Hewlett Packard Enterprise Co - Annual Report: 2019 (Form 10-K)

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•	Through HPE Pointnext Services, we have the expertise to assess, design, implement, optimize and manage our customers’ digital transformation.

•	We have the right tools to help customers accelerate their business - be it automation, AI, security or predictive analytics.

•	We have the as-a-Service consumption model to provide flexibility and optimize IT investments.

•	Through Financial Services, we can help customers manage and monetize their existing assets in new ways and free up capital for innovation.

•	Hybrid IT provides a broad portfolio of services-led and software-enabled infrastructure and solutions including secure, software-defined servers, storage and HPE Pointnext services, thereby combining HPE's hardware, software and services capabilities to make Hybrid IT simple for its customers.

•	Intelligent Edge provides a portfolio of secure Edge-to-Cloud solutions operating under the Aruba brand that include wireless local area network ("LAN"), campus and data center switching, software-defined wide-area-networking, security, and associated services to enable secure connectivity for businesses of any size.

•	Financial Services ("FS") enables flexible IT consumption models, financial architectures and customized investment solutions for our customers.

•	Corporate Investments includes Communication and Media Solutions ("CMS"), Hewlett Packard Labs and certain business incubation projects.

•	Hybrid IT Product includes Compute and Storage.

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Compute. We offer both Industry Standard Servers ("ISS"), which are general purpose servers for multi-workload computing, as well as Mission Critical Servers ("MCS"), which are servers optimized for particular workloads, to address the full array of the customers' computing needs. Our general purpose servers include the HPE ProLiant, secure and versatile rack and tower servers; HPE BladeSystem, a modular infrastructure that converges server, storage and networking; and HPE Synergy, a composable infrastructure for traditional and cloud-native applications. Our workload optimized server portfolio includes the HPE Apollo and products from the acquisition of Cray, for high performance computing and artificial intelligence, HPE Cloudline for cloud data centers, HPE Edgeline for computing at the network edge and HPE Integrity for mission-critical applications.

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Storage. With storage offerings that are AI-driven and built for cloud environments with as-a-service consumption and flexible investment options, HPE provides the right workload optimized destinations for data.  Powered by HPE InfoSight advanced analytics and machine learning and HPE Cloud Volumes data mobility, HPE delivers intelligent storage for hybrid cloud environments so that customers can unlock data’s full potential and derive business insights. Key solutions include HPE SimpliVity, a hyper-converged platform for virtualization,

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HPE Pointnext Services creates preferred IT experiences that power the digital business. The HPE Pointnext Services team and our extensive partner network provide value across the IT life cycle delivering advice, transformation projects, professional services, support services and operational services for Hybrid IT and the Intelligent Edge. HPE Pointnext Services is also a provider of on-premises flexible consumption models, such as HPE GreenLake, that enable IT agility, simplify operations and align cost to business value. HPE Pointnext Services offerings includes Operational Services and Advisory and Professional Services.

◦	HPE Aruba Product includes wired and wireless LAN, wide area network ("WAN"), data center networking such as Wi-Fi access points, switches, routers, sensors, and software products that include cloud-based management, network management, network access control, analytics and assurance, and location services.

◦	HPE Aruba Services includes professional and support services, as well as as-a-Service ("aaS") and consumption models for the Intelligent Edge portfolio of products.

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Strong solutions portfolio that spans edge to cloud. We combine our software-defined infrastructure and services capabilities to provide what we believe is the strongest portfolio of enterprise solutions in the IT industry. Our ability to deliver a comprehensive IT strategy, and connect our customers’ data from edge to cloud, through our high-quality products and high-value consulting and support services in a single package-is one of our principal differentiators.

•	Multi-year innovation roadmap. We have been in the technology and innovation business for over 75 years. Our vast intellectual property portfolio and global research and development capabilities are part of a broader innovation roadmap designed to help organizations take advantage of the expanding amount of data available and leverage the latest technology

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Ability to deliver flexible consumption-based IT solutions. We have developed IT consumption models to facilitate the delivery of our products and services to our customers that includes pay-per-use or subscription-based options with a sophisticated set of metering, financial and managed services components. We have a head start over other companies that has allowed us to build capabilities and partnerships that are unique in the industry including the ability to deliver our as-a-Service portfolio in more than 50 countries and with over 500 channel partners that can sell the as-a-Service portfolio.

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Global distribution and partner ecosystem. We are experts in delivering innovative technological solutions to our customers in complex multi-country, multi-vendor and/or multi-language environments. We have one of the largest go-to-market capabilities in our industry, including a large ecosystem of channel partners, which enables us to market and deliver our product offerings to customers located virtually anywhere in the world.

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Custom financial solutions. Through Financial Services we can help customers manage and monetize their existing assets in new ways and free up capital for innovation. Financial Services is unique in its ability to help customers address the entire product lifecycle to reduce the cost and resource demands of IT, in what we call the “circular economy.” Through Financial Services’ Global Asset Recovery Centers, we are processing more than 4 million assets every year, which also helps our customers achieve their own sustainability goals.

