Segment Information

Hewlett Packard Enterprise's operations are organized into four segments for financial reporting purposes: the Enterprise Group ("EG"), 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 its 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 Hewlett Packard Enterprise's management 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 the business units and capabilities within the Enterprise Group.

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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 all-flash arrays, StoreServe, StoreOnce, Big Data, StoreVirtual and Software Defined and Cloud Group storage 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 creates preferred IT experiences that power a digital business. The Technology Services team and the Company's extensive partner network provide value across the IT life cycle delivering advice, transformation projects, professional services, support services, and operational services for Hybrid IT and at the IT Edge. Technology Services is also a provider of on-premises flexible consumption models that enable IT agility, simplify operations and align costs to business value. Some of the offerings include Data Center Care, Proactive Care, Technology Consulting, Aruba Services, and Communications and Media Solutions ("CMS").

Software provides comprehensive solutions across application testing and delivery management, big data platform analytics, security and information governance and IT operations management for organizations of varying sizes, from small- to medium- to large-scale enterprises. 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 to our customers. 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 7, "Taxes on Earnings", Hewlett Packard Enterprise executed intercompany advanced royalty payment arrangements resulting in advanced payments of $439 million during fiscal 2017 and $3.7 billion during fiscal 2016. 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 are eliminated from both Hewlett Packard Enterprise consolidated and segment net revenues.

Financing interest in the Condensed Consolidated Statements of Earnings reflects interest expense on borrowing- and funding-related activities associated with FS and its subsidiaries, and debt issued by Hewlett Packard Enterprise, a portion of the proceeds of which benefited FS.

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

Segment Realignment

As of April 1, 2017, with the completion of the Everett Transaction, the Company reclassified the historical net (loss) earnings from the former ES segment, to Net loss from discontinued operations in its Condensed Consolidated Statements of Earnings.

Effective at the beginning of the first quarter of fiscal 2017, 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, primarily, the transfer of the big data storage product group previously reported within the Servers business unit to the Storage business unit; the transfer of the Aruba services capabilities previously reported within the Networking business unit to the Technology Services ("TS") business unit; and (ii) the transfer of the CMS product group previously reported within the former ES segment to the TS business unit within the Enterprise Group segment.

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which resulted in: (i) within the Enterprise Group segment, primarily, the transfer of net revenue from the big data storage product group previously reported within the Servers business unit to the Storage business unit; the transfer of net revenue from the Aruba services capabilities previously reported within the Networking business unit to the TS business unit; and (ii) the transfer of net revenue, related eliminations of intersegment revenues and operating profit from the CMS product group previously reported within the former ES segment to the Technology Services business unit within the Enterprise Group segment.

Effective at the beginning of the second quarter of fiscal 2017 and prior to the completion of the Everett Transaction, the Company transferred historical net revenue and operating profit from the previously divested MphasiS product group which was reported within the former ES segment to the Corporate Investments segment.

The changes within the Enterprise Group segment had no impact on Hewlett Packard Enterprise's previously reported Enterprise Group segment net revenue and earnings from operations. The change between the former ES segment and the Enterprise Group segment had no impact on Hewlett Packard Enterprise's previously reported consolidated net revenue, earnings from continuing operations, net earnings from continuing operations or net earnings per share from continuing operations.

With the completion of the Everett Transaction, assets and liabilities of Everett were reclassified to assets and liabilities of discontinued operations in the Condensed Consolidated Balance Sheet as of October 31, 2016. Assets and liabilities previously allocated to the former ES segment, but which were not reclassified to assets and liabilities of discontinued operations, were allocated to the remaining four segments, primarily the Enterprise Group. During the six months ended April 30, 2017, the Company completed five business acquisitions, which resulted in the acquisition of assets and liabilities that are reported within the Enterprise Group segment. With the exception of the above, there have been no material changes to the total assets of Hewlett Packard Enterprise's individual segments since October 31, 2016.

Segment Operating Results from Continuing Operations



	Enterprise Group		Software		Financial Services		Corporate Investments			Total
	In millions
Three months ended April 30, 2017
Net revenue	$	5,943	$	637	$	865	$	—		$	7,445
Intersegment net revenue and other⁽¹⁾	300		48		7		—			355
Total segment net revenue	$	6,243	$	685	$	872	$	—		$	7,800
Segment earnings (loss) from operations	$	548	$	181	$	78	$	(38	)	$	769
Three months ended April 30, 2016
Net revenue	$	6,870	$	703	$	764	$	172		$	8,509
Intersegment net revenue and other⁽¹⁾	289		71		24		—			384
Total segment net revenue	$	7,159	$	774	$	788	$	172		$	8,893
Segment earnings (loss) from operations	$	847	$	192	$	73	$	(59	)	$	1,053
Six months ended April 30, 2017
Net revenue	$	12,041	$	1,291	$	1,669	$	—		$	15,001
Intersegment net revenue and other⁽¹⁾	527		115		26		—			668
Total segment net revenue	$	12,568	$	1,406	$	1,695	$	—		$	15,669
Segment earnings (loss) from operations	$	1,350	$	335	$	156	$	(81	)	$	1,760
Six months ended April 30, 2016
Net revenue	$	13,752	$	1,423	$	1,518	$	348		$	17,041
Intersegment net revenue and other⁽¹⁾	589		131		46		—			766
Total segment net revenue	$	14,341	$	1,554	$	1,564	$	348		$	17,807
Segment earnings (loss) from operations	$	1,811	$	328	$	173	$	(135	)	$	2,177

(1)

Other includes adjustments for sales to the former ES segment which, prior to the completion of the Everett Transaction, were reflected as intersegment net revenue. For the three and six months ended April 30, 2017 and April 30, 2016, the amounts include the elimination of intercompany sales to the former ES segment, which is included within Net loss from discontinued operations in the Condensed Consolidated Statements of Earnings.

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



	Three Months Ended April 30,						Six Months Ended April 30,
	2017			2016			2017			2016
	In millions
Net Revenue:
Total segments	$	7,800		$	8,893		$	15,669		$	17,807
Elimination of intersegment net revenue and other	(355		)	(384		)	(668		)	(766		)
Total Hewlett Packard Enterprise condensed consolidated net revenue	$	7,445		$	8,509		$	15,001		$	17,041
Earnings before taxes:
Total segment earnings from operations	$	769		$	1,053		$	1,760		$	2,177
Corporate and unallocated costs and eliminations	(90		)	(177		)	(161		)	(301		)
Stock-based compensation expense	(96		)	(103		)	(219		)	(230		)
Amortization of intangible assets	(107		)	(101		)	(208		)	(220		)
Restructuring charges	(118		)	(87		)	(234		)	(253		)
Acquisition and other related charges	(51		)	(43		)	(95		)	(80		)
Separation costs	(141		)	(91		)	(226		)	(170		)
Defined benefit plan settlement charges and remeasurement benefit	16			—			21			—
Interest and other, net	(85		)	(52		)	(163		)	(126		)
Tax indemnification adjustments	7			(69		)	(11		)	(54		)
Loss from equity interests	(3		)	—			(25		)	—
Total Hewlett Packard Enterprise condensed consolidated earnings from continuing operations before taxes	$	101		$	330		$	439		$	743

Net revenue by segment and business unit was as follows:



	Three Months Ended April 30,						Six Months Ended April 30,
	2017			2016			2017			2016
	In millions
Servers	$	2,991		$	3,498		$	6,094		$	7,034
Technology Services	1,971			2,019			3,914			4,004
Storage	699			808			1,429			1,645
Networking	582			834			1,131			1,658
Enterprise Group	6,243			7,159			12,568			14,341
Software	685			774			1,406			1,554
Financial Services	872			788			1,695			1,564
Corporate Investments	—			172			—			348
Total segment net revenue	7,800			8,893			15,669			17,807
Elimination of intersegment net revenue and other	(355		)	(384		)	(668		)	(766		)
Total Hewlett Packard Enterprise condensed consolidated net revenue	$	7,445		$	8,509		$	15,001		$	17,041