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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)    
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2020
Or
  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.)
11445 Compaq Center West Drive, Houston, Texas 77070
(Address of principal executive offices) (Zip code)


Registrant's telephone number, including area code: (650) 687-5817
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock, par value $0.01 per share HPE New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes x No ¨ 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 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 ¨ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨ 


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 Accelerated filer Non-accelerated filer
Smaller reporting company
Emerging growth company
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. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  No x
The aggregate market value of the registrant's common stock held by non-affiliates was $12,872,878,346 based on the last sale price of common stock on April 30, 2020.
The number of shares of Hewlett Packard Enterprise Company common stock outstanding as of December 7, 2020 was 1,293,499,810 shares.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT DESCRIPTION   10-K PART
Portions of the Registrant's proxy statement related to its 2021 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days after Registrant's fiscal year end of October 31, 2020 are incorporated by reference into Part III of this Report.
  III


Hewlett Packard Enterprise Company
Form 10-K
For the Fiscal Year ended October 31, 2020
Table of Contents
    Page
 
2
 
 
 




Forward-Looking Statements
This Annual Report on Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements 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 the scope and duration of the novel coronavirus pandemic ("COVID-19") and its impact on our business, operations, liquidity and capital resources, employees, customers, partners, supply chain, financial results and the world economy; any projections of revenue, margins, expenses, investments, effective tax rates, interest rates, the impact of the U.S. Tax Cuts and Jobs Act of 2017 and related guidance or regulations, net earnings, net earnings per share, cash flows, liquidity and capital resources, inventory, goodwill, impairment charges, hedges and derivatives and related offsets, order backlog, benefit plan funding, deferred tax assets, share repurchases, currency exchange rates, repayments of debts including our asset-backed debt securities, or other financial items; the projections, execution, timing and results of any transformation or restructuring plans, including estimates and assumptions related to the anticipated benefits, cost savings or charges of implementing the transformation and restructuring plans; any statements of the plans, strategies and objectives of management for future operations, as well as the execution of corporate transactions or contemplated acquisitions, research and development expenditures, and any resulting benefit, cost savings, charges, or 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 (including pandemics and public health problems, such as the outbreak of COVID-19); 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, including any impact thereon resulting from events such as the COVID-19 pandemic; the hiring and retention of key employees; the execution, integration and risks associated with business combination and investment transactions; the impact of changes to environmental, global trade, and other governmental regulations; changes in our product, lease, intellectual property or real estate portfolio; the payment or non-payment of a dividend for any period; the efficacy of using non-GAAP, rather than GAAP, financial measures in business projections and planning; the judgments required in connection with determining revenue recognition; impact of company policies and related compliance; utility of segment realignments; allowances for recovery of receivables and warranty obligations; provisions for, and resolution of, pending investigations, claims and disputes; and other risks that are described herein, including but not limited to the items discussed in "Risk Factors" in Item 1A of Part I of this report 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, except as required by applicable law.
1

PART I
ITEM 1. Business
We are a global technology leader focused on developing intelligent solutions that allow customers to capture, analyze and act upon data seamlessly from edge to cloud. We enable customers to accelerate business outcomes by driving new business models, creating new customer and employee experiences, and increasing operational efficiency today and into the future. Our customers range from small-and-medium-sized businesses ("SMBs") to large global enterprises and governmental entities. 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.
On November 1, 2015, HP Inc. ("former Parent"), formerly known as Hewlett-Packard Company ("HP Co.") spun-off Hewlett Packard Enterprise Company ("we", "us", "our", "Hewlett Packard Enterprise", "HPE", or "the Company") pursuant to a separation agreement (the "Separation and Distribution Agreement") (collectively the "Separation"). Since the Separation, we have operated as an independent, publicly-traded company.
On April 1, 2017, we completed the separation and merger of our Enterprise Services business with DXC Technology Company ("DXC", "the Everett Transaction" or "Everett").
On September 1, 2017, we completed the separation and merger of our Software business segment with Micro Focus International plc ("Micro Focus", "the Seattle Transaction" or "Seattle").
Transformation Programs
Cost Optimization and Prioritization Plan
During the third quarter of fiscal 2020, we launched a cost optimization and prioritization plan which focuses on realigning our workforce to areas of growth, including a new hybrid workforce model called Edge-to-Office, real estate strategies and simplifying and evolving our product portfolio strategy. The implementation period for the cost optimization and prioritization plan is through fiscal 2023. During this implementation period, we expect to incur transformation costs predominantly related to labor restructuring, non-labor restructuring, IT investments and design and execution charges.
HPE Next
During the third quarter of fiscal 2017, we launched an initiative called HPE Next to put in place a purpose-built company designed to compete and win in the markets where we participate. Through this program, we are simplifying our operating model, streamlining our offerings, business processes and business systems to improve our execution. The implementation period for HPE Next has been extended to fiscal 2023. During the remaining implementation period we expect to incur transformation costs predominantly related to IT infrastructure costs for streamlining, upgrading and simplifying back-end operations, and real estate initiatives. These costs are expected to be partially offset by gains from real estate sales.
Impacts of the COVID-19 Pandemic on HPE's Business
The outbreak of COVID-19 in 2020 resulted in a global slowdown of economic activity including worldwide travel restrictions, prohibitions of non-essential work activities, disruption and shutdown of businesses and greater uncertainty in global financial markets, all of which resulted in COVID-19 having an impact on our financial performance in fiscal 2020. As this pandemic endures and continues to have an impact on global economic activity, the extent to which COVID-19 adversely impacts our future business operations, financial performance and results of operations is uncertain and will depend on many factors outside the Company's control. For a further discussion of the risks, uncertainties and actions taken in response to COVID-19, refer to Item 1A "Risk Factors" and Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Our Strategy
The pace of technology disruption continues to accelerate. The global pandemic has served as a catalyst making digital transformation a strategic imperative for enterprises. Enterprises now require more resilient IT to ensure continuity in their operations. They also need to deliver secure connectivity, remote work solutions, data analytics capabilities and mobile-first, cloud-like experiences to their employees and customers, while preserving liquidity to navigate the macro economic uncertainty and to adapt to the new world.
We are answering the call for transformation with our edge-to-cloud strategy and solutions that are aligned to the evolving needs of our customers. We help enterprises transform and digitize their businesses so that they may accelerate their business outcomes by delivering new digital experiences and unlocking insights from their data. We saw that the foundation of
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every business would be edge-to-cloud and in response HPE brings industry-leading IT infrastructure, software, services, financing resources and as-a-service capabilities to meet this demand.
Human Capital Resources
At HPE we are united by our purpose, which is to advance the way people live and work. We believe technology’s greatest promise lies in its potential for positive change. This is the guidepost for each decision we make at HPE. We believe it not only helps guide our contribution to society, but also makes good business sense. Our company has always been an engine of innovation, and our approximately 59,400 employees as of October 31, 2020, are proud of the ways our technology enables our customers to achieve meaningful outcomes like curing disease, modernizing farming to cure world-hunger and democratizing transportation through autonomous vehicles.
Our Culture: We recognize the critical importance of talent and culture to the success of HPE and our ability to fulfill our purpose. We are passionate about the values that have underpinned the success of the company over years. This is why we believe in investing in our employees and communities where we live and work. HPE has intensified its focus on creating a superior team member experience and a highly engaged workforce, driving improvements across our communications, our culture, our reward programs, and our work environment and fostering a collaborative, inclusive and inspiring experience for all our team members. Our most recent global engagement survey shows how these intentional efforts are making a difference, with our overall Employee Engagement Index measuring 83%. More than 80% of team members would recommend HPE as a great place to work, and 87% say they are proud to work for HPE.
Building a Vibrant Culture: We have identified four key cultural beliefs that guide how we lead on a daily basis: belief in accelerating what’s next, in bold moves, in the “power of yes”, and in being a force for good. We embed these beliefs in an unshakable DNA that puts customers first, ensuring we partner, innovate and act with uncompromising integrity. Our empowered and engaging culture is making HPE a destination for the best talent while driving innovation and excellence for our customers.
Diversity, Equity and Inclusion: We are committed to being unconditionally inclusive to capture the ideas and perspectives that fuel innovation and enable our workforce, customers, and communities to succeed in the digital age. This is because, by harnessing the potential of our technologies and our team members, we can be a force for good. Annual goals are set to increase the representation of both women and ethnically diverse talent by at least 1 percentage point year-over-year. In 2020, HPE increased our female workforce at every level worldwide, including technical and executive roles. We also increased our representation of all underrepresented minorities in the U.S. The leadership standards sponsored, clearly articulate that all people leaders are expected to continuously develop their inclusive leadership capabilities. Our Board, CEO and Executive Committee role model high standards for diversity, equity and inclusion and are leading sustainable change, with strong governance and oversight via our Inclusion and Diversity Council.
Talent: We invest in attracting, developing and retaining the best talent. We do this by communicating a clear purpose and strategy, transparent goal setting, driving accountability, continuously assessing, developing, advancing talent, and a leadership-driven talent strategy. The dynamism of our industry and our company enables team members to grow in their current roles and build new skills. Over the past year, our approximately 59,400 team members completed over 330,000 online and instructor-led courses across a broad range of categories – leadership, inclusion and diversity, professional skills, technical and compliance. HPE is deeply committed to identifying and developing the next generation of top tier leadership with a special focus on diverse and technical talent. We conduct an in-depth annual talent and succession review with our CEO and Executive Committee members. The process focuses on accelerating talent development, strengthening succession pipelines, and advancing diversity representation for our most critical roles.
Work That Fits Your Life: This global initiative, which was launched in 2019, is an important example of how HPE is investing in our culture and creating a team member experience that makes HPE a destination of choice for the best talent in the industry. It includes an industry-leading paid parental leave program (minimum 6 months), part-time work opportunities for new parents or team members transitioning to retirement, and "Wellness Fridays" encouraging team members to leave work early one Friday per month to focus on their well-being. HPE's broader wellness program offers flexibility built around team member needs while continuing to deliver on critical business results. Key features include mental health support including employee assistance programs and free headspace accounts, physical fitness activities, and financial wellness programs.
Total Rewards: HPE requires a uniquely talented workforce and is committed to providing total rewards that are market-competitive and performance based, driving innovation and operational excellence. Our compensation programs, practices, and policies reflect our commitment to reward short- and long-term performance that aligns with, and drives, stockholder value. Total direct compensation is generally positioned within a competitive range of the market median, with differentiation based on tenure, skills, proficiency, and performance to attract and retain key talent.

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HPE’s strong and healthy culture is critical to accelerating what’s next for our customers and partners – and the success of our company. Our team is energized and more engaged than ever and will enable our ability to pivot and grow, which will, in turn, power the next chapter at Hewlett Packard Enterprise.
Our Business Segments, Products and Services
Our operations are organized into seven business segments: Compute, High Performance Compute and Mission Critical Systems ("HPC & MCS"), Storage, Advisory and Professional Services ("A & PS"), Intelligent Edge, Financial Services ("FS"), and Corporate Investments. The class of similar product categories within each segment which accounted for more than 10% of our consolidated net revenue in each of the past three years were as follows:
Fiscal 2020 - Compute products, Storage products, Compute Services
Fiscal 2019 - Compute products, Storage products
Fiscal 2018 - Compute products, Storage products
A summary of our net revenue, earnings from operations and assets for our segments can be found in Note 3, "Segment Information", to our Consolidated Financial Statements in Item 8 of Part II. A discussion of certain factors potentially affecting our operations is set forth in Item 1A, "Risk Factors."
Compute
Our Compute portfolio offers both general purpose servers for multi-workload computing and workload-optimized servers which offer the best performance and value for demanding applications. This portfolio of products includes our secure and versatile HPE ProLiant rack and tower servers; HPE BladeSystem, a modular infrastructure that converges server, storage and networking; and HPE Synergy, a composable infrastructure for traditional and cloud-native applications. HPE ProLiant servers are the compute foundation for the fastest growing workloads in the industry including hyperconverged infrastructure ("HCI"), virtual workspaces, and artificial intelligence ("AI"). Compute offerings also include operational and support services. The Compute support team is also a provider of on-premises flexible consumption models, such as HPE GreenLake.
HPC & MCS
Our HPC & MCS portfolio offers specialized compute servers designed to support specific use cases. The HPC portfolio includes the HPE Apollo and Cray products that are sold as supercomputing systems, including exascale supercomputers (systems which have exaflops performance or a billion billion calculations per second), to support data-intensive workloads for high performance computing, data analytics and artificial intelligence applications. The MCS portfolio includes the HPE Superdome Flex, HPE Nonstop and HPE Integrity product lines for critical applications such as payments and transaction processing that require high availability, fault-tolerant computing infrastructure. The HPC & MCS segment also includes the Edge Compute business which consists of the HPE Moonshot and HPE Edgeline products for computing at the network edge. HPC & MCS offerings also include operational and support services. HPC & MCS products can also be purchased through on-premises flexible consumption models, such as HPE GreenLake. With offerings that are artificial intelligence-driven and built for hybrid cloud environments with as-a-service consumption and flexible investment options, we provide the right workload optimized destinations for data.
A portion of HPC and MCS revenue is generated by sales to government entities, which are subject to the terms and rights for the convenience of the government entity. These terms and rights include in some instances a dependence on the appropriation of future funding and also termination rights contingent upon not achieving certain milestones. For a discussion of certain risks related to contracts with government entities, see "Risk Factors—Failure to comply with government contracting regulations could adversely affect our business and results of operations."
Storage
We provide workload-optimized products and service offerings that are AI-driven and built for cloud environments with flexible consumption models from HPE GreenLake and flexible investment options. Powered by HPE InfoSight-advanced artificial intelligence operations, HPE solutions deliver an intelligent data platform that enables customers to unleash the power of their data. Key offerings include an intelligent HCI portfolio with HPE Nimble Storage dHCI, a disaggregated HCI solution for the enterprise data center and HPE SimpliVity, a hyperconverged platform for general purpose and edge workloads. The portfolio also includes HPE Primera, HPE Nimble Storage and HPE 3PAR primary storage solutions, comprehensive data protection solutions with HPE Cloud Volumes Backup and HPE StoreOnce, and big data solutions running on HPE Apollo servers. Storage also provides solutions for secondary workloads and traditional tape, storage networking and disk products, such as HPE Modular Storage Arrays ("MSA") and HPE XP. Storage offerings also include operational and support services.