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Experienced leadership team with track record of successful performance. Our management team has an extensive track record of performance and execution. We are led by our President and Chief Executive Officer, Antonio Neri, who has proven experience in developing transformative business models, building global brands and driving sustained growth and expansion in the technology industry. Mr. Neri's experience includes over 20 years combined at HPE and HP Co. in various leadership positions. Our senior management team has many years of experience in our industry and possesses extensive knowledge of and experience in the enterprise IT business and the markets in which we compete. Moreover, we have a deep bench of management and technology talent that we believe provides us with an unparalleled pipeline of future leaders and innovators.

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Open Platforms. Many of our competitors want to lock customers into one flavor of cloud and cloud stack. We believe that the cloud experience should be open and seamless across all our customers’ clouds - and the best cloud transformation partner is one who is unbiased, offers choice, neutral without an agenda. We are unique in our ability to enable any hybrid cloud strategy and a consistent experience that is open to any cloud and differentiated with our partner integrations.

•	resellers that sell our products and services, frequently with their own value-added products or services, to targeted customer groups;

•	distribution partners that supply our solutions to resellers;

•	original equipment manufacturers ("OEMs") that integrate our products and services with their own products and services, and sell the integrated solution;

•	independent software vendors that provide their clients with specialized software products and often assist us in selling our products and services to clients purchasing their products;

•	systems integrators that provide expertise in designing and implementing custom IT solutions and often partner with us to extend their expertise or influence the sale of our products and services; and

•	advisory firms that provide various levels of management and IT consulting, including some systems integration work, and typically partner with us on client solutions that require our unique products and services.

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•	ongoing instability or changes in a country's or region's economic or political conditions, including inflation, recession, interest rate fluctuations and actual or anticipated military or political conflicts, including uncertainties and instability in economic and market conditions caused by the United Kingdom’s vote to exit the European Union;

•	longer collection cycles and financial instability among customers;

•	trade regulations and procedures and actions affecting production, pricing and marketing of products, including policies adopted by countries that may champion or otherwise favor domestic companies and technologies over foreign competitors, or federal and state tax reforms;

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•	local labor conditions and regulations, including local labor issues faced by specific suppliers and original equipment manufacturers ("OEMs"), or changes to immigration and labor law policies which may adversely impact our access to technical and professional talent;

•	managing our geographically dispersed workforce;

•	changes in the international, national or local regulatory and legal environments;

•	differing technology standards or customer requirements;

•	import, export or other business licensing requirements or requirements relating to making foreign direct investments, which could increase our cost of doing business in certain jurisdictions, prevent us from shipping products to particular countries or markets, affect our ability to obtain favorable terms for components, increase our operating costs or lead to penalties or restrictions;

•	difficulties associated with repatriating earnings in restricted countries, and changes in tax laws; and

•	fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points of exit and entry for our products and shipments.

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Excess supply.  In order to secure components for our products or services, at times we may make advance payments to suppliers or enter into non-cancelable commitments with vendors. In addition, we may purchase components strategically in advance of demand to take advantage of favorable pricing or to address concerns about the availability of future components. If we fail to anticipate customer demand properly, a temporary oversupply could result in excess or obsolete components, which could adversely affect our business and financial performance.

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Contractual terms.  As a result of binding long-term price or purchase commitments with vendors, we may be obligated to purchase components or services at prices that are higher than those available in the current market and be limited in our ability to respond to changing market conditions. If we commit to purchasing components or services for prices in excess of the then-current market price, we may be at a disadvantage to competitors who have access to components or services at lower prices, our gross margin could suffer, and we could incur additional charges relating to inventory obsolescence. Any of these developments could adversely affect our future results of operations and financial condition.

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Contingent workers.  We also rely on third-party suppliers for the provision of contingent workers, and our failure to manage our use of such workers effectively could adversely affect our results of operations. We have been exposed to various legal claims relating to the status of contingent workers in the past and could face similar claims in the future. We may be subject to shortages, oversupply or fixed contractual terms relating to contingent workers. Our ability to manage the size of, and costs associated with, the contingent workforce may be subject to additional constraints imposed by local laws.

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Single-source suppliers.  We obtain a significant number of components from single sources due to technology, availability, price, quality, scale or customization needs. Replacing a single-source supplier could delay production of some products as replacement suppliers may be subject to capacity constraints or other output limitations. For some components, such as customized components, alternative sources either may not exist or may be unable to produce the quantities of those components necessary to satisfy our production requirements. In addition, we sometimes purchase components from single-source suppliers under short-term agreements that contain favorable pricing and other terms but that may be unilaterally modified or terminated by the supplier with limited notice and with little or no penalty. The performance of such single-source suppliers under those agreements (and the renewal or extension of those agreements upon similar terms) may affect the quality, quantity and price of our components. The loss of a single-source supplier, the deterioration of our relationship with a single-source supplier or any unilateral modification to the contractual terms under which we are supplied components by a single-source supplier could adversely affect our business and financial performance.

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•	Managing business combination and investment transactions requires varying levels of management resources, which may divert our attention from other business operations.

•	We may not fully realize all of the anticipated benefits of any particular business combination and investment transaction, and the timeframe for realizing the benefits of a particular business combination and investment transaction may depend partially upon the actions of employees, advisors, suppliers, other third parties or market trends.

