7.4)

Fiscal 2020 compared with Fiscal 2019

In fiscal 2020, our total net revenue decreased by $2.15 billion or 7.4% (decreased 6.4% on a constant currency basis).

net revenue decreased by $0.42 billion or 4.4% to $9.2 billion, while net revenue from outside of the U.S.

decreased by $1.73 billion or 8.9% to $17.8 billion.

During fiscal 2020, we experienced a net revenue decline due to the impact of the COVID-19 pandemic on our business operations and the worldwide demand environment.

Given the comprehensive impact of the pandemic and to avoid repetition, the following discussion of each segment's financial performance in fiscal 2020 as compared to fiscal 2019 will focus on the other leading factors contributing to their performance.

From a segment perspective, the primary factors contributing to the change in total net revenue are summarized as follows:

• Compute net revenue decreased due primarily to competitive pricing pressures, manufacturing capacity constraints in North America in the first quarter of fiscal 2020 and unfavorable foreign currency fluctuations;

• 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 commodity and manufacturing capacity constraints in North America in the first quarter of fiscal 2020, and lower revenue from the expiration of a one-time legacy contract ;

• A & PS net revenue decreased due primarily to service delivery delays;

• Intelligent Edge net revenue decreased due primarily to competitive pricing pressures, and unfavorable foreign currency fluctuations, resulting in lower revenue from WLAN, switching products and software offerings;

• Financial Services net revenue decreased due primarily to a decrease in rental revenue due to lower average operating lease assets, lower lease equipment buyout revenue and unfavorable currency fluctuations.

Fiscal 2019 compared with Fiscal 2018

In fiscal 2019, our total net revenue decreased by $1.7 billion or 5.6% (decreased 4.3% on a constant currency basis).

net revenue decreased by $610 million or 6.0% to $9.6 billion, while net revenue from outside of the U.S.

decreased by $1.1 billion or 5.4% to $19.5 billion.

From a segment perspective, the primary factors contributing to the change in total net revenue are summarized as follows:

• Compute net revenue decreased due primarily to lower Tier 1 server sales and lower revenue from China as part of our strategic move to exit less profitable product categories and certain markets, and unfavorable currency fluctuations;

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

• HPC & MCS net revenue decreased due primarily to the combination of lower services revenue, MCS and edge compute product revenue;

• Storage net revenue increased due primarily to growth in Hyperconverged storage products, Big Data products and storage services;

• A & PS net revenue decreased due primarily to demand weakness, our initiative to streamline our go-to-market approach in certain countries and unfavorable foreign currency fluctuations;

• Intelligent Edge net revenue decreased due primarily to lower sales from switching and WLAN products driven by sales execution issues, particularly in the North America region, weaker demand and unfavorable foreign currency fluctuations;

• FS net revenue decreased due primarily to a decrease in rental revenue and unfavorable currency fluctuations.

Fiscal 2020 compared with Fiscal 2019

Our gross profit margin decreased 1.2 percentage points for fiscal 2020 as compared with fiscal 2019.

The decreases in the gross profit margin were due to a combination of factors including competitive pricing pressures, higher supply chain costs resulting from the impact of COVID-19, unfavorable currency fluctuations and the scale of the net revenue decline, partially offset by our continued shift to higher margin products and services and lower variable compensation expense.

Fiscal 2019 compared with Fiscal 2018

Our gross profit margin increased 2.7 percentage points for fiscal 2019 as compared with fiscal 2018.

The increase in gross profit 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 lower-margin Tier-1 server sales coupled with a higher mix of revenue from higher-margin products.

Our gross profit margin increased 2.3 percentage points due primarily to a combination of factors led by strong pricing discipline, cost savings from our transformation programs, a continued mix shift toward higher-margin software-rich offerings and favorable currency fluctuations.

Operating expenses

Research and development

R&D expense increased by $32 million, or 2%, in fisca l 2020 as compared to fiscal 2019, due primarily to on-going expenses from business acquisitions partially offset by the impact of cost containment measures we put in place in response to COVID-19.

R&D expense increased by $175 million, or 10%, in fiscal 2019 as compared to fiscal 2018, due primarily to our continued investments in the Intelligent Edge and Storage and on-going expenses from recent business acquisitions, partially offset by favorable currency fluctuations.

R&D expense increased by $105 million, or 6% due primarily to higher employee compensation expense which contributed 11.0 percentage points to the change.

The increase was moderated by cost savings of 4.5 percentage points as we rationalize our R&D through transformation programs by focusing investment in growth areas.

Selling, general and administrative

SG&A expense decreased b y $283 million, or 6%, f or fiscal 2020 as compared to fiscal 2019, due primarily to the impact of cost containment measures we put in place in response to COVID-19, lower litigation expenses and favorable currency fluctuations, partially offset by on-going expenses from business acquisitions.

SG&A expense decreased by $14 million, or 0.3%, for fiscal 2019 as compared to fiscal 2018, due primarily to favorable currency fluctuations and lower variable compensation expense, partially offset by higher investments in the sales organization.

SG&A expense increased b y $305 million, or 7% due primarily to higher employee compensation expense and unfavorable currency fluctuations, which contributed 4.1 percentage points and 2.1 percentage points to the change, respectively.

Amortization of intangible assets

Amortization expense increased by $112 million, or 42%, in fiscal 2020 as compared to fiscal 2019, 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 period.

Amortization expense decreased by $27 million, or 9%, in fiscal 2019 as compared to fiscal 2018, due to certain intangible assets associated with prior acquisitions reaching the end of their amortization periods, partially offset by an increase in the amortization of intangible assets from business acquisitions.

Amortization expense decreased by $25 million, or 7% due to certain intangible assets associated with prior acquisitions reaching the end of their amortization in the current period and higher write-offs of certain intangible assets in the prior-year period.

The decrease was moderated by an increase in amortizations in the current period resulting from recent acquisitions.

Impairment of goodwill

Impairment of goodwill for fiscal 2020 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 & AI reporting unit was below the carrying value of its net assets.

Transformation programs and costs

Our transformation programs consist of the cost optimization and prioritization plan (launched in 2020) and HPE Next initiative (launched in 2017).

The cost optimization and prioritization plan focuses on realigning our workforce to areas of growth, a new hybrid workforce model called Edge-to-Office, real estate strategies and simplifying and evolving our product portfolio strategy.

The implementation period for the cost optimization and prioritization plan is through fiscal 2023.

The HPE Next initiative was intended to put in place a purpose-built company designed to compete and win in the markets where we

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Impairment of goodwill

Impairment of goodwill for fiscal 2020, 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 assets.

During the fourth quarter of fiscal 2018, management of the then Hybrid IT segment changed its evaluation of Hybrid IT to evaluate the previously integrated CMS business separately from the remainder of Hybrid IT, resulting in a reassessment of the reporting units.

This change in segment management review triggered an interim goodwill test in the fourth quarter of fiscal 2018 and based on that test, the fair value of CMS was lower than its carrying value, leading to a goodwill impairment charge of $88 million in fiscal 2018.

Transformation costs

Transformation programs are comprised of the cost optimization and prioritization plan which we introduced in May 2020, and the HPE Next Initiative.

Transformation costs increased by $497 million in fiscal 2020 as compared to fiscal 2019, due primarily to restructuring charges recorded in the current period in connection with the cost optimization and prioritization plan and increased restructuring costs from the HPE Next initiative.

These increases were partially offset by higher gains in the current period from the sale of real estate.

Transformation costs increased by $39 million in fiscal 2019 as compared to fiscal 2018, due primarily to fiscal 2019 containing the combination of lower gains from the sale of real estate and impairment charges on real estate assets, the effects of which were partially offset primarily by lower restructuring charges in fiscal 2019.

Disaster charges (recovery)

In fiscal 2020, disaster charges represent direct costs resulting from COVID-19 and are primarily related to HPE hosted, co-hosted, or sponsored events which were converted to a virtual format or in some cases cancelled.

In fiscal 2019, disaster recovery amounts represent insurance recoveries in relation to damage to our facilities in Houston, Texas due to Hurricane Harvey in fiscal 2017.

participate by simplifying our operating model, streamlining our offerings, business processes and business systems to improve our execution.

The implementation period for HPE Next was extended to fiscal 2023.

Transformation costs decreased by $20 million, or 2% due primarily to lower restructuring charges recorded in the current year, with higher IT costs and lower gains on real estate sales in the current period moderating the decrease.