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A & PS
Our A & PS business provides consultative-led services, HPE and partner technology expertise and advice, implementation services and complex solution engagement capabilities. Our advisors and experts engage early with customers to lead them through their digital transformations and to improve their business outcomes. A & PS is also a provider of on-premises flexible consumption models that enable IT agility, simplify operations, and align cost to value. A & PS is of strategic importance to HPE as it drives large value sales of HPE infrastructure products and services such as HPE GreenLake, HPE Ezmeral, HPC & MCS and other Compute & Storage infrastructure products.
Intelligent Edge
The Intelligent Edge business is comprised of a portfolio of secure edge-to-cloud solutions operating under the Aruba brand that include wireless local area network ("LAN"), campus and data center switching, software-defined wide-area-networking, which now includes Silver Peak, security, and associated services to enable secure connectivity for businesses of any size. The primary business drivers for Intelligent Edge solutions are mobility and IoT.
The HPE Aruba Product portfolio includes wired and wireless LAN hardware products such as Wi-Fi access points, switches, routers and sensors. The HPE Aruba software and services portfolio of products includes cloud-based management, network management, which now includes Silver Peak, network access control, analytics and assurance, location services software and professional and support services, as well as as-a-Service and consumption models for the Intelligent Edge portfolio of products.
 Financial Services
Financial Services provides flexible investment solutions, such as leasing, financing, IT consumption, and utility programs and asset management services, for customers that facilitate unique technology deployment models and the acquisition of complete IT solutions, including hardware, software and services from Hewlett Packard Enterprise and others. FS also supports financial solutions for on-premise flexible consumption models, such as HPE Greenlake. In order to provide 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
Corporate Investments includes Hewlett Packard Labs which is responsible for research and development, the Communications and Media Solutions ("CMS") business and certain business incubation projects.
Forthcoming Segment Realignments
In order to align our segment financial reporting structure more closely with our current business structure, effective November 1, 2020, we will report the following changes to our reportable segments: the lifecycle event services business which was previously reported within the A & PS segment will be reported within each of the related hardware segments; certain software related business offerings previously reported within Compute, Storage and A & PS will be combined and reported within the Corporate Investments segment; and the remainder of A & PS, which was previously reported as a reportable segment, will be reported within the Corporate Investments segment. Additionally, the stock-based compensation expense which was previously reported within segment operating results will be now be reported as a corporate cost.
Our Strengths
We believe that we possess a number of competitive advantages that distinguish us from our competitors, including:
Digital transformation is at the forefront of our business priorities. We have a distinctive and industry leading portfolio of edge-to-cloud solutions and unique capabilities to help accelerate our customers' digital transformation. We combine our software-defined infrastructure and services capabilities to provide what we believe is the strongest portfolio of enterprise solutions in the IT industry. Our ability to deliver a comprehensive IT strategy and connect our customers' data from edge to cloud, through our high-quality products and high-value consulting and support services in a single package, is one of our principal differentiators.
Differentiated consumption-based IT solutions for a growing opportunity. Enterprises of all sizes are looking to digitally transform in order to develop next-generation cloud-native applications, create actionable insights from their data, and drive business growth, but they face many challenges including lack of in-house IT skills, limited budgets and options for financing, and lack of flexibility to choose the technology foundation that best meets their needs.
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Consumption-based IT offers solutions to these challenges by providing greater agility, empowering people to shift from managing infrastructure to driving innovation by leveraging insights from their data, while eliminating capital and operating expenses tied to infrastructure over-provisioning. HPE is distinctly differentiated in delivering a true consumption-based IT experience. We saw the opportunity early, and that has allowed us to build capabilities and partnerships that are unique in the industry including the ability to deliver our as-a-Service portfolio with over 700 channel partners that can sell the as-a-Service portfolio.
Multi-year innovation roadmap and strong balance sheet. We have been in the technology and innovation business for over 75 years. Our vast intellectual property portfolio and global research and development capabilities are part of a broader innovation roadmap designed to help organizations take advantage of the expanding amount of data available and leverage the latest technology developments like cloud, artificial intelligence, and cybersecurity to drive business outcomes now and in the future. We also have a strong balance sheet and liquidity profile that provides the financial flexibility and speed to take advantage of acquisition opportunities.
Global distribution and partner ecosystem. We are experts in delivering innovative technological solutions to our customers in complex multi-country, multi-vendor and/or multi-language environments. We have one of the largest go-to-market capabilities in our industry, including a large ecosystem of channel partners, which enables us to market and deliver our product offerings to customers located virtually anywhere in the world.
Custom financial solutions. Through Financial Services we can help customers create investment capacity to accelerate their transformations by helping them free up capital, capture value from older assets, achieve sustainability goals, invest in new technologies as a service, and weather financial volatility. Financial Services is also an enabler of our consumption-based IT models by helping spread our upfront solution costs over the duration of the customer contract. Through Financial Services' Global Asset Recovery Centers, we are helping customers achieve their own sustainability goals by processing more than 4 million assets every year.
Experienced leadership team and business group leaders aligned to market trends and financial segmentation. Our management team has an extensive track record of performance and execution. We are led by our President and Chief Executive Officer, Antonio Neri, who has proven experience in developing transformative business models, building global brands and driving sustained growth and expansion in the technology industry. Mr. Neri's experience includes over 20 years combined at HPE and HP Co. in various leadership positions. This year we simplified our operating model and have aligned it to the financial segmentation providing more visibility and accountability in our business segments. Our senior management team has many years of experience in our industry and possesses extensive knowledge of and experience in the enterprise IT business and the markets in which we compete. Moreover, we have a deep bench of management and technology talent that we believe provides us with an unparalleled pipeline of future leaders and innovators.
Open platforms. The world is shifting from centralized and closed approaches in large data centers to a future of centers of data everywhere which are highly decentralized and distributed. This shift demands a common cloud platform that can put the agility and intelligence close to the customers data sources to create real-time insights, everywhere. Many of our competitors want to lock customers into one flavor of cloud and cloud stack. Conversely, we believe that the cloud experience should be open and seamless across all our customers' clouds — and the best cloud transformation partner is one who is unbiased, offers choice, and is neutral without an agenda. We are unique in our ability to enable any hybrid cloud strategy and a consistent experience that is open to any cloud and differentiated with our partner integrations.
Sales, Marketing and Distribution
We manage our business and report our financial results based on the segments described above. Our customers are organized by commercial and large enterprise groups, including business and public sector enterprises, and purchases of our products, solutions and services may be fulfilled directly by us or indirectly through a variety of partners, including:
resellers that sell our products and services, frequently with their own value-added products or services, to targeted customer groups;
distribution partners that supply our solutions to resellers;
original equipment manufacturers ("OEMs") that integrate our products and services with their own products and services, and sell the integrated solution;
independent software vendors that provide their clients with specialized software products and often assist us in selling our products and services to clients purchasing their products;
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systems integrators that provide expertise in designing and implementing custom IT solutions and often partner with us to extend their expertise or influence the sale of our products and services; and
advisory firms that provide various levels of management and IT consulting, including some systems integration work, and typically partner with us on client solutions that require our unique products and services.
The mix of our business conducted by direct sales or channel differs substantially by business and region. We believe that customer buying patterns and different regional market conditions require us to tailor our sales, marketing and distribution efforts accordingly. We are focused on driving the depth and breadth of our coverage, in addition to identifying efficiencies and productivity gains, in both our direct and indirect businesses. For example, through our HPE Next Initiative, we reduced the number of countries in which we have a direct sales presence, while simultaneously migrating to a channel-only model in the remaining countries. In those countries where we have a direct sales presence, we typically assign an account manager to manage relationships across our business with large enterprise customers as well as with large public sector accounts. The account manager is supported by a team of specialists with product and services expertise. For other customers, our businesses collaborate to manage relationships with commercial resellers targeting smaller accounts, both in the commercial and public sector space.
Manufacturing and Materials
We utilize a significant number of outsourced and contract manufacturers around the world to manufacture products that we design. The use of outsourced and contract manufacturers is intended to generate cost efficiencies and reduce time to market for our products as well as create manufacturing flexibility in our supply chain and processes. In some circumstances, third-party OEMs produce products that we purchase and resell under our brand. In addition to our use of outsourced and contract manufacturers, we currently manufacture a limited number of finished products from components and subassemblies that we acquire from a wide range of vendors.
Historically, we have utilized two primary methods of fulfilling demand for products: building products to order and configuring products to order. We build products to order to maximize manufacturing and logistics efficiencies by producing high volumes of basic product configurations. Alternatively, configuring products to order enables units to match a customer's particular hardware and software customization requirements. Our inventory management and distribution practices in both building products to order and configuring products to order seek to minimize inventory holding periods by taking delivery of the inventory and manufacturing shortly before the sale or distribution of products to our customers.
We purchase materials, supplies and product subassemblies from a substantial number of vendors. For most of our products, we have existing alternate sources of supply or such alternate sources of supply are readily available. However, we do rely on single-source suppliers for certain customized parts (although some of these sources have operations in multiple locations in the event of a disruption) and a disruption or loss of a single-source supplier could delay production of some products. In some instances, our single-source suppliers (e.g. Intel and AMD as suppliers of certain x86 processors) are also the single-source suppliers for the entire market; disruptions with these suppliers would result in industry-wide dislocations and therefore would not disproportionately disadvantage us relative to our competitors.
Like other participants in the IT industry, we ordinarily acquire materials and components through a combination of blanket and scheduled purchase orders to support our demand requirements for periods averaging 90 to 120 days. From time to time, we may experience significant price volatility or supply constraints for certain components that are not available from multiple sources due to certain events taking place where our suppliers are geographically concentrated. When necessary, we are often able to obtain scarce components for somewhat higher prices on the open market, which may have an impact on our gross margin, but does not generally disrupt production. We may also acquire component inventory in anticipation of supply constraints, or enter into longer-term pricing commitments with vendors to improve the priority, price and availability of supply. See "Risk Factors—We depend on third-party suppliers, and our financial results could suffer if we fail to manage our suppliers relationships properly" in Item 1A.
International
Our products and services are available worldwide. We believe geographic diversity allows us to meet demand on a worldwide basis for our customers, draws on business and technical expertise from a worldwide workforce, provides stability to our operations, provides revenue streams that may offset geographic economic trends, and offers us an opportunity to access new markets for maturing products.
A summary of our domestic and international results is set forth in Note 3, "Segment Information", to our Consolidated Financial Statements in Item 8 of Part II. Approximately 66% of our overall net revenue in fiscal 2020 came from outside the United States.
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For a discussion of certain risks attendant to our international operations, see "Risk Factors—Due to the international nature of our business, political or economic changes or other factors could harm our future revenue, costs and expenses, and financial condition," and "—We are exposed to fluctuations in foreign currency exchange rates" in Item 1A, "Quantitative and Qualitative Disclosure about Market Risk" in Item 7A of Part II and Note 14, "Financial Instruments", to our Consolidated Financial Statements in Item 8 of Part II, which are incorporated herein by reference.
Research and Development
Innovation is a key element of our culture and critical to our success. Our research and development efforts ("R&D") are focused on designing and developing products, services and solutions that anticipate customers' changing needs and desires and emerging technological trends. Our efforts also are focused on identifying the areas where we believe we can make a unique contribution and where partnering with other leading technology companies will leverage our cost structure and maximize our customers' experiences.
Expenditures for R&D were $1.9 billion in fiscal 2020, $1.8 billion in fiscal 2019 and $1.7 billion in fiscal 2018. We anticipate that we will continue to have significant R&D expenditures in the future to support the design and development of innovative, high-quality products, services and solutions to maintain and enhance our competitive position.
Included in the R&D work currently taking place at the Company are the following initiatives:
In Compute, we are developing high quality next-generation compute solutions (servers, server attached options, and software) that integrate the latest industry technology, which coupled with innovations from HPE are aligned to the requirements of our customers.
In HPC & MCS, we are investing in high-performance compute, storage and networking systems for the most demanding workloads from the edge-to-core. Investment in technologies in high-performance networking, memory-driven compute, and high-performance storage and data management underpin our differentiated offerings. We also invest significantly in software, including cloud native developer and highly scalable cluster operating environments, application and performance capabilities, and high-availability solutions. HPC & MCS also hosts an applied research group where we invest in long term, disruptive R&D such as silicon photonics creating a pipeline of technologies for future offerings.
In the Storage data management sphere, we are investing in new technologies to address the demand in mature and emerging markets. Our comprehensive on-premises scalable infrastructure that includes an industry-first 100% guarantee offering, is being creatively augmented by an all-inclusive as-a-service HPE Greenlake offering. The Company continues to empower the edge-to-core data pipeline with embedded AI built-to-scale and to provide deep learning analytics across its entirety.
In Intelligent Edge, we are shifting significant investment towards a "cloud first" innovation model for the comprehensive management of wireless, switching and software defined branch ("SD-Branch") with the cloud native Edge Services Platform ("ESP"). Another key investment priority is artificial intelligence based network operations for the end-to-end optimization of network performance and user experience, combined with securing the network edge infrastructure by segmenting the internet-of-things ("IoT") user traffic with dynamic context based policies.
In Hewlett Packard Labs, we are focused on disruptive innovation and applied research in collaboration with other HPE business groups to deliver differentiated intellectual property ("IP"). Our innovation agenda is focused on developing technologies in the areas of system architecture, networking, AI, accelerators and silicon photonics. We also continue to invest in our silicon design capability to accelerate the development and delivery of our technology with custom integrated circuits.
For a discussion of risks attendant to our R&D activities, see "Risk Factors—If we cannot successfully execute our go-to-market strategy and continue to develop, manufacture and market innovative products, services and solutions, our business and financial performance may suffer" in Item 1A.
Patents
Our general policy is to seek patent protection for those inventions likely to be incorporated into our products and services or where obtaining such proprietary rights will improve our competitive position. As of October 31, 2020, our worldwide patent portfolio included approximately 15,000 issued and pending patents.
Patents generally have a term of up to 20 years from the date they are filed. As our patent portfolio has been built over time, the remaining terms of the individual patents across our patent portfolio vary. We believe that our patents and patent applications are important for maintaining the competitive differentiation of our products and services, enhancing our freedom of action to sell our products and services in markets in which we choose to participate, and maximizing our return on research
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and development investments. No single patent is in itself essential to our company as a whole or to any of our business segments.
In addition to developing our patent portfolio, we license intellectual property from third parties as we deem appropriate. We have also granted and continue to grant to others licenses and other rights under our patents when we consider these arrangements to be in our interest. These license arrangements include a number of cross-licenses with third parties.
For a discussion of risks attendant to intellectual property rights, see "Risk Factors—Our financial performance may suffer if we cannot continue to develop, license or enforce the intellectual property rights on which our businesses depend" and "—Our products and services depend in part on intellectual property and technology licensed from third parties" in Item 1A.
Backlog
In fiscal 2020 the outbreak of COVID-19 resulted in a disruption to our supply chain process. The outbreak resulted in a global slowdown of economic activity including worldwide travel restrictions, prohibitions of non-essential work activities, disruption and shutdown of businesses and greater uncertainty in global financial markets. These events introduced a disruption to our supply chain at the beginning of the calendar year resulting in significantly higher levels of backlog, particularly in Compute, HPC & MCS, and Storage as lockdown restrictions imposed across the globe disrupted our order fulfillment process and limited our ability to perform on-site installations and meet customer acceptance requirements. Subsequently, by the latter part of the fiscal period we made significant progress in clearing our backlog such that we exited the fiscal year with normalized backlog levels.
During the COVID-19 pandemic, we have also viewed backlog as an indication of demand health as governments around the world continue to impose restrictions on non-essential work activities and travel. As and when the COVID-19 pandemic subsides our focus on backlog may again become less relevant as a reliable indicator of future demand.
For a further discussion of the risks, uncertainties and actions taken in response to COVID-19, see risks identified in the section entitled "Risk Factors" in Item 1A, and the "COVID-19 Update" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7.
Seasonality
General economic conditions have an impact on our business and financial results. From time to time, the markets in which we sell our products, services and solutions experience weak economic conditions that may negatively affect sales. We experience some seasonal trends in the sale of our products and services. For example, European sales are often weaker in the summer months. However, the impact of the COVID-19 outbreak may result in temporary changes to the seasonal fluctuation of our business. See "Risk Factors—Our uneven sales cycle makes planning and inventory management difficult and future financial results less predictable" in Item 1A.
Competition
We have a broad technology portfolio of enterprise IT infrastructure products, solutions and services. We encounter strong competition in all areas of our business. We compete primarily on the basis of technology, innovation, performance, price, quality, reliability, brand, reputation, distribution, range of products and services, ease of use of our products, account relationships, customer training, service and support, security, and the availability of our IT infrastructure offerings.
The markets in which we compete are characterized by strong competition among major corporations with long-established positions and a large number of new and rapidly growing firms. Most product life cycles are relatively short, and to remain competitive we must develop new products and services, continuously enhance our existing products and services and compete effectively on the basis of the factors listed above, among others. In addition, we compete with many of our current and potential partners, including OEMs that design, manufacture and market their products under their own brand names. Our successful management of these competitive partner relationships is critical to our future success. Moreover, we anticipate that we will have to continue to adjust prices on many of our products and services to stay competitive.
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The competitive environments in which each segment operates are described below:
The Compute and Storage businesses operate in the highly competitive enterprise data center infrastructure market, which is characterized by rapid and ongoing technological innovation and price competition. Our primary competitors are technology vendors such as Dell Technologies Inc., Cisco Systems, Inc., Lenovo Group Ltd., International Business Machines Corporation, and NetApp Inc. In certain regions, we also experience competition from local companies and from generically branded or "white-box" manufacturers. Our strategy is to deliver superior products, high-value technology support services and differentiated integrated solutions that combine our infrastructure, software and services capabilities. Our competitive advantages include our broad end-to-end solutions portfolio, supported by our strong intellectual property portfolio and research and development capabilities, coupled with our global reach and partner ecosystem.
The HPC & MCS business predominantly services customers with data-intensive super-computing, analytics, and artificial intelligence needs. Our primary competitors are compute technology vendors than can design and build solutions that deliver performance scalability and connectivity necessary to handle super-compute and artificial intelligence ("AI") workloads, including Dell Technologies Inc., Lenovo Group Ltd., and International Business Machines Corporation. Similar to the compute space, our strategy is to deliver superior products, high-value technology support services and differentiated integrated solutions that combine our infrastructure, software and services capabilities. Our competitive advantages include our deep expertise and capabilities designing and delivering these solutions, broad end-to-end solutions portfolio, supported by our strong intellectual property portfolio and research and development capabilities.
The A & PS business predominantly delivers digital transformation expertise to customers. The strategy of the business is to partner with customers to prioritize, define and implement the technology transformations that will achieve customers' digital transformation goals. The business has practice areas in digital transformation advisory, hybrid cloud transformation, AI and data, networking & edge, security, IoT, digital workplaces, education and management of change. Our primary competitors for this business are the consulting services arms of major technology vendors such as International Business Machines Corporation, Dell Technologies Inc., Cisco Systems, Inc., and Accenture.
Intelligent Edge operates in the highly competitive networking and connectivity infrastructure market, which is characterized by rapid and ongoing technological innovation and price competition. Our primary competitors are technology vendors such as Cisco Systems, Inc., Extreme Networks, Inc., Juniper Networks, Inc., and Arista Networks Inc. Our strategy is to deliver superior enterprise wired and wireless local-area networking components and software, high-value technology support services and differentiated integrated solutions that combine our infrastructure, software and services capabilities. Our competitive advantage includes our broad end-to-end solutions portfolio, supported by our strong intellectual property portfolio and research and development capabilities, coupled with our global reach and partner ecosystem.
Financial Services.    In our financing business, our primary competitors are captive financing companies, such as IBM Global Financing, Dell Financial Services, and Cisco Capital, as well as banks and other financial institutions. Our primary IT Asset Disposition (ITAD) competitors are ERI, Ingram Micro, Sage Sustainable Electronics, and Sims Recycling Solutions. We believe our competitive advantage over banks, other financial institutions, and ITAD providers is our ability to bring together our investment solutions with our expertise in managing technology assets. Not only are we able to deliver investment solutions that help customers create unique technology deployments based on specific business needs, but we also help them extract value from existing IT investments while more efficiently managing the retirement of those assets. All of these solutions can help customers accelerate digital transformation, create new budget streams, and meet Circular Economy objectives.
For a discussion of certain risks attendant to these competitive environments, see "Risk Factors—We operate in an intensely competitive industry and competitive pressures could harm our business and financial performance" in Item 1A.
Material Government Regulations
Our business activities are worldwide and are subject to various federal, state, local, and foreign laws and our products and services are governed by a number of rules and regulations. Costs and accruals incurred to comply with these governmental regulations are presently not material to our capital expenditures, results of operations and competitive position. Although there is no assurance that existing or future government laws applicable to our operations, services or products will not have a material adverse effect on our capital expenditures, results of operations and competitive position, we do not currently anticipate material expenditures for government regulations. Nonetheless, as discussed below, we believe that environmental and global trade regulations could potentially materially impact our business.

Environment
Our products and operations are, or may in the future be, subject to various federal, state, local, and foreign laws and regulations concerning the environment, including, among others, laws addressing the discharge of pollutants into the air and water; the management, movement, and disposal of hazardous substances and wastes and the clean-up of contaminated sites;
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product safety, such as chemical composition, packaging and labeling; energy consumption of our products and services; and the manufacture and distribution of chemical substances. We are also subject to legislation in an increasing number of jurisdictions that makes producers of electrical goods, including servers and networking equipment, financially responsible for specified collection, recycling, treatment, and disposal of past and future covered products (sometimes referred to as "product take-back legislation"). Finally, as climate change laws, regulations, treaties, and similar initiatives and programs are adopted and implemented throughout the world, we will be required to comply or potentially face market access limitations or other sanctions, including fines. However, we believe that technology will be fundamental to finding solutions to achieve compliance with and manage those requirements, and we are collaborating with industry, business groups and governments to find and promote ways that our technology can be used to address climate change and to facilitate compliance with related laws, regulations and treaties. We are committed to maintaining compliance with all environmental laws applicable to our operations, products and services, and to reducing our environmental impact across all aspects of our business. We meet this commitment with a comprehensive environmental, health and safety policy, strict environmental management of our operations and worldwide environmental programs and services.
Global Trade
As a global company, the import and export of our products and services are subject to laws and regulations including international treaties, U.S. export controls and sanctions laws, customs regulations, and local trade rules around the world. Such laws, rules and regulations may delay the introduction of some of our products or impact our competitiveness through restricting our ability to do business in certain places or with certain entities and individuals, or the need to comply with domestic preference programs, laws concerning transfer and disclosure of sensitive or controlled technology or source code, unique technical standards, localization mandates, and duplicative in-country testing and inspection requirements. The consequences of any failure to comply with domestic and foreign trade regulations could limit our ability to conduct business globally. We continue to support open trade policies that recognize the importance of integrated cross-border supply chains that will continue to contribute to the growth of the global economy and measures that standardize compliance for manufacturers to ensure that products comply with safety and security requirements.

For a discussion of the risks associated with government regulations that may materially impact us, please see the section entitled "Risk Factors" in Item 1A.
Additional Information
Itanium is a trademark of Intel Corporation or its subsidiaries.
Information about our Executive Officers
The following are our current executive officers:
Name Age Position
Antonio Neri 53 President and Chief Executive Officer
Tom Black 51 Senior Vice President, General Manager of Storage
Kirt P. Karros 51 Senior Vice President, Finance and Treasurer
Neil MacDonald 52 Senior Vice President, General Manager of Compute
Alan May 62 Executive Vice President and Chief People Officer
Keerti Melkote 50 President, Intelligent Edge
Jeff T. Ricci 59 Senior Vice President, Controller and Principal Accounting Officer
Tarek Robbiati 55 Executive Vice President and Chief Financial Officer
Irv Rothman 74 President and Chief Executive Officer, HPE Financial Services
John F. Schultz 56 Executive Vice President, Chief Operating and Legal Officer
Peter Ungaro 52 Senior Vice President, General Manager of High Performance Compute and Mission-Critical Systems and Hewlett Packard Labs

Antonio Neri; President and Chief Executive Officer
    Mr. Neri has served as our President and Chief Executive Officer since June 2017 and February 2018, respectively. Mr. Neri previously served as Executive Vice President and General Manager of our Enterprise Group from November 2015 to June 2017. Prior to that, Mr. Neri served in a similar role for HP Co.'s Enterprise Group from October 2014 to November 2015. Mr. Neri served as Senior Vice President and General Manager of the HP Servers business unit from September 2013 to October 2014 and concurrently as Senior Vice President and General Manager of the HP Networking business unit from May
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2014 to October 2014. Prior to that, Mr. Neri served as Senior Vice President and General Manager of the HP Technology Services business unit from August 2011 to September 2013 and as Vice President, Customer Services for the HP Personal Systems Group from 2007 to August 2011, having first joined HP Co. in 1996. From March 2012 to February 2013, Mr. Neri served as a director of MphasiS Limited, an India-based technology company.
Tom Black; Senior Vice President, General Manager of Storage
    Mr. Black has served as Senior Vice President and General Manager of our Storage business segment since December 2019. Prior to that, Mr. Black served as Senior Vice President and General Manager of Switching within our Intelligent Edge business segment from October 2018 to December 2019. From January 2016 to October 2018, Mr. Black served as the Vice President and General Manager of Switching within our Intelligent Edge business. From June 2013 to January 2016, Mr. Black was the Vice President of Engineering for the Networking group at HP Co., and later, at HPE. Prior to that, Mr. Black served in various roles, including Vice President of Engineering and other engineering positions at Cisco Systems from November 1999 to May 2013.
Kirt P. Karros; Senior Vice President, Finance and Treasurer
    Mr. Karros has served as our Senior Vice President, Finance and Treasurer since November 2015. Prior to that, Mr. Karros served in a similar role at HP Co. and led its Investor Relations from May 2015 to October 2015. Mr. Karros previously served as Principal and Managing Director of Research for Relational Investors LLC, an investment fund, from 2001 to May 2015 and concurrently as a director of PMC-Sierra, a semiconductor company, from August 2013 to May 2015 and as a director of InnerWorkings, Inc. from August 2019 to October 2020.
Neil MacDonald; Senior Vice President, General Manager of Compute
    Mr. MacDonald has served as Senior Vice President and General Manager of our Compute business segment since February 2020. Prior to that, Mr. MacDonald served as Senior Vice President and General Manager of the Compute Solutions group of the then Hybrid IT business segment, from October 2018 to February 2020. Mr. MacDonald previously served as Vice President and General Manager of BladeSystem from August 2015 to October 2020, having first joined HP Co. in 1996.
Alan May; Executive Vice President and Chief People Officer
    Mr. May has served as our Executive Vice President, Chief People Officer since June 2015. Before joining Hewlett Packard Enterprise, Mr. May served as Vice President, Human Resources at Boeing Commercial Aircraft, a division of The Boeing Company, from April 2013 to June 2015. Prior to that, Mr. May served as Vice President, Human Resources for Boeing Defense, Space and Security at Boeing from April 2011 to June 2015 and as Vice President, Compensation, Benefits and Strategy at Boeing from August 2007 to April 2011. Mr. May has also served in senior human resources roles at Cerberus Capital Management and PepsiCo. He serves as a Trustee for the American Foundation for the Blind and is on the Board of Governors for the San Francisco Symphony.
Keerti Melkote; President, Intelligent Edge
    Mr. Melkote has served as President of our Intelligent Edge business segment since January 2017. Mr. Melkote previously served as Chief Technology Officer of Intelligent Edge from May 2015 to December 2016. Prior to that, Mr. Melkote performed a similar role as Chief Technology Officer and Co-Founder of Aruba Networks from February 2009 until our acquisition of Aruba Networks in May 2015. Previously, Mr. Melkote served as Co-Founder and Vice President, Products at Aruba Networks from February 2002 to January 2009.
Jeff T. Ricci; Senior Vice President, Controller and Principal Accounting Officer
              Mr. Ricci has served as our Senior Vice President, Controller and Principal Accounting Officer since November 2015. Prior to that, Mr. Ricci performed a similar role at HP Co. from April 2014 to November 2015. Mr. Ricci served as Controller and Principal Accounting Officer at HP Co. on an interim basis from November 2013 to April 2014. Previously, Mr. Ricci served as Vice President, Finance for several of HP Co.'s organizations, including Technology and Operations from May 2012 to November 2013, Global Accounts and HP Financial Services from March 2011 to May 2012, and HP Software from March 2009 to March 2011.
Tarek Robbiati; Executive Vice President and Chief Financial Officer
    Mr. Robbiati has served as our Executive Vice President, Chief Financial Officer since September 2018. Before joining Hewlett Packard Enterprise, Mr. Robbiati served as Chief Financial Officer of Sprint Corporation from August 2015 to February 2018. Mr. Robbiati previously served as Chief Executive Officer and Managing Director of FlexiGroup Limited in Australia from January 2013 to August 2015. Prior to that, from December 2009 to December 2012, Mr. Robbiati was Group
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Managing Director and President of Telstra International Group in Hong Kong and Executive Chairman of Hong Kong CSL Limited ("CSL"), a subsidiary of Telstra Corporation Limited. From July 2007 to May 2010, Mr. Robbiati served as the Chief Executive Officer of CSL in Hong Kong.
Irv Rothman; President and Chief Executive Officer, HPE Financial Services
    Mr. Rothman has served as President and Chief Executive Officer of our Financial Services business segment, our IT investment and financing subsidiary, since November 2015. Prior to that, Mr. Rothman served in a similar role at HP Co. from May 2002 to November 2015. Prior to joining HP Co., Mr. Rothman was President and Chief Executive Officer of Compaq Financial Services Corporation from January 1997 to April 2002.
John F. Schultz; Executive Vice President, Chief Operating and Legal Officer
    Mr. Schultz has served as our Executive Vice President, Chief Operating and Legal Officer since July 2020. Prior to that, he served as Executive Vice President, Chief Legal and Administrative Officer and Secretary from December 2017 to July 2020. Mr. Schultz previously served as Executive Vice President, General Counsel and Secretary from November 2015 to December 2017, performing a similar role at HP Co. from April 2012 to November 2015. Prior to that, Mr. Schultz served as Deputy General Counsel for Litigation, Investigations and Global Functions at HP Co. from September 2008 to April 2012. Prior to joining HP Co., Mr. Schultz was a partner in the litigation practice at Morgan, Lewis & Bockius LLP, a law firm, from March 2005 to September 2008, where, among other clients, he supported HP Co. as external counsel on a variety of litigation and regulatory matters.
Peter Ungaro; Senior Vice President, General Manager of High Performance Compute and Mission-Critical Systems and Hewlett Packard Labs
    Mr. Ungaro has served as Senior Vice President and General Manager of our High Performance Compute and Mission Critical Systems business segment and Hewlett Packard Labs since September 2019. Prior to that, Mr. Ungaro was President and Chief Executive Officer of Cray from 2005 until our acquisition of Cray in September 2019. From September 2004 until March 2005, Mr. Ungaro served as Senior Vice President of Sales, Marketing, and Services at Cray and, from August 2003 until September 2004, he served as Vice President of Sales and Marketing at Cray. Before joining Cray in 2003, Ungaro served as Vice President of Sales for Worldwide Deep Computing at IBM. Mr. Ungaro held a variety of other sales leadership positions since joining IBM in 1991.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available on our website at http://investors.hpe.com, as soon as reasonably practicable after we electronically file such reports with, or furnish those reports to, the Securities and Exchange Commission. Hewlett Packard Enterprise's Corporate Governance Guidelines, Board of Directors' committee charters (including the charters of the Audit Committee, Finance and Investment Committee, HR and Compensation Committee, Technology Committee, and Nominating, Governance and Social Responsibility Committee) and code of ethics entitled "Standards of Business Conduct" are also available at that same location on our website. Stockholders may request free printed copies of these documents from:
Hewlett Packard Enterprise Company
Attention: Investor Relations
11445 Compaq Center West Drive
Houston, Texas 77070
http://investors.hpe.com/financial/requested-printed-reports

