What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-12-08 compared with 2021-12-10 · 358 added, 417 removed, 415 unchanged (65% of the section changed)

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Discussions of fiscal 2020 items and year-to-year comparisons between fiscal 2021 and fiscal 2020 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, 2021, as filed with the SEC on December 10, 2021, 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.

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, 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 elsewhere in this document.

This MD&A is organized as follows:

• 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.

A discussion of material events and uncertainties known to management, such as the ongoing macroeconomic environment of supply chain constraints and inflationary pressures, our managed exit from Russia and Belarus, recent tax legislation, and other events.

• 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.

A discussion of our business and a summary of our financial performance 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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• Liquidity and Capital Resources.

An analysis of changes in our cash flows and a discussion of our financial condition and liquidity.

• 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.

An analysis and discussion of changes in our cash flows, financial condition, liquidity, and cash requirements and commitments.

• 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

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.

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

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

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Financial Condition and Results of Operations (Continued)

TRENDS AND UNCERTAINTIES

The overall demand environment continues to improve but remains impacted by industry-wide supply constraints, which contributed to a challenging supply chain environment, and inflationary pressures, both of which have been driving up material, logistics, and overall costs.

The pandemic-related lockdowns in China we experienced in the first half of the fiscal period alleviated somewhat in the second half of the fiscal period.

The challenging supply chain environment moderated our full-year revenue growth, elevated costs, and delayed certain unit shipments, resulting in part in a higher level of backlog and related inventory at the end of the current period as compared to the end of the prior-year period.

To address the challenging supply chain environment, we are taking proactive measures such as guiding certain customer demand to specific products, enhancing component engineering design, and multi-sourcing with indirect procurement.

We expect the supply chain environment to continue to present challenges in the near term.

Additionally, we are experiencing a challenging foreign exchange environment, which has moderated our revenue and earnings growth.

We expect the unfavorable foreign exchange effects and inflationary trend to continue in the longer term.

We expect the substantial completion of our HPE Next and cost optimization and prioritization restructuring plans coupled with related cost reduction measures, and operational efficiencies, to moderate the impact of unfavorable foreign exchange effects and inflationary pressures in fiscal 2023.

Russia/Ukraine Conflict

T he conflict between Russia and Ukraine and the related sanctions imposed by the U.S., European Union ("EU"), and other countries in response have negatively impacted our operations in both countries and increased economic and political uncertainty across the world.

In response to the sanctions imposed, in February 2022, we suspended all new sales and shipments to Russia and Belarus and implemented compliance measures to address the continuously changing regulatory landscape.

Based on a further assessment of business risks and needs, in June 2022, we determined that it is no longer tenable to maintain operations in Russia and Belarus and have been proceeding with an orderly, managed exit of our remaining business in these countries.

In fiscal 2021, our operations in Russia and Belarus accounted for approximately 2% of our total net revenue.

During fiscal 2022, we recorded total pre-tax charges of $161 million primarily related to expected credit losses of financing and trade receivables, employee severance, and abandoned assets, $99 million of which was included in Financing cost, $12 million in Cost of services, and $50 million in Disaster charges in the Consolidated Statements of Earnings.

We will continue monitoring the social, political, regulatory, and economic environment in Russia and Ukraine, and will consider further actions as appropriate.

More broadly, there could be additional adverse impacts to our net revenues, earnings, and cash flows should the situation continue or escalate geopolitical tensions and the impacts of recession, inflation, and supply chain pressures, both regionally and globally.

Tax Legislation

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) into law.

The Inflation Reduction Act includes a new corporate alternative minimum tax (the “Corporate AMT”) of 15% on the adjusted financial statement income (“AFSI”) of corporations with average AFSI exceeding $1.0 billion over a three-year period.

The Corporate AMT is effective for the Company beginning in fiscal 2024.

We are evaluating the Corporate AMT and its potential impact on our future U.S.

tax expense, cash taxes, and effective tax rate.

Additionally, the Inflation Reduction Act imposes an excise tax of 1% tax on the fair market value of net stock repurchases made after December 31, 2022.

The impact of this provision will be dependent on the extent of share repurchases made in future periods.

Other Trends and Uncertainties

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

One set of challenges include dynamic and accelerating market trends, such as the market shift of workloads to cloud-related IT infrastructure business models, emergence of software-defined architectures and converged infrastructure functionality and growth in IT consumption models.

One set of challenges include dynamic and accelerating market trends, such as the market shift of workloads to cloud-related information technology ("IT") infrastructure business models, emergence of software-defined architectures and converged infrastructure functionality, and growth in IT consumption models.

Certain of our legacy hardware server and storage businesses face challenges as customers migrate to cloud-based offerings and reduce their purchases of hardware products.

Therefore, the demand environment for traditional server and storage products is challenging, and lower traditional compute and storage unit volume is impacting support attach opportunities within the associated services organization.

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Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

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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 our entire portfolio of HPE products and services.

We provide our customers with a choice between traditional consumption models or software consumption-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.

Second, 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.

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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.

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Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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.

In response to the aforementioned challenges, we are accelerating our development and innovation efforts in the areas of our strategic focus, including the Intelligent Edge and HPC & AI businesses, while at the same time, strengthening our core Compute and Storage businesses, by investing in key areas of growth and accelerating our as-a-service pivot to become the edge-to-cloud company for our customers and partners with our HPE GreenLake edge-to-cloud platform.

During the fiscal period, we announced significant advancements to our HPE GreenLake edge-to-cloud platform, our flagship hybrid offering that enables organizations to modernize all their applications and data, from edge to cloud and supports multi-cloud experiences everywhere – including clouds that live on-premises, at the edge, in a colocation facility, and in a public cloud.

The platform advancements included a unified operating experience with one view of all services edge to cloud along with convergence with the Aruba Central cloud service, twelve new cloud services including network as-a-service, data services, high performance computing functions, compute operations management, and availability of the HPE GreenLake edge-to-cloud platform in the online marketplaces of several leading distributors.