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Certain previous business combination and investment transactions have resulted, and in the future any such transactions by us may result, in significant costs and expenses, including those related to severance pay, early retirement costs, employee benefit costs, charges from the elimination of duplicative facilities and contracts, inventory adjustments, assumed litigation and other liabilities, legal, accounting and financial advisory fees, and required payments to executive officers and key employees under retention plans.

•	Any increased or unexpected costs, unanticipated delays or failure to meet contractual obligations could make business combination and investment transactions less profitable or unprofitable.

•	Our ability to conduct due diligence with respect to business combination and investment transactions, and our ability to evaluate the results of such due diligence, is dependent upon the veracity and completeness of statements and disclosures made or actions taken by third parties or their representatives.

•	Our due diligence process may fail to identify significant issues with the acquired company's product quality, financial disclosures, accounting practices or internal control deficiencies.

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The pricing and other terms of our contracts for business combination and investment transactions require us to make estimates and assumptions at the time we enter into these contracts, and, during the course of our due diligence, we may not identify all of the factors necessary to estimate accurately our costs, timing and other matters or we may incur costs if a business combination is not consummated.

•	In order to complete a business combination and investment transaction, we may issue common stock, potentially creating dilution for our existing stockholders.

•	We may borrow to finance business combination and investment transactions, and the amount and terms of any potential future acquisition-related or other borrowings, as well as other factors, could affect our liquidity and financial condition.

•	Our effective tax rate on an ongoing basis is uncertain, and business combination and investment transactions could adversely impact our effective tax rate.

•	An announced business combination and investment transaction may not close on the expected timeframe or at all, which may cause our financial results to differ from expectations in a given quarter.

•	Business combination and investment transactions may lead to litigation, which could impact our financial condition and results of operations.

•	If we fail to identify and successfully complete and integrate business combination and investment transactions that further our strategic objectives, we may be required to expend resources to develop products, services and technology internally, which may put us at a competitive disadvantage.

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•	successfully combining product and service offerings, including under the single Hewlett Packard Enterprise brand, and entering or expanding into markets in which we are not experienced or are developing expertise;

•	convincing customers and distributors that the transaction will not diminish customer service standards or business focus;

•	persuading customers and distributors to not defer purchasing decisions or switch to other suppliers (which could result in our incurring additional obligations in order to address customer uncertainty), minimizing sales force attrition and expanding and coordinating sales, marketing and distribution efforts;

•	consolidating and rationalizing corporate IT infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code and business processes;

•	minimizing the diversion of management attention from ongoing business concerns;

•	persuading employees that business cultures are compatible, maintaining employee morale and retaining key employees, engaging with employee works councils representing an acquired company's non-U.S. employees, integrating employees, correctly estimating employee benefit costs and implementing restructuring programs;

•	coordinating and combining administrative, manufacturing, research and development and other operations, subsidiaries, facilities and relationships with third parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures;

•	achieving savings from supply chain integration; and

•	managing integration issues shortly after or pending the completion of other independent transactions.

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speculation, coverage or sentiment in the media or the investment community about, or actual changes in, our business, strategic position, market share, organizational structure, operations, financial condition, financial reporting and results, effectiveness of cost-cutting efforts, value or liquidity of our investments, exposure to market volatility, prospects, business combination or investment transactions, future stock price performance, board of directors, executive team, our competitors or our industry in general;

•	the announcement of new, planned or contemplated products, services, technological innovations, acquisitions, divestitures or other significant transactions by Hewlett Packard Enterprise or its competitors;

•	quarterly increases or decreases in revenue, gross margin, earnings or cash flows, changes in estimates by the investment community or financial outlook provided by Hewlett Packard Enterprise and variations between actual and estimated financial results;

•	announcements of actual and anticipated financial results by Hewlett Packard Enterprise's competitors and other companies in the IT industry;

•	developments relating to pending investigations, claims and disputes; and

•	the timing and amount of share repurchases by Hewlett Packard Enterprise.

•	requiring a substantial portion of our cash flow from operations to make principal and interest payments;

•	making it more difficult to satisfy other obligations;

•	increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing;

•	increasing our vulnerability to general adverse economic and industry conditions;

•	reducing the cash flows available to fund capital expenditures and other corporate purposes and to grow our business;

•	limiting our flexibility in planning for, or reacting to, changes in our business and industry; and

•	limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase our common stock.

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•	authorizing blank check preferred stock, which we could issue with voting, liquidation, dividend and other rights superior to our common stock;

•	limiting the liability of, and providing indemnification to, our directors and officers;

•	specifying that our stockholders may take action only at a duly called annual or special meeting of stockholders and otherwise in accordance with our bylaws and limiting the ability of our stockholders to call special meetings;

•	requiring advance notice of proposals by our stockholders for business to be conducted at stockholder meetings and for nominations of candidates for election to our Board of Directors; and

•	controlling the procedures for conduct of our Board of Directors and stockholder meetings and election, appointment and removal of our directors.

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•	was insolvent;

•	was rendered insolvent by reason of the Separation and distribution;

•	had remaining assets constituting unreasonably small capital; or

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intended to incur, or believed it would incur, debts beyond its ability to pay these debts as they matured, then the court could void the Separation and distribution, in whole or in part, as a fraudulent conveyance or transfer. The court could then require our stockholders to return to HP Inc. some or all of the shares of Hewlett Packard Enterprise common stock issued in the distribution, or require HP Inc. or Hewlett Packard Enterprise, as the case may be, to fund liabilities of the other company for the benefit of creditors. The measure of insolvency will vary depending upon the jurisdiction whose law is being applied. Generally, however, an entity would be considered insolvent if the fair value of its assets was less than the amount of its liabilities, or if it incurred debt beyond its ability to repay the debt as it matures.

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(1)

Effective at the beginning of the first quarter of fiscal 2019, in connection with the adoption of the accounting standards update for retirement benefits (Topic 715), the Company reclassified its non-service net periodic benefit credit from operating expense to other income and expense in its Consolidated Statements of Earnings. The Company reflected these changes retrospectively, by transferring the non-service net periodic benefit credit, a portion of which was previously allocated to the segments, and the remainder of which was reported within Unallocated corporate costs and eliminations, Restructuring charges, Transformation costs, Separation costs and Defined benefit plan remeasurement benefit.

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•	Overview.  A discussion of our business and overall analysis of financial and other highlights affecting the Company to provide context for the remainder of MD&A. The overview analysis compares fiscal 2019 to fiscal 2018.

•	Critical Accounting Policies and Estimates.  A discussion of accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.

•	Results of Operations.  An analysis of our financial results comparing fiscal 2019 and fiscal 2018 to the prior-year periods. A discussion of the results of operations at the consolidated level is followed by a discussion of the results of operations at the segment level.

•	Liquidity and Capital Resources.  An analysis of changes in our cash flows and a discussion of our financial condition and liquidity.

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Contractual and Other Obligations.  An overview of contractual obligations, retirement and post-retirement benefit plan funding, restructuring plans, uncertain tax positions, off-balance sheet arrangements, cross-indemnifications with HP Inc. (formerly known as "Hewlett-Packard Company" and also referred to in this Annual Report as "former Parent"), and cross-indemnifications with DXC Technology Company ("DXC") and Micro Focus International plc (“Micro Focus”).

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

(2)	Segment earnings from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense related to corporate and certain global functions, transformation costs, amortization of intangible assets, acquisition, dispositions and other related charges, restructuring charges, separation costs, impairment of goodwill and disaster recoveries.

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Hybrid IT net revenue decreased, led by Compute, due primarily to a decline in Tier-1 server sales and lower revenue from China as we continue to exit less profitable product categories and certain markets, and unfavorable currency fluctuations. Also, weak demand in the enterprise market led to lower revenue from ISS core products, resulting from longer sales cycles, and lower HPE Pointnext revenue, which also experienced unfavorable currency fluctuations. Storage revenue declined due to the overall weakness in the storage market;

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

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

•	Hybrid IT net revenue increased due to growth in Compute from ISS core products as a result of higher average unit prices ("AUPs"), growth from edge products, increased market demand for IT products, favorable currency fluctuations, and growth in Storage primarily as a result of the Nimble Storage acquistion;

•	Intelligent Edge net revenue increased due primarily to growth in HPE Aruba Product from campus switching; and

•	FS net revenue increased due primarily to favorable foreign currency fluctuations and higher asset management revenue.

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•	Hybrid IT gross margin increased due primarily to a combination of factors including the year-over-year decrease in commodity costs, lower costs of services and products due to our cost management initiatives and a lower mix of revenue from lower-margin Tier-1 server sales coupled with a higher mix of revenue from higher-margin products;

•	Intelligent Edge gross margin increased due primarily to a higher mix of revenue from higher-margin products and HPE Aruba Services, and cost management activities; and

•	FS gross margin increased due primarily to higher margins from lease extensions and lease buyouts and lower bad debt expense.

•	Hybrid IT gross margin decreased due primarily to a higher mix of lower-margin solutions and higher variable compensation expense;

•	Intelligent Edge gross margin increased due primarily to a higher mix of revenue from higher-margin products; and

•	FS gross margin increased due primarily to favorable foreign currency fluctuations, higher asset management activity related to lease extensions and higher margins on lease buyouts.

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The net revenue decrease in Compute was due primarily to a decline in Tier-1 server sales and a decline in revenue from China. Revenue from ISS core products decreased due to a decline in unit shipments as a result of demand weakness, primarily in the blade, tower and rack product categories, partially offset by higher AUPs in the tower and rack product categories. Mission Critical Servers ("MCS") experienced a net revenue decline driven by lower revenue from Itanium and NonStop products.

•	The net revenue decrease in Storage was due primarily to a decline in Converged storage, driven by lower revenue in 3PAR and Big Data products, partially offset by growth from HPE Nimble Storage. Traditional storage experienced a revenue decline compared to the prior year period due primarily to lower revenues from Modular Storage Array ("MSA") and tape products.

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The net revenue increase in Compute was due primarily to growth in ISS core products along with favorable currency fluctuations, growth in edge compute products and higher revenue from the MCS business. The increase in Compute net revenue was partially offset by a decline in Tier-1 server sales as we continue to exit less profitable product categories. The growth in core ISS revenue was driven by an increase in AUPs across most core products due to several factors including the cost of certain commodities, Generation 10 servers representing a higher mix of overall ISS core server products and improved server configurations. The increase in AUPs was partially offset by a decline in unit shipments, primarily in the rack, tower and blade categories. MCS revenue increased as a result of higher revenue from NonStop products.

•	The net revenue increase in Storage was driven by growth in our converged and traditional storage products. Converged storage revenue growth was due primarily to revenue from HPE Nimble Storage and growth in big data products. Traditional storage revenue increased as a result of growth in networking and MSA products.

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(1)	Intercompany activity is eliminated in consolidation.

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

(3)

Debt benefiting FS consists of intercompany equity that is treated as debt for segment reporting purposes, intercompany debt, and borrowing- and funding-related activity associated with FS and its subsidiaries. Debt benefiting FS totaled $11.4 billion at October 31, 2019 and 2018, respectively, and was determined by applying an assumed debt-to-equity ratio, which management believes to be comparable to that of other similar financing companies. FS equity at both October 31, 2019 and October 31, 2018 was $1.6 billion.

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(1)

Amounts represent the principal cash payments relating to our long-term debt and do not include fair value adjustments, discounts or premiums and debt issuance costs. As of October 31, 2019, the future principal payments related to asset-backed debt securities were expected to be $390 million in fiscal 2020, $248 million in fiscal 2021 and $125 million in fiscal 2022. For more information on our debt, see Note 15, "Borrowings", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

(2)

Amounts represent the expected interest payments relating to our long-term debt. We use interest rate swaps to mitigate the exposure of our fixed rate debt to changes in fair value resulting from changes in interest rates, or hedge the variability of cash flows in the interest payments associated with our variable-rate debt. The impact of our outstanding interest rate swaps at October 31, 2019 was factored into the calculation of the future interest payments on long-term debt.

(3)

Purchase obligations and other include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction, as well as settlements that we have reached with third parties, requiring us to pay determined amounts over a specific period of time. These purchase obligations are related principally to software maintenance and support services and other items. Purchase obligations exclude agreements that are cancelable without penalty. Purchase obligations also exclude open purchase orders that are routine arrangements entered into in the ordinary course of business as they are difficult to quantify in a meaningful way. Even though open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule, and adjust terms based on our business needs prior to the delivery of goods or performance of services.

(4)

In fiscal 2020, we anticipate making contributions of $182 million to our non-U.S. pension plans. Our policy is to fund pension plans so that we meet at least the minimum contribution requirements, as established by local government, funding and taxing authorities. Expected contributions and payments to our pension and post-retirement benefit plans are excluded from the contractual obligations table because they do not represent contractual cash outflows, as they are dependent on numerous factors which may result in a wide range of outcomes. For more information on our retirement and post-retirement benefit plans, see Note 6, "Retirement and Post-Retirement Benefit Plans", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

(5)

As of October 31, 2019, we expect future cash payments of approximately $597 million in connection with our approved restructuring plans, which includes $380 million expected to be paid in fiscal 2020 and $217 million expected to be paid through fiscal 2022. Payments for restructuring activities have been excluded from the contractual obligations table, because they do not represent contractual cash outflows and there is uncertainty as to the timing of these payments. For more information on our restructuring activities, see Note 4, "Restructuring", and Note 5, "HPE Next", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

(6)

As of October 31, 2019, we had approximately $536 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions. These liabilities and related interest and penalties include $3 million expected to be paid within one year. For the remaining amount, we are unable to make a reasonable estimate as to when cash settlement with the tax authorities might occur due to the uncertainties related to these tax matters. Payments of these obligations would result from settlements with taxing authorities. For more information on our uncertain tax positions, see Note 8, "Taxes on Earnings", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

(7)

In connection with the Separation, the Company entered into a Separation and Distribution Agreement with HP Inc., effective November 1, 2015, whereby the Company agreed to indemnify HP Inc., each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to the Company as part of the Separation. HP Inc. similarly agreed to indemnify the Company, each of its subsidiaries and each of their respective directors, officers and employees from and against all claims and liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to HP Inc. as part of the Separation. Additionally, in connection with the Separation, the Company entered into a Tax Matters Agreement (the "Tax Matters Agreement") with HP Inc., effective November 1, 2015, that governs the rights and obligations of the Company and HP Inc. for certain pre-Separation tax liabilities. The Tax Matters Agreement provides that the Company and HP Inc. will share certain pre-Separation income tax liabilities that arise from adjustments made by tax authorities to the Company and HP Inc.'s U.S. and certain non-U.S. income tax returns. On October 30, 2019, the Company and HP Inc. entered into a Termination and Mutual Release Agreement to terminate the Tax Matters Agreement. Under the Termination and Mutual Release Agreement, HP Inc. paid the Company $200 million and agreed to pay $50 million on or before October 31, 2020 and October 31, 2021, each. The Company and HP Inc. also agreed to release each other from certain claims and liabilities related to the Tax Matters Agreement. As of October 31, 2019, we had approximately $231 million of recorded net receivables, pertaining to income tax indemnification with HP Inc., including $131 million related to certain state income tax liabilities for which the Company is joint and severally liable. For the amounts related to the joint and several state tax liabilities, we are unable to make a reasonable estimate as to when cash settlement with HP Inc. might occur due to the uncertainties related to the underlying tax matters. Realization of these obligations would result from payments to taxing authorities and the resulting settlements with HP Inc. under the Termination and Mutual Release Agreement. For more information on our general cross-indemnification, Tax Matters Agreement and other joint and several liability income tax matters with HP Inc., see Note 19, "Guarantees, Indemnifications and Warranties", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