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ITEM 1A. Risk Factors.
You should carefully consider the following risks and other information in this Form 10-K in evaluating Hewlett Packard Enterprise and its common stock. Any of the following risks could materially and adversely affect our results of operations or financial condition. The following risk factors should be read in conjunction with Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation" and the Consolidated Financial Statements and related notes in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Business and Operational Risks
We are unable to predict the extent to which the global COVID-19 pandemic may adversely impact our business operations, financial performance and results of operations.
The COVID-19 pandemic and efforts to control its spread have significantly curtailed the movement of people, goods and services worldwide, including in most or all of the regions in which we sell our products and services and conduct our business operations. The pandemic has resulted in a global slowdown of economic activity, including travel restrictions, prohibitions of non-essential activities in some cases, disruption and shutdown of businesses and greater uncertainty in global financial markets. Our operations have been affected by a range of external factors related to the COVID-19 pandemic that are not within our control, including the various restrictions imposed by cities, counties, states and countries on our employees, customers, partners and suppliers designed to limit the spread of COVID-19. Although the immediate impacts of the COVID-19 pandemic have been assessed, the long-term magnitude and duration of the disruption and resulting decline in business activity is still highly uncertain and cannot currently be predicted.
In response to the COVID-19 pandemic and to ensure the safety of our employees, we have implemented a global work-from-home policy until further notice that applies to a significant majority of our employees, with the exception of those performing essential activities. Our employees may elect to return to the office in jurisdictions where both local requirements and our own health and safety standards have been met. If such instances occur, employees would return to the office in a phased process. Moreover, certain industry and customer events that we sponsor or at which we present have been canceled, postponed or moved to virtual-only experiences and we may deem it advisable to similarly alter, postpone or cancel entirely additional events in the future. We are also seeing an increase in customer requirements for HPE employees to be tested for COVID-19 before being able to enter customer sites, which could potentially present an operational challenge. However, work-from-home and other modified business practices introduce additional operational risks, including cybersecurity risks, which may result in inefficiencies or delays, and have affected the way we conduct our product development, sales, customer support and other activities. Unanticipated disruptions in services provided through our localized physical infrastructure caused by the COVID-19 pandemic can curtail the functioning of critical components of our IT systems, and adversely affect our ability to fulfill orders, provide services, respond to customer requests and maintain our worldwide business operations.
The pandemic has adversely affected, and could continue to adversely affect, our business, by negatively impacting the demand for our products and services; restricting our operations and sales, marketing and distribution efforts; disrupting the supply chains of hardware products; and disrupting our research and development capabilities, engineering, design and manufacturing processes and other important business activities. For example, we expect the conditions caused by the COVID-19 pandemic could affect the rate of IT spending, impact our customers' ability or willingness to purchase our products and services, delay prospective customers' purchasing decisions, delay the provisioning of our products and services, lengthen payment terms, reduce the value or duration of subscription contracts or affect attrition rates, all of which could adversely affect our sales, operating results and financial performance. There have been, and likely will continue to be, delays of components shipments from our vendors in China and other jurisdictions in which normal business operations are disrupted.
We expect the COVID-19 pandemic could continue to have a negative impact on our sales and our results of operations, the size and duration of which we are currently unable to predict. While such changes were factored into the forecast used to assess assets for reserves and impairment, including goodwill, and to calculate the annualized effective tax rate during the interim quarters of fiscal 2020, any changes to the profitability for the next fiscal year could impact the realizability of assets and the annualized effective tax rate applied to earnings. Additionally, concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price, our ability to access capital markets and our ability to fund liquidity needs. In response, we announced our long-term cost optimization and prioritization plan to focus our investments and realign our workforce to areas of growth combined with short-term cost saving measures, including temporary base salary adjustments or unpaid leave for certain employees and hiring and salary freezes. Execution of the plan may not achieve the results and savings we anticipate and our temporary cost saving measures may negatively affect employee morale and our future recruiting efforts.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this "Risk Factors" section and those incorporated by reference herein, such as
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those related to our products and services, demand and distribution, financial performance, credit rating and debt obligations. Given that developments concerning the COVID-19 pandemic have been constantly evolving, additional impacts and risks may arise that we are not aware of or able to appropriately respond to at this time.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our worldwide operations and supply chain could be disrupted by natural or human induced disasters including, but not limited to, earthquakes; tsunamis; floods; hurricanes, cyclones or typhoons; fires; other extreme weather conditions; power or water shortages; telecommunications failures; materials scarcity and price volatility; terrorist acts, conflicts or wars; and medical epidemics or pandemics. We are predominantly self-insured to mitigate the impact of most catastrophic events. Although it is impossible to completely predict the occurrences or consequences of any such events, forecasting disruptive events and building additional resiliency into our operations accordingly will become an increasing business imperative. The occurrence of business disruptions could result in significant losses, seriously harm our revenue, profitability and financial condition, adversely affect our competitive position, increase our costs and expenses, decrease in demand for our products, make it difficult or impossible to provide services or deliver products to our customers or to receive components from our suppliers, create delays and inefficiencies in our supply chain, result in the need to impose employee travel restrictions and require substantial expenditures and recovery time in order to fully resume operations.
Climate change serves as a risk multiplier increasing both the frequency and severity of natural disasters that may affect our worldwide business operations. Our corporate headquarters and a portion of our research and development activities are located in California, which suffers from drought conditions and catastrophic wildfires affecting the health and safety of our employees. To mitigate wildfire risk, electric utilities are deploying public safety power shutoffs (PSPS), which affects electricity reliability to our facilities and our communities. Other critical business operations and some of our suppliers are located in California and Asia, near major earthquake faults known for seismic activity. In 2017, our principal worldwide IT data centers in Houston were flooded due Hurricane Harvey. Since then, HPE has increased its resiliency through site selection infrastructure technological investments to mitigate and adapt to physical risks from climate change.
The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations, including the United States, Czech Republic, Mexico, China and Singapore. We also rely on major logistics hubs, which are strategically located near manufacturing facilities in the major regions and in proximity to HPE's distribution channels and customers. Our operations could be adversely affected if manufacturing, logistics or other operations in these locations are disrupted for any reason, including natural disasters, IT system failures, military actions or economic, business, labor, environmental, public health, regulatory or political issues. The ultimate impact on us, our significant suppliers and our general infrastructure of being located near vulnerable locations is continuing to be assessed.
U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations.
Given the change in the U.S. presidential administration, we face uncertainty with regard to U.S. government trade policy. Current U.S. government trade policy includes the imposition of tariffs on certain foreign goods, including information and communication technology products. These measures may materially increase costs for goods imported into the United States. This in turn could require us to materially increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on products sold. U.S. government trade policy has resulted in, and could result in more, U.S. trading partners adopting responsive trade policy making it more difficult or costly for us to export our products to those countries.
Our transition to a subscription-based business model may adversely affect our business, operating results and free cash flow.
We are currently transitioning to an as-a-Service company, providing our entire portfolio through a range of subscription-based, pay-per-use and as-a-Service offerings. We will also continue to provide our hardware and software in a capital expenditure and license-based model, ultimately giving our customers choice in consuming HPE products and services in a traditional or as-a-Service offering. Such business model changes entail significant risks and uncertainties, and we may be unable to complete the transition to a subscription-based business model, or manage the transition successfully and in a timely manner; and our ability to accurately forecast our future operating results may be adversely affected. Additionally, we may not realize all of the anticipated benefits of the subscription transition, even if we successfully complete the transition. The transition to a subscription-based business model also means that our historical results, especially those achieved before we began the transition, may not be indicative of our future results. Further, as customer demand for our consumption model offerings increases, we will experience differences in the timing of revenue recognition between our traditional offerings (for which revenue is generally recognized at the time of delivery) and our as-a-Service offerings (for which revenue is generally recognized ratably over the term of the arrangement).
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In addition, the transition to an as-a-Service company is expected to require incremental capital requirements, resulting in a negative impact to cash flows in the near term, and may require us to dedicate additional resources, including sales and marketing costs. Furthermore, we anticipate needing to redesign our go-to-market structure, to better align with the subscription-based business model. There is no assurance that we will be able to successfully implement these adjustments in a timely or cost-effective manner, or that we will be able to realize all or any of the expected benefits from such adjustments.
We depend on third-party suppliers, and our financial results could suffer if we fail to manage our supplier relationships properly.
Our operations depend on our ability to anticipate our needs for components, products and services, as well as our suppliers' ability to deliver sufficient quantities of quality components, products and services at reasonable prices and in time for us to meet critical schedules for the delivery of our own products and services. Given the wide variety of solutions that we offer, the large and diverse distribution of our suppliers and contract manufacturers, and the long lead times required to manufacture, assemble and deliver certain solutions, problems could arise in production, planning and inventory management that could seriously harm our business. In addition, our ongoing efforts to optimize the efficiency of our supply chain could cause supply disruptions and be more expensive, time-consuming and resource-intensive than expected. Furthermore, certain of our suppliers may decide to discontinue conducting business with us. Other supplier problems that we could face include component shortages, excess supply, and contractual, relational and labor risks, each of which is described below.
Component shortages. We may experience a shortage of, or a delay in receiving, certain components as a result of strong demand, capacity constraints, supplier financial weaknesses, the inability of suppliers to borrow funds in the credit markets, disputes with suppliers (some of whom are also our customers), disruptions in the operations of component suppliers, other problems experienced by suppliers or problems faced during the transition to new suppliers. If shortages or delays persist, the price of certain components may increase, we may be exposed to quality issues, or the components may not be available at all. We may not be able to secure enough components at reasonable prices or of acceptable quality to build products or provide services in a timely manner in the quantities needed or according to our specifications. Accordingly, our business and financial performance could suffer if we lose time-sensitive sales, incur additional freight costs or are unable to pass on price increases to our customers. If we cannot adequately address supply issues, we might have to reengineer some product or service offerings, which could result in further costs and delays.
Excess supply. In order to secure components for our products or services, at times we may make advance payments to suppliers or enter into non-cancelable commitments with vendors. In addition, we may purchase components strategically in advance of demand to take advantage of favorable pricing or to address concerns about the availability of future components. If we fail to anticipate customer demand properly, a temporary oversupply could result in excess or obsolete components, which could adversely affect our business and financial performance.
Contractual terms. As a result of binding long-term price or purchase commitments with vendors, we may be obligated to purchase components or services at prices that are higher than those available in the current market and be limited in our ability to respond to changing market conditions. If we commit to purchasing components or services for prices in excess of the then-current market price, we may be at a disadvantage to competitors who have access to components or services at lower prices, our gross margin could suffer, and we could incur additional charges relating to inventory obsolescence. Any of these developments could adversely affect our future results of operations and financial condition.
Contingent workers. We also rely on third-party suppliers for the provision of contingent workers, and our failure to manage our use of such workers effectively could adversely affect our results of operations. We have been exposed to various legal claims relating to the status of contingent workers in the past and could face similar claims in the future. We may be subject to shortages, oversupply or fixed contractual terms relating to contingent workers. Our ability to manage the size of, and costs associated with, the contingent workforce may be subject to additional constraints imposed by local laws.
Single-source suppliers. We obtain certain components from single-source suppliers due to technology, availability, price, quality, scale or customization needs. Replacing a single-source supplier could delay production of some products as replacement suppliers may initially be unable to meet demand or be subject to other output limitations. For some components, such as customized components, alternative sources either may not exist or may be unable to produce the quantities of those components necessary to satisfy our production requirements. In addition, we sometimes purchase components from single-source suppliers under short-term agreements that contain favorable pricing and other terms but that may be unilaterally modified or terminated by the supplier with limited notice and with little or no penalty. The performance of such single-source suppliers under those agreements (and the renewal or extension of those agreements upon similar terms) may affect the quality, quantity and price of our components. The loss of a single-source supplier, the deterioration of our relationship with a single-source supplier or any unilateral modification to the contractual terms under which we are supplied components by a single-source supplier could adversely affect our business and financial performance.
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We may not achieve some or all of the expected benefits of our restructuring plans and our periodic restructuring programs can be disruptive to our business.
We have announced restructuring plans, including the HPE Next initiative and the cost optimization and prioritization plan in order to realign our cost structure due to the changing nature of our business and to achieve operating efficiencies that we expect to reduce costs, as well as simplify our organizational structure, upgrade our IT infrastructure and redesign business processes. We may not be able to obtain the cost savings and benefits that were initially anticipated in connection with our restructuring. Additionally, as a result of restructuring initiatives, we may experience a loss of continuity, loss of accumulated knowledge and/or inefficiency during transitional periods. Reorganization and restructuring can require a significant amount of management and other employees' time and focus, which may divert attention from operating and growing our business. If we fail to achieve some or all of the expected benefits of restructuring, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows. For more information about our restructuring plans, the HPE Next initiative and the cost optimization and prioritization plan, see Note 4, "Transformation Programs", to the Consolidated Financial Statements.
Any failure by us to identify, manage and complete acquisitions and subsequent integrations, divestitures and other significant transactions successfully could harm our financial results, business and prospects.
As part of our strategy, we may acquire businesses, divest businesses or assets, enter into strategic alliances and joint ventures, and make investments to further our business, (collectively, "business combination and investment transactions") and handle any post-closing issues such as integration. For example, in September 2020, we acquired Silver Peak Systems, Inc., an SD-WAN industry leader and in September 2019, we acquired Cray Inc., a global supercomputer leader. In April 2017 and September 2017, we spun off our Enterprise Services and Software businesses, respectively. See also the risk factors below under the heading "Risks Related to the Separations of our Former Enterprise Services Business and our Former Software Segment".
Risks associated with business combination and investment transactions include the following, any of which could adversely affect our financial results, including our effective tax rate:
We may not successfully combine product or service offerings or fully realize all of the anticipated benefits of any particular business combination and investment transaction, which may result in (1) failure to retain employees, customers, distributors, and suppliers; (2) increase in unanticipated delays or failure to meet contractual obligations which may cause financial results to differ from expectations; and (3) significant increase in costs and expenses, including those related to severance pay, early retirement costs, employee benefit costs, charges from the elimination of duplicative facilities and contracts, inventory adjustments, assumed litigation and other liabilities, legal, accounting and financial advisory fees, and required payments to executive officers and key employees under retention plans.
Our ability to conduct due diligence with respect to business combination and investment transactions, and our ability to evaluate the results of such due diligence, is dependent upon the veracity and completeness of statements and disclosures made or actions taken by third parties or their representatives. We may fail to identify significant issues with the acquired company's product quality, financial disclosures, accounting practices or internal control deficiencies or all of the factors necessary to estimate accurately our costs, timing and other matters.
In order to complete a business combination and investment transaction, we may issue common stock, potentially creating dilution for our existing stockholders or we may enter into financing arrangements, which could affect our liquidity and financial condition.
Business combination and investment transactions may lead to litigation, which could impact our financial condition and results of operations.
We have incurred and will incur additional depreciation and amortization expense over the useful lives of certain assets acquired in connection with business combination and investment transactions and, to the extent that the value of goodwill or intangible assets acquired in connection with a business combination and investment transaction becomes impaired, we may be required to incur additional material charges relating to the impairment of those assets.
For a divestiture, we may encounter difficulty in finding buyers or alternative exit strategies on acceptable terms in a timely manner, or we may dispose of a business at a price or on terms that are less desirable than we had anticipated.
The impact of divestiture on our revenue growth may be larger than projected, as we may experience greater dis-synergies than expected. If we do not satisfy pre-closing conditions and necessary regulatory and governmental approvals on acceptable terms, it may prevent us from completing the transaction. Dispositions may also involve continued financial involvement in the divested business, such as through continuing equity ownership, guarantees, indemnities or other financial obligations. Under these arrangements, performance by the divested businesses or other conditions outside of our control could affect our future financial results.
Our certificate of incorporation and bylaws could make it difficult or discourage an acquisition of Hewlett Packard Enterprise if our Board of Directors deems it to be undesirable. Provisions such as indemnification, meeting
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requirements, and blank check stock authorizations could deter or delay hostile takeovers, proxy contests, or changes in control or management of Hewlett Packard Enterprise.
Management's attention, or other resources, may be diverted if we fail to successfully complete or integrate business combination and investment transactions that further our strategic objectives.
System security risks, data protection breaches, cyberattacks and systems integration issues could disrupt our internal operations or IT services provided to customers, and any such disruption could reduce our revenue, increase our expenses, damage our reputation and adversely affect our stock price.
As a leading technology firm we are exposed to attacks from criminals, nation state actors and activist hackers (collectively, "malicious parties") who may be able to circumvent or bypass our cyber security measures and misappropriate, maliciously alter or destroy our confidential information or that of third parties, create system disruptions or cause shutdowns. Malicious parties also may be able to develop and deploy viruses, worms, ransomware and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products. Malicious parties may compromise our manufacturing supply chain to embed malicious software or hardware in our products for use in compromising our customers. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including flaws that could unexpectedly interfere with the operation of the system. The costs to us to eliminate or alleviate cyber or other security problems, including bugs, viruses, worms, malicious software programs and other security vulnerabilities, could be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions.
We manage and store various proprietary information and sensitive or confidential data relating to our business. In addition, our business may process, store and transmit our clients' data, including commercially sensitive and personal data, subject to the European General Data Protection Regulation and other privacy laws. Breaches of our cyber or physical security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information, sensitive or confidential data or personal data about us, our clients or our customers, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us, our customers or the individuals affected to a risk of loss (including regulatory fines) or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise harm our business. We also could lose existing or potential customers of services or other IT solutions or incur significant expenses in connection with our customers' system failures or any actual or perceived security vulnerabilities in our products and services. In addition, the cost and operational consequences of implementing further data protection measures could be significant.
Portions of our IT infrastructure also may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and be more expensive, time-consuming, disruptive and resource intensive. Such disruptions could adversely impact our ability to fulfill orders and respond to customer requests and interrupt other processes. Delayed sales, lower margins or lost customers resulting from these disruptions could reduce our revenue, increase our expenses, damage our reputation and adversely affect our stock price.
If we cannot successfully execute our go-to-market strategy and continue to develop, manufacture and market innovative products, services and solutions, our business and financial performance may suffer.
Our long-term strategy is focused on leveraging our portfolio of hardware, software and services as we deliver global edge to cloud platform-as-a-service to help customers accelerate outcomes by unlocking value from all of their data, everywhere. HPE delivers unique, open and intelligent technology solutions, with a consistent experience across all clouds and edge computing platforms. To successfully execute this strategy, we must address business model shifts and optimize go-to-market execution by improving cost structure, aligning sales coverage with strategic goals, improving channel execution and strengthening our capabilities in our areas of strategic focus, while continuing to pursue new product innovation that builds on our strategic capabilities in areas such as cloud and data center computing, software-defined networking, converged storage, high-performance compute, and wireless networking. Any failure to successfully execute this strategy, including any failure to invest sufficiently in strategic growth areas, could adversely affect our business, results of operations and financial condition.
The process of developing new high-technology products, software, services and solutions and enhancing existing hardware and software products, services and solutions is complex, costly and uncertain, and any failure by us to anticipate customers' changing needs and emerging technological trends accurately could significantly harm our market share, results of operations and financial condition. For example, as the transition to an environment characterized by cloud-based computing and software being delivered as a service progresses, we must continue to successfully develop and deploy cloud-based solutions for our customers. We must make long-term investments, develop or obtain and protect appropriate intellectual
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property, and commit significant research and development and other resources before knowing whether our predictions will accurately reflect customer demand for our products, services and solutions. Any failure to accurately predict technological and business trends, control research and development costs or execute our innovation strategy could harm our business and financial performance. Our research and development initiatives may not be successful in whole or in part, including research and development projects which we have prioritized with respect to funding and/or personnel.
After we develop a product, we must be able to manufacture appropriate volumes quickly while also managing costs and preserving margins. To accomplish this, we must accurately forecast volumes, mixes of products and configurations that meet customer requirements, and we may not succeed at doing so within a given product's life cycle or at all. Any delay in the development, production or marketing of a new product, service or solution could result in us not being among the first to market, which could further harm our competitive position.
If we cannot continue to produce quality products and services, our reputation, business and financial performance may suffer.
In the course of conducting our business, we must adequately address quality issues associated with our products, services and solutions, including defects in our engineering, design and manufacturing processes and unsatisfactory performance under service contracts, as well as defects in third-party components included in our products and unsatisfactory performance or even malicious acts by third-party contractors or subcontractors or their employees. In order to address quality issues, we work extensively with our customers and suppliers and engage in product testing to determine the causes of problems and to develop and implement appropriate solutions. However, the products, services and solutions that we offer are complex, and our regular testing and quality control efforts may not be effective in controlling or detecting all quality issues or errors, particularly with respect to faulty components manufactured by third parties. If we are unable to determine the cause, find an appropriate solution or offer a temporary fix (or "patch") to address quality issues with our products, we may delay shipment to customers, which could delay revenue recognition and receipt of customer payments and could adversely affect our revenue, cash flows and profitability. In addition, after products are delivered, quality issues may require us to repair or replace such products. Addressing quality issues can be expensive and may result in additional warranty, repair, replacement and other costs, adversely affecting our financial performance. If new or existing customers have difficulty operating our products or are dissatisfied with our services or solutions, our results of operations could be adversely affected, and we could face possible claims if we fail to meet our customers' expectations. In addition, quality issues can impair our relationships with new or existing customers and adversely affect our brand and reputation, which could, in turn, adversely affect our results of operations.
If we fail to manage the distribution of our products and services properly, our business and financial performance could suffer.
We use a variety of distribution methods to sell our products and services around the world, including third-party resellers and distributors and both direct and indirect sales to enterprise accounts and consumers. Successfully managing the interaction of our direct and indirect channel efforts to reach various potential customer segments for our products and services is a complex process. Moreover, since each distribution method has distinct risks and gross margins, our failure to implement the most advantageous balance in the delivery model for our products and services could adversely affect our revenue and gross margins and therefore our profitability.
Our financial results could be materially adversely affected due to distribution channel conflicts or if the financial conditions of our channel partners were to weaken. Our results of operations may be adversely affected by any conflicts that might arise between our various distribution channels or the loss or deterioration of any alliance or distribution arrangement. Moreover, some of our wholesale distributors may have insufficient financial resources and may not be able to withstand changes in business conditions, including economic weakness, industry consolidation and market trends. Many of our significant distributors operate on narrow margins and have been negatively affected by business pressures in the past. Considerable trade receivables that are not covered by collateral or credit insurance are outstanding with our distribution channel partners. Revenue from indirect sales could suffer, and we could experience disruptions in distribution, if our distributors' financial conditions, abilities to borrow funds in the credit markets or operations weaken.
Our inventory management is complex, as we continue to sell a significant mix of products through distributors. We must manage both owned and channel inventory effectively, particularly with respect to sales to distributors, which involves forecasting demand and pricing challenges. Distributors may increase orders during periods of product shortages, cancel orders if their inventory is too high or delay orders in anticipation of new products. Distributors also may adjust their orders in response to the supply of our products and the products of our competitors and seasonal fluctuations in end-user demand. Our reliance upon indirect distribution methods may reduce our visibility into demand and pricing trends and issues, and therefore make forecasting more difficult. If we have excess or obsolete inventory, we may have to reduce our prices and write down inventory. Moreover, our use of indirect distribution channels may limit our willingness or ability to adjust prices quickly and
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otherwise to respond to pricing changes by competitors. We also may have limited ability to estimate future product rebate redemptions in order to price our products effectively.
In order to be successful, we must attract, retain, train, motivate, develop and transition key employees, and failure to do so could seriously harm us.
In order to be successful, we must attract, retain, train, motivate, develop and transition qualified executives and other key employees, including those in managerial, technical, development, sales, marketing and IT support positions. In order to attract and retain executives and other key employees in a competitive marketplace, we must provide a competitive compensation package, including cash- and equity-based compensation. Our equity-based incentive awards may contain conditions relating to our stock price performance and our long-term financial performance that make the future value of those awards uncertain. If the anticipated value of such equity-based incentive awards does not materialize, if our equity-based compensation otherwise ceases to be viewed as a valuable benefit, if our total compensation package is not viewed as being competitive, or if we do not obtain the stockholder approval needed to continue granting equity-based incentive awards in the amounts we believe are necessary, our ability to attract, retain, and motivate executives and key employees could be weakened.
Our failure to successfully hire executives and key employees or the loss of any executives and key employees could have a significant impact on our operations. Further, changes in our management team may be disruptive to our business, and any failure to successfully transition and assimilate key new hires or promoted employees could adversely affect our business and results of operations.
Industry Risks
We operate in an intensely competitive industry and competitive pressures could harm our business and financial performance.
We encounter aggressive competition from numerous and varied competitors in all areas of our business, and our competitors have targeted and are expected to continue targeting our key market segments. We compete primarily on the basis of our technology, innovation, performance, price, quality, reliability, brand, reputation, distribution, product range and ease of use, account relationships, customer training, service and support, and security of our offerings. If our products, services, support and cost structure do not enable us to compete successfully based on any of those criteria, our results of operations and business prospects could be harmed.
We have a large portfolio of products and services and must allocate our financial, personnel and other resources across all of our products and services while competing with companies that have smaller portfolios or specialize in one or more of our product or service lines. As a result, we may invest less in certain areas of our business than our competitors do, and our competitors may have greater financial, technical and marketing resources available to them compared to the resources allocated to our products and services that compete against their products and services. Industry consolidation may also affect competition by creating larger, more homogeneous and potentially stronger competitors in the markets in which we operate. Additionally, our competitors may affect our business by entering into exclusive arrangements with our existing or potential customers or suppliers.
Companies with whom we have vertical relationships in certain areas may be or become our competitors in other areas. In addition, companies with whom we have vertical relationships also may acquire or form relationships with our competitors, which could reduce their business with us. If we are unable to effectively manage these complicated relationships with vertical partners, our business and results of operations could be adversely affected.
We face aggressive price competition and may have to continue lowering the prices of many of our products and services to stay competitive, while simultaneously seeking to maintain or improve our revenue and gross margin. In addition, competitors who have a greater presence in some of the lower-cost markets in which we compete, or who can obtain better pricing, more favorable contractual terms and conditions or more favorable allocations of products and components during periods of limited supply may be able to offer lower prices than we are able to offer. Our cash flows, results of operations and financial condition may be adversely affected by these and other industry-wide pricing pressures.
Because our business model is based on providing innovative and high-quality products and services, we may spend a proportionately greater amount of our revenues on research and development than some of our competitors. If we cannot proportionately decrease our cost structure (apart from research and development expenses) on a timely basis in response to competitive price pressures, our gross margin and, therefore, our profitability could be adversely affected. In addition, if our pricing and other facets of our offerings are not sufficiently competitive, or if there is an adverse reaction to our product decisions, we may lose market share in certain areas, which could adversely affect our financial performance and business prospects.
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Even if we are able to maintain or increase market share for a particular product, its financial performance could decline because the product is in a maturing industry or market segment or contains technology that is becoming obsolete. For example, our Storage business unit is experiencing the effects of a market transition towards software defined and public cloud, which has led to a decline in demand for our traditional storage products. Financial performance could decline due to increased competition from other types of products.
International Risks
Due to the international nature of our business, political or economic changes or other factors could harm our future revenue, costs and expenses, and financial condition.
Our business and financial performance depend significantly on worldwide economic conditions and the demand for technology hardware, software and services in the markets in which we compete. Economic weakness and uncertainty may adversely affect demand for our products, services and solutions, may result in increased expenses due to higher allowances for doubtful accounts and potential goodwill and asset impairment charges, and may make it more difficult for us to manage inventory and make accurate forecasts of revenue, gross margin, cash flows and expenses.
Economic weakness and uncertainty could cause our expenses to vary materially from our expectations. Any financial turmoil affecting the banking system and financial markets or any significant financial services institution failures could negatively impact our treasury operations, as the financial condition of such parties may deteriorate rapidly and without notice in times of market volatility and disruption. Poor financial performance of asset markets combined with lower interest rates and the adverse effects of fluctuating currency exchange rates could lead to higher pension and post-retirement benefit expenses. Interest and other expenses could vary materially from expectations depending on changes in interest rates, borrowing costs, currency exchange rates, and costs of hedging activities and the fair value of derivative instruments. Economic downturns also may lead to restructuring actions and associated expenses. Further, ongoing U.S. federal government spending priorities may limit demand for our products, services and solutions from organizations that receive funding from the U.S. government, and could negatively affect macroeconomic conditions in the United States, which could further reduce demand for our products, services and solutions.
Sales outside the United States constituted approximately 66% of our net revenue in fiscal 2020. Our future business and financial performance could suffer due to a variety of international factors, including:
ongoing instability or changes in a country's or region's economic or political conditions, including inflation, recession, interest rate fluctuations and actual or anticipated military or political conflicts, including uncertainties and instability in economic and market conditions caused by the COVID-19 pandemic;
longer collection cycles and financial instability among customers;
trade regulations and procedures and actions affecting production, pricing and marketing of products, including policies adopted by countries that may champion or otherwise favor domestic companies and technologies over foreign competitors, U.S. export controls and sanctions, and federal and state tax reforms;
local labor conditions and regulations, including local labor issues faced by specific suppliers and original equipment manufacturers ("OEMs"), or changes to immigration and labor law policies which may adversely impact our access to technical and professional talent;
managing our geographically dispersed workforce;
changes in the international, national or local regulatory and legal environments;
differing technology standards or customer requirements;
import, export or other business licensing requirements or requirements relating to making foreign direct investments, which could increase our cost of doing business in certain jurisdictions, prevent us from shipping products to particular countries or markets, affect our ability to obtain favorable terms for components, increase our operating costs or lead to penalties or restrictions;
difficulties associated with repatriating earnings in restricted countries, and changes in tax laws; and
fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points of exit and entry for our products and shipments.
The factors described above also could disrupt our product and component manufacturing and key suppliers located outside of the United States. For example, we rely on suppliers in Asia for product assembly and manufacture.
In many foreign countries, particularly in those with developing economies, people may engage in business practices prohibited by anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. Although we implement policies, procedures and training designed to facilitate compliance with these laws, our employees and third parties we work with may take actions in violation of our policies, and those actions could have an adverse effect on our business and reputation.
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We are exposed to fluctuations in foreign currency exchange rates.
Currencies other than the U.S. dollar, including the euro, the British pound, Chinese yuan (renminbi) and the Japanese yen, can have an impact on our results as expressed in U.S. dollars. Currency volatility contributes to variations in our sales of products and services in impacted jurisdictions. Fluctuations in foreign currency exchange rates, most notably the strengthening of the U.S. dollar against the euro, could adversely affect our revenue growth in future periods. In addition, currency variations can adversely affect margins on sales of our products in countries outside of the United States and margins on sales of products that include components obtained from suppliers located outside of the United States.
From time to time, we may use forward contracts and options designated as cash flow hedges to protect against foreign currency exchange rate risks. The effectiveness of our hedges depends on our ability to accurately forecast future cash flows, which is particularly difficult during periods of uncertain demand for our products and services and highly volatile exchange rates. We may incur significant losses from our hedging activities due to factors such as demand volatility and currency variations. In addition, certain or all of our hedging activities may be ineffective, may expire and not be renewed or may not offset any or more than a portion of the adverse financial impact resulting from currency variations. Losses associated with hedging activities also may impact our revenue and to a lesser extent our cost of sales and financial condition.
Intellectual Property Risks
Our financial performance may suffer if we cannot continue to develop, license or enforce the intellectual property rights on which our businesses depend.
We rely upon patent, copyright, trademark, trade secret and other intellectual property laws in the United States, similar laws in other countries, and agreements with our employees, customers, suppliers and other parties, to establish and maintain intellectual property rights in the products and services we sell, provide or otherwise use in our operations. However, any of our intellectual property rights could be challenged, invalidated, infringed or circumvented, or such intellectual property rights may not be sufficient to permit us to take advantage of current market trends or to otherwise provide competitive advantages. Further, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States. Therefore, in certain jurisdictions we may be unable to protect our proprietary technology adequately against unauthorized third-party copying or use; this, too, could adversely affect our ability to sell products or services and our competitive position.
Our products and services depend in part on intellectual property and technology licensed from third parties.
Much of our business and many of our products rely on key technologies developed or licensed by third parties. For example, many of our software offerings are developed using software components or other intellectual property licensed from third parties, including through both proprietary and open source licenses. These third-party software components may become obsolete, defective or incompatible with future versions of our products, or our relationship with the third party may deteriorate, or our agreements with the third party may expire or be terminated. We may face legal or business disputes with licensors that may threaten or lead to the disruption of inbound licensing relationships. In order to remain in compliance with the terms of our licenses, we must carefully monitor and manage our use of third-party software components, including both proprietary and open source license terms that may require the licensing or public disclosure of our intellectual property without compensation or on undesirable terms. Additionally, some of these licenses may not be available to us in the future on terms that are acceptable or that allow our product offerings to remain competitive. Our inability to obtain licenses or rights on favorable terms could have a material effect on our business, including our financial condition and results of operations. In addition, it is possible that as a consequence of a merger or acquisition, third parties may obtain licenses to some of our intellectual property rights or our business may be subject to certain restrictions that were not in place prior to such transaction. Because the availability and cost of licenses from third parties depends upon the willingness of third parties to deal with us on the terms we request, there is a risk that third parties who license to our competitors will either refuse to license us at all, or refuse to license us on terms equally favorable to those granted to our competitors. Consequently, we may lose a competitive advantage with respect to these intellectual property rights or we may be required to enter into costly arrangements in order to terminate or limit these rights.
Third-party claims of intellectual property infringement, including patent infringement, are commonplace in the IT industry and successful third-party claims may limit or disrupt our ability to sell our products and services.
Third parties may claim that we or customers indemnified by us are infringing upon their intellectual property rights. Patent assertion entities frequently purchase intellectual property assets for the purpose of extracting infringement settlements. If we cannot license, or replace, allegedly infringed intellectual property on reasonable terms, our operations could be adversely affected. Even if we believe that intellectual property claims are without merit, they can be time-consuming and costly to defend against and may divert management's attention and resources away from our business. Claims of intellectual property infringement also might require us to redesign affected products, discontinue certain product offerings, enter into costly settlement or license agreements, pay costly damage awards or face a temporary or permanent injunction prohibiting us from
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importing, marketing or selling certain of our products. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable or unwilling to uphold its contractual obligations to us.
Financial Risks
Failure to maintain a satisfactory credit rating could adversely affect our liquidity, capital position, borrowing costs and access to capital markets.
We currently maintain investment grade credit ratings with Moody's Investors Service, Standard & Poor's Ratings Services and Fitch Ratings Services. Despite these investment grade credit ratings, any future downgrades could increase the cost of borrowing under any indebtedness we may incur, reduce market capacity for our commercial paper or require the posting of additional collateral under our derivative contracts. Additionally, increased borrowing costs, including those arising from a credit rating downgrade, can potentially reduce the competitiveness of our financing business. There can be no assurance that we will be able to maintain our credit ratings, and any additional actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under review for a downgrade, may have a negative impact on our liquidity, capital position and access to capital markets.
Our debt obligations may adversely affect our business and our ability to meet our obligations and pay dividends.
In addition to our current total carrying debt, we may also incur additional indebtedness in the future. This collective amount of debt could have important adverse consequences to us and our investors, including:
requiring a substantial portion of our cash flow from operations to make principal and interest payments;
making it more difficult to satisfy other obligations;
increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing;
increasing our vulnerability to general adverse economic and industry conditions;
reducing the cash flows available to fund capital expenditures and other corporate purposes and to grow our business;
limiting our flexibility in planning for, or reacting to, changes in our business and industry; and
limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase our common stock.
To the extent that we incur additional indebtedness, the risks described above could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to service our outstanding debt or to repay our outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to service or refinance our debt.
The revenue and profitability of our operations have historically varied, which makes our future financial results less predictable.
Our revenue, gross margin and profit vary among our diverse products and services, customer groups and geographic markets and therefore will likely be different in future periods than our historical results. Our revenue depends on the overall demand for our products and services. Delays or reductions in IT spending by our customers or potential customers could have a material adverse effect on demand for our products and services, which could result in a significant decline in revenue. In addition, revenue declines in some of our businesses may affect revenue in our other businesses as we may lose cross-selling opportunities. Overall gross margins and profitability in any given period are dependent partially on the product, service, customer and geographic mix reflected in that period's net revenue. Competition, lawsuits, investigations, increases in component and manufacturing costs that we are unable to pass on to our customers, component supply disruptions and other risks affecting our businesses may have a significant impact on our overall gross margin and profitability. Variations in fixed cost structure and gross margins across business units and product portfolios may lead to significant operating profit volatility on a quarterly or annual basis. In addition, newer geographic market opportunities may be relatively less profitable due to our investments associated with entering those markets and local pricing pressures, and we may have difficulty establishing and maintaining the operating infrastructure necessary to support the high growth rate associated with some of those markets. Market trends, industry shifts, competitive pressures, commoditization of products, increased component or shipping costs, regulatory impacts and other factors may result in reductions in revenue or pressure on gross margins of certain segments in a given period, which may lead to adjustments to our operations. Moreover, our efforts to address the challenges facing our business could increase the level of variability in our financial results because the rate at which we are able to realize the benefits from those efforts may vary from period to period.
Our uneven sales cycle makes planning and inventory management difficult and future financial results less predictable.
In some of our businesses, our quarterly sales have periodically reflected a pattern in which a disproportionate percentage of each quarter's total sales occurs towards the end of the quarter. This uneven sales pattern makes predicting revenue, earnings,
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cash flow from operations and working capital for each financial period difficult, increases the risk of unanticipated variations in our quarterly results and financial condition and places pressure on our inventory management and logistics systems. If predicted demand is substantially greater than orders, there may be excess inventory. Alternatively, if orders substantially exceed predicted demand, we may not be able to fulfill all of the orders received in each quarter and such orders may be canceled. Depending on when they occur in a quarter, developments such as a systems failure, component pricing movements, component shortages or global logistics disruptions, could adversely impact our inventory levels and results of operations in a manner that is disproportionate to the number of days in the quarter affected. We experience some seasonal trends in the sale of our products that also may produce variations in our quarterly results and financial condition. Many of the factors that create and affect seasonal trends are beyond our control.
We make estimates and assumptions in connection with the preparation of our Consolidated Financial Statements and any changes to those estimates and assumptions could adversely affect our results of operations.
In connection with the preparation of our Consolidated Financial Statements, we use certain estimates and assumptions based on historical experience and other factors. Our most critical accounting estimates are described in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, as discussed in Note 1, "Overview and Summary of Significant Accounting Policies—Use of Estimates" and Note 17, "Litigation and Contingencies", to our Consolidated Financial Statements, we make certain estimates, including decisions related to provisions for legal proceedings and other contingencies. While we believe that these estimates and assumptions are reasonable under the circumstances, they are subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could adversely affect our results of operations.
Regulatory Risks
Our business is subject to various federal, state, local and foreign laws and regulations that could result in costs or other sanctions that adversely affect our business and results of operations.
We are subject to various federal, state, local and foreign laws and regulations such as those concerning environmental protection. For example, we face increasing complexity related to product design, the use of regulated, hazardous and scarce materials, the associated energy consumption and efficiency related to the use of products, the transportation and shipping of products, climate change regulations, and the reuse, recycling and/or disposal of products and their components at end-of-use or useful life as we adjust to new and future requirements relating to our transition to a more circular economy. If we were to violate or become liable under environmental laws or if our products become non-compliant with environmental laws or market access requirements, our customers may refuse to purchase our products and we could incur substantial costs or face other sanctions, such as restrictions on our products entering certain jurisdictions, fines, and/or civil or criminal sanctions. Environmental regulations may also impact the availability and cost of energy or emissions related to energy consumption which may increase our cost of manufacturing and/or the cost of powering and cooling owned IT infrastructures.
In addition, our business is subject to an ever growing number of laws addressing privacy and information security. In particular, we face an increasingly complex regulatory environment as we adjust to new and future requirements relating to the security of our offerings. If we were to violate or become liable under laws or regulations associated with privacy or security, we could incur substantial costs or face other sanctions. Our potential exposure includes regulatory fines and civil or criminal sanctions third-party claims and reputational damage.
Failure to comply with government contracting regulations could adversely affect our business and results of operations.
Our contracts with federal, state, provincial and local governmental customers are subject to various procurement regulations, contract provisions and other requirements relating to their formation, administration and performance. Any violation of government contracting regulations could result in the imposition of various civil and criminal penalties, which may include termination of contracts, forfeiture of profits, suspension of payments and, in the case of our government contracts, fines and suspension from future government contracting. Such failures could also cause reputational damage to our business. In addition, we may in the future be, subject to qui tam litigation brought by private individuals on behalf of the government relating to our government contracts, which could include claims for treble damages. If we are suspended or disbarred from government work or if our ability to compete for new government contracts is adversely affected, our financial performance could suffer.
Unanticipated changes in our tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could affect our financial performance.
We are subject to income and other taxes in the United States and numerous foreign jurisdictions. Our tax liabilities are affected by the amounts we charge in intercompany transactions for inventory, services, licenses, funding and other items. We are subject to ongoing tax audits in various jurisdictions. Tax authorities may disagree with our intercompany charges, cross-
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jurisdictional transfer pricing or other matters, and may assess additional taxes as a result. There can be no assurance that we will accurately predict the outcomes of these audits, and the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and therefore could have a material impact on our tax provision, net income and cash flows. In addition, our effective tax rate in the future could be adversely affected by changes to our operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws and the discovery of new information in the course of our tax return preparation process. The carrying value of our deferred tax assets is dependent on our ability to generate future taxable income.
The Organisation for Economic Co-operation and Development (OECD), an international association of 34 countries including the United States, has proposed changes to numerous long-standing tax principles. These proposals, if finalized and adopted by the associated countries, will likely increase tax uncertainty and may adversely affect our provision for income taxes.
President-elect Biden has provided some informal guidance on what tax law changes he would support. Among other things, his proposals would raise the rate on both domestic and foreign income and impose a new alternative minimum tax on book income. If these proposals are ultimately enacted into legislation, they could materially impact our tax provision, cash tax liability and effective tax rate.
During fiscal 2019, we executed a Termination and Mutual Release Agreement which terminated our Tax Matters Agreement with HP Inc. Because we now have limited indemnity rights from HP Inc., we potentially bear more economic risk for certain potential unfavorable tax assessments.
Risks Related to Prior Separations
The stock distribution in either or both of the completed separations of our former Enterprise Services business and our former Software segment could result in significant tax liability, and DXC or Micro Focus (as applicable) may in certain cases be obligated to indemnify us for any such tax liability imposed on us.
The completed separations of our former Enterprise Services business and our Software Segment were conditioned upon the receipt of an opinion from outside counsel regarding the qualification of (i) the relevant distribution and related transactions as a "reorganization" within the meaning of Sections 368(a), 361 and 355 of the Internal Revenue Code of 1986 (the "Code"); and (ii) the relevant merger as a "reorganization" within the meaning of Section 368(a) of the Code. While the Software Separation generally qualified for tax-free treatment for us, Seattle SpinCo and Micro Focus, the acquisition of Seattle SpinCo by Micro Focus resulted in the recognition of gain (but not loss) for U.S. persons who received Micro Focus American Depositary Shares in the Software Separation.
Each opinion of outside counsel was based upon and relied on, among other things, certain facts and assumptions, as well as certain representations, statements and undertakings of us, Everett SpinCo and CSC, or us, Seattle SpinCo and Micro Focus, as applicable. If any of these representations, statements or undertakings are, or become, inaccurate or incomplete, or if any party breaches any of its covenants in the relevant separation documents, the relevant opinion of counsel may be invalid and the conclusions reached therein could be jeopardized. Notwithstanding the opinions of counsel, the Internal Revenue Service (the "IRS") could determine that either or both of the distributions should be treated as a taxable transaction if it determines that any of the facts, assumptions, representations, statements or undertakings upon which the relevant opinion of counsel was based are false or have been violated, or if it disagrees with the conclusions in the opinion of counsel. An opinion of counsel is not binding on the IRS and there can be no assurance that the IRS will not assert a contrary position.
If the distribution of Everett SpinCo or Seattle SpinCo, as applicable, together with certain related transactions, failed to qualify as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code, in general, we would recognize taxable gain as if we had sold the stock of Everett SpinCo or Seattle SpinCo, as applicable, in a taxable sale for its fair market value, and our stockholders who receive Everett SpinCo shares or Seattle SpinCo shares in the relevant distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.
We obtained private letter rulings from the IRS regarding certain U.S. federal income tax matters relating to the separation of our Enterprise Services business and Software Segment. Those rulings concluded that certain transactions in those separations are generally tax-free for U.S. federal income tax purposes. The conclusions of the IRS private letter rulings were based, among other things, on various factual assumptions we have authorized and representations we have made to the IRS. If any of these assumptions or representations are, or become, inaccurate or incomplete, the validity of the IRS private letter rulings may be affected. Notwithstanding the foregoing, we incurred certain tax costs in connection with the completed separation of our former Enterprise Services business and Software Segment, including non-U.S. tax expenses resulting from
25