We also launched HPE GreenLake for Private Cloud Enterprise, which is a private cloud experience for traditional and cloud-native workloads.

These updates strengthen the HPE GreenLake edge-to-cloud platform and help customers drive their data modernization needs.

The following Executive Overview, Results of Operations and Liquidity discussions and analysis compare fiscal 2022 to fiscal 2021, unless otherwise noted.

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

The Capital Resources and, Cash Requirements and Commitments sections present information as of October 31, 2022, 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.

Net revenue of $28.5 billion represented an increase of 2.6% (increased 5.1% on a constant currency basis) as robust demand reflected by a high order backlog was moderated by a combination of unfavorable currency fluctuations, ongoing supply chain constraints, and lower revenue from Russia.

The net revenue increase was led by effective pricing management in server products and strong demand for networking products.

The gross profit margin of 33.4% (or $9.5 billion) represents a decrease of 0.3 percentage points and was primarily driven by a combination of supply chain constraints and related cost increases, higher costs in HPC & AI, and unfavorable currency fluctuations.

Moderating the gross profit decrease was pricing discipline and strong cost management in server products.

The operating profit margin of 2.7%, represents a decrease of 1.4 percentage points primarily due to goodwill impairment charges for the HPC & AI and Software businesses.

The decrease in o perating profit margin was primarily moderated by lower transformation costs.

We generated $4.6 billion of cash flow from operations and $1.8 billion of free cash flows primarily due to improved working capital management.

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Gross profit margin 33.4 % 33.7 % (0.3)pts

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

Earnings from operations $ 782 $ 1,132 (30.9)%

Operating profit margin 2.7 % 4.1 % (1.4)pts

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

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

Net earnings $ 868 $ 3,427 (74.7)%

Diluted net earnings per share $ 0.66 $ 2.58 $(1.92)

Cash flow from operations $ 4,593 $ 5,871 (21.8)%

NM - Not meaningful

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

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Free cash flow $ 1,794 $ 1,551 $243

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

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

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 HPE GreenLake edge-to-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 includes 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 HPE GreenLake edge-to-cloud platform services revenue, related financial services revenue (which includes rental income from operating leases and interest income from finance leases), and software-as-a-service, software consumption revenue, 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.

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Financial Condition and Results of Operations (Continued)

The following presents our ARR as of October 31, 2022 and 2021:

For the fiscal years ended October 31,

ARR $ 936 $ 796

Year-over-year growth rate 17 % 36 %

The 17% year over year increase in ARR represents growth from our HPE GreenLake edge-to-cloud platform and related financial services.

The growth in the HPE GreenLake edge-to-cloud platform was due to an expanding customer installed base moderated by unfavorable currency fluctuations, supply chain constraints and related installation delays.

At the segment level, the growth is led by Storage as-a-service including Zerto and Intelligent Edge as-a-service activity.

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

We believe our existing balance of cash and cash equivalents, 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 October 31, 2022, our cash, cash equivalents and restricted cash were $4.76 billion, compared to $4.33 billion as of October 31, 2021, representing an increase of $0.43 billion.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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.

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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.

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 at the transaction price.

The majority of our revenue is derived from sales of products and services and the associated support and maintenance, and such revenue is recognized when, or as, control of promised products or services is transferred to the customer at the transaction price.

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.

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

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Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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.

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We calculate our current and deferred tax provisions based on estimates and assumptions that could differ from the final positions reflected in our income tax returns.

We will adjust our current and deferred tax provisions based on our tax returns which are generally filed in the third or fourth quarters of the subsequent fiscal year.

We adjust our current and deferred tax provisions based on our tax returns which are generally filed in the third or fourth quarters of the subsequent fiscal year.

We recognize deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which we expect the differences to reverse.

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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.

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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.

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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

We allocate the fair value of purchase consideration to the assets acquired, including in-process research and development ("IPR&D"), liabilities assumed, and non-controlling interests in the acquiree generally based on their fair values at the acquisition date.

IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter.

The excess of the fair value of purchase consideration over the fair value of these assets acquired, liabilities assumed and non-controlling interests in the acquiree is recorded as goodwill.

When determining the fair values of assets acquired, liabilities assumed, and non-controlling interests in the acquiree, management makes significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth rates and margins, attrition rates, future changes in technology and brand awareness, loyalty and position, and discount rates.

Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability.

Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.

We review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable.

For further discussion on taxes on earnings, refer to Note 6, "Taxes on Earnings", to the Consolidated Financial Statements in Item 8 of Part II.

We review goodwill for impairment at the reporting unit level annually on the first day of the fourth quarter, or whenever events or circumstances indicate the carrying amount of goodwill may not be recoverable.

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

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

As of October 31, 2022, our reporting units with goodwill are consistent with the reportable segments identified in Note 2, "Segment Information" to the Consolidated Financial Statements in Item 8 of Part II, with the exception of Corporate Investments and Other which contains three reporting units, Software, CMS and A & PS.

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

An impairment exists if the fair value of the reporting unit is less than its carrying amount.

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 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.

We weight the fair value derived from the market approach commensurate with the level of comparability of these publicly traded companies to the reporting unit.

When market comparables are not meaningful or not available, we estimate the fair value of a reporting unit using only the income approach.

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

We estimate the fair value of our reporting units using a weighting of fair values derived mostly 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 mostly from the market approach.

Under the income approach, the fair value of a reporting unit is based on discounted cash flow analysis of management's short-term and long-term forecast of operating performance.

This analysis includes significant assumptions

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Financial Condition and Results of Operations (Continued)

regarding revenue growth rates, expected operating margins, and timing of expected future cash flows based on market conditions and customer acceptances.

Under the market approach, the fair value is based on market multiples of revenue and earnings derived from comparable publicly traded companies with operating and investment characteristics similar to the reporting unit.

We weight the fair value derived from the market approach commensurate with the level of comparability of these publicly traded companies to the reporting unit.

When market comparables are not meaningful or not available, we estimate the fair value of a reporting unit using the income approach.

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.

The excess of fair value over carrying amount for our reporting units ranged from approximately 8% to 133% of the respective carrying amounts.