(8)

In connection with the Everett and Seattle Transactions, the Company entered into a Separation and Distribution Agreement with each of DXC, effective May 24, 2016, and Seattle, effective September 7, 2016, whereby DXC and Seattle, as applicable, agreed to indemnify HPE, each of its subsidiaries and each of their respective directors, officers and employees from and against all losses relating to, arising out of or resulting from, among other matters, the liabilities allocated to DXC and Seattle as part of the Everett Transaction and Seattle Transaction, respectively. HPE similarly agreed to indemnify DXC and Seattle, each of their subsidiaries and each of their respective directors, officers and employees from and against all losses relating to, arising out of or resulting from, among other matters, the liabilities allocated to the Company as part of the Everett Transaction and Seattle Transaction, respectively. Additionally, in connection with the Everett and Seattle Transactions, HPE entered into a Tax Matters Agreement with DXC and affiliates, effective March 31, 2017, (the "DXC Tax Matters

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(1)	For fiscal 2017, the amount includes $1.9 billion of pension funding payments associated with the separation and merger of Everett SpinCo, Inc. with Computer Sciences Corporation.

(2)	In fiscal 2017, represents a $3.0 billion cash dividend payment from Everett SpinCo, Inc. to HPE, the proceeds of which were funded from the issuance of $3.5 billion of debt by Everett SpinCo, Inc. The debt was retained by Everett SpinCo, Inc.

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•	Separation and Distribution Agreement;

•	Transition Services Agreement;

•	Tax Matters Agreement;

•	Employee Matters Agreement;

•	Real Estate Matters Agreement;

•	Master Commercial Agreement; and

•	Information Technology Service Agreement.

•	Separation and Distribution Agreement;

•	Transition Services Agreement;

•	Tax Matters Agreement;

•	Employee Matters Agreement;

•	Real Estate Matters Agreement;

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•	Intellectual Property Matters Agreement

•	Information Technology Service Agreement; and

•	Preferred Vendor Agreements.

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(1)	Cost of revenue includes cost of products and services.

(2)

For the periods following the Everett and Seattle Transactions in fiscal 2017, expenses primarily consist of separation costs, which relate to third-party consulting, contractor fees and other incremental costs arising from the transactions. Prior to the Everett and Seattle Transactions, expenses in fiscal 2017 primarily consist of selling, general and administrative (“SG&A”) expenses, research and development (“R&D”) expenses, restructuring charges, separation costs, amortization of intangible assets, acquisition and other related charges, and defined benefit plan remeasurement benefit.

•	Hybrid IT Product includes Compute and Storage

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Compute HPE offers both Industry Standard Servers ("ISS"), which are general purpose servers for multi-workload computing, as well as Mission Critical Servers ("MCS"), which are servers optimized for particular workloads. HPE's general purpose servers include the HPE ProLiant, secure and versatile rack and tower servers; HPE BladeSystem, a modular infrastructure that converges server, storage and networking; and HPE Synergy, a composable infrastructure for traditional and cloud-native applications. The Company's workload optimized server portfolio includes the HPE Apollo, and products from the acquisition of Cray, for high performance computing and artificial intelligence, HPE Cloudline for cloud data centers, HPE Edgeline for computing at the network edge and HPE Integrity for mission-critical applications.

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•

HPE Pointnext Services creates preferred IT experiences that power the digital business. The HPE Pointnext Services team and the Company's extensive partner network provide value across the IT life cycle delivering advice, transformation projects, professional services, support services and operational services for Hybrid IT and the Intelligent Edge. HPE Pointnext Services is also a provider of on-premises flexible consumption models, such as HPE GreenLake, that enable IT agility, simplify operations and align cost to business value. HPE Pointnext Service offerings includes Operational Services and Advisory and Professional Services.

◦	HPE Aruba Product includes wired and wireless local area network, wide area network, data center networking such as Wi-Fi access points, switches, routers, sensors, and software products that include cloud-based management, network management, network access control, analytics and assurance, and location services.

◦	HPE Aruba Services includes professional and support services, as well as as-a-service (aaS) and consumption models for the Intelligent Edge portfolio of products.

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(1)	For the periods prior to the Everett and Seattle Transactions presented above, the amounts include the elimination of pre-separation intercompany sales to the former ES and Software segments, which are included within Net loss from discontinued operations in the Consolidated Statements of Earnings.

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(1)

Effective at the beginning of the first quarter of fiscal 2019, in connection with the adoption of the accounting standards update for retirement benefits (Topic 715), the Company reclassified its non-service net periodic benefit credit from operating expense to other income and expense in its Consolidated Statements of Earnings. The Company reflected these changes retrospectively, by transferring the non-service net periodic benefit credit, a portion of which was previously allocated to the segments, and the remainder of which was reported within Unallocated corporate costs and eliminations, Restructuring charges, Transformation costs, Separation costs and Defined benefit plan remeasurement benefit.

(2)	Includes acquisition, disposition and other related charges of $7 million related to a non-cash inventory fair value adjustment in connection with the acquisition of Cray Inc., which was included in Cost of products.