Disaster charges

In fiscal 2021 and fiscal 2020, disaster charges represent direct costs resulting from the pandemic and are primarily related to HPE hosted, co-hosted, or sponsored events which were converted to a virtual format or cancelled.

Acquisition, disposition and other related charges

Acquisition, disposition and other related charges decreased by $677 million in fiscal 2020 as compared to fiscal 2019, due primarily to a charge related to a one-time arbitration settlement in the prior-year period, partially offset by recent business acquisition costs related to retention bonuses and integration activities.

Acquisition, disposition and other related charges increased by $675 million in fiscal 2019 as compared to fiscal 2018, due primarily to a charge related to a one-time arbitration settlement.

Acquisition, disposition and other related charges decreased by $ 44 million due primarily to lower business acquisition costs related to retention bonuses and integration activities in the current year period.

Interest and other, net

Interest and other, net expense increased by $38 million in fiscal 2020 as compared to fiscal 2019, due primarily to unfavorable currency fluctuations and higher net interest expense, partially offset by a higher gain from the sale of certain assets in the current year.

Interest and other, net expense decreased by $97 million in fiscal 2019 as compared to fiscal 2018, due primarily to the combination of gains from equity investments and favorable currency fluctuations.

Tax indemnification adjustments

Tax indemnification adjustments, representin g $101 million of expense, $377 million of income, and $1.4 billion of expense in fiscal 2020, 2019, and 2018, respectively, resulted primarily from the settlement of certain pre-Separation tax liabilities for which we share joint and several liability with HP Inc.

and for which we were partially indemnified by HP Inc.

under the terminated Tax Matters Agreement.

Additionally, fiscal 2019 also includes the impact of the termination of the Tax Matters Agreement with HP Inc.

In limited circumstances, we continue to be indemnified under the Termination and Mutual Release Agreement which terminated the Tax Matters Agreement.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Interest and other, net expense was relatively unchanged from period to period, due to offsetting factors with the current period including higher gains from equity investments, lower interest expense from lower average borrowings, and lower unfavorable currency fluctuations, offset by early debt redemption costs, lower gains on the sale of certain assets and lower interest income.

Tax indemnification and related adjustments

We record changes in certain pre-Separation tax liabilities for which we share joint and several liability with HP Inc.

and for which we were indemnified under the Termination and Mutual Release Agreement within Tax Indemnification and related Adjustments.

We also record changes to certain pre-Separation and pre-divestiture tax liabilities and tax receivables for which we remain liable on behalf of the separated or divested business, but which may not be subject to indemnification.

We recorded Tax indemnification and related adjustments income of $65 million and expense of $101 million in fiscal 2021 and 2020, respectively.

Tax indemnification and related adjustments in fiscal 2021 primarily included the impacts of a Brazilian Supreme Court decision received regarding the base on which two social contribution taxes in Brazil ("PIS" and "COFINS") are imposed.

As a result of this decision, the Company is entitled to recover credits and associated interest related to the overpayment of these transaction taxes imposed between 2005 and 2019 to be used to offset future Brazilian tax liabilities.

As such, we have recorded benefits of $17 million and $80 million, both net of taxes, for the recovery of PIS and COFINS, respectively, during fiscal 2021, of which $25 million was included in Net revenue, $10 million related to interest income was included in Interest and other, net, and $80 million related to pre-Separation liabilities was included in Tax indemnification and related adjustments.

The corresponding income taxes of $18 million as a result of this recovery were included in (Provision) benefit for taxes in the Consolidated Statement of Earnings.

Tax indemnification and related adjustments in fiscal 2020 resulted from changes in certain pre-Separation tax liabilities for which we shared joint and several liability with HP Inc.

and for which we are indemnified under the Termination and Mutual Release Agreement and changes to certain pre-divestiture tax liabilities and tax receivables.

Non-service net periodic benefit credit

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The credit also includes the impact of any plan settlements, curtailments, or special termination benefits.

Non-service net periodic benefit credit increased by $77 million i n fiscal 2020 as compared to fiscal 2019, due primarily to lower interest rates.

Non-service net periodic benefit credit decreased by $62 million in fiscal 2019 as compared to fiscal 2018, due primarily to lower expected returns on pension investments.

Non-service net periodic benefit credit decreased by $66 million due primarily to lower expected returns on plan assets.

Litigation judgment

In October 2021, the Company received $2.35 billion which represents Oracle Corporation's satisfaction of the judgment in the Itanium breach of contract dispute.

The gain was recognized as other income and presented as a Litigation judgment in

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

the Consolidated Statements of Earnings.

For further discussion, refer to Note 17, “Litigation and Contingencies" to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.

Earnings from equity interests

Earnings from equity interests primarily represents our 49% interest in H3C and the amortization of a basis difference.

Earnings from equity interests increased by $47 million in fiscal 2020 as compared to fiscal 2019 due to higher net income earned by H3C.

Earnings from equity interests decreased by $18 million in fiscal 2019 as compared to fiscal 2018 due to lower net income earned by H3C.

Provision for taxes

Our effective tax rates were 27.1%, 32.5% and (650.7)% in fiscal 2020, 2019 and 2018, respectively.

Earnings from equity interests primarily represents our 49% interest in H3C Technologies and the amortization of our interest in a basis difference.

Earnings from equity interests increased by $113 million due to higher net income earned by H3C and gains from certain venture investments.

(Provision) benefit for taxes

For fiscal 2021 and 2020, we recorded income tax expense of $160 million and an income tax benefit of $120 million, respectively, which reflect effective tax rates of 4.5% and 27.1%, respectively.

Our effective tax rate generally differs from the U.S.

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In fiscal 2021, we recorded $294 million of net income tax benefits related to items discrete to the year.

These amounts primarily included $174 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges, $66 million of income tax benefits related to the change in pre-Separation tax liabilities, primarily those for which we share joint and several liability with HP Inc.

and for which we are indemnified by HP Inc., $57 million of income tax benefits related to Indian distribution tax rate changes, and $40 million of income tax benefits related to tax rate changes on deferred taxes.

These amounts primarily included:

• $180 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges,

• $157 million of income tax benefits related to releases of foreign valuation allowances,

• $39 million of income tax benefits related to tax rate changes on deferred taxes,

• $32 million of income tax benefits related to the change in pre-Separation tax liabilities, primarily those for which we share joint and several liability with HP Inc.

and for which we are indemnified by HP Inc.

• These benefits were partially offset by $337 million of net income tax charges associated with income from the Itanium litigation judgment, against which $244 million of income tax attributes previously subject to a valuation allowance were utilized, resulting in a net tax expense of $93 million.

In fiscal 2020, we recorded $362 million of net income tax benefits related to items discrete to the year.

These amounts primarily included:

• $174 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges,

• $66 million of income tax benefits related to the change in pre-Separation tax liabilities, primarily those for which we shared joint and several liability with HP Inc.

and for which we are indemnified by HP Inc.,

• $57 million of income tax benefits related to Indian distribution tax rate changes, and

• $40 million of income tax benefits related to tax rate changes on deferred taxes.

• These discrete tax benefits were offset by $242 million of net income tax charges related to normal operations and the impact of the Company's goodwill impairment charge being non-deductible from a tax perspective.

In fiscal 2019, we recorded $152 million of net income tax charges related to items discrete to the year.

These amounts primarily included $488 million of income tax charges related to changes in U.S.

federal and state valuation allowances primarily as a result of impacts of the Tax Cuts and Jobs Act of 2017 (the "Tax Act") and $40 million of income tax charges related to future withholding costs on potential intercompany distributions of earnings, the effects of which were partially offset by $274 million of income tax benefits related to the change in pre-Separation tax liabilities for which we shared joint and several liability with HP Inc., and $104 million of income tax benefits on transformation costs, and acquisition, disposition and other related charges.

In fiscal 2018, we recorded $2.0 billion of net income tax benefits related to items discrete to the year.

These amounts primarily included $2.0 billion of income tax benefits related to the settlement of certain pre-Separation tax liabilities for which we shared joint and several liability with HP Inc.

and for which we were partially indemnified by HP Inc.

under the Tax Matters Agreement, $208 million of income tax benefits related to Everett pre-divestiture tax matters and valuation allowances, $125 million of income tax benefits on restructuring charges, separation costs, transformation costs and acquisition and other related charges, and $65 million of income tax benefits on net excess tax benefits related to stock-based compensation, the effects of which were partially offset by $422 million of income tax charges related to impacts of the Tax Act.

