XML 37 R26.htm IDEA: XBRL DOCUMENT v3.5.0.2
Equity Method Investments
9 Months Ended
Jul. 31, 2016
Equity Method Investments and Joint Ventures [Abstract]  
Equity Method Investments
Equity Method Investments
The Company includes investments which are accounted for using the equity method, under Investments in equity interests on the Company's Condensed Consolidated Balance Sheets. As of July 31, 2016, the Company's Investments in equity interests included $2.7 billion related to a 49% interest in H3C and $1 million related to other equity method investments.

The Company records its interest in the net earnings of its equity method investees along with adjustments for profits or losses on intra-entity transactions and amortization of basis differences within Loss from equity interests in the Condensed Consolidated and Combined Statement of Earnings. Profits or losses related to intra-entity sales with its equity method investees are eliminated until realized by the investor or investee. Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment. The Company records its interest in the net earnings of its equity method investments from the most recently available financial statements of the investees.

The carrying amount of the Investment in equity interests is adjusted to reflect the Company's interest in the net earnings, dividends received and other-than-temporary impairments. The Company reviews for impairment whenever factors indicate that the carrying amount of the investment might not be recoverable. In such a case, the decrease in value is recognized in the period the impairment occurred in the Condensed Consolidated and Combined Statement of Earnings.

Investment in H3C
In May 2016, Tsinghua Holdings’ subsidiary, Unisplendour Corporation, purchased 51% of the new business named H3C, comprised of Hewlett Packard Enterprise’s H3C Technologies and China-based servers, storage and technology services business which were previously reported within the EG segment. The Company retained a 49% interest in the new company, which it records as an equity method investment.
During the three months ended July 31, 2016, the Company recorded its interest in the net earnings of H3C along with an adjustment to eliminate profits on intra-entity sales and the amortization of the estimated basis difference within Loss from equity interests in the Condensed Consolidated and Combined Statement of Earnings. To identify the basis difference as a result of the sale of a portion of the H3C business, the Company was required to determine the fair value of the identifiable assets and assumed liabilities in the same manner as a business combination. The resulting fair values are compared with the assets and liabilities recorded in H3C’s financial statements; the resulting differences are considered basis differences. The estimated basis difference identified in the third fiscal quarter ended July 31, 2016 was based on preliminary fair value estimates and analysis, including preliminary work performed by third-party valuation specialists on certain tangible assets and liabilities and the valuation of intangible assets, which are subject to change as valuations are finalized. The Company expects to finalize its analysis and record any adjustments to its interest in the estimated basis difference and related amortization in the fourth quarter of fiscal 2016 following the completion of such analysis. The Company recorded its interest in the net earnings of H3C one month in arrears due to the timing of the availability of the most recent financial statements of H3C.
During the three months ended July 31, 2016, the Company recorded a Loss from equity interests of $72 million in the Condensed Consolidated and Combined Statement of Earnings, which included $58 million of amortization of the Company's interest in the estimated basis difference. This loss was reflected as a reduction in the carrying amount in Investments in equity interests in the Condensed Consolidated Balance Sheet as of July 31, 2016.