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(1)	For fiscal 2019 and 2018, a portion of these costs were recorded in Non-service net periodic benefit credit in the Consolidated Statements of Earnings as described above.

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(1)	These non-service components of net periodic benefit cost were included in Non-service net periodic benefit credit in the Consolidated Statements of Earnings.

(2)	Plan credit allocation represents the net cost impact of employees of HPE covered under Everett or Seattle plans and employees of Everett or Seattle covered under HPE plans.

(3)	Net benefit cost from continuing operations for the Company's U.S. defined benefit plans, included in the table above, was not material for fiscal 2019, 2018 and 2017.

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(1)	Includes the addition/deletion of plans resulting from acquisitions. Fiscal 2018 amounts relate primarily to the addition of a Belgium plan.

(2)	As of October 31, 2019 and 2018, the Company's U.S. defined benefit plans had zero plan assets and a projected benefit obligation of $6 and $5 million, respectively.

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(1)	In fiscal 2018, included various worldwide equity index funds with the objective to provide returns that are consistent with the FTSE All World indexes. While the funds were not publicly traded, the custodians stroke a net asset value at least monthly. There were no redemption restrictions or future commitments on these investments. The funds were liquidated during fiscal year 2019.

(2)

Repurchase agreements, primarily in the UK, represent the plans' short-term borrowing to hedge against interest rate and inflation risks. Investments in approximately $4 billion of government bonds collateralize this short-term borrowing at October 31, 2019 and 2018. The plans have an obligation to return the cash after the term of the agreements. Due to the short-term nature of the agreements, the outstanding balance of the obligation approximates fair value.

(3)	Includes a fund that invests in various government bonds issued by worldwide governments, interest rate swaps, and cash, to match or slightly outperform the benchmark of the future liabilities of the funds. While the funds are not publicly traded, the custodians strike a net asset value daily. There are no redemption restrictions or future commitments on these investments.

(4)

Includes funds, primarily in the UK, that invest in both private and public equities, as well as emerging markets across all sectors. The funds also hold fixed income and derivative instruments to hedge interest rate and inflation risk. In addition, the funds include units in transferable securities, collective investment schemes, money market funds, asset-backed income, private debt, cash, and deposits.

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(5)	Includes pooled funds that invest in asset-backed securities awaiting investment into non-liquid secured income opportunities. Units are available for subscription on the first day of each calendar month at net asset value. There are no redemption restrictions or future commitments on these investments.

(6)

HPE Invest Common Contractual Funds (CCFs) are investment arrangements in which institutional investors pool their assets.  Units may be acquired in four different sub-funds focused on equities, fixed income, alternative investments, and emerging markets. Each sub-fund is invested in accordance with the fund’s investment objective and units are issued in relation to each sub-fund. While the sub-funds are not publicly traded, the custodian strikes a net asset value either once or twice a month, depending on the sub-fund. There are no redemption restrictions or future commitments on these investments.

(7)	Includes international insured contracts, derivative instruments, mortgage backed securities, and unsettled transactions.

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(1)	Fiscal 2017 includes approximately 11 million restricted stock units assumed by the Company through acquisition with a weighted-average grant date fair value of $18 per share.

(2)	Additional shares granted as a result of the post-spin exercise price adjustments made related to the Everett and Seattle Transactions, as permitted by the Plan, in order to preserve the intrinsic value of outstanding awards prior to the close of the transactions.

(3)

Fiscal 2018 includes approximately 6 million restricted stock units, with a weighted-average grant date fair value of $14 per share, which were accelerated to vest on June 1, 2018 as part of the Everett Transaction. Fiscal 2017 includes approximately 14 million restricted stock units, with a weighted-average grant date fair value of $17 per share, which were accelerated as part of the Everett and Seattle Transactions.

(1)	The weighted-average fair value was based on the fair value of stock options granted under the Plan during the respective periods.

(2)	Expected volatility was estimated using the average historical volatility of selected peer companies.

(3)	The risk-free interest rate was estimated based on the yield on U.S. Treasury zero-coupon issues.

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(4)	The expected dividend yield represents a constant dividend yield applied for the duration of the expected term of the option.

(5)	For options granted subject to service-based vesting, the expected term was estimated using the simplified method detailed in SEC Staff Accounting Bulletin No. 110.

(1)	Additional shares granted as a result of the post-spin exercise price adjustments made related to the Everett and Seattle Transactions, as permitted by the Plan, in order to preserve the intrinsic value of the awards prior to the close of the transaction.

(2)	Fiscal 2017 includes approximately 8 million stock options, with a weighted-average exercise price of $16 per share, related to the former ES and Software segments, which were canceled by HPE in connection with the Everett and Seattle Transactions, and in accordance with the respective Employee Matters Agreements.

(3)	The weighted average exercise price reflects the impact of the post-spin adjustments to the exercise price related to the Everett and Seattle Transactions.

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(1)	Fiscal 2017 amount has been reclassified to conform with the current period presentation.

(1)	Impacts of the Tax Act is inclusive of valuation allowances recorded as a result of the U.S. law change under SAB 118.

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(1)	Beginning and ending balances represent amounts for trade receivables sold but not yet collected. The ending credit balance at October 31, 2019 represents credit memos issued but not applied to trade receivables prior to cash remittance.

