Equity Method Investments

The Company includes investments which are accounted for using the equity method, under Investments in equity interests on the Company's Consolidated Balance Sheets. As of October 31, 2017 and October 31, 2016, the Company's Investments in equity interests were $2.5 billion and $2.6 billion, respectively, primarily related to a 49% equity interest in H3C.

Investment in H3C

In May 2016, Tsinghua Holdings’ subsidiary, Unisplendour Corporation, purchased 51% of a new business named H3C, which is comprised of Hewlett Packard Enterprise’s former H3C Technologies and China-based servers, storage and technology services businesses 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.

In the periods presented, the Company recorded its interest in the net earnings of H3C along with an adjustment to eliminate unrealized profits on intra-entity sales, and the amortization of basis difference, within Loss from equity interests in the Consolidated and Combined Statements of Earnings.

During the fourth quarter of fiscal 2017, the Company received a cash dividend of $98 million from H3C. This amount was accounted for as a return on investment and reflected as a reduction in the carrying balance of the Company's Investments in equity interests in its Consolidated Balance Sheet.

The difference between the sale date carrying value of the Company's investment in H3C and its proportionate share of the net assets of H3C, created a basis difference of $2.5 billion, which was allocated as follows:



	In millions
Equity method goodwill	$	1,674
Intangible assets	749
In-process research and development	188
Deferred tax liabilities	(152		)
Other	75
Basis difference	$	2,534

The Company amortizes the basis difference over the estimated useful lives of the assets that gave rise to this difference. The weighted-average life of the H3C intangible assets is five years and will be amortized using a straight-line method. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When the IPR&D project is complete, it is reclassified as an amortizable purchased intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned, the Company will record the full basis difference charge for the value of the related intangible asset to its Consolidated and Combined Statements of Earnings in the period of abandonment. Equity method goodwill is not amortized or tested for impairment; instead the equity method investment is tested for impairment whenever factors indicate that the carrying value of the investment may not be recoverable. As of October 31, 2017 and 2016, the Company determined that no impairment of its equity method investments existed.

The Company recorded a Loss from equity interests of $23 million and $76 million during fiscal 2017 and 2016 respectively, in the Consolidated and Combined Statement of Earnings. For fiscal 2017, Loss from equity interests consists of basis difference amortization of $155 million, partially offset by the Company's share of H3C's net income of $127 million and an adjustment related to elimination of profit on intra-entity sales and withholding taxes of $5 million. For fiscal 2016, Loss from equity interests consists of basis difference amortization of $93 million and adjustment related to elimination of profit on intra-entity sales of $15 million, partially offset by the Company's share of H3C's net income of $32 million. This loss was reflected as a reduction in the carrying amount of Investments in equity interests in the Consolidated Balance Sheets as of October 31, 2017 and 2016.

The Company also has commercial arrangements with H3C to buy and sell HPE branded servers, storage, networking and technology services. During fiscal 2017 and 2016, HPE recorded approximately $1.2 billion and $0.5 billion in sales to H3C and $331 million and $169 million in purchases from H3C, respectively. Net payables due to H3C as of October 31, 2017 and 2016 were approximately $64 million and $71 million, respectively.