Segment Information

A description of the products and services for each segment, along with other pertinent information related to Segments can be found in Note 3, "Segment Information", to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.

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.

In October 2021, we renamed the segment previously known as High Performance Computing and Mission Critical Solutions ("HPC & MCS") to High Performance Computing and Artificial Intelligence ("HPC & AI").

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Financial Condition and Results of Operations (Continued)

Forthcoming Segment Realignments

In order to align our segment financial reporting structure more closely with our current business structure, effective November 1, 2020, we will report the following changes to our reportable segments:

the lifecycle event services business which was previously reported within the A & PS segment will be reported within each of the related hardware segments;

certain software related business offerings previously reported within Compute, Storage and A & PS will be combined and reported within the Corporate Investments segment;

and the remainder of A & PS, which was previously reported as a reportable segment, will be reported within the Corporate Investments segment.

Additionally, stock-based compensation expense which was previously reported within segment operating results will be now be reported as a corporate cost.

As previously discussed in the Overview section of this MD&A, during fiscal 2020, we experienced a net revenue decline due to the impact of the COVID-19 pandemic on our business operations and the worldwide demand environment.

As described in Note 1, "Overview and Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Item 8 of Part II, effective at the beginning of the first quarter of fiscal 2021, we (a) excluded stock-based compensation expense from our segment earnings from operations;

and (b) implemented certain organizational changes to align our segment financial reporting more closely with our current business structure.

As a result of these organizational changes, our operations are now organized into six segments for financial reporting purposes:

Compute, HPC & AI, Storage, Intelligent Edge, FS, and Corporate Investments and Other.

The Corporate Investments and Other Segment now includes the A & PS operating segment, the Communications and Media Solutions operating segment, the Software operating segment, and Hewlett Packard Enterprise Labs which is responsible for research and development.

We reflected these changes in our segment information retrospectively to the earliest period presented, which primarily resulted in the realignment of net revenue and operating profit for each of the segments.

These changes had no impact on Hewlett Packard Enterprise's previously reported consolidated results.

A description of the products and services for each segment, along with other pertinent information related to Segments can be found in Note 2, "Segment Information", to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.

Segment Results

The following provides an overview of our key financial metrics by segment for fiscal 2021, as compared to fiscal 2020:

Consolidated Compute HPC & AI Storage Intelligent Edge Financial Services Corporate

Investments and Other

Dollars in millions, except for per share amounts

Net revenue (1)

$ 27,784 $ 12,292 $ 3,188 $ 4,763 $ 3,287 $ 3,401 $ 1,356

Year-over-year change % 3.0 % 0.1 % 2.7 % 1.7 % 15.1 % 1.5 % 4.5 %

Earnings (loss) from operations (2)

$ 1,132 $ 1,326 $ 234 $ 778 $ 500 $ 390 $ (95)

Earnings (loss) from operations as a % of net revenue 4.1 % 10.8 % 7.3 % 16.3 % 15.2 % 11.5 % (7.0) %

Year-over-year change percentage points 5.3 pts 2.6 pts (1.9) pts (1.1) pts 3.4 pts 3.0 pts 8.9 pts

(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, amortization of initial direct costs, amortization of intangible assets, impairment of goodwill, transformation costs, disaster charges and acquisition, disposition and other related charges.

For the fiscal years ended October 31,

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Fiscal 2021 compared with fiscal 2020

Compute net revenue decreased by $1.4 billion, or 10.5% (decreased 9.3% on a constant currency basis), in fiscal 2020 as compared to fiscal 2019.

Net revenue in Compute declined due to multiple factors including competitive pricing pressures, manufacturing capacity constraints in North America in the first quarter of fiscal 2020, and unfavorable currency fluctuations.

As a result, for fiscal 2020, as compared to fiscal 2019 Compute experienced a decline in unit shipments and average unit selling prices.

Compute earnings from operations as a percentage of net revenue decreased 4.1 percentage points for fiscal 2020, as compared to fiscal 2019 due primarily to an increase in costs 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 products as a percentage of net revenue was due primarily to competitive pricing pressures, unfavorable currency fluctuations, higher supply chain costs and the scale of the net revenue decline, partially offset by lower commodity costs.

The increase in operating expense as a percentage of net revenue was due to the scale of the net revenue decline while total operating expenses declined year-over-year due primarily to lower spending due to cost containment measures put in place in response to COVID-19 and lower variable compensation expense.

These declines were partially offset by higher field selling costs.

Fiscal 2019 compared with Fiscal 2018

Compute net revenue decreased by $1.5 billion, or 9.9% (decreased 8.7% on a constant currency basis), in fiscal 2019 as compared to fiscal 2018.

Net revenue in Compute declined as we continued to execute on our HPE Next transformation initiative, which included streamlining our offerings and business processes, and shifting investments in innovation towards high growth and higher-margin solutions and services.

The decline in revenue was due primarily to lower Tier 1 server sales and lower revenue from China as part of our strategic move to exit less profitable product categories and certain markets, and unfavorable currency fluctuations.

Also, weak demand in the enterprise market led to lower revenue from ISS core products as well as longer sales cycles.

As a result, for fiscal 2019, as compared to fiscal 2018, Compute experienced a decline in unit shipments while average unit selling prices increased.

Compute earnings from operations as a percentage of net revenue increased 2.8 percentage points for fiscal 2019, as compared to fiscal 2018 due primarily to a decrease in costs of products as a percentage of net revenue offset by an increase in

Compute net revenue increased by $7 million, or 0.1% (decreased 2.0% on a constant currency basis) due primarily to favorable currency fluctuations and an increase in average unit prices.

The net revenue increase was partially offset by a decrease in unit shipments resulting from material constraints due to a challenging supply chain environment.

As a result, we ended the period with a significantly higher level of order backlog.

From a product perspective, Compute experienced revenue growth in the rack and synergy server product categories partially moderated by a revenue decline due to certain products approaching their end-of-life.

Services net revenue was relatively unchanged from period to period.

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Financial Condition and Results of Operations (Continued)

operating expenses as a percentage of net revenue.

The decrease in cost of products as a percentage of net revenue was due to a combination of factors including year-over-year decrease in commodity costs, lower costs of products and services due to our cost management initiatives and a lower mix of revenue from lower-margin Tier-1 server sales coupled with a higher mix of revenue from higher-margin products which were partially offset by increased competitive pricing pressures.

The increase in operating expenses as a percentage of net revenue was due to the scale of the net revenue decline while total operating expenses declined year-over-year due primarily to our HPE Next initiative to streamline business processes.

Compute earnings from operations as a percentage of net revenue increased 2.6 percentage points due to decreases in costs of products and services as a percentage of net revenue and operating expenses as a percentage of net revenue.

The decrease in costs of products and services as a percentage of net revenue was due primarily to favorable currency fluctuations, lower supply chain overhead costs from operational efficiencies, and disciplined pricing.

The decrease in operating expenses as a percentage of net revenue was due primarily to cost savings from our transformation programs partially offset by higher employee compensation expense.

Fiscal 2020 compared with fiscal 2019

Compute net revenue decreased by $1.4 billion, or 10.5% (decreased 9.4% on a constant currency basis) due to the impact of the pandemic on the demand environment as we experienced multiple factors including competitive pricing pressures, manufacturing capacity constraints in North America in the first quarter of fiscal 2020, and unfavorable currency fluctuations.

As a result, Compute experienced a decline in unit shipments and average unit selling prices.

Compute earnings from operations as a percentage of net revenue decreased 4.3 percentage points due primarily to an increase in costs of products and services as a percentage of net revenue and an increase in operating expenses as a percentage of net revenue.

The increase in operating expenses as a percentage of net revenue was due to the scale of the net revenue decline as total operating expenses declined due primarily to lower spending resulting from our cost containment measures and lower variable compensation expense, partially offset by higher field selling costs.

For the fiscal years ended October 31,

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Fiscal 2021 compared with fiscal 2020

HPC & MCS net revenu e increased by $126 million, or 4.3% (increased 4.6% on a constant currency basis) in fiscal 2020 as compared to fiscal 2019.

The increase in HPC & MCS net revenue was primarily driven by higher revenue in HPC due to the addition of product and services revenue resulting from Cray.

The net revenue increase in HPC was partially offset by a revenue decline in Edge Compute and MCS.