the completed separation of our former Enterprise Services business and Software Segment in multiple non-U.S. jurisdictions that do not legally provide for tax-free separations, which may be material. If the completed separation of our former Enterprise Services business or Software Segment (including certain internal transactions undertaken in anticipation of those separations) are determined to be taxable for U.S. federal income tax purposes, we, our stockholders that are subject to U.S. federal income tax and/or DXC and/or Micro Focus could incur significant U.S. federal income tax liabilities.
Under the tax matters agreements entered into by us with Everett SpinCo and CSC, and with Seattle SpinCo and Micro Focus, Everett SpinCo and Seattle SpinCo generally would be required to indemnify us for any taxes resulting from the relevant separation (and any related costs and other damages) to the extent such amounts resulted from (i) certain actions taken by, or acquisitions of capital stock of, Everett SpinCo or Seattle SpinCo, as applicable (excluding actions required by the documents governing the relevant separation), or (ii) any breach of certain representations and covenants made by Everett SpinCo or Seattle SpinCo, as applicable. Any such indemnity obligations could be material.
We continue to face a number of risks related to the Separation from our former Parent, including those associated with ongoing indemnification obligations, which could adversely affect our financial condition and results of operations, and shared use of certain intellectual property rights, which could in the future adversely impact our reputation.
In connection with the Separation, Hewlett Packard Enterprise and HP Inc. entered into several agreements that determine the allocation of assets and liabilities between the companies following the Separation and include any necessary indemnifications related to liabilities and obligations. In these agreements, HP Inc. agreed to indemnify us for certain liabilities, and we agreed to indemnify HP Inc. for certain liabilities, including cross-indemnities that are designed and intended to place financial responsibility for the obligations and liabilities of our business with us, and financial responsibility for the obligations and liabilities of HP Inc.'s business with HP Inc. We may be obligated to fully indemnify HP Inc. for certain liabilities under the Separation agreements or HP Inc. may not be able to fully cover their indemnification obligations to us under the same Separation agreements. Each of these risks could negatively affect our business, financial position, results of operations and cash flows.
In addition, the terms of the Separation also include licenses and other arrangements to provide for certain ongoing use of intellectual property in the operations of both businesses. For example, through a joint brand holding structure, both Hewlett Packard Enterprise and HP Inc. retain the ability to make ongoing use of certain variations of the legacy Hewlett-Packard and HP branding, respectively. As a result of this continuing shared use of the legacy branding there is a risk that conduct or events adversely affecting the reputation of HP Inc. could also adversely affect the reputation of Hewlett Packard Enterprise.
General Risks
Our stock price has fluctuated and may continue to fluctuate, which may make future prices of our stock difficult to predict.
Investors should not rely on recent or historical trends to predict future stock prices, financial condition, results of operations or cash flows. Our stock price, like that of other technology companies, can be volatile and can be affected by, among other things, speculation, coverage or sentiment in the media or the investment community; the announcement of new, planned or contemplated products, services, technological innovations, acquisitions, divestitures or other significant transactions by us or our competitors; our quarterly financial results and comparisons to estimates by the investment community or financial outlook provided by us; the financial results and business strategies of our competitors; developments relating to pending investigations, claims and disputes; or the timing and amount of our share repurchases. General or industry specific market conditions or stock market performance or domestic or international macroeconomic and geopolitical factors unrelated to Hewlett Packard Enterprise's performance also may affect the price of Hewlett Packard Enterprise's stock. Volatility in the price of our securities could result in the filing of securities class action litigation matters, which could result in substantial costs and the diversion of management time and resources.
26