In order to evaluate the sensitivity of the estimated fair value of our reporting units in the goodwill impairment test, 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 & 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 I, Item 1A, "Risk Factors" for a discussion of the potential impacts of the pandemic on the fair value of our assets.

Intangible Assets

We review intangible assets with finite lives for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

Recoverability of our finite-lived intangible assets is assessed based on the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset.

If the undiscounted future cash flows are less than the carrying amount, the finite-lived intangible assets are considered to be impaired.

The amount of the impairment loss, if any, is measured as the difference between the carrying amount of the asset and its fair value.

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

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.

Our fiscal 2022 annual goodwill impairment analysis resulted in impairment charges for goodwill related to the HPC & AI and Software reporting units.

There was no impairment of goodwill for our other reporting units.

The decline in the fair value of the HPC & AI reporting unit below its carrying value resulted from changes in expected future cash flows as compared to our fiscal 2021 long-term plan due to the continuation of supply chain constraints, and other operational challenges as well as an increase in cost of capital.

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.

As a result, we recorded a goodwill impairment charge of $815 million in the fourth quarter of fiscal 2022.

The HPC & AI reporting unit has remaining goodwill allocated of $2.9 billion as of October 31, 2022 and an excess of fair value over carrying value of net assets of 0% as of the annual test date.

The HPC & AI business is facing challenges reflected in the results for the year ended October 31, 2022.

The challenges are primarily related to supply chain constraints and other operational challenges impacting our ability to achieve certain customer acceptance milestones required for revenue recognition and resulting cost increases associated with fulfilling contracts over longer than originally anticipated timelines.

We currently believe these challenges will be successfully addressed when supply chain constraints ease.

If the global macroeconomic or geopolitical conditions worsen, projected revenue growth rates or operating margins decline, weighted average cost of capital increases, or if we have significant or sustained decline in our stock price, it is possible our estimates about the HPC & AI reporting unit's ability to successfully address the current challenges may change, which could result in the carrying value of the HPC & AI reporting unit exceeding its estimated fair value and potential impairment charges.

The decline in the fair value of the Software reporting unit resulted primarily from a decline in market multiples.

Prior to the quantitative goodwill impairment test, we tested the recoverability of long-lived assets and other assets of the Software reporting unit and concluded that such assets were not impaired.

As a result, we recorded a goodwill impairment charge of $90 million in the fourth quarter of fiscal 2022.

The Software reporting unit has remaining goodwill allocated of $123 million as of October 31, 2022 and an excess of fair value over carrying value of net assets of 0% as of the annual test date.

As noted above, the Software reporting unit relies significantly on the market approach, which is impacted by market volatility.

If global macroeconomic or geopolitical conditions worsen and cause a further decline in equity market or if revenue expectations are not met, this could result in the carrying value of the Software reporting unit exceeding its estimated fair value and potential impairment charges.

The excess of fair value over carrying amount for our reporting units, excluding HPC & AI and Software, ranged from approximately 22% to 142% of the respective carrying amounts.

In order to evaluate the sensitivity of the estimated fair value of our other 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 other reporting units had an excess of fair value over carrying amount.

Contingencies

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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.

Based on our experience, we believe that any damage amounts claimed in the specific litigation and contingency matters further discussed in Note 17, "Litigation and Contingencies", to the Consolidated Financial Statements are not a meaningful indicator of our potential liability.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

not a meaningful indicator of our potential liability.

Litigation is inherently unpredictable.

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We believe we have recorded adequate provisions for any such matters and, as of October 31, 2022, it was not reasonably possible that a material loss had been incurred in connection with such matters in excess of the amounts recognized in our financial statements.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

RESULTS OF OPERATIONS

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As a result, our revenue growth has been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates.

In order to provide a framework for assessing performance excluding the impact of foreign currency fluctuations, we present the year-over-year percentage change in revenue on a constant currency basis, which assumes no change in foreign currency exchange rates from the prior-year period and doesn't adjust for any repricing or demand impacts from changes in foreign currency exchange rates.

In order to provide a framework for assessing performance excluding the impact of foreign currency fluctuations, we present the year-over-year percentage change in revenue on a constant currency basis, which assumes no change in foreign currency exchange rates from the prior-year period and does not adjust for any repricing or demand impacts from changes in foreign currency exchange rates.

This change in revenue on a constant currency basis is calculated as the quotient of (a) current year revenue converted to U.S.

dollars using the prior-year period's foreign currency exchange rates divided by (b) prior-year period revenue.

dollars using the prior-year period's foreign currency exchange rates divided by (b) the prior-year period revenue.

This information is provided so that revenue can be viewed without the effect of fluctuations in foreign currency exchange rates, which is consistent with how management evaluates our revenue results and trends.

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Transformation costs 473 1.7 % 930 3.3 % 950 3.5 %

Disaster charges (recovery) 16 0.1 % 26 0.1 % (7) — %

Disaster charges 48 0.2 % 16 0.1 % 26 0.1 %

Acquisition, disposition and other related charges 19 0.1 % 36 0.1 % 80 0.3 %

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Net earnings (loss) $ 868 3.0 % $ 3,427 12.3 % $ (322) (1.2) %

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.

Fiscal 2022 compared with fiscal 2021

In fiscal 2022, total net revenue of $28.5 billion, increased by $0.7 billion, or 2.6% (increased 5.1% on a constant currency basis).

net revenue increased by $0.6 billion or 6.5% to $9.4 billion, while net revenue from outside of the U.S.

increased by $0.1 billion or 0.7% to $19.1 billion.

From a segment perspective, net revenue increased across many of our segments due to the improved demand environment led by revenue growth of 11%, 4%, and 0.3% in Intelligent Edge, Compute, and HPC & AI, respectively, and decreased 7%, 2%, 1% in Corporate Investments and Other, Financial Services, and Storage, respectively.

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

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Total HPE 2.6 3.0

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.

For the twelve months ended October 31, 2022, the total gross profit margin of 33.4%, represents a decrease of 0.3 percentage points compared to the prior-year period.

