Hewlett Packard Enterprise Co 10-Q for FY2020 Q1

Hewlett Packard Enterprise Co (HPE)

10-Q 2020-03-09 For: 2020-01-31

Added on April 08, 2026

About this 10-Q

Hewlett Packard Enterprise Co filed this 10-Q on March 9, 2020, covering the quarter ended January 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended January 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $6.95B; down 8.0% from $7.55B a year earlier
Net income: $333M; up 88.1% from net income of $177M a year earlier
Diluted EPS: $0.25; up 92.3% from $0.13 a year earlier

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Delaware		47-3298624
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)



6280 America Center Drive,	San Jose,	California		95002
(Address of principal executive offices)				(Zip code)
(650)			687-5817
(Registrant's telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Exchange 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



Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer (Do not check if a smaller reporting company)	☐	Smaller reporting company	☐
						Emerging growth company	☐



			Page
Forward-Looking Statements			4
Part I.	Financial Information
	Item 1.	Financial Statements and Supplementary Data	5
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	41
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56
	Item 4.	Controls and Procedures	56
Part II.	Other Information
	Item 1.	Legal Proceedings	58
	Item 1A.	Risk Factors	58
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
	Item 5.	Other Information	59
	Item 6.	Exhibits	59
Exhibit Index			60
Signature			65



(Mark One)
☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to



	Page
Condensed Consolidated Statements of Earnings for the three months ended January 31, 2020 and 2019 (Unaudited)	6

Condensed Consolidated Statements of Comprehensive Income for the three months ended January 31, 2020 and 2019 (Unaudited)	7

Condensed Consolidated Balance Sheets as of January 31, 2020 (Unaudited) and October 31, 2019 (Audited)	8

Condensed Consolidated Statements of Cash Flows for the three months ended January 31, 2020 and 2019 (Unaudited)	9

Condensed Consolidated Statements of Stockholders' Equity for the three months ended January 31, 2020 and 2019 (Unaudited)	10

Notes to Condensed Consolidated Financial Statements (Unaudited)	12

Note 1: Overview and Summary of Significant Accounting Policies	12

Note 2: Segment Information	15

Note 3: HPE Next	18

Note 4: Retirement Benefit Plans	19

Note 5: Taxes on Earnings	19

Note 6: Balance Sheet Details	21

Note 7: Accounting for Leases as a Lessee	23

Note 8: Accounting for Leases as a Lessor	25

Note 9: Goodwill	30

Note 10: Fair Value	30

Note 11: Financial Instruments	32

Note 12: Stockholders' Equity	35

Note 13: Net Earnings Per Share	37

Note 14: Litigation and Contingencies	37



	Three Months Ended January 31,
	2020			2019
	In millions, except per share amounts
Net revenue:
Products	$	4,247		$	4,791
Services	2,589			2,650
Financing income	113			112
Total net revenue	6,949			7,553
Costs and expenses:
Cost of products	2,910			3,369
Cost of services	1,684			1,765
Financing interest	73			73
Research and development	485			466
Selling, general and administrative	1,218			1,211
Amortization of intangible assets	120			72
Transformation costs	89			78
Acquisition, disposition and other related charges	22			63
Total costs and expenses	6,601			7,097
Earnings from operations	348			456
Interest and other, net	(19		)	(51		)
Tax indemnification adjustments	(21		)	219
Non-service net periodic benefit credit	37			16
Earnings from equity interests	33			15
Earnings before taxes	378			655
Provision for taxes	(45		)	(478		)
Net earnings	$	333		$	177
Net earnings per share:
Basic	$	0.26		$	0.13
Diluted	$	0.25		$	0.13
Weighted-average shares used to compute net earnings per share:
Basic	1,300			1,401
Diluted	1,315			1,412