HPC & MCS earnings from operations as a percentage of net revenue decreased 3.2 percentage points, in fiscal 2020 as compared to fiscal 2019, due to an increase in operating expenses as a percentage of net revenue partially offset by a lower cost of products and services as a percentage of net revenue.

The decrease in cost of products and services as a percentage of net revenue was primarily due to improved product mix from the acquisition of Cray.

The increase in operating expenses as a percentage of net revenue was due to the addition of operating expenses resulting from the acquisition of Cray.

HPC & AI net revenue increased by $83 million or 2.7% (increased 1.8% on a constant currency basis) as the challenges encountered in the prior year period resulting from the pandemic receded, such as delays with meeting customer milestones, and the demand environment improved.

This resulted in net revenue growth in the Apollo and Cray product categories within HPC and growth in Edge Compute.

Favorable currency fluctuations also added to the net revenue increase.

These increases were moderated by revenue declines in Data Solutions and Services due to certain products approaching their end-of-life and lower support services, respectively.

HPC & AI earnings from operations as a percentage of net revenue decreased 1.9 percentage points primarily due to increases in cost of products and services as a percentage of net revenue and operating expenses as a percentage of net revenue.

The increase in cost of products and services as a percentage of net revenue was due primarily to a lower mix of revenue from services and higher-margin Data Solutions, while cost savings from our transformation programs moderated the increase.

The increase in operating expenses as a percentage of net revenue was due primarily to higher field selling costs and employee compensation expense, while cost savings from our transformation programs moderated the increase.

Fiscal 2020 compared with fiscal 2019

HPC & MCS net reve nue decreased by $77 million, or 2.6% (decreased 2.2% on a c onstant currency basis) in fiscal 2019 as compared to fiscal 2018.

The decrease in HPC & MCS net revenue was primarily due to the combination of lower revenue in services, the MCS product portfolio and with Edge Compute products.

This decrease was partially offset by growth in the HPC product portfolio due to the increased Apollo product revenue.

HPC & MCS earnings from operations as a percentage of net revenue decreased 1.9 percentage points, in fiscal 2019 as compared to fiscal 2018, due to an increase in cost of products and services as a percentage of net revenue and an increase in operating expenses as a percentage of net revenue.

The increase in cost of products and services as a percentage of net revenue was primarily due to lower mix of lower-cost MCS products and services.

The increase in operating expenses as a percentage of net revenue was primarily due to investments in research and development partially offset by a decrease in administrative expense.

For the fiscal years ended October 31,

2020 2019 2018

Dollars in millions

Net revenue $ 4,681 $ 5,185 $ 5,158

Earnings from operations $ 719 $ 924 $ 830

Earnings from operations as a % of net revenue 15.4 % 17.8 % 16.1 %

HPC & AI net revenue increased by $122 million, or 4.1% (increased 4.4% on a constant currency basis) due primarily to higher revenue in HPC from the addition of product and services revenue resulting from the acquisition of Cray, partially offset by a revenue decline in Edge Compute and Data Solutions.

HPC & AI earnings from operations as a percentage of net revenue decreased 3.0 percentage points 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 decrease in cost of products and services as a percentage of net revenue was due primarily to an improved product mix resulting from Cray.

The increase in operating expenses as a percentage of net revenue was due to the addition of operating expenses from Cray.

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Financial Condition and Results of Operations (Continued)

Fiscal 2020 compared with Fiscal 2019

Storage net revenue decreased by $504 million, or 9.7% (decreased 8.7% on a constant currency basis), in fiscal 2020 as compared to fiscal 2019.

Net revenue in Storage declined due primarily to commodity and manufacturing capacity constraints in North America 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.

Storage earnings from operations as a percentage of net revenue decreased 2.4 percentage points for fiscal 2020 as compared to fiscal 2019, 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 cost of products from higher fixed overhead costs as a percentage of net revenue, the effects of which were partially offset by lower cost of services due to delivery efficiencies.

The increase in operating expenses as a percentage of net revenue was due primarily to the scale of the net revenue decline and higher investments in R&D, while total operating expenses declined during the period due to lower field selling cost and lower spending due to cost containment measures.

Fiscal 2019 compared with Fiscal 2018

Storage net revenue increased by $27 million, or 0.5% (increased 1.5% on a constant currency basis), in fiscal 2019 as compared to fiscal 2018.

The increase in net revenue was due primarily to growth in Hyperconverged and Big Data products and storage services.

These increases were partially offset by lower net revenue from 3PAR and traditional storage products.

Storage earnings from operations as a percentage of net revenue increased 1.7 percentage points for fiscal 2019 as compared to fiscal 2018, due to a decrease in cost of product and services as a percentage of net revenue, partially offset by an increase in operating expenses as a percentage of net revenue.

The decrease in cost of product and services as a percentage of net revenue was due primarily to the year-over-year decrease in commodity costs, lower cost of services from delivery efficiencies, a more favorable mix of revenue from higher-margin HPE Nimble product and Storage services, and cost management activities.

The increase in operating expenses as a percentage of net revenue was due primarily to higher field selling costs and R&D costs driven by business acquisitions.

For the fiscal years ended October 31,

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Earnings from operations as a % of net revenue 16.3 % 17.4 % 19.2 %

The components of net revenue and the weighted net revenue change by business unit were as follows:

Fiscal 2021 compared with fiscal 2020

A & PS net reven ue decreased by $61 million, or 6.0% (decreased 5.7% on a con stant currency basis) in fiscal 2020 as compared to fiscal 2019.

The decrease in A & PS net revenue was primarily due to service delivery delays partially offset by strength in Asia Pacific and Japan.

A & PS earnings from operations as a percentage of net revenue increased 4.8 percentage points, in fiscal 2020 as compared to fiscal 2019, 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 as a result of cost containment measures.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Storage net revenue increased by $78 million, or 1.7% (decreased 0.1% on a constant currency basis) as we continue our transition to more services, and software-rich offerings.

The net revenue increase was led by favorable currency fluctuations, growth in Storage services and incremental revenue from the Zerto acquisition.

Net revenue in Storage products was unchanged as growth from HPE Primera products, Traditional Storage and Nimble Storage was offset by revenue declines in SimpliVity and HPE 3PAR, while we are transitioning to the next-generation HPE Primera and HPE Alletra product set.

Storage earnings from operations as a percentage of net revenue decreased 1.1 percentage points due to an increase in operating expenses as a percentage of net revenue, partially offset by a decrease in cost of products and services as a percentage of net revenue.

The decrease in cost of products and services as a percentage of net revenue was due primarily to a favorable mix of higher-margin HPE Primera and Big Data products, and improved operational efficiencies achieved through our transformation programs, the effects of which were partially offset by higher fixed overhead costs as a percentage of net revenue.

Operating expenses as a percentage of net revenue increased across all functions due to higher employee compensation expense and planned investments in our cloud data services.

Fiscal 2020 compared with fiscal 2019

A & PS net revenu e decreased by $106 million, or 9.5% (decreased 7.3% on a constant currency basis) in fiscal 2019 as compared to fiscal 2018.

The decrease in A & PS net revenue was due primarily due to demand weakness, lower revenue as a result of our initiative to streamline our go-to-market approach in certain countries and unfavorable foreign currency fluctuations.

A & PS earnings from operations as a percentage of net revenue increased 1.8 percentage points, in fiscal 2019 as compared to fiscal 2018, due to a decrease in cost of services as a percentage of net revenue while operating expenses as a percentage of net revenue were flat.

The decrease in cost of services as a percentage of net revenue was due primarily to our cost management initiatives.

Operating expenses as a percentage of net revenue were flat due to lower administrative and marketing expenses offset by higher field selling costs.

Storage net revenue decreased by $570 million, or 10.8% (decreased 9.9% on a constant currency basis) due primarily to the impact of the pandemic on the demand environment as we experienced commodity and manufacturing capacity constraints in North America in the first quarter of fiscal 2020, and lower revenue from the expiration of a one-time legacy contract, partially offset by higher revenue from Big Data.

Storage earnings from operations as a percentage of net revenue decreased 1.8 percentage points 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 cost of product and services as a percentage of net revenue was due primarily to a combination of factors including competitive pricing pressures, increased cost of products due to higher fixed overhead cost, and unfavorable currency fluctuations, partially offset by lower cost of services due to delivery efficiencies.

The increase in operating expenses as a percentage of net revenue was due primarily to the scale of the net revenue decline while total operating expenses declined due to lower field selling costs amid lower spending resulting from our cost containment measures.

Intelligent Edge

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Earnings from operations as a % of net revenue 15.2 % 11.8 % 7.4 %

Fiscal 2020 compared with Fiscal 2019

Intelligent Edge net reve nue decreased by $58 million, or 2.0% (decreased 1.2% on a constant currency basis) in fiscal 2020 as compared to fiscal 2019.

The decrease in I ntelligent Edge net revenue was primarily due to competitive pricing pressures and unfavorable currency fluctuations.

As a result, we experienced lower revenue from WLAN, switching products, and software offerings.

These declines were partially offset by an increase in net revenue due to higher service renewals.

Intelligent Edge earnings from operations as a percentage of net revenue increased 4.3 percentage points, in fiscal 2020 as compared to fiscal 2019, due to a decrease in operating expenses as a percentage of net revenue coupled with 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 primarily due to a favorable mix of revenue from services and WLAN products partially offset by higher cost of logistics.

The decrease in operating expenses as a percentage of net revenue was primarily due to lower spending as a result of cost containment measures, partially offset by higher variable compensation expense.

Fiscal 2019 compared with Fiscal 2018

Intelligent Edge net rev enue decreased by $100 million, or 3.3% (decreased 2.4% on a constant currency basis) in fiscal 2019 as compared to fiscal 2018.

The decrease in I ntelligent Edge net revenue was primarily due to lower revenue from switching and WLAN products driven by sales execution issues, particularly in the North America region, demand weakness and unfavorable foreign currency fluctuations.

These decreases in net revenue were partially offset by higher attach services revenue on a growing installed base and higher renewal rates.

Intelligent Edge earnings from operations as a percentage of net revenue decreased 5.8 percentage points, in fiscal 2019 as compared to fiscal 2018, due to an increase in operating expenses as a percentage of net revenue partially offset by a decrease in cost of products and services as a percentage of net revenue.

The decrease in cost of products and services as a percentage of net revenue was primarily due to higher mix of revenue from lower-cost products and services, and cost management activities partially offset by competitive pricing pressures on switching products.

The increase in operating expenses as a percentage of net revenue was due primarily to our continued investments in research and development and the sales organization.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Fiscal 2021 compared with fiscal 2020

Intelligent Edge net revenue increased by $432 million, or 15.1% (increased 12.8% on a constant currency basis) from growth in product and services revenue due to an improved demand environment in the current period, the addition of revenue from Silver Peak and favorable currency fluctuations.

The increase in product revenue was led by the Switching and WLAN product categories.

The increase in services revenue was led by higher attached support services and increased as-a-service offerings.

Intelligent Edge earnings from operations as a percentage of net revenue increased 3.4 percentage points due primarily to decreases in cost of products and services as a percentage of net revenue and operating expenses as a percentage of net revenue.

The decrease in cost of product and services as a percentage of net revenue was due primarily to lower product costs in Switching and WLAN and addition of higher-margin Silver Peak activity.

The decrease in operating expenses as a percentage of net revenue was due primarily to improved operational efficiencies including cost savings from transformation programs, while higher employee compensation expense and the addition of expenses from Silver Peak moderated the decrease.

Fiscal 2020 compared with fiscal 2019

Intelligent Edge net rev enue decreased by $58 million, or 2.0% (decreased 1.2% on a constant currency basis) due primarily to weak market demand, competitive pricing pressures and unfavorable currency fluctuations.

As a result, we experienced lower revenue from WLAN, switching products, and software offerings.

These declines were partially offset by an increase in net revenue due to higher service renewals.

Intelligent Edge earnings from operations as a percentage of net revenue increased 4.4 percentage points due to a decrease in operating expenses as a percentage of net revenue coupled with 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 favorable mix of revenue from services and lower costs of switching products, partially offset by higher logistics cost.

The decrease in operating expenses as a percentage of net revenue was due primarily to lower spending as a result of cost containment measures, partially offset by higher variable compensation expense.

Financial Services

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Fiscal 2021 compared with fiscal 2020

FS net revenue decreased by $229 million, or 6.4% (decreased 5.2% on a constant currency basis), in fiscal 2020 due primarily to a decrease in rental revenue due to lower average operating lease assets and lower lease equipment buyout revenue, along with unfavorable currency fluctuations, partially offset by higher revenue from lease extensions.

FS earnings from operations as a percentage of net revenue decreased 0.2 percentage points due primarily to an increase to operating expenses as a percentage of net revenue, partially offset by lower cost of services as a percentage of net revenue.

FS net revenue increased by $49 million, or 1.5% (decreased 0.9% on a constant currency basis) due primarily to favorable currency fluctuations, partially offset by a decrease in rental revenue due to lower average operating lease assets, along with lower asset management revenue from lease buyouts.

FS earnings from operations as a percentage of net revenue increased 3.0 percentage points due primarily to lower cost of services as a percentage of net revenue.

The decrease to cost of services as a percentage of net revenue resulted primarily from lower borrowing costs while operating expenses as a percentage of net revenue remained relatively flat.

Fiscal 2020 compared with fiscal 2019

FS net revenue decreased by $229 million, or 6.4% (decreased 5.2% on a constant currency basis) due primarily to a decrease in rental revenue due to lower average operating leases assets and lower lease equipment buyout revenue, along with unfavorable currency fluctuations, partially offset by higher revenue from lease extensions.

FS earnings from operations as a percentage of net revenue decreased 0.2 percentage points due primarily to an increase in operating expenses as a percentage of net revenue, partially offset by lower cost of services as a percentage of net revenue.

The decrease to cost of services as a percentage of net revenue resulted from lower depreciation expense and borrowing costs, partially offset by higher bad debt expense.

The increase to operating expenses as a percentage of net revenue was due primarily to lower capitalized initial direct costs as a result of adopting the new lease accounting standard.

Fiscal 2019 compared with Fiscal 2018

FS net revenue decreased by $90 million, or 2.5% (increased 0.2% on a constant currency basis), in fiscal 2019 due primarily to a decrease in rental revenue due to lower average operating leases and unfavorable currency fluctuations, partially offset by higher asset management revenue from lease extensions, end-of-lease monthly rentals, and lease buyouts.

FS earnings from operations as a percentage of net revenue increased 0.7 percentage points due to lower cost of services as a percentage of net revenue and a decrease in operating expenses as a percentage of net revenue.

The decrease to cost of services as a percentage of net revenue resulted from lower depreciation expense and lower bad debt expense, partially offset by higher borrowing costs.

The decrease to operating expenses as a percentage of net revenue was due primarily to lower field selling costs.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Financing Volume

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Financing volume $ 6,168 $ 6,005 $ 6,200

Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, decreased by 3.1% in fiscal 2020 and decreased 4.9% in fiscal 2019 as compared to the prior-year periods.

The decrease in fiscal 2020 and 2019 were primarily driven by lower financing associated with HPE and third-party product sales and related service offerings, along with unfavorable currency fluctuations.

Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, increased by 2.7% in fiscal 2021 and decreased 3.1% in fiscal 2020 as compared to the prior-year periods.

The increase in fiscal 2021 was primarily driven by favorable currency fluctuations, along with higher financing associated with third-party product sales and related service offerings.

The decrease in fiscal 2020 was primarily related to lower financing associated with both third-party and HPE product sales and related service offerings, along with unfavorable currency fluctuations.

Portfolio Assets and Ratios

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However, intercompany loans and certain accounts that are reflected in the segment balances are eliminated in our Consolidated Financial Statements.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

The portfolio assets and ratios derived from the segment balance sheets for FS were as follows:

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(1) Intercompany activity is eliminated in consolidation.

(2) Allowance for doubtful accounts for financing receivables includes both the short- and long-term portions.

(2) Allowance for credit losses 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 $11.9 billion and $11.7 billion at October 31, 2021 and 2020, 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 October 31, 2020 and October 31, 2019 was $1.7 billion and $1.6 billion, respectively.

At October 31, 2020 and 2019, FS net cash and cash equivalents were $729 million and $711 million, respectively.

Net portfolio assets at October 31, 2020 increased 1.9% from October 31, 2019.

The increase generally resulted from new financing volume exceeding portfolio runoff during the period, partially offset by unfavorable currency fluctuations.

FS equity at both October 31, 2021 and October 31, 2020 was $1.7 billion.

As of October 31, 2021 and 2020, FS net cash and cash equivalents were $898 million and $729 million, respectively.

Net portfolio assets as of October 31, 2021 increased 0.2% from October 31, 2020.

The increase generally resulted from favorable currency fluctuations, largely offset by portfolio runoff exceeding new financing volume during the period.

FS bad debt expense includes charges to general reserves, specific reserves and write-offs for sales-type, direct-financing and operating leases.

FS recorded net bad debt expense of $95 million, $93 million and $75 million in fiscal 2021, 2020 and 2019, respectively.

As of October 31, 2020, FS experienced an increase in billed finance receivables compared to October 31, 2019, which included limited impact to collections from customers as a result of COVID-19.

We are currently unable to fully predict the extent to which COVID-19 may adversely impact future collections of our receivables.

Corporate Investments

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

As of October 31, 2021, FS experienced an increase in billed finance receivables compared to October 31, 2020, which included a limited impact to collections from customers as a result of the pandemic.

We are currently unable to fully predict the extent to which the pandemic may adversely impact future collections of our receivables.

Corporate Investments and Other

For the fiscal years ended October 31,

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Fiscal 2021 compared with fiscal 2020

Corporate Investments net revenue decreased by $17 million, or 3.4% (decreased 2.8% on a constant currency basis), in fiscal 2020 as compared to fiscal 2019.

The decrease in Corporate Investments net revenue was due to lower services revenue from the Communications and Media Solutions ("CMS") business and unfavorable currency fluctuations.

CMS revenue decline was due primarily to competitive pricing pressures and a strategic focus on higher margin solutions and services.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Corporate Investments loss from operations as a percentage of net revenue decreased 0.9 percentage points in fiscal 2020 as compared to fiscal 2019, due primarily to lower cost of services, partially offset by higher legal expenses.

Corporate Investments and Other net revenue increased by $58 million, or 4.5% (increased 2.5% on a constant currency basis) due to favorable currency fluctuations and higher revenue from Communications and Media Solutions ("CMS") and Software.

Corporate Investments and Other loss from operations as a percentage of net revenue decreased 8.9 percentage points due primarily to a decrease in cost of services and operating expenses as a percentage of net revenue.

The decrease in cost of services as a percentage of net revenue was due primarily to service delivery and overhead efficiencies achieved through our transformation programs.

The decrease in operating expenses as a percentage of net revenue was due primarily to lower spending resulting from cost containment measures.

Fiscal 2020 compared with fiscal 2019

Corporate Investments net revenue decreased by $36 million, or 6.6% (decreased 4.4% on a constant currency basis), in fiscal 2019 as compared to fiscal 2018.

The decrease in Corporate Investments net revenue was due to lower services revenue from the CMS business and unfavorable currency fluctuations.

CMS revenue decline was due primarily to competitive pricing pressures and a strategic focus on higher margin solutions and services.

Corporate Investments loss from operations as a percentage of net revenue increased 4.5 percentage points in fiscal 2019 as compared to fiscal 2018, due primarily to higher R&D expenses from Hewlett Packard Labs and a legal settlement expense in the CMS business, partially offset by lower cost of services from the CMS business.

Corporate Investments and Other net revenue increased by $10 million, or 0.8% (increased 1.2% on a constant currency basis) due to higher revenue from Software partially offset by lower revenue from A & PS and CMS, and unfavorable currency fluctuations.

Corporate Investments and Other loss from operations as a percentage of net revenue decreased 8.5 percentage points due to a decrease in costs of services and operating expenses as a percentage of net revenue.

The decrease in cost of services as a percentage of net revenue was due primarily to service delivery and overhead efficiencies achieved through our transformation programs.

The decrease in operating expenses as a percentage of net revenue was due primarily to lower spending resulting from our cost containment measures.

LIQUIDITY AND CAPITAL RESOURCES

Current Overview

We use cash generated by operations as our primary source of liquidity.

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However, our access to capital markets may be constrained and our cost of borrowing may increase under certain business, market and economic conditions.

We anticipate that the available funds and cash generated from operations along with our access to capital markets will be sufficient to meet our liquidity requirements for at least the next twelve months.

We continue to monitor the severity and duration of the COVID-19 pandemic and its impact on the U.S.

and other global economies, the capital markets, consumer behavior, our businesses, results of operations, financial condition and cash flows.

Our liquidity is subject to various risks including the risks identified in the section entitled "Risk Factors" in Item 1A and market risks identified in the section entitled "Quantitative and Qualitative Disclosures about Market Risk" in Item 7A, each of which is incorporated herein by reference.

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 have 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 amounts due from our customers may be adversely affected as a result of the impact of COVID-19.

On March 27, 2020, 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 also enacted comparable legislation to address COVID-19 economic impacts.

In fiscal 2020 we deferred approximately $92 million of payroll taxes, which, we may pay, all or in part, prior to the end of October 2021.

In addition, as a result of the continued uncertainty generated by COVID-19, in April 2020, we issued $2.25 billion aggregate principal amount of unsecured Senior Notes to enhance our liquidity and strengthen our capital.

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 issued $1.75 billion in aggregate principal amount of unsecured Senior Notes.

The net proceeds were used primarily for the redemption in August 2020 of the $3.0 billion outstanding principal amount of the 3.6% unsecured Senior Notes that were originally due in October 2020.

On September 21, 2020, we completed the acquisition of Silver Peak Systems Inc.

("Silver Peak"), an SD-WAN (Software-Defined Wide Area Network) leader for consideration of $879 million of which $853 million was paid in cash.

Silver Peak's results of operations are included within the Intelligent Edge segment.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

During the third quarter of fiscal 2020, we launched a cost optimization and prioritization plan which focuses on realigning the workforce to areas of growth, including a new hybrid workforce model called Edge-to-Office, real estate strategies and simplifying and evolving our product portfolio strategy.

The implementation period of the cost optimization and prioritization plan is through fiscal 2023.

During this time we expect to incur transformation costs predominantly related to labor restructuring, non-labor restructuring, IT investments and design and execution charges.

We estimate related cash funding payments of $1.3 billion over the next three years of which approximately $0.7 billion will relate to labor restructuring, $0.5 billion will relate to non-labor restructuring and $0.1 billion will relate to IT investments and design and execution charges.

Our cash balances are held in numerous locations throughout the world, with a substantial amount held outside the U.S as of October 31, 2021.

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 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.

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to have a material effect on our overall liquidity, financial condition or results of operations.

On October 13, 2015, our Board of Directors approved a share repurchase program with a $3.0 billion authorization, which was refreshed with additional share repurchase authorizations of $3.0 billion, $5.0 billion and $2.5 billion on May 24, 2016, October 16, 2017 and February 21, 2018, respectively.

As a result of increased uncertainty due to the pandemic, purchases under our share repurchase program previously authorized by our Board of Directors, were temporarily suspended in April, 2020.

We resumed our share repurchase program in the fourth quarter of fiscal 2021 and settled $213 million of our stock.

As of October 31, 2021, we had a remaining authorization of $1.9 billion for future share repurchases.

The number of shares that we repurchase under the share repurchase program may vary depending on numerous factors, including share price, liquidity and other market conditions, our ongoing capital allocation planning, levels of cash and debt balances, other demands for cash, such as acquisition activity, general economic or business conditions, and board and management discretion.

Additionally, our share repurchase activity, if any, during any particular period may fluctuate.

We may commence, accelerate, suspend, delay, or discontinue any share repurchase activity at any time, without notice.

This program does not have a specific expiration date.

In fiscal 2020, we repurchased and settled an aggregate of $355 million of our stock as a result of our share repurchase program.

On April 6, 2020, we suspended purchases under its share repurchase program in response to the global economic uncertainty generated by COVID-19.

For more information on our share repurchase program, refer to Note 15, "Stockholders' Equity", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

For more information on our share repurchase program, refer to Note 15, "Stockholders' Equity", to the Consolidated Financial Statements in Part II, Item 8, which is incorporated herein by reference.

Our cash, cash equivalents, restricted cash, total debt and available borrowing resources were as follows:

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Available borrowing resources $ 6,017 $ 6,297 $ 5,639

Our key cash flow metrics were as follows:

The tables below represent the way in which management reviews cash flows:

For the fiscal years ended October 31,

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Net cash (used in) provided by financing activities (3,364) 883 (1,548)

Net Increase (decrease) in cash, cash equivalents and restricted cash $ 545 $ (1,008) $ (4,508)

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (289) $ 545 $ (1,008)

Operating Activities

Net cash provided by operating activities decreased by $1.8 billion, for fiscal 2020 as compared to fiscal 2019.

The decrease was due primarily to lower earnings from operations and unfavorable net working capital.

Net cash provided by operating activities increased by $3.6 billion, for fiscal 2021 as compared to fiscal 2020.

The increase was driven primarily by favorable net working capital, lower payments related to our ongoing HPE restructuring plans, and cash generated as a result of the settlement of the Tax Matters Agreement pursuant to the Termination and Mutual Release Agreement with HP Inc., the effects of which were partially offset by an arbitration award settlement.

The increase was due primarily to higher earnings, which includes a $2.2 billion litigation judgment.

Our key working capital metrics were as follows:

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2021 2020 2019

Days of sales outstanding in accounts receivable 42 37 37

Days of supply in inventory 48 45 40

Days of purchases outstanding in accounts payable (97) (104) (100)

Days of sales outstanding in accounts receivable ("DSO") 49 42 37

Days of supply in inventory ("DOS") 82 48 45

Days of purchases outstanding in accounts payable ("DPO") (128) (97) (104)

Cash conversion cycle 3 (7) (22)

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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 payment terms from suppliers), the extent of receivables factoring, seasonal trends, the timing of sales and inventory purchases within the period, the impact of commodity costs and acquisition activity.

Days of sales outstanding in accounts receivable ("DSO") measures the average number of days our receivables are outstanding.

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 payment terms to customers or from suppliers), early or late invoice payments from customers or to suppliers, the extent of receivables factoring, seasonal trends, the timing of sales and inventory purchases within the period, the impact of commodity 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.

For fiscal 2021, as compared to the prior-year period, DSO increased due primarily to a decrease in early payments and factoring, extended payments terms and unfavorable billing linearity.

For fiscal 2019, as compared to fiscal 2018, DSO remained flat, as a result of the improvements in collections being offset with unfavorable currency fluctuations and extended payment terms.

Days of supply in inventory ("DOS") measures the average number of days from procurement to sale of our product.

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.

For fiscal 2020, as compared to the prior year period, DOS increased due primarily to a higher inventory balance at end of the current reporting period.

For fiscal 2019, as compared to fiscal 2018, DOS increased due primarily to an increase in inventory resulting from the acquisition of Cray Inc.

Days of purchases outstanding in accounts payable ("DPO") measures the average number of days our accounts payable balances are outstanding.

For fiscal 2021, as compared to the prior-year period, the DOS increased due primarily to higher levels of inventory resulting from a combination of supply chain constraints, positioning of inventory to fulfill planned future shipments and strategic purchases of certain key components.

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.

F or fiscal 2020, as compared to the prior-year period, DPO decreased due primarily to lower inventory replenishments and higher payments to our suppliers during the quarter.

For fiscal 2019, as compared to fiscal 2018, DPO increased due primarily to an increase in lease payables due to slower disbursements, payment term extensions and favorable inventory purchasing linearity.

For fiscal 2021, as compared to the prior-year period, DPO increased due primarily to higher inventory purchases for planned future shipments and extended payment terms.

Investing Activities

Net cash used in investing activities decreased by $0.9 billion, in fiscal 2020 as compared to fiscal 2019.

The change was due primarily to a net decrease of $0.5 billion in cash used for investment in property, plant and equipment, a decrease of $0.7 billion in cash used for payments made in connection with business acquisitions, partially offset by increase of $0.3 billion in cash used in net financial collateral activities as compared to the prior-year period.

Net cash used in investing activities increased by $1.6 billion in fiscal 2019 as compared to fiscal 2018 due primarily to an increase of $1.3 billion of cash used for payments made in connection with business acquisitions, an increase of $0.4 billion of cash used for investments in property, plant and equipment, net of proceeds from sales, partially offset by an increase of $0.2 billion of cash received from net financial collateral activities.

Net cash used in investing activities increased by $0.2 billion in fiscal 2021 as compared to fiscal 2020.

The change was primarily due to higher cash utilized for investment in property, plant and equipment, net of sales proceeds of $0.5 billion and higher cash utilized in net financial collateral activities of $0.1 billion, partially offset by lower payments made in connection with business acquisitions, net of $0.4 billion.

Financing Activities

Net cash provided by financing activities increased by $2.4 billion in fiscal 2020 as compared to fiscal 2019.

The increase was due primarily to $0.6 billion of higher cash generated from the issuance of debt net of repayment, and a decrease in cash utilization of $1.9 billion for share repurchases.

Net cash used in financing activities decreased by $4.0 billion in fiscal 2019 as

Net cash generated in financing activities decreased by $4.2 billion in fiscal 2021 as compared to fiscal 2020.

The decrease was due primarily to lower proceeds from debt issuance of $4.0 billion, higher cash utilized for debt repayment of $0.4 billion and lower cash utilized for share repurchase of $0.1 billion.

Free Cash Flow

For the fiscal years ended October 31,

2021 2020 2019

Net cash provided by operating activities $ 5,871 $ 2,240 $ 3,997

Litigation judgment, net of taxes paid (2,172) — —

Net cash provided by operating activities, excluding litigation judgment, net of taxes paid 3,699 2,240 3,997

Investment in property, plant and equipment (2,502) (2,383) (2,856)

Proceeds from sale of property, plant and equipment 354 703 597

Free Cash Flow $ 1,551 $ 560 $ 1,738

Free cash flow is defined as cash flow from operations less investments in property, plant and equipment net of proceeds from the sale of property, plant and equipment.

In fiscal 2021, free cash flow does not include $2.2 billion of after-tax cash impact from Oracle’s satisfaction of the judgment in the Itanium litigation.

Free cash flow increased by $1.0 billion in fiscal 2021 as compared to fiscal 2020.

The increase was due to higher cash generated from operations and improved net working capital moderated by increased cash used for investments in property, plant and equipment, net of sales proceeds.

Our improved free cash flow outlook and cash position help to ensure we have ample liquidity to run operations, continuing to invest in our business to drive growth and return capital to shareholders.

For more information on the impact from operating assets and liabilities to cash flows, see Note 7, "Balance Sheet Details", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

compared to fiscal 2018 due primarily to the impact of a higher debt redemption by $1.9 billion in fiscal 2018, an increase in cash proceeds from the issuance of debt of $1.1 billion and a lower utilization of cash for share repurchase activity by $1.3 billion in fiscal 2019.

These amounts were partially offset by a net transfer of cash from Seattle of $0.2 billion in fiscal 2018 as a result of the separation.

Capital Resources

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2021 2020 2019

Dollars in millions

Short-term debt $ 3,552 $ 3,755 $ 4,425

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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, our cost of capital, and targeted capital structure.

Unsecured Senior Notes

In August, we redeemed $3.0 billion outstanding principal amount of the 3.6% Senior Notes with original maturity date of October 15, 2020.

In fiscal year 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 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 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 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 4.65% due October 1, 2024 interest payable semi-annually on April 1 and October 1 of each year beginning on October 1, 2020.

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 October 31, 2020, the outstanding balance of the asset-backed debt securities was $822 million.

• In February 2020, we issued $755 million of asset-backed debt securities in six 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 October 31, 2020, the outstanding balance of the asset-backed debt securities was $519 million.

• In September 2019, we issued $763 million asset-backed debt securities in six 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 October 31, 2020, the outstanding balance of the asset-backed debt securities was $385 million.

For more information on the activity for fiscal 2021 relating to Unsecured Senior Notes and Asset-Backed Debt Securities, see Note 14, "Borrowings", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

Commercial Paper

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dollar-denominated commercial paper up to a maximum aggregate principal amount of $4.75 billion which was increased from $4.0 billion in March 2020.

Our euro commercial paper

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

program provides for the issuance of commercial paper outside of the U.S.

Our euro commercial paper program provides for the issuance of commercial paper outside of the U.S.

denominated in U.S.

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The combined aggregate principal amount of commercial paper outstanding under those programs at any one time cannot exceed $4.75 billion as authorized by our Board of Directors.

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.

As of October 31, 2021 and October 31, 2020, no borrowings were outstanding under the Parent Programs, and $705 million and $677 million, respectively, were outstanding under our subsidiary's program.

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For more information on our interest rate swaps, see Note 13, "Financial Instruments", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

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, depositary shares, purchase contracts, guarantees or units consisting of any of these securities.

Our shelf registration statement will expire in December 2020, which will be renewed on or about the same date we file this report.

In December 2020, 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, depository shares, purchase contracts, guarantees or units consisting of any of these securities.

Revolving Credit Facility

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As of October 31, 2021 and October 31, 2020, no borrowings were outstanding under the Credit Agreement.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Available Borrowing Resources

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Uncommitted lines of credit $ 972

For more information on our available borrowing resources, see Note 14, "Borrowings", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

CONTRACTUAL AND OTHER OBLIGATIONS

Our contractual and other obligations as of October 31, 2020, were as follows:

For more information on our available borrowing resources and the impact of operating assets and liabilities to cash flows, see Note 14, "Borrowings", and Note 7, "Balance Sheet Details", respectively, to the Consolidated Financial Statements in Part II, Item 8, which is incorporated herein by reference.

CONTRACTUAL CASH AND OTHER OBLIGATIONS

In fiscal 2020 the total of our contractual cash and other obligations was $20.8 billion and in fiscal 2021 totals $17.9 billion.

Hence we do not currently expect changes to our contractual cash and other obligations to significantly impact our free cash flow expectations.

Our contractual cash and other obligations as of October 31, 2021, were as follows:

Payments Due by Period

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$ 17,913 $ 3,626 $ 5,405 $ 3,957 $ 4,925

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

(1) Amounts represent the principal cash payments relating to our long-term debt, including current portion of long-term debt, and do not include fair value adjustments, discounts or premiums and debt issuance costs.

As of October 31, 2020, the future principal payments related to asset-backed debt securities were expected to be $891 million in fiscal 2021, $594 million in fiscal 2022 and $241 million in fiscal 2023.

As of October 31, 2021, the future principal payments related to asset-backed debt securities were expected to be $1.2 billion in fiscal 2022, $0.7 billion in fiscal 2023 and $0.2 billion in fiscal 2024.

For more information on our debt, see Note 14, "Borrowings", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

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(6) As of October 31, 2021, we expect future cash payments of approximately $0.8 billion in connection with our approved restructuring plans, which includes $0.5 billion expected to be paid in fiscal 2022 and $0.3 billion expected to be paid thereafter.

Payments for restructuring activities have been excluded from the contractual obligations table, because they do not represent contractual cash outflows and there is uncertainty as to the timing of these payments.

Payments for restructuring activities have been excluded from the contractual obligations table, because they do not represent contractual cash

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

outflows and there is uncertainty as to the timing of these payments.

For more information on our restructuring activities, see Note 3, "Transformation Programs", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

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For more information on our uncertain tax positions, see Note 6, "Taxes on Earnings", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

(8) In connection with the Separation, Everett and Seattle transactions, we entered into a Separation and Distribution Agreement with HP Inc., DXC and Micro Focus respectively, whereby we agreed to indemnify HP Inc., DXC and Micro Focus, each of their subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to us as part of the Separation, Everett and Seattle transactions.

HP Inc., DXC and Micro Focus similarly agreed to indemnify us, each of our subsidiaries and each of our respective directors, officers and employees from and against all claims and liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to HP Inc., DXC and Micro Focus as part of the said transactions.

Additionally, in connection with the Separation, Everett and Seattle transactions, we entered into a Tax Matters Agreement with HP Inc., DXC and Micro Focus respectively regarding our rights and obligations along with those of HP Inc., DXC or Micro Focus, as applicable, for certain pre-Separation and pre-divestiture tax liabilities and tax receivables.

On October 30, 2019, we terminated our Tax Matters Agreement with HP Inc.

See Note 18, "Guarantees, Indemnifications and Warranties", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference for more information on our receivable and payable balances related to indemnified litigation matters and other contingencies, and income tax-related indemnification covered by these agreements.

Off-balance Sheet Arrangements

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For more information on our third-party revolving short-term financing arrangements, see Note 7, "Balance Sheet Details", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

GAAP TO NON-GAAP RECONCILIATIONS

Effective at the beginning of the first quarter of fiscal 2021, the Company excluded stock-based compensation expense from its segment earnings from operations results and excluded stock-based compensation expense from non-GAAP results.

The Company has reflected this change retrospectively to its financial results for the earliest period presented.

This change had no impact on Hewlett Packard Enterprise's previously reported consolidated GAAP results.

However, the Company reflected the change resulting from the reclassification of its stock-based compensation expense by restating its consolidated 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 net earnings per share.

The following tables provide reconciliation of GAAP to non-GAAP measures for fiscal 2021 and 2020:

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Reconciliation of GAAP net earnings and diluted net earnings per share to non-GAAP net earnings and diluted net earnings per share.

For the fiscal years ended October 31,

Dollars in millions Diluted net earnings per share Dollars in millions Diluted net earnings per share

GAAP net earnings (loss) $ 3,427 $ 2.58 $ (322) $ (0.25)

Non-GAAP adjustments:

Amortization of initial direct costs 8 0.01 10 0.01

Amortization of intangible assets 354 0.27 379 0.29

Impairment of goodwill — — 865 0.67

Transformation costs 930 0.70 950 0.74

Disaster charges 16 0.01 26 0.02

Stock-based compensation expense 372 0.28 274 0.21

Acquisition, disposition and other related charges 36 0.03 107 0.08

Tax indemnification and related adjustments (65) (0.05) 101 0.08

Non-service net periodic benefit credit (70) (0.05) (136) (0.11)

Litigation judgment (2,351) (1.78) — —

Early debt redemption costs 100 0.08 — —

Earnings from equity interests (1)

109 0.08 145 0.11

Adjustments for taxes (264) (0.20) (394) (0.31)

Non-GAAP net earnings $ 2,602 $ 1.96 $ 2,005 $ 1.54

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

Reconciliation of GAAP earnings from operations and operating profit margin to non-GAAP earnings from operations and operating profit margin.

For the fiscal years ended October 31,

Revenue Dollars % of

GAAP earnings (loss) from operations $ 1,132 4.1 % $ (329) (1.2) %

Non-GAAP adjustments:

Amortization of initial direct costs 8 — % 10 — %

Amortization of intangible assets 354 1.3 % 379 1.4 %

Impairment of goodwill — — % 865 3.2 %

Transformation costs 930 3.3 % 950 3.5 %

Disaster charges 16 0.1 % 26 0.1 %

Stock-based compensation expense 372 1.3 % 274 1.0 %

Acquisition, disposition and other related charges 36 0.1 % 107 0.4 %

Non-GAAP earnings from operations $ 2,848 10.3 % $ 2,282 8.5 %

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Reconciliation of GAAP gross profit and gross profit margin to non-GAAP gross profit and gross profit margin.

For the fiscal years ended October 31,

Revenue Dollars % of

GAAP Net revenue $ 27,784 100 % $ 26,982 100 %

GAAP Cost of sales 18,408 66.3 % 18,513 68.7 %

GAAP gross profit $ 9,376 33.7 % $ 8,469 31.4 %

Non-GAAP adjustments

Amortization of initial direct costs 8 — % 10 — %

Stock-based compensation expense 40 0.2 % 37 0.2 %

Acquisition, disposition and other related charges (1)

— — % 27 0.1 %

Non-GAAP gross profit $ 9,424 33.9 % $ 8,543 31.7 %

(1) Represent charges related to a non-cash inventory fair value adjustment in connection with the acquisition of Cray, which was included in Cost of Sales.

Reconciliation of net cash provided by operating activities to free cash flow.

For the fiscal years ended October 31,

Net cash provided by operating activities $ 5,871 $ 2,240

Litigation judgment, net of taxes paid (2,172) —

Net cash provided by operating activities, excluding litigation judgment, net of taxes paid 3,699 2,240

Investment in property, plant and equipment (2,502) (2,383)

Proceeds from sale of property, plant and equipment 354 703

Free cash flow $ 1,551 $ 560

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, non-GAAP diluted net earnings per share and free cash flow.

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 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.

The GAAP measure most directly comparable to cash flow from operations and free cash flow, each excluding litigation judgment, net of taxes paid, is cash flow from operations.

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, stock-based compensation expense 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

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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, stock-based compensation expense 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 items such as tax indemnification and related adjustments, non-service net periodic benefit credit, litigation judgment, early debt redemption costs, earnings 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.

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.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis