Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________
FORM 10-Q
(Mark One)
 
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 2018
Or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission file number 001-37483
_______________________________________________________________________________
HEWLETT PACKARD ENTERPRISE COMPANY
(Exact name of registrant as specified in its charter)
Delaware
 
47-3298624
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification no.)
3000 Hanover Street, Palo Alto, California
 
94304
(Address of principal executive offices)
 
(Zip code)
(650) 687-5817
(Registrant's telephone number, including area code)
_______________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
  (Do not check if a smaller
reporting company)
 
Smaller reporting company o
 
 
 
 
 
 
Emerging growth company   o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes  o  No  x

Table of Contents


The number of shares of Hewlett Packard Enterprise Company common stock outstanding as of May 31, 2018 was 1,513,961,241 shares, par value $0.01.

Table of Contents

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Form 10-Q
For the Quarterly Period Ended April 30, 2018

Table of Contents
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 


3
Table of Contents

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


4
Table of Contents

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

5
Table of Contents

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
 
Three Months Ended April 30,
 
Six months ended April 30,
 
2018
 
2017
 
2018
 
2017
 
In millions, except per share amounts
Net revenue:
 

 
 

 
 
 
 
Products
$
4,610

 
$
4,035

 
$
9,470

 
$
8,229

Services
2,746

 
2,677

 
5,449

 
5,292

Financing income
112

 
96

 
223

 
189

Total net revenue
7,468

 
6,808

 
15,142

 
13,710

Costs and expenses:
 

 
 

 
 
 
 
Cost of products
3,320

 
2,956

 
6,913

 
5,882

Cost of services
1,806

 
1,778

 
3,636

 
3,475

Financing interest
70

 
65

 
138

 
131

Research and development
402

 
376

 
790

 
732

Selling, general and administrative
1,227

 
1,229

 
2,429

 
2,433

Amortization of intangible assets
72

 
72

 
150

 
138

Restructuring charges
9

 
69

 
12

 
152

Transformation costs
123

 
—

 
368

 
—

Acquisition and other related charges
16

 
50

 
46

 
94

Separation costs
26

 
30

 
2

 
41

Defined benefit plan settlement charges and remeasurement (benefit)
—

 
(12
)
 
—

 
(16
)
Total costs and expenses
7,071

 
6,613

 
14,484

 
13,062

Earnings from continuing operations
397

 
195

 
658

 
648

Interest and other, net
(78
)
 
(86
)
 
(99
)
 
(164
)
Tax indemnification adjustments
(425
)
 
7

 
(1,344
)
 
(11
)
(Loss) earnings from equity interests
(10
)
 
(3
)
 
12

 
(25
)
(Loss) earnings from continuing operations before taxes
(116
)
 
113

 
(773
)
 
448

Benefit (provision) for taxes
966

 
(591
)
 
3,105

 
(675
)
Net earnings (loss) from continuing operations
850

 
(478
)
 
2,332

 
(227
)
Net loss from discontinued operations
(72
)
 
(134
)
 
(118
)
 
(118
)
Net earnings (loss)
$
778

 
$
(612
)
 
$
2,214

 
$
(345
)
Net earnings (loss) per share:
 

 
 

 
 
 
 
Basic
 
 
 
 
 
 
 
Continuing operations
$
0.55

 
$
(0.29
)
 
$
1.48

 
$
(0.14
)
Discontinued operations
(0.05
)
 
(0.08
)
 
(0.07
)
 
(0.07
)
Total basic net earnings (loss) per share
$
0.50

 
$
(0.37
)
 
$
1.41

 
$
(0.21
)
Diluted
 
 
 
 
 
 
 
Continuing operations
$
0.54

 
$
(0.29
)
 
$
1.46

 
$
(0.14
)
Discontinued operations
(0.05
)
 
(0.08
)
 
(0.08
)
 
(0.07
)
Total diluted net earnings (loss) per share
$
0.49

 
$
(0.37
)
 
$
1.38

 
$
(0.21
)
Cash dividends declared per share
$
0.1125

 
$
0.0650

 
$
0.2625

 
$
0.1950

Weighted-average shares used to compute net earnings (loss) per share:
 

 
 

 
 
 
 
Basic
1,552

 
1,658

 
1,571

 
1,664

Diluted
1,582

 
1,658

 
1,601

 
1,664

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

6
Table of Contents

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended
April 30,
 
Six Months Ended
April 30,
 
2018
 
2017
 
2018
 
2017
 
In millions
Net earnings (loss)
$
778

 
$
(612
)
 
$
2,214

 
$
(345
)
Other comprehensive income (loss) before taxes:
 

 
 

 
 
 
 
Change in net unrealized losses on available-for-sale securities:
 

 
 

 
 
 
 
Net unrealized (losses) gains arising during the period
—

 
(4
)
 
1

 
(17
)
Gains reclassified into earnings
(17
)
 
—

 
(9
)
 
—


(17
)
 
(4
)
 
(8
)
 
(17
)
Change in net unrealized gains (losses) on cash flow hedges:
 

 
 

 
 
 
 
Net unrealized gains (losses) arising during the period
82

 
4

 
(99
)
 
140

Net losses (gains) reclassified into earnings
91

 
(83
)
 
121

 
(246
)

173

 
(79
)
 
22

 
(106
)
Change in unrealized components of defined benefit plans:
 

 
 

 
 
 
 
Gains arising during the period
—

 
11

 
2

 
490

Amortization of actuarial loss and prior service benefit
49

 
77

 
96

 
174

Curtailments, settlements and other
2

 
3

 
2

 
3


51

 
91

 
100

 
667

Change in cumulative translation adjustment
(26
)
 
(11
)
 
—

 
(36
)
Other comprehensive income (loss) before taxes
181

 
(3
)
 
114

 
508

(Provision) benefit for taxes
(22
)
 
4

 
(15
)
 
(32
)
Other comprehensive income, net of taxes
159

 
1

 
99

 
476

Comprehensive income (loss)
$
937

 
$
(611
)
 
$
2,313

 
$
131



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

7
Table of Contents

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions, except par value
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
6,986

 
$
9,579

Accounts receivable, net of allowance for doubtful accounts (1)
3,099

 
3,073

Financing receivables
3,503

 
3,378

Inventory
2,848

 
2,315

Assets held for sale (2)
31

 
14

Other current assets
3,325

 
3,085

Total current assets
19,792

 
21,444

Property, plant and equipment
6,208

 
6,269

Long-term financing receivables and other assets
12,915

 
12,600

Investments in equity interests
2,517

 
2,535

Goodwill
17,537

 
17,516

Intangible assets
907

 
1,042

Total assets
$
59,876

 
$
61,406

LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Notes payable and short-term borrowings
$
3,855

 
$
3,850

Accounts payable
6,242

 
6,072

Employee compensation and benefits
1,191

 
1,156

Taxes on earnings
437

 
429

Deferred revenue
3,163

 
3,128

Accrued restructuring
286

 
445

Other accrued liabilities
3,910

 
3,844

Total current liabilities
19,084

 
18,924

Long-term debt
9,970

 
10,182

Other non-current liabilities
6,856

 
8,795

Commitments and contingencies

 

Stockholders' equity
 

 
 

HPE stockholders' equity:
 

 
 

Preferred stock, $0.01 par value (300 shares authorized; none issued and outstanding at April 30, 2018)
—

 
—

Common stock, $0.01 par value (9,600 shares authorized; 1,527 and 1,595 shares issued and outstanding at April 30, 2018 and October 31, 2017, respectively)
15

 
16

Additional paid-in capital
32,205

 
33,583

Accumulated deficit
(5,306
)
 
(7,238
)
Accumulated other comprehensive loss
(2,982
)
 
(2,895
)
Total HPE stockholders' equity
23,932

 
23,466

Non-controlling interests
34

 
39

Total stockholders' equity
23,966

 
23,505

Total liabilities and stockholders' equity
$
59,876

 
$
61,406


8
Table of Contents

 
(1)
The allowance for doubtful accounts related to accounts receivable was $39 million and $42 million at April 30, 2018 and October 31, 2017 , respectively.
(2)
In connection with the HPE Next initiative, the Company determined that certain properties within its real estate portfolio met the criteria to be classified as Assets held for sale. The Company expects these properties to be sold within the next twelve months.



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

9
Table of Contents

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
April 30,
 
2018
 
2017
 
In millions
Cash flows from operating activities:
 

 
 

Net earnings (loss)
$
2,214

 
$
(345
)
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
1,290

 
1,632

Stock-based compensation expense
186

 
252

Provision for inventory and doubtful accounts
81

 
39

Restructuring charges
268

 
393

Deferred taxes on earnings
(1,164
)
 
506

(Earnings) loss from equity interests
(12
)
 
25

Dividends received from equity investees
47

 
—

Other, net
97

 
310

Changes in operating assets and liabilities, net of acquisitions:
 

 
 

Accounts receivable
(42
)
 
301

Financing receivables
(272
)
 
120

Inventory
(587
)
 
(210
)
Accounts payable
177

 
129

Taxes on earnings
(2,217
)
 
(386
)
Restructuring
(414
)
 
(545
)
Other assets and liabilities (1)
737

 
(2,672
)
Net cash provided by (used in) operating activities
389

 
(451
)
Cash flows from investing activities:
 

 
 

Investment in property, plant and equipment
(1,362
)
 
(1,681
)
Proceeds from sale of property, plant and equipment
292

 
142

Purchases of available-for-sale securities and other investments
(8
)
 
(26
)
Maturities and sales of available-for-sale securities and other investments
85

 
2

Financial collateral posted
(1,191
)
 
(226
)
Financial collateral returned
931

 
49

Payments made in connection with business acquisitions, net of cash acquired
(29
)
 
(2,050
)
Proceeds from (payments to) business divestitures, net
13

 
(20
)
Net cash used in investing activities
(1,269
)
 
(3,810
)
Cash flows from financing activities:
 

 
 

Short-term borrowings with original maturities less than 90 days, net
(25
)
 
28

Proceeds from debt, net of issuance costs
611

 
541

Payment of debt
(610
)
 
(2,102
)
Net proceeds (payments) related to stock-based award activities
89

 
(14
)
Repurchase of common stock
(1,649
)
 
(1,311
)
Cash dividend from Everett
—

 
3,008

Net transfer of cash and cash equivalents to Everett
(41
)
 
(559
)

10
Table of Contents

Net transfer of cash and cash equivalents from Seattle
156

 
—

Cash dividends paid to non-controlling interests
(8
)
 
—

Cash dividends paid
(236
)
 
(216
)
Net cash used in financing activities
(1,713
)
 
(625
)
Decrease in cash and cash equivalents
(2,593
)
 
(4,886
)
Cash and cash equivalents at beginning of period
9,579

 
12,987

Cash and cash equivalents at end of period
$
6,986

 
$
8,101

 
(1)
For the six months ended April 30, 2017, this amount includes $1.9 billion of pension funding payments associated with the separation and merger of Everett SpinCo, Inc. with Computer Sciences Corporation.





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



11

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Overview and Basis of Presentation
Background
Hewlett Packard Enterprise Company ("Hewlett Packard Enterprise", "HPE" or "the Company") is an industry leading technology company that enables customers to go further, faster. With a deep and comprehensive portfolio, spanning the cloud to the data center to the intelligent edge, its technology and services help customers around the world make better business outcomes. Hewlett Packard Enterprise's customers range from small- and medium-sized businesses ("SMBs") to large global enterprises. On November 1, 2015, the Company became an independent publicly-traded company through a pro rata distribution by HP Inc. ("former Parent" or "HPI"), formerly known as Hewlett-Packard Company, of 100% of the outstanding shares of Hewlett Packard Enterprise Company to HP Inc.'s stockholders (the "Separation").
Discontinued Operations
On April 1, 2017, HPE completed the separation and merger of its Enterprise Services business with Computer Sciences Corporation ("CSC") (collectively, the "Everett Transaction"). HPE transferred its Enterprise Services business to Everett SpinCo, Inc. (a wholly-owned subsidiary of HPE) ("Everett") and distributed all of the shares of Everett to HPE stockholders. Following the distribution, New Everett Merger Sub Inc., a wholly-owned subsidiary of Everett, merged with and into CSC and Everett changed its name to DXC Technology Company ("DXC").
On September 1, 2017, the Company completed the separation and merger of its Software business segment with Micro Focus International plc (“Micro Focus”) (collectively, the “Seattle Transaction”). HPE transferred its Software business segment to Seattle SpinCo, Inc. (a wholly-owned subsidiary of HPE) ("Seattle"), and distributed all of the shares of Seattle to HPE stockholders. Following the share distribution, Seattle MergerSub, Inc., an indirect, wholly-owned subsidiary of Micro Focus, merged with and into Seattle.
The historical financial results of Everett and Seattle are reported as Net (loss) earnings from discontinued operations in the Condensed Consolidated Statements of Earnings. For further information on discontinued operations, see Note 2, "Discontinued Operations".
Basis of Presentation
These Condensed Consolidated Financial Statements of the Company were prepared in accordance with United States ("U.S.") Generally Accepted Accounting Principles ("GAAP"). In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements of Hewlett Packard Enterprise contain all adjustments, including normal recurring adjustments, necessary to present fairly the Company's financial position as of April 30, 2018 and October 31, 2017 , its results of operations for the three and six months ended April 30, 2018 and 2017 and its cash flows for the six months ended April 30, 2018 and 2017 .
The results of operations for the three and six months ended April 30, 2018 and its cash flows for the six months ended April 30, 2018 , are not necessarily indicative of the results to be expected for the full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2017 , including "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk" and the Consolidated and Combined Financial Statements and notes thereto included in Items 7, 7A and 8, respectively, included therein.
Principles of Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and all subsidiaries and affiliates in which the Company has a controlling financial interest or is the primary beneficiary. All intercompany transactions and accounts within the consolidated businesses of the Company have been eliminated.
The Company accounts for investments in companies over which it has the ability to exercise significant influence but does not hold a controlling interest under the equity method of accounting, and the Company records its proportionate share of income or losses in Earnings (loss) from equity interests in the Condensed Consolidated Statements of Earnings.

12
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Non-controlling interests are presented as a separate component within Total stockholders' equity in the Condensed Consolidated Balance Sheets. Net earnings attributable to non-controlling interests are recorded within Interest and other, net in the Condensed Consolidated Statements of Earnings and are not presented separately, as they were not material for any period presented.
Segment Realignment and Reclassifications
See Note 3, "Segment Information", for a discussion of the Company's segment realignment.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company's Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates.
Recent Tax Legislation
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. The Tax Act includes significant changes to the U.S. corporate income tax structure, including a federal corporate rate reduction from 35% to 21% effective January 1, 2018; limitations on the deductibility of interest expense and executive compensation; creation of new minimum taxes such as the Base Erosion Anti-abuse Tax (“BEAT”) and the Global Intangible Low Taxed Income (“GILTI”) tax; and the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system, which will result in a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”).
In December 2017, the U.S. Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Due to the complexity involved in applying the provisions of the Tax Act, the Company has not completed the accounting for the effects of the Tax Act, but has made reasonable estimates of the effects and recorded provisional amounts in its Condensed Consolidated Financial Statements for the three and six months ended April 30, 2018. The accounting for the tax effects of the Tax Act will be completed during the measurement period in accordance with SAB 118. For further details, see Note 7, "Taxes on Earnings".
Recently Adopted Accounting Pronouncements
In March 2018, the Financial Accounting Standards Board (“FASB”) issued guidance that amends ASC 740, Income Taxes, to reflect and codify SAB 118. The guidance became effective upon issuance. The Company applied SAB 118 upon the original issuance in December 2017 prior to the codification. See Note 7, “Taxes on Earnings” for a full description of the impact of the Tax Act to our operations.
  In March 2016, the FASB amended the existing accounting standards for employee share-based payment arrangements. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when stock awards vest or are settled. In addition, cash flows related to excess tax benefits will no longer be separately classified as an inflow from financing activities, with a corresponding outflow from operating activities, but will be classified along with other income tax cash flows as an operating activity. The standard also allows the Company to repurchase more of an employee’s vesting shares for tax withholding purposes without triggering liability accounting and clarifies that all cash payments made to tax authorities on an employee’s behalf for withheld shares should be presented as a financing activity on the statement of cash flows. The Company adopted the guidance in the first quarter of fiscal 2018 and prospectively recorded all excess tax benefits and tax deficiencies arising from stock awards vesting or settled as income tax expense or benefit, rather than in equity. For the three and six months ended April 30, 2018 , the impact of the adoption was the recognition of $28 million and $42 million respectively, of net excess tax benefits as a component of the benefit (provision) for income taxes. The Company elected to continue to estimate forfeitures of awards in determining stock-based compensation expense. The Company elected to apply the presentation requirements for cash flows retrospectively, which resulted in a decrease to Net cash used in operating activities of $377 million and a corresponding increase to Net cash used in financing activities for the six months ended April 30, 2017 . There were no other material impacts to the Company's Condensed Consolidated Financial Statements as a result of adopting this standard.
Recently Enacted Accounting Pronouncements
In February 2018, the FASB issued guidance that allows companies to reclassify stranded tax effects resulting from the Tax Act, from accumulated other comprehensive income to retained earnings. The guidance also requires certain new

13
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

disclosures regardless of the election.  The Company is required to adopt the guidance in the first quarter of fiscal 2020. Early adoption is permitted. The Company is currently evaluating the timing and the impact of these amendments to its Condensed Consolidated Financial Statements.
In February 2016, the FASB amended the existing accounting standards for leases. The amendments require lessees to record, at lease inception, a lease liability for the obligation to make lease payments and a right-of-use ("ROU") asset for the right to use the underlying asset for the lease term on their balance sheets. Lessees may elect to not recognize lease liabilities and ROU assets for most leases with terms of 12 months or less. The lease liability is measured at the present value of the lease payments over the lease term. The ROU asset will be based on the liability, adjusted for lease prepayments, lease incentives received, and the lessee's initial direct costs. For finance leases, lease expense will be the sum of interest on the lease obligation and amortization of the ROU asset, resulting in a front-loaded expense pattern. For operating leases, lease expense will generally be recognized on a straight-line basis over the lease term. The amended lessor accounting model is similar to the current model, updated to align with certain changes to the lessee model and the new revenue standard. The current sale-leaseback guidance, including guidance applicable to real estate, is also replaced with a new model for both lessees and lessors. The Company is required to adopt the guidance in the first quarter of fiscal 2020 using a modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the timing and the impact of these amendments on its Condensed Consolidated Financial Statements.
In May 2014, the FASB amended the existing accounting standards for revenue recognition. The Company plans to adopt the new revenue standard in the first quarter of fiscal 2019, beginning November 1, 2018, using the modified retrospective method. The Company has completed a review of the accounting systems and processes required to apply the modified retrospective method. In response, the Company is in the process of implementing a new IT solution as part of the adoption of the new standard. The Company expects revenue recognition for its broad portfolio of hardware, software and services offerings to remain largely unchanged. However, the guidance is expected to change the timing of revenue recognition in certain areas, including accounting for certain software licenses. The Company is still assessing the impact of these changes. Since the Company currently expenses sales commissions as incurred, the requirement in the new standard to capitalize certain sales commissions will result in an accounting change for the Company. The Company is in the process of quantifying the impact on its Consolidated Financial Statements. The Company will continue to assess the impact of the new revenue standard as it works through the adoption in fiscal 2018, and there still remain areas to be fully concluded upon.
There have been no other significant changes to the Company's accounting policies or recently adopted or enacted accounting pronouncements disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2017.
Subsequent event
On June 1, 2018, the Company completed the acquisition of Plexxi, a leading provider of software-defined data fabric networking technology. Plexxi's results of operations will be included within the Hybrid IT segment.
Note 2: Discontinued Operations
On April 1, 2017 and September 1, 2017, the Company completed the Everett and Seattle Transactions, respectively. As a result, the financial results of Everett and Seattle are presented as Net loss from discontinued operations in the Condensed Consolidated Statements of Earnings.

14
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)


The following table presents the financial results for HPE's discontinued operations.
 
Three Months Ended
April 30,
 
Six Months Ended
April 30,
 
2018
 
2017
 
2018
 
2017
 
In millions
Net revenue
$
—

 
$
3,124

 
$
—

 
$
7,629

Cost of revenue (1)
—

 
2,201

 
—

 
5,620

Expenses (2)
—

 
1,165

 
51

 
2,241

Interest and other, net (3)
72

 
3

 
68

 
3

Loss from discontinued operations before taxes
(72
)
 
(245
)
 
(119
)
 
(235
)
Benefit for taxes
—

 
111

 
1

 
117

Net loss from discontinued operations
$
(72
)
 
$
(134
)
 
$
(118
)
 
$
(118
)
 
(1)
Cost of revenue includes cost of products and services.
(2)
Expenses for the six months ended April 30, 2018 primarily consist of separation costs. Expenses for the three and six months ended April 30, 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 settlement charges and remeasurement (benefit).
(3)
Interest and other, net for the three and six months ended April 30, 2018 primarily consists of tax indemnification adjustments in connection with the Everett and Seattle Transactions.
For the three and six months ended April 30, 2017 , significant non-cash items and capital expenditures of discontinued operations consisted of depreciation and amortization of $171 million and $470 million , respectively, and purchases of property, plant and equipment of $62 million and $147 million , respectively.
Note 3: Segment Information
Hewlett Packard Enterprise's operations are organized into four segments for financial reporting purposes: Hybrid IT, Intelligent Edge, Financial Services ("FS"), and Corporate Investments. Hewlett Packard Enterprise's organizational structure is based on a number of factors that the Chief Operating Decision Maker ("CODM"), the Chief Executive Officer ("CEO"), uses to evaluate, view and run its 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 summary description of each segment follows.
Hybrid IT provides a broad portfolio of services-led and software-enabled infrastructure and solutions including secure, software-defined servers, storage, data center networking and HPE Pointnext services, thereby combining HPE's hardware, software and services capabilities to make Hybrid IT simple for its customers. Described below are the business units and capabilities within Hybrid IT.
•
Hybrid IT Product includes Compute, Storage and Data Center Networking ("DC Networking").

◦
Compute offers both Industry Standard Servers ("ISS") as well as Mission-Critical Servers ("MCS") to address the full array of the Company's customers' computing needs. ISS provides a range of products, from entry level servers through premium HPE ProLiant servers. For the most mission-critical workloads, HPE delivers Integrity servers based on the Intel® Itanium® processor, HPE Integrity NonStop solutions and mission-critical x86 ProLiant servers.
◦
Storage offers Converged Storage solutions and traditional storage. Converged Storage solutions include All-Flash Arrays and hybrid storage solutions like HPE Nimble Storage, 3PAR StoreServe, StoreOnce, Big Data, StoreVirtual, and Software Defined and Cloud Group storage products. Traditional storage includes tape, storage networking and legacy external disk products such as MSA and XP.

15
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

◦
DC Networking offerings include top-of-rack switches, core switches, and open networking switches. The Company offers a full stack of networking solutions that deliver open, scalable, secure, and agile solutions, by enabling programmable fabric, network virtualization, and network management products.

•
HPE Pointnext creates preferred IT experiences that power a digital business. The HPE Pointnext team and the Company's extensive partner network provide value across the IT life cycle delivering advice, transformation projects, professional services, support services, and operational services. HPE Pointnext is also a provider of on-premises flexible consumption models that enable IT agility, simplify operations and align costs to business value. HPE Pointnext offerings includes Operational Services, Advisory and Professional Services, and Communications and Media Solutions ("CMS").

Intelligent Edge offers unified, software-defined Aruba Mobile First architecture solutions for connectivity in the campus and branch environments, including wireless local area network equipment, mobility and security software, switches, routers, network management products, and associated customer support, as well as industrial IoT solutions.
Financial Services provides flexible investment solutions, such as leasing, financing, IT consumption, and utility programs and asset management services, for customers to enable the creation of unique technology deployment models and acquire complete IT solutions, including hardware, software and services from HPE and others. Providing flexible services and capabilities that support the entire IT life cycle, FS partners with customers globally to help build investment strategies that enhance their business agility and support their business transformation. FS offers a wide selection of investment solution capabilities for large enterprise customers and channel partners, along with an array of financial options to SMBs and educational and governmental entities.
Corporate Investments includes Hewlett Packard Labs and certain business incubation projects.
Segment Policy
There have been no significant changes to the Company's segment accounting policies disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2017, except as described in the 'Segment Realignment' section below.
Hewlett Packard Enterprise periodically engages in intercompany advanced royalty payment and licensing arrangements that may result in advance payments between subsidiaries. Revenues from these intercompany arrangements are deferred and recognized as earned over the term of the arrangement by the Hewlett Packard Enterprise legal entities involved in such transactions; however, these advanced payments are eliminated from revenues as reported by Hewlett Packard Enterprise and its business segments. Hewlett Packard Enterprise executed intercompany advanced royalty payment arrangements resulting in advanced payments of $439 million during the first six months of fiscal 2017. In these transactions, the payments were received in the U.S. from a foreign consolidated affiliate, with a deferral of intercompany revenues over the term of the arrangements, approximately 15 years . The impact of these intercompany arrangements is eliminated from both Hewlett Packard Enterprise's consolidated and segment net revenues.
Hewlett Packard Enterprise does not allocate to its segments certain operating expenses, which it manages at the corporate level. These unallocated costs include certain corporate costs and eliminations, stock-based compensation expense related to corporate and certain global functions, transformation costs, amortization of intangible assets, acquisition and other related charges, restructuring charges, separation costs and defined benefit plan settlement charges and remeasurement (benefit).
Segment Realignment
Effective at the beginning of the first quarter of fiscal 2018, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes primarily include: (i) the transfer of the former Servers and Storage business units, the HPE Pointnext and CMS businesses within the former Technology Services business unit, and the data center networking business within the former Networking business unit, all of which were previously reported within the former Enterprise Group ("EG") segment, to the newly formed Hybrid IT segment; (ii) the transfer of the remaining networking products businesses, which include wireless local area network, campus and branch switching and edge compute within the former Networking business unit, and Aruba services within the former Technology Services business unit, all of which were previously reported within the former EG segment, to the newly formed Intelligent Edge segment; and (iii) the transfer of cloud-related activities previously reported within Corporate Investments to the Hybrid IT segment.

16
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which primarily resulted in the transfer of net revenue, related eliminations of intersegment revenues and operating profit or loss from the former business units and segments to the newly formed business units and segments as described above.
The Company also implemented certain changes to its allocation methodology for stock-based compensation expense and certain corporate costs, which align to its segment financial reporting and are consistent with the manner in which the operating segments will be evaluated for performance on a prospective basis.
The Company reflected these changes retrospectively to the earliest period presented, which resulted in: (i) the transfer of a portion of stock-based compensation expense, which under the prior allocation methodology was not allocated to the segments, to the Hybrid IT, Intelligent Edge and Financial Services segments; and (ii) the transfer of certain corporate function costs previously allocated to the segments to unallocated corporate costs.
These changes had no impact on Hewlett Packard Enterprise's previously reported net revenue, earnings from operations, net earnings, or net earnings per share.
Segment Operating Results from Continuing Operations
 
Hybrid IT
 
Intelligent Edge
 
Financial
Services
 
Corporate
Investments
 
Total
 
In millions
Three months ended April 30, 2018
 

 
 

 
 

 
 

 
 

Net revenue
$
5,851

 
$
703

 
$
914

 
$
—

 
$
7,468

Intersegment net revenue and other
172

 
7

 
2

 
—

 
181

Total segment net revenue
$
6,023

 
$
710

 
$
916

 
$
—

 
$
7,649

Segment earnings (loss) from operations
$
621

 
$
46

 
$
72

 
$
(22
)
 
$
717

Three months ended April 30, 2017
 

 
 

 
 

 
 

 
 

Net revenue
$
5,348

 
$
595

 
$
865

 
$
—

 
$
6,808

Intersegment net revenue and other (1)
289

 
11

 
7

 
—

 
307

Total segment net revenue
$
5,637

 
$
606

 
$
872

 
$
—

 
$
7,115

Segment earnings (loss) from operations
$
457

 
$
46

 
$
77

 
$
(28
)
 
$
552

Six months ended April 30, 2018
 

 
 

 


 
 

 
 

Net revenue
$
12,027

 
$
1,316

 
$
1,800

 
$
(1
)
 
$
15,142

Intersegment net revenue and other
327

 
14

 
4

 
—

 
345

Total segment net revenue
$
12,354

 
$
1,330

 
$
1,804

 
$
(1
)
 
$
15,487

Segment earnings (loss) from operations
$
1,229

 
$
64

 
$
144

 
$
(43
)
 
$
1,394

Six months ended April 30, 2017
 

 
 

 
 

 
 

 
 

Net revenue
$
10,884

 
$
1,157

 
$
1,669

 
$
—

 
$
13,710

Intersegment net revenue and other (1)
508

 
19

 
26

 
—

 
553

Total segment net revenue
$
11,392

 
$
1,176

 
$
1,695

 
$
—

 
$
14,263

Segment earnings (loss) from operations
$
1,190

 
$
62

 
$
153

 
$
(61
)
 
$
1,344

 
(1)
For the three and six months ended April 30, 2017, the amounts include the elimination of pre-separation intercompany sales to the former Enterprise Services and Software segments, which are included within Net loss from discontinued operations in the Condensed Consolidated Statements of Earnings.

17
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

The reconciliation of segment operating results to Hewlett Packard Enterprise condensed consolidated results was as follows:
 
Three Months Ended
April 30,
 
Six Months Ended
April 30,
 
2018
 
2017
 
2018
 
2017
 
In millions
Net Revenue:
 
 
 

 
 

 
 

Total segments
$
7,649

 
$
7,115

 
$
15,487

 
$
14,263

Elimination of intersegment net revenue and other
(181
)
 
(307
)
 
(345
)
 
(553
)
Total Hewlett Packard Enterprise condensed consolidated net revenue
$
7,468

 
$
6,808

 
$
15,142

 
$
13,710

Earnings before taxes:
 

 
 

 
 

 
 

Total segment earnings from operations
$
717

 
$
552

 
$
1,394

 
$
1,344

Unallocated corporate costs and eliminations
(54
)
 
(124
)
 
(108
)
 
(220
)
Unallocated stock-based compensation expense
(20
)
 
(24
)
 
(50
)
 
(67
)
Amortization of intangible assets
(72
)
 
(72
)
 
(150
)
 
(138
)
Restructuring charges
(9
)
 
(69
)
 
(12
)
 
(152
)
Transformation costs
(123
)
 
—

 
(368
)
 
—

Acquisition and other related charges
(16
)
 
(50
)
 
(46
)
 
(94
)
Separation costs
(26
)
 
(30
)
 
(2
)
 
(41
)
Defined benefit plan settlement (charges) and remeasurement benefit
—

 
12

 
—

 
16

Interest and other, net
(78
)
 
(86
)
 
(99
)
 
(164
)
Tax indemnification adjustments
(425
)
 
7

 
(1,344
)
 
(11
)
(Loss) earnings from equity interests
(10
)
 
(3
)
 
12

 
(25
)
Total Hewlett Packard Enterprise condensed consolidated (loss) earnings from continuing operations before taxes
$
(116
)
 
$
113

 
$
(773
)
 
$
448

Segment Assets
Hewlett Packard Enterprise allocates assets to its business segments based on the segments primarily benefiting from the assets. Total assets by segment and the reconciliation of segment assets to Hewlett Packard Enterprise condensed consolidated assets were as follows:
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions
Hybrid IT
$
26,488

 
$
25,923

Intelligent Edge
3,042

 
3,002

Financial Services
13,560

 
13,470

Corporate Investments
160

 
161

Corporate and unallocated assets
16,626

 
18,850

Total Hewlett Packard Enterprise condensed consolidated assets
$
59,876

 
$
61,406

For the six months ended April 30, 2018, the decrease in Corporate and unallocated assets was due primarily to a decrease in cash and cash equivalents.

18
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Net revenue by segment and business unit was as follows:
 
Three Months Ended
April 30,
 
Six Months Ended
April 30,
 
2018
 
2017
 
2018
 
2017
 
In millions
Hybrid IT
 
 
 
 
 
 
 
Hybrid IT Product
 
 
 
 
 
 
 
Compute
$
3,213

 
$
3,033

 
$
6,705

 
$
6,176

Storage
912

 
734

 
1,860

 
1,498

DC Networking
46

 
45

 
108

 
94

Total Hybrid IT Product
4,171

 
3,812

 
8,673

 
7,768

HPE Pointnext
1,852

 
1,825

 
3,681

 
3,624

Total Hybrid IT
6,023

 
5,637

 
12,354

 
11,392

Intelligent Edge
 
 
 
 
 
 
 
HPE Aruba Product
635

 
538

 
1,184

 
1,041

HPE Aruba Services
75

 
68

 
146

 
135

Total Intelligent Edge
710

 
606

 
1,330

 
1,176

Financial Services
916

 
872

 
1,804

 
1,695

Corporate Investments
—

 
—

 
(1
)
 
—

Total segment net revenue
7,649

 
7,115

 
15,487

 
14,263

Eliminations of intersegment net revenue and other        
(181
)
 
(307
)
 
(345
)
 
(553
)
Total Hewlett Packard Enterprise condensed consolidated net revenue
$
7,468

 
$
6,808

 
$
15,142

 
$
13,710

Note 4: Restructuring
Summary of Restructuring Plans
On September 14, 2015, former Parent's Board of Directors approved a restructuring plan (the "2015 Plan") in connection with the Separation. On May 23, 2012, former Parent adopted a multi-year restructuring plan (the "2012 Plan") designed to simplify business processes, accelerate innovation and deliver better results for customers, employees and stockholders. As of October 31, 2017 , the 2015 and 2012 Plans were substantially complete.
Restructuring Activity
In connection with the 2015 and 2012 Plans, restructuring charges of $9 million and $69 million have been recorded by the Company for the three months ended April 30, 2018 and 2017 , respectively, and $12 million and $152 million for the six months ended April 30, 2018 and 2017 , respectively, based on restructuring activities impacting the Company's employees and infrastructure. For details on restructuring charges related to HPE Next, see Note 5, "HPE Next".

19
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Restructuring activities related to the Company's employees and infrastructure for the 2015 and 2012 Plans are presented in the table below:
 
2015 Plan
 
2012 Plan
 
 
 
Employee
Severance
 
Infrastructure
and other
 
Employee
Severance
and EER
 
Infrastructure
and other
 
Total
 
In millions
Liability as of October 31, 2017
$
219

 
$
17

 
$
16

 
$
2

 
$
254

Charges
3

 
(1
)
 
11

 
(1
)
 
12

Cash payments
(136
)
 
(6
)
 
(10
)
 
—

 
(152
)
Non-cash items
1

 
3

 
1

 
—

 
5

Liability as of April 30, 2018
$
87

 
$
13

 
$
18

 
$
1

 
$
119

Total costs incurred to date, as of April 30, 2018
$
745

 
$
79

 
$
1,266

 
$
145

 
$
2,235

Total costs expected to be incurred, as of April 30, 2018
$
745

 
$
79

 
$
1,266

 
$
145

 
$
2,235

The current restructuring liability related to the plans in the table above, reported in Accrued restructuring in the Condensed Consolidated Balance Sheets at April 30, 2018 and October 31, 2017 , was $64 million and $158 million , respectively. The non-current restructuring liability related to the plans in the table above, reported in Other liabilities in the Condensed Consolidated Balance Sheets at April 30, 2018 and October 31, 2017 , was $55 million and $96 million , respectively.
Note 5: HPE Next
Transformation Costs
The HPE Next initiative is expected to be implemented through fiscal 2020, during which time the Company expects to incur expenses for workforce reductions, to upgrade and simplify its IT infrastructure, and for other non-labor actions. These costs will be partially offset by proceeds received from real estate sales.
During the three and six months ended April 30, 2018 , the Company incurred $123 million and $368 million in net charges associated with the HPE Next initiative, which were recorded within Transformation costs in the Condensed Consolidated Statement of Earnings and include the following:
 
Three months ended April 30, 2018
 
Six months ended April 30, 2018
 
In millions
Program management (1)
$
30

 
$
54

IT costs
36

 
69

Restructuring charges
85

 
256

Gain on real estate sales
(36
)
 
(37
)
Other
8

 
26

Total
$
123

 
$
368

 
(1)
Primarily consists of consulting fees and other direct costs attributable to the design and execution of the HPE Next initiative.
Restructuring Plan
On October 16, 2017, the Company's Board of Directors approved a restructuring plan in connection with the HPE Next initiative (the "HPE Next Plan"), which will be implemented through fiscal 2020. The changes to the workforce will vary by country, based on business needs, local legal requirements and consultations with employee work councils and other employee representatives, as appropriate, and are expected to be completed during fiscal 2019. As of April 30, 2018 , the Company estimates that it will incur aggregate pre-tax restructuring charges of approximately $0.9 billion through fiscal 2020 in connection with the HPE Next Plan, of which approximately $0.7 billion relates to workforce reductions and approximately $0.2 billion relates to infrastructure, primarily real estate site exits.

20
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

 
Employee
Severance
 
Infrastructure
and other
 
In millions
Liability as of October 31, 2017
$
296

 
$
—

Charges
229

 
27

Cash payments
(255
)
 
(7
)
Non-cash items
(3
)
 
(6
)
Liability as of April 30, 2018
$
267

 
$
14

Total costs incurred to date, as of April 30, 2018
$
525

 
$
27

Total costs expected to be incurred, as of April 30, 2018
$
750

 
$
180

As of April 30, 2018 and October 31, 2017 , the current restructuring liability related to the HPE Next Plan, reported in Accrued restructuring in the Condensed Consolidated Balance Sheets, was $222 million and $287 million , respectively. The non-current restructuring liability related to the HPE Next Plan, reported in Other liabilities in the Condensed Consolidated Balance Sheets as of April 30, 2018 and October 31, 2017 was $59 million and $9 million , respectively.
Note 6: Retirement and Post-Retirement Benefit Plans
The Company's net pension benefit cost for defined benefit plans recognized in the Condensed Consolidated Statements of Earnings for the three and six months ended April 30, 2018 and 2017 , was as follows:
 
Three months ended April 30,
 
Six months ended April 30,
 
2018
 
2017
 
2018
 
2017
 
In millions
Service cost
$
27

 
$
30

 
$
53

 
$
70

Interest cost
58

 
52

 
113

 
102

Expected return on plan assets
(145
)
 
(131
)
 
(284
)
 
(264
)
Amortization and deferrals:
 

 
 

 
 
 
 

Actuarial loss
54

 
64

 
106

 
140

Prior service benefit
(4
)
 
(4
)
 
(8
)
 
(8
)
Net periodic benefit (credit) cost
(10
)
 
11

 
(20
)
 
40

Settlement loss
2

 
3

 
2

 
3

Special termination benefits
2

 
1

 
4

 
2

Plan expense allocation (1)
—

 
(4
)
 
—

 
(16
)
Net benefit (credit) cost from continuing operations
(6
)
 
11

 
(14
)
 
29

Summary of net benefit (credit) cost:
 
 
 
 
 
 
 
Continuing operations
(6
)
 
11

 
(14
)
 
29

Discontinued operations
—

 
34

 
—

 
80

Net benefit (credit) cost
$
(6
)
 
$
45

 
$
(14
)
 
$
109

 
(1)
Plan expense 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.
Net pension benefit cost for the Company's post-retirement benefit plans was not material for the three and six months ended April 30, 2018 and 2017 .
401(k) Plan
Effective January 1, 2018, the Hewlett Packard Enterprise Company 401(k) Plan ("HPE 401(k) Plan") was amended such that quarterly employer matching contributions will be 100% of an employee's contributions, up to a maximum of 4% of

21
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

eligible compensation. During 2017, the Company's active U.S. employees were eligible to participate in the HPE 401(k) Plan, under which the annual employer matching contribution was 50% of an employee’s contributions, on a maximum of 6% of eligible compensation.
Note 7: Taxes on Earnings
Provision for Taxes
The Company's effective tax rate was 832.8% and 523.0% for the three months ended April 30, 2018 and 2017 , respectively, and 401.7% and 150.7% for the six months ended April 30, 2018 and 2017, respectively. The effective tax rate for the three and six months ended April 30, 2018 was significantly impacted by the Tax Act and the settlement of certain pre-Separation tax liabilities of HP Inc.
For the three and six months ended April 30, 2018 , the Company recorded $1.0 billion and $3.2 billion of net income tax benefits, respectively, related to various items discrete to the period. For the three months ended April 30, 2018 this amount primarily included $1.1 billion of income tax benefits for the effects of the settlement of certain pre-Separation Hewlett-Packard Company income tax liabilities, $28 million of net excess tax benefits related to stock-based compensation, $18 million of net income tax benefits on restructuring charges, separation costs and acquisition and other related charges, partially offset by $125 million of income tax charges for impacts related to U.S. tax reform. For the six months ended April 30, 2018 , this amount primarily included $2.0 billion of income tax benefits for the effects of the settlement of certain pre-Separation Hewlett-Packard Company income tax liabilities, $681 million of income tax benefits for impacts related to U.S. tax reform, $239 million of income tax benefits from foreign tax credits and from the release of non-U.S. valuation allowances on deferred tax assets and liabilities established in connection with the Everett Transaction following changes in foreign tax laws, $203 million of income tax benefits related to the liquidation of an insolvent non-U.S. subsidiary, $62 million of net income tax benefits on restructuring charges, separation costs and acquisition and other related charges and $42 million of net excess tax benefits related to stock-based compensation.
For the three and six months ended April 30, 2017 , the Company recorded $556 million and $525 million of net income tax charges, respectively, related to various items discrete to the period. For the three months ended April 30, 2017 , this amount primarily included $473 million of income tax charges from valuation allowances on U.S. state deferred tax assets, $110 million of other taxes related to the Everett transaction and $13 million related to tax indemnification with HP Inc., partially offset by $36 million of income tax benefits on restructuring charges, separation costs and acquisition and other related charges. For the six months ended April 30, 2017 , this amount primarily included $473 million of income tax charges from valuation allowances on U.S. state deferred tax assets, $110 million of other taxes related to the Everett transaction and $31 million related to tax indemnification with HP Inc., partially offset by $67 million of net income tax benefits on restructuring charges, separation costs and acquisition and other related charges.
Recent Tax Legislation
See Note 1, "Overview and Basis of Presentation", for details related to the Tax Act. The Tax Act requires the Company to incur a one-time Transition Tax on deferred foreign income not previously subject to U.S. income tax at a rate of 15.5% for foreign cash and certain other net current assets and 8% on the remaining income. The GILTI and BEAT provisions of the Tax Act will be effective for the Company beginning November 1, 2018 .
The Company has an October 31 fiscal year end; therefore, the lower corporate tax rate enacted by the Tax Act will be phased in, resulting in a U.S. statutory federal rate of 23.3% for the fiscal year ending October 31, 2018 and 21% for subsequent fiscal years.
The Company has not completed its accounting for the tax effects of the Tax Act. Reasonable estimates of the impacts of the Tax Act are provided in accordance with guidance from the SEC that allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. Adjustments may materially impact the Company’s provision for income taxes and effective tax rate in the period in which the adjustments are made. The Company expects to complete the accounting under the Tax Act as soon as practicable, but in no event later than one year from the enactment date of the Tax Act.
For the three and six months ended April 30, 2018 , the Company recorded a provisional estimate of $0.1 billion and $1.1 billion , respectively, related to the Transition Tax, which was included in Benefit (provision) for taxes in the Condensed Consolidated Statements of Earnings. The final calculations of the Transition Tax may differ from estimates, potentially materially, due to, among other things, changes in interpretations of the Tax Act, analysis of current and additional guidance

22
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

from the Internal Revenue Service ("IRS"), the Company’s analysis of the Tax Act, or any updates or changes to estimates that the Company utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and assertions. No cash payment is anticipated due to the availability of tax attributes to offset the Transition Tax.
In addition, for the six months ended April 30, 2018 , the Company recorded a net $1.8 billion provisional tax benefit related to the remeasurement of U.S. deferred tax assets and liabilities as a result of the reduction of the U.S. corporate tax rate, which was included in Benefit (provision) for taxes in the Condensed Consolidated Statements of Earnings. The adjustments made in the second quarter of fiscal 2018 were not significant. As part of the remeasurement of the net U.S. deferred tax assets, the Company will need to reassess the realizability of certain deferred tax assets, including tax credits and other non-credit deferred tax assets, based on the new method of taxation on non-U.S. earnings applicable beginning in fiscal 2019. The Company's analysis of the future realization of the deferred tax assets is incomplete.
Regarding the new GILTI tax rules, the Company is required to make an accounting policy election to either treat taxes due on future GILTI inclusions in U.S. taxable income as a current period expense when incurred or reflect such portion of the future GILTI inclusions in U.S. taxable income that relate to existing basis differences in the Company's current measurement of deferred taxes. The Company's analysis of the new GILTI tax rules and how they may impact the Company is incomplete. Accordingly, the Company has not made a policy election regarding the treatment of the GILTI tax.
Uncertain Tax Positions
As of April 30, 2018 and October 31, 2017 , the amount of unrecognized tax benefits was $8.8 billion and  $11.3 billion , respectively, of which up to $1.0 billion and $3.0 billion would affect the Company's effective tax rate if realized as of their respective periods. The Company is joint and severally liable for certain pre-Separation tax liabilities of HP Inc. HP Inc. is subject to numerous ongoing audits by federal, state and foreign tax authorities. During the six months ended April 30, 2018 , HP Inc. settled with the IRS on certain matters and closed pre-Separation Hewlett-Packard Company audits for fiscal years 2009 through 2012, for which the Company had been joint and severally liable, resulting in a reduction in the Company's unrecognized tax benefits of $2.5 billion .
The Company recognizes interest income from favorable settlements and interest expense and penalties accrued on unrecognized tax benefits in Benefit (provision) for taxes in the Condensed Consolidated Statements of Earnings. As of April 30, 2018 and October 31, 2017 , the Company recorded $165 million and $304 million , respectively, for interest and penalties in the Condensed Consolidated Balance Sheets.
The Company engages in continuous discussions and negotiations with taxing authorities regarding tax matters in various jurisdictions. The Company does not expect complete resolution of any audit cycle within the next 12 months. However, it is reasonably possible that certain federal, foreign and state tax issues may be concluded in the next 12 months , including issues involving transfer pricing, joint and several tax liabilities related to the Separation from former Parent and other matters. Accordingly, the Company believes it is reasonably possible that its existing unrecognized tax benefits may be reduced by an amount up to $85 million within the next 12 months .
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities included in the Condensed Consolidated Balance Sheets were as follows:
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions
Deferred tax assets - long-term
$
5,896

 
$
4,663

Deferred tax liabilities - long-term
(234
)
 
(104
)
Deferred tax assets net of deferred tax liabilities
$
5,662

 
$
4,559

The Company periodically engages in intercompany advanced royalty payment and licensing arrangements that may result in advance payments between subsidiaries in different tax jurisdictions. When the local tax treatment of the intercompany licensing arrangements differs from the U.S. GAAP treatment, deferred taxes are recognized. For further details, see Note 3, "Segment Information".

23
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Tax Matters Agreement and Other Income Tax Matters
In connection with the Separation, the Company entered into a Tax Matters Agreement with HP Inc. In connection with the Everett and Seattle Transactions, the Company entered into a Tax Matters Agreement with DXC and a Tax Matters Agreement with Micro Focus, respectively. For more details, see the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2017.
Note 8: Balance Sheet Details
Balance sheet details were as follows:
Inventory
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions
Finished goods
$
1,321

 
$
1,236

Purchased parts and fabricated assemblies
1,527

 
1,079

Total
$
2,848

 
$
2,315

For the six months ended April 30, 2018, the increase in inventory was due primarily to customer demand and higher component costs.
Property, Plant and Equipment
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions
Land
$
309

 
$
312

Buildings and leasehold improvements
2,328

 
2,371

Machinery and equipment, including equipment held for lease
9,443

 
9,194

 
12,080

 
11,877

Accumulated depreciation
(5,872
)
 
(5,608
)
Total
$
6,208

 
$
6,269

Notes Payable and Short-Term Borrowings
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions
Current portion of long-term debt
$
2,997

 
$
3,005

FS commercial paper
432

 
401

Notes payable to banks, lines of credit and other (1)
426

 
444

Total
$
3,855

 
$
3,850

 
(1)
Notes payable to banks, lines of credit and other includes $367 million and $390 million at April 30, 2018 and October 31, 2017 , respectively, of borrowing and funding-related activity associated with FS and its subsidiaries.

24
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Warranties
The Company's aggregate product warranty liabilities as of April 30, 2018 , and changes during the six months ended April 30, 2018 were as follows:
 
Six Months Ended
April 30, 2018
 
In millions
Balance at beginning of period
$
475

Accruals for warranties issued
135

Adjustments related to pre-existing warranties
(3
)
Settlements made
(154
)
Balance at end of period
$
453

Note 9: Financing Receivables and Operating Leases
Financing receivables represent sales-type and direct-financing leases of the Company and third-party products. These receivables typically have terms ranging from two to five years and are usually collateralized by a security interest in the underlying assets. Financing receivables also include billed receivables from operating leases. The components of financing receivables were as follows:
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions
Minimum lease payments receivable
$
8,571

 
$
8,226

Unguaranteed residual value
289

 
272

Unearned income
(697
)
 
(654
)
Financing receivables, gross
8,163

 
7,844

Allowance for doubtful accounts
(97
)
 
(86
)
Financing receivables, net
8,066

 
7,758

Less: current portion (1)
(3,503
)
 
(3,378
)
Amounts due after one year, net (1)
$
4,563

 
$
4,380

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

25
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Sale of Financing Receivables
During the three and six months ended April 30, 2018 and 2017 , the Company entered into arrangements to transfer the contractual payments due under certain financing receivables to third party financial institutions. During the six months ended April 30, 2018 and 2017 , the Company sold $71 million and $95 million , respectively, of financing receivables. The gains recognized on the sales of financing receivables were not material for the periods presented.
Credit Quality Indicators
The credit risk profile of gross financing receivables, based upon internal risk ratings, was as follows:
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions
Risk Rating:
 

 
 

Low
$
4,296

 
$
4,156

Moderate
3,678

 
3,556

High
189

 
132

Total
$
8,163

 
$
7,844

Accounts rated low risk typically have the equivalent of a Standard & Poor's rating of BBB– or higher, while accounts rated moderate risk generally have the equivalent of BB+ or lower. The Company classifies accounts as high risk when it considers the financing receivable to be impaired or when management believes there is a significant near-term risk of impairment.
Allowance for Doubtful Accounts
The allowance for doubtful accounts for financing receivables as of April 30, 2018 and October 31, 2017 and the respective changes during the six and twelve months then ended were as follows:
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions
Balance at beginning of period
$
86

 
$
89

Provision for doubtful accounts
16

 
23

Write-offs, net of recoveries
(5
)
 
(26
)
Balance at end of period
$
97

 
$
86

The gross financing receivables and related allowance evaluated for loss were as follows:
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions
Gross financing receivables collectively evaluated for loss
$
7,776

 
$
7,523

Gross financing receivables individually evaluated for loss
387

 
321

Total
$
8,163

 
$
7,844

Allowance for financing receivables collectively evaluated for loss
$
71

 
$
67

Allowance for financing receivables individually evaluated for loss
26

 
19

Total
$
97

 
$
86


26
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Non-Accrual and Past-Due Financing Receivables
The following table summarizes the aging and non-accrual status of gross financing receivables:
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions
Billed: (1)
 

 
 

Current 1-30 days
$
317

 
$
257

Past due 31-60 days
32

 
52

Past due 61-90 days
28

 
15

Past due > 90 days
68

 
58

Unbilled sales-type and direct-financing lease receivables
7,718

 
7,462

Total gross financing receivables
$
8,163

 
$
7,844

Gross financing receivables on non-accrual status (2)
$
230

 
$
188

Gross financing receivables 90 days past due and still accruing interest (2)
$
157

 
$
133

 
(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.
Operating Leases
Operating lease assets included in Property, plant and equipment in the Condensed Consolidated Balance Sheets were as follows:
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions
Equipment leased to customers
$
7,507

 
$
7,356

Accumulated depreciation
(3,169
)
 
(2,943
)
Total
$
4,338

 
$
4,413

Note 10: Goodwill
Goodwill allocated to the Company's reportable segments as of April 30, 2018 and change in the respective carrying amounts during the six months then ended were as follows:
 
Hybrid IT
 
Intelligent Edge
 
Financial Services
 
Total
 
In millions
Balance at October 31, 2017
$
15,454

 
$
1,918

 
$
144

 
$
17,516

Goodwill acquired during the period
12

 
3

 
—

 
15

Goodwill adjustments
6

 
—

 
—

 
6

Balance at April 30, 2018
$
15,472

 
$
1,921

 
$
144

 
$
17,537

On November 1, 2017, the Company’s former EG segment was realigned into two new reportable segments, Hybrid IT and Intelligent Edge. The Company's reporting units are consistent with the reportable segments identified in Note 3, "Segment Information". As a result of this realignment, the Company performed an interim goodwill impairment analysis for Hybrid IT and Intelligent Edge as of November 1, 2017, which did not result in any impairment charges. The Company will continue to evaluate the recoverability of goodwill at the reporting unit level on an annual basis as of the beginning of its fourth fiscal quarter and whenever events or changes in circumstances indicate there may be a potential impairment.

27
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Note 11: Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.
Fair Value Hierarchy
The Company uses valuation techniques that are based upon observable and unobservable inputs. Observable inputs are developed using market data such as publicly available information and reflect the assumptions market participants would use, while unobservable inputs are developed using the best information available about the assumptions market participants would use.
Assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement:
Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2—Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.
Level 3—Unobservable inputs for the asset or liability.
The fair value hierarchy gives the highest priority to observable inputs and lowest priority to unobservable inputs.
The following table presents the Company's assets and liabilities that are measured at fair value on a recurring basis:
 
As of April 30, 2018
 
As of October 31, 2017
 
Fair Value
Measured Using
 
 
 
Fair Value
Measured Using
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
In millions
Assets
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Cash Equivalents and Investments:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Time deposits
$
—

 
$
1,656

 
$
—

 
$
1,656

 
$
—

 
$
1,159

 
$
—

 
$
1,159

Money market funds
3,391

 
—

 
—

 
3,391

 
5,592

 
—

 
—

 
5,592

Foreign bonds
9

 
135

 
—

 
144

 
9

 
214

 
—

 
223

Other debt securities
—

 
—

 
26

 
26

 
—

 
—

 
26

 
26

Derivative Instruments:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Foreign exchange contracts
—

 
238

 
—

 
238

 
—

 
259

 
—

 
259

Other derivatives
—

 
1

 
—

 
1

 
—

 
1

 
—

 
1

Total assets
$
3,400

 
$
2,030

 
$
26

 
$
5,456

 
$
5,601

 
$
1,633

 
$
26

 
$
7,260

Liabilities
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Derivative Instruments:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts
$
—

 
$
352

 
$
—

 
$
352

 
$
—

 
$
142

 
$
—

 
$
142

Foreign exchange contracts
—

 
326

 
—

 
326

 
—

 
335

 
—

 
335

Total liabilities
$
—

 
$
678

 
$
—

 
$
678

 
$
—

 
$
477

 
$
—

 
$
477

During the six months ended April 30, 2018 , there were no transfers between levels within the fair value hierarchy.
Other Fair Value Disclosures
Short- and Long-Term Debt: At April 30, 2018 and October 31, 2017 , the estimated fair value of the Company's short-term and long-term debt was $14.0 billion and $14.6 billion , respectively.

28
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Note 12: Financial Instruments
Cash Equivalents and Available-for-Sale Investments
Cash equivalents and available-for-sale investments were as follows:
 
As of April 30, 2018
 
As of October 31, 2017
 
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 
In millions
Cash Equivalents:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Time deposits
$
1,653

 
$
—

 
$
—

 
$
1,653

 
$
1,159

 
$
—

 
$
—

 
$
1,159

Money market funds
3,391

 
—

 
—

 
3,391

 
5,592

 
—

 
—

 
5,592

Total cash equivalents
5,044

 
—

 
—

 
5,044

 
6,751

 
—

 
—

 
6,751

Available-for-Sale Investments:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Time deposits
3

 
—

 
—

 
3

 
—

 
—

 
—

 
—

Foreign bonds
121

 
23

 
—

 
144

 
183

 
40

 
—

 
223

Other debt securities
28

 
—

 
(2
)
 
26

 
37

 
—

 
(11
)
 
26

Total available-for-sale investments
152

 
23

 
(2
)
 
173

 
220

 
40

 
(11
)
 
249

Total cash equivalents and available-for-sale investments
$
5,196

 
$
23

 
$
(2
)
 
$
5,217

 
$
6,971

 
$
40

 
$
(11
)
 
$
7,000

As of April 30, 2018 and October 31, 2017 , the carrying amount of cash equivalents approximated fair value due to the short period of time to maturity. Time deposits were primarily issued by institutions outside the U.S. as of April 30, 2018 and October 31, 2017 . The estimated fair value of the available-for-sale investments may not be representative of values that will be realized in the future.
Contractual maturities of investments in available-for-sale debt securities were as follows:
 
April 30, 2018
 
Amortized Cost
 
Fair Value
 
In millions
Due in one year
$
3

 
$
3

Due in more than five years
149

 
170

Total
$
152

 
$
173

Equity securities in privately held companies that are accounted for as cost method investments are included in Long-term financing receivables and other assets in the Condensed Consolidated Balance Sheets. These investments amounted to $146 million and $149 million at April 30, 2018 and October 31, 2017 , respectively.
Investments in equity securities that are accounted for using the equity method are included in Investments in equity interests in the Condensed Consolidated Balance Sheets. These investments amounted to $2.5 billion at April 30, 2018 and October 31, 2017 .

29
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets
The gross notional and fair value of derivative instruments in the Condensed Consolidated Balance Sheets were as follows:
 
As of April 30, 2018
 
As of October 31, 2017
 
 
 
Fair Value
 
 
 
Fair Value
 
Outstanding
Gross
Notional
 
Other
Current
Assets
 
Long-Term
Financing
Receivables
and Other
Assets
 
Other
Accrued
Liabilities
 
Long-Term
Other
Liabilities
 
Outstanding
Gross
Notional
 
Other
Current
Assets
 
Long-Term
Financing
Receivables
and Other
Assets
 
Other
Accrued
Liabilities
 
Long-Term
Other
Liabilities
 
In millions
Derivatives designated as hedging instruments
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fair value hedges:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts
$
9,500

 
$
—

 
$
—

 
$
17

 
$
335

 
$
9,500

 
$
—

 
$
—

 
$
16

 
$
126

Cash flow hedges:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency contracts
8,381

 
90

 
24

 
105

 
106

 
7,202

 
105

 
45

 
101

 
70

Net investment hedges:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency contracts
1,772

 
22

 
12

 
33

 
20

 
1,944

 
35

 
10

 
36

 
41

Total derivatives designated as hedging instruments
19,653

 
112

 
36

 
155

 
461

 
18,646

 
140

 
55

 
153

 
237

Derivatives not designated as hedging instruments
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency contracts
7,874

 
88

 
2

 
50

 
12

 
9,552

 
61

 
3

 
79

 
8

Other derivatives
89

 
1

 
—

 
—

 
—

 
96

 
1

 
—

 
—

 
—

Total derivatives not designated as hedging instruments
7,963

 
89

 
2

 
50

 
12

 
9,648

 
62

 
3

 
79

 
8

Total derivatives
$
27,616

 
$
201

 
$
38

 
$
205

 
$
473

 
$
28,294

 
$
202

 
$
58

 
$
232

 
$
245

Offsetting of Derivative Instruments
The Company recognizes all derivative instruments on a gross basis in the Condensed Consolidated Balance Sheets. The Company's derivative instruments are subject to master netting arrangements and collateral security arrangements. The Company does not offset the fair value of its derivative instruments against the fair value of cash collateral posted under collateral security agreements. As of April 30, 2018 and October 31, 2017 , information related to the potential effect of the Company's use of the master netting agreements and collateral security agreements was as follows:

30
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

 
As of April 30, 2018
 
In the Condensed Consolidated Balance Sheets
 
 
 
 
 
(i)
 
(ii)
 
(iii) = (i)–(ii)
 
(iv)
 
(v)
 
 
 
(vi) = (iii)–(iv)–(v)
 
 
 
 
 
 
 
Gross Amounts Not Offset
 
 
 
 
 
Gross
Amount
Recognized
 
Gross
Amount
Offset
 
Net Amount
Presented
 
Derivatives
 
Financial
Collateral
 
 
 
Net Amount
 
In millions
Derivative assets
$
239

 
$
—

 
$
239

 
$
208

 
$
11

 
(1)  
 
$
20

Derivative liabilities
$
678

 
$
—

 
$
678

 
$
208

 
$
490

 
(2)  
 
$
(20
)
 
As of October 31, 2017
 
In the Condensed Consolidated Balance Sheets
 
 
 
 
 
(i)
 
(ii)
 
(iii) = (i)–(ii)
 
(iv)
 
(v)
 
 
 
(vi) = (iii)–(iv)–(v)
 
 
 
 
 
 
 
Gross Amounts Not Offset
 
 
 
 
 
Gross
Amount
Recognized
 
Gross
Amount
Offset
 
Net Amount
Presented
 
Derivatives
 
Financial
Collateral
 
 
 
Net Amount
 
In millions
Derivative assets
$
260

 
$
—

 
$
260

 
$
209

 
$
34

 
(1)  
 
$
17

Derivative liabilities
$
477

 
$
—

 
$
477

 
$
209

 
$
242

 
(3)  
 
$
26

 
(1)
Represents the cash collateral posted by counterparties as of the respective reporting date for the Company's asset position, net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date.
(2)
Represents the collateral posted by the Company in cash or through the re-use of counterparty cash collateral as of the respective reporting date for the Company's liability position, net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date. Of the $490 million of collateral posted, $480 million was in cash and, $10 million was through re-use of counterparty collateral.
(3)
Represents the collateral posted by the Company in cash or through the re-use of counterparty cash collateral as of the respective reporting date for the Company's liability position, net of derivative amounts that could be offset, as of, generally, two business days prior to the respective reporting date. Of the $242 million of collateral posted, $220 million was in cash and, $22 million was through re-use of counterparty collateral.
Effect of Derivative Instruments on the Condensed Consolidated Statements of Earnings
The pre-tax effect of derivative instruments and related hedged items in a fair value hedging relationship for the three and six months ended April 30, 2018 and 2017 were as follows:
 
 
Gains (Losses) Recognized in Earnings on Derivative and Related Hedged Item
 
 
Derivative Instrument
 
Location
 
Three months ended April 30, 2018
 
Six months ended April 30, 2018
 
Hedged Item
 
Location
 
Three months ended April 30, 2018
 
Six months ended April 30, 2018
 
 
 
 
In millions
 
 
 
 
 
In millions
Interest rate contracts
 
Interest and other, net
 
$
(72
)
 
$
(210
)
 
Fixed-rate debt
 
Interest and other, net
 
$
72

 
$
210

 
 
Gains (Losses) Recognized in Earnings on Derivative and Related Hedged Item
 
 
Derivative Instrument
 
Location
 
Three months ended April 30, 2017
 
Six months ended April 30, 2017
 
Hedged Item
 
Location
 
Three months ended April 30, 2017
 
Six months ended April 30, 2017
 
 
 
 
In millions
 
 
 
 
 
In millions
Interest rate contracts
 
Interest and other, net
 
$
37

 
$
(225
)
 
Fixed-rate debt
 
Interest and other, net
 
$
(37
)
 
$
225


31
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

The pre-tax effect of derivative instruments in cash flow and net investment hedging relationships for the three and six months ended April 30, 2018 were as follows:
 
Gains (Losses) Recognized in Other Comprehensive Income ("OCI") on Derivatives (Effective Portion)
 
Gains (Losses) Reclassified from Accumulated
OCI Into Earnings (Effective Portion)
 
Three months ended April 30, 2018
 
Six months ended April 30, 2018
 
Location
 
Three months ended April 30, 2018
 
Six months ended April 30, 2018
 
In millions
 
 
 
In millions
Cash flow hedges:
 

 
 
 
 
 
 

 
 
Foreign currency contracts
$
117

 
$
(62
)
 
Net revenue
 
$
(65
)
 
$
(111
)
Foreign currency contracts
(35
)
 
(37
)
 
Interest and other, net
 
(26
)
 
(10
)
Total cash flow hedges
$
82

 
$
(99
)
 
Net earnings from continuing operations
 
$
(91
)
 
$
(121
)
Net investment hedges:
 

 
 
 
 
 
 

 
 
Foreign currency contracts
$
57

 
$
(25
)
 
Interest and other, net
 
$
—

 
$
—

The pre-tax effect of derivative instruments in cash flow and net investment hedging relationships for the three and six months ended April 30, 2017 was as follows:
 
Gains (Losses) Recognized in Other Comprehensive Income ("OCI") on Derivatives (Effective Portion)
 
Gains (Losses) Reclassified from Accumulated
OCI Into Earnings (Effective Portion)
 
Three months ended April 30, 2017
 
Six months ended April 30, 2017
 
Location
 
Three months ended April 30, 2017
 
Six months ended April 30, 2017
 
In millions
 
 
 
In millions
Cash flow hedges:
 

 
 
 
 
 
 

 
 
Foreign currency contracts
$
(55
)
 
$
(3
)
 
Net revenue
 
$
—

 
$
54

Foreign currency contracts
(1
)
 
(1
)
 
Cost of products
 
—

 
—

Foreign currency contracts
66

 
142

 
Interest and other, net
 
66

 
149

Subtotal
10

 
138

 
Net loss from continuing operations
 
66

 
203

Foreign currency contracts
(6
)
 
2

 
Net loss from discontinued operations
 
17

 
43

Total cash flow hedges
$
4

 
$
140

 
Net loss
 
$
83

 
$
246

Net investment hedges:
 

 
 
 
 
 
 

 
 
Foreign currency contracts
$
(8
)
 
$
(10
)
 
Interest and other, net
 
$
—

 
$
—

As of April 30, 2018 and 2017 , no portion of the hedging instruments' gain or loss was excluded from the assessment of effectiveness for fair value, cash flow or net investment hedges. Hedge ineffectiveness for fair value, cash flow, and net investment hedges was not material for the three and six months ended April 30, 2018 and 2017 .
As of April 30, 2018 , the Company expects to reclassify an estimated net Accumulated other comprehensive gain of approximately $7 million , net of taxes, to earnings in the next twelve months, along with the earnings effects of the related forecasted transactions associated with cash flow hedges.

32
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

The pre-tax effect of derivative instruments not designated as hedging instruments on the Condensed Consolidated Statements of Earnings for the three and six months ended April 30, 2018 and 2017 was as follows:
 
 
 
Gains (Losses) Recognized in Earnings on Derivatives
 
Location
 
Three months ended April 30, 2018
 
Three months ended April 30, 2017
 
Six months ended April 30, 2018
 
Six months ended April 30, 2017
 
 
 
In millions
Foreign currency contracts
Interest and other, net
 
$
261

 
$
(199
)
 
$
(129
)
 
$
(246
)
Other derivatives
Interest and other, net
 
(1
)
 
1

 
—

 
4

Total
 
 
$
260

 
$
(198
)
 
$
(129
)
 
$
(242
)
Note 13: Stockholders' Equity
Taxes related to Other Comprehensive Income (Loss)
 
Three months ended April 30,
 
Six months ended April 30,
 
2018
 
2017
 
2018
 
2017
 
In millions
Taxes on change in net unrealized losses on available-for-sale securities:
 

 
 

 
 
 
 
Tax provision on net unrealized (losses) gains arising during the period
$
—

 
$
—

 
$
—

 
$
(1
)
 
—

 
—

 
—

 
(1
)
Taxes on change in net unrealized gains (losses) on cash flow hedges:
 

 
 

 
 
 
 
Tax (provision) benefit on net unrealized gains (losses) arising during the period
(11
)
 
4

 
14

 
(27
)
Tax (benefit) provision on net losses (gains) reclassified into earnings
(12
)
 
13

 
(16
)
 
45

 
(23
)
 
17

 
(2
)
 
18

Taxes on change in unrealized components of defined benefit plans:
 

 
 

 
 
 
 
Tax provision on gains arising during the period
—

 
(1
)
 
(1
)
 
(25
)
Tax benefit on amortization of actuarial loss and prior service benefit
(3
)
 
(5
)
 
(6
)
 
(11
)
Tax provision on curtailments, settlements and other
—

 
(7
)
 
(7
)
 
(14
)
 
(3
)
 
(13
)
 
(14
)
 
(50
)
Tax benefit on change in cumulative translation adjustment
4

 
—

 
1

 
1

Tax (provision) benefit on other comprehensive (loss) income
$
(22
)
 
$
4

 
$
(15
)
 
$
(32
)

33
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Changes and reclassifications related to Other Comprehensive Income (Loss), net of taxes
 
Three months ended April 30,
 
Six months ended April 30,
 
2018
 
2017
 
2018
 
2017
 
In millions
Other comprehensive income, net of taxes:
 

 
 

 
 
 
 
Change in net unrealized losses on available-for-sale securities:
 

 
 

 
 
 
 
Net unrealized (losses) gains arising during the period
$
—

 
$
(4
)
 
$
1

 
$
(18
)
Gains reclassified into earnings
(17
)
 
—

 
(9
)
 
—

 
(17
)
 
(4
)
 
(8
)
 
(18
)
Change in net unrealized gains (losses) on cash flow hedges:
 

 
 

 
 
 
 
Net unrealized gains (losses) arising during the period
71

 
8

 
(85
)
 
113

Net losses (gains) reclassified into earnings (1)
79

 
(70
)
 
105

 
(201
)
 
150

 
(62
)
 
20

 
(88
)
Change in unrealized components of defined benefit plans:
 

 
 

 
 
 
 
Gains arising during the period
—

 
10

 
1

 
465

Amortization of actuarial loss and prior service benefit (2)
46

 
72

 
90

 
163

Curtailments, settlements and other
2

 
(4
)
 
(5
)
 
(11
)
 
48

 
78

 
86

 
617

Change in cumulative translation adjustment
(22
)
 
(11
)
 
1

 
(35
)
Other comprehensive income, net of taxes
$
159

 
$
1

 
$
99

 
$
476

 
(1)
For more details on the reclassification of pre-tax net losses (gains) on cash flow hedges into the Condensed Consolidated Statements of Earnings, see Note 12, "Financial Instruments".
(2)
These components are included in the computation of net pension and post-retirement benefit cost in Note 6, "Retirement and Post-Retirement Benefit Plans".
The components of Accumulated other comprehensive loss, net of taxes as of April 30, 2018 , and changes during the six months ended April 30, 2018 were as follows:
 
Net unrealized
gains (losses) on
available-for-sale
securities
 
Net unrealized
gains (losses)
on cash
flow hedges
 
Unrealized
components
of defined
benefit plans
 
Cumulative
translation
adjustment
 
Accumulated
other
comprehensive
loss
 
In millions
Balance at beginning of period
$
29

 
$
(48
)
 
$
(2,690
)
 
$
(186
)
 
$
(2,895
)
Activity related to separation and merger transactions
—


—


—


(186
)

(186
)
Other comprehensive income (loss) before reclassifications
1

 
(85
)
 
1

 
1

 
(82
)
Reclassifications of (gains) losses into earnings
(9
)
 
105

 
85

 
—

 
181

Balance at end of period
$
21

 
$
(28
)
 
$
(2,604
)
 
$
(371
)
 
$
(2,982
)
Share Repurchase Program
For the six months ended April 30, 2018 , the Company retired a total of 102 million shares under its share repurchase program through open market repurchases, which included 1.7 million shares that were unsettled open market repurchases as of October 31, 2017. Additionally, as of April 30, 2018 , the Company had unsettled open market repurchases of 1.4 million shares. Shares repurchased during the six months ended April 30, 2018 were recorded as a $1.7 billion reduction to stockholders' equity. On February 21, 2018, the Company's Board of Directors authorized an additional $2.5 billion under the share repurchase program. As of April 30, 2018 , the Company had a remaining authorization of $ 6.6 billion for future share repurchases.

34
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

On February 22, 2018, the Company announced an increase to the regular quarterly dividend from $0.075 per share to $0.1125 per share, which is effective in the third quarter of fiscal 2018.
Note 14: Net Earnings Per Share
The Company calculates basic net EPS using net earnings and the weighted-average number of shares outstanding during the reporting period. Diluted net EPS includes the weighted-average dilutive effect of restricted stock units, stock options, and performance-based awards.
The reconciliations of the numerators and denominators of each of the basic and diluted net EPS calculations were as follows:
 
Three months ended April 30,
 
Six months ended April 30,
 
2018
 
2017
 
2018
 
2017
 
In millions, except per share amounts
Numerator:
 

 
 

 
 
 
 
Net earnings (loss) from continuing operations
$
850

 
$
(478
)
 
$
2,332

 
$
(227
)
Net loss from discontinued operations
(72
)
 
(134
)
 
(118
)
 
(118
)
Net earnings (loss)
$
778

 
$
(612
)
 
$
2,214

 
$
(345
)
Denominator:
 

 
 

 
 
 
 
Weighted-average shares used to compute basic net EPS
1,552

 
1,658

 
1,571

 
1,664

Dilutive effect of employee stock plans
30

 
—

 
30

 
—

Weighted-average shares used to compute diluted net EPS
1,582

 
1,658

 
1,601

 
1,664

Basic net earnings (loss) per share:
 

 
 

 
 
 
 
Continuing operations
$
0.55

 
$
(0.29
)
 
$
1.48

 
$
(0.14
)
Discontinued operations
(0.05
)
 
(0.08
)
 
(0.07
)
 
(0.07
)
Basic net earnings (loss) per share
$
0.50

 
$
(0.37
)
 
$
1.41

 
$
(0.21
)
Diluted net earnings (loss) per share:
 
 
 
 
 
 
 
Continuing operations
$
0.54

 
$
(0.29
)
 
$
1.46

 
$
(0.14
)
Discontinued operations (1)
(0.05
)
 
(0.08
)
 
(0.08
)
 
(0.07
)
Diluted net earnings (loss) per share
$
0.49

 
$
(0.37
)
 
$
1.38

 
$
(0.21
)
Anti-dilutive weighted-average stock awards (2)
1

 
85

 
3

 
90

 
(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.
Note 15: Litigation and Contingencies
Hewlett Packard Enterprise is involved in various lawsuits, claims, investigations and proceedings including those consisting of IP, commercial, securities, employment, employee benefits and environmental matters, which arise in the ordinary course of business. In addition, as part of the Separation and Distribution Agreement, Hewlett Packard Enterprise and HP Inc. (formerly known as "Hewlett-Packard Company") agreed to cooperate with each other in managing certain existing litigation related to both parties' businesses. The Separation and Distribution Agreement included provisions that allocate liability and financial responsibility for pending litigation involving the parties, as well as provide for cross-indemnification of the parties against liabilities to one party arising out of liabilities allocated to the other party. The Separation and Distribution Agreement also included provisions that assign to the parties responsibility for managing pending and future litigation related to the general corporate matters of HP Inc. arising prior to the Separation. Hewlett Packard Enterprise records a liability when it believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment is required to determine both the probability of having incurred a liability and the estimated amount of the liability. Hewlett Packard Enterprise reviews these matters at least quarterly and adjusts these liabilities to reflect the impact of negotiations,

35
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

settlements, rulings, advice of legal counsel and other updated information and events pertaining to a particular matter. Litigation is inherently unpredictable. However, Hewlett Packard Enterprise believes it has valid defenses with respect to legal matters pending against us. Nevertheless, cash flows or results of operations could be materially affected in any particular period by the resolution of one or more of these contingencies. Hewlett Packard Enterprise believes it has recorded adequate provisions for any such matters and, as of April 30, 2018 , it was not reasonably possible that a material loss had been incurred in connection with such matters in excess of the amounts recognized in its financial statements.
Litigation, Proceedings and Investigations
India Directorate of Revenue Intelligence Proceedings .  On April 30 and May 10, 2010, the India Directorate of Revenue Intelligence (the "DRI") issued show cause notices to Hewlett-Packard India Sales Private Ltd ("HP India"), a subsidiary of HP Inc., seven HP India employees and one former HP India employee alleging that HP India underpaid customs duties while importing products and spare parts into India and seeking to recover an aggregate of approximately $370 million , plus penalties. Prior to the issuance of the show cause notices, HP India deposited approximately $16 million with the DRI and agreed to post a provisional bond in exchange for the DRI's agreement to not seize HP India products and spare parts and to not interrupt the transaction of business by HP India.
On April 11, 2012, the Bangalore Commissioner of Customs issued an order on the products-related show cause notice affirming certain duties and penalties against HP India and the named individuals of approximately $386 million , of which HP India had already deposited $9 million . On December 11, 2012, HP India voluntarily deposited an additional $10 million in connection with the products-related show cause notice. On April 20, 2012, the Commissioner issued an order on the parts-related show cause notice affirming certain duties and penalties against HP India and certain of the named individuals of approximately $17 million , of which HP India had already deposited $7 million . After the order, HP India deposited an additional $3 million in connection with the parts-related show cause notice so as to avoid certain penalties.
HP India filed appeals of the Commissioner's orders before the Customs Tribunal along with applications for waiver of the pre-deposit of remaining demand amounts as a condition for hearing the appeals. The Customs Department has also filed cross-appeals before the Customs Tribunal. On January 24, 2013, the Customs Tribunal ordered HP India to deposit an additional $24 million against the products order, which HP India deposited in March 2013. The Customs Tribunal did not order any additional deposit to be made under the parts order. In December 2013, HP India filed applications before the Customs Tribunal seeking early hearing of the appeals as well as an extension of the stay of deposit as to HP India and the individuals already granted until final disposition of the appeals. On February 7, 2014, the application for extension of the stay of deposit was granted by the Customs Tribunal until disposal of the appeals. On October 27, 2014, the Customs Tribunal commenced hearings on the cross-appeals of the Commissioner's orders. The Customs Tribunal rejected HP India's request to remand the matter to the Commissioner on procedural grounds. The hearings were scheduled to reconvene on April 6, 2015, and again on November 3, 2015 and April 11, 2016, but were canceled at the request of the Customs Tribunal. No new hearing date has been set.
ECT Proceedings . In January 2011, the postal service of Brazil, Empresa Brasileira de Correios e Telégrafos ("ECT"), notified a former subsidiary of HP Inc. in Brazil ("HP Brazil") that it had initiated administrative proceedings to consider whether to suspend HP Brazil's right to bid and contract with ECT related to alleged improprieties in the bidding and contracting processes whereby employees of HP Brazil and employees of several other companies allegedly coordinated their bids and fixed results for three ECT contracts in 2007 and 2008. In late July 2011, ECT notified HP Brazil it had decided to apply the penalties against HP Brazil and suspend HP Brazil's right to bid and contract with ECT for five years , based upon the evidence before it. In August 2011, HP Brazil appealed ECT's decision. In April 2013, ECT rejected HP Brazil's appeal, and the administrative proceedings were closed with the penalties against HP Brazil remaining in place. In parallel, in September 2011, HP Brazil filed a civil action against ECT seeking to have ECT's decision revoked. HP Brazil also requested an injunction suspending the application of the penalties until a final ruling on the merits of the case. The court of first instance has not issued a decision on the merits of the case, but it has denied HP Brazil's request for injunctive relief. HP Brazil appealed the denial of its request for injunctive relief to the intermediate appellate court, which issued a preliminary ruling denying the request for injunctive relief but reducing the length of the sanctions from five to two years. HP Brazil appealed that decision and, in December 2011, obtained a ruling staying enforcement of ECT's sanctions until a final ruling on the merits of the case. HP Brazil expects the decision to be issued in 2018 and any subsequent appeal on the merits to last several years.
Forsyth, et al. vs. HP Inc. and Hewlett Packard Enterprise. This purported class and collective action was filed on August 18, 2016 and an amended complaint was filed on December 19, 2016 in the United States District Court for the Northern District of California, against HP Inc. and Hewlett Packard Enterprise alleging defendants violated the Federal Age Discrimination in Employment Act ("ADEA"), the California Fair Employment and Housing Act, California public policy and

36
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

the California Business and Professions Code by terminating older workers and replacing them with younger workers.  Plaintiffs seek to certify a nationwide collective action under the ADEA comprised of all individuals aged 40 and older who had their employment terminated by an HP entity pursuant to a work force reduction ("WFR") plan on or after December 9, 2014 for individuals terminated in deferral states and on or after April 8, 2015 in non-deferral states. Plaintiffs also seek to certify a Rule 23 class under California law comprised of all persons 40 years or older employed by defendants in the state of California and terminated pursuant to a WFR plan on or after August 18, 2012. On September 20, 2017, the court granted the defendants' motion to compel arbitration and stayed the case pending resolution of the arbitration proceedings. On November 30, 2017, three named plaintiffs and twelve opt-in plaintiffs filed a single arbitration demand.  On December 22, 2017, defendants filed a motion to (1) stay the case pending arbitrations and (2) enjoin the demanded arbitration and require each plaintiff to file a separate arbitration demand. On February 6, 2018, the court granted the motion to stay and denied the motion to enjoin.
Jackson, et al. v. HP Inc. and Hewlett Packard Enterprise. This putative nationwide class action was filed on July 24, 2017 in federal district court in San Jose. Plaintiffs purport to bring the lawsuit on behalf of themselves and other similarly situated African-Americans and individuals over the age of forty. Plaintiffs allege that defendants engaged in a pattern and practice of racial and age discrimination in lay-offs and promotions. Plaintiffs filed an amended complaint on September 29, 2017. On January 12, 2018, defendants moved to transfer the matter to the federal district court in the Northern District of Georgia. Defendants also moved to dismiss the claims on various grounds and to strike certain aspects of the proposed class definition.
Wall v. Hewlett Packard Enterprise Company and HP Inc. This certified California class action and Private Attorney General Act action was filed against Hewlett-Packard Company on January 17, 2012 and the fifth amended (and operative) complaint was filed against HP Inc. and Hewlett Packard Enterprise on June 28, 2016. The complaint alleges that the defendants paid earned incentive compensation late and failed to timely pay final wages in violation of the California Labor Code. On August 9, 2016, the court ordered the class certified without prejudice to a future motion to amend or modify the class certification order or to decertify. The scheduled January 22, 2018 trial date was vacated following the parties’ notification to the court that they had reached a preliminary agreement to resolve the dispute. The parties subsequently finalized and executed a settlement agreement and, on May 9, 2018, plaintiff filed a motion seeking preliminary approval of the settlement.
Hewlett-Packard Company v. Oracle (Itanium). On June 15, 2011, HP Inc. filed suit against Oracle in Santa Clara Superior Court in connection with Oracle's March 2011 announcement that it was discontinuing software support for HP Inc.’s Itanium-based line of mission critical servers.  HP Inc. asserted, among other things, that Oracle’s actions breached the contract that was signed by the parties as part of the settlement of the litigation relating to Oracle’s hiring of Mark Hurd. The matter eventually progressed to trial, which was bifurcated into two phases. HP Inc. prevailed in the first phase of the trial, in which the court ruled that the contract at issue required Oracle to continue to offer its software products on HP Inc.'s Itanium-based servers for as long as HP Inc. decided to sell such servers. Phase 2 of the trial was then postponed by Oracle’s appeal of the trial court’s denial of Oracle’s “anti-SLAPP” motion, in which Oracle argued that HP Inc.’s damages claim infringed on Oracle’s First Amendment rights.  On August 27, 2015, the Court of Appeal rejected Oracle’s appeal. The matter was remanded to the trial court for Phase 2 of the trial, which began on May 23, 2016, and was submitted to the jury on June 29, 2016.  On June 30, 2016, the jury returned a verdict in favor of HP Inc., awarding HP Inc. approximately $3 billion in damages:  $1.7 billion for past lost profits and $1.3 billion for future lost profits. On October 20, 2016, the court entered judgment for HP for this amount with interest accruing until the judgment is paid. Oracle’s motion for a new trial was denied on December 19, 2016, and Oracle filed its notice of appeal from the trial court’s judgment on January 17, 2017. On February 2, 2017, HP filed a notice of cross-appeal challenging the trial court’s denial of prejudgment interest. The schedule for appellate briefing and argument has not yet been established. The Company expects that any appeal could take several years to be resolved and could materially affect the amount ultimately recovered by the Company. The amounts ultimately awarded, if any, would be recorded in the period received. Pursuant to the terms of the Separation and Distribution Agreement, HP Inc. and Hewlett Packard Enterprise will share equally in any recovery from Oracle once Hewlett Packard Enterprise has been reimbursed for all costs incurred in the prosecution of the action prior to the HP Inc./Hewlett Packard Enterprise separation on November 1, 2015.
Oracle America, Inc., et al. v. Hewlett Packard Enterprise Company (Terix copyright matter). On March 22, 2016, Oracle filed a complaint against HPE in the Northern District of California, alleging copyright infringement, interference with contract, intentional interference with prospective economic relations, and unfair competition.  Oracle’s claims arise out of HPE’s prior use of a third-party maintenance provider named Terix Computer Company, Inc. (“Terix”). Oracle contends that in connection with HPE’s use of Terix as a subcontractor for certain customers of HPE’s multivendor support business, Oracle’s copyrights were infringed, and HPE is liable for vicarious and contributory infringement and related claims. The lawsuit against HPE follows a prior lawsuit brought by Oracle against Terix in 2013 relating to Terix’s alleged unauthorized provision of Solaris patches to customers on Oracle hardware. Summary judgment motions are set to be heard by the court on June 14, 2018. 

37
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

Trial is presently set for October 29, 2018. Pursuant to the Separation and Distribution agreement between Hewlett-Packard Enterprise and DXC, this is a shared litigation as it relates to both parties’ businesses.
Network-1 Technologies, Inc. v. Alcatel-Lucent USA Inc., et al.  This patent infringement action was filed in September 2011 in the United States District Court for the Eastern District of Texas and alleges that various Hewlett Packard Enterprise switches and access points infringe Network-1’s patent relating to the 802.3af and 802.3at “Power over Ethernet” standards. The Network-1 patent at issue expires in 2020. A jury trial was conducted beginning on November 6, 2017. On November 13, 2017, the jury returned a verdict in favor of HPE, finding that HPE did not infringe Network-1’s patent and that the patent was invalid. On May 14, 2018, the court heard a series of post-trial motions filed by Network-1 seeking to overturn the jury’s verdict. Assuming the court denies Network-1 motions the Company expects Network-1 to appeal following the entry of judgment.
DXC Technology Indemnification Demand.   On March 27, 2018, DXC Technology (“DXC”) served an arbitration demand on HPE under the Separation and Distribution Agreement by and between HPE and DXC (f/k/a Everett SpinCo, Inc.) dated May 24, 2016, relating to the separation of HPE’s Enterprise Services business (the “ES Business”). The arbitration demand asserts that HPE is required to indemnify DXC for any transferred long-term capitalized lease obligations of the ES Business that exceed the threshold amount of $250 million. DXC contends that this $250 million threshold was exceeded by approximately $1.0 billion because the valuation of the assets underlying certain leases did not justify their classification as operating leases based on the terms of such leases, thereby rendering them long-term capitalized lease obligations. The arbitration demand follows DXC's November 8, 2017 request for indemnification on this same issue. HPE believes the relevant leases were properly classified as operating leases, DXC’s arbitration claim has no merit, and there is no basis for indemnification. HPE intends to vigorously defend its interests in this matter.
Shared Litigation with HP Inc., DXC and Micro Focus
As part of the Separation and Distribution Agreements between Hewlett Packard Enterprise and HP Inc., Hewlett Packard Enterprise and DXC, and Hewlett Packard Enterprise and Seattle SpinCo, the parties to each agreement agreed to cooperate with each other in managing certain existing litigation related to both parties' businesses. The Separation and Distribution Agreements also included provisions that assign to the parties responsibility for managing pending and future litigation related to the general corporate matters of HP Inc. (in the case of the separation of Hewlett Packard Enterprise from HP Inc.) or of Hewlett Packard Enterprise (in the case of the separation of DXC from Hewlett Packard Enterprise and the separation of Seattle SpinCo from Hewlett Packard Enterprise), in each case arising prior to the applicable separation.
Note 16: Indemnifications
General Cross-indemnification and Tax Matters Agreements with HP Inc., DXC and Micro Focus
In connection with the Separation and the Everett and Seattle Transactions, the Company entered into a Separation and Distribution Agreement and Tax Matters Agreement with each of HP Inc., DXC and affiliates, and Micro Focus and affiliates, effective November 1, 2015, March 31, 2017 and September 1, 2017, respectively. For further details on these agreements, see the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2017.

38
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

As of April 30, 2018 and October 31, 2017 , the Company’s receivable and payable balances related to indemnified litigation matters and other contingencies, and income tax-related indemnification covered by these agreements were as follows:
 
As of
 
April 30, 2018
 
October 31, 2017
 
In millions
Litigation matters and other contingencies
 
 
 
Receivable
$
128

 
$
150

Payable
$
89

 
$
91

 
 
 
 
Income tax related indemnification (1)
 
 
 
Net indemnification receivable -  long-term
$
278

 
$
1,430

Net indemnification payable -  short-term
$
172

 
$
36

 
(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.

39

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


HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is organized as follows:
•
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 the three and six months ended April 30, 2018 to the prior-year periods.
•
Critical Accounting Policies and Estimates.   A discussion of accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.
•
Results of Operations.   An analysis of our financial results comparing the three and six months ended April 30, 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.
•
Contractual and Other Obligations.   An overview of contractual obligations, retirement and post-retirement benefit plan funding, restructuring plans, uncertain tax positions, cross-indemnifications with HP Inc. (formerly known as "Hewlett-Packard Company"), DXC Technology Company ("DXC"), and Seattle SpinCo, Inc. ("Seattle") and off-balance sheet arrangements.
We intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our Condensed Consolidated Financial Statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our Condensed Consolidated Financial Statements. This discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this document.
On April 1, 2017 and September 1, 2017, we completed the separation and merger of our Enterprise Services business with Computer Sciences Corporation ("CSC") (collectively, the "Everett Transaction") and the separation and merger of our Software business segment with Micro Focus International plc (“Micro Focus”) (collectively, the “Seattle Transaction”), respectively. The historical financial results of Everett and Seattle are reported as Net (loss) earnings from discontinued operations in the Condensed Consolidated Statements of Earnings. For further information on discontinued operations, see Note 2, "Discontinued Operations".
The following Overview, Results of Operations and Liquidity discussions and analysis compare the three and six months ended April 30, 2018 to the prior-year periods, unless otherwise noted. The Capital Resources and Contractual and Other Obligations discussions present information as of April 30, 2018, unless otherwise noted.
         For purposes of this MD&A section, we use the terms "Hewlett Packard Enterprise," "HPE," "the Company," "we," "us" and "our" to refer to Hewlett Packard Enterprise Company.
OVERVIEW
We are an industry leading technology company that enables customers to go further, faster. With a deep and comprehensive portfolio, spanning the cloud to the data center to the intelligent edge, our technology and services help customers around the world deliver business outcomes. Our legacy dates back to a partnership founded in 1939 by William R. Hewlett and David Packard, and we strive every day to uphold and enhance that legacy through our dedication to providing innovative technological solutions to our customers.

40
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



We organize our business into four segments for financial reporting purposes: Hybrid IT, Intelligent Edge, Financial Services ("FS") and Corporate Investments. The following provides an overview of our key financial metrics by segment for the three months ended April 30, 2018, as compared to the prior-year period:
 
HPE
Consolidated
 
Hybrid IT
 
Intelligent Edge
 
Financial Services
 
Corporate
Investments (4)
 
Dollars in millions, except for per share amounts
Net revenue (1)
$
7,468

 
$
6,023

 
$
710

 
$
916

 
$
—

Year-over-year change %
 
9.7
%
 
 
6.8
%
 
 
17.2
%
 
 
5.0
%
 
 
NM

Earnings (loss) from continuing operations (2)
$
397

 
$
621

 
$
46

 
$
72

 
$
(22
)
Earnings (loss) from continuing operations as a % of net revenue
 
5.3
%
 
 
10.3
%
 
 
6.5
%
 
 
7.9
%
 
 
NM

Year-over-year change percentage points
 
2.4pts

 
 
2.2
pts
 
 
(1.1)pts

 
 
(0.9)pts

 
 
NM

Net earnings from continuing operations (3)
$
850

 
 
 

 
 
 

 
 
 

 
 
 

Net earnings per share
 
 
 
 
 

 
 
 

 
 
 

 
 
 

Basic net EPS from continuing operations
$
0.55

 
 
 

 
 
 

 
 
 

 
 
 

Diluted net EPS from continuing operations
$
0.54

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
HPE consolidated net revenue excludes intersegment net revenue and other.
(2)
Segment earnings from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense related to corporate and certain global functions, transformation costs, amortization of intangible assets, acquisition and other related charges, restructuring charges, separation costs and defined benefit plan settlement charges and remeasurement (benefit).
(3)
Includes a net benefit from taxes and tax indemnifications of $0.6 billion, primarily relating to tax amounts incurred in connection with the settlement of certain pre-Separation Hewlett-Packard Company income tax liabilities indemnified through the Tax Matters Agreement with HP Inc., the recently enacted U.S. tax reform and excess tax benefits associated with stock-based compensation.
(4)
"NM" represents not meaningful.
Three months ended April 30, 2018 compared with three months ended April 30, 2017
Net revenue increased by $0.7 billion, or 9.7% (increased 6.4% on a constant currency basis), for the three months ended April 30, 2018, as compared to the prior-year period. The leading contributors to the net revenue increase was higher product revenue in Hybrid IT of $0.4 billion due primarily to favorable currency fluctuations, growth in Storage as a result of incremental revenue from the Nimble Storage, Inc. ("Nimble Storage") acquisition, which we completed in April 2017, and growth in Compute from core Industry Standard Servers ("ISS") due to higher average unit selling prices ("AUPs"). Also contributing to the HPE net revenue increase was growth in Intelligent Edge from campus switching products and in Financial Services due primarily to favorable currency fluctuations and higher asset management revenue. Additionally, effective execution on our HPE Next initiative, which includes streamlining our offerings and business processes, and shifting investments in innovation towards high growth and higher margin solutions and services, is providing a favorable impact to the performance of our business units in the current period.
Gross margin was 30.4% ($2.3 billion) and 29.5% ($2.0 billion) for the three months ended April 30, 2018 and 2017, respectively. The 0.9 percentage point increase in gross margin was due primarily to Hybrid IT product as a result of higher AUPs in Compute combined with the moderation of recent price increases for commodity costs, particularly dynamic random-access memory ("DRAM"). We continue to experience gross margin pressures resulting from a competitive pricing environment across our hardware portfolio. Operating margin increased 2.4 percentage points in the three months ended April 30, 2018, as compared to the prior-year period, due primarily to the increase in gross margin and a decrease in selling, general and administrative expenses as a percentage of net revenue, partially offset by transformation costs related to the HPE Next initiative, which was launched during the third quarter of fiscal 2017.





41
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



The following provides an overview of our key financial metrics by segment for the six months ended April 30, 2018 as compared to the prior year period.
 
HPE Consolidated
 
Hybrid IT
 
Intelligent Edge
 
Financial Services
 
Corporate
Investments (4)
 
 
Dollars in millions, except for per share amounts
Net revenue (1)
$
15,142

 
$
12,354

 
$
1,330

 
$
1,804

 
$
(1
)
Year-over-year change %
 
10.4
%
 
 
8.4
%
 
 
13.1
%
 
 
6.4
%
 
 
NM

Earnings (loss) from continuing operations (2)
$
658

 
$
1,229

 
$
64

 
$
144

 
$
(43)

Earnings (loss) from continuing operations as a % of net revenue
 
4.3
%
 
 
9.9
%
 
 
4.8
%
 
 
8.0
%
 
 
NM

Year-over-year change percentage points
 
(0.4)pts

 
 
(0.5)pts

 
 
(0.5)pts

 
 
(1.0)pts

 
 
NM

Net earnings from continuing operations (3)
$
2,332

 
 
 

 
 
 

 
 
 

 
 
 

Net earnings per share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic net EPS from continuing operations
$
1.48

 
 
 
 
 
 
 
 
 
 
 
 
Diluted net EPS from continuing operations
$
1.46

 
 
 
 
 
 
 
 
 
 
 
 
(1)
HPE consolidated net revenue excludes intersegment net revenue and other.
(2)
Segment earnings from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense related to corporate and certain global functions, transformation costs, amortization of intangible assets, acquisition and other related charges, restructuring charges, separation costs and defined benefit plan settlement charges and remeasurement (benefit).
(3)
Includes a net benefit from taxes and tax indemnifications of $1.9 billion, primarily relating to tax amounts incurred in connection with the settlement of certain pre-Separation Hewlett-Packard Company income tax liabilities indemnified through the Tax Matters Agreement with HP Inc., the recently enacted U.S. tax reform, the Everett and Seattle Transactions, and excess tax benefits associated with stock-based compensation.
(4)
"NM" represents not meaningful.
Six months ended April 30, 2018 compared with six months ended April 30, 2017
Net revenue increased by $1.4 billion, or 10.4% (increased 7.9% on a constant currency basis), for the six months ended April 30, 2018, as compared to the prior-year period. The leading contributor to the net revenue increase was higher product revenue in Hybrid IT of $0.9 billion due primarily to higher revenue in Compute from core ISS due to higher AUPs, growth in Storage as a result of the Nimble Storage acquisition and favorable currency fluctuations. The net revenue increase was also due to growth in Intelligent Edge from campus switching products and growth in Financial Services due primarily to favorable foreign currency fluctuations and higher asset management revenue.
Gross margin was 29.4% ($4.5 billion) and 30.8% ($4.2 billion) for the six months ended April 30, 2018 and 2017, respectively. The 1.4 percentage point decrease in gross margin was due primarily to a decline in Hybrid IT as a result of a higher mix of lower margin solutions, higher variable compensation expense, increased commodity costs, particularly DRAM, and competitive pricing pressures. Operating margin decreased 0.4 percentage points in the six months ended April 30, 2018, as compared to the prior-year period, due primarily to the gross margin decline and the impact of transformation costs related to the HPE Next initiative, which was launched during the third quarter of fiscal 2017.
As of April 30, 2018, cash and cash equivalents and short- and long-term cash investments were $7.0 billion, representing a decrease of approximately $2.6 billion from the October 31, 2017 balance of $9.6 billion. The decrease in cash and cash equivalents and short- and long-term cash investments during the six months ended April 30, 2018 was due primarily to the following: share repurchases and cash dividend payments of $1.9 billion, investments in property, plant and equipment, net of sales proceeds, of $1.1 billion, partially offset by $0.4 billion of cash provided by operating activities.




42
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Trends and Uncertainties
We are in the process of addressing many challenges facing our business, a discussion of which is available in our Annual Report on Form 10-K for the fiscal year ended October 31, 2017.
For a further discussion of trends, uncertainties and other factors that could impact our operating results, see the section entitled "Risk Factors" in Item 1A.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with United States ("U.S.") Generally Accepted Accounting Principles ("GAAP"). The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses, and disclosure of contingent liabilities. Management believes that there have been no significant changes during the six months ended April 30, 2018 , to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 31, 2017.
ACCOUNTING PRONOUNCEMENTS
For a summary of recent accounting pronouncements applicable to our Condensed Consolidated Financial Statements, see Note 1, "Overview and Basis of Presentation".
RESULTS OF OPERATIONS
Revenue from our international operations has historically represented, and we expect will continue to represent, a majority of our overall net revenue. As a result, our revenue growth has been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates. In order to provide a framework for assessing performance excluding the impact of foreign currency fluctuations, we present the year-over-year percentage change in revenue on a constant currency basis, which assumes no change in foreign currency exchange rates from the prior-year period and doesn't adjust for any repricing or demand impacts from changes in foreign currency exchange rates. This change in revenue on a constant currency basis is calculated as the quotient of (a) current year revenue converted to U.S. dollars using the prior-year period's foreign currency exchange rates divided by (b) prior-year period revenue. This information is provided so that revenue can be viewed without the effect of fluctuations in foreign currency exchange rates, which is consistent with how management evaluates our revenue results and trends. This constant currency disclosure is provided in addition to, and not as a substitute for, the year-over-year percentage change in revenue on a GAAP basis. Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes.

43
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:
 
Three months ended April 30,
 
Six months ended April 30,
 
2018
 
2017
 
2018
 
2017
 
Dollars
 
% of
Revenue
 
Dollars
 
% of
Revenue
 
Dollars

% of
Revenue

Dollars

% of
Revenue
 
Dollars in millions
Net revenue
$
7,468

 
100.0
 %
 
$
6,808

 
100.0
 %
 
$
15,142

 
100.0
 %
 
$
13,710

 
100.0
 %
Cost of sales
5,196

 
69.6
 %
 
4,799

 
70.5
 %
 
10,687

 
70.6
 %
 
9,488

 
69.2
 %
Gross profit
2,272

 
30.4
 %
 
2,009

 
29.5
 %
 
4,455

 
29.4
 %
 
4,222

 
30.8
 %
Research and development
402

 
5.4
 %
 
376

 
5.5
 %
 
790

 
5.2
 %
 
732

 
5.3
 %
Selling, general and administrative
1,227

 
16.4
 %
 
1,229

 
18.1
 %
 
2,429

 
16.0
 %
 
2,433

 
17.7
 %
Amortization of intangible assets
72

 
1.0
 %
 
72

 
1.1
 %
 
150

 
1.0
 %
 
138

 
1.0
 %
Restructuring charges
9

 
0.1
 %
 
69

 
1.0
 %
 
12

 
0.1
 %
 
152

 
1.1
 %
Transformation costs
123

 
1.6
 %
 
—

 
—
 %
 
368

 
2.4
 %
 
—

 
—
 %
Acquisition and other related charges
16

 
0.2
 %
 
50

 
0.7
 %
 
46

 
0.3
 %
 
94

 
0.7
 %
Separation costs
26

 
0.4
 %
 
30

 
0.4
 %
 
2

 
—
 %
 
41

 
0.3
 %
Defined benefit plan settlement charges and remeasurement (benefit)
—

 
—
 %
 
(12
)
 
(0.2
)%
 
—

 
—
 %
 
(16
)
 
(0.1
)%
Earnings from continuing operations
397

 
5.3
 %
 
195

 
2.9
 %
 
658

 
4.3
 %
 
648

 
4.7
 %
Interest and other, net
(78
)
 
(1.0
)%
 
(86
)
 
(1.3
)%
 
(99
)
 
(0.7
)%
 
(164
)
 
(1.2
)%
Tax indemnification adjustments
(425
)
 
(5.7
)%
 
7

 
0.1
 %
 
(1,344
)
 
(8.9
)%
 
(11
)
 
(0.1
)%
(Loss) earnings from equity interests
(10
)
 
(0.1
)%
 
(3
)
 
—
 %
 
12

 
0.1
 %
 
(25
)
 
(0.2
)%
(Loss) earnings from continuing operations before taxes
(116
)
 
(1.6
)%
 
113

 
1.7
 %
 
(773
)
 
(5.1
)%
 
448

 
3.3
 %
Benefit (provision) for taxes
966

 
12.9
 %
 
(591
)
 
(8.7
)%
 
3,105

 
20.5
 %
 
(675
)
 
(4.9
)%
Net earnings (loss) from continuing operations
850

 
11.4
 %
 
(478
)
 
(7.0
)%
 
2,332

 
15.4
 %
 
(227
)
 
(1.7
)%
Net loss from discontinued operations
(72
)
 
(1.0
)%
 
(134
)
 
(2.0
)%
 
(118
)
 
(0.8
)%
 
(118
)
 
(0.8
)%
Net earnings (loss)
$
778

 
10.4
 %
 
$
(612
)
 
(9.0
)%
 
$
2,214

 
14.6
 %
 
$
(345
)
 
(2.5
)%
Stock-based compensation expense is included within costs and expenses presented in the table above as follows:
 
Three months ended April 30,
 
Six months ended April 30,
 
2018
 
2017
 
2018
 
2017
 
Dollars in millions
Cost of sales
$
12

 
$
12

 
$
27

 
$
26

Research and development
22

 
16

 
46

 
34

Selling, general and administrative
49

 
56

 
113

 
136

Restructuring charges
—

 
7

 
—

 
19

Transformation costs
—

 
—

 
3

 
—

Acquisition and other related charges
—

 
2

 
9

 
7

Separation costs
7

 
20

 
10

 
29

Stock-based compensation expense from continuing operations
$
90

 
$
113

 
$
208

 
$
251

Stock-based compensation expense from discontinued operations
$
—

 
$
91

 
$
—

 
$
127


44
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Net Revenue
For the three months ended April 30, 2018 , as compared to the prior-year period, total net revenue increased by $660 million , or 9.7% (increased 6.4% on a constant currency basis). U.S. net revenue increased by $130 million , or 5.9% , to $2.4 billion, and net revenue from outside of the U.S. increased by $530 million , or 11.5% , to $5.1 billion . For the six months ended April 30, 2018, as compared to the prior-year period, total net revenue increased by $1.4 billion, or 10.4% (increased 7.9% on a constant currency basis). U.S. net revenue increased by $ 275 million , or 6.1% , to $4.8 billion, and net revenue from outside of the U.S. increased by $1.2 billion, or 12.6% , to $10.3 billion.
The components of the weighted net revenue change by segment were as follows:
 
Three Months Ended
April 30, 2018
Six Months Ended
April 30, 2018
 
Percentage Points
Hybrid IT
5.7
7.0
Intelligent Edge
1.5
1.1
Financial Services
0.6
0.8
Corporate Investments/Other (1)
1.9
1.5
Total HPE
9.7
10.4
 
(1)
Other primarily relates to the elimination of intersegment net revenue.
Three and six months ended April 30, 2018 compared with three and six months ended April 30, 2017
From a segment perspective, the primary factors contributing to the change in total net revenue are summarized as follows:
•
Hybrid IT net revenue increased for the three and six months ended April 30, 2018, as compared to the prior-year periods, due to incremental revenue from the Nimble Storage acquisition, growth in Compute from core ISS due to higher AUPs, favorable currency fluctuations, improved IT market conditions and the impact of the HPE Next initiative which includes focusing on high growth and high margin solutions and services;
•
Intelligent Edge net revenue increased for the three and six months ended April 30, 2018, as compared to the prior-year periods, due primarily to revenue growth in HPE Aruba Product from campus switching products; and
•
FS net revenue increased for the three and six months ended April 30, 2018, as compared to the prior-year periods, due primarily to favorable foreign currency fluctuations and higher asset management revenue.
A more detailed discussion of segment revenue is included under "Segment Information" below.
Gross Margin
For the three months ended April 30, 2018 , as compared to the prior-year period, total gross margin increased 0.9  percentage points. From a segment perspective, the primary factors impacting gross margin performance are summarized as follows:
•
Hybrid IT gross margin increased for the three months ended April 30, 2018 , as compared to the prior-year period. The increase in gross margin was due to multiple factors including: cost improvements in Compute from ISS core, primarily rack servers, higher AUPs and the moderation of recent price increases for DRAM; a lower mix of revenue from Tier-1 server sales as we streamline the business to focus on high margin solutions; and gross margin improvement in Storage from the Nimble Storage acquisition;
•
Intelligent Edge gross margin decreased for the three months ended April 30, 2018 , as compared to the prior-year period, due primarily to a higher mix of revenue from edge compute products; and
•
FS gross margin increased for the three months ended April 30, 2018 , as compared to the prior-year period, due primarily to favorable currency fluctuations, along with higher asset management activity related to lease extensions and higher margins on remarketing sales.

45
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



For the six months ended April 30, 2018 , as compared to the prior-year period, total gross margin decreased 1.4 percentage points. From a segment perspective, the primary factors impacting gross margin performance are summarized as follows:
•
Hybrid IT gross margin decreased for the six months ended April 30, 2018 , as compared to the prior-year period, due primarily to a higher mix of lower margin solutions, higher variable compensation expense, increased commodity costs, particularly DRAM, and competitive pricing pressures;
•
Intelligent Edge gross margin increased for the six months ended April 30, 2018 , as compared to the prior-year period, due primarily to the impact of a one-time tax duty in the prior-year period and a higher mix of revenue from legacy HPE campus switching products; and
•
FS gross margin decreased for the six months ended April 30, 2018 , as compared to the prior-year periods, due primarily to the impact of a bad debt reserve release in the prior-year period.
A more detailed discussion of segment gross margins and operating margins is included under "Segment Information" below.
Operating Expenses
Research and Development
Research and development ("R&D") expense increased by $26 million or 6.9% and by $ 58 million or 7.9% , for the three and six months ended April 30, 2018, respectively, as compared to the prior-year periods, due to higher variable compensation expense and incremental R&D expense from business acquisitions, primarily Nimble Storage, as we increase investment in new product development in the Hybrid IT and Intelligent Edge segments.
Selling, General and Administrative
Selling, general and administrative expense decreased by $2 million , or 0.2% and by $4 million, or 0.2%, for the three and six months ended April 30, 2018 , respectively, as compared to the prior-year periods, due to lower administrative expenses partially offset by higher sales and marketing expenses. The decrease in administrative expense was due to streamlining initiatives resulting from the HPE Next program, mostly offset by higher sales and marketing expenses due to unfavorable foreign currency fluctuations, higher variable compensation expense and incremental expense from business acquisitions, primarily Nimble Storage.
Amortization of Intangible Assets
For the three months ended April 30, 2018 , as compared to the prior-year period, amortization expense was unchanged. For the six months ended April 30, 2018, as compared to the prior-year period, amortization expense increased by $ 12 million , or 8.7% , due to the addition of intangible assets from business acquisitions in the first six months of fiscal 2017.
Restructuring Charges
Restructuring charges decreased for the three and six months ended April 30, 2018 , as compared to the prior-year periods, due primarily to the substantial completion of the restructuring plan we announced in September 2015 (the “2015 Plan”) in connection with the Separation and the plan initially announced in May 2012 (the "2012 Plan").
Transformation Costs
For the three and six months ended April 30, 2018, HPE Next transformation costs of $ 123 million and $ 368 million , respectively, primarily include restructuring charges, consulting fees and IT costs, partially offset by gains from the sale of properties.
Acquisition and Other Related Charges
Acquisition and other related charges decreased for the three and six months ended April 30, 2018 , as compared to the prior-year periods, due primarily to reduced costs related to retention bonuses and for integration activities.

46
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Separation Costs
Separation costs for the three and six months ended April 30, 2018 represent amounts related to the Seattle and Everett Transactions. For both periods, these amounts primarily consist of third-party consulting and contractor expenses. The six month period also contains the adjustment of certain variable compensation expenses related to the Seattle and Everett Transactions. Separation costs in the prior-year period represent amounts in connection with the Everett Transaction and the Separation.
Defined Benefit Plan Settlement Charges and Remeasurement (Benefit)
Defined benefit plan settlement charges and remeasurement (benefit) for the three and six months ended April 30, 2017 represents an adjustment to the net periodic pension benefit cost resulting from the remeasurement of certain Hewlett Packard Enterprise pension plans due to plan separations in connection with the Everett Transaction.
Interest and Other, Net
Interest and other, net expense decreased by $8 million and by $65 million for the three and six months ended April 30, 2018 , respectively, as compared to the prior-year periods. For the three month period, the decline was due primarily to gains from the sale of investments and the sale of certain tax assets, partially offset by higher currency transaction losses. For the six month period, the decline was due to lower currency transaction losses and the sale of certain tax assets.

Tax Indemnification Adjustments
Tax indemnification expense of $425 million and tax indemnification income of $7 million for the three months ended April 30, 2018 and 2017 , respectively, and tax indemnification expense of $1.3 billion and $11 million for the six months ended April 30, 2018 and 2017, respectively, resulted from the settlement of certain pre-Separation tax liabilities for which we share joint and several liability with HP Inc., and for which we are partially indemnified by HP Inc. under the Tax Matters Agreement.
(Loss) Earnings from Equity Interests
(Loss) earnings from equity interests primarily represents our 49% interest in H3C. For the three months ended April 30, 2018, as compared to the prior-year period, the increase in loss from equity interests is the result of lower net income earned by H3C. For the six months ended April 30, 2018, as compared to the prior-year period, the increase in earnings from equity interests is the result of higher net income earned by H3C in the first three months of fiscal 2018.
Provision for Taxes
Our effective tax rate was 832.8% and 523.0% for the three months ended April 30, 2018 and 2017, respectively, and 401.7% and 150.7% for the six months ended April 30, 2018 and 2017, respectively. The effective tax rate for the three and six months ended April 30, 2018 was significantly impacted by the U.S. Tax Cuts and Jobs Act ("Tax Act") and the settlement of certain pre-Separation tax liabilities of HP Inc., for which we are joint and severally liable.
On December 22, 2017, the Tax Act was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect our business, such as imposing a one-time transition tax on deemed repatriation of deferred foreign income, reducing the U.S. federal statutory tax rate, and adopting a modified territorial tax system. See Note 7, "Taxes on Earnings", for a full description of the impact of the Tax Act to our operations.
Segment Information
Effective at the beginning of the first quarter of fiscal 2018, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. For additional information related to these realignments and for a description of the products and services for each segment, see Note 3, "Segment Information".

47
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)




Hybrid IT
 
Three months ended April 30,
 
2018
 
2017
 
% Change
 
Dollars in millions
 
 
Net revenue
$
6,023

 
$
5,637

 
6.8
%
Earnings from operations
$
621

 
$
457

 
35.9
%
Earnings from operations as a % of net revenue
10.3
%
 
8.1
%
 
 

 
Six months ended April 30,
 
2018
 
2017
 
% Change
 
Dollars in millions
 
 
Net revenue
$
12,354

 
$
11,392

 
8.4
%
Earnings from operations
$
1,229

 
$
1,190

 
3.3
%
Earnings from operations as a % of net revenue
9.9
%
 
10.4
%
 
 

The components of the weighted net revenue change by business unit were as follows:
 
Three months ended April 30,
 
Net Revenue
 
Weighted
Net Revenue
Change
Percentage
Points
 
2018
 
2017
 
2018
 
Dollars in millions
 
 
Compute
$
3,213

 
$
3,033

 
3.3

Storage
912

 
734

 
3.2

DC Networking
46

 
45

 
—

Hybrid IT Product
4,171

 
3,812

 
6.5

HPE Pointnext
1,852

 
1,825

 
0.3

Total Hybrid IT
$
6,023

 
$
5,637

 
6.8

 
Six months ended April 30,
 
Net Revenue
 
Weighted
Net Revenue
Change
Percentage
Points
 
2018
 
2017
 
2018
 
Dollars in millions
 
 
Compute
$
6,705

 
$
6,176

 
4.6

Storage
1,860

 
1,498

 
3.2

DC Networking
108

 
94

 
0.1

Hybrid IT Product
8,673

 
7,768

 
7.9

HPE Pointnext
3,681

 
3,624

 
0.5

Total Hybrid IT
$
12,354

 
$
11,392

 
8.4


48
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Three months ended April 30, 2018 compared with three months ended April 30, 2017
Hybrid IT net revenue increased by $386 million, or 6.8% (increased 3.8% on a constant currency basis), for the three months ended April 30, 2018. The increase in Hybrid IT net revenue was due to favorable currency fluctuations, incremental revenue from the Nimble Storage acquisition, growth in Compute from core ISS due primarily to higher AUPs, improved IT market conditions and the impact of the HPE Next initiative which includes focusing on high growth and high margin solutions and services.
Hybrid IT Product net revenue increased by $359 million, or 9%, with growth of 6%, 24% and 2% in Compute, Storage and DC Networking, respectively.
• The net revenue increase in Compute was due primarily to favorable currency fluctuations and growth in core ISS. Mission-critical servers ("MCS") also experienced a net revenue increase for the period. 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 ISS revenue was driven by an increase in AUPs, particularly in the rack category as a result of increased commodity costs, the continued growth of the new Generation 10 server category and improved server configurations, partially offset by a decline in overall units, primarily in the rack, tower and blade categories.
• The net revenue increase in Storage was driven by growth in the converged and traditional storage product categories. The growth in converged storage was due primarily to higher revenue from the Nimble Storage acquisition, which contributed approximately $80 million of revenue, partially offset by a decline in 3PAR revenue. Increased investments in new products and go-to-market activities are driving growth in converged storage. Traditional storage revenue increased due primarily to growth in networking products.
• Higher revenue in DC Networking was due primarily to growth in switching products.
HPE Pointnext net revenue increased by $27 million, or 1%, due primarily to the impact of favorable foreign currency fluctuations and revenue growth in Operational Services, partially offset by a revenue decline in Advisory and Professional Services and Communications and Media Services. Revenue in Operational Services increased due to growth in HPE Datacenter Care and HPE Proactive Care support solutions, partially offset by a reduction in support for legacy server and storage solutions.
Hybrid IT earnings from operations as a percentage of net revenue increased by 2.2 percentage points for the three months ended April 30, 2018, as compared to the prior-year period. The increase was due to higher gross margin and lower operating expenses as a percentage of net revenue. The increase in gross margin was due to multiple factors including: cost improvements in Compute from ISS core, primarily rack servers, higher average unit selling prices and the moderation of recent price increases for DRAM; as we streamline the business to focus on high margin solutions, a lower mix of revenue from Tier-1 server sales; and margin improvement in Storage from the Nimble Storage acquisition, partially offset by a higher mix of lower margin solutions in HPE Pointnext. Operating expense as a percentage of net revenue decreased as a result of cost reduction and streamlining initiatives partially offset by higher variable compensation expense.
Six months ended April 30, 2018 compared with six months ended April 30, 2017
Hybrid IT net revenue increased by $962 million, or 8.4% (increased 6.2% on a constant currency basis), for the six months ended April 30, 2018. The increase in Hybrid IT net revenue was due to incremental revenue from the Nimble Storage acquisition, growth in Compute from ISS due primarily to higher AUPs, favorable currency fluctuations, improved IT market conditions and the impact of the HPE Next initiative which includes focusing on high growth and high margin solutions and services.
Hybrid IT Product net revenue increased by $905 million, or 12%, with growth of 9%, 24% and 15% in Compute, Storage and DC Networking, respectively.
• The net revenue increase in Compute was due primarily to growth in ISS revenue and favorable currency impacts partially offset by a decline in MCS revenue. ISS revenue increased due to growth in core ISS, primarily in the rack server category, partially offset by a decline in Tier-1 server sales. The growth in ISS revenue was driven by an increase in AUPs primarily in the rack category as a result of increased commodity costs, partially offset by a decline in units in the tower, rack and blade categories. MCS revenue declined as a result of lower revenue from Itanium and NonStop products, partially offset by growth in MCS x86 products.

49
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



• 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 the Nimble Storage acquisition, which contributed approximately $180 million of revenue, and growth in Big Data and All-Flash Array products. Traditional storage revenue increased as a result of growth in networking and MSA products.
• Higher revenue in DC Networking was due primarily to growth in switching products.
HPE Pointnext net revenue increased by $57 million, or 2%, due primarily to favorable foreign currency fluctuations and revenue growth in Operational Services, partially offset by a revenue decline in Communications and Media Services and Advisory and Professional Services. Revenue in Operational Services increased due to growth in HPE Datacenter Care and HPE Proactive Care support solutions, partially offset by a reduction in support for legacy server and storage solutions.
Hybrid IT earnings from operations as a percentage of net revenue decreased 0.5 percentage points for the six months ended April 30, 2018, as compared to the prior-year period. The decrease was due to a decline in gross margin, which had a larger impact than the decrease in operating expenses as a percentage of net revenue. The gross margin decline was due primarily to a higher mix of lower margin solutions, higher variable compensation expense, increased commodity costs, particularly DRAM, and competitive pricing pressures. The gross margin decrease was partially offset by a lower mix of revenue from lower margin Tier-1 server sales. Operating expense as a percentage of net revenue decreased due to lower expense as a result of cost reduction and streamlining initiatives partially offset by higher variable compensation expense.
Intelligent Edge
 
Three months ended April 30,
 
2018
 
2017
 
% Change
 
Dollars in millions
 
 
Net revenue
$
710

 
$
606

 
17.2
%
Earnings from operations
$
46

 
$
46

 
—
%
Earnings from operations as a % of net revenue
6.5
%
 
7.6
%
 
 


 
Six months ended April 30,
 
2018
 
2017
 
% Change
 
Dollars in millions
 
 
Net revenue
$
1,330

 
$
1,176

 
13.1
%
Earnings from operations
$
64

 
$
62

 
3.2
%
Earnings from operations as a % of net revenue
4.8
%
 
5.3
%
 
 


The components of the weighted net revenue change by business unit were as follows:
 
Three months ended April 30,
 
Net Revenue
 
Weighted
Net Revenue Change Percentage Points
 
2018
 
2017
 
2018
 
Dollars in millions
 
 
HPE Aruba Product
$
635

 
$
538

 
15.9
%
HPE Aruba Services
75

 
68

 
1.3
%
Total Intelligent Edge
$
710

 
$
606

 
17.2
%


50
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



 
Six months ended April 30,
 
Net Revenue
 
Weighted
Net Revenue
Change
Percentage
Points
 
2018
 
2017
 
2018
 
Dollars in millions
 
 
HPE Aruba Product
$
1,184

 
$
1,041

 
12.2
%
HPE Aruba Services
146

 
135

 
0.9
%
Total Intelligent Edge
$
1,330

 
$
1,176

 
13.1
%

Three months ended April 30, 2018 compared with three months ended April 30, 2017
Intelligent Edge net revenue increased by $104 million , or 17.2% (increased 14.1% on a constant currency basis), for the three months ended April 30, 2018. The increase in Intelligent Edge net revenue was due primarily to a net increase in HPE Aruba Product revenue of $97 million , or 18% . The increase in HPE Aruba Product revenue was due primarily to revenue growth in campus switching products as a result of increased sales of legacy HPE campus switching products into the Aruba customer base leading to growth across all regions, as well as revenue growth in our edge computing technology products and our wireless local area network ("WLAN") products. HPE Aruba Services net revenue increased by $7 million , or 10% , due primarily to services attach on a growing product installed base.
Intelligent Edge earnings from operations as a percentage of net revenue decreased 1.1 percentage points for the three months ended April 30, 2018 due to a slight decrease in gross margin and an increase in operating expenses as a percentage of net revenue. The decrease in gross margin was due primarily to a higher mix of revenue from edge compute products partially offset by an increase in campus switching product margins. The increase in operating expenses as a percentage of net revenue was due primarily to higher R&D spend and field selling costs.
Six months ended April 30, 2018 compared with six months ended April 30, 2017
Intelligent Edge net revenue increased by $154 million , or 13.1% (increased 10.5% on a constant currency basis), for the six months ended April 30, 2018. The increase in Intelligent Edge net revenue was due primarily to a net increase in HPE Aruba Product revenue of $143 million , or 14% . The increase in HPE Aruba Product revenue was due primarily to revenue growth in campus switching products as a result of increased sales of legacy HPE campus switching products into the Aruba customer base leading to growth across all regions, partially offset by a decline in revenue from WLAN products due primarily to both a sales reserve release and the benefit of a large deal in the prior-year period. HPE Aruba Services net revenue increased by $11 million , or 8% , due primarily to services attach on a growing product installed base.
Intelligent Edge earnings from operations as a percentage of net revenue decreased 0.5 percentage points for the six months ended April 30, 2018. The decrease was due to an increase in operating expenses as a percentage of net revenue partially offset by an increase in gross margin. The increase in gross margin was due primarily to the impact of a one-time tax duty in the prior-year period and a higher mix of revenue from legacy HPE campus switching products. The increase in operating expenses as a percentage of net revenue was due primarily to higher R&D spend and field selling costs.
Financial Services
 
Three months ended April 30,
 
2018
 
2017
 
% Change
 
Dollars in millions
 
 
Net revenue
$
916

 
$
872

 
5.0
 %
Earnings from operations
$
72

 
$
77

 
(6.5
)%
Earnings from operations as a % of net revenue
7.9
%
 
8.8
%
 
 



51
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



 
Six months ended April 30,
 
2018
 
2017
 
% Change
 
Dollars in millions
 
 
Net revenue
$
1,804

 
$
1,695

 
6.4
 %
Earnings from operations
$
144

 
$
153

 
(5.9
)%
Earnings from operations as a % of net revenue
8.0
%
 
9.0
%
 
 


Three months ended April 30, 2018 compared with three months ended April 30, 2017
FS net revenue increased by $44 million, or 5.0% (increased 0.6% on a constant currency basis), for the three months ended April 30, 2018 . The increase in net revenue was due primarily to favorable foreign currency fluctuations and higher asset management revenue from end-of-lease monthly rentals and remarketing sales, partially offset by a decrease in rental revenue due to lower average operating lease assets.
FS earnings from operations as a percentage of net revenue decreased 0.9 percentage points for the three months ended April 30, 2018 due to an increase in operating expense as a percentage of net revenue, partially offset by an increase in gross margin. Operating expense as a percentage of net revenue increased due primarily to higher field selling costs and marketing expenses. The increase in gross margin was due primarily to favorable foreign currency fluctuations, along with higher asset management activity related to lease extensions and higher margins on remarketing sales, partially offset by higher bad debt expense.
Six months ended April 30, 2018 compared with six months ended April 30, 2017
FS net revenue increased by $109 million, or 6.4% (increased 2.6% on a constant currency basis), for the six months ended April 30, 2018 . The increase in net revenue was due primarily to favorable foreign currency fluctuations and higher asset management revenue from end-of-lease monthly rentals and remarketing sales.
FS earnings from operations as a percentage of net revenue decreased 1.0 percentage points for the six months ended April 30, 2018 due to an increase in operating expense as a percentage of net revenue and a decrease in gross margin. Operating expense as a percentage of net revenue increased due primarily to field selling costs and marketing expenses. The decrease in gross margin was due primarily to the impact of a bad debt reserve release in the prior-year period partially offset by favorable currency fluctuations and higher asset management activity related to lease extensions and higher margins on remarketing sales.
Financing Volume
 
Three months ended April 30,
 
Six months ended April 30,
 
2018
 
2017
 
2018
 
2017
 
In millions
Total financing volume
$
1,542

 
$
1,546

 
$
2,978

 
$
2,889

New financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, remained flat for the three months ended April 30, 2018 as compared to the prior-year period. For the six months ended April 30, 2018 as compared to the prior-year period, financing volume increased 3.1% due primarily to higher financing associated with third-party product sales and related service offerings.

52
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Portfolio Assets and Ratios
The portfolio assets and ratios derived from the segment balance sheets for FS were as follows:
 
As of
 
April 30, 2018
 
October 31, 2017
 
Dollars in millions
Financing receivables, gross
$
8,163

 
$
7,844

Net equipment under operating leases
4,338

 
4,413

Capitalized profit on intercompany equipment transactions
558

 
656

Intercompany leases
110

 
115

Gross portfolio assets
13,169

 
13,028

Allowance for doubtful accounts (1)
97

 
86

Operating lease equipment reserve
53

 
49

Total reserves
150

 
135

Net portfolio assets
$
13,019

 
$
12,893

Reserve coverage
1.1
%
 
1.0
%
Debt-to-equity ratio (2)
7.0x

 
7.0x

 
(1)
Allowance for doubtful accounts for financing receivables includes both the short- and long-term portions.
(2)
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 $11.6 billion and $11.2 billion at April 30, 2018 and October 31, 2017 , 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 April 30, 2018 and October 31, 2017 was $1.7 billion and $1.6 billion respectively.
At April 30, 2018 and October 31, 2017 , FS cash and cash equivalents balances were approximately $864 million and $873 million, respectively.
Net portfolio assets at April 30, 2018 increased 1.0% from October 31, 2017 . The increase generally resulted from favorable currency fluctuations led by strength in the euro.
FS bad debt expense includes charges to general reserves and specific reserves for sales-type, direct-financing and operating leases. For the three and six months ended April 30, 2018 , FS recorded net bad debt expense of $18 million and $34 million, respectively. For the three and six months ended April 30, 2017, FS recorded net bad debt expense of $13 million and $18 million respectively. The prior year included the release of previously recorded general reserves in the first quarter of 2017.
Corporate Investments
 
Three months ended April 30,
 
2018
 
2017
 
% Change
 
Dollars in millions
Net revenue
$
—

 
$
—

 
NM

Loss from operations
$
(22
)
 
$
(28
)
 
(21.4
)%
Loss from operations as a % of net revenue (1)
NM

 
NM

 
NM

 
(1)
"NM" represents not meaningful.





53
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)




 
Six months ended April 30,
 
2018
 
2017
 
% Change
 
Dollars in millions
Net revenue
$
(1
)
 
$
—

 
NM

Loss from operations
$
(43
)
 
$
(61
)
 
(29.5
)%
Loss from operations as a % of net revenue (1)
NM

 
NM

 
NM

 
(1)
"NM" represents not meaningful.
For the three and six months ended April 30, 2018 , as compared to the prior-year periods, Corporate Investments loss from operations decreased by $6 million and $ 18 million , or 21.4% and 29.5% respectively, due to lower spending in Hewlett Packard Labs.

LIQUIDITY AND CAPITAL RESOURCES
We use cash generated by operations as our primary source of liquidity. We believe that internally generated cash flows will be generally sufficient to support our operating businesses, capital expenditures, acquisitions, restructuring activities, remaining divestiture transaction costs, including indemnifications, transformation costs, maturing debt, interest payments, and income tax payments, in addition to any future investments and any future share repurchases, and future stockholder dividend payments. We expect to supplement this short-term liquidity, if necessary, by accessing the capital markets, issuing commercial paper, and borrowing under credit facilities made available by various domestic and foreign financial institutions. However, our access to capital markets may be constrained and our cost of borrowing may increase under certain business, market and economic conditions. Our liquidity is subject to various risks including the risks identified in the section entitled "Risk Factors" in Item 1A of Part II and market risks identified in the section entitled "Quantitative and Qualitative Disclosures about Market Risk" in Item 3 of Part I.
Our cash balances are held in numerous locations throughout the world, with a substantial amount held outside of the U.S. We utilize a variety of planning and financing strategies in an effort to ensure that our worldwide cash is available when and where it is needed. Our cash position is strong and we expect that our cash balances, anticipated cash flow generated from operations and access to capital markets will be sufficient to cover our expected near-term cash outlays.
Amounts held outside of the U.S. are generally utilized to support non-U.S. liquidity needs, although a portion of those amounts may, from time to time, be subject to short-term intercompany loans into the U.S. Due to the enactment of the Tax Act, all of our cash, cash equivalents and investments held by foreign subsidiaries were subject to U.S. taxation under the one-time Transition Tax as further discussed in Note 7, “Taxes on Earnings”. Subsequent repatriations will not be taxable from a U.S. federal tax perspective but may be subject to state or foreign withholding tax. Where local restrictions prevent an efficient intercompany transfer of funds, our intent is to keep cash balances outside of the U.S. and to meet liquidity needs through ongoing cash flows, external borrowings, or both. We do not expect restrictions or potential taxes incurred on repatriation of amounts held outside of the U.S. to have a material effect on our overall liquidity, financial condition or results of operations.
In connection with the share repurchase program previously authorized by our Board of Directors, during the first six months of fiscal 2018, we repurchased an aggregate amount of $1.6 billion. On February 21, 2018, our Board of Directors authorized an additional $2.5 billion under the share repurchase program. On February 22, 2018, we announced an increase to the regular quarterly dividend from $0.075 per share to $0.1125 per share, which is effective in the third quarter of fiscal 2018. For more information on our share repurchase program, refer to Item 2. Unregistered Sales of Equity Securities in Part II. Other Information.

54
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Liquidity
Our historical statement of cash flows represent the combined cash flows and metrics of HPE and have not been revised to reflect the effect of discontinued operations. For further information on discontinued operations, refer to Note 2, "Discontinued Operations".
Our key cash flow metrics were as follows:
 
Six months ended April 30,
 
2018
 
2017
 
In millions
Net cash provided by (used in) operating activities
$
389

 
$
(451
)
Net cash used in investing activities
(1,269
)
 
(3,810
)
Net cash used in financing activities
(1,713
)
 
(625
)
Net decrease in cash and cash equivalents
$
(2,593
)
 
$
(4,886
)
Operating Activities
For the six months ended April 30, 2018, net cash provided by operating activities increased by $ 0.8 billion , as compared to the prior-year period. The increase was due primarily to a payment of $1.9 billion for pension funding in connection with the Everett Transaction in the prior-year period partially offset by higher cash usage for net working capital management and financing receivables.
Working capital metrics for the three months ended April 30, 2018 compared with the three months ended April 30, 2017
Our key working capital metrics have been revised to reflect the effect of discontinued operations and were as follows:
 
Three months ended April 30,
 
2018
 
2017
 
Change
Days of sales outstanding in accounts receivable ("DSO")
37

 
44

 
(7
)
Days of supply in inventory ("DOS")
49

 
38

 
11

Days of purchases outstanding in accounts payable ("DPO")
(108
)
 
(96
)
 
(12
)
Cash conversion cycle
(22
)
 
(14
)
 
(8
)
DSO measures the average number of days our receivables are outstanding. DSO is calculated by dividing ending accounts receivable, net of allowance for doubtful accounts, by a 90-day average of net revenue. Compared to the corresponding period in fiscal 2017, DSO declined due to lower accounts receivable balances as a result of an increase in early payments and factoring, favorable billing linearity and favorable foreign currency fluctuations.
DOS measures the average number of days from procurement to sale of our product. DOS is calculated by dividing ending inventory by a 90-day average of cost of goods sold. Compared to the corresponding period in fiscal 2017, the increase in DOS was due primarily to higher levels of inventory to support customer demand, increases in memory component costs, particularly DRAM, and higher inventory of server solutions which have longer time-to-shipment cycles.
DPO measures the average number of days our accounts payable balances are outstanding. DPO is calculated by dividing ending accounts payable by a 90-day average of cost of goods sold. Compared to the corresponding period in fiscal 2017, the increase in DPO was primarily the result of increased inventory purchases to support customer demand, higher commodity costs and an extension of payment terms with our product suppliers.
The cash conversion cycle is the sum of DSO and DOS less DPO. Items which may cause the cash conversion cycle in a particular period to differ include, but are not limited to, changes in business mix, changes in payment terms (including extended payment terms from suppliers), the extent of receivables factoring, seasonal trends, the timing of revenue recognition and inventory purchases within the period, and acquisition activity.

55
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



Investing Activities
For the six months ended April 30, 2018, net cash used in investing activities decreased by $2.5 billion, as compared to the corresponding period in fiscal 2017. The decrease was due primarily to payments of $2.1 billion in the prior period in connection with business acquisitions and a $469 million decrease in investments in property, plant and equipment, net of proceeds from sales.
Financing Activities
Compared to the corresponding period in fiscal 2017, net cash used in financing activities increased by $1.1 billion for the six months ended April 30, 2018. The increase was due primarily to the negative impact of a $3.0 billion cash dividend from Everett partially offset by a $1.5 billion redemption of Senior Notes in the prior period. The current period benefited from a reduction in cash and cash equivalents transferred to Everett of $0.5 billion and cash and cash equivalents transferred from Seattle of $0.2 billion, partially offset by an increase of $0.3 billion of repurchase activity.
Capital Resources
Debt Levels
We maintain debt levels that we establish through consideration of a number of factors, including cash flow expectations, cash requirements for operations, investment plans (including acquisitions), share repurchase activities, and our cost of capital and targeted capital structure.
We announced on May 22, 2018 that on June 29, 2018 we plan to redeem $1.6 billion face value of the $2.65 billion Senior Notes with an original maturity date of October 5, 2018.
During the first six months of fiscal 2018, we issued $13.0 billion and repaid $13.0 billion of commercial paper.
For more information on our borrowings, see Note 15, "Borrowings", to the Consolidated and Combined Financial Statements in Item 8 of the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2017.
Our weighted-average interest rate reflects the average effective rate on our borrowings prevailing during the period and reflects the impact of interest rate swaps. For more information on our interest rate swaps, see Note 12, "Financial Instruments".
In December 2017, we filed a shelf registration statement with the Securities and Exchange Commission that allows us to sell, at any time and from time to time, in one or more offerings, debt securities, preferred stock, common stock, warrants, depositary shares, purchase contracts, guarantees or units.
Revolving Credit Facility
On November 1, 2015, the Company entered into a revolving credit facility providing for a senior, unsecured revolving credit facility with aggregate lending commitments of $4.0 billion. Loans under the revolving credit facility may be used for general corporate purposes. Commitments under the Credit Agreement are available for a period of five years, which may be extended. Commitment fees, interest rates and other terms of borrowing under the credit facility vary based on Hewlett Packard Enterprise's external credit rating.
Available Borrowing Resources
As of April 30, 2018, we had the following additional liquidity resources available if needed:
 
As of
April 30, 2018
 
In millions
Commercial paper programs
$
4,068

Uncommitted lines of credit
$
1,306


56
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)



CONTRACTUAL AND OTHER OBLIGATIONS
Contractual Obligations
Our contractual obligations have not changed materially since October 31, 2017. For further information see "Contractual and Other Obligations" in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended October 31, 2017.
Retirement and Post-Retirement Benefit Plan Funding
For the remainder of fiscal 2018, we anticipate making contributions of approximately $83 million to our non-U.S. pension plans. Our policy is to fund our pension plans so that we meet at least the minimum contribution requirements, as established by local government, funding and taxing authorities. For more information on our retirement and post-retirement benefit plans, see Note 6, "Retirement and Post-Retirement Benefit Plans".
Restructuring Plans
As of April 30, 2018, we expect to make future cash payments of approximately $0.8 billion in connection with our approved restructuring plans, which includes $0.3 billion expected to be paid through the remainder of fiscal 2018 and $0.5 billion expected to be paid through fiscal 2021. For more information on our restructuring activities, see Note 4, "Restructuring", and Note 5, "HPE Next".
Uncertain Tax Positions
As of April 30, 2018, we had approximately $1.6 billion of recorded liabilities and related interest and penalties pertaining to uncertain tax positions. These liabilities and related interest and penalties include $111 million to be paid within one year. For the remaining amounts, 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 7, "Taxes on Earnings".
Cross-indemnification with HP Inc., DXC and Micro Focus
As of April 30, 2018, we had approximately $183 million of recorded liabilities pertaining to income tax indemnification with HP Inc. These liabilities include $78 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 HP Inc. might occur due to the uncertainties related to the underlying tax matters. Payments of these obligations would result from settlements under the Tax Matters Agreement with HP Inc. For further details related to our tax indemnification balances, see Note 16, "Indemnifications". For details on the Separation and Distribution Agreements and Tax Matters Agreements with HP Inc., DXC and Micro Focus, see our Annual Report on Form 10-K for the fiscal year ended October 31, 2017.
Off-Balance Sheet Arrangements
As part of our ongoing business, we have not participated in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk.
For quantitative and qualitative disclosures about market risk affecting HPE, see "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended October 31, 2017. Our exposure to market risk has not changed materially since October 31, 2017.

57

Item 4.    Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report (the "Evaluation Date"). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company's management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting during the first six months of fiscal 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

58

PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Information with respect to this item may be found in Note 15, "Litigation and Contingencies".
Item 1A. Risk Factors.
Our operations and financial results are subject to various risks and uncertainties which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock, including those described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal period ended October 31, 2017, and in Part II, Item 1A, "Risk Factors"  in our Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
There were no unregistered sales of equity securities during the period covered by this report.
Issuer Purchases of Equity Securities
Period
Total Number
of Shares
Purchased
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
 
Approximate Dollar Value of
Shares that May Yet Be
Purchased under the Plans
or Programs
 
In thousands, except per share amounts
Month #1 (February 2018)
17,494

 
$
16.27

 
17,494

 
$
7,254,065

Month #2 (March 2018)
16,574

 
$
18.75

 
16,574

 
$
6,943,231

Month #3 (April 2018)
17,933

 
$
17.37

 
17,933

 
$
6,631,728

Total
52,001

 
$
17.44

 
52,001

 
 

During the three months ended April 30, 2018 , the Company repurchased and settled 52 million shares of the Company's common stock, which included 1.9 million shares that were unsettled open market purchases as of January 31, 2018. Additionally, as of April 30, 2018 , the Company had unsettled open market repurchases of 1.4 million shares. Shares repurchased during the quarter were recorded as a $900 million reduction to stockholders' equity. During the six months ended April 30, 2018 , the Company repurchased and settled 102 million shares of the Company's common stock, which included 1.7 million shares that were unsettled open market purchases as of October 31, 2017. Shares repurchased during the six months ended April 30, 2018 were recorded as a $1.7 billion reduction to stockholders' equity.
On October 13, 2015, our Board of Directors approved a share repurchase program with a $3.0 billion authorization, which was refreshed with additional share repurchase authorizations of $3.0 billion, $5.0 billion and $2.5 billion on May 24, 2016, October 16, 2017, and February 21, 2018, respectively. As of April 30, 2018 , the Company had a remaining authorization of $6.6 billion for future share repurchases. The Company may choose to repurchase shares when sufficient liquidity exists and the shares are trading at a discount relative to estimated intrinsic value. This program, which does not have a specific expiration date, authorizes repurchases in the open market or in private transactions. Share repurchases settled in the second quarter of fiscal 2018 were open market repurchases.
Item 5. Other Information.
None.
Item 6. Exhibits.
The Exhibit Index beginning on page 60 of this report sets forth a list of exhibits.

59
Table of Contents

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

60
Table of Contents

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

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

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

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

 
2.4
 
September 1, 2017
3.1
 
 
8-K
 
001-37483
 
3.1
 
November 5, 2015
3.2
 
 
8-K
 
001-37483
 
3.2
 
November 5, 2015
3.3
 
 
8-K
 
001-37483
 
3.1
 
March 20, 2017
3.4
 

 
8-K
 
001-37483
 
3.2
 
March 20, 2017
4.1
 
 
8-K
 
001-37483
 
4.1
 
October 13, 2015
4.2
 
 
8-K
 
001-37483
 
4.2
 
October 13, 2015

61
Table of Contents

4.3
 
 
8-K
 
001-37483
 
4.3
 
October 13, 2015
4.4
 
 
8-K
 
001-37483
 
4.4
 
October 13, 2015
4.5
 
 
8-K
 
001-37483
 
4.5
 
October 13, 2015
4.6
 
 
8-K
 
001-37483
 
4.6
 
October 13, 2015
4.7
 
 
8-K
 
001-37483
 
4.7
 
October 13, 2015
4.8
 
 
8-K
 
001-37483
 
4.8
 
October 13, 2015
4.9
 
 
8-K
 
001-37483
 
4.9
 
October 13, 2015
4.10
 
 
8-K
 
001-37483
 
4.10
 
October 13, 2015
4.11
 
 
8-K
 
001-37483
 
4.11
 
October 13, 2015
4.12
 
 
8-K
 
001-37483
 
4.12
 
October 13, 2015
4.13
 
 
10-K
 
001-04423
 
4.13
 
December 17, 2015
4.14
 
 
S-8
 
333-207680
 
4.3
 
October 30, 2015
4.15
 
 
8-K
 
001-37483

 
10.1
 
December 22, 2016


62
Table of Contents

4.16
 
 
8-K
 
001-37483

 
4.1
 
September 20, 2017
4.17
 
 
S-3ASR
 
333-222102
 
4.5
 
December 15, 2017
10.1
 
 
8-K
 
001-37483
 
10.1
 
January 30, 2017
10.2
 
 
10
 
001-37483
 
10.2
 
September 28, 2015
10.3
 
 
10
 
001-37483
 
10.4
 
September 28, 2015
10.4
 
 
S-8
 
333-207679
 
4.3
 
October 30, 2015
10.5
 
 
S-8
 
333-207679
 
4.4
 
October 30, 2015
10.6
 
 
8-K
 
001-37483
 
10.4
 
November 5, 2015
10.7
 
 
8-K
 
001-37483
 
10.5
 
November 5, 2015
10.8
 
 
8-K
 
001-37483
 
10.6
 
November 5, 2015
10.9
 
 
8-K
 
001-37483
 
10.7
 
November 5, 2015
10.10
 
 
8-K
 
001-37483
 
10.8
 
November 5, 2015
10.11
 
 
8-K
 
001-37483
 
10.9
 
November 5, 2015
10.12
 
 
8-K
 
001-37483
 
10.10
 
November 5, 2015
10.13
 
 
8-K
 
001-37483
 
10.1
 
November 5, 2015
10.14
 
 
10-Q
 
001-37483
 
10.14
 
March 10, 2016
10.15
 
 
10-Q
 
001-37483
 
10.15
 
March 10, 2016
10.16
 
 
8-K
 
001-37483
 
10.1
 
May 26, 2016
10.17
 
 
S-8
 
333-207679
 
4.3
 
March 6, 2017
10.18
 
 
S-8
 
001-37483
 
4.3
 
April 18, 2017
10.19
 
 
S-8
 
001-37483
 
4.4
 
April 18, 2017
10.20
 
 
S-8
 
001-37483
 
4.3
 
April 24, 2017
10.21
 
 
10-Q
 
000-51333
 
10.1
 
January 29, 2016
10.22
 
 
10-K
 
000-51333
 
10.48
 
February 28, 2007
10.23
 
 
10-K
 
000-51333
 
10.3
 
September 10, 2012
10.24
 
 
S-1
 
000-51333
 
10.10
 
February 4, 2005

63
Table of Contents

10.25
 
 
S-8
 
333-221254
 
4.3
 
October 31, 2017
10.26
 
 
S-8
 
333-221254
 
4.4
 
October 31, 2017
10.27
 
 
 
 
 
 
 
 
 
31.1
 
 
 
 
 
 
 
 
 
31.2
 
 
 
 
 
 
 
 
 
32
 
 
 
 
 
 
 
 
 
101.INS
 
XBRL Instance Document‡
 
 
 
 
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document‡
 
 
 
 
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document‡
 
 
 
 
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document‡
 
 
 
 
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document‡
 
 
 
 
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document‡
 
 
 
 
 
 
 
 
*
Indicates management contract or compensation plan, contract or arrangement
‡
Filed herewith
†
Furnished herewith
The registrant agrees to furnish to the Commission supplementally upon request a copy of (1) any instrument with respect to long-term debt not filed herewith as to which the total amount of securities authorized thereunder does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis and (ii) schedules or exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K of any material plan of acquisition, disposition or reorganization set forth above.

64
Table of Contents

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
HEWLETT PACKARD ENTERPRISE COMPANY
 
 
/s/ TIMOTHY C. STONESIFER
 
 
Timothy C. Stonesifer
  Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Authorized
Signatory)
Date: June 7, 2018

65

Amendment One to the Hewlett Packard Enterprise Executive Deferred Compensation Plan

The Hewlett Packard Enterprise Executive Deferred Compensation Plan (the “Plan”), originally effective as of November 1, 2015, is hereby amended, effective as of January 1, 2018, as follows:

1.
Section 4.2 of the Plan shall be amended in its entirety to read as follows:
“4.2     Crediting of HPE Matching Contributions . HPE Matching Contributions for a Plan Year shall be credited to the Accounts of Match Eligible Employees as soon as administratively practicable after the end of the Plan Year. The Account of a Participant shall be credited with HPE Matching Contributions for a Plan Year only if such Participant has not terminated employment with HPE and its Affiliates prior to the end of the Plan Year, unless such termination is due to death, disability (for the avoidance of doubt, disability status is determined by reference to eligibility for benefits under the Company’s long-term disability benefits program) or is after Participant’s Retirement Date.

2.
Section 4.3(a)(ii) of the Plan shall be amended in its entirety to read as follows:

“(ii)    For Participants not described in Section 4.3(a)(i) above, the Participant will be vested in HPE Matching Contributions credited to such Participant’s Account when such Participant would be vested in HPE Matching Contributions credited to his or her account under the Hewlett Packard Enterprise 401(k) Plan. Notwithstanding the foregoing, a Participant will be fully vested in HPE Matching Contributions credited to his or her Account if the Participant’s employment with HPE and its Affiliates is terminated (A) due to death or disability (for the avoidance of doubt, disability status is determined by reference to eligibility for benefits under the Company’s long-term disability benefits program), (B) after the Participant has reached his or her Retirement Date, or (C) if the Participant terminates employment from HPE or an Affiliate in connection with a sale or other disposition by HPE or the Affiliate of the business unit in which the Participant had been employed.”

3.
Except as otherwise provided in this Amendment One, all other terms and conditions of the Plan shall continue in full force and effect.


1



IN WITNESS WHEREOF , Hewlett Packard Enterprise Company, by its duly authorized representative, has caused this Amendment One to be executed as of this 23 day of May, 2018.


Hewlett Packard Enterprise Company



By: /s/ Kristin Major
Kristin Major
Senior Vice President, Deputy General Counsel and Assistant Secretary




2



Exhibit 31.1
CERTIFICATION
I, Antonio F. Neri, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Hewlett Packard Enterprise Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: June 7, 2018
 
/s/ ANTONIO F. NERI
 
Antonio F. Neri
President and Chief Executive Officer
(Principal Executive Officer)




Exhibit 31.2
CERTIFICATION
I, Timothy C. Stonesifer, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Hewlett Packard Enterprise Company;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: June 7, 2018
 
/s/ TIMOTHY C. STONESIFER
 
Timothy C. Stonesifer
  Executive Vice President and Chief Financial Officer
(Principal Financial Officer)




Exhibit 32
CERTIFICATION
OF
CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Antonio F. Neri, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Hewlett Packard Enterprise Company for the second quarter ended April 30, 2018, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Hewlett Packard Enterprise Company.
Date: June 7, 2018
 
By:
/s/ ANTONIO F. NERI
 
 
Antonio F. Neri
President and Chief Executive Officer

I, Timothy C. Stonesifer, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Hewlett Packard Enterprise Company for the second quarter ended April 30, 2018, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Hewlett Packard Enterprise Company.
Date: June 7, 2018
 
By:
/s/ TIMOTHY C. STONESIFER
 
 
Timothy C. Stonesifer
  Executive Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Hewlett Packard Enterprise Company and will be retained by Hewlett Packard Enterprise Company and furnished to the Securities and Exchange Commission or its staff upon request.