ITEM 1B. Unresolved Staff Comments.
None.
ITEM 2. Properties.
As of October 31, 2020, we owned or leased approximately 16 million square feet of space worldwide. A summary of the Company's operationally utilized space is provided below.
  As of October 31, 2020
  Owned Leased Total
  (Square feet in millions)
Administration and support 11 
(Percentage) 36  % 64  % 100  %
Core data centers, manufacturing plants, research and development facilities, and warehouse operations
(Percentage) 50  % 50  % 100  %
 Total 13 
(Percentage) 38  % 62  % 100  %
We believe that our existing properties are in good condition and are suitable for the conduct of our business. Substantially all of our properties are utilized in whole or in part by our Compute, HPC & MCS, Storage, and Intelligent Edge segments.
In connection with the transformation programs, we continue to anticipate changes in our real estate portfolio over the next three years. These changes may include reductions in overall space.
Principal Executive Offices
Our principal executive offices, including our global headquarters, are located at 11445 Compaq Center West Drive, Houston, Texas, 77070, United States of America ("U.S.").
Product Development, Services and Manufacturing
The locations of our major product development, services, manufacturing, and Hewlett Packard Labs facilities are as follows:
Americas

 Puerto Rico—Aguadilla
 
 United States—Alpharetta, Andover, Carrollton, Chippewa Falls, Colorado Springs, Fremont, Fort Collins, Houston, Milpitas, Palo Alto, Roseville, San Jose, Santa Clara, Sunnyvale
 
Europe, Middle East, Africa
 
United Kingdom—Erskine
Asia Pacific
 
 China—Beijing
   India—Bangalore
 Japan—Tokyo
Singapore—Singapore
Taiwan—Taipei
 
ITEM 3. Legal Proceedings.
Information with respect to this item may be found in Note 17, "Litigation and Contingencies", to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.
27

PART II
ITEM 4. Mine Safety Disclosures.
Not applicable.
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
The common stock of Hewlett Packard Enterprise is listed on the New York Stock Exchange ("NYSE") with the ticker symbol "HPE".
Holders
According to the records of our transfer agent, there were 54,317 stockholders of record of Hewlett Packard Enterprise common stock as of November 30, 2020.
Dividend
During fiscal 2020, we paid a quarterly dividend of $0.12 per share to our shareholders. On December 1, 2020 we declared a quarterly dividend of $0.12 per share, payable on or about January 6, 2021, to stockholders of record as of the close of business on December 9, 2020.
The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of our Board of Directors. Our Board of Directors' decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our debt, industry practice, legal requirements, regulatory constraints, and other factors that our Board of Directors deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will continue to pay a dividend in any future period.
Issuer Purchases of Equity Securities
On October 13, 2015, the Company's 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. This program, which does not have a specific expiration date, authorizes repurchases in the open market or in private transactions. The Company may choose to repurchase shares when sufficient liquidity exists and the shares are trading at a discount relative to estimated intrinsic value.
During the fiscal year ended October 31, 2020, the Company repurchased and settled 25.3 million shares of the Company's common stock, which included 0.5 million shares that were unsettled open market purchases as of October 31, 2019. On April 6, 2020, the Company announced that it suspended purchases under its share repurchase program in response to the global economic uncertainty that resulted from the worldwide spread of the novel coronavirus. As of October 31, 2020, the Company had no unsettled open market repurchases. Shares repurchased during fiscal 2020 were recorded as a $346 million reduction to stockholders' equity. As of October 31, 2020, the Company had a remaining authorization of $2.1 billion for future share repurchases.
Stock Performance Graph and Cumulative Total Return
The graph below shows the cumulative total stockholder return, the S&P 500 Index and the S&P Information Technology Index. This graph covers the period from November 2, 2015 (the first day HPE's common stock began trading "regular-way" on the NYSE) through October 31, 2020. This graph assumes the investment of $100 in the stock or the index on November 2, 2015 (and the reinvestment of dividends thereafter). On April 1, 2017, we completed the separation and merger of our Enterprise Services business with DXC. HPE stockholders received 0.085904 shares of common stock in the new company for every one share of HPE common stock held at the close of business on the record date. On September 1, 2017, we completed the separation and merger of our Software business segment with Micro Focus. HPE stockholders received 0.13732611 American Depository Shares ("Micro Focus ADSs") in the new company, each of which represents one ordinary share of Micro Focus, for every one share of HPE common stock held at the close of business on the record date. The effect of the Everett and Seattle Transactions are reflected in the cumulative total return as reinvested dividends. The comparisons in the graph below are based on historical data and are not indicative of, or intended to forecast, future performance of our common stock.
28

HPE-20201031_G1.JPG
11/2015 10/2016 10/2017 10/2018 10/2019 10/2020
Hewlett Packard Enterprise $ 100.00  $ 157.00  $ 169.80  $ 190.36  $ 211.12  $ 115.85 
S&P 500 Index $ 100.00  $ 103.27  $ 127.67  $ 137.04  $ 156.66  $ 171.85 
S&P Information Technology Index $ 100.00  $ 109.74  $ 152.49  $ 171.25  $ 209.93  $ 282.32 
29

ITEM 6. Selected Financial Data.
The information set forth below is not necessarily indicative of future results of operations and should be read in conjunction with Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Consolidated Financial Statements and accompanying notes included in Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K, which are incorporated herein by reference, in order to understand further the factors that may affect the comparability of the financial data presented below.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Selected Financial Data
  For the fiscal years ended October 31,
  2020 2019 2018 2017 2016
  In millions, except per share amounts
Statements of Earnings:          
Net revenue $ 26,982  $ 29,135  $ 30,852  $ 28,871  $ 30,280 
Earnings (loss) from continuing operations $ (329) $ 1,274  $ 1,737  $ 564  $ 3,741 
Net earnings (loss) from continuing operations $ (322) $ 1,049  $ 2,012  $ 436  $ 3,237 
Net loss from discontinued operations —  —  (104) (92) (76)
Net earnings (loss) $ (322) $ 1,049  $ 1,908  $ 344  $ 3,161 
Net earnings (loss) per share          
Basic
Continuing operations $ (0.25) $ 0.78  $ 1.32  $ 0.26  $ 1.89 
Discontinued operations —  —  (0.07) (0.05) (0.05)
Total basic net earnings (loss) per share $ (0.25) $ 0.78  $ 1.25  $ 0.21  $ 1.84 
Diluted
Continuing operations $ (0.25) $ 0.77  $ 1.30  $ 0.26  $ 1.86 
Discontinued operations —  —  (0.07) (0.05) (0.04)
Total diluted net earnings (loss) per share $ (0.25) $ 0.77  $ 1.23  $ 0.21  $ 1.82 
Cash dividends declared per share $ 0.3600  $ 0.4575  $ 0.4875  $ 0.2600  $ 0.2200 
Basic shares outstanding 1,294  1,353  1,529  1,646  1,715 
Diluted shares outstanding 1,294  1,366  1,553  1,674  1,739 
Balance Sheets:          
At year-end:          
Total assets
$ 54,015  $ 51,803  $ 55,493  $ 61,406  $ 79,629 
Long-term debt
$ 12,186  $ 9,395  $ 10,136  $ 10,182  $ 12,168 
Total debt
$ 15,941  $ 13,820  $ 12,141  $ 14,032  $ 15,693 
30

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
For purposes of the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section, we use the terms "Hewlett Packard Enterprise", "HPE", "the Company", "we", "us", and "our" to refer to Hewlett Packard Enterprise Company. References in the MD&A section to "former Parent" refer to HP Inc.
This MD&A is organized as follows:
Trends and Uncertainties A discussion of our response to the novel coronavirus pandemic ("COVID-19"), including our efforts to protect the health and well-being of our workforce, community and customers, and other matters.
Overview.  A discussion of our business and overall analysis of financial and other highlights affecting the Company to provide context for the remainder of MD&A. The overview analysis compares fiscal 2020 to fiscal 2019.
Critical Accounting Policies and Estimates.  A discussion of accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.
Results of Operations.  An analysis of our financial results comparing fiscal 2020 and fiscal 2019 to the prior-year periods. A discussion of the results of operations at the consolidated level is followed by a discussion of the results of operations at the segment level.
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, off-balance sheet arrangements, cross-indemnifications with HP Inc. (formerly known as "Hewlett-Packard Company" and also referred to in this Annual Report as "former Parent"), and cross-indemnifications with DXC Technology Company ("DXC") and Micro Focus International plc ("Micro Focus").
We intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our Consolidated Financial Statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our Consolidated Financial Statements. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes that appear elsewhere in this document.
Former Parent Separation Transaction
On November 1, 2015, the Company became an independent publicly-traded company through a pro rata distribution by HP Inc. ("former Parent" or "HPI"), formerly known as Hewlett-Packard Company ("HP Co."), of 100% of the outstanding shares of Hewlett Packard Enterprise Company to HP Inc.'s stockholders (collectively, the "Separation"). Each HP Inc. stockholder of record received one share of Hewlett Packard Enterprise common stock for each share of HP Inc. common stock held on the record date. Following the Separation, the Company became an independent publicly-traded company.
Discontinued Operations
On April 1, 2017, HPE completed the separation and merger of its Enterprise Services business with the DXC Technology Company ("DXC", "the Everett Transaction" or "Everett").
On September 1, 2017, HPE completed the separation and merger of its Software business segment with Micro Focus International plc ("Micro Focus", "the Seattle Transaction" or "Seattle").
31

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Trends and Uncertainties
COVID-19
The outbreak of COVID-19 in 2020 resulted in a global slowdown of economic activity including worldwide travel restrictions, prohibitions of non-essential work activities, disruption and shutdown of businesses and greater uncertainty in global financial markets. COVID-19 continues to have an impact on our financial performance and we are currently unable to predict the extent to which COVID-19 may adversely impact our future business operations, financial performance and results of operations. The full extent of the impact of COVID-19 on the Company's operational and financial performance is currently uncertain and will depend on many factors outside the Company's control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the development and availability of effective treatments and vaccines, the imposition of protective public safety measures, and the impact of the pandemic on the global economy and demand for our enterprise technology solutions. For a further discussion of the risks, uncertainties and actions taken in response to COVID-19, see risks identified in the section entitled " Risk Factors" in Part I, Item 1A.
The Company believes its existing balances of cash, cash equivalents and marketable securities, along with commercial paper and other short-term liquidity arrangements, will be sufficient to satisfy its working capital needs, capital asset purchases, dividends, debt repayments and other liquidity requirements associated with its existing operations.
The Company also believes that COVID-19 has forced fundamental changes in businesses and communities that are aligned with the Company's edge-to-cloud platform delivered as-a-service strategy. Navigating through the pandemic and planning for a post-COVID world have increased customers' needs for as-a-service offerings, secure connectivity, remote work capabilities and analytics to unlock insights from data. Our solutions are aligned to these needs, and we see opportunity to help our customers drive digital transformations as they continue to adapt to operate in a new world.
We have prioritized protecting the health and safety of our team members, supporting the global communities in which we live and work and supporting our customers and partners to help them adjust to new and emerging needs.
In response to the COVID-19 pandemic and to ensure the safety of our employees, we implemented a global work-from-home policy until further notice that applies to a significant majority of our employees, with the exception of those performing essential activities. In October 2020, in certain countries, we introduced a new hybrid model of work to our workforce called Edge-to-Office. Depending on role classification, work will now primarily be done at the edge (outside of the office), or at HPE sites. HPE sites will be used for collaborations, social connections, and other work, as needed for all roles. The implementation of Edge-to-Office will occur in a phased-approach across the Company and as local regulations allow.
We have also made additional education and support resources and personal protective supplies available to team members. In the event of a confirmed or probable case of COVID-19 among our team members and contractors, we have implemented a confidential reporting process to trace and notify close contacts—including third parties—that maintains the anonymity of all involved.
In the third quarter of fiscal 2020 we announced new return-to-work solutions to help customers accelerate business recovery and reopening plans. The solutions combine expertise from HPE operational services for a fast, seamless transition, with HPE servers for the edge, Aruba AI-powered network infrastructure, and technologies from HPE's rich ecosystem of partners. Customers that have implemented these solutions include large international airports, global food processing and packaging plants, retail stores, and corporate offices.
While we continue to mitigate the impact on our business and operations to address the near-term uncertainty, in fiscal 2020 we took a number of actions to ensure HPE is well positioned to emerge stronger, more agile and digitally enabled for a post-COVID-19 world.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted into law. The CARES Act, among other things, provides tax relief to businesses, including the deferral of certain payroll taxes, relief for retaining employees, and other income tax provisions. In addition to the CARES Act, governments around the world also enacted comparable legislation to address COVID-19 economic impacts. Based on the relief provided by this legislation, in fiscal 2020 we deferred $92 million of payroll taxes which, the Company will pay, at least partially or in full, prior to the end of fiscal 2021.
On April 6, 2020, we announced that we suspended purchases under our share repurchase program.
32

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
In April 2020, we issued $2.25 billion aggregate principal amount of unsecured Senior Notes to enhance our liquidity and strengthen our capital. Additionally, in July 2020, we issued $1.75 billion in aggregate principal amount of unsecured Senior Notes. The net proceeds from July offerings were used primarily for the redemption in August 2020 of the $3.0 billion outstanding principal amount of the 3.6% unsecured Senior Notes that were originally due in October 2020.
On May 19, 2020, the Board of Directors of HPE (the "Board") approved a cost optimization and prioritization plan. We expect that this plan will be implemented through fiscal 2023 and estimate that it will include gross savings of at least $1.0 billion as a result of changes to our workforce, business model and business process, with this plan being expected to deliver annualized net run-rate savings of at least $800 million by the end of fiscal 2023, in both cases relative to our fiscal 2019 exit. In order to achieve this level of cost savings, we estimate related cash funding payments of $1.3 billion over the next three years of which approximately $0.7 billion will relate to labor restructuring, $0.5 billion will relate to non-labor restructuring and $0.1 billion will relate to IT investments and design and execution charges. For further details of the plan see the Other section of this discussion.
On May 19, 2020, the Board approved cost containment measures including temporary base salary adjustments or unpaid leave for certain employees beginning July 1, 2020, along with restrictions on external hiring and salary increases. Effective November 1, 2020, the aforementioned cost containment measures were returned to their original levels prior to the change.
During fiscal 2020, we paid a quarterly dividend of $0.12 per share to our shareholders. On December 1, 2020 we declared a quarterly dividend of $0.12 per share, payable on or about January 6, 2021, to stockholders of record as of the close of business on December 9, 2020.
Other
We are in the process of addressing many challenges facing our business. One set of challenges include dynamic and accelerating market trends, such as the market shift of workloads to cloud-related IT infrastructure business models, emergence of software-defined architectures and converged infrastructure functionality and growth in IT consumption models. Certain of our legacy hardware server and storage businesses face challenges as customers migrate to cloud-based offerings and reduce their purchases of hardware products. Therefore, the demand environment for traditional server and storage products is challenging and lower traditional compute and storage unit volume is impacting support attach opportunities within the associated services organization.
Another set of challenges relates to changes in the competitive landscape. Our major competitors are expanding their product and service offerings with integrated products and solutions, our business-specific competitors are exerting increased competitive pressure in targeted areas and are entering new markets, our emerging competitors are introducing new technologies and business models, and our alliance partners in some businesses are increasingly becoming our competitors in others.
A third set of challenges relates to business model changes and our go-to-market execution. We intend to provide our customers with a choice between traditional consumption models or subscription-based, pay-per-use and as-a-Service offerings across out entire portfolio of HPE products and services.
To be successful in overcoming these challenges, we must address business model shifts and optimize go-to-market execution by successfully transitioning to our as-a-Service model, further improving our cost structure, aligning sales coverage with our strategic goals, improving channel execution, and strengthening our capabilities in our areas of strategic focus, which includes accelerating growth in the Intelligent Edge and High Performance Compute businesses and delivering profitable growth across each of our business segments. We need to continue to pursue new product innovation that builds on our existing capabilities in areas such as cloud and data center computing, software-defined networking, converged storage, high-performance compute, and wireless networking, which will keep us aligned with market demand, industry trends and the needs of our customers and partners. In addition, we need to continue to improve our operations, with a particular focus on enhancing our end-to-end processes and efficiencies.
33

