Discontinued Operations

6 Months Ended

Apr. 30, 2017

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

On April 1, 2017, HPE completed the Everett Transaction. As a result, HPE distributed all of the shares of Everett to HPE stockholders. 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. Following the share distribution, the Merger Sub merged with and into CSC, which will continue as a wholly-owned subsidiary of Everett. At the time of the merger, Everett changed its name to DXC.

HPE and Everett have entered into several agreements that govern the relationship between the parties, including the following:

• Separation and Distribution Agreement;

• Transition Services Agreement;

• Tax Matters Agreement;

• Employee Matters Agreement;

• Real Estate Matters Agreement;

• Intellectual Property Matters Agreement;

• Information Technology Service Agreement; and

• Preferred Vendor Agreements

These agreements provide for the allocation of assets, employees, liabilities and obligations (including its investments, property, employee benefits, litigation, and tax-related assets and liabilities) between HPE and Everett, attributable to periods prior to, at and after the separation. Obligations under the service and commercial contracts generally extend through five years.

With the completion of the Everett Transaction, HPE no longer consolidates the financial results of Everett within its financial results from continuing operations. For all periods prior to the Everett Transaction, the financial results of Everett are presented as Net loss from discontinued operations in the Condensed Consolidated Statements of Earnings and in assets and liabilities of discontinued operations in the Condensed Consolidated Balance Sheets.

The following table presents the financial results for HPE's discontinued operations up to the completion of the separation on April 1, 2017. For the period following the completion of the Everett Transaction, discontinued operations primarily includes separation costs related to third-party consulting, contractor fees and other incremental costs arising from the transaction:

	Three Months Ended April 30,						Six Months Ended April 30,
	2017			2016			2017			2016
	In millions
Net Revenue	$	2,487		$	4,202		$	6,338		$	8,394
Cost of revenue(1)	2,073			3,601			5,357			7,312
Expenses(2)	643			560			1,203			1,129
Interest and other, net	4			8			4			14
(Loss) earnings from discontinued operations before taxes	(233		)	33			(226		)	(61		)
Benefit (provision) for taxes	108			(35		)	113			(36		)
Net loss from discontinued operations	$	(125	)	$	(2	)	$	(113	)	$	(97	)

(1) Cost of revenue includes cost of products and cost of services.

(2) Expenses for the three and six months ended April 30, 2017 and 2016 include expenses primarily consisting of selling, general and administrative (“SG&A”) expenses, research and development (“R&D”) expenses, restructuring charges, separation costs related to the Everett Transaction, amortization of intangible assets, acquisition and other related charges, and defined benefit plan settlement charges and remeasurement (benefit).

For the three and six months ended April 30, 2017 and 2016, significant non-cash items and capital expenditures of discontinued operations are outlined below:

	Three Months Ended April 30,				Six Months Ended April 30,
	2017		2016		2017		2016
	In millions
Depreciation and amortization	$	129	$	358	$	388	$	734
Purchases of property, plant and equipment	$	53	$	224	$	131	$	486

The following table presents assets and liabilities that are presented as discontinued operations in the Consolidated Balance Sheet as of October 31, 2016 and that were transferred to Everett as of April 1, 2017:

	As of
	October 31, 2016
Accounts receivable	$	3,093
Inventory	34
Other current assets	1,116
Total current assets of discontinued operations	$	4,243
Property, plant and equipment	$	3,332
Long-term financing receivables and other non-current assets	1,591
Total non-current assets of discontinued operations	$	4,923
Notes payable and short-term borrowings	$	3
Accounts payable	933
Employee compensation and benefits	838
Taxes on earnings	55
Deferred revenue	849
Other accrued liabilities	1,504
Total current liabilities of discontinued operations	$	4,182
Long-term debt	$	392
Other non-current liabilities	3,621
Total non-current liabilities of discontinued operations	$	4,013

In the second quarter of fiscal 2017, in connection with the Everett Transaction, HPE made a net cash transfer of $559 million to DXC. Further working capital adjustments are expected through December 2017.