The decrease was primarily driven by a combination of supply chain constraints and related cost increases, higher costs in HPC & AI, and unfavorable currency fluctuations, with costs from expected credit losses related to exiting our Russia and Belarus businesses adding to the overall decline.

Moderating the gross profit decrease was pricing discipline and strong cost management in server products.

Operating expenses

Research and development

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 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.

Research and development ("R&D")

R&D expense increased by $66 million, or 3% due primarily to higher overall employee compensation expense, which contributed 1.8 percentage points to the change, and a combination of higher facilities expense, training and travel expenses, and software expenditures, which in total contributed 1.3 percentage points to the change.

Selling, general and administrative ("SG&A")

SG&A expense increased by $12 million, or 0.2% due primarily to higher travel expense as the economy reopens and COVID-19 restrictions ease, higher software expenditures, and the release of bad debt reserves in the prior-year period, which contributed 1.2 percentage points, 0.5 percentage points and 0.3 percentage points to the change, respectively.

The increase was partially offset by a combination of lower employee cost driven by lower variable compensatio n expense and cost savings from our transformation programs which in total contributed 1.9 percentage points to the change.

Additionally, the overall increase in SG&A expense was moderated across various expense categories by favorable currency fluctuations.

Amortization of intangible assets

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

Amortization expense decreased by $61 million, or 17% due to certain intangible assets associated with prior acquisitions reaching the end of their amortization periods moderated by an increase in amortization expense in the current period resulting

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

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 $ 44 million due primarily to lower business acquisition costs related to retention bonuses and integration activities in the current year period.

from recent acquisitions.

Additionally, the decrease in the current fiscal period was due to certain write-offs taken in the prior fiscal period.

Impairment of goodwill

Impairment of goodwill for fiscal 2022 represents a partial goodwill impairment charge of $905 million recorded in the fourth quarter of fiscal 2022, as it was determined that the fair value of the HPC & AI and Software reporting units was below the carrying value of their net assets.

Refer to Note 11, "Goodwill and Intangible Assets" to the Consolidated Financial Statements in Item 8 of Part II for more information.

Transformation programs and costs

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

Transformation costs decreased by $457 million, or 49% due primarily to lower restructuring charges recorded in the current fiscal period as restructuring actions related to employee severance, infrastructure, and other under the cost optimization and prioritization plan are approaching completion primarily in fiscal 2023.

For a further discussion, refer to Note 3, “Transformation Programs" to the Consolidated Financial Statements in Item 8 of Part II.

Interest and other, net

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.

Interest and other, net expense decreased by $23 million due primarily to early debt redemption costs incurred in the prior-year period, while in the current-year period a combination of higher gains from the sale of certain assets, lower interest expense from lower average borrowings, and increased interest income from higher interest rates contributed to the net expense decline.

This decline was moderated by the current period containing lower gains from equity investments and unfavorable currency fluctuations.

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.

We record changes in certain pre-separation tax liabilities for which we shared 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.

We recorded Tax indemnification and related adjustments expense of $67 million and income of $65 million in fiscal 2022 and 2021, respectively.

Tax indemnification and related adjustments in fiscal 2022 resulted from changes in certain pre-separation tax liabilities, for which we partially shared joint and several liability with HP Inc.

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

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.

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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 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

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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.

Non-service net periodic benefit credit increased by $64 million due primarily to lower amortized actuarial losses, partially offset by higher interest cost due to higher discount rates and lower expected returns on assets in the current period.

Litigation judgment

Litigation judgment represents the $2.35 billion settlement we received in October 2021 in relation to the Itanium litigation judgment.

The gain was recognized as other income and presented as a Litigation judgment in the Consolidated Statements of Earnings in the prior-year perio d.

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

Earnings from equity interests

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.

Earnings from equity interests increased by $35 million due primarily to lower amortization expense from basis difference and higher net income earned by H3C in the current period, partially offset by gains from certain venture investments in the prior-year period.

(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.

For fiscal 2022 and 2021, we recorded income tax expense of $8 million and $160 million, respectively, which reflect effective tax rates of 0.9% and 4.5%, respectively.

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

federal statutory rate of 21% due to favorable tax rates associated with certain earnings from our operations in lower tax jurisdictions throughout the world but may also be materially impacted by discrete tax adjustments during the fiscal year.

Our tax rate for fiscal 2022 also included the effects of the non-deductible goodwill impairment.

The jurisdictions with favorable tax rates that had the most significant impact on our effective tax rate in the periods presented include Puerto Rico and Singapore.

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These amounts primarily included:

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

• $150 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.

• $99 million of income tax benefits related to transformation costs and acquisition, disposition and other related charges,

• $43 million of income tax benefits related to the settlement of U.S.

tax audit matters,

• $42 million of income tax benefits related to the release of U.S.

passive foreign tax credit valuation allowance,

• $30 million of income tax benefits related to the change in pre-separation tax liabilities, primarily those for which the Company shared joint and several liability with HP Inc.

and for which the Company was indemnified by HP Inc.

• $27 million of income tax benefits related to the utilization of capital losses which had a full valuation allowance,

• $12 million of income tax benefits as a result of the fiscal 2021 U.S.

tax return filing primarily from the decrease in Global Intangible Low Taxed Income, and

• $11 million of net income tax benefits related to settlements and ongoing discussions in foreign tax audit matters.

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

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• $180 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

• $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,

• 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.

Segment Information

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").

• $32 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 were indemnified by HP Inc.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

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 Information

The segments are based on this organizational structure and information reviewed by Hewlett Packard Enterprise's management to evaluate segment results.

Segment Results

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Year-over-year change percentage points (1.4) pts 3.2 pts (7.0) pts (1.8) pts (0.5) pts 0.4 pts (0.3) pts

(1) HPE consolidated net revenue excludes intersegment net revenue.

(1) HPE consolidated net revenue excludes inter-segment 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,

2021 2020 2019

2022 2021 2020 2022 vs 2021

% Change 2021 vs 2020 % Change

Dollars in millions

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Fiscal 2022 compared with fiscal 2021

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.

Compute net revenue increased by $458 million, or 3.7% (increased 6.0% on a constant currency basis) primarily due to higher average unit prices resulting from a combination of increased sales of server configurations with more complex component architectures in our next generation products and disciplined pricing actions.

The net revenue increase was moderated by unfavorable currency fluctuations and lower unit shipments resulting from supply constraints due to the challenging supply chain environment.

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

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

Services net revenue declined primarily due to lower revenue from Russia and the impact of delayed hardware shipments on services contracts.

Compute earnings from operations as a percentage of net revenue increased 3.2 percentage po ints 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 primarily due to pricing discipline and strong cost management partially offset by unfavorable currency fluctuations and the impact of supply chain constraints and related costs.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

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 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 and a favorable mix.

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.

The decrease in operating expenses as a percentage of net revenue was primarily due to cost reduction measures and lower variable compensation expense.

For the fiscal years ended October 31,

2021 2020 2019

2022 2021 2020 2022 vs 2021

% Change 2021 vs 2020 % Change

Dollars in millions

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Fiscal 2022 compared with fiscal 2021

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 & 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.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

HPC & AI net revenue increased by $8 million or 0.3% (increased 1.9% on a constant currency basis) as a result of growth in HPC led by Converged Edge Systems (formerly known as Edge Compute) and in Data Solutions.

The increase was moderated by a decline in net revenue from HPE Cray products as a result of supply chain constraints and other operational challenges impacting the achievement of certain customer acceptance milestones required for revenue recognition.

The increase in net revenue was also moderated by lower services revenue due primarily to an unfavorable portfolio mix of service offerings and unfavorable currency fluctuations.

HPC & AI earnings from operations as a percentage of net revenue decrease d 7.0 per centage 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 higher operational costs, supply chain constraints and related cost increases, and lower revenue from higher-margin services.

The increase in operating expenses as a percentage of net revenue was primarily due to higher investments in research and development which focus on high-performance computing and AI solutions, including integrating such solutions into our HPE GreenLake edge-to-cloud platform, partially offset by lower variable compensation expense.

For the fiscal years ended October 31,

2021 2020 2019

2022 2021 2020 2022 vs 2021

% Change 2021 vs 2020

Dollars in millions

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Fiscal 2022 compared with fiscal 2021

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

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.

Storage net revenue decreased by $49 million, or 1.0% (increased 0.5% on a constant currency basis) due primarily to unfavorable currency fluctuations and supply chain constraints.

Net revenue declined in Storage products moderated by an increase in Storage services.

The decline in Storage products was led by declines in HPE 3PAR, as we transition to its next generation of product platforms, such as HPE Alletra and HPE Primera products, and lower traditional storage revenue.

The increase in Storage services was led by Zerto Services and higher subscription services as we continue our transition to more services-intensive, and software-rich offerings, partially offset by lower support services revenue.

Storage earnings from operations as a percentage of net revenue decr eased 1.8 perce ntage points as cost of products and services as a percentage of net revenue remained unchanged and operating expenses as a percentage of net revenue increased.

Cost of products and services as a percentage of net revenue remained unchanged as the impact of increased sales of higher- margin Zerto products was moderated by supply chain constraints and related costs, which unfavorably impacted the mix of certain higher-margin products, and unfavorable currency fluctuations.

The increase in operating expenses as a percentage of net revenue was due primarily to higher investments in research and development and SG&A, focused on as-a-service offerings, partially offset by lower variable compensation expense.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Intelligent Edge

For the fiscal years ended October 31,

2021 2020 2019

2022 2021 2020 2022 vs 2021

% Change 2021 vs 2020

Dollars in millions

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Earnings from operations as a % of net revenue 14.9 % 15.4 % 12.0 %

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Fiscal 2022 compared with fiscal 2021

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.

Intelligent Edge net revenue increased by $372 million, or 11.3% (increased 14.0% on a constant currency basis) primarily due to a robust demand environment, reflected in a high backlog, which continues to be impacted by supply constraints resulting from a challenging supply chain environment.

Net revenue increased in both Intelligent Edge products and services but was moderated by unfavorable currency fluctuations.

The increase in product revenue was primarily driven by the wireless local area network ("WLAN") business, partially offset by declines in the Switching business due to material constraints.

Growth in services revenue was led by higher attached support services and our as-a-service offerings.

Intelligent Edge earnings from operations as a percentage of net revenue decreased 0.5 percentage points primarily due to an increase in cost of products and services as a percentage of net revenue partially offset by a decrease in operating expenses as a percentage of net revenue.

The increase in cost of product and services as a percentage of net revenue was primarily due to supply chain constraints and related costs and unfavorable currency fluctuations.

Operating expenses as a percentage of net revenue decreased primarily due to lower variable compensation expense and an increase in the scale of net revenue.

Financial Services

For the fiscal years ended October 31,

2021 2020 2019

2022 2021 2020 2022 vs 2021

% Change 2021 vs 2020

Dollars in millions

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Fiscal 2022 compared with fiscal 2021

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.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

FS net revenue decreased by $62 million, or 1.8% (increased 1.7% on a constant currency basis) due primarily to unfavorable currency fluctuations, partially offset by higher asset management revenue from pre-owned equipment sales, lease buyouts, and remarketing equipment sales.

FS earnings from operations as a percentage of net revenue increased 0.4 percentage points due primarily to lower cost of services as a percentage of net revenue and operating expenses as a percentage of net revenue.

The decrease to cost of services as a percentage of net revenue resulted primarily from a combination of lower depreciation expense and bad debt.

The decrease in operating expenses as a percentage of net revenue was due primarily to lower employee cost driven by lower variable compensation expense.

The provision for expected credit losses due to the Company's exit from its Russia and Belarus businesses for the year ended October 31, 2022, was excluded from segment operating results.

Financing Volume

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Financing volume $ 6,252 $ 6,168 $ 6,005

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.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, increased by 1.4% in fiscal 2022 as compared to the prior-year period.

The increase was primarily driven by higher financing associated with third-party product sales and related service offerings, partially offset by unfavorable currency fluctuations and lower financing of HPE product sales and related service offerings.

Portfolio Assets and Ratios

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Debt benefiting FS totaled $11.5 billion and $11.9 billion at October 31, 2022 and 2021, 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, 2021 and October 31, 2020 was $1.7 billion.

FS equity at October 31, 2022 and 2021, was $1.6 billion and $1.7 billion, respectively.

As of October 31, 2022 and 2021, FS net cash and cash equivalents were $923 million and $898 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.

Net portfolio assets as of October 31, 2022 decreased 5.8% from October 31, 2021.

The decrease generally resulted from unfavorable currency fluctuations, partially offset by new financing volume exceeding portfolio runoff 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 $82 million, $95 million and $93 million in fiscal 2022, 2021 and 2020, respectively.

As of October 31, 2022, FS experienced a decrease in billed finance receivables compared to October 31, 2021, which included a limited impact to collections from customers as a result of the pandemic, and customers from Russia.

We are currently unable to fully predict the extent to which the pandemic and our exit from Russia and Belarus businesses may adversely impact future collections of our receivables.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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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,

2021 2020 2019

2022 2021 2020 2022 vs 2021

% Change 2021 vs 2020

Dollars in millions

3 unchanged sentences

Fiscal 2022 compared with fiscal 2021

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 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.

Corporate Investments and Other net revenue decreased by $101 million, or 7.4% (decreased 0.4% on a constant currency basis) due to unfavorable currency fluctuations.

Corporate Investments and Other loss from operations as a percentage of net revenue increased 0.3 percentage points due primarily to lower cost of services as a percentage of net revenue and an increase in operating expenses as a percentage of net revenue.

The decrease in cost of services as a percentage of net revenue was due primarily to improved service delivery efficiencies in A & PS and lower variable compensation expense largely offset by a lower mix of higher margin license revenue in Software .

The increase in operating expenses as a percentage of net revenue was due primarily to the scale of the net revenue decline partially offset by lower variable compensation expense.

LIQUIDITY AND CAPITAL RESOURCES

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

We believe that internally generated cash flows will be generally sufficient to support our operating businesses, capital expenditures, product development initiatives, acquisition and disposal activities including legal settlements, restructuring activities, transformation costs, indemnifications, maturing debt, interest payments, and income tax payments, in addition to any future investments, share repurchases, and stockholder dividend payments.

We believe that internally generated cash flows will be generally sufficient to support our operating businesses, capital expenditures, product development initiatives, acquisitions and disposal activities including legal settlements, restructuring activities, transformation costs, indemnifications, maturing debt, interest payments, and income tax payments, in addition to any future investments, share repurchases, and stockholder dividend payments.

We expect to supplement this short-term liquidity, if necessary, by accessing the capital markets, issuing commercial paper, and borrowing under credit facilities made available by various domestic and foreign financial institutions.

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

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 anticipate that the funds made available 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 and for the foreseeable future thereafter.

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.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Our cash balances are held in numerous locations throughout the world, with a substantial amount held outside the U.S as of October 31, 2022.

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and to meet liquidity needs through ongoing cash flows, external borrowings, or both.

We do not expect restrictions or potential taxes incurred on repatriation of amounts held outside of the U.S.

We do not expect restrictions or potential taxes incurred on the repatriation of amounts held outside of the U.S.

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

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.

In connection with the share repurchase program previously authorized by our Board of Directors, during fiscal 2022, we repurchased and settled an aggregate amount of $0.5 billion.

As of October 31, 2022, we had a remaining authorization of $1.4 billion for future share repurchases.

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.

For more information on our share repurchase program, refer to Note 15, "Stockholders' Equity", to the Consolidated Financial Statements in Item 8 of Part II.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

On April 22, 2022, we entered into an amendment with Unisplendour Corporation (“UNIS”) and H3C Technologies Co.

Limited (“H3C”) to the Shareholder Agreement previously entered into between the parties as of May 1, 2016.

The amendment extended the Shareholder Agreement to October 31, 2022, the latest date upon which we could put to UNIS all or part of the H3C shares held by us, at a price of 15.0 times the last twelve months net income of H3C.

On October 28, 2022, we entered into a subsequent amendment to the aforementioned Shareholder Agreement to further extend to December 31, 2022, the latest date upon which we may put to UNIS all or part of the H3C shares held by us, at a price of 15.0 times the last twelve months (measured from April 30, 2022) net income of H3C.

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

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Available borrowing resources $ 6,161 $ 6,017 $ 6,297

Commercial paper programs (1)

$ 5,208 $ 5,045 $ 5,073

Uncommitted lines of credit $ 953 $ 972 $ 1,224

(1) The maximum aggregate borrowing amount of the commercial paper programs and revolving credit facility is $5.75 billion.

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

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Net cash (used in) provided by financing activities (1,796) (3,364) 883

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

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (279) — —

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 431 $ (289) $ 545

Operating Activities

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

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

Our key working capital metrics were as follows:

Net cash provided by operating activities decrease d by $1.3 billion for fiscal 2022, as compared to fiscal 2021.

The decrease was primarily due to $2.2 billion of after-tax cash resulting from a litigation judgment in the prior-year period, lower variable compensation accruals, and favorable hedging positions moderated by improved working capital and a decrease in financing receivables, as compared to the prior-year period.

Our working capital metrics and cash conversion impacts were as follows:

As of October 31,

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Cash conversion cycle (14) 3 (7)

The cash conversion cycle is the sum of DSO and DOS less DPO.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

1 unchanged sentence

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 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.

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 the three-month period ending October 31, 2022, as compared to the corresponding prior-year period, DSO decreased by 2 days due primarily to favorable billings linearity, higher early collections and receivables factoring, partially offset by extended payment terms.

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 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.

For the three-month period ending October 31, 2022, as compared to the corresponding prior-year period, DOS in creased by 6 days 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.

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.

For the three-month period ending October 31, 2022, as compared to the corresponding prior-year period, DPO increased by 21 days due primarily to proactive measures we have taken to secure key materials for future shipments and a larger proportion of vendors with longer payment terms.

Investing 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.

Net cash used in investing activities decreased by $0.7 billion in fiscal 2022, as compared to fiscal 2021.

The change was primarily due to a combinaton of lower payments in connection with business acquisitions of $0.5 billion, lower cash utilized in net financial collateral activities of $0.3 billion and higher proceeds from the sale of investments, net of purchases of $0.3 billion, partially offset by higher cash utilized for investment in property, plant and equipment, net of sales proceeds of $0.4 billion, as compared to the prior-year period.

Financing Activities

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.

Net cash used in financing activities decreased by $1.6 billion in fiscal 2022, as compared to fiscal 2021.

The decrease was due primarily to lower net debt repayments of $1.9 billion and higher cash utilized for share repurchases of $0.3 billion, as compared to the prior-year period.

Free Cash Flow

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Proceeds from sale of property, plant and equipment 602 354 703

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (279) — —

Free Cash Flow $ 1,794 $ 1,551 $ 560

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.

Free cash flow represents cash flow from operations, excluding the impact of $2.2 billion in proceeds received in the fourth quarter of fiscal 2021 from a one-time Itanium litigation judgment, less net capital expenditures (investments in property, plant and equipment (“PP&E”) less proceeds from the sale of PP&E), and adjusted for the effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash.

Free cash flow increased by $0.2 billion in fiscal 2022, as compared to fiscal 2021, due to higher cash generated from operating activities (excluding a one-time litigation judgment) led by improved net working capital management, moderated by increased cash used for investments in property, plant and equipment, net of sales proceeds.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Our improved free cash flow 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 of Part II.

Capital Resources

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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.

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

We maintain two commercial paper programs, "the Parent Programs", and a wholly-owned subsidiary maintains a third program.

program provides for the issuance of U.S.

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

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

denominated in U.S.

dollars, euros or British pounds up to a maximum aggregate principal amount of $3.0 billion or the equivalent in those alternative currencies.

The combined aggregate principal amount of commercial paper outstanding under those programs at any one time cannot exceed $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.

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.

During fiscal 2021, we issued $757 million and repaid $728 million of commercial paper.

Our weighted-average interest rate reflects the average effective rate on our borrowings prevailing during the period and reflects the impact of interest rate swaps.

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.

We maintain a revolving credit facility and two commercial paper programs, "the Parent Programs", and a wholly-owned subsidiary maintains a third program.

In December 2021, we terminated our prior senior unsecured revolving credit facility and entered into a new senior unsecured revolving credit facility with an aggregate commitment of $4.75 billion for a period of five years.

There have been no changes to our commercial paper programs since October 31, 2021.

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

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

Loans under the revolving credit facility may be used for general corporate purposes, including support of the commercial paper program.

Commitments under the Credit Agreement are available for a period of five years, which period may be extended, subject to the satisfaction of certain conditions, by up to two, one-year periods.

Commitment fees, interest rates and other terms of borrowing under the credit facility vary based on Hewlett Packard Enterprise's external credit rating.

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

As of October 31, 2022 and 2021, no borrowings were outstanding under our revolving credit facility.

As of October 31, 2022 and 2021, no borrowings were outstanding under the Parent Programs, and $542 million and $705 million, respectively, were outstanding under our subsidiary’s program.

During fiscal 2022, we issued $3.2 billion and repaid $3.2 billion of commercial paper.

Our weighted-average interest rate reflects the average effective rate on our borrowings prevailing during the period and reflects the impact of interest rate swaps.

For more information on our interest rate swaps, see Note 13, "Financial Instruments", to the Consolidated Financial Statements in Item 8 of Part II.

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 Item 8 of Part II.

Cash Requirements and Commitments

Long-term debt and interest payments on debt

As of October 31, 2022, future principal payment obligations on our long-term debt including asset-backed debt securities totaled $11.9 billion, of which $3.9 billion is due within one year.

As of October 31, 2022, our finance lease obligations, including interest, was $55 million, of which $7 million is to be due within one year.

For more information on our debt, see Note 14, "Borrowings", to the Consolidated Financial Statements in Item 8 of Part II.

As of October 31, 2022, future interest payments relating to our long-term debt is estimated to be approximately $3.6 billion, of which $0.5 billion is expected to be due within one year.

We use interest rate swaps to mitigate the exposure of our fixed rate debt to changes in fair value resulting from changes in interest rates, or hedge the variability of cash flows in the interest payments associated with our variable-rate debt.

The impact of our outstanding interest rate swaps as of October 31, 2022 was factored into the calculation of the future interest payments on long-term debt.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Available Borrowing Resources

As of October 31, 2021, we had the following resources available to obtain short- or long-term financing if we need additional liquidity:

October 31, 2021

Commercial paper programs $ 5,045

Uncommitted lines of credit $ 972

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

Total 1 Year or

Less 1-3 Years 3-5 Years More than

Principal payments on long-term debt (1)

$ 12,404 $ 2,597 $ 4,292 $ 3,265 $ 2,250

Interest payments on long-term debt (2)

3,539 377 556 378 2,228

Operating lease obligations (net of sublease rental income) (3)

1,140 187 316 241 396

Operating lease obligations

We enter into various leases as a lessee for assets including office buildings, data centers, vehicles, and aviation.

As of October 31, 2022, operating lease obligations, net of sublease rental income totaled $1.1 billion, of which $171 million is due within one year.

These amounts included uncommenced operating leases as of October 31, 2022, and did not reflect imputed interest adjustments.

For more information on our leases, see Note 8, "Accounting for Leases as a Lessee", to the Consolidated Financial Statements in Item 8 of Part II.

Unconditional purchase obligations

768 458 228 59 23

Capital lease obligations (includes interest) 62 7 13 14 28

Total (5)(6)(7)

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

(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, 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.

(2) Amounts represent the expected interest payments relating to our long-term debt.

The impact of our outstanding interest rate swaps at October 31, 2021 was factored into the calculation of the future interest payments on long-term debt.

(3) Amounts include uncommenced operating leases as of fiscal 2021 and do not reflect imputed interest adjustments.

(4) For additional information on our Unconditional Purchase Obligations, see Note 19, "Commitments", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

Our unconditional purchase obligations are related principally to inventory purchases, software maintenance and support services and other items.

Unconditional purchase obligations exclude agreements that are cancellable without penalty.

As of October 31, 2022, unconditional purchase obligations totaled $1.6 billion, of which $449 million is due within one year.

For more information on our unconditional purchase obligations, see Note 19, "Commitments", to the Consolidated Financial Statements in Item 8 of Part II.

Retirement Benefit Plan Funding

In fiscal 2023, we anticipate making contributions of $170 million to our non-U.S.

pension plans.

Our policy is to fund pension plans so that we meet at least the minimum contribution requirements, as established by various authorities including local government and taxing authorities.

Expected contributions and payments to our pension and post-retirement benefit plans are excluded from the contractual obligations table because they do not represent contractual cash outflows, as they are dependent on numerous factors which may result in a wide range of outcomes.

For more information on our retirement and post-retirement benefit plans, see Note 4, "Retirement and Post-Retirement Benefit Plans", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

(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

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.

Our policy is to fund pension plans to meet at least the minimum contribution requirements, as established by various authorities including local government and taxing authorities.

Expected contributions and payments to our pension and post-retirement benefit plans are not considered as contractual obligations because they do not represent contractual cash outflows, as they are dependent on numerous factors which may result in a wide range of outcomes.

For more information on our retirement and post-retirement benefit plans, see Note 4, "Retirement and Post-Retirement Benefit Plans", to the Consolidated Financial Statements in Item 8 of Part II.

Restructuring Plans

As of October 31, 2022, we expect future cash payments of approximately $460 million in connection with our approved restructuring plans, which includes $330 million expected to be paid in fiscal 2023 and $130 million expected to be paid thereafter.

Payments for restructuring activities are not considered as contractual obligations, because they do not represent contractual cash 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 of Part II.

Uncertain Tax Positions

As of October 31, 2022, we had approximately $297 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

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Payments of these obligations would result from settlements with taxing authorities.

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.

For more information on our uncertain tax positions, see Note 6, "Taxes on Earnings", to the Consolidated Financial Statements in Item 8 of Part II.

Off-Balance Sheet Arrangements

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We have third-party revolving short-term financing arrangements intended to facilitate the working capital requirements of certain customers.

For more information on our third-party revolving short-term financing arrangements, see Note 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:

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 of Part II.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

1 unchanged sentence

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.

GAAP TO NON-GAAP RECONCILIATIONS

The following tables provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure for the periods presented:

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,

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)

Revenue Dollars % of

GAAP Net revenue $ 28,496 100.0 % $ 27,784 100.0 %

GAAP Cost of sales 18,990 66.6 % 18,408 66.3 %

GAAP gross profit $ 9,506 33.4 % $ 9,376 33.7 %

Non-GAAP adjustments

Amortization of initial direct costs 4 — % 8 — %

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 46 0.1 % 40 0.2 %

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)

Disaster charges (1)

111 0.4 % — — %

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.

Non-GAAP gross profit $ 9,667 33.9 % $ 9,424 33.9 %

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

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Revenue Dollars % of

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

GAAP earnings from operations $ 782 2.7 % $ 1,132 4.1 %

Non-GAAP adjustments:

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Disaster charges (1)

159 0.6 % 16 0.1 %

Stock-based compensation expense 391 1.4 % 372 1.3 %

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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.

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,

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 %

Dollars Diluted net earnings per share Dollars Diluted net earnings per share

Dollars in millions

GAAP net earnings $ 868 $ 0.66 $ 3,427 $ 2.58

Non-GAAP adjustments:

Amortization of initial direct costs 4 — 8 0.01

Amortization of intangible assets 293 0.22 354 0.27

Impairment of goodwill 905 0.69 — —

Transformation costs 473 0.36 930 0.70

Disaster charges (1)

159 0.12 16 0.01

Stock-based compensation expense 391 0.30 372 0.28

Acquisition, disposition and other related charges 19 0.01 36 0.03

Tax indemnification and related adjustments 67 0.05 (65) (0.05)

Non-service net periodic benefit credit (134) (0.10) (70) (0.05)

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

Early debt redemption costs — — 100 0.08

Earnings from equity interests (2)

45 0.03 109 0.08

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.

Adjustments for taxes (426) (0.32) (264) (0.20)

Non-GAAP net earnings $ 2,664 $ 2.02 $ 2,602 $ 1.96

(1) During fiscal year ended 2022, the Company recorded total pre-tax charges of $161 million, primarily related to the Company's exit from its Russia and Belarus businesses.

Additionally, in fiscal 2022, Disaster charges included a recovery of $2 million related to COVID-19.

Refer to Note 1, "Overview and Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Item 8 of Part II, for further information.

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

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

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Proceeds from sale of property, plant and equipment 602 354

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (279) —

Free cash flow $ 1,794 $ 1,551

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 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.

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

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.

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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.

The GAAP measure most directly comparable to free cash flow 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.

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 disaster 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, 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 tax reform, structural rate adjustment and excess tax benefit from stock-based compensation.

In addition, non-GAAP net earnings and non-GAAP diluted net earnings per share are adjusted by the amount of additional taxes or tax benefits associated with each non-GAAP item.

We believe that excluding the items mentioned above from these non-GAAP financial measures allows management to better understand our consolidated financial performance in relation to the operating results of our segments.

Management does not believe that the excluded items are reflective of ongoing operating results, and excluding them facilitates a more meaningful evaluation of our current operating performance in comparison to our peers.

The excluded items can be inconsistent in amount and frequency and/or not reflective of the operational performance of the business.

Management believes excluding these items facilitates a more meaningful evaluation of our current operating performance in comparison to our peers.

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.

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 and cash flows, 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.

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

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