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The following transformation programs were launched in response to the aforementioned challenges:
Cost Optimization and Prioritization Plan
During the third quarter of fiscal 2020, we launched a cost optimization and prioritization plan which focuses on realigning our workforce to areas of growth, including a new hybrid workforce model call Edge-to-Office, real estate strategies and simplifying and evolving our product portfolio strategy. The implementation period for the cost optimization and prioritization plan is through fiscal 2023. During this implementation period, we expect to incur transformation costs predominantly related to labor restructuring, non-labor restructuring, IT investments and design and execution charges.
HPE Next
During the third quarter of fiscal 2017, we launched an initiative called HPE Next to put in place a purpose-built company designed to compete and win in the markets where we participate. Through this program, we are simplifying our operating model, streamlining our offerings, business processes and business systems to improve our execution. The implementation period for HPE Next is now extended to fiscal 2023. During the remaining implementation period we expect to incur transformation charges predominantly related to IT transformation costs for streamlining, upgrading and simplifying back-end operations, and real estate initiatives. These costs will be partially offset by gains from real estate sales.
For additional details on these Transformation Programs, see Note 3, "Transformation Programs", to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.
For a further discussion of trends, uncertainties and other factors that could impact our operating results, and risks, uncertainties and actions taken in response to COVID-19, see the section entitled "Risk Factors" in Item 1A of Part 1, which is incorporated herein by reference.
The following Overview, Results of Operations and Liquidity discussions and analysis compare fiscal 2020 to fiscal 2019 and fiscal 2019 to fiscal 2018, unless otherwise noted. The Capital Resources and Contractual and Other Obligations discussions present information as of October 31, 2020, unless otherwise noted.
OVERVIEW
We are a global technology leader focused on developing intelligent solutions that allow customers to capture, analyze and act upon data seamlessly from edge to cloud. We enable customers to accelerate business outcomes by driving new business models, creating new customer and employee experiences, and increasing operational efficiency today and into the future. Our legacy dates back to a partnership founded in 1939 by William R. Hewlett and David Packard, and we strive every day to uphold and enhance that legacy through our dedication to providing innovative technological solutions to our customers.
We organize our business into seven segments for financial reporting purposes: Compute, High Performance Compute & Mission Critical Systems (HPC & MCS), Storage, Advisory and Professional Services (A & PS), Intelligent Edge, Financial Services ("FS") and Corporate Investments. The following provides an overview of our key financial metrics by segment for fiscal 2020, as compared to fiscal 2019:
34

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
HPE
Consolidated
Compute HPC & MCS Storage A & PS Intelligent Edge Financial Services
Corporate
Investments
Dollars in millions, except for per share amounts
Net revenue(1)
$ 26,982  $ 12,215  $ 3,036  $ 4,681  $ 951  $ 2,855  $ 3,352  $ 490 
Year-over-year change % (7.4) % (10.5) % 4.3  % (9.7) % (6.0) % (2.0) % (6.4) % (3.4) %
Earnings (loss) from operations (2)
$ (329) $ 893  $ 237  $ 719  $ (5) $ 281  $ 278  $ (100)
Earnings (loss) from operations as a % of net revenue (1.2) % 7.3  % 7.8  % 15.4  % (0.5) % 9.8  % 8.3  % (20.4) %
Year-over-year change percentage points (5.6) pts (4.1) pts (3.2) pts (2.4) pts 4.8  pts 4.3  pts (0.2) pts 0.9  pts
Net loss $ (322)
Diluted net loss per share $ (0.25)
Supplemental Non-GAAP information:
Non-GAAP earnings from operations $ 2,008 
Non-GAAP earnings from operations as a % of net revenue 7.4  %
Non-GAAP net earnings $ 1,765 
Non-GAAP diluted net earnings per share $ 1.35 
(1)HPE consolidated net revenue excludes intersegment net revenue.
(2)Segment earnings from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense related to corporate and certain global functions, amortization of capitalized initial direct costs, transformation costs, amortization of intangible assets, acquisition, dispositions and other related charges, impairment of goodwill and disaster (recovery) charges.
Net revenue decreased by $2.2 billion, or 7.4% (decreased 6.4% on a constant currency basis), in fiscal 2020 as compared to fiscal 2019.
During fiscal 2020, we experienced a net revenue decline due to the impact of the COVID-19 pandemic on our business operations and the worldwide demand environment. The impact of COVID-19 and resulting lockdown restrictions was felt across each of our business segments and included challenges such as disruptions to our supply chain process with processing order fulfillment, due in part to related commodity constraints, delays with meeting customer acceptance milestones and our ability to perform and complete on-site installations. The pandemic and related restrictions also contributed to manufacturing capacity constraints during the first half of fiscal 2020, which along with the consolidation of certain locations in North America, increased order backlog. Although we significantly improved our operational and supply chain execution in the second half of fiscal 2020, our financial results continued to be impacted by the weak worldwide demand environment resulting from the pandemic related restrictions. Given the comprehensive impact of the pandemic and to avoid repetition, the following discussion of the financial performance of each segment in fiscal 2020 as compared to fiscal 2019 will focus on the other leading factors contributing to their performance.
From a segment perspective, the net revenue decrease in fiscal 2020, as compared to fiscal 2019, was primarily led by declines in Compute, Storage, and Financial Services, partially offset by a net revenue increase in HPC & MCS. The net revenue decline in Compute was due to competitive pricing pressures and manufacturing capacity constraints in North America. Storage net revenue was impacted by manufacturing capacity constraints in North America and lower revenue from the expiration of a one-time legacy contract. Financial Services net revenue was impacted due to a decrease in rental revenue due to
35

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
lower average operating lease assets, lower lease equipment buyout revenue and unfavorable foreign currency fluctuations. HPC & MCS experienced a net revenue increase due to the addition of revenue from the acquisition of Cray Inc. ("Cray").
Our gross profit margin was 31.4% ($8.5 billion) and 32.6% ($9.5 billion) for fiscal 2020 and 2019, respectively. The 1.2 percentage point decrease to the gross profit margin was primarily driven by the combination of competitive pricing pressures, higher supply chain costs resulting from the impact of COVID-19, unfavorable currency fluctuations and the scale of the net revenue decline, partially offset by our overall shift to higher-margin products and services along with lower variable compensation expense. Our operating profit margin was (1.2)% and 4.4% for fiscal 2020 and 2019, respectively, representing a decrease of 5.6 percentage points. The decrease was due to an increase in operating expenses as a percentage of net revenue coupled with a decrease in the gross profit margin. The increase in operating expenses was due primarily to the goodwill impairment charge impacting our HPC & MCS segment in the second quarter of fiscal 2020, and higher transformation costs partially offset by the prior-year period containing higher acquisition, disposition and other related charges resulting from an arbitration settlement and cost containment measures.
As of October 31, 2020, cash, cash equivalents and restricted cash were $4.6 billion, representing an increase of approximately $0.5 billion from the October 31, 2019 balance of $4.1 billion. The increase was due primarily to the following: cash provided by operating activities of $2.2 billion, net proceeds from debt issuance net of repayments of $1.9 billion, partially offset by investments in property, plant and equipment, net of sales proceeds of $1.7 billion, cash payments related to dividends and share repurchases of $1.0 billion and business acquisition activity of $0.9 billion.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The following table provides reconciliation of GAAP to non-GAAP measures for fiscal 2020:
Fiscal year ended October 31, 2020 Diluted net earnings per share
In millions
GAAP net earnings (loss) $ (322) $ (0.25)
Non-GAAP adjustments:
Amortization of initial direct costs 10  0.01 
Amortization of intangible assets 379  0.29 
Impairment of goodwill 865  0.67 
Transformation costs 950  0.74 
Disaster charges 26  0.02 
Acquisition, disposition and other related charges 107  0.08 
Tax indemnification adjustments 101  0.08 
Non-service net periodic benefit credit (136) (0.11)
Earnings from equity interests(1)
145  0.11 
Adjustments for taxes (360) (0.29)
Non-GAAP net earnings $ 1,765  $ 1.35 
GAAP earnings (loss) from operations $ (329)
Non-GAAP adjustments:
Amortization of initial direct costs 10 
Amortization of intangible assets 379 
Impairment of goodwill 865 
Transformation costs 950 
Disaster charges 26 
Acquisition, disposition and other related charges 107 
Non-GAAP earnings from operations $ 2,008 
GAAP operating profit margin (1.2) %
Non-GAAP adjustments 8.6  %
Non-GAAP operating profit margin 7.4  %
GAAP Net revenue $ 26,982 
GAAP Cost of sales 18,513 
GAAP gross profit $ 8,469 
Non-GAAP adjustments
Amortization of initial direct costs $ 10 
Acquisition, disposition and other related charges(2)
27 
Non-GAAP gross profit $ 8,506 
GAAP gross profit margin 31.4  %
Non-GAAP adjustments 0.1  %
Non-GAAP gross profit margin 31.5  %
(1) Represents the amortization of basis difference adjustments related to the H3C divestiture.
(2) Represent charges related to a non-cash inventory fair value adjustment in connection with the acquisition of Cray, which was included in Cost of Sales.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Non-GAAP financial measures
The non-GAAP financial measures presented are net revenue on a constant currency basis, non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP earnings from operations, non-GAAP operating profit margin (non-GAAP earnings from operations as a percentage of net revenue), non-GAAP net earnings and non-GAAP diluted net earnings per share. These non-GAAP financial measures are used by management for purposes of evaluating our historical and prospective financial performance, as well as evaluating our performance relative to our competitors. These non-GAAP financial measures are not computed in accordance with, or as an alternative to, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to net revenue on a constant currency basis is net revenue. The GAAP measure most directly comparable to non-GAAP gross profit is gross profit. The GAAP measure most directly comparable to non-GAAP gross profit margin is gross profit margin. The GAAP measure most directly comparable to non-GAAP earnings from operations is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating profit margin (non-GAAP earnings from operations as a percentage of net revenue) is operating profit margin (Earnings from operations as a percentage of net revenue). The GAAP measure most directly comparable to non-GAAP net earnings is net earnings. The GAAP measure most directly comparable to non-GAAP diluted net earnings per share is diluted net earnings per share.
Net revenue on a constant currency basis assumes no change in the foreign exchange rate from the prior-year period. Non-GAAP gross profit and non-GAAP gross profit margin is defined to exclude charges related to the amortization of initial direct costs and certain acquisition, disposition and other related charges. Non-GAAP earnings from operations and non-GAAP operating profit margin (non-GAAP earnings from operations as a percentage of net revenue) consist of earnings from operations excluding any charges related to the amortization of initial direct costs, amortization of intangible assets, impairment of goodwill, transformation costs, disaster charges, and acquisition, disposition and other related charges. Non-GAAP net earnings and Non-GAAP diluted net earnings per share consist of net earnings or diluted net earnings per share excluding those same charges, as well as an adjustment to tax indemnification adjustments, non-service net periodic benefit credit, earnings from equity interests, certain income tax valuation allowances and separation taxes, the impact of U.S. tax reform, structural tax rate and excess tax benefit from stock-based compensation. In addition, non-GAAP net earnings and non-GAAP diluted net earnings per share are adjusted by the amount of additional taxes or tax benefits associated with each non-GAAP item. We believe that excluding the items mentioned above from these non-GAAP financial measures allows management to better understand our consolidated financial performance in relation to the operating results of our segments. Management does not believe that the excluded items are reflective of ongoing operating results, and excluding them facilitates a more meaningful evaluation of our current operating performance in comparison to our peers. The excluded items can be inconsistent in amount and frequency and/or not reflective of the operational performance of the business.
These non-GAAP financial measures have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are that they can have a material impact on the equivalent GAAP earnings measures, they may be calculated differently by other companies and may not reflect the full economic effect of the loss in value of certain assets.
We compensate for these limitations on the use of non-GAAP financial measures by relying primarily on our GAAP results and using non-GAAP financial measures only as a supplement. We also provide a reconciliation of each non-GAAP financial measure to its most directly comparable GAAP measure. We believe that providing net revenue on a constant currency basis, non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP earnings from operations, non-GAAP operating profit margin, non-GAAP net earnings and non-GAAP diluted net earnings per share in addition to the related GAAP measures provides greater transparency to the information used in our financial and operational decision making and allows the reader of our Consolidated Financial Statements to see our financial results "through the eyes" of management.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General
Our Consolidated Financial Statements are prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), which requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources, including the economic considerations related to the impact that the novel coronavirus pandemic ("COVID-19") could have on our significant accounting estimates. Management has discussed the development, selection and disclosure of these estimates with the Audit Committee of HPE's Board of Directors. Management believes that the accounting estimates employed and the resulting amounts are reasonable; however, actual results may differ from these estimates. Making estimates and judgments about future events is inherently unpredictable and is subject to significant uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and cash flows.
A summary of significant accounting policies is included in Note 1, "Overview and Summary of Significant Accounting Policies", to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.
Revenue Recognition
General
We account for a contract with a customer when both parties have provided written approval and are committed to perform, each party's rights including payment terms are identified, the contract has commercial substance, and collection of consideration is probable.
We enter into contracts with customers that may include combinations of products and services, resulting in arrangements containing multiple performance obligations for hardware and software products and/or various services. We determine whether each product or service is distinct in order to identify the performance obligations in the contract and allocate the contract transaction price among the distinct performance obligations. Arrangements are distinct based on whether the customer can benefit from the product or service on its own or together with other resources that are readily available and whether the commitment to transfer the product or service to the customer is separately identifiable from other obligations in the contract. We classify our hardware, perpetual software licenses, and software-as-a-service ("SaaS") as distinct performance obligations. Term software licenses represent multiple obligations, which include software licenses and software maintenance. In transactions where we deliver hardware or software, we are typically the principal and record revenue and costs of goods sold on a gross basis.
The majority of our revenue is derived from sales of product and the associated support and maintenance which is recognized when, or as, control of promised products or services is transferred to the customer, in an amount that reflects the consideration to which we expect to be entitled, in exchange for those products or services. Variable consideration offered in contracts with customers, partners and distributors may include rebates, volume-based discounts, cooperative marketing, price protection, and other incentive programs. Variable consideration is estimated at contract inception and updated at the end of each reporting period as additional information becomes available and recognized only to the extent that it is probable that a significant reversal of revenue will not occur.
Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment or once delivery and risk of loss has transferred to the customer. Transfer of control can also occur over time for maintenance and services as the customer receives the benefit over the contract term. Our hardware and perpetual software licenses are distinct performance obligations where revenue is recognized upfront upon transfer of control. Term software licenses include multiple performance obligations where the term licenses are recognized upfront upon transfer of control, with the associated software maintenance revenue recognized ratably over the contract term as services and software updates are provided. SaaS
39

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
arrangements have one distinct performance obligation which is satisfied over time with revenue recognized ratably over the contract term as the customer consumes the services. On our product sales, we record consideration from shipping and handling on a gross basis within net product sales. Revenue is recorded net of any associated sales taxes.
Significant Judgments
We allocate the transaction price for the contract among the performance obligations on a relative standalone selling price basis. The standalone selling price ("SSP") is the price at which an entity would sell a promised product or service separately to a customer. We establish SSP for most of our products and services based on the observable price of the products or services when sold separately in similar circumstances to similar customers. When the SSP is not directly observable, we estimate SSP based on management judgment by considering available data such as internal margin objectives, pricing strategies, market/competitive conditions, historical profitability data, as well as other observable inputs. We establish SSP ranges for our products and services and reassesses them periodically.
Judgment is applied in determining the transaction price as we may be required to estimate variable consideration when determining the amount of revenue to recognize. Variable consideration may include various rebates, volume-based discounts, cooperative marketing, price protection, and other incentive programs that are offered to customers, partners and distributors. When determining the amount of revenue to recognize, we estimate the expected usage of these programs, applying the expected value or most likely estimate and update the estimate at each reporting period as actual utilization becomes available. We also consider the customers' right of return in determining the transaction price, where applicable.
Restructuring
We have engaged in restructuring actions which require management to estimate the timing and amount of severance and other employee separation costs for workforce reduction and enhanced early retirement programs, the fair value of assets made redundant or obsolete, and the value of lease and contract cancellation and other exit costs. We accrue for severance and other employee separation costs under these actions when it is probable that benefits will be paid and the amount is reasonably estimable. The rates used in determining severance accruals are based on existing plans, historical experiences and negotiated settlements. For a full description of our restructuring actions, refer to our discussions of restructuring in "Results of Operations" below and in Note 3, "Transformation Programs", to the Consolidated Financial Statements.
Retirement and Post-Retirement Benefits
Our pension and other post-retirement benefit costs and obligations depend on various assumptions. Our major assumptions relate primarily to discount rates, mortality rates, expected increases in compensation levels and the expected long-term return on plan assets. The discount rate assumption is based on current investment yields of high-quality fixed-income securities with maturities similar to the expected benefits payment period. Mortality rates help predict the expected life of plan participants and are based on a historical demographic study of the plan. The expected increase in the compensation levels assumption reflects our long-term actual experience and future expectations. The expected long-term return on plan assets is determined based on asset allocations, historical portfolio results, historical asset correlations and management's expected returns for each asset class. In any fiscal year, significant differences may arise between the actual return and the expected long-term return on plan assets. Historically, differences between the actual return and expected long-term return on plan assets have resulted from changes in target or actual asset allocation, short-term performance relative to expected long-term performance, and to a lesser extent, differences between target and actual investment allocations, the timing of benefit payments compared to expectations, and the use of derivatives intended to effect asset allocation changes or hedge certain investment or liability exposures.
Our major assumptions vary by plan, and the weighted-average rates used are set forth in Note 4, "Retirement and Post-Retirement Benefit Plans", to the Consolidated Financial Statements, which is incorporated herein by reference. The following table provides the impact changes in the weighted-average assumptions of discount rates, the expected increase in compensation levels and the expected long-term return on plan assets would have had on our net periodic benefit cost for fiscal 2020:
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Change in basis
points
Change in Net Periodic Benefit Cost
In millions
Assumptions:    
Discount rate (25) $ 21 
Expected increase in compensation levels 25  $
Expected long-term return on plan assets (25) $ 34 
Taxes on Earnings
We calculate our current and deferred tax provisions based on estimates and assumptions that could differ from the final positions reflected in our income tax returns. We will adjust our current and deferred tax provisions based on our tax returns which are generally filed in the third or fourth quarters of the subsequent fiscal year.
We recognize deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which we expect the differences to reverse.
We record a valuation allowance to reduce deferred tax assets to the amount that we are more likely than not to realize. In determining the need for a valuation allowance, we consider future market growth, forecasted earnings, future sources of taxable income, the mix of earnings in the jurisdictions in which we operate, and prudent and feasible tax planning strategies. In the event we were to determine that it is more likely than not that we will be unable to realize all or part of our deferred tax assets in the future, we would increase the valuation allowance and recognize a corresponding charge to earnings in the period in which we make such a determination. Likewise, if we later determine that we are more likely than not to realize the deferred tax assets, we would reverse the applicable portion of the previously recognized valuation allowance. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in the jurisdictions in which the deferred tax assets are located.
Our effective tax rate includes the impact of certain undistributed foreign earnings and basis differences for which we have not provided for U.S. federal taxes because we plan to reinvest such earnings and basis differences indefinitely outside the U.S. In addition, future earnings from non-U.S. operations will largely be subject to U.S. tax. Therefore, the indefinitely reinvested undistributed foreign earnings and basis differences represent amounts that are not expected to be subject to U.S. tax in the foreseeable future.
We are subject to income taxes in the U.S. and approximately 95 other countries, and we are subject to routine corporate income tax audits in many of these jurisdictions. We believe that positions taken on our tax returns are fully supported, but tax authorities may challenge these positions, which may not be fully sustained on examination by the relevant tax authorities. Accordingly, our income tax provision includes amounts intended to satisfy assessments that may result from these challenges. Determining the income tax provision for these potential assessments and recording the related effects requires management judgments and estimates. The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in our income tax provision and, therefore, could have a material impact on our (Provision) benefit for taxes, Net earnings (loss) and cash flows. Our accrual for uncertain tax positions is attributable primarily to uncertainties concerning the tax treatment of our international operations, including the allocation of income among different jurisdictions, intercompany transactions and related interest, uncertain tax positions from acquired companies, as well as pre-Separation state income tax liabilities of HP Inc. for which the Company is jointly and severally liable. For a further discussion on taxes on earnings, refer to Note 6, "Taxes on Earnings", to the Consolidated Financial Statements.
Inventory
We state our inventory at the lower of cost or net realizable value. Cost is computed using standard cost which approximates actual cost on a first-in, first-out basis. We make adjustments at each reporting period to reduce the cost of inventory to its net realizable value at the product group level for estimated excess or obsolescence. Factors influencing these adjustments include changes in future demand forecasts, market conditions, technological changes, product life-cycle and development plans, component cost trends, product pricing, physical deterioration, and quality issues.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Business Combinations
We allocate the fair value of purchase consideration to the assets acquired, including in-process research and development ("IPR&D"), liabilities assumed, and non-controlling interests in the acquiree generally based on their fair values at the acquisition date. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. The excess of the fair value of purchase consideration over the fair value of these assets acquired, liabilities assumed and non-controlling interests in the acquiree is recorded as goodwill.
When determining the fair values of assets acquired, liabilities assumed, and non-controlling interests in the acquiree, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth rates and margins, attrition rates, future changes in technology and brand awareness, loyalty and position, and discount rates. Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
Goodwill
We review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. We are permitted to conduct a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. We perform a quantitative test for each of our reporting units as part of our annual goodwill impairment test in the fourth quarter of each fiscal year.
Goodwill is tested for impairment at the reporting unit level. As of October 31, 2020, our reporting units with goodwill are consistent with the reportable segments identified in Note 2, "Segment Information", to the Consolidated Financial Statements.
In the goodwill impairment test, we compare the fair value of each reporting unit to its carrying amount. We estimate the fair value of our reporting units using a weighting of fair values derived most significantly from the income approach and, to a lesser extent, the market approach. Under the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market approach, we estimate the fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with operating and investment characteristics similar to the reporting unit. We weight the fair value derived from the market approach commensurate with the level of comparability of these publicly traded companies to the reporting unit. When market comparables are not meaningful or not available, we estimate the fair value of a reporting unit using only the income approach. A significant and sustained decline in our stock price could provide evidence of a need to record a goodwill impairment charge.
Estimating the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions, covering discrete forecast periods as well as terminal value determinations, include revenue growth rates and operating margins used to calculate projected future cash flows, risk adjusted discount rates, future economic and market conditions, and the determination of appropriate comparable publicly traded companies. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine the carrying amount of each reporting unit.
If the fair value of a reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not impaired. If the fair value of the reporting unit is less than its carrying amount, goodwill is impaired. The goodwill impairment loss is measured as the excess of the reporting unit's carrying value over its fair value (not to exceed the total goodwill allocated to that reporting unit).
On March 31, 2020, due to the macroeconomic impacts of COVID-19 on our current and projected future results of operations, we determined that an indicator of potential impairment existed to require an interim quantitative goodwill impairment test for its reporting units.
Based on the results of this interim quantitative impairment test, the fair value of the HPC & MCS reporting unit was below the carrying value of net assets assigned to HPC & MCS. The decline in the fair value of the HPC & MCS reporting unit
42

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
resulted from macroeconomic impacts of COVID-19 which lowered the projected revenue growth rates and profitability levels of the reporting unit. The fair value of the HPC & MCS reporting unit was based on a weighting of fair values derived most significantly from the income approach, and to a lesser extent, the market approach. Under the income approach, we estimated the fair value of HPC & MCS based on the present value of estimated future cash flows which we considered to be a level 3 unobservable input in the fair value hierarchy. We prepared cash flow projections based on management's estimates of revenue growth rates and operating margins, that considered our historical performance and the current macroeconomic industry and market conditions. We based the discount rate on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to HPC & MCS's ability to execute on the projected cash flows. Under the market approach, we estimated fair value based on market multiple earnings derived from comparable publicly traded companies with similar operating and investment characteristics as HPC & MCS. We weighted the fair value derived from the market approach commensurate with the level of comparability of these publicly traded companies to HPC & MCS.
Prior to the quantitative goodwill impairment test, we tested the recoverability of long-lived assets and other assets of the HPC & MCS reporting unit and concluded that such assets were not impaired. The quantitative goodwill impairment test indicated that the carrying value of the HPC & MCS reporting unit exceeded its fair value by $865 million. As a result, we recorded a partial goodwill impairment charge of $865 million in the second quarter of fiscal 2020.
Our annual goodwill impairment analysis, which we performed as of the first day of the fourth quarter of fiscal 2020, did not result in any additional impairment charges. The excess of fair value over carrying amount for our reporting units ranged from approximately 7% to 31% of the respective carrying amounts. In order to evaluate the sensitivity of the estimated fair value of our reporting units in the goodwill impairment test, we applied a hypothetical 10% decrease to the fair value of each reporting unit. Based on the results of this hypothetical 10% decrease all of the reporting units had an excess of fair value over carrying amount, with the exception of HPC & MCS reporting unit.
As of the annual test date, subsequent to the impairment recognized in March, the HPC & MCS reporting unit has a goodwill of $3.6 billion and an excess of fair value over carrying value of net assets of 7%. The fair value of the HPC & MCS reporting unit was based on the same methodology used for the interim test, which was a weighting of fair values derived most significantly from the income approach, and to a lesser extent, the market approach. Our HPC & MCS business is facing challenges as a result of the macroeconomic impacts of COVID-19 on our current and projected future results. If we are not successful in addressing these challenges, our projected revenue growth rates or operating margins could decline resulting in a decrease in the fair value of the HPC & MCS reporting unit. The fair value of the HPC & MCS reporting unit could also be negatively impacted by changes in its weighted average cost of capital, changes in management's business strategy or significant and sustained declines in our stock price, which could result in an indicator of impairment.
In addition, each of our reporting units has experienced a reduction of the excess of fair value over carrying value for the reporting unit, primarily as a result of COVID-19 impacts on our current and projected future results. Should economic conditions deteriorate further or remain depressed for a prolonged period of time, estimates of future cash flows for each of our reporting units may be insufficient to support the carrying value and the goodwill assigned to them, requiring impairment charges, including additional impairment charges for the HPC & MCS reporting unit. Further impairment charges, if any, may be material to our results of operations and financial position. See Part II, Item 1A, "Risk Factors" for a discussion of the potential impacts of COVID-19 on the fair value of our assets.
Intangible Assets
We review intangible assets with finite lives for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of our finite-lived intangible assets is assessed based on the estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset. If the undiscounted future cash flows are less than the carrying amount, the finite-lived intangible assets are considered to be impaired. The amount of the impairment loss, if any, is measured as the difference between the carrying amount of the asset and its fair value. We estimate the fair value of finite-lived intangible assets by using an income approach or, when available and appropriate, using a market approach.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Fair Value of Derivative Instruments
We use derivative instruments to manage a variety of risks, including risks related to foreign currency exchange rates and interest rates. We use forwards, swaps and, at times, options to hedge certain foreign currency and interest rate exposures. We do not use derivative financial instruments for speculative purposes. At October 31, 2020, the gross notional amount of our derivative portfolio was $20.1 billion. Assets and liabilities related to derivative instruments are measured at fair value, and were $510 million and $194 million, respectively, as of October 31, 2020.
Fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In the absence of active markets for identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. The determination of fair value often involves significant judgments about assumptions such as determining an appropriate discount rate that factors in both risk and liquidity premiums, identifying the similarities and differences in market transactions, weighting those differences accordingly and then making the appropriate adjustments to those market transactions to reflect the risks specific to the asset or liability being valued. We generally use industry standard valuation models to measure the fair value of our derivative positions. When prices in active markets are not available for an identical asset or liability, we use industry standard valuation models to measure fair value. Where applicable, these models project future cash flows and discount the future amounts to present value using market based observable inputs, including interest rate curves, Company and counterparty credit risk, foreign currency exchange rates, and forward and spot prices.
For a further discussion of fair value measurements and derivative instruments, refer to Note 12, "Fair Value" and Note 13, "Financial Instruments", respectively, to the Consolidated Financial Statements.
Loss Contingencies
We are involved in various lawsuits, claims, investigations and proceedings including those consisting of IP, commercial, securities, employment, employee benefits, and environmental matters, which arise in the ordinary course of business. We record a liability when we believe that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment is required to determine both the probability of having incurred a liability and the estimated amount of the liability. We review these matters at least quarterly and adjust these liabilities to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other updated information and events, pertaining to a particular case. Based on our experience, we believe that any damage amounts claimed in the specific litigation and contingency matters further discussed in Note 17, "Litigation and Contingencies", to the Consolidated Financial Statements are not a meaningful indicator of our potential liability. Litigation is inherently unpredictable. However, we believe we have valid defenses with respect to legal matters pending against us. Nevertheless, cash flows or results of operations could be materially affected in any particular period by the resolution of one or more of these contingencies. We believe we have recorded adequate provisions for any such matters and, as of October 31, 2020, it was not reasonably possible that a material loss had been incurred in connection with such matters in excess of the amounts recognized in our financial statements.
ACCOUNTING PRONOUNCEMENTS
For a summary of recent accounting pronouncements applicable to our Consolidated Financial Statements, see Note 1, "Overview and Summary of Significant Accounting Policies", to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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.
Results of operations in dollars and as a percentage of net revenue were as follows:
  For the fiscal years ended October 31,
  2020 2019 2018
Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue
  Dollars in millions
Net revenue $ 26,982  100.0  % $ 29,135  100.0  % $ 30,852  100.0  %
Cost of sales 18,513  68.6  % 19,642  67.4  % 21,621  70.1  %
Gross profit 8,469  31.4  % 9,493  32.6  % 9,231  29.9  %
Research and development 1,874  6.9  % 1,842  6.3  % 1,667  5.4  %
Selling, general and administrative 4,624  17.1  % 4,907  16.9  % 4,921  15.9  %
Amortization of intangible assets 379  1.4  % 267  0.8  % 294  1.0  %
Impairment of goodwill 865  3.2  % —  —  % 88  0.3  %
Restructuring charges —  —  % —  —  % 19  0.1  %
Transformation costs 950  3.5  % 453  1.6  % 414  1.3  %
Disaster charges (recovery) 26  0.1  % (7) —  % —  —  %
Acquisition, disposition and other related charges 80  0.3  % 757  2.6  % 82  0.3  %
Separation costs —  —  % —  —  % —  %
 Earnings (loss) from continuing operations (329) (1.2) % 1,274  4.4  % 1,737  5.6  %
Interest and other, net (215) (0.8) % (177) (0.6) % (274) (0.9) %
Tax indemnification adjustments (101) (0.4) % 377  1.3  % (1,354) (4.3) %
Non-service net periodic benefit credit 136  0.5  % 59  0.2  % 121  0.4  %
Earnings from equity interests 67  0.3  % 20  —  % 38  0.1  %
 Earnings (loss) from continuing operations before taxes (442) (1.6) % 1,553  5.3  % 268  0.9  %
 (Provision) benefit for taxes 120  0.4  % (504) (1.7) % 1,744  5.6  %
Net earnings (loss) from continuing operations (322) (1.2) % 1,049  3.6  % 2,012  6.5  %
Net loss from discontinued operations —  —  % —  —  % (104) (0.3) %
Net earnings (loss) $ (322) (1.2) % $ 1,049  3.6  % $ 1,908  6.2  %
45

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Net revenue
The components of the weighted net revenue change by segment were as follows:
  For the fiscal years ended October 31,
  2020 2019
  Percentage Points
Compute (4.9) (4.9)
HPC & MCS 0.4  (0.2)
Storage (1.7) 0.1 
A & PS (0.2) (0.4)
Intelligent Edge (0.2) (0.3)
Financial Services (0.8) (0.3)
Corporate Investments (0.1) (0.1)
Total Segment (7.5) (6.1)
Elimination of Intersegment Net Revenue 0.1  0.5 
Total HPE (7.4) (5.6)
Fiscal 2020 compared with Fiscal 2019
In fiscal 2020, our total net revenue decreased by $2.15 billion or 7.4% (decreased 6.4% on a constant currency basis). U.S. net revenue decreased by $0.42 billion or 4.4% to $9.2 billion, while net revenue from outside of the U.S. decreased by $1.73 billion or 8.9% to $17.8 billion.
During fiscal 2020, we experienced a net revenue decline due to the impact of the COVID-19 pandemic on our business operations and the worldwide demand environment. Given the comprehensive impact of the pandemic and to avoid repetition, the following discussion of each segment's financial performance in fiscal 2020 as compared to fiscal 2019 will focus on the other leading factors contributing to their performance. From a segment perspective, the primary factors contributing to the change in total net revenue are summarized as follows:
Compute net revenue decreased due primarily to competitive pricing pressures, manufacturing capacity constraints in North America in the first quarter of fiscal 2020 and unfavorable foreign currency fluctuations;
HPC & MCS net revenue increased due primarily to the addition of revenue resulting from the acquisition of Cray;
Storage net revenue decreased due primarily to commodity and manufacturing capacity constraints in North America in the first quarter of fiscal 2020, and lower revenue from the expiration of a one-time legacy contract;
A & PS net revenue decreased due primarily to service delivery delays;
Intelligent Edge net revenue decreased due primarily to competitive pricing pressures, and unfavorable foreign currency fluctuations, resulting in lower revenue from WLAN, switching products and software offerings; and
Financial Services net revenue decreased due primarily to a decrease in rental revenue due to lower average operating lease assets, lower lease equipment buyout revenue and unfavorable currency fluctuations.
Fiscal 2019 compared with Fiscal 2018
In fiscal 2019, our total net revenue decreased by $1.7 billion or 5.6% (decreased 4.3% on a constant currency basis). U.S. net revenue decreased by $610 million or 6.0% to $9.6 billion, while net revenue from outside of the U.S. decreased by $1.1 billion or 5.4% to $19.5 billion.
From a segment perspective, the primary factors contributing to the change in total net revenue are summarized as follows:
Compute net revenue decreased due primarily to lower Tier 1 server sales and lower revenue from China as part of our strategic move to exit less profitable product categories and certain markets, and unfavorable currency fluctuations;
46

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

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

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

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

Intelligent Edge net revenue decreased due primarily to lower sales from switching and WLAN products driven by sales execution issues, particularly in the North America region, weaker demand and unfavorable foreign currency fluctuations; and
FS net revenue decreased due primarily to a decrease in rental revenue and unfavorable currency fluctuations.
Gross Profit
Fiscal 2020 compared with Fiscal 2019
Our gross profit margin decreased 1.2 percentage points for fiscal 2020 as compared with fiscal 2019. The decreases in the gross profit margin were due to a combination of factors including competitive pricing pressures, higher supply chain costs resulting from the impact of COVID-19, unfavorable currency fluctuations and the scale of the net revenue decline, partially offset by our continued shift to higher margin products and services and lower variable compensation expense.
Fiscal 2019 compared with Fiscal 2018
Our gross profit margin increased 2.7 percentage points for fiscal 2019 as compared with fiscal 2018. The increase in gross profit margin was due primarily to a combination of factors including the year-over-year decrease in commodity costs, lower costs of services and products due to our cost management initiatives and a lower mix of revenue from lower-margin Tier-1 server sales coupled with a higher mix of revenue from higher-margin products.
Operating expenses
Research and development
R&D expense increased by $32 million, or 2%, in fiscal 2020 as compared to fiscal 2019, due primarily to on-going expenses from business acquisitions partially offset by the impact of cost containment measures we put in place in response to COVID-19.
R&D expense increased by $175 million, or 10%, in fiscal 2019 as compared to fiscal 2018, due primarily to our continued investments in the Intelligent Edge and Storage and on-going expenses from recent business acquisitions, partially offset by favorable currency fluctuations.
Selling, general and administrative
SG&A expense decreased by $283 million, or 6%, for fiscal 2020 as compared to fiscal 2019, due primarily to the impact of cost containment measures we put in place in response to COVID-19, lower litigation expenses and favorable currency fluctuations, partially offset by on-going expenses from business acquisitions.
SG&A expense decreased by $14 million, or 0.3%, for fiscal 2019 as compared to fiscal 2018, due primarily to favorable currency fluctuations and lower variable compensation expense, partially offset by higher investments in the sales organization.
Amortization of intangible assets
Amortization expense increased by $112 million, or 42%, in fiscal 2020 as compared to fiscal 2019, due to an increase in the amortization of intangible assets from recent acquisitions and the write-off of certain intangible assets, partially offset by certain intangible assets associated with prior acquisitions reaching the end of their amortization period.
Amortization expense decreased by $27 million, or 9%, in fiscal 2019 as compared to fiscal 2018, due to certain intangible assets associated with prior acquisitions reaching the end of their amortization periods, partially offset by an increase in the amortization of intangible assets from business acquisitions.
47

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Impairment of goodwill
Impairment of goodwill for fiscal 2020, represents a partial goodwill impairment charge of $865 million recorded in the second quarter of fiscal 2020, as it was determined that the fair value of the HPC & MCS reporting unit was below the carrying value of its net assets.
During the fourth quarter of fiscal 2018, management of the then Hybrid IT segment changed its evaluation of Hybrid IT to evaluate the previously integrated CMS business separately from the remainder of Hybrid IT, resulting in a reassessment of the reporting units. This change in segment management review triggered an interim goodwill test in the fourth quarter of fiscal 2018 and based on that test, the fair value of CMS was lower than its carrying value, leading to a goodwill impairment charge of $88 million in fiscal 2018.
Transformation costs
Transformation programs are comprised of the cost optimization and prioritization plan which we introduced in May 2020, and the HPE Next Initiative.
Transformation costs increased by $497 million in fiscal 2020 as compared to fiscal 2019, due primarily to restructuring charges recorded in the current period in connection with the cost optimization and prioritization plan and increased restructuring costs from the HPE Next initiative. These increases were partially offset by higher gains in the current period from the sale of real estate.

Transformation costs increased by $39 million in fiscal 2019 as compared to fiscal 2018, due primarily to fiscal 2019 containing the combination of lower gains from the sale of real estate and impairment charges on real estate assets, the effects of which were partially offset primarily by lower restructuring charges in fiscal 2019.
Disaster charges (recovery)
In fiscal 2020, disaster charges represent direct costs resulting from COVID-19 and are primarily related to HPE hosted, co-hosted, or sponsored events which were converted to a virtual format or in some cases cancelled.
In fiscal 2019, disaster recovery amounts represent insurance recoveries in relation to damage to our facilities in Houston, Texas due to Hurricane Harvey in fiscal 2017.
Acquisition, disposition and other related charges
Acquisition, disposition and other related charges decreased by $677 million in fiscal 2020 as compared to fiscal 2019, due primarily to a charge related to a one-time arbitration settlement in the prior-year period, partially offset by recent business acquisition costs related to retention bonuses and integration activities.
Acquisition, disposition and other related charges increased by $675 million in fiscal 2019 as compared to fiscal 2018, due primarily to a charge related to a one-time arbitration settlement.
Interest and other, net
Interest and other, net expense increased by $38 million in fiscal 2020 as compared to fiscal 2019, due primarily to unfavorable currency fluctuations and higher net interest expense, partially offset by a higher gain from the sale of certain assets in the current year.
Interest and other, net expense decreased by $97 million in fiscal 2019 as compared to fiscal 2018, due primarily to the combination of gains from equity investments and favorable currency fluctuations.
Tax indemnification adjustments
Tax indemnification adjustments, representing $101 million of expense, $377 million of income, and $1.4 billion of expense in fiscal 2020, 2019, and 2018, respectively, resulted primarily from the settlement of certain pre-Separation tax liabilities for which we share joint and several liability with HP Inc. and for which we were partially indemnified by HP Inc. under the terminated Tax Matters Agreement. Additionally, fiscal 2019 also includes the impact of the termination of the Tax Matters Agreement with HP Inc. In limited circumstances, we continue to be indemnified under the Termination and Mutual Release Agreement which terminated the Tax Matters Agreement.
48

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Non-service net periodic benefit credit
Non-service net periodic benefit credit represents the components of net periodic pension benefit costs, other than service cost, for the Hewlett Packard Enterprise defined benefit pension and post-retirement benefit plans such as interest cost, expected return on plan assets, and the amortization of prior plan amendments and actuarial gains or losses. The credit also includes the impact of any plan settlements, curtailments, or special termination benefits.
Non-service net periodic benefit credit increased by $77 million in fiscal 2020 as compared to fiscal 2019, due primarily to lower interest rates.

Non-service net periodic benefit credit decreased by $62 million in fiscal 2019 as compared to fiscal 2018, due primarily to lower expected returns on pension investments.
Earnings from equity interests
Earnings from equity interests primarily represents our 49% interest in H3C and the amortization of a basis difference. Earnings from equity interests increased by $47 million in fiscal 2020 as compared to fiscal 2019 due to higher net income earned by H3C.
Earnings from equity interests decreased by $18 million in fiscal 2019 as compared to fiscal 2018 due to lower net income earned by H3C.
Provision for taxes
Our effective tax rates were 27.1%, 32.5% and (650.7)% in fiscal 2020, 2019 and 2018, respectively. Our effective tax rate generally differs from the U.S. federal statutory rate of 21% due to favorable tax rates associated with certain earnings from our operations in lower tax jurisdictions throughout the world but may also be materially impacted by discrete tax adjustments during the fiscal year. The jurisdictions with favorable tax rates that had the most significant impact on our effective tax rate in the periods presented include Puerto Rico and Singapore.
In fiscal 2020, we recorded $362 million of net income tax benefits related to items discrete to the year. These amounts primarily included $174 million of income tax benefits related to transformation costs, and acquisition, disposition and other related charges, $66 million of income tax benefits related to the change in pre-Separation tax liabilities, primarily those for which we share joint and several liability with HP Inc. and for which we are indemnified by HP Inc., $57 million of income tax benefits related to Indian distribution tax rate changes, and $40 million of income tax benefits related to tax rate changes on deferred taxes. These discrete tax benefits were offset by $242 million of net income tax charges related to normal operations and the impact of the Company's goodwill impairment charge being non-deductible from a tax perspective.
In fiscal 2019, we recorded $152 million of net income tax charges related to items discrete to the year. These amounts primarily included $488 million of income tax charges related to changes in U.S. federal and state valuation allowances primarily as a result of impacts of the Tax Cuts and Jobs Act of 2017 (the "Tax Act") and $40 million of income tax charges related to future withholding costs on potential intercompany distributions of earnings, the effects of which were partially offset by $274 million of income tax benefits related to the change in pre-Separation tax liabilities for which we shared joint and several liability with HP Inc., and $104 million of income tax benefits on transformation costs, and acquisition, disposition and other related charges.
In fiscal 2018, we recorded $2.0 billion of net income tax benefits related to items discrete to the year. These amounts primarily included $2.0 billion of income tax benefits related to the settlement of certain pre-Separation tax liabilities for which we shared joint and several liability with HP Inc. and for which we were partially indemnified by HP Inc. under the Tax Matters Agreement, $208 million of income tax benefits related to Everett pre-divestiture tax matters and valuation allowances, $125 million of income tax benefits on restructuring charges, separation costs, transformation costs and acquisition and other related charges, and $65 million of income tax benefits on net excess tax benefits related to stock-based compensation, the effects of which were partially offset by $422 million of income tax charges related to impacts of the Tax Act.
Segment Information
A description of the products and services for each segment, along with other pertinent information related to Segments can be found in Note 3, "Segment Information", to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.
49

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

In order to align our segment financial reporting structure more closely with our current business structure, effective November 1, 2020, we will report the following changes to our reportable segments: the lifecycle event services business which was previously reported within the A & PS segment will be reported within each of the related hardware segments; certain software related business offerings previously reported within Compute, Storage and A & PS will be combined and reported within the Corporate Investments segment; and the remainder of A & PS, which was previously reported as a reportable segment, will be reported within the Corporate Investments segment. Additionally, stock-based compensation expense which was previously reported within segment operating results will be now be reported as a corporate cost.
As previously discussed in the Overview section of this MD&A, during fiscal 2020, we experienced a net revenue decline due to the impact of the COVID-19 pandemic on our business operations and the worldwide demand environment. Given the comprehensive impact of the pandemic and to avoid repetition, the following discussion of the financial performance of each segment in fiscal 2020 as compared to fiscal 2019 will focus on the other leading factors contributing to their performance.
Compute
  For the fiscal years ended October 31,
  2020 2019 2018
  Dollars in millions
Net revenue $ 12,215  $ 13,642  $ 15,142 
Earnings from operations $ 893  $ 1,550  $ 1,306 
Earnings from operations as a % of net revenue 7.3  % 11.4  % 8.6  %
Fiscal 2020 compared with Fiscal 2019
Compute net revenue decreased by $1.4 billion, or 10.5% (decreased 9.3% on a constant currency basis), in fiscal 2020 as compared to fiscal 2019.
Net revenue in Compute declined due to multiple factors including competitive pricing pressures, manufacturing capacity constraints in North America in the first quarter of fiscal 2020, and unfavorable currency fluctuations. As a result, for fiscal 2020, as compared to fiscal 2019 Compute experienced a decline in unit shipments and average unit selling prices.

Compute earnings from operations as a percentage of net revenue decreased 4.1 percentage points for fiscal 2020, as compared to fiscal 2019 due primarily to an increase in costs of products as a percentage of net revenue and an increase in operating expenses as a percentage of net revenue. The increase in cost of products as a percentage of net revenue was due primarily to competitive pricing pressures, unfavorable currency fluctuations, higher supply chain costs and the scale of the net revenue decline, partially offset by lower commodity costs. The increase in operating expense as a percentage of net revenue was due to the scale of the net revenue decline while total operating expenses declined year-over-year due primarily to lower spending due to cost containment measures put in place in response to COVID-19 and lower variable compensation expense. These declines were partially offset by higher field selling costs.
Fiscal 2019 compared with Fiscal 2018
Compute net revenue decreased by $1.5 billion, or 9.9% (decreased 8.7% on a constant currency basis), in fiscal 2019 as compared to fiscal 2018.
Net revenue in Compute declined as we continued to execute on our HPE Next transformation initiative, which included streamlining our offerings and business processes, and shifting investments in innovation towards high growth and higher-margin solutions and services. The decline in revenue was due primarily to lower Tier 1 server sales and lower revenue from China as part of our strategic move to exit less profitable product categories and certain markets, and unfavorable currency fluctuations. Also, weak demand in the enterprise market led to lower revenue from ISS core products as well as longer sales cycles. As a result, for fiscal 2019, as compared to fiscal 2018, Compute experienced a decline in unit shipments while average unit selling prices increased.
Compute earnings from operations as a percentage of net revenue increased 2.8 percentage points for fiscal 2019, as compared to fiscal 2018 due primarily to a decrease in costs of products as a percentage of net revenue offset by an increase in
50

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
operating expenses as a percentage of net revenue. The decrease in cost of products as a percentage of net revenue was due to a combination of factors including year-over-year decrease in commodity costs, lower costs of products and services due to our cost management initiatives and a lower mix of revenue from lower-margin Tier-1 server sales coupled with a higher mix of revenue from higher-margin products which were partially offset by increased competitive pricing pressures. The increase in operating expenses as a percentage of net revenue was due to the scale of the net revenue decline while total operating expenses declined year-over-year due primarily to our HPE Next initiative to streamline business processes.
HPC & MCS
  For the fiscal years ended October 31,
  2020 2019 2018
  Dollars in millions
Net revenue $ 3,036  $ 2,910  $ 2,987 
Earnings from operations $ 237  $ 320  $ 384 
Earnings from operations as a % of net revenue 7.8  % 11.0  % 12.9  %
Fiscal 2020 compared with Fiscal 2019
HPC & MCS net revenue increased by $126 million, or 4.3% (increased 4.6% on a constant currency basis) in fiscal 2020 as compared to fiscal 2019.
The increase in HPC & MCS net revenue was primarily driven by higher revenue in HPC due to the addition of product and services revenue resulting from Cray. The net revenue increase in HPC was partially offset by a revenue decline in Edge Compute and MCS.
HPC & MCS earnings from operations as a percentage of net revenue decreased 3.2 percentage points, in fiscal 2020 as compared to fiscal 2019, due to an increase in operating expenses as a percentage of net revenue partially offset by a lower cost of products and services as a percentage of net revenue. The decrease in cost of products and services as a percentage of net revenue was primarily due to improved product mix from the acquisition of Cray. The increase in operating expenses as a percentage of net revenue was due to the addition of operating expenses resulting from the acquisition of Cray.
Fiscal 2019 compared with Fiscal 2018
HPC & MCS net revenue decreased by $77 million, or 2.6% (decreased 2.2% on a constant currency basis) in fiscal 2019 as compared to fiscal 2018.
The decrease in HPC & MCS net revenue was primarily due to the combination of lower revenue in services, the MCS product portfolio and with Edge Compute products. This decrease was partially offset by growth in the HPC product portfolio due to the increased Apollo product revenue.
HPC & MCS earnings from operations as a percentage of net revenue decreased 1.9 percentage points, in fiscal 2019 as compared to fiscal 2018, due to an increase in cost of products and services as a percentage of net revenue and an increase in operating expenses as a percentage of net revenue. The increase in cost of products and services as a percentage of net revenue was primarily due to lower mix of lower-cost MCS products and services. The increase in operating expenses as a percentage of net revenue was primarily due to investments in research and development partially offset by a decrease in administrative expense.
Storage
  For the fiscal years ended October 31,
  2020 2019 2018
  Dollars in millions
Net revenue $ 4,681  $ 5,185  $ 5,158 
Earnings from operations $ 719  $ 924  $ 830 
Earnings from operations as a % of net revenue 15.4  % 17.8  % 16.1  %
51

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Fiscal 2020 compared with Fiscal 2019
Storage net revenue decreased by $504 million, or 9.7% (decreased 8.7% on a constant currency basis), in fiscal 2020 as compared to fiscal 2019. Net revenue in Storage declined due primarily to commodity and manufacturing capacity constraints in North America in the first quarter of fiscal 2020, and lower revenue from the expiration of a one-time legacy contract. Partially offsetting the net revenue decrease was revenue growth from Big Data.
Storage earnings from operations as a percentage of net revenue decreased 2.4 percentage points for fiscal 2020 as compared to fiscal 2019, due to an increase in cost of product and services as a percentage of net revenue and an increase in operating expenses as a percentage of net revenue. The increase in the cost of product and services as a percentage of net revenue was due primarily to unfavorable currency fluctuations and higher cost of products from higher fixed overhead costs as a percentage of net revenue, the effects of which were partially offset by lower cost of services due to delivery efficiencies. The increase in operating expenses as a percentage of net revenue was due primarily to the scale of the net revenue decline and higher investments in R&D, while total operating expenses declined during the period due to lower field selling cost and lower spending due to cost containment measures.
Fiscal 2019 compared with Fiscal 2018
Storage net revenue increased by $27 million, or 0.5% (increased 1.5% on a constant currency basis), in fiscal 2019 as compared to fiscal 2018. The increase in net revenue was due primarily to growth in Hyperconverged and Big Data products and storage services. These increases were partially offset by lower net revenue from 3PAR and traditional storage products.
Storage earnings from operations as a percentage of net revenue increased 1.7 percentage points for fiscal 2019 as compared to fiscal 2018, due to a decrease in cost of product and services as a percentage of net revenue, partially offset by an increase in operating expenses as a percentage of net revenue. The decrease in cost of product and services as a percentage of net revenue was due primarily to the year-over-year decrease in commodity costs, lower cost of services from delivery efficiencies, a more favorable mix of revenue from higher-margin HPE Nimble product and Storage services, and cost management activities. The increase in operating expenses as a percentage of net revenue was due primarily to higher field selling costs and R&D costs driven by business acquisitions.
A & PS
  For the fiscal years ended October 31,
  2020 2019 2018
  Dollars in millions
Net revenue $ 951  $ 1,012  $ 1,118 
Earnings from operations $ (5) $ (54) $ (79)
Earnings from operations as a % of net revenue (0.5) % (5.3) % (7.1) %
The components of net revenue and the weighted net revenue change by business unit were as follows:
Fiscal 2020 compared with Fiscal 2019
A & PS net revenue decreased by $61 million, or 6.0% (decreased 5.7% on a constant currency basis) in fiscal 2020 as compared to fiscal 2019.
The decrease in A & PS net revenue was primarily due to service delivery delays partially offset by strength in Asia Pacific and Japan.
A & PS earnings from operations as a percentage of net revenue increased 4.8 percentage points, in fiscal 2020 as compared to fiscal 2019, due to lower cost of services as a percentage of net revenue coupled with a decrease in operating expenses as a percentage of net revenue. The decrease in cost of services as a percentage of net revenue was primarily due to service delivery and overhead efficiencies along with lower variable compensation expense. The decrease to operating expenses as a percentage of net revenue was primarily due to lower spending as a result of cost containment measures.
52

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Fiscal 2019 compared with Fiscal 2018
A & PS net revenue decreased by $106 million, or 9.5% (decreased 7.3% on a constant currency basis) in fiscal 2019 as compared to fiscal 2018.
The decrease in A & PS net revenue was due primarily due to demand weakness, lower revenue as a result of our initiative to streamline our go-to-market approach in certain countries and unfavorable foreign currency fluctuations.
A & PS earnings from operations as a percentage of net revenue increased 1.8 percentage points, in fiscal 2019 as compared to fiscal 2018, due to a decrease in cost of services as a percentage of net revenue while operating expenses as a percentage of net revenue were flat. The decrease in cost of services as a percentage of net revenue was due primarily to our cost management initiatives. Operating expenses as a percentage of net revenue were flat due to lower administrative and marketing expenses offset by higher field selling costs.
Intelligent Edge
For the fiscal years ended October 31,
2020 2019 2018
Dollars in millions
Net revenue $ 2,855  $ 2,913  $ 3,013 
Earnings from operations $ 281  $ 159  $ 339 
Earnings from operations as a % of net revenue 9.8  % 5.5  % 11.3  %
Fiscal 2020 compared with Fiscal 2019
Intelligent Edge net revenue decreased by $58 million, or 2.0% (decreased 1.2% on a constant currency basis) in fiscal 2020 as compared to fiscal 2019.
The decrease in Intelligent Edge net revenue was primarily due to competitive pricing pressures and unfavorable currency fluctuations. As a result, we experienced lower revenue from WLAN, switching products, and software offerings. These declines were partially offset by an increase in net revenue due to higher service renewals.
Intelligent Edge earnings from operations as a percentage of net revenue increased 4.3 percentage points, in fiscal 2020 as compared to fiscal 2019, due to a decrease in operating expenses as a percentage of net revenue coupled with lower cost of products and services as a percentage of net revenue. The decrease in cost of product and services as a percentage of net revenue was primarily due to a favorable mix of revenue from services and WLAN products partially offset by higher cost of logistics. The decrease in operating expenses as a percentage of net revenue was primarily due to lower spending as a result of cost containment measures, partially offset by higher variable compensation expense.
Fiscal 2019 compared with Fiscal 2018
Intelligent Edge net revenue decreased by $100 million, or 3.3% (decreased 2.4% on a constant currency basis) in fiscal 2019 as compared to fiscal 2018.
The decrease in Intelligent Edge net revenue was primarily due to lower revenue from switching and WLAN products driven by sales execution issues, particularly in the North America region, demand weakness and unfavorable foreign currency fluctuations. These decreases in net revenue were partially offset by higher attach services revenue on a growing installed base and higher renewal rates.
Intelligent Edge earnings from operations as a percentage of net revenue decreased 5.8 percentage points, in fiscal 2019 as compared to fiscal 2018, due to an increase in operating expenses as a percentage of net revenue partially offset by a decrease in cost of products and services as a percentage of net revenue. The decrease in cost of products and services as a percentage of net revenue was primarily due to higher mix of revenue from lower-cost products and services, and cost management activities partially offset by competitive pricing pressures on switching products. The increase in operating expenses as a percentage of net revenue was due primarily to our continued investments in research and development and the sales organization.
53

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Financial Services
  For the fiscal years ended October 31,
  2020 2019 2018
  Dollars in millions
Net revenue $ 3,352  $ 3,581  $ 3,671 
Earnings from operations $ 278  $ 305  $ 286 
Earnings from operations as a % of net revenue 8.3  % 8.5  % 7.8  %
Fiscal 2020 compared with Fiscal 2019
FS net revenue decreased by $229 million, or 6.4% (decreased 5.2% on a constant currency basis), in fiscal 2020 due primarily to a decrease in rental revenue due to lower average operating lease assets and lower lease equipment buyout revenue, along with unfavorable currency fluctuations, partially offset by higher revenue from lease extensions.
FS earnings from operations as a percentage of net revenue decreased 0.2 percentage points due primarily to an increase to operating expenses as a percentage of net revenue, partially offset by lower cost of services as a percentage of net revenue. The decrease to cost of services as a percentage of net revenue resulted from lower depreciation expense and borrowing costs, partially offset by higher bad debt expense. The increase to operating expenses as a percentage of net revenue was due primarily to lower capitalized initial direct costs as a result of adopting the new lease accounting standard.
Fiscal 2019 compared with Fiscal 2018
FS net revenue decreased by $90 million, or 2.5% (increased 0.2% on a constant currency basis), in fiscal 2019 due primarily to a decrease in rental revenue due to lower average operating leases and unfavorable currency fluctuations, partially offset by higher asset management revenue from lease extensions, end-of-lease monthly rentals, and lease buyouts.
FS earnings from operations as a percentage of net revenue increased 0.7 percentage points due to lower cost of services as a percentage of net revenue and a decrease in operating expenses as a percentage of net revenue. The decrease to cost of services as a percentage of net revenue resulted from lower depreciation expense and lower bad debt expense, partially offset by higher borrowing costs. The decrease to operating expenses as a percentage of net revenue was due primarily to lower field selling costs.
Financing Volume
  For the fiscal years ended October 31,
  2020 2019 2018
  Dollars in millions
Financing volume $ 6,005  $ 6,200  $ 6,521 
Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, decreased by 3.1% in fiscal 2020 and decreased 4.9% in fiscal 2019 as compared to the prior-year periods. The decrease in fiscal 2020 and 2019 were primarily driven by lower financing associated with HPE and third-party product sales and related service offerings, along with unfavorable currency fluctuations.
Portfolio Assets and Ratios
The FS business model is asset intensive and uses certain internal metrics to measure its performance against other financial services companies, including a segment balance sheet that is derived from our internal management reporting system. The accounting policies used to derive FS amounts are substantially the same as those used by the Company. However, intercompany loans and certain accounts that are reflected in the segment balances are eliminated in our Consolidated Financial Statements.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The portfolio assets and ratios derived from the segment balance sheets for FS were as follows:
  As of October 31,
  2020 2019
  Dollars in millions
Financing receivables, gross $ 9,058  $ 8,652 
Net equipment under operating leases 4,027  4,084 
Capitalized profit on intercompany equipment transactions(1)
315  382 
Intercompany leases(1)
92  100 
Gross portfolio assets 13,492  13,218 
Allowance for doubtful accounts(2)
154  131 
Operating lease equipment reserve 64  60 
Total reserves 218  191 
Net portfolio assets $ 13,274  $ 13,027 
Reserve coverage 1.6  % 1.4  %
Debt-to-equity ratio(3)
7.0x 7.0x
(1)Intercompany activity is eliminated in consolidation.
(2)Allowance for doubtful accounts for financing receivables includes both the short- and long-term portions.
(3)Debt benefiting FS consists of intercompany equity that is treated as debt for segment reporting purposes, intercompany debt, and borrowing- and funding-related activity associated with FS and its subsidiaries. Debt benefiting FS totaled $11.7 billion and $11.4 billion at October 31, 2020 and 2019, respectively, and was determined by applying an assumed debt-to-equity ratio, which management believes to be comparable to that of other similar financing companies. FS equity at both October 31, 2020 and October 31, 2019 was $1.7 billion and $1.6 billion, respectively.
At October 31, 2020 and 2019, FS net cash and cash equivalents were $729 million and $711 million, respectively.
Net portfolio assets at October 31, 2020 increased 1.9% from October 31, 2019. The increase generally resulted from new financing volume exceeding portfolio runoff during the period, partially offset by unfavorable currency fluctuations.
FS bad debt expense includes charges to general reserves, specific reserves and write-offs for sales-type, direct-financing and operating leases. FS recorded net bad debt expense of $93 million, $75 million and $91 million in fiscal 2020, 2019 and 2018, respectively.
As of October 31, 2020, FS experienced an increase in billed finance receivables compared to October 31, 2019, which included limited impact to collections from customers as a result of COVID-19. We are currently unable to fully predict the extent to which COVID-19 may adversely impact future collections of our receivables.
Corporate Investments
  For the fiscal years ended October 31,
  2020 2019 2018
  Dollars in millions
Net revenue $ 490  $ 507  $ 543 
Loss from operations $ (100) $ (108) $ (91)
Loss from operations as a % of net revenue (20.4) % (21.3) % (16.8) %
Fiscal 2020 compared with Fiscal 2019
Corporate Investments net revenue decreased by $17 million, or 3.4% (decreased 2.8% on a constant currency basis), in fiscal 2020 as compared to fiscal 2019. The decrease in Corporate Investments net revenue was due to lower services revenue from the Communications and Media Solutions ("CMS") business and unfavorable currency fluctuations. CMS revenue decline was due primarily to competitive pricing pressures and a strategic focus on higher margin solutions and services.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Corporate Investments loss from operations as a percentage of net revenue decreased 0.9 percentage points in fiscal 2020 as compared to fiscal 2019, due primarily to lower cost of services, partially offset by higher legal expenses.
Fiscal 2019 compared with Fiscal 2018
Corporate Investments net revenue decreased by $36 million, or 6.6% (decreased 4.4% on a constant currency basis), in fiscal 2019 as compared to fiscal 2018. The decrease in Corporate Investments net revenue was due to lower services revenue from the CMS business and unfavorable currency fluctuations. CMS revenue decline was due primarily to competitive pricing pressures and a strategic focus on higher margin solutions and services.
Corporate Investments loss from operations as a percentage of net revenue increased 4.5 percentage points in fiscal 2019 as compared to fiscal 2018, due primarily to higher R&D expenses from Hewlett Packard Labs and a legal settlement expense in the CMS business, partially offset by lower cost of services from the CMS business.
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, product development initiatives, acquisition and disposal activities including legal settlements, restructuring activities, transformation costs, indemnifications, maturing debt, interest payments, and income tax payments, in addition to any future investments, share repurchases, and stockholder dividend payments. We 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 and market risks identified in the section entitled "Quantitative and Qualitative Disclosures about Market Risk" in Item 7A, each of which is incorporated herein by reference.
COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in the capital markets, which can increase the cost of capital and adversely impact access to capital. In addition, our businesses have been and may continue to be adversely affected, which may have a material adverse impact on our profitability and cash flows, and the timing and collectability of amounts due from our customers may be adversely affected as a result of the impact of COVID-19.
On March 27, 2020, the CARES Act was enacted into law in response to COVID-19. The CARES Act, among other things, provides tax relief to businesses, including the deferral of certain payroll taxes, relief for retaining employees, and other income tax provisions. In addition to the CARES Act, governments around the world also enacted comparable legislation to address COVID-19 economic impacts. In fiscal 2020 we deferred approximately $92 million of payroll taxes, which, we may pay, all or in part, prior to the end of October 2021.
In addition, as a result of the continued uncertainty generated by COVID-19, in April 2020, we issued $2.25 billion aggregate principal amount of unsecured Senior Notes to enhance our liquidity and strengthen our capital. The pricing on our undrawn $4.75 billion revolving credit facility, maturing in August 2024, remains unchanged. We continue to monitor the severity and duration of the pandemic and its impact on the U.S. and other global economies, consumer behavior, our businesses, results of operations, financial condition and cash flows.
In July 2020, we issued $1.75 billion in aggregate principal amount of unsecured Senior Notes. The net proceeds were used primarily for the redemption in August 2020 of the $3.0 billion outstanding principal amount of the 3.6% unsecured Senior Notes that were originally due in October 2020.
On September 21, 2020, we completed the acquisition of Silver Peak Systems Inc. ("Silver Peak"), an SD-WAN (Software-Defined Wide Area Network) leader for consideration of $879 million of which $853 million was paid in cash. Silver Peak's results of operations are included within the Intelligent Edge segment.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
During the third quarter of fiscal 2020, we launched a cost optimization and prioritization plan which focuses on realigning the workforce to areas of growth, including a new hybrid workforce model called Edge-to-Office, real estate strategies and simplifying and evolving our product portfolio strategy. The implementation period of the cost optimization and prioritization plan is through fiscal 2023. During this time we expect to incur transformation costs predominantly related to labor restructuring, non-labor restructuring, IT investments and design and execution charges. We estimate related cash funding payments of $1.3 billion over the next three years of which approximately $0.7 billion will relate to labor restructuring, $0.5 billion will relate to non-labor restructuring and $0.1 billion will relate to IT investments and design and execution charges.
Our cash balances are held in numerous locations throughout the world, with a substantial amount held outside the U.S as of October 31, 2020. 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 our non-U.S. liquidity needs. Repatriations of amounts held outside the U.S. generally will not be taxable from a U.S. federal tax perspective, but may be subject to state income 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.
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 October 31, 2020, we had a remaining authorization of $2.1 billion for future share repurchases. The number of shares that we repurchase under the share repurchase program may vary depending on numerous factors, including share price, liquidity and other market conditions, our ongoing capital allocation planning, levels of cash and debt balances, other demands for cash, such as acquisition activity, general economic or business conditions, and board and management discretion. Additionally, our share repurchase activity, if any, during any particular period may fluctuate. We may commence, accelerate, suspend, delay, or discontinue any share repurchase activity at any time, without notice. This program does not have a specific expiration date.
In fiscal 2020, we repurchased and settled an aggregate of $355 million of our stock as a result of our share repurchase program. On April 6, 2020, we suspended purchases under its share repurchase program in response to the global economic uncertainty generated by COVID-19. For more information on our share repurchase program, refer to Note 15, "Stockholders' Equity", to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.
Liquidity
Our cash, cash equivalents, restricted cash, total debt and available borrowing resources were as follows:
  As of October 31,
  2020 2019 2018
  In millions
Cash, cash equivalents and restricted cash $ 4,621  $ 4,076  $ 5,084 
Total debt $ 15,941  $ 13,820  $ 12,141 
Available borrowing resources $ 6,297  $ 5,639  $ 5,757 
Our key cash flow metrics were as follows:
  For the fiscal years ended October 31,
  2020 2019 2018
  In millions
Net cash provided by operating activities $ 2,240  $ 3,997  $ 2,964 
Net cash used in investing activities (2,578) (3,457) (1,880)
Net cash (used in) provided by financing activities 883  (1,548) (5,592)
Net Increase (decrease) in cash, cash equivalents and restricted cash $ 545  $ (1,008) $ (4,508)

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Operating Activities
Net cash provided by operating activities decreased by $1.8 billion, for fiscal 2020 as compared to fiscal 2019. The decrease was due primarily to lower earnings from operations and unfavorable net working capital. Net cash provided by operating activities increased by $1.0 billion for fiscal 2019 as compared to fiscal 2018. The increase was driven primarily by favorable net working capital, lower payments related to our ongoing HPE restructuring plans, and cash generated as a result of the settlement of the Tax Matters Agreement pursuant to the Termination and Mutual Release Agreement with HP Inc., the effects of which were partially offset by an arbitration award settlement.
Our key working capital metrics were as follows: