Segment Information

Hewlett Packard Enterprise's operations are organized into five segments for financial reporting purposes: the Enterprise Group ("EG"), Enterprise Services ("ES"), Software, Financial Services ("FS") and Corporate Investments. Hewlett Packard Enterprise's organizational structure is based on a number of factors that the Chief Operating Decision Maker ("CODM"), Meg Whitman, uses to evaluate, view and run business operations, which include, but are not limited to, customer base and homogeneity of products and technology. The segments are based on this organizational structure and information reviewed by the Company's CODM to evaluate segment results.

A summary description of each segment follows.

The Enterprise Group provides servers, storage, networking, and technology services that, when combined with Hewlett Packard Enterprise's cloud solutions, enable customers to manage applications across virtual private cloud, private cloud and traditional IT environments. Described below are Hewlett Packard Enterprise's business units and capabilities within EG.

•

Servers offers both Industry Standard Servers ("ISS") as well as Mission-Critical Servers ("MCS") to address the full array of the Company's customers' computing needs. ISS provides a range of products, from entry level servers through premium HPE ProLiant servers, which run primarily on Windows, Linux and virtualization platforms from software providers including Microsoft Corporation ("Microsoft") and VMware, Inc. ("VMware") and open sourced software from other major vendors while leveraging x86 processors from Intel Corporation ("Intel") and Advanced Micro Devices ("AMD"). For the most mission-critical workloads, HPE delivers Integrity servers based on the Intel® Itanium® processor, HPE Integrity NonStop solutions and mission critical x86 ProLiant servers.


•	Storage offers Converged Storage solutions and traditional storage. Converged Storage solutions include 3PAR StoreServ, StoreOnce, all-flash arrays, Software Defined and StoreVirtual products. Traditional storage includes tape, storage networking and legacy external disk products such as MSA, EVA and XP.


•	Networking offers wireless local area network equipment, mobility and security software, switches, routers, and network management products that span data centers, campus and branch environments and deliver software defined networking and unified communications capabilities.


•	Technology Services provides support services and technology consulting to assist customers as they transform their business and IT. These services are available in the form of service contracts, pre-packaged offerings (HPE Care Pack services) or on a customized basis.

Enterprise Services provides technology consulting, outsourcing and support services across infrastructure, applications and business process domains within traditional and Strategic Enterprise Service ("SES") offerings which includes analytics and data management, security and cloud services. Described below are the business units and capabilities within ES.


•	Infrastructure Technology Outsourcing delivers comprehensive services that encompass the management of data centers, IT security, cloud computing, workplace technology, networks, unified communications and enterprise service management.


•	Application and Business Services helps clients develop, revitalize and manage their applications and information assets and provides end-to-end, industry-specific business process services.

Software provides big data analytics and applications, enterprise security, application testing and delivery management and IT operations management solutions for businesses and other enterprises of all sizes. These software offerings include licenses, support, professional services, and software-as-a-service ("SaaS").

Financial Services provides flexible investment solutions, such as leasing, financing, IT consumption, and utility programs and asset management services, for customers to enable the creation of unique technology deployment models and acquire complete IT solutions, including hardware, software and services from Hewlett Packard Enterprise and others. Providing flexible services and capabilities that support the entire IT life cycle, FS partners with customers globally to help build investment strategies that enhance their business agility and support their business transformation. FS offers a wide selection of investment solution capabilities for large enterprise customers and channel partners, along with an array of financial options to SMBs and educational and governmental entities.

Corporate Investments includes Hewlett Packard Labs and certain cloud-related business incubation projects, among others.

Segment Policy

Hewlett Packard Enterprise derives the results of its business segments directly from its internal management reporting system. The accounting policies that Hewlett Packard Enterprise uses to derive segment results are substantially the same as those the consolidated company uses. The CODM measures the performance of each segment based on several metrics, including earnings from operations. The CODM uses these results, in part, to evaluate the performance of, and to allocate resources to each of the segments.

Segment revenue includes revenues from sales to external customers and intersegment revenues that reflect transactions between the segments on an arm's-length basis. Intersegment revenues primarily consist of sales of hardware and software that are sourced internally and, in the majority of the cases, are financed as operating leases by FS. Hewlett Packard Enterprise's consolidated net revenue is derived and reported after the elimination of intersegment revenues from such arrangements.

Hewlett Packard Enterprise periodically engages in intercompany advanced royalty payment and licensing arrangements that may result in advance payments between subsidiaries. Revenues from these intercompany arrangements are deferred and recognized as earned over the term of the arrangement by the Hewlett Packard Enterprise legal entities involved in such transactions; however, these advanced payments are eliminated from revenues as reported by Hewlett Packard Enterprise and its business segments. As disclosed in Note 6, "Taxes on Earnings", Hewlett Packard Enterprise executed intercompany advanced royalty payment arrangements resulting in advanced payments of $3.7 billion and $5.0 billion during fiscal 2016 and 2015 respectively. In these transactions, the payments were received in the U.S. from a foreign consolidated affiliate, with a deferral of intercompany revenues over the term of the arrangements, approximately 5 years. The impact of these intercompany arrangements is eliminated from both Hewlett Packard Enterprise's consolidated and segment revenues.