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(1)	For the fiscal year ended October 31, 2019, the decrease in prepaid taxes was primarily a result of the adoption of the accounting standard for the recognition of income tax consequences for intra-entity transfers of assets other than inventory.

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(1)	The Company includes the current portion in Financing receivables, and amounts due after one year, net, in Long-term financing receivables and other assets in the accompanying Consolidated Balance Sheets.

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(1)	Includes billed operating lease receivables and billed and unbilled sales-type and direct-financing lease receivables.

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(1)	Includes billed operating lease receivables and billed sales-type and direct-financing lease receivables.

(2)	Includes billed operating lease receivables and billed and unbilled sales-type and direct-financing lease receivables.

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(1)	Effective at the beginning of the first quarter of fiscal 2019, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure, which are described in detail in Note 3, "Segment Information". Goodwill was reclassified to the respective segments using a relative fair value approach.

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(1)	Represents the cash collateral posted by counterparties as of the respective reporting date for the Company's asset position, net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date.

(2)

Represents the collateral posted by the Company in cash or through re-use of counterparty cash collateral as of the respective reporting date for the Company's liability position, net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date. As of Oct 31, 2019, $19 million of collateral posted was entirely by way of re-use of counterparty collateral. As of Oct 31, 2018, $302 million of collateral posted was entirely in cash.

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(1)	As of October 31, 2019, Current portion of long-term debt includes $390 million associated with the Company issued asset-backed debt securities.

(2)	Notes payable to banks, lines of credit and other includes $204 million and $361 million at October 31, 2019 and 2018, respectively, of borrowing- and funding-related activity associated with FS and its subsidiaries.

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(1)

Other, including capital lease obligations includes $80 million and $131 million as of October 31, 2019 and 2018, respectively, of borrowing- and funding-related activity associated with FS and its subsidiaries that are collateralized by receivables and underlying assets associated with the related capital and operating leases. For both the periods presented, the carrying amount of the assets approximated the carrying amount of the borrowings.

(2)	In September 2019, the Company issued $763 million asset-backed debt securities in six tranches at a discount to par, at a weighted average price of 99.99% and a weighted average interest rate of 2.31%, payable monthly from November 2019. For more information on the asset-backed debt securities, see Note 10 “Financing Receivables and Operating Leases”.

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(1)	For more details on reclassification of pre-tax (gains) losses on cash flow hedges into the Consolidated Statements of Earnings, see Note 14, "Financial Instruments".

(2)	These components are included in the computation of net pension and post-retirement benefit (credit) cost in Note 6, "Retirement and Post-Retirement Benefit Plans".

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(1)	U.S. GAAP requires the denominator used in the diluted net EPS calculation for discontinued operations to be the same as that of continuing operations, regardless of net earnings (loss) from continuing operations.

(2)	The Company excludes shares potentially issuable under employee stock plans that could dilute basic net EPS in the future from the calculation of diluted net earnings (loss) per share, as their effect, if included, would have been anti-dilutive for the periods presented.

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(1)	The actual amount that the Company may receive or pay could vary depending upon the outcome of certain unresolved tax matters, which may not be resolved for several years.

(2)	The change in the income tax related indemnification accounts is primarily related to the termination of the Tax Matters Agreement with HP Inc., as well as the impact of the settlement of the U.S. federal income tax audit of fiscal years 2013 through 2015 for HP Inc.

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(1)	The Company includes the current portion in Other accrued liabilities, and amounts due after one year in Other non-current liabilities in the accompanying Consolidated Balance Sheets.

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•	Information regarding directors of Hewlett Packard Enterprise including those who are standing for reelection and any persons nominated to become directors of Hewlett Packard Enterprise is set forth under "Corporate Governance—Board Leadership Structure" and/or "Proposals to be Voted On—Proposal No. 1—Election of Directors".

•	Information regarding Hewlett Packard Enterprise's Audit Committee and designated "audit committee financial experts" is set forth under "Board Structure and Committee Composition—Audit Committee".

•	Information on Hewlett Packard Enterprise's code of business conduct and ethics for directors, officers and employees, also known as the "Standards of Business Conduct," and on Hewlett Packard Enterprise's Corporate Governance Guidelines is set forth under "Corporate Governance Principles and Board Matters".

•	Information regarding Hewlett Packard Enterprise's compensation of its named executive officers is set forth under "Executive Compensation".

•	Information regarding Hewlett Packard Enterprise's compensation of its directors is set forth under "Director Compensation and Stock Ownership Guidelines".

•	The report of Hewlett Packard Enterprise's HR and Compensation Committee is set forth under "HR and Compensation Committee Report on Executive Compensation".

•	Information regarding security ownership of certain beneficial owners, directors and executive officers is set forth under "Common Stock Ownership of Certain Beneficial Owners and Management".

•	Information regarding Hewlett Packard Enterprise's equity compensation plans, including both stockholder approved plans and non-stockholder approved plans, is set forth in the section entitled "Equity Compensation Plan Information".

•	Information regarding transactions with related persons is set forth under "Transactions with Related Persons".

•	Information regarding director independence is set forth under "Corporate Governance Principles and Board Matters—Director Independence".

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(a)	The following documents are filed as part of this report:

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