What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-12-19 compared with 2023-12-22 · 363 added, 338 removed, 488 unchanged (59% of the section changed)

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Discussions of fiscal 2022 items and year-to-year comparisons between fiscal 2023 and fiscal 2022 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 October 31, 2023, as filed with the SEC on December 22, 2023, 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, 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.

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 these financial statements from year to year, and the primary factors that accounted for these 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.

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• Trends and Uncertainties.

A discussion of material events and uncertainties known to management, such as the mixed macroeconomic environment, supply chain constraints (though easing), uneven demand across our portfolio, increased demand for and adoption of new technologies, conservative customer spending environment, inflationary trend and foreign exchange pressures, and recent tax developments.

A discussion of material events and uncertainties known to management, such as the mixed macroeconomic environment of supply chain constraints (though easing), uneven demand across our portfolio, increased demand for and adoption of new technologies, conservative (though recovering) customer spending environment, persistent inflation, foreign exchange pressures, recent tax developments, and pending merger with Juniper Networks, Inc.

(“Juniper Networks”).

• Executive Overview.

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• Liquidity and Capital Resources.

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

• GAAP to Non-GAAP Reconciliation .

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

• GAAP to Non-GAAP Reconciliations .

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

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TRENDS AND UNCERTAINTIES

The elevated order book levels we experienced in fiscal 2022 have generally declined throughout fiscal 2023, as supply chain constraints eased (though challenges still remain) and demand softened unevenly across our portfolio (as a result of improving supply chain dynamics and as customers have been digesting their prior larger orders).

Meanwhile, demand for and adoption of new technologies, such as AI, hybrid cloud, and edge computing, have increased.

We have observed, and expect to continue seeing, customers of various segments and sizes pursue such new technologies.

As noted above, we have continued to see elongated sales cycles, as customers work through prior orders and adopt a more conservative approach to spending in a mixed macroeconomic environment.

This has been particularly true of certain of our hardware businesses, as customers have focused investments on modernizing infrastructure, such as migrating to cloud-based offerings.

We expect such mixed macroeconomic environment to continue to moderate our revenue growth in the near term.

As referenced above, mild improvements to industry-wide supply constraints have helped to ease certain supply chain challenges we encountered in the recent past, including the increased availability of supply and lower material and logistics costs.

Material cost trends are dependent on the strength or weakness of actual end-user demand and supply dynamics, which will continue to evolve and ultimately impact the translation of the cost environment to our pricing actions and, consequently, our operating results.

Logistics costs continued to decrease from previously elevated levels as a result of declines in both expedited shipments and overall rate costs in the freight network.

During fiscal 2024, the effects of the evolving macroeconomic environment on demand persisted and certain significant developments impacted our operations as follows:

Technological Advancements:

We have observed market trends and demand (of customers of various segments and sizes) gravitating towards artificial intelligence (“AI”), hybrid cloud, edge computing, data security capabilities, and related offerings.

The volume of data at the edge continues to grow, driven by the proliferation of more devices.

The need for a unified cloud experience everywhere has grown, as well, in order to manage the growth of data at the edge.

With the abundance of data, there are opportunities to develop AI tools with powerful computational abilities to extract insights and value from the captured data.

Increasing demand for AI is also contributing to changes in the competitive landscape.

Our major competitors and emerging competitors are expanding their product and service offerings with integrated products and solutions and exerting increased competitive pressure.

We expect these market dynamics and trends to continue in the longer term.

Macroeconomic Uncertainty:

The effect of the evolving macroeconomic environment has been impacting industry-wide demand, as customers take longer to work through prior orders and have been adopting a more conservative approach to discretionary IT spending.

This has resulted in uneven demand across our portfolio and geographies, particularly for certain of our hardware offerings, as customers have focused investments on modernizing infrastructure, such as migrating to cloud-based

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Additionally, we continue to experience a challenging foreign exchange environment, which has increased costs of products and services and moderated our revenue and earnings growth.

offerings, including our own.

We expect such mixed macroeconomic environment to largely continue (though ease slightly) and possibly limit revenue growth in the near term.

Supply Chain:

During fiscal 2024, we experienced supply chain constraints for certain components, including graphics processing units (“GPUs”) and accelerated processing units, but they have since eased, in part due to increased availability of supply and lower material and logistics costs.

Logistics costs decreased from previously elevated levels as a result of declines in both expedited shipments and overall rate costs in the freight network.

We have, in fact, been experiencing higher-than-normal inventory levels, primarily due to customers transitioning to the next generation of GPUs, our securing supply ahead of demand, and longer customer acceptance timelines on AI-related orders;

we expect this trend to continue in the medium term.

We have experienced, and expect to continue experiencing, rising input component costs and a competitive pricing environment, which may impact our financial results.

We plan to mitigate the impact of these dynamics through continued disciplined cost and pricing management.

Recurring Revenue and Consumption Models:

We continue to strengthen our core server and storage-oriented offerings and expand our offerings on the HPE GreenLake cloud, to deliver our entire portfolio as-a-service (“aaS”) and become the edge-to-cloud company for our customers and partners.

We expect that such flexible consumption model will continue to strengthen our customer relationships and contribute to growth in recurring revenue.

Foreign Currency Exposure:

We have a large global presence, with more than half of our revenue generated outside of the U.S.

As a result, our financial results can be, and particularly in recent periods have been, impacted by fluctuations in foreign currency exchange rates.

Furthermore, inflationary pressures persist, keeping not only material and logistics costs, but also labor costs, somewhat elevated compared to pre-COVID-19 pandemic levels.

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

We utilize a comprehensive hedging strategy intended to mitigate the impact of foreign currency volatility over time, and we adjust pricing when possible to further minimize foreign currency impacts.

Recent Tax Developments:

The Organisation for Economic Co-operation and Development, an international association of 38 countries including the United States, has proposed changes to numerous long-standing tax principles, namely, its Pillar Two framework, which imposes a global minimum corporate tax rate of 15%.

In December 2022, the EU member states adopted a directive that implements the Pillar Two framework, which is expected to be enacted into the national laws of the EU member states by December 31, 2023.

Certain countries in which we operate have enacted legislation to adopt the Pillar Two framework (e.g., United Kingdom and Korea), and several other countries are also considering changes to their tax laws to implement this framework.

The first component of the Pillar Two framework is expected to be effective for us in fiscal 2025 with a second component expected to be effective in fiscal 2026.

When and how this framework is adopted or enacted by the various countries in which we do business could increase tax complexity and uncertainty and may adversely affect our provision for income taxes in the U.S.

jurisdictions.

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 expect U.S.

cash tax to increase in the short term as a result of the Corporate AMT but do not expect the effective tax rate to be impacted as the Corporate AMT is expected to be recovered as a credit in future years.

The realizability of any deferred tax asset associated with the Corporate AMT will be determined through our annual valuation allowance analysis.

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.

The Organisation for Economic Co-operation and Development (“OECD”), an international association of 38 countries including the United States, has proposed changes to numerous long-standing tax principles, namely, its Pillar Two framework, which imposes a global minimum corporate tax rate of 15%.

To date, 43 countries have enacted portions, or all, of the OECD proposal and a further 22 countries have drafted, or have announced an intent to draft, legislation enacting the proposed rules.

Where enacted, the rules begin to be effective for us in fiscal 2025.

Under US GAAP, the OECD Pillar Two rules are considered an alternative minimum tax and therefore deferred taxes would not be recognized or adjusted for the estimated effects of the future minimum tax.

As a result, there was no impact to our fiscal 2024 results.

The adoption and effective dates of these rules may vary by country and could increase tax complexity and uncertainty and may adversely affect our provision for income taxes.

We currently do not expect a material impact to our fiscal 2025 results.

The Internal Revenue Service (“IRS”) is conducting audits of our fiscal 2017 through 2022 U.S.

federal income tax returns.

During the fourth quarter of fiscal 2023, the IRS issued notices of proposed adjustments (“NOPAs”) for fiscal 2017, 2018, and 2019 relating to our intercompany transfer pricing.

After the close of fiscal 2023, the IRS issued a Revenue Agent Report (“RAR”) finalizing their position on the NOPAs for the same issues and same fiscal years.

The IRS is seeking to increase taxable income across the three fiscal years by $904 million.

As of the balance sheet date, we have sufficient tax credit carryforwards to offset any incremental tax liability from the adjustments in the RAR.

However, we disagree with the IRS’ adjustments and believe the positions taken on our tax returns are more likely than not to prevail on technical merits, and we will defend these positions through the IRS administrative processes, as necessary.

Accordingly, no changes have been made to our reserves for uncertain tax positions in fiscal 2023 relating to the IRS’ adjustments.

Russia/Ukraine Conflict

The conflict between Russia and Ukraine and the related sanctions imposed by the U.S., European Union 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 was no longer tenable to maintain our operations in Russia and Belarus and have been proceeding with an orderly, managed exit of our remaining business in these countries.

During fiscal 2023, the IRS issued notices of proposed adjustments (“NOPAs”) for 2017, 2018, and 2019 relating to our intercompany transfer pricing.

During the first quarter of fiscal 2024, the IRS issued a Revenue Agent Report finalizing their position on the NOPAs for the same issues and same fiscal years.

However, we disagreed with the IRS’ adjustments and believe the positions taken on our tax returns are more likely than not to prevail on technical merits and have continued with settlement discussions with the IRS.

During the third quarter of fiscal 2024, we submitted a formal settlement offer to the IRS to facilitate the closing of the audit and recorded increased reserves for unrecognized tax benefits of $122 million.

The impact of the increase in reserves is almost entirely offset with a valuation allowance release, and the net impact to income tax expense for fiscal 2024 was not material.

It is reasonably possible that the IRS audit for fiscal 2017 through 2019 may be concluded in the next 12 months, and it is reasonably possible that existing unrecognized tax benefits related to these years may be reduced by an amount up to $358 million within the next 12 months, the majority of which relates to adjustments to foreign tax credits that carry a full valuation allowance or to the timing of intercompany royalty revenue recognition, neither of which affects the Company’s effective tax rate.

Other Trends and Uncertainties:

We have observed market trends and demand gravitating towards AI, hybrid cloud, and edge computing, and data securities capabilities, and offerings.

The volume of data at the edge continues to grow, driven by the proliferation of more devices, which has led to the need for enhanced security at the edge, as well.

The need for a unified cloud experience everywhere has grown, as well, in order to manage the growth of data at the edge.

With the abundance of data, there are opportunities to develop AI tools with powerful computational abilities to extract insights and value from the captured data.

We expect these market dynamics and trends to continue in the longer term.

The impacts of trade protection measures, including increases in tariffs and trade barriers, changes in government policies and international trade arrangements, geopolitical volatility (including the ongoing conflict in the Middle East), and global macroeconomic challenges (including the relationship between China and the U.S.), may impact our operations, financial performance, and ability to conduct business in some non-U.S.

We monitor and seek to mitigate these risks with adjustments to our manufacturing, supply chain, and distribution networks.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Observing these dynamics, we have accelerated our investment and innovation efforts in these areas that we see as critical to our long-term strategy and growth, including in pivoting our go-to-market motion and sales function.

At the same time, we continue to strengthen our core Compute and Storage-oriented offerings and expand our offerings on the HPE GreenLake edge-to-cloud platform, to enable execution of our aaS pivot to become the edge-to-cloud company for our customers and partners.

Furthermore, as noted elsewhere in this report, effective November 1, 2023, we have realigned our financial reporting segments to align with these key market trends.

It is uncertain whether we will successfully execute this shift in strategic focus, realize the anticipated benefits of doing so, or capture the anticipated shares of the AI, hybrid cloud, and edge markets.

Pending Merger with Juniper Networks, Inc:

On January 9, 2024 , we entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) under which we will acquire Juniper Networks in an all-cash transaction for $40.00 per share (the “Merger”), representing an equity value of approximately $14 billion.

On April 2, 2024, Juniper Networks shareholders approved the transaction.

The transaction is expected to be funded based on senior unsecured delayed draw term loans from a syndicate of banks, the post-tax proceeds from our sale to Unisplendour International Technology Limited (“UNIS”) of 30% of the total issued share capital of H3C Technologies Co., Limited (“H3C”), the net proceeds (including after repayments of maturing debt) of our September 2024 issuances of senior unsecured notes and the Preferred Stock (as further described in Note 15, “Stockholders’ Equity” to the Consolidated Financial Statements in Item 8 of Part II), and cash on the balance sheet.

The closing of the transaction remains subject to receipt of regulatory approvals and satisfaction of other customary closing conditions.

For further information about the Merger, see Note 10, “ Acquisitions and Dispositions ” to the Consolidated Financial Statements in Item 8 of Part II, and for further discussion about the risks related to the Merger, see the section titled “Risk Factors” in Item 1A of Part I of this Annual Report on Form 10-K.

The foregoing summary of the Merger, the adoption of the Merger Agreement, and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, which is filed as Exhibit 2.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 10, 2024.

The following Executive Overview, Results of Operations and Liquidity discussions and analysis compare fiscal 2024 to fiscal 2023 , unless otherwise noted.

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EXECUTIVE OVERVIEW

Net revenue of $29.1 billion represented an increase of 2.2% (increased 5.5% on a constant currency basis) primarily due to higher average unit prices (“AUPs”) in the Intelligent Edge and Compute segments, and higher customer acceptances in the High Performance Computing & Artificial Intelligence (“HPC & AI”) segment.

The increase in net revenue was moderated by a decline in server unit volume in the Compute segment and unfavorable currency fluctuations.

The gross profit margin of 35.1% (or $10.2 billion) represents an increase of 1.7 percentage points from the prior-year period due to the impact of higher-margin networking revenue, higher AUPs in Intelligent Edge and Compute, and lower supply chain and commodity costs.

T he operating profit margin of 7.2%, repre sents an increase of 4.5 percentage points primarily due to the aforementioned gross margin improvement, goodwill impairment charges for the HPC & AI and Software businesses in the prior-year period, and lower transformation expenses in the current period.

The increase in operating profit margin was moderated by higher planned investments in research and development in the current period.

Net revenue of $30.1 billion represented an increase of 3.4% (increased 3.3% on a constant currency basis) primarily due to higher average unit prices (“AUPs”) in the Server segment, moderated by lower volume and product mix effect in the Intelligent Edge segment.

The gross profit margin of 32.8% (or $9.9 billion) represents a decrease of 2.3 percentage points from the prior-year period due to decline in revenue in the Intelligent Edge segment and higher mix of lower margin products in the Server segment.

The operating profit margin of 7.3% was relatively flat as compared to the prior-year period.

Financial Results

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Operating profit margin 7.3 % 7.2 % 0.1pts

Net earnings $ 2,025 $ 868 133.3%

Diluted net earnings per share $ 1.54 $ 0.66 $0.88

Net earnings attributable to HPE

$ 2,579 $ 2,025 27.4%

Net earnings attributable to common stockholders

2,554 2,025 26.1%

Diluted net earnings per share attributable to common stockholders (1)

1.93 1.54 $0.39

Cash flow from operations $ 4,341 $ 4,428 $(87)

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

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Non-GAAP operating profit margin 10.5 % 10.8 % (0.3)pts

Non-GAAP net earnings $ 2,832 $ 2,664 6.3%

Non-GAAP diluted net earnings per share $ 2.15 $ 2.02 $0.13

Non-GAAP net earnings attributable to HPE

$ 2,655 $ 2,832 (6.3)%

Non-GAAP net earnings attributable to common stockholders

2,630 2,832 (7.1)%

Non-GAAP diluted net earnings per share attributable to common stockholders (1)

1.99 2.15 $(0.16)

Free cash flow $ 2,297 $ 2,238 $59

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

(1) For purposes of calculating diluted net EPS, the preferred stock dividends are added back to the net earnings attributable to common stockholders and the diluted weighted average share calculation assumes the preferred stock was converted at issuance or as of the beginning of the reporting period.

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

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Our pivot to aaS 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.

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

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 aaS offerings, recognized during a quarter and multiplied by four.

ARR represents the annualized revenue of all net HPE GreenLake cloud services revenue, related financial services revenue (which includes rental income from operating leases and interest income from finance leases), and software-as-a-service (“SaaS”), software consumption revenue, and other aaS offerings, recognized during a quarter and multiplied by four.

We believe that ARR is a metric that allows management to better understand and highlight the potential future performance of our aaS business.

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ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

The following presents our ARR as of October 31, 2023 and 2022:

The following table presents our ARR:

For the fiscal years ended October 31,

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Year-over-year growth rate 49 % 39 %

The 39% year over year increase in ARR was due primarily to growth in our HPE GreenLake edge-to-cloud platform, which was due to an expanding customer installed base and expanded range of offerings on the HPE GreenLake edge-to-cloud platform.

At the segment level, the growth was led by Intelligent Edge aaS and Storage aaS 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, 2023, our cash, cash equivalents and restricted cash were $4.6 billion, compared to $4.8 billion as of October 31, 2022, representing a decrease of $0.2 billion.

The 49% year over year increase in ARR was primarily due to growth in our Hybrid Cloud, Server and Intelligent Edge segments, which was due to an expanding customer installed base, an expanded range of HPE GreenLake Flex Solutions, Server aaS, and Intelligent Edge aaS activity.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Capital Returns to Shareholders

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

As of October 31, 2024, our cash, cash equivalents and restricted cash were $15.1 billion, compared to $4.6 billion as of October 31, 2023, representing an increase of $10.5 billion.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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, of the appropriate character, in the jurisdictions in which the deferred tax assets are located, prior to their expiration under applicable tax laws.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

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

As of October 31, 2023, 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 five reporting units:

Advisory and Professional Services, Athonet, legacy Communications and Media Solutions business, OpsRamp and Software.

As of October 31, 2024, 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 Server, which contains two reporting units:

Compute and High Performance Computing & AI (“HPC & AI”), and Corporate Investments and Other which contains two reporting units:

Advisory and Professional Services, and legacy Communications and Media Solutions.

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.

For two of our reporting units, Athonet and OpsRamp, we perform a qualitative assessment to determine whether it is more likely than not that the fair value is less than the carrying amount.

The qualitative assessment requires management judgement in assessing factors including, but not limited to, the macroeconomic and industry environment as well as Company-specific factors.

The assessments for Athonet and OpsRamp as of our test date indicated that it is not more likely than not that the fair values of these two reporting units are less than their carrying amounts.

For all of our other reporting units, we conduct a quantitative assessment.

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 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 solely from the market approach.

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.

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.

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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.

Our annual goodwill impairment analysis, which we performed as of the first day of the fourth quarter of fiscal 2023, did not result in any impairment charges.

The excess of fair value over carrying amount for our reporting units ranged from approximately 5% to 218% 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

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Based on the results of this hypothetical 10% decrease all of the reporting units had an excess of fair value over carrying amount, except for Compute.

The Compute reporting unit has goodwill of $7.7 billion as of October 31, 2023, and excess of fair value over carrying value of 5% as of the annual test date.

The Compute business is facing challenges reflected in the results for October 31, 2023.

Annual Goodwill Impairment Review

Our annual goodwill impairment analysis, which we performed as of the first day of the fourth quarter of fiscal 2024, did not result in any impairment charges.

The excess of fair value over carrying amount for our reporting units ranged from approximately 8% to 198% 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, except for HPC & AI and Hybrid Cloud.

The HPC & AI reporting unit has goodwill of $2.0 billion as of October 31, 2024, and excess of fair value over carrying value of 11% as of the annual test date.

The HPC & AI business is growing at a very fast pace driven primarily by the AI demand from model builders, but as GPUs represent a large portion of the solutions, the pricing is very competitive and margins are limited.

With the growth of AI in enterprise and sovereign customer segments and key strategic differentiators, such as direct liquid cooling, we believe that there is a potential for continued growth over time.

Interim Goodwill Impairment Reviews

In September 2024, HPE sold 30% of the total issued share capital of H3C to UNIS.

The equity investment in H3C primarily benefits the Compute and Hybrid Cloud reporting units.

Subsequent to the sale, on September 30, 2024, we performed an interim goodwill impairment analysis for Compute and Hybrid Cloud reporting units.

The excess of fair value over carrying amount for these reporting units was 6% for Compute and 5% for Hybrid Cloud.

We also applied a hypothetical 10% decrease to the fair value of Compute and Hybrid Cloud, noting that neither had an excess of fair value over carrying amount.

The Compute reporting unit has goodwill of $8.2 billion as of October 31, 2024, and excess of fair value over carrying value of 6% as of the September 30, 2024 interim test date.

The Compute business is cyclical in nature.

Over the last several years, digital transformation drove increased investment to modernize infrastructure.

However, in the current macroeconomic and inflationary environment, customers have slowed their investments resulting in lower server demand and competitive pricing.

These dynamics are further compounded by higher supply chain costs.

During this cycle, the Compute business continues to focus on capturing market share while maintaining operating margin.

The HPC & AI reporting unit has goodwill of $2.9 billion as of October 31, 2023, and excess of fair value over carrying value of 12% as of the annual test date.

The HPC & AI business continues to face challenges related to supply chain constraints of key components and other operational challenges impacting our ability to achieve certain customer acceptance milestones required for revenue recognition and resulting cost increases associated with fulfilling contracts over longer than originally anticipated timelines.

We currently believe these challenges will be successfully addressed as the supply chain constraints continue to improve.

In addition, effective November 1, 2023 (fiscal 2024), there were organizational changes impacting the composition of our reporting units.

These changes will require us to perform an interim impairment assessment as of that date.

If the global macroeconomic or geopolitical conditions worsen, projected revenue growth rates or projected operating margins are not achieved, weighted average cost of capital increases, or if we have a significant sustained decline in our stock price, it is possible our estimates about the Compute, HPC & AI, or our other reporting units’ ability to successfully address the current challenges may change, which could result in the carrying value for our reporting units exceeding their estimated fair value resulting in potential impairment charges.

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 in fiscal 2022 below its carrying value resulted from changes in expected future cash flows due to the continuation of supply chain constraints, and other operational challenges as well as an increase in cost of capital.

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

The decline in the fair value of the Software reporting unit in fiscal 2022 resulted primarily from a decline in market multiples.

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

Contingencies

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

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

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

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

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 in Item 8 of Part II, are not a meaningful indicator of our potential liability.

Litigation is inherently unpredictable.

However, we believe we have valid defenses with respect to legal matters pending against us.

Nevertheless, cash flows or results of operations could be materially affected in any particular period by the resolution of one or more of these contingencies.

We believe we have recorded adequate provisions for any such matters and, as of October 31, 2023, 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)

However, in the current macroeconomic and inflationary environment, customers have invested selectively resulting in moderate unit growth and competitive pricing.

The Compute business continues to focus on capturing market share while maintaining operating margin, leveraging its strong portfolio of ProLiant Gen11 products.

The Hybrid Cloud reporting unit has goodwill of $4.8 billion as of October 31, 2024, and excess of fair value over carrying value of 5% as of the September 30, 2024 interim test date.

Although the Hybrid Cloud business is on a positive trajectory, we are managing both a sales model transition and product transition within this business.

Our product model transition is to a more cloud-native, software-defined platform with HPE Alletra.

Translating this growth to revenue and operating income will take time because a greater mix of high margin business such as ratable software and services, is deferred and recognized in future periods.

Our interim 2024 goodwill impairment test performed as of November 1, 2023 based on organizational changes impacting the composition of reporting units as of that date did not result in any impairment charges.

RESULTS OF OPERATIONS

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Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Results of operations in dollars and as a percentage of net revenue were as follows:

4 unchanged sentences

Net revenue $ 30,127 100.0 % $ 29,135 100.0 % $ 28,496 100.0 %

Cost of sales 18,896 64.9 % 18,990 66.6 % 18,408 66.3 %

Cost of sales (exclusive of amortization shown separately below) 20,249 67.2 % 18,896 64.9 % 18,990 66.6 %

Gross profit 9,878 32.8 % 10,239 35.1 % 9,506 33.4 %

8 unchanged sentences

Interest and other, net (117) (0.4) % (104) (0.3) % (121) (0.4) %

Tax indemnification and other adjustments 55 0.2 % (67) (0.2) % 65 0.2 %

Non-service net periodic benefit (cost) credit (3) — % 134 0.5 % 70 0.3 %

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

Gain on sale of equity interest 733 2.4 % — 0.1 % — — %

Earnings from equity interests 147 0.5 % 245 0.8 % 215 0.8 %

Earnings before taxes 2,230 7.7 % 876 3.1 % 3,587 12.9 %

Earnings before provision for taxes 2,953 9.8 % 2,230 7.8 % 876 3.1 %

Provision for taxes (374) (1.2) % (205) (0.7) % (8) (0.1) %

Net earnings $ 2,025 7.0 % $ 868 3.0 % $ 3,427 12.3 %

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Net earnings attributable to HPE 2,579 8.6 % 2,025 7.0 % 868 3.0 %

Preferred stock dividends (25) (0.1) % — — % — — %

Net earnings attributable to common stockholders $ 2,554 8.5 % $ 2,025 7.0 % $ 868 3.0 %

Fiscal 2024 compared with fiscal 2023

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net revenue increased by $521 million, or 5.0% to $10.9 billion, and net revenue from outside of the U.S.

decreased by $305 million, or 1.6%, to $18.7 billion.

increased by $471 million, or 2.5%, to $19.2 billion.

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

1 unchanged sentence

Percentage Points

Compute (5.0) 1.6

HPC & AI 2.6 0.1

Storage (0.7) (0.1)

Server 6.4 (3.9)

Hybrid Cloud (0.4) 0.9

Intelligent Edge (2.9) 5.3

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Total HPE 3.4 2.2

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Fiscal 2024 compared with fiscal 2023

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

• Compute net revenue decrease of $1,414 million, or 11.0%, primarily due to a decline in server unit volume and unfavorable currency fluctuations moderated by higher AUPs

• HPC & AI net revenue increase of $721 million, or 22.6%, primarily due to higher customer acceptances

• Storage net revenue decrease of $188 million, or 4.1%, primarily due to unfavorable currency fluctuations

• Intelligent Edge net revenue increase of $1,530 million, or 41.6%, primarily due to increased AUPs and volume and product mix effect

• Financial Services net revenue increase of $141 million, or 4.2%, primarily due to higher rental revenue from higher average operating leases and higher finance income on finance leases due to an increasing interest rate environment

• Corporate Investments and Other net revenue decrease of $5 million, or 0.4%, primarily due to unfavorable currency fluctuations

Fiscal 2023 total gross profit margin of 35.1% represents an increase of 1.7 percentage points as compared to the respective prior year period.

The increase was due to the impact of higher-margin networking revenue, higher AUPs in Intelligent Edge and Compute, and lower supply chain and commodity costs.

Additionally, the increase was partially offset by lower gross profit from support services.

• Server net revenue increased $1,844 million, or 12.8%, primarily due to higher AUPs

• Hybrid Cloud net revenue decreased $107 million, or 1.9%, primarily due to lower AUPs

• Intelligent Edge net revenue decreased $847 million, or 15.7%, primarily due to lower volume and product mix effect

• Financial Services net revenue increased $32 million, or 0.9%, primarily due to higher finance income

• Corporate Investments and Other net revenue increased $29 million, or 2.9%, primarily due to revenue growth from Advisory and Professional Services (“A & PS”)

Fiscal 2023 compared with fiscal 2022

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

• Server net revenue decreased $1,111 million, or 7.2%, primarily due to lower server unit volume and unfavorable currency fluctuations

• Hybrid Cloud net revenue increased $260 million, or 5.0%, primarily due to higher unit volume

• Intelligent Edge net revenue increased $1,522 million, or 39.5%, primarily due to increased AUPs and volume and product mix effect

• Financial Services net revenue increased $141 million, or 4.2%, primarily due to higher rental revenue from higher average operating leases and higher finance income on finance leases due to an increasing interest rate environment

• Corporate Investments and Other net revenue decreased $27 million, or 2.7%, primarily due to unfavorable currency fluctuations

Fiscal 2024 total gross profit margin of 32.8% represents a decrease of 2.3 percentage points as compared to the respective prior year period.

The decrease was primarily due to decline in revenue in the Intelligent Edge segment and higher mix of lower margin products in the Server segment.

Operating expenses

Research and development (“R&D”)

R&D expense increased by $304 million, or 14.9%, led by Intelligent Edge, HPC & AI and Storage.

The increase was driven by higher employee costs due to an increase in software engineers to pursue our strategic goals, which contributed 15.6 percentage points to the change.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

R&D expense decreased by $103 million, or 4.4%, primarily due to capitalization of software costs, which contributed 4.2 percentage points to the change.

Selling, general and administrative (“SG&A”)

SG&A expense increased by $219 million, or 4.4%, due primarily to higher travel and marketing expenses by 1.8 percentage points;

increased employee costs by 1.7 percentage points;

factoring fees, charitable donations, other general expenses and higher software expenditures, all of which contributed 1.9 percentage points to the change.

The increase was partially offset by a combination of lower consulting costs and cost savings from our transformation programs.

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.

SG&A expense decreased by $289 million, or 5.6%, primarily due to lower employee costs, which contributed 3.3 percentage points, lower travel and marketing expenses and lower consulting costs, both of which contributed 1.4 percentage points to the change.

Transformation programs and costs

Our transformation programs consist of the Cost Optimization and Prioritization Plan (launched in 2020) and the HPE Next Plan (launched in 2017).

Transformation costs decreased by $190 million, or 40.2%, due to lower charges incurred in the current period as these plans approach completion.

Transformation costs decreased by $190 million, or 67.1%, due to lower charges incurred in the current period as the primary elements of these plans have been substantially completed by the end of fiscal 2023.

Refer to Note 3, “Transformation Programs” to the Consolidated Financial Statements in Item 8 of Part II for further discussion.

Disaster charges

Disaster charges decreased by $47 million or 97.9% due to charges recorded in fiscal 2022 driven by the Company’s exit from its Russia and Belarus businesses.

Interest and other, net

Interest and other, net expense decreased by $32 million, due to favorable currency fluctuations and an increase in net interest income from higher interest rates, partially offset by an increase in impairments recorded on equity investments in fiscal 2023.

Tax indemnification and other adjustments

We record changes in 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 other adjustments income of $55 million and expense of $67 million in fiscal 2023 and 2022, respectively.

In fiscal 2023, Tax indemnification and other adjustments included the favorable settlement of tax indemnification liabilities for certain pre-divestiture tax liabilities.

In fiscal 2022, Tax indemnification and other adjustments 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.

Non-service net periodic benefit (cost) credit

Non-service net periodic benefit (cost) credit represents the components of net periodic pension benefit costs, other than service cost, for the Hewlett Packard Enterprise defined benefit pension and post-retirement benefit plans such as interest cost, expected return on plan assets, and the amortization of prior plan amendments and actuarial gains or losses.

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

In fiscal 2023, Non-service net periodic benefit (cost) credit decreased by $137 million resulting in non-service net periodic benefit cost of $3 million in the current period, as compared to non-service net periodic benefit credit of $134 million in fiscal 2022.

The change was primarily due to higher interest cost as a result of higher discount rates, partially offset by higher expected returns on assets and lower amortized actuarial losses in the current period.

Acquisition, disposition and other related charges

Acquisition, disposition and other related charges increased by $135 million or 195.7%, primarily due to costs incurred in connection with the pending acquisition of Juniper Networks.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

1 unchanged sentence

Financial Condition and Results of Operations (Continued)

Interest and other, net

Interest and other, net expense increased by $13 million or 12.5%, primarily due to lower gain from sale of certain investments and unfavorable currency fluctuations in the current year and the previous year containing tax indemnification income due to an audit settlement.

The increase was partially offset by a decrease in net interest expense and lower loss on equity investments in the current year.

Gain on sale of equity interest

On September 4, 2024, the Company divested 30% of the total issued share capital of H3C to UNIS.

We continue to possess the option to sell the remaining 19% of the total issued share capital of H3C at a later date.

In connection with this sale, we recorded a gain on sale of equity interest of $733 million.

Earnings from equity interests

Earnings from equity interests primarily represents our 49% interest in H3C Technologies Co., Limited (“H3C”) and the amortization of our interest in a basis difference.

In fiscal 2023, Earnings from equity interests increased by $30 million due primarily to lower amortization expense from basis difference in the current period.

In fiscal 2024, Earnings from equity interests decreased by $98 million or 40%, primarily due to lower net income earned by H3C and the disposition of 30% of the total issued share capital of H3C, partially offset by lower amortization expense from basis difference in the current period.

Provision for taxes

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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.

In fiscal 2023, we recorded $131 million of net income tax benefits related to items discrete to the year.

In fiscal 2024, we recorded $43 million of net income tax charges related to items discrete to the year.

These amounts primarily included:

• $104 million of net income tax charges resulting from the gain on the H3C divestiture, which includes $215 million of U.S.

and foreign income tax charges offset by $111 million of income tax benefit for the release of an uncertain tax benefit related to the prior divestiture, partially offset by

• $54 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges and

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These amounts primarily included:

• $150 million of income tax benefits related to releases of foreign valuation allowances,

• $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 we shared joint and several liability with, and for which we were 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.

• $104 million of income tax benefits related to transformation costs and acquisition, disposition and other related charges and

• $19 million of net excess tax benefits related to stock-based compensation.

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 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.

Hewlett Packard Enterprise's organizational structure is based on a number of factors that the Chief Operating Decision Maker, who is the 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.

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.

Segment Results

The following provides an overview of our key financial metrics by segment for fiscal 2023 as compared to fiscal 2022:

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Consolidated Compute HPC & AI Storage Intelligent Edge Financial Services Corporate

Segment Results

The following provides an overview of our key financial metrics by segment for fiscal 2024 as compared to fiscal 2023:

Consolidated Server Hybrid Cloud Intelligent Edge Financial Services Corporate

Investments and Other

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Earnings (loss) from operations as a % of net revenue 7.3% 11.2% 4.5% 24.6% 9.0% (2.5)%

Year-over-year change percentage points 4.5 pts (0.5) pts 0.9 pts (4.2) pts 12.4 pts (2.8) pts (6.5) pts

Year-over-year change percentage points 0.1 pts (1.5) pts 0.3 pts (0.4) pts 0.9 pts 5.3 pts

(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.

(2) Segment earnings from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense, amortization of intangible assets, impairment of goodwill, transformation costs, disaster charges, divestiture related exit costs, and acquisition, disposition and other related charges.

For the fiscal years ended October 31,

2024 2023 2022 2024 vs 2023

2023 vs 2022 % Change

Dollars in millions

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Fiscal 2024 compared with fiscal 2023

Compute net revenue decreased by $1,414 million, or 11.0% (decreased 7.1% on a constant currency basis), primarily due to a $1,424 million, or 14.3%, decrease in product revenue.

The decline in product revenue was primarily due to lower server unit volume of $1,889 million, or 18.9%, and unfavorable currency fluctuations of $399 million.

The product revenue decline was moderated by an increase in AUPs of $864 million, or 8.7%, led by higher sales of server configurations with more complex component architectures in our next generation products.

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

The increase in operating expenses as a percentage of net revenue was primarily due to the scale of the net revenue decline.

The decrease in costs of products and services as a percentage of net revenue was primarily due to higher AUPs moderated by unfavorable currency fluctuations and higher supply chain costs.

For the fiscal years ended October 31,

2023 2022 2021 2023 vs 2022

Dollars in millions

Net revenue $ 3,913 $ 3,192 $ 3,184 22.6 %

Earnings from operations $ 47 $ 11 $ 231 327.3 %

Earnings from operations as a % of net revenue 1.2 % 0.3 % 7.3 %

Server net revenue increased by $1,844 million, or 12.8% in actual dollars and constant currency, primarily due to a $1,812 million, or 16.7%, increase in product revenue.

The increase in product revenue was primarily due to higher AUPs of $1,769 million, or 16.3%.

Server earnings from operations as a percentage of net revenue decreased 1.5 percentage points primarily due to an increase in costs of products as a percentage of net revenue, moderated by a decrease in operating expenses as a percentage of net revenue.

The increase in costs of products as a percentage of net revenue was primarily due to higher mix of lower margin products and competitive pricing pressure.

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

Fiscal 2023 compared with fiscal 2022

HPC & AI net revenue increased by $721 million, or 22.6% (increased 25.2% on a constant currency basis), primarily due to a $759 million, or 33.6%, increase in product revenue.

The product revenue increase was led by the HPE Cray Supercomputing product portfolio, as operational and supply improvements addressed challenges with achieving certain

Server net revenue decreased by $1,111 million, or 7.2% (decreased 3.5% on a constant currency basis), primarily due to a $1,061 million, or 8.9%, decrease in product revenue.

The decline in product revenue was primarily due to lower server unit volume of $1,281 million, or 10.7%, and unfavorable currency fluctuations of $458 million, or 3.8%.

The product revenue decline was moderated by an increase in AUPs of $683 million, or 5.7%, led by higher sales of server configurations with more complex component architectures in our next generation products.

Server earnings from operations as a percentage of net revenue remained relatively flat.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

1 unchanged sentence

Financial Condition and Results of Operations (Continued)

customer acceptance milestones for revenue recognition.

HPE Cray Supercomputing experienced a deal volume increase of $991 million, or 43.9 %, moderated by lower AUPs of $358 million, or 15.8%.

The product revenue was also impacted by unfavorable currency fluctuation of $69 million.

Services revenue declined by $38 million, or 4.1%, primarily due to unfavorable portfolio mix of service offerings.

HPC & AI earnings from operations as a percentage of net revenue remained relatively flat, driven by a decrease in operating expenses as a percentage of net revenue partially offset by an increase in costs of products and services as a percentage of net revenue.

For the fiscal years ended October 31,

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Fiscal 2024 compared with fiscal 2023

Storage net revenue decreased by $188 million, or 4.1% (decreased 0.7% on a constant currency basis) primarily due to unfavorable currency fluctuations and a decrease in AUPs.

Storage product revenue decreased by $187 million, or 6.9%, primarily due to unfavorable currency fluctuations of $122 million, a decrease in AUPs of $21 million, or 0.8%, led by HPE Alletra Storage portfolio and big data, a unit volume decrease of $25 million, or 0.9%, led by HPE Alletra Storage portfolio and moderated by big data, and lower revenue from Russia of $20 million.

Storage services revenue remained relatively flat.

Storage earnings from operations as a percentage of net revenue decr eased 4.2 perce ntage points 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 unfavorable currency fluctuations partially offset by lower supply chain costs.

The increase in operating expenses as a percentage of net revenue was due primarily to incremental investments in R&D and field selling costs.

Hybrid Cloud net revenue decreased by $107 million, or 1.9% (decreased 2.0% on a constant currency basis) primarily due to a decrease in AUPs, partially offset by an increase in unit volume.

Hybrid Cloud product revenue decreased $267 million, or 8.1%, primarily due to a decrease in AUPs of $831 million, or 25.2%, led by private cloud and storage products, partially offset by a unit volume increase of $543 million or 16.5%, led by private cloud and storage products.

Hybrid Cloud services revenue increased by $160 million, or 7.3%, primarily due to a unit volume increase of $275 million, or 12.5%, led by private cloud and infrastructure SaaS.

This increase was partially offset by lower AUPs of $107 million, or 4.9%.

Hybrid Cloud earnings from operations as a percentage of net revenue remained relatively flat as compared to the prior-year period.

Fiscal 2023 compared with fiscal 2022

Hybrid Cloud net revenue increased by $260 million, or 5.0% (increased 8.2% on a constant currency basis) primarily due to an increase in unit volume, partially offset by unfavorable currency fluctuations and decrease in AUPs.

Hybrid Cloud product revenue increased by $180 million, or 5.8%, primarily due to an increase in unit volume of $371 million or 11.9%, led by private cloud and infrastructure SaaS.

The increase in product revenue was moderated by unfavorable currency fluctuations of $130 million or 4.2%, and a decrease in AUPs of $39 million or 1.3%.

Hybrid Cloud services revenue increased by $80 million, or 3.8%, primarily due to a unit volume increase of $178 million, or 8.4%, led by private cloud and infrastructure SaaS.

The increase in service revenue was partially offset by decrease in AUPs of $43 million or 2.0% and unfavorable currency fluctuations of $40 million or 1.9%.

Hybrid Cloud earnings from operations as a percentage of net revenue decreased 4.7 percentage points due to an increase in cost of products sold as a percentage of net revenue and an increase in operating expenses as a percentage of net revenue.

The increase in cost of products and services as a percentage of net revenue was primarily due to lower margin GreenLake Flex Solutions deals and decrease in storage subscription revenue.

The increase in operating expenses as a percentage of net revenue was primarily due to the unfavorable currency fluctuations.

Intelligent Edge

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Earnings from operations as a % of net revenue 24.6 % 25.0 % 14.1 %

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Fiscal 2024 compared with fiscal 2023

Intelligent Edge net revenue decreased by $847 million, or 15.7% (decreased 15.9% on a constant currency basis).

Product revenue decreased by $1,050 million, or 23.9%, led by lower volume and product mix effect of $876 million, or 19.9%, and lower AUPs of $183 million, or 4.2%.

The product revenue decrease was led by switching products and wireless local area network products due to softened demand.

Services net revenue increased $203 million, or 20.6%, primarily led by our aaS and attached support service offerings.

Intelligent Edge earnings from operations as a percentage of net revenue decreased 0.4 percentage points primarily due to 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.

Operating expenses as a percentage of net revenue increased primarily due to scale of net revenue decline, higher employee costs related to acquisitions and investments to enhance Aruba offerings in GreenLake.

The decrease in cost of product and services as a percentage of net revenue was primarily due to favorable revenue mix and cost containment measures.

Fiscal 2023 compared with fiscal 2022

Intelligent Edge net revenue increased by $1,522 million, or 39.5% (increased 42.5% on a constant currency basis).

Product revenue increased by $1,387 million, or 46.5%, led by higher AUPs of $1,257 million, or 42.2%, and a volume and product mix effect of $236 million, or 7.9%, moderated by unfavorable currency fluctuations of $106 million.

Product revenue increased by $1,396 million, or 46.5%, led by higher AUPs of $1,284 million, or 42.8%, and a volume and product mix effect of $217 million, or 7.2%, moderated by unfavorable currency fluctuations of $106 million, or 3.5%.

The product revenue increase was led by switching and wireless local area network products, which benefited from improvements in the supply availability, and elevated order book levels at the beginning of the period.

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Operating expenses as a percentage of net revenue decreased primarily due to our cost containment measures.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Financial Services

6 unchanged sentences

Fiscal 2024 compared with fiscal 2023

FS net revenue increased by $32 million, or 0.9% (increased 0.6% on a constant currency basis) primarily due to higher finance income from higher average finance leases in a higher interest rate environment, along with favorable currency fluctuations, partially offset by lower rental revenue on lower average operating leases and lower asset management lease buyout revenue.

FS earnings from operations as a percentage of net revenue increased 0.9 percentage points, although the cost of services as a percentage of net revenue and operating expenses as a percentage of net revenue were relatively flat.

Fiscal 2023 compared with fiscal 2022

FS net revenue increased by $141 million, or 4.2% (increased 5.4% on a constant currency basis) due primarily to higher rental revenue from higher average operating leases and higher finance income on finance leases due to an increasing interest rate environment, partially offset by lower asset management revenue primarily from lower pre-owned asset sales and unfavorable currency fluctuations.

FS earnings from operations as a percentage of net revenue decreased 2.8 percentage points due primarily to an increase in cost of services as a percentage of net revenue, while operating expenses as a percentage of net revenue were relatively flat.

FS earnings from operations as a percentage of net revenue decreased 3.5% percentage points due primarily to an increase in cost of services as a percentage of net revenue, while operating expenses as a percentage of net revenue were

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

relatively flat.

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

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Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, increased by 3.2% in fiscal 2024 as compared to the prior-year period.

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

The increase was primarily driven by higher financing of HPE product sales and services, partially offset by lower financing of third-party product sales and services.

Portfolio Assets and Ratios

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

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

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The increase generally resulted from new financing volume exceeding portfolio runoff during the period, along with favorable currency fluctuations.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

3 unchanged sentences

2024 2023 2022 2024 vs 2023

% Change 2023 vs 2022

Dollars in millions

3 unchanged sentences

Fiscal 2024 compared with fiscal 2023

Corporate Investments and Other net revenue increased by $29 million, or 2.9% (increased 4.3% on a constant currency basis) primarily due to revenue growth from A & PS, partially offset by unfavorable currency fluctuations.

Corporate Investments and Other loss from operations as a percentage of net revenue decreased 5.3 percenta ge points primarily due to decreases in cost of services as a percentage of net revenue resulting from our cost containment measures, and decreases in operating expenses as a percentage of net revenue due to the scale of net revenue growth and lower total operating expenses.

Fiscal 2023 compared with fiscal 2022

Corporate Investments and Other net revenue decreased by $27 million, or 2.7% (increased 2.1% on a constant currency basis) primarily due to unfavorable currency fluctuations.

Corporate Investments and Other loss from operations as a percentage of net revenue increased 6.5 percenta ge points primarily due to an increase in cost of services and operating expense as a percentage of net revenue.

The increase in cost of services as a percentage of net revenue was primarily due to unfavorable currency fluctuations, higher services delivery costs and higher variable compensation expense.

The increase in operating expenses as a percentage of net revenue was primarily due to higher variable compensation expense.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Corporate Investments and Other loss from operations as a percentage of net revenue increased 5.2 percentage points primarily due to increases in cost of services as a percentage of net revenue while operating expenses as a percentage of net revenue remained relatively flat.

Cost of services as a percentage of net revenue increased primarily due to the scale of net revenue decline and increases in cost of services due to unfavorable currency fluctuations and higher expenses.

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, 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 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 anticipate that the funds made available, including the debt funding related to the pending merger with Juniper Networks, proceeds from issuance of the Preferred Stock and proceeds from the sale of 30% of the total issued share capital of H3C, and cash generated from our operations, along with our access to capital markets, will be sufficient to meet our liquidity requirements for at least the next twelve months (including for the payment of consideration to consummate the Juniper Networks transaction) and for the foreseeable future thereafter.

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.

Our cash balances are held in numerous locations throughout the world, with a substantial amount held outside the U.S as of October 31, 2023.

We utilize a variety of planning and financing strategies in an effort to provide availability of our worldwide cash when and where it is needed.

Our cash balances are held in numerous locations throughout the world, with a substantial amount held in the U.S.

as of October 31, 2024.

We utilize a variety of planning and financing strategies in an effort to ensure that our worldwide cash is available when and where it is needed.

Amounts held outside of the U.S.

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Repatriations of amounts held outside the U.S.

generally should not be taxable from a U.S.

federal tax perspective, but may be subject to state income or foreign withholding tax.

generally will not be taxable from a U.S.

federal tax perspective, but may be subject to state income or

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

foreign withholding tax.

Where local restrictions prevent an efficient intercompany transfer of funds, our intent is to keep cash balances outside of the U.S.

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

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

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

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

In connection with the share repurchase program previously authorized by our Board of Directors, during fiscal 2023, we repurchased and settled an aggregate amount of $0.4 billion.

In connection with the share repurchase program previously authorized by our Board of Directors, during fiscal 2024, we repurchased and settled an aggregate amount of $150 million.

As of October 31, 2024, we had a remaining authorization of approximately $0.8 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 Item 8 of Part II.

Pursuant to the Shareholders' Agreement among our relevant subsidiaries, Unisplendour International Technology Limited (“UNIS”), and H3C dated as of May 1, 2016, as amended from time to time, and most recently on October 28, 2022, we delivered a notice to UNIS on December 30, 2022, to exercise our right to put to UNIS, for cash consideration, all of the H3C shares held by us, which represent 49% of the total issued share capital of H3C.

On May 26, 2023, our relevant subsidiaries entered into a Put Share Purchase Agreement with UNIS, whereby UNIS has agreed to purchase all of the H3C shares held by us, through our subsidiaries, for a total pre-tax cash consideration of $3.5 billion.

We intend to consider a range of allocation activities, in line with our practice of pursuing a balanced, returns-based approach for capital allocation decisions, including but not limited to organic and strategic investments, return of capital to shareholders, repayment and/or redemption of outstanding debt, and general corporate purposes.

The disposition remains subject to obtaining required regulatory approvals and completion of certain conditions necessary for closing.

On May 23, 2024, we announced plans to divest our Communications Technology Group (“CTG”) business to HCLTech.

CTG is included in our Communications and Media Solutions business, which is reported in the Corporate Investments and Other segment.

This divestiture includes the platform-based software solutions portions of the CTG portfolio, including systems integration, network applications, data intelligence, and the business support systems groups.

As of October 31, 2024, assets and liabilities to be sold have been presented in our Consolidated Balance Sheets as assets and liabilities held for sale.

On December 1, 2024, we completed the disposition of CTG.

We received net proceeds of $210 million and expect to recognize a gain of approximately $230 million.

On January 9, 2024, we entered into the Merger Agreement, under which HPE will acquire Juniper Networks in an all-cash transaction for $40.00 per share, representing an equity value of approximately $14 billion.

The transaction was unanimously approved by the boards of directors of both companies.

On April 2, 2024, Juniper Networks shareholders approved the transaction.

The closing of the transaction remains subject to receipt of regulatory approvals and satisfaction of other customary closing conditions.

In connection with the merger, we entered into a commitment letter whereby we obtained a commitment from Citigroup Global Markets Inc., JPMorgan Chase Bank, N.A.

and Mizuho Bank, Ltd.

for a $14.0 billion senior unsecured delayed draw term loan facility, comprised of an $11.0 billion 364-day tranche and a $3.0 billion three-year tranche, subject to customary conditions (the “Term Loan Commitment Letter”).

In September 2024, we issued $9.0 billion of senior unsecured notes and $1.5 billion of Preferred Stock, the net proceeds of which we intend to use to fund a portion of the consideration for the acquisition of Juniper Networks and for other general corporate purposes, which may include, among other uses, repaying certain indebtedness of HPE, Juniper Networks and our and its respective subsidiaries.

In addition, in furtherance of the Term Loan Commitment Letter, we entered into term loan agreements with JPMorgan Chase Bank, N.A, Citibank, N.A., and Mizuho Bank, Ltd.

for approximately $12.0 billion of senior unsecured delayed draw term loan facilities, comprised of an approximately $9.0 billion 364-day tranche (which was reduced from the original commitment of $11.0 billion, upon receipt and application of approximately $2.0 billion in post-tax proceeds from our sale to UNIS of 30% of the total issued share capital of H3C, as further described below) and a $3.0 billion three-year tranche, subject to customary conditions.

We have since further reduced the commitments under the 364-day term loan to $1.0 billion upon receipt and application of certain proceeds from the aforementioned issuance of senior unsecured notes and the Preferred Stock.

Unless previously terminated, commitments under both the 364-day term loan and the three-year term loan will terminate upon the earliest of (i) five business days after the Juniper Outside Date (as defined in such term loan agreements), (ii) the occurrence of the closing of the acquisition of Juniper Networks without the funding of any borrowings under either of the term loan agreements, and (iii) the termination of the Merger Agreement by HPE in writing in accordance with its terms.

In connection with the entry into the aforementioned 364-day term loan and the three-year term loan, on September 12, 2024, we terminated the Term Loan Commitment Letter.

In September 2024, we issued 30 million shares of the Preferred Stock, par value $0.01 per share, for an aggregate purchase price of $1.5 billion, less issuance costs of $38 million.

As of October 31, 2024, 30 million shares of the Preferred Stock was outstanding.

We intend to use these net proceeds as indicated above.

For more information on our Preferred Stock, refer to Note 15, “Stockholders' Equity,” to the Consolidated Financial Statements in Item 8 of Part II.

Pursuant to the Shareholders' Agreement among our relevant subsidiaries, UNIS, and H3C dated as of May 1, 2016, as amended from time to time, and most recently on October 28, 2022, we delivered a notice to UNIS on December 30, 2022, to exercise our right to put to UNIS, for cash consideration, all of the H3C shares held by us, which represent 49% of the total issued share capital of H3C.

On May 26, 2023, our relevant subsidiaries entered into a Put Share Purchase Agreement with UNIS, whereby UNIS has agreed to purchase all of the H3C shares held by us, through our subsidiaries.

On May 24, 2024, our relevant subsidiaries entered into (i) an Amended and Restated Put Share Purchase Agreement with UNIS, whereby our relevant subsidiaries shall sell to UNIS 30% of the total issued share capital of H3C for pre-tax cash consideration of approximately $2.1 billion by August 31, 2024 (the “Sale Transaction”), and (ii) an Agreement on Subsequent Arrangements with UNIS, whereby upon closing of the Sale Transaction, our relevant subsidiary shall have a put option to sell to UNIS and

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Financial Condition and Results of Operations (Continued)

UNIS shall have a call option to purchase from our relevant subsidiary 19% of the total issued share capital of H3C for pre-tax cash consideration of approximately $1.4 billion between the 16 th month and until the 36 th month after the Sale Transaction.

The transactions referenced in clauses (i) and (ii) above, taken together, revise the arrangements governing the aforementioned sale of all of the H3C shares held by us, through our subsidiaries and are subject to certain grace periods and regulatory approvals.

On September 4, 2024, pursuant to the Amended and Restated Put Share Purchase Agreement with UNIS, we received $2.1 billion of pre-tax consideration ($2.0 billion post-tax), in connection with the sale to UNIS of 30% of the total issued share capital of H3C.

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

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Available borrowing resources (1)

6,009 6,588 6,161

Commercial paper programs (2)

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$ 908 $ 1,517 $ 953

(1) Excludes the financing commitment for the Juniper Networks acquisition.

The maximum aggregate commitment under this facility is $4.0 billion, however, no balances were outstanding under this facility as of October 31, 2024.

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

(3) The maximum aggregate capacity under the uncommitted lines of credit is $1.5 billion of which $0.6 billion was primarily utilized towards issuances of bank guarantees.

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

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

For the fiscal years ended October 31,

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Net cash used in investing activities (53) (3,284) (2,087)

Net cash used in financing activities (1,362) (1,796) (3,364)

Net cash provided by (used in) financing activities 6,283 (1,362) (1,796)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (47) 36 (279)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (182) $ 431 $ (289)

Change in cash, cash equivalents and restricted cash $ 10,524 $ (182) $ 431

Free cash flow $ 2,297 $ 2,238 $ 1,794

Operating Activities

Net cash provided by operating activities decrease d by $165 million for fiscal 2023, as compared to fiscal 2022.

The decrease was primarily due to unfavorable working capital primarily resulting from higher vendor payments and an increase in financing receivables, moderated by unfavorable hedging positions, lower cash payouts for variable compensation, and favorable impacts from other assets and liabilities during the current period.

Net cash provided by operating activities decreased by $87 million for fiscal 2024, as compared to fiscal 2023.

The decrease was primarily due to higher cash payouts for variable compensation, unfavorable impacts from financing receivables, and lower cash generated from operations.

The decrease was moderated by favorable working capital, as compared to the prior-year period.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

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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 revenue recognition and inventory purchases within the period, the impact of commodity costs and acquisition activity.

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 the revenue recognition 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.

Compared to the three-month

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

period ending October 31, 2022, the decrease in DSO by 4 days in the current period was primarily due to higher early collections and receivables factoring.

DOS measures the average number of days from procurement to sale of our product.

Compared to the corresponding three-month period in fiscal 2023, the decrease in DSO by 5 days in the current period was primarily due to higher early collections.

DOS measures the average number of days from procurement to sale of our products.

DOS is calculated by dividing ending inventory by a 90-day average of cost of goods sold.

Compared to the corresponding three-month period ending October 31, 2022, the DOS remained relatively flat.

Compared to the corresponding three-month period in fiscal 2023, the increase in DOS by 33 days in the current period was primarily due to higher inventory levels caused by strategic purchases of key components to support growth in AI systems.

DPO measures the average number of days our accounts payable balances are outstanding.

DPO is calculated by dividing ending accounts payable by a 90-day average of cost of goods sold.

Compared to the corresponding three-month period ending October 31, 2022, the decrease in DPO by 15 days in the current period was primarily due to lower inventory purchases during the current period.

Compared to the corresponding three-month period in fiscal 2023, the increase in DPO by 36 days in the current period was primarily due to higher inventory purchases.

Investing Activities

Net cash used in investing activities increased by $1.2 billion in fiscal 2023, as compared to fiscal 2022.

The increase was primarily due to payments made in connection with business acquisitions of $0.8 billion, higher cash utilized in net financial collateral activities of $0.5 billion, lower proceeds from maturities and sales of investments, net of purchases of $0.2 billion, offset by lower investment in property, plant and equipment of $0.3 billion, as compared to the prior-year period.

Net cash used in investing activities decreased by $3.2 billion in fiscal 2024, as compared to the corresponding period in fiscal 2023.

The decrease was primarily due to proceeds from UNIS in connection with the sale of 30% of the total issued share capital of H3C of $2.1 billion, lower net payments made in connection with business acquisitions of $0.6 billion, lower cash utilized in net financial collateral activities of $0.2 billion, and lower investments in property, plant and equipment and software assets, net of sales proceeds of $0.2 billion, as compared to the prior-year period.

Financing Activities

Net cash used in financing activities decreased by $0.4 billion in fiscal 2023, as compared to fiscal 2022.

The decrease was primarily due to an increase in proceeds from debt, net of issuance costs of $1.4 billion, offset by higher repayments of debt and short-term borrowings of $1.0 billion, as compared to the prior-year period.

Net cash provided by financing activities increased by $7.6 billion in fiscal 2024, as compared to the corresponding period in fiscal 2023.

This was primarily due to higher proceeds from debt issuance (net of issuance costs) of $6.5 billion, proceeds from the issuance of the Preferred Stock (net of issuance costs) of $1.5 billion, and lower share repurchases of $0.3 billion, partially offset by higher repayments of debt of $0.6 billion, as compared to the prior-year period.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Free Cash Flow

Free cash flow (“FCF”) represents cash flow from operations, 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.

FCF increased by $0.4 billion in fiscal 2023, as compared to fiscal 2022, due to a favorable currency impact on cash, cash equivalents, and restricted cash, lower cash utilized for investments in PP&E, moderated by lower cash provided from operations, as compared to the prior-year period.

Free cash flow (“FCF”) represents cash flow from operations less net capital expenditures (investments in property, plant and equipment (“PP&E”) and software assets less proceeds from the sale of PP&E), and adjusted for the effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash.

FCF increased by $0.1 billion, as compared to the corresponding period in fiscal 2023.

This was primarily due to lower net capital expenditures, as compared to the prior-year period.

For more information on our FCF, refer to the section entitled “GAAP to non-GAAP Reconciliations” included in this MD&A.

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.

For more information on the impact of operating assets and liabilities to our 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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Weighted-average interest rate 5.4 % 5.4 % 4.0 %

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.

We maintain debt levels that we establish through consideration of several factors, including cash flow expectations, cash requirements for operations, investment plans (including acquisitions), share repurchase activities, our cost of capital, and targeted capital structure.

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

There have been no changes to our commercial paper programs and revolving credit facility since October 31, 2022.

In September 2024, we terminated the prior senior unsecured revolving credit facility that was entered into in December 2021, and entered into a new senior unsecured revolving credit facility with an aggregate lending commitment of $5.25 billion for a period of five years.

The commitment is comprised of (i) $4.75 billion of commitments available immediately and (ii) $500 million of commitments available from and subject to the closing of the Juniper Networks acquisition and refinancing of Juniper Networks’ credit agreement in connection with the closing of the Juniper Networks acquisition.

There have been no changes to our commercial paper programs since October 31, 2023.

As noted above, we are also party to two senior unsecured delayed draw term loan facilities, comprised of a $1.0 billion 364-day tranche and a $3.0 billion three-year tranche, subject to customary conditions.

In December 2023, 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.

The shelf registration statement expired in December 2023, and we expect to file a new shelf registration statement around the time of the filing of this report.

Significant funding and liquidity activities for fiscal 2024 were as follows:

Debt Issuances:

• In September 2024, we issued (i) $1.25 billion of 4.45% Senior Notes due September 25, 2026, (ii) $1.25 billion of 4.40% Senior Notes due September 25, 2027, (iii) $1.75 billion of 4.55% Senior Notes due October 15, 2029, (iv) $1.25 billion of 4.85% Senior Notes due October 15, 2031, (v) $2.0 billion of 5.00% Senior Notes due October 15, 2034, and (vi) $1.5 billion of 5.60% Senior Notes due October 15, 2054.

• In June 2024, we issued $818 million of asset-backed debt securities in six tranches with a weighted average interest rate of 5.593% and final maturity date of April 2032.

• In January 2024, we issued $796 million of asset-backed debt securities in six tranches with a weighted average interest rate of 5.476% and final maturity date of November 2031.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Significant funding and liquidity activities for fiscal 2023 were as follows:

Debt Issuances:

• In March 2023 and June 2023, we issued $1.3 billion and $250 million, respectively, of 5.90% Senior Notes due October 1, 2024

• In March 2023, we issued $400 million of 6.102% Senior Notes due April 1, 2026

• In March and April 2023, we issued $643 million of asset-backed debt securities in five tranches with a weighted average interest rate of 5.59% and final maturity date of April 20, 2028

• In June 2023, we issued $550 million of 5.25% Senior Notes due July 1, 2028

• In September 2023, we issued $612 million of asset-backed debt securities in six tranches with a weighted average interest rate of 6.40% and final maturity date of July 21, 2031 .

Debt Repayments:

• In April 2023, we repaid $1.0 billion of 2.25% fixed rate Senior Notes

• In October 2023, we repaid $1.25 billion of 4.45% Senior Notes

• During fiscal 2023, we repaid $1.7 billion of the outstanding asset-backed debt securities.

• In October 2024, we redeemed $400 million of 6.102% Senior Notes with an original maturity date of April 1, 2026, utilizing the par call option on the debt, with no redemption penalties.

• In October 2024, we repaid $1.6 billion of 5.90% Senior Notes on their original maturity date.

• In April 2024, we repaid $1.0 billion of 1.45% Senior Notes on their original maturity date.

• During fiscal 2024, we repaid $1,691 million of the outstanding asset-backed debt securities.

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.

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As of October 31, 2024, operating lease obligations, net of sublease rental income totaled $1.7 billion, of which $286 million is due within one year.

These amounts included uncommenced operating leases as of October 31, 2023, 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.

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As of October 31, 2024, unconditional purchase obligations totaled $1.3 billion, of which $556 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.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

For more information on our unconditional purchase obligations, see Note 17, “Litigation, Contingencies, and Commitments,” to the Consolidated Financial Statements in Item 8 of Part II.

Retirement Benefit Plan Funding

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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.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Restructuring Plans

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Uncertain Tax Positions

As of October 31, 2023, we had approximately $224 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

As of October 31, 2024, we had approximately $186 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions that could result in a cash payment.

These liabilities and related interest and penalties include $2 million expected to be paid within one year.

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For more information on our third-party revolving short-term financing arrangements, see Note 7, “Balance Sheet Details,” to the Consolidated Financial Statements in Item 8 of Part II.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

GAAP TO NON-GAAP RECONCILIATIONS

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Non-GAAP adjustments

Amortization of initial direct costs — — % 4 — %

Stock-based compensation expense 49 0.1 % 47 0.2 %

Disaster (recovery) charges (13) — % 111 0.4 %

Disaster recovery (43) (0.1) % (13) — %

Divestiture related exit costs 9 — % — — %

Non-GAAP gross profit $ 9,893 32.8 % $ 10,273 35.3 %

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

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Non-GAAP adjustments:

Amortization of initial direct costs — — % 4 — %

Amortization of intangible assets 267 0.9 % 288 1.0 %

Impairment of goodwill — — % 905 3.2 %

Transformation costs 93 0.3 % 283 1.0 %

Disaster (recovery) charges (12) — % 159 0.6 %

Disaster recovery (51) (0.2) % (12) — %

Stock-based compensation expense 430 1.4 % 428 1.5 %

Divestiture related exit costs 35 0.1 % — — %

Acquisition, disposition and other related charges 204 0.7 % 69 0.2 %

Non-GAAP earnings from operations $ 3,168 10.5 % $ 3,145 10.8 %

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

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Dollars in millions

GAAP net earnings $ 2,025 $ 1.54 $ 868 $ 0.66

GAAP net earnings attributable to HPE $ 2,579 $ 1.93 $ 2,025 $ 1.54

Non-GAAP adjustments:

Amortization of initial direct costs — — 4 —

Amortization of intangible assets 267 0.20 288 0.22

Impairment of goodwill — — 905 0.69

Transformation costs 93 0.07 283 0.22

Disaster (recovery) charges (12) (0.01) 159 0.12

Disaster recovery (51) (0.04) (12) (0.01)

Stock-based compensation expense 430 0.32 428 0.33

Divestiture related exit costs 35 0.03 — —

Acquisition, disposition and other related charges 204 0.16 69 0.05

Tax indemnification and other adjustments (55) (0.04) 67 0.05

Non-service net periodic benefit cost (credit) 3 — (134) (0.10)

Earnings from equity interests (1)

18 0.01 45 0.03

Impairment of investment 40 0.03 — —

Gain on sale of equity interest (733) (0.55) — —

Adjustments for equity interests (107) (0.08) 18 0.01

Loss on equity investments, net 13 0.01 40 0.03

Adjustments for taxes (95) (0.07) (255) (0.20)

Non-GAAP net earnings $ 2,832 $ 2.15 $ 2,664 $ 2.02

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

Fiscal 2023 included the Company's portion of intangible asset impairment charges from H3C of $8 million.

Other adjustments (1)

20 0.01 (52) (0.04)

Non-GAAP net earnings attributable to HPE (2)

2,655 1.99 2,832 2.15

Preferred stock dividends (25) —

Non-GAAP net earnings attributable to common stockholders $ 2,630 $ 2,832

(1) Other adjustments includes non-service net periodic benefit cost and tax indemnification and other adjustments.

(2) For purposes of calculating Non-GAAP diluted net EPS, the preferred stock dividends are added back to the Non-GAAP net earnings attributable to common stockholders and the diluted weighted average share calculation assumes the preferred stock was converted at issuance or as of the beginning of the reporting period.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

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Net cash provided by operating activities $ 4,341 $ 4,428 $ 4,593

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

Net cash provided by operating activities, excluding litigation judgment, net of taxes paid 4,428 4,593 3,699

Investment in property, plant and equipment (2,828) (3,122) (2,502)

Investment in property, plant and equipment and software assets (2,367) (2,828) (3,122)

Proceeds from sale of property, plant and equipment 370 602 602

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Free cash flow $ 2,297 $ 2,238 $ 1,794

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Use of non-GAAP Financial Measures

The non-GAAP financial measures presented are net revenue on a constant currency basis (including at the business segment level), non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP earnings from operations, non-GAAP tax rate, non-GAAP net earnings, non-GAAP diluted net earnings per share, and FCF.

The non-GAAP financial measures presented are net revenue on a constant currency basis (including at the business segment level), 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 tax rate, non-GAAP net earnings, non-GAAP diluted net earnings per share, and FCF.

These non-GAAP financial measures are not computed in accordance with, or as an alternative to, generally accepted accounting principles in the United States.

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The GAAP measure most directly comparable to FCF is cash flow from operations.

We believe that providing the non-GAAP measures stated above, in addition to the related GAAP measures provides greater transparency to the information used in our financial and operational decision making and allows the reader of our Condensed Consolidated Financial Statements to see our financial results “through the eyes” of management.