Financing interest in the Consolidated and Combined Statements of Earnings reflects interest expense on borrowing- and funding-related activity associated with FS and its subsidiaries, and debt issued by Hewlett Packard Enterprise for which a portion of the proceeds benefited FS. Prior to October 9, 2015, such financing interest expense resulted from debt issued by former Parent.

Hewlett Packard Enterprise does not allocate to its segments certain operating expenses which it manages at the corporate level. These unallocated costs include certain corporate governance costs, stock-based compensation expense, amortization of intangible assets, restructuring charges, acquisition and other related charges, separation costs, defined benefit plan settlement charges, impairment of data center assets and gains on the divestitures of H3C and MphasiS.

Segment Organizational Changes

Effective at the beginning of the first quarter of fiscal 2016, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes resulted in: (i) within the Enterprise Group segment, the consolidation of the Industry Standard Servers and Business Critical Systems business units into the newly formed Servers business unit; and (ii) the transfer of certain cloud-related marketing headcount activities from the Corporate Investment segment to the Enterprise Group segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which resulted in: (i) the consolidation of net revenue from the Industry Standard Servers and Business Critical Systems business units into the Servers business unit within the Enterprise Group segment; and (ii) the transfer of operating expenses from the Corporate Investment segment to the Enterprise Group segment. These changes had no impact on Hewlett Packard Enterprise's previously reported combined and consolidated net revenue, earnings from operations, net earnings or net earnings per share.

In May 2016, Tsinghua Holdings’ subsidiary, Unisplendour Corporation, purchased 51% of a new business named H3C Technologies ("H3C"), comprising Hewlett Packard Enterprise’s former H3C Technologies and China-based servers, storage and technology services businesses, which were previously reported within the EG segment. In the third quarter of fiscal 2016, the Company completed the sale of its assets and liabilities that were identified as part of the H3C transaction. The Company retained a 49% interest in the new company, which it recorded as an equity method investment. See Note 9, "Acquisitions and Divestitures" and Note 20, "Equity Method Investments" for additional information.

In the third quarter of fiscal 2016, the Company signed a definitive agreement with The Blackstone Group to sell its equity stake in MphasiS Limited ("MphasiS" or “MphasiS disposal group”). The financial results of MphasiS were previously reported within the ES segment. In the fourth quarter of fiscal 2016, the Company completed the sale of its entire equity stake in MphasiS and divested all of the assets and liabilities identified as a part of this transaction. See Note 9, "Acquisitions and Divestitures" for additional information.

Segment Operating Results



	Enterprise Group		Enterprise Services		Software		Financial Services		Corporate Investments			Total
	In millions
2016
Net revenue	$	26,017	$	18,094	$	2,912	$	3,097	$	3		$	50,123
Intersegment net revenue and other	1,202		778		283		93		—			2,356
Total segment net revenue	$	27,219	$	18,872	$	3,195	$	3,190	$	3		$	52,479
Earnings (loss) from operations	$	3,459	$	1,457	$	749	$	336	$	(348	)	$	5,653
2015
Net revenue	$	26,668	$	19,010	$	3,308	$	3,114	$	7		$	52,107
Intersegment net revenue and other	1,239		796		314		102		—			2,451
Total segment net revenue	$	27,907	$	19,806	$	3,622	$	3,216	$	7		$	54,558
Earnings (loss) from operations	$	3,862	$	1,019	$	788	$	349	$	(423	)	$	5,595
2014
Net revenue	$	26,812	$	21,297	$	3,609	$	3,401	$	4		$	55,123
Intersegment net revenue and other	915		1,101		324		97		—			2,437
Total segment net revenue	$	27,727	$	22,398	$	3,933	$	3,498	$	4		$	57,560
Earnings (loss) from operations	$	3,909	$	818	$	871	$	389	$	(245	)	$	5,742

The reconciliation of segment operating results to Hewlett Packard Enterprise consolidated and combined results was as follows:



	For the fiscal years ended October 31,
	2016			2015			2014
	In millions
Net Revenue:
Total segments	$	52,479		$	54,558		$	57,560
Elimination of intersegment net revenue and other	(2,356		)	(2,451		)	(2,437		)
Total Hewlett Packard Enterprise consolidated and combined net revenue	$	50,123		$	52,107		$	55,123
Earnings before taxes:
Total segment earnings from operations	$	5,653		$	5,595		$	5,742
Corporate and unallocated costs and eliminations	(598		)	(454		)	(592		)
Stock-based compensation expense	(558		)	(565		)	(427		)
Amortization of intangible assets	(755		)	(852		)	(906		)
Restructuring charges	(1,236		)	(954		)	(1,471		)
Acquisition and other related charges	(178		)	(89		)	(11		)
Separation costs	(598		)	(797		)	—
Defined benefit plan settlement charges	—			(225		)	—
Impairment of data center assets	—			(136		)	—
Gain on H3C and MphasiS divestitures	2,420			—			—
Interest and other, net	(312		)	(51		)	(91		)
Tax indemnification adjustments	317			—			—
Loss from equity interests	(76		)	(2		)	—
Total Hewlett Packard Enterprise consolidated and combined earnings before taxes	$	4,079		$	1,470		$	2,244

Segment Assets

Hewlett Packard Enterprise allocates assets to its business segments based on the segments primarily benefiting from the assets. Total assets by segment and the reconciliation of segment assets to Hewlett Packard Enterprise consolidated assets were as follows:



	As of October 31,
	2016		2015
	In millions
Enterprise Group	$	26,163	$	27,987
Enterprise Services	9,563		11,581
Software	9,425		9,996
Financial Services	13,594		13,163
Corporate Investments	161		83
Corporate and unallocated assets	20,773		17,106
Total Hewlett Packard Enterprise consolidated assets⁽¹⁾	$	79,679	$	79,916

_______________________________________________________________________________


(1)	The Company elected to adopt the amendments prescribed by ASU 2015-17 related to deferred tax assets and liabilities in the first quarter of fiscal 2016 and applied them retrospectively, as required by the standard. The total assets by segment and total Hewlett Packard Enterprise consolidated assets for fiscal 2015 were restated accordingly.

•Assets allocated to the EG segment in fiscal 2016 decreased as compared to fiscal 2015 due primarily to the divestiture of 51% of the Company's former H3C Technologies and China-based servers, storage and technology services businesses.

•Assets allocated to the ES segment in fiscal 2016 decreased as compared to fiscal 2015 due primarily to the divestiture of the MphasiS business, the ongoing amortization of intangible assets and a decrease in prepaid expenses.

•Assets allocated to the Software segment in fiscal 2016 decreased as compared to fiscal 2015 due primarily to the divestiture of the TippingPoint business and the ongoing amortization of intangible assets.

•Assets allocated to the FS segment in fiscal 2016 increased as compared to fiscal 2015 due primarily to an increase in equipment leases to customers, recorded as operating and capital leases.

•Assets allocated to the Corporate Investments segment in fiscal 2016 increased as compared to fiscal 2015 due primarily to the acquisition of equity method investments.

•Assets allocated to Corporate and unallocated assets in fiscal 2016 increased as compared to fiscal 2015 due primarily to an increase in cash and cash equivalents, tax indemnification receivables as a result of the Separation and Distribution Agreement with HP Inc., and deferred tax assets.

Major Customers

No single customer represented 10% or more of Hewlett Packard Enterprise's total net revenue in any fiscal year presented.

Geographic Information

Net revenue by country is based upon the sales location that predominately represents the customer location. For each of the fiscal years of 2016, 2015 and 2014, other than the U.S. and the United Kingdom, no country represented more than 10% of Hewlett Packard Enterprise's net revenue.

Net revenue by country in which Hewlett Packard Enterprise operates was as follows:



	For the fiscal years ended October 31,
	2016		2015		2014
	In millions
U.S.	$	19,581	$	20,063	$	20,833
United Kingdom	5,074		5,379		5,661
Other countries	25,468		26,665		28,629
Total net revenue	$	50,123	$	52,107	$	55,123

Net property, plant and equipment by country in which Hewlett Packard Enterprise operates was as follows:



	As of October 31,
	2016		2015
	In millions
U.S.	$	4,768	$	4,851
United Kingdom	912		955
Other countries	3,956		4,080
Total net property, plant and equipment	$	9,636	$	9,886

Net revenue by segment and business unit was as follows:



	For the fiscal years ended October 31,
	2016			2015			2014
	In millions
Servers	$	14,019		$	14,219		$	13,401
Technology Services	7,160			7,662			8,383
Storage	3,065			3,180			3,315
Networking	2,975			2,846			2,628
Enterprise Group	27,219			27,907			27,727
Infrastructure Technology Outsourcing	11,425			12,107			14,038
Application and Business Services	7,447			7,699			8,360
Enterprise Services	18,872			19,806			22,398
Software	3,195			3,622			3,933
Financial Services	3,190			3,216			3,498
Corporate Investments	3			7			4
Total segment net revenue	52,479			54,558			57,560
Eliminations of intersegment net revenue and other	(2,356		)	(2,451		)	(2,437		)
Total net revenue	$	50,123		$	52,107		$	55,123