	Three Months Ended January 31,
	2020			2019
	In millions
Net earnings	$	333		$	177
Other comprehensive income (loss) before taxes:
Change in net unrealized (losses) gains on available-for-sale securities:
Net unrealized gains (losses) arising during the period	2			2
(Gains) losses reclassified into earnings	(3		)	(3		)
	(1		)	(1		)
Change in net unrealized gains (losses) on cash flow hedges:
Net unrealized gains (losses) arising during the period	75			34
Net (gains) losses reclassified into earnings	(69		)	(133		)
	6			(99		)
Change in unrealized components of defined benefit plans:
Net unrealized gains (losses) arising during the period	17			(55		)
Amortization of net actuarial loss and prior service benefit	61			52
Curtailments, settlements and other	—			5
	78			2
Change in cumulative translation adjustment	(4		)	12
Other comprehensive income (loss) before taxes	79			(86		)
(Provision) benefit for taxes	(9		)	10
Other comprehensive income (loss), net of taxes	70			(76		)
Comprehensive income	$	403		$	101



	As of
	January 31, 2020			October 31, 2019
	(Unaudited)			(Audited)
	In millions, except par value
ASSETS
Current assets:
Cash and cash equivalents	$	3,171		$	3,753
Accounts receivable, net of allowance for doubtful accounts	2,864			2,957
Financing receivables, net of allowance for doubtful accounts	3,591			3,572
Inventory	2,560			2,387
Assets held for sale	12			46
Other current assets	2,553			2,428
Total current assets	14,751			15,143
Property, plant and equipment	5,711			6,054
Long-term financing receivables and other assets	10,179			8,918
Investments in equity interests	2,290			2,254
Goodwill	18,305			18,306
Intangible assets	1,008			1,128
Total assets	$	52,244		$	51,803
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings	$	4,510		$	4,425
Accounts payable	5,332			5,595
Employee compensation and benefits	1,009			1,522
Taxes on earnings	173			186
Deferred revenue	3,267			3,234
Accrued restructuring	184			195
Other accrued liabilities	4,279			4,002
Total current liabilities	18,754			19,159
Long-term debt	9,362			9,395
Other non-current liabilities	6,885			6,100
Commitments and contingencies
Stockholders' equity
HPE stockholders' equity:
Preferred stock, $0.01 par value (300 shares authorized; none issued)	—			—
Common stock, $0.01 par value (9,600 shares authorized; 1,293 and 1,294 shares issued and outstanding at January 31, 2020 and October 31, 2019, respectively)	13			13
Additional paid-in capital	28,287			28,444
Accumulated deficit	(7,411		)	(7,632		)
Accumulated other comprehensive loss	(3,700		)	(3,727		)
Total HPE stockholders' equity	17,189			17,098
Non-controlling interests	54			51
Total stockholders' equity	17,243			17,149
Total liabilities and stockholders' equity	$	52,244		$	51,803



	Common Stock
Three Months Ended January 31, 2020	Number of Shares		Par Value		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Equity Attributable to the Company			Non- controlling Interests		Total Equity
	In millions, except number of shares in thousands
Balance at October 31, 2019	1,294,369		$	13	$	28,444		$	(7,632	)	$	(3,727	)	$	17,098		$	51	$	17,149
Net earnings								333						333			2		335
Other comprehensive income											70			70					70
Comprehensive income														403			2		405
Issuance of common stock in connection with employee stock plans and other	11,361				(46		)	1						(45		)	1		(44		)
Repurchases of common stock	(12,827	)			(204		)							(204		)			(204		)
Cash dividends declared ($0.12 per share)								(156		)				(156		)			(156		)
Effects of adoption of accounting standard update⁽¹⁾								43			(43		)	—					—
Stock-based compensation expense					93									93					93
Balance at January 31, 2020	1,292,903		$	13	$	28,287		$	(7,411	)	$	(3,700	)	$	17,189		$	54	$	17,243



	Common Stock
Three Months Ended January 31, 2019	Number of Shares		Par Value		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Equity Attributable to the Company			Non- controlling Interests		Total Equity
	In millions, except number of shares in thousands
Balance at October 31, 2018	1,423,303		$	14	$	30,342		$	(5,899	)	$	(3,218	)	$	21,239		$	35	$	21,274
Net earnings								177						177			7		184
Other comprehensive income											(76		)	(76		)			(76		)
Comprehensive income														101			7		108
Issuance of common stock in connection with employee stock plans and other	8,653				(17		)							(17		)			(17		)
Repurchases of common stock	(53,851	)			(795		)							(795		)			(795		)
Cash dividends declared ($0.1125 per share)								(150		)				(150		)			(150		)
Effects of adoption of accounting standard updates⁽¹⁾								(2,162		)				(2,162		)			(2,162		)
Stock-based compensation expense					77									77					77
Balance at January 31, 2019	1,378,105		$	14	$	29,607		$	(8,034	)	$	(3,294	)	$	18,293		$	42	$	18,335



	Compute		HPC & MCS		Storage		A & PS			Intelligent Edge			Financial Services		Corporate Investments			Total
	In millions
Three months ended January 31, 2020
Net revenue	$	2,963	$	816	$	1,235	$	242		$	715		$	857	$	121		$	6,949
Intersegment net revenue	48		7		15		1			5			2		—			78
Total segment net revenue	$	3,011	$	823	$	1,250	$	243		$	720		$	859	$	121		$	7,027
Segment earnings (loss) from operations	$	286	$	49	$	226	$	(2	)	$	70		$	73	$	(27	)	$	675
Three months ended January 31, 2019
Net revenue	$	3,509	$	728	$	1,337	$	239		$	706		$	916	$	118		$	7,553
Intersegment net revenue	66		51		19		2			(1		)	3		—			140
Total segment net revenue	$	3,575	$	779	$	1,356	$	241		$	705		$	919	$	118		$	7,693
Segment earnings (loss) from operations	$	340	$	98	$	254	$	(32	)	$	24		$	77	$	(28	)	$	733


(1)	Primarily consists of consulting fees and other direct costs attributable to the design and implementation of the HPE Next initiative.



Commission file number	001-37483



	Three Months Ended January 31,
	2020		2019
	In millions
Americas:
United States	$	2,318	$	2,501
Americas excluding U.S.	468		504
Total Americas	2,786		3,005
Europe, Middle East and Africa	2,560		2,910
Asia Pacific and Japan	1,603		1,638
Total Hewlett Packard Enterprise consolidated net revenue	$	6,949	$	7,553


(2)	Primarily consists of site relocation costs in connection with the HPE Next initiative.



	Employee Severance			Infrastructure and other
	In millions
Liability as of October 31, 2019	$	178		$	42
Charges	51			33
Cash payments	(67		)	(12		)
Non-cash items	—			(4		)
Liability as of January 31, 2020	$	162		$	59
Total costs incurred to date, as of January 31, 2020	$	971		$	159
Total costs expected to be incurred, as of January 31, 2020	$	1,200		$	180


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



	Three Months Ended January 31, 2020
	In millions
Balance at beginning of period	$	400
Charges	67
Settlements made	(77		)
Balance at end of period	$	390



	Three months ended January 31, 2020
	in millions
Operating lease cost	$	58
Finance lease cost	2
Sublease rental income	(16		)
Total lease cost	$	44



	Balance Sheet Classification	January 31, 2020
		In millions
Operating Leases
ROU Assets	Long-term financing receivables and other assets	$	1,053
Lease Liabilities:
Operating lease liabilities - current	Other accrued liabilities	$	203
Operating lease liabilities - non-current	Other non-current liabilities	940
Total operating lease liabilities		$	1,143

Finance Leases
Finance lease ROU Assets:	Property, plant and equipment
Gross finance lease ROU assets		$	53
Less: Accumulated depreciation		(1		)
Net finance lease ROU assets		$	52
Lease Liabilities:
Finance lease liabilities - current	Notes payable and short-term borrowings	$	4
Finance lease liabilities - non-current	Long-term debt	56
Total finance lease liabilities		$	60

Total ROU assets		$	1,105
Total lease liabilities		$	1,203



	Operating Leases		Finance Leases
Weighted-average remaining lease term (in years)	7.3		10.3
Weighted-average discount rate	2.8	%	3.5	%



	Cash Flow Statement Activity	Three months ended January 31, 2020
		In millions
Cash outflows from operating leases	Net cash used in operating activities	$	56
ROU assets obtained in exchange for new operating lease liabilities	Non-cash activities	$	172



	As of January 31, 2020
Fiscal year	In millions
Remainder of fiscal 2020	$	179
2021	195
2022	174
2023	157
2024	135
Thereafter	437
Total future lease payments	$	1,277
Less: imputed interest	(134		)
Total lease liability balance	$	1,143


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


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



	In millions
Sales-type leases and direct financing leases:
Interest income	$	113
Lease income - operating leases	625
Total lease income	$	738


(1)	As a result of the organizational realignments which were effective as of November 1, 2019, (described in Note 1, "Overview and Summary of Significant Accounting Policies"), goodwill was reallocated to the respective segments as of the beginning of the period using a relative fair value approach.


(2)	Goodwill is net of an accumulated impairment loss of $88 million related to the Corporate Investments segment which was recorded during the fourth quarter of fiscal 2018. There is no remaining goodwill in the Corporate Investments segment.



	As of January 31, 2020								As of October 31, 2019
	Fair Value Measured Using								Fair Value Measured Using
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	In millions
Assets
Cash Equivalents and Investments:
Time deposits	$	—	$	671	$	—	$	671	$	—	$	803	$	—	$	803
Money market funds	607		—		—		607		859		—		—		859
Foreign bonds	1		123		—		124		7		126		—		133
Other debt securities	—		—		31		31		—		—		32		32
Derivative Instruments:
Interest rate contracts	—		96		—		96		—		73		—		73
Foreign exchange contracts	—		399		—		399		—		392		—		392
Other derivatives	—		1		—		1		—		3		—		3
Total assets	$	608	$	1,290	$	31	$	1,929	$	866	$	1,397	$	32	$	2,295
Liabilities
Derivative Instruments:
Interest rate contracts	$	—	$	6	$	—	$	6	$	—	$	11	$	—	$	11
Foreign exchange contracts	—		123		—		123		—		136		—		136
Other derivatives	—		1		—		1		—		—		—		—
Total liabilities	$	—	$	130	$	—	$	130	$	—	$	147	$	—	$	147



	As of January 31, 2020						As of October 31, 2019
	Cost		Gross Unrealized Gain		Fair Value		Cost		Gross Unrealized Gain		Fair Value
	In millions
Cash Equivalents:
Time deposits	$	671	$	—	$	671	$	803	$	—	$	803
Money market funds	607		—		607		859		—		859
Total cash equivalents	1,278		—		1,278		1,662		—		1,662
Available-for-Sale Investments:
Foreign bonds	103		21		124		110		23		133
Other debt securities	30		1		31		32		—		32
Total available-for-sale investments	133		22		155		142		23		165
Total cash equivalents and available-for-sale debt investments	$	1,411	$	22	$	1,433	$	1,804	$	23	$	1,827



	January 31, 2020
	Amortized Cost		Fair Value
	In millions
Due in one to five years	$	9	$	9
Due in more than five years	124		146
	$	133	$	155



	As of January 31, 2020
	In the Condensed Consolidated Balance Sheets
	(i)		(ii)		(iii) = (i)–(ii)		(iv)		(v)			(vi) = (iii)–(iv)–(v)
							Gross Amounts Not Offset
	Gross Amount Recognized		Gross Amount Offset		Net Amount Presented		Derivatives		Financial Collateral			Net Amount
	In millions
Derivative assets	$	496	$	—	$	496	$	118	$	349	⁽¹⁾	$	29
Derivative liabilities	$	130	$	—	$	130	$	118	$	6	⁽²⁾	$	6


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



	Carrying amount of the hedged assets/ (liabilities)						Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets/ (liabilities)
	As of						As of
	January 31, 2020			October 31, 2019			January 31, 2020			October 31, 2019
	In millions						In millions
Notes payable and short-term borrowings	$	(2,992	)	$	(2,987	)	$	6		$	11
Long-term debt	$	(3,933	)	$	(3,908	)	$	(96	)	$	(72	)