We further believe that providing this information provides investors with a supplemental view to understand our historical and prospective

operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.

We believe that providing the non-GAAP measures stated above, 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 further believe that providing this information provides investors with a supplemental view to understand our historical and prospective operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.

Disclosure of these non-GAAP financial measures also facilitates comparisons of our operating performance with the performance of other companies in the same industry that supplement their GAAP results with non-GAAP financial measures that may be calculated in a similar manner.

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See below for the reasons management excludes each item:

• Amortization of initial direct costs represents the portion of lease origination costs incurred in prior fiscal years that do not qualify for capitalization under the new leasing standard.

We exclude these costs as we elected the practical expedient under the new leasing standard.

As a result, we did not adjust these historical costs to accumulated deficit.

We believe that most financing companies did not elect this practical expedient and therefore we exclude these costs.

This can have an impact on the equivalent GAAP measures and Financial Services segment results.

• Stock-based compensation expense consists of equity awards granted based on the estimated fair value of those awards at grant date.

Although stock-based compensation is a key incentive offered to our employees, we exclude these charges for the purpose of calculating these non-GAAP measures, primarily because they are non-cash expenses and our internal benchmarking analyses evidence that many industry participants and peers present non-GAAP financial measures excluding stock-based compensation expense.

• Disaster (recovery) charges are primarily related to the exit of our businesses in Russia and Belarus, and include credit losses of financing and trade receivables, employee severance and abandoned assets.

Disaster (recovery) charges also include direct costs or recovery of these costs related to COVID-19 as a result of Hewlett Packard Enterprise-hosted, co-hosted, or sponsored event cancellations and subsequent shift to a virtual format.

While we present various items as

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Disaster charges (recovery), we exclude Disaster charges (recovery) from these non-GAAP measures as the specific charges are non-recurring charges and not indicative of the operational performance of our business.

Non-GAAP earnings from operations and non-GAAP operating profit margin consist of earnings from operations or earnings from operations as a percentage of net revenue excluding the items mentioned above and charges relating to the amortization of intangible assets, goodwill impairment, transformation costs and acquisition, disposition and other related charges.

• Disaster recoveries include direct costs or recovery of these costs related to the exit of the Company’s businesses in Russia and Belarus.

Hewlett Packard Enterprise excludes disaster recoveries from these non-GAAP measures as the specific net recoveries are non-recurring charges and not indicative of the operational performance of our business.

• Divestiture related exit costs include expenses associated with certain disposal activities.

On May 23, 2024, HPE announced plans to divest the Company’s CTG business, which was completed on December 1, 2024.

We consider this divestiture to be a discrete event.

We exclude these costs as these expenses are non-recurring exit costs to eliminate stranded costs of this business.

In addition, our internal benchmarking analyses evidence that many industry participants and peers present non-GAAP financial measures excluding these charges.

Non-GAAP earnings from operations and non-GAAP operating profit margin consist of earnings from operations or earnings from operations as a percentage of net revenue excluding the items mentioned above and charges relating to the amortization of intangible assets, transformation costs and acquisition, disposition and other related charges.

In addition to the items previously explained above, management excludes these items for the following reasons:

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Although this does not directly affect our cash position, the loss in value of intangible assets over time can have a material impact on the equivalent GAAP earnings measure.

• In the fourth quarter of fiscal 2022, Hewlett Packard Enterprise recorded an impairment charge for the goodwill associated with its HPC & AI and Software reporting units following the annual goodwill impairment review.

Hewlett Packard Enterprise excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of current operating performance and comparisons to operating performance in other periods.

• Transformation costs represent net costs related to the (i) HPE Next Plan and (ii) Cost Optimization and Prioritization Plan and include restructuring charges, program design and execution costs, costs incurred to transform our IT infrastructure, net gains from the sale of real estate and any impairment charges on real estate identified as part of the initiatives.

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The charges are direct expenses, such as professional fees and retention costs, most of which are treated as non-cash or non-capitalized expenses.

For fiscal 2024, these charges were driven by costs associated with the pending merger with Juniper Networks and the acquisition of Morpheus Data, in addition to prior acquisitions of Axis, Athonet and OpsRamp.

For fiscal 2023, these charges were driven by acquisitions of Axis, Zerto, OpsRamp and Athonet.

Charges may also include expenses associated with disposal activities including legal and arbitration settlements in connection with certain dispositions.

We consider these acquisitions and divestitures to be discrete events.

We exclude these costs as these expenses are inconsistent in amount and frequency and are significantly impacted by the timing and nature of our acquisitions and divestitures.

In addition, our internal benchmarking analyses evidence that many industry participants and peers present non-GAAP financial measures excluding these 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 mentioned above, as well as other items such as tax indemnification and other adjustments, non-service net periodic benefit cost (credit), earnings from equity interests, impairment of investment, and adjustments for taxes.

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 mentioned above, as well as other items such as adjustments for equity interests, gain or loss on equity investments, other adjustments, and adjustments for taxes.

The Adjustments for taxes line item includes certain income tax valuation allowances and separation taxes, the impact of tax reform, structural rate adjustment, excess tax benefit from stock-based compensation, and adjustments for additional taxes or tax benefits associated with each non-GAAP item.

In addition to the items previously explained, management excludes these items for the following reasons:

• Tax indemnification and other adjustments are primarily related to 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 exclude these income or charges and the associated tax impact for the purpose of calculating non-GAAP measures to facilitate an evaluation of our current operating performance and comparisons to operating performance in prior periods.

• During the six months ended April 30, 2024, we stopped reporting H3C earnings in our non-GAAP results due to the planned divestiture of the H3C investment.

Per the terms of the original Put Share Purchase Agreement, we weren’t anticipating receiving dividends from this investment prospectively.

However, on May 24, 2024, we entered into an

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

• Non-service net periodic benefit cost (credit) includes certain market-related factors such as (i) interest cost, (ii) expected return on plan assets, (iii) amortization of prior plan amendments, (iv) amortized actuarial gains or losses, (v) the impacts of any plan settlements/curtailments and (vi) impacts from other market-related factors associated with our defined benefit pension and post-retirement benefit plans.

These market-driven retirement-related adjustments are primarily due to the change in pension plan assets and liabilities which are tied to financial market performance.

We exclude these adjustments for purposes of calculating non-GAAP measures and consider them to be outside the operational performance of the business.

• Adjustment to earnings from equity interests includes the amortization of the basis difference in relation to the H3C divestiture and the resulting equity method investment in H3C.

In the first fiscal quarter of 2023, this adjustment also included our portion of intangible asset impairment charges from H3C.

We believe that eliminating this amount for purposes of calculating non-GAAP measures facilitates the evaluation of our current operating performance and comparisons to operating performance in prior periods.

• In the fourth quarter of fiscal 2023, HPE recorded an impairment charge for an equity investment resulting from a permanent reduction of the investee’s assets.

This adjustment was reflected in Interest and other, net in the Consolidated Statements of Earnings.

We believe eliminating impairment of investment for the purposes of calculating non-GAAP measures facilitates the evaluation of our current operating performance and comparisons to operating performance in prior periods.

• We utilize a structural long-term projected non-GAAP income tax rate in order to provide consistency across the interim reporting periods and to eliminate the effects of items not directly related to our operating structure that can vary in size and frequency.

Amended and Restated Put Share Purchase Agreement and an Agreement on Subsequent Arrangements, both with UNIS, as described in Note 19 “Equity Interests” to the Consolidated Financial Statements in Item 8 of Part II, which, taken together, revise the arrangements governing the aforementioned sale as previously set forth in the original Put Share Purchase Agreement.

On September 4, 2024, we divested 30% of the total issued share capital of H3C, which resulted in a gain of $733 million and is included in the fiscal 2024 adjustment Gain on sale of equity interest.

We continue to possess the option to sell the remaining 19% of the total issued share capital of H3C at a later date.

For the second half of fiscal 2024, the adjustment for equity interests incorporated the completed divestment of 30% of the total issued share capital of H3C.

All periods presented include the amortization of the basis difference in our investment.

For fiscal 2023, this adjustment also included our portion of intangible asset impairment charges from H3C.

We believe that eliminating these amounts for purposes of calculating non-GAAP financial measures facilitates the evaluation of our current operating performance.

• We exclude gains and losses (including impairments) on our non-marketable equity investments because we do not believe they are reflective of normal continuing business operations.

These adjustments are reflected in Interest and other, net in the Consolidated Statements of Earnings.

We believe eliminating these adjustments for the purposes of calculating non-GAAP measures facilitates the evaluation of our current operating performance.

When projecting this long-term rate, we evaluated a three-year financial projection.

The projected rate assumes no incremental acquisitions in the three-year projection period and considers other factors including our expected tax structure, our tax positions in various jurisdictions and current impacts from key legislation implemented in major jurisdictions where we operate.

For fiscal 2023 and 2022, we used a non-GAAP income tax rate of 14%.

For fiscal 2024, we used a projected non-GAAP income tax rate of 15%, which reflects currently available information as well as other factors and assumptions.

For fiscal 2023 we used a non-GAAP income tax rate of 14%.

The non-GAAP income tax rate could be subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix including due to acquisition activity, or other changes to our strategy or business operations.

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We believe that making these adjustments for purposes of calculating non-GAAP measures, facilitates a supplemental evaluation of our current operating performance and comparisons to past operating results.

FCF is a non-GAAP measure that is defined as cash flow from operations, excluding the impact of proceeds received in the fourth quarter of fiscal 2021 from a one-time Itanium litigation judgment, less net capital expenditures (investments in 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.

FCF is defined as cash flow from operations, less net capital expenditures (investments in PP&E and software assets less proceeds from the sale of PP&E), and adjusted for the effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash.

FCF does not represent the total increase or decrease in cash